<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number: 0-15895
JUNE 30, 1997
DIGITAL MICROWAVE CORPORATION
-----------------------------
(Exact name of registrant specified in its charter)
Delaware 77-0016028
- ----------------------------------- -----------
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
170 Rose Orchard Way
San Jose, CA 95134
- ------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 943-0777
--------------
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
----- -----
The number of outstanding shares of the Registrant's common stock, par value
$.01 per share, was 18,826,666 on July 31, 1997.
Page 1 of 16
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INDEX
PAGE
COVER PAGE 1
INDEX 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 14-15
SIGNATURE 16
2
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PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
ASSETS 6/30/97 03/31/97
------- --------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $11,897 $ 40,367
Short-term investments 15,114 17,947
Accounts receivable, net 52,152 44,623
Inventories 48,863 45,900
Other current assets 4,477 3,643
----- -----
Total current assets 132,503 152,480
PROPERTY AND EQUIPMENT, NET 20,702 17,726
OTHER ASSETS 15,038 --
------ -------
Total assets $ 168,243 $170,206
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit $ -- $ 2,016
Current maturities of capital lease obligations 708 681
Accounts payable 23,684 22,890
Income taxes payable 2,427 1,649
Accrued liabilities 16,837 25,284
------- -------
Total current liabilities 43,656 52,520
LONG-TERM LIABILITIES:
Capital lease obligations, net of current maturities 685 158
------- -------
Total liabilities 44,341 52,678
STOCKHOLDERS' EQUITY
Common stock and paid-in capital 122,469 121,676
Other stockholders' equity (267) (63)
Retained earnings (accumulated deficit) 1,700 (4,085)
------- -------
Total stockholders' equity 123,902 117,528
Total liabilities and stockholders' equity $ 168,243 $170,206
--------- --------
--------- --------
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
June 30,
--------
1997 1996
-------- --------
Net Sales $ 56,733 $ 36,807
Cost of sales 37,060 24,902
-------- --------
Gross profit 19,673 11,905
-------- --------
Operating expenses:
Research and development 3,482 2,461
Selling, general and administrative 10,131 7,927
-------- --------
Total operating expenses 13,613 10,388
-------- --------
Operating income 6,060 1,517
Other income (expense):
Interest income 629 59
Interest expense (104) (282)
Other expense, net (157) (46)
-------- --------
Income before provision for income taxes 6,428 1,248
Provision for income taxes 643 125
-------- --------
Net income $ 5,785 $ 1,123
-------- --------
-------- --------
Net income per share $ 0.30 $ 0.07
-------- --------
-------- --------
Weighted average number of common & common
equivalent shares outstanding 19,483 16,242
-------- --------
-------- --------
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
June 30,
--------
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 5,785 $ 1,123
Adjustments to reconcile net income to net cash
used for operating activities:
Depeciation and amortization 1,942 1,117
Provision for valuation reserves 883 783
Provision for warranty reserves 606 386
Changes in assets and liabilities, net
of affect of acquisition:
Decrease (increase) in accounts receivable (5,776) 343
Increase in inventories (1,988) (9,074)
Increase in deferred tax asset (700) --
Decrease in other current assets 55 43
Increase in accounts payable 284 3,903
Increase in income tax payable 753 --
Decrease in other accrued liabilities (10,183) (2,296)
-------- --------
Net cash used for operating activities (8,339) (3,672)
Cash flows from investing activities:
Purchases of available-for-sale securities (991) --
Proceeds from available-for-sale securities 3,823 --
Purchase of Granger, Inc., net of cash acquired (11,389) --
Investment in Granger Associates, Ltd. (4,000) --
Purchases of property and equipment (2,801) ( 746)
-------- --------
Net cash used in investing activities (15,358) (746)
Cash flows from financing activities:
Repayments to bank (2,016) (922)
Payment of capital lease obligations (247) (296)
Payment of assumed Granger, Inc. debt (3,286) --
Sale of common stock 792 668
-------- --------
Net cash used in financing activities (4,757) (550)
Effect of exchange rate changes on cash (16) (164)
-------- --------
Net increase (decrease) in cash and cash equivalents (28,470) (5,132)
Cash and cash equivalents at beginning of year 40,367 9,018
-------- --------
Cash and cash equivalents at end of period $11,897 $3,886
-------- --------
-------- --------
SUPPLEMENTAL DATA
Interest paid 113 275
Income tax paid 601 --
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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DIGITAL MICROWAVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts
of Digital Microwave Corporation and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated.
While the financial information furnished is unaudited, the financial
statements included in this report reflect all adjustments (consisting
only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the results of operations for the
interim periods covered and of the financial condition of the Company
at the date of the interim balance sheet. The results for interim
periods are not necessarily indicative of the results for the entire
year. The condensed consolidated financial statements should be read
in connection with the Digital Microwave Corporation financial
statements included in the Company's annual report and Form 10-K for
the Fiscal year ended March 31, 1997.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with an original maturity
of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market where cost includes material, labor and manufacturing overhead.
Inventories consist of:
(In thousands)
JUNE 30, 1997 MARCH 31 1997
------------- -------------
(Unaudited)
Raw materials 21,423 $ 16,594
Work in process 13,160 15,122
Finished goods 14,280 14,184
-------- --------
$ 48,863 $ 45,900
-------- --------
-------- --------
OTHER ASSETS
Included in other assets are goodwill and other intangibles which are
being amortized on a straight line basis over their useful lives
ranging from 5 to 10 years.
CURRENCY TRANSLATION
In April 1997, the Company changed the functional currency of its
subsidiaries from the U.S. dollar to the local currency of each subsidiary
except for its and Latin America subsidiaries. Accordingly, all the assets
and liabilities of these subsidiaries except for the Latin America
subsidiaries are remeasured into U.S. dollars at the current exchange rate as
of the balance sheet date. Sales and expenses are remeasured at the average
exchange rate prevailing during the period. Gains and losses resulting from
the remeasurement of the subsidiaries' financial statements are included as a
component of stockholders' equity, except for Latin America subsidiaries
which is included in the Consolidated Statement of Operations.
FINANCIAL INSTRUMENTS
In April 1997, the Company began entering into forward exchange contracts to
hedge some of its backlog and certain assets and liabilities denominated in
foreign currencies. At June 30, 1997, the Company had forward exchange
contracts to exchange various foreign currencies for U.S. dollars in the
gross amount of $26.3 million. Market value gains and losses on forward
exchange contracts are recognized as offsets to the exchange gains or losses
on the hedged transactions.
6
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NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 128 (SFAS 128),
"Earnings per Share," which is required to be adopted by the Company
in its third quarter of Fiscal 1998. At that time the Company will
be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements, primary earnings per share will be replaced with basic
earnings per share and fully diluted earnings per share will be
replaced with diluted earnings per share. Under SFAS 128, basic
earnings per share for the first quarters of Fiscal 1998 and 1997
would have been $.31 and $ .07, respectively. Diluted earnings per
share would be substantially the same as the reported primary earnings
per share.
PURCHASE OF GRANGER, INC AND INVESTMENT IN GRANGER ASSOCIATES
On May 14, 1997, the Company acquired all of the outstanding shares of
Granger, Inc., a U.S. manufacturer of wireless products and provider
of installation services. The purchase price of Granger, Inc. and the
purchase of certain rights, totaled $14.7 million. In May 1997, the
Company paid $3.3 million of Granger, Inc. debt assumed in the
acquisition. The purchase price and repayment of debt was funded with
existing cash. The acquisition has been accounted for using the
purchase method of accounting.
Accordingly, the results of Granger operations have been combined with
those of the Company since the date of acquisition. In addition, a
portion of the purchase price was allocated to the net assets acquired
based on their estimated fair values. The fair values of tangible
assets acquired and liabilities assumed were $5.8 million and $1.9
million, respectively.
Concurrent with the acquisition of Granger, Inc., the Company made a
minority investment in Granger Associates, Ltd., a privately held
company based in the United Kingdom, for $4.0 million. This minority
investment has been accounted for under the cost method of accounting.
LITIGATION AND CONTINGENCIES
The Company is subject to legal proceedings and claims that arise
in the normal course of its business. In the opinion of management,
these proceedings will not have a material adverse effect on the
financial position and results of operations of the Company.
7
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CONCENTRATION OF CREDIT RISK
Trade receivables concentrated with certain customers primarily in the
telecommunications industry and in certain geographic locations
potentially subject the Company to concentration of credit risk. In
addition to sales in Western Europe and North America, the Company
actively markets and sells products in Asia, Eastern Europe, South
America, the Middle East and Africa. The Company performs on-going
credit evaluations of its customers' financial conditions and generally
requires no collateral.
8
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of certain items
from the Company's Condensed Consolidated Statements of Operations as
percentages of net sales:
Three Months Ended
June 30,
---------------------
1997 1996
----- -----
Net sales 100.0% 100.0%
Cost of sales 65.3 67.7
----- -----
Gross profit 34.7 32.3
Research & development 6.1 6.7
Selling, general & administrative 17.9 21.5
----- -----
Operating income 10.7 4.1
Other income (expense), net 0.6 (0.7)
----- -----
Income before provision for income taxes 11.3 3.4
Provision for income taxes 1.1 0.3
----- -----
Net income 10.2% 3.1%
----- -----
Net sales for the first quarter of Fiscal 1998 were $56.7 million, compared
to $36.8 million reported in the same quarter of Fiscal 1997. The increase in
net sales was primarily due to higher product demand in all regions and an
increase in the Company's manufacturing capacity.
During the first quarter of Fiscal 1998, the Company received $71 million in
new orders shippable over the next twelve months, compared to $34 million in
the first quarter of Fiscal 1997. Twelve month backlog at June 30, 1997 was
$106 million, compared to $92 million at March 31, 1997.
The Company includes in its backlog purchase orders with respect to which a
delivery schedule has been specified for product shipment within one year.
Orders in the Companys current backlog are subject to changes in delivery
schedules or to cancellation at the option of the purchaser without
significant penalty. Accordingly, although useful for scheduling production,
backlog as of any particular date may not be a reliable measure of sales for
any future period.
Gross profit as a percentage of net sales for the first quarter of Fiscal
1998 was 34.7% compared to 32.3% in the same quarter of Fiscal 1997. The
improved margins were primarily the result of lower manufacturing expenses
due to lower component material costs and improved manufacturing efficiency.
The Company has seen its gross profit continue to improve, however, there can
be no assurance that the Company will be able to maintain its
9
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gross profit at current levels. Of particular concern is the intense
competitive price pressure of the telecommunications market, which results in
downward pricing pressure on the Company's products. SEE "FACTORS THAT MAY
AFFECT FUTURE FINANCIAL RESULTS."
Research and development expenses increased by $1.0 million, from $2.5
million in the first quarter of Fiscal 1997 to $3.5 million in the same
period in Fiscal 1998. However, as a percentage of net sales, research and
development expenses were 6.1% in the first quarter of Fiscal 1998 compared
to 6.7% in the first quarter of Fiscal 1997. The increase in research and
development expenses in absolute dollars was primarily attributable to the
Company's development of its new Altium-TM- high-capacity wireless platform
which was previewed at the Supercomm '97 trade show in New Orleans in June
1997. The Company will continue to invest in the development of new products
and features in order to maintain and enhance its competitive position and
expects research and development spending to continue to increase in Fiscal
1998.
Selling, general and administrative expenses increased to $10.1 million in
the first quarter of Fiscal 1998 from $7.9 million in the first quarter of
Fiscal 1997. However, as a percentage of net sales, selling, general and
administrative expenses were 17.9% in the first quarter of Fiscal 1998
compared to 21.5% in the comparable quarter of Fiscal 1997. The increase in
selling, general and administrative expenses in absolute dollars was mostly
attributable to higher headcount and related travel expenses as the Company
continues to increase its worldwide sales and customer support capability.
In addition, there was an increase in marketing expenses in the first quarter
of Fiscal 1998 compared to the same quarter of Fiscal 1997 due to the
Company's increased participation in trade shows.
Interest income increased to $0.6 million in the first quarter of Fiscal 1998
compared to $0.06 million in the similar quarter of Fiscal 1997. This
increase was due primarily to higher average cash balances. The decrease in
interest expense of $0.2 million in the first quarter of Fiscal 1998 was
primarily attributable to lower debt balances as compared to the same quarter
of the prior year.
The Company recorded an income tax provision in the first quarter of Fiscal
1998 and 1997 at an effective rate of 10%. This was less than the statutory
rate primarily due to the utilization of net operating loss carry forwards
and the deferred tax asset originated from warranty and asset valuation
reserves. The Company expects, assuming continued operating profitability,
that the effective tax rate will reflect a benefit in future periods as the
Company continues to utilize its deferred tax asset.
10
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FACTORS THAT MAY AFFECT FUTURE FINANCIAL RESULTS
The statements in this Form 10-Q concerning the Company's expenses, revenue,
liquidity and cash needs contain forward-looking statements concerning the
Company's future operations and financial results within the meaning of 27A
of the Securities Act and section 21E of the Exchange Act. These
forward-looking statements are based on current expectations and the Company
assumes no obligation to update this information. Numerous factors, such as
economic and competitive conditions, timing and volume of incoming orders,
shipment volumes, product margins, and foreign exchange rates, could cause
actual results to differ materially from those described in these statements,
and prospective investors and stockholders should carefully consider the
factors set forth below in evaluating these forward-looking statements.
Sales of the Company's products are concentrated in a small number of
customers. For the first quarter of Fiscal 1998, the top three customers
accounted for 30% of the net sales. As of June 30, 1997, three of the
Company's customers accounted for 28% of the backlog. The worldwide
telecommunications industry is dominated by a small number of large
corporations, and the Company expects that a significant portion of its
future product sales will continue to be concentrated in a limited number of
customers. The loss of any existing customer, a significant reduction in the
level of sales to any existing customer, or the failure of the Company to
gain additional customers could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, a substantial portion of shipments may occur near the end of each
quarter. Accordingly, the Company's results are difficult to predict and
delays in product delivery or closing of a sale can cause revenues and net
income to fluctuate significantly from anticipated levels and from quarter to
quarter.
Manufacturers of digital microwave telecommunications equipment are
experiencing, and are likely to continue to experience, intense price
pressure which has resulted, and is expected to continue to result, in
downward pricing pressure on the Company's products. As a result, the
Company has experienced, and expects to continue to experience, declining
average sales prices for its products. The Company's ability to maintain its
gross profit margins is dependent upon its ability to continue to improve
manufacturing efficiencies, lower material costs of products, and introduce
new products and product enhancements.
The markets for the Company's products are extremely competitive, and the
Company expects that competition will increase. The Company's existing and
potential competitors include established and emerging companies, such as
California Microwave, L.M. Ericsson, Siemens AG, Farinon Division of Harris
Corporation, P-COM, Alcatel, Nokia, NERA, NEC, and SIAE, many of which have
more extensive engineering, manufacturing, and marketing capabilities and
significantly greater financial, technical, and personnel resources than the
Company. The Company believes that its ability to compete successfully will
depend on a number of factors, including customer service and support,
breadth of product line, product performance and features, rapid delivery,
reliability, timing of new product introductions by the Company, its
customers and its competitors, and the ability of its customers to obtain
financing.
11
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The Company expects that international sales will continue to account for the
majority of its net product sales for the foreseeable future. As a result,
the Company is subject to the risks of doing business internationally,
including unexpected changes in regulatory requirements, fluctuations in
foreign currency exchange rates, imposition of tariffs and other barriers and
restrictions, the burdens of complying with a variety of foreign laws, and
general economic and geopolitical conditions, including inflation and trade
relationships.
The Company's manufacturing operations are highly dependent upon the delivery
of materials by outside suppliers in a timely manner. In addition, the
Company depends in part upon subcontractors to assemble major components and
subsystems used in its products in a timely and satisfactory manner. From
time to time the Company has experienced delivery delays from key suppliers,
which impacted sales. There can be no assurance that the Company will not
experience material supply problems or component or subsystem delays in the
future.
The Company has pursued, and will continue to pursue, growth opportunities
through internal development and acquisitions of complementary business and
technologies. Acquisitions may involve difficulties in the retention of
personnel, diversion of management's attention, unexpected legal liabilities,
and tax and accounting issues. There can be no assurance that the Company
will be able to successfully identify suitable acquisition candidates,
complete acquisitions, integrate acquired businesses into its operations, or
expand into new markets. Once integrated, acquired businesses may not
achieve comparable levels of revenues, profitability, or productivity as the
existing business of the Company or otherwise perform as expected.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operating activities in the first quarter of Fiscal 1998
was $8.3 million, compared to net cash used for operating activities of $3.7
million in the first quarter of Fiscal 1997. Increases in accounts receivable
and inventory and decreases in other accrued liabilities during the first
quarter of 1998 resulted in the unfavorable cash flow from operations.
Accounts receivable increased due to the timing of shipments as a higher
percentage of the quarter's shipments occurred in the last month of the
quarter. Inventories increased primarily as a result of increases in
inventory purchases in anticipation of a higher volume of shipments. Other
accrued liabilities decreased primarily due to a decrease in customer
deposits.
In May 1997, the Company completed the acquisition of Granger, Inc. for total
consideration of $14.7 million and purchased a minority interest in Granger
Associates, Ltd., a UK company, for $4.0 million. At June 30, 1997, other
assets included the minority interest mentioned above and the excess of cost
over net assets acquired (goodwill), net of accumulated amortization of $10.8
million related to the acquisition of Granger, Inc. Other changes to cash
from investing activities during the first quarter of Fiscal 1998 included
the sale of some short-term investments to fund operations and an increase in
property plant and equipment of $2.8 million primarily due to purchases of
additional test equipment as a result of the higher sales volume and
purchases of equipment for the increased headcount.
12
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At June 30, 1997, the Company's principal sources of liquidity
consisted of $27.0 million in cash and cash equivalents and short-term
investments and a revolving bank credit facility that provides up to
$20.0 million in credit, of which $19.8 million was available. This
credit facility expires in June 1998.
The Company's lines of credit requires the Company to meet certain
financial covenants, including minimum liquidity, tangible net worth
and profitability requirements. As of June 30, 1997, the Company was
in compliance with the covenants.
The Company believes that the liquidity provided by existing cash
balances, anticipated future cash flows from operations, and the
Company's existing borrowing arrangements will be sufficient to meet
both working capital and capital expenditure requirements through
Fiscal 1998.
13
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
For a list of exhibits to this Form 10-Q, see the exhibit index located on
page 15.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three-month
period ended June 30, 1997.
14
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File
No. 33-13431)).
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended March
31, 1993).
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit
4.1 to the Companys Annual Report on Form 10-K for the year ended March
31, 1988).
4.2 Rights Agreement dated as of October 24, 1991, between the Company and
Manufacturers Hanover Trust Company of California, including the
Certificate of Designations for the Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 1 of the
Company's Current Report on 8-K filed on November 5, 1991).
10.1 Credit Agreement dated as of June 30, 1997, by and between Digital
Microwave Corporation and Bank of America National Trust and Savings
Association.
10.2 Lease, dated April 5, 1995, by and between Metropolitan Life Insurance
Company and Digital Microwave Corporation, relating to 180 Rose Orchard
Way, San Jose, California.
11.1 Statement Re: Computation of per share earnings.
27.1 Financial data schedule.
15
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DIGITAL MICROWAVE CORPORATION
Date: August 8, 1997 By /s/ CARL A. THOMSEN
-----------------------------
Carl A. Thomsen
Vice President, Chief Financial Officer and Secretary
16
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
DATED AS OF JUNE 30, 1997
BETWEEN
DIGITAL MICROWAVE CORPORATION
AND
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
Definitions and Financial Requirements . . . . . . . . . . . . 1
1.01 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Financial Requirements . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II
The Credit Facilities. . . . . . . . . . . . . . . . . . . . . 7
2.01 The Revolving Facility . . . . . . . . . . . . . . . . . . . . . . 7
2.02 Dollar Advances Under the Revolving Facility . . . . . . . . . . . 8
2.03 Conversion and Continuation Elections. . . . . . . . . . . . . . . 9
2.04 Commercial Letters of Credit under the Revolving Facility. . . . . 10
2.05 Standby Letters of Credit Under the Revolving Facility . . . . . . 11
2.06 Local Currency Advances. . . . . . . . . . . . . . . . . . . . . . 12
2.07 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 13
2.08 Mandatory Payment. . . . . . . . . . . . . . . . . . . . . . . . . 13
2.09 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 13
2.10 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.11 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.12 Early Termination of Commitment. . . . . . . . . . . . . . . . . . 13
ARTICLE III
Extensions of Credit, Payments and Interest Calculations . . . 14
3.01 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 14
3.02 Disbursements and Payments . . . . . . . . . . . . . . . . . . . . 14
3.03 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 14
3.04 Evidence of Indebtedness . . . . . . . . . . . . . . . . . . . . . 14
3.05 Interest Calculation . . . . . . . . . . . . . . . . . . . . . . . 14
3.06 Late Payments; Compounding . . . . . . . . . . . . . . . . . . . . 14
3.07 Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.08 Taxes and Other Charges. . . . . . . . . . . . . . . . . . . . . . 15
3.09 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.10 Increased Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.11 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.12 Inability to Determine Rates . . . . . . . . . . . . . . . . . . . 18
3.13 Certificate of the Bank. . . . . . . . . . . . . . . . . . . . . . 18
3.14 Survival. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . 18
ARTICLE IV
Conditions to Availability of Credit . . . . . . . . . . . . . 18
4.01 Conditions to First Extension of Credit. . . . . . . . . . . . . . 18
4.02 Conditions to Each Extension of Credit . . . . . . . . . . . . . . 19
i
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Section Page
ARTICLE V
Representations and Warranties . . . . . . . . . . . . . . . . 19
5.01 Corporate Existence and Power. . . . . . . . . . . . . . . . . . . 19
5.02 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.03 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.04 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 20
5.05 Permits, Franchises. . . . . . . . . . . . . . . . . . . . . . . . 20
5.06 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.07 No Event of Default. . . . . . . . . . . . . . . . . . . . . . . . 21
5.08 Other Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 21
5.09 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.10 Information Submitted. . . . . . . . . . . . . . . . . . . . . . . 21
5.11 No Material Adverse Effect . . . . . . . . . . . . . . . . . . . . 21
5.12 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . 22
5.14 Swap Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VI
Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . 22
6.01 Notices of Certain Events. . . . . . . . . . . . . . . . . . . . . 22
6.02 Financial and Other Information. . . . . . . . . . . . . . . . . . 23
6.03 Books, Records, Audits and Inspections . . . . . . . . . . . . . . 23
6.04 Use of Facility. . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.05 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.06 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 24
6.07 Change in Name, Structure or Location. . . . . . . . . . . . . . . 24
6.08 Existence and Properties . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE VII
Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 25
7.01 Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 25
7.02 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.03 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 26
7.04 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 26
7.05 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 26
7.06 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.07 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.08 Liquidations and Mergers . . . . . . . . . . . . . . . . . . . . . 27
7.09 Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.10 Business Activities. . . . . . . . . . . . . . . . . . . . . . . . 28
7.11 Regulations G, T, U, and X . . . . . . . . . . . . . . . . . . . . 28
7.12 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . 28
7.13 Quick Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.14 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . 28
7.15 Total Liabilities to Tangible Net Worth. . . . . . . . . . . . . . 28
7.16 Consecutive Quarterly Losses; Losses in One Quarter. . . . . . . . 28
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Section Page
ARTICLE VIII
Events of Default. . . . . . . . . . . . . . . . . . . . . . . 29
8.01 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Failure to Pay . . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Breach of Representation or Warranty . . . . . . . . . . . . . 29
(c) Specific Defaults. . . . . . . . . . . . . . . . . . . . . . . 29
(d) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . 29
(e) Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(f) Failure to Pay Debts; Voluntary Bankruptcy . . . . . . . . . . 29
(g) Involuntary Bankruptcy . . . . . . . . . . . . . . . . . . . . 30
(h) Default of Other Financial Obligations . . . . . . . . . . . . 30
(i) Default of Other Bank Obligations. . . . . . . . . . . . . . . 30
(j) Material Adverse Effect. . . . . . . . . . . . . . . . . . . . 30
(k) ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(l) Change of Control. . . . . . . . . . . . . . . . . . . . . . . 31
8.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IX
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . 32
9.01 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 32
9.02 Consents and Waivers . . . . . . . . . . . . . . . . . . . . . . . 32
9.03 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.04 Costs and Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . 32
9.05 Integration; Amendment . . . . . . . . . . . . . . . . . . . . . . 33
9.06 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.07 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.08 General Indemnification. . . . . . . . . . . . . . . . . . . . . . 34
9.09 Arbitration; Reference Proceeding. . . . . . . . . . . . . . . . . 35
9.10 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.11 Headings; Interpretation . . . . . . . . . . . . . . . . . . . . . 36
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.14 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . 37
Schedules
Schedule 7.01 Existing Indebtedness
Schedule 7.02 Existing Liens
Exhibits
Exhibit A Form of Compliance Certificate
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Notice of Conversion/Continuation
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "AGREEMENT") is entered into as of
June 30, 1997, between DIGITAL MICROWAVE CORPORATION (the "BORROWER"), and BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "BANK").
In consideration of the mutual covenants and agreements contained
herein, the Borrower and the Bank agree as follows:
ARTICLE I
DEFINITIONS AND FINANCIAL REQUIREMENTS.
1.01 DEFINITIONS. The following terms (including plural and singular
versions thereof) have the meanings indicated:
"ACCEPTABLE SUBSIDIARY": a Subsidiary of the Borrower acceptable to the
Bank in its sole discretion that (a) is specified as a "Borrower" on a
continuing guaranty executed by the Borrower in form and substance satisfactory
to the Bank, and (b) has executed such credit and related documentation with and
in favor of the Bank as the Bank may request.
"ADVANCE": an advance hereunder.
"AFFILIATE": means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"AVAILABILITY PERIOD": the period commencing on the date of this Agreement
and ending on the date that is the earlier to occur of (a) June 30, 1998 and (b)
the date on which the Bank's commitment to extend credit hereunder terminates.
"BUSINESS DAY": any day other than a Saturday, a Sunday, or other day on
which commercial banks in San Francisco, California, are authorized or required
by law to close and, if the applicable Business Day relates to any Offshore Rate
Advance, means such a day on which dealings are carried on in the applicable
offshore interbank market.
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"CAPITAL ADEQUACY REGULATION" means any guideline, request or directive of
any central bank or other governmental authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"CLOSING DATE": the date on which all conditions to the initial extension
of credit hereunder are satisfied.
"CODE": the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder as from time to time in effect.
"COMPLIANCE CERTIFICATE": a compliance certificate in the form of EXHIBIT
A.
"CONTINUING GUARANTY": a continuing guaranty in form and substance
satisfactory to the Bank which has been executed by the Borrower and which
guarantees the payment and performance of all obligations under the Credit
Documents of one or more Acceptable Subsidiaries.
"CREDIT DOCUMENTS": collectively, this Agreement and each other agreement,
documents and instrument, including any Continuing Guaranty, now or hereafter
delivered to the Bank (including any Offshore Credit Provider) in connection
with the credits established herein and the transactions contemplated hereby.
"CREDIT LIMIT": the amount $20,000,000.
"DEFAULT": any event or circumstance which, with the giving of notice, the
lapse of time, or both, would (if not cured or otherwise remedied during such
time) constitute an Event of Default.
"DOLLARS", "DOLLARS" and "$": each, lawful money of the United States.
"DOLLAR ADVANCES": specified in subsection 2.01(b).
"ENVIRONMENTAL LAWS": any foreign, federal, state, local, or municipal
laws, rules, orders, regulations, statutes, ordinances, codes, decrees,
requirements of any governmental authority, any and all requirements of law and
any and all common law requirements, rules, and bases of liability regulating,
relating to, or imposing liability or standards of conduct concerning pollution
or protection of human health or the environment or Hazardous Substances or any
activity involving Hazardous Substances, as now or may at any time hereafter may
be in effect.
"EQUIVALENT AMOUNT": (a) whenever this Agreement requires or permits a
determination on any date of the equivalent in dollars of an amount expressed in
a currency other than dollars, the
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equivalent amount in dollars of any amount expressed in a currency other than
dollars as determined by the Bank on such date on the basis of the Spot Rate
for the purchase of dollars with such other currency on the relevant date; or
(b) whenever this Agreement requires or permits a determination on any date
of the equivalent in a currency other than dollars of an amount expressed in
dollars, the equivalent amount in a currency other than dollars of an amount
expressed in dollars as determined by the Bank on such date on the basis of
the Spot Rate for the purchase of such other currency with dollars on the
relevant date.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder as from time to time in
effect.
"ERISA EVENT": (a) a Reportable Event with respect to a Pension Plan;
(b) a withdrawal by the Borrower from a Pension Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial employer (as defined in
Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as
such a withdrawal under Section 4062(e) of ERISA; (c) the filing of a notice of
intent to terminate, the treatment of a plan amendment as a termination under
Section 4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to
terminate a Pension Plan subject to Title IV of ERISA; (d) a failure by the
Borrower to make required contributions to a Pension Plan or other Plan subject
to Section 412 of the Code; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan; (f) the
imposition of any liability under Title IV of ERISA, other than PBGC premiums
due but not delinquent under Section 4007 of ERISA, upon the Borrower; or (g) an
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code with respect to any Pension Plan.
"EVENT OF DEFAULT": any event listed in Article VIII of this Agreement.
"FDIC": the Federal Deposit Insurance Corporation, or any entity
succeeding to any of its principal functions.
"FINAL MATURITY DATE": (a) in respect of any Advances, June 30, 1998; (b)
in respect of any commercial letters of credit, December 31, 1998; and (c) in
respect of any standby letters of credit, June 30, 1999.
"FLOATING RATE": specified in subsection 2.02(a).
"FRB": the Board of Governors of the Federal Reserve System, or any entity
succeeding to any of its principal functions.
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"HAZARDOUS SUBSTANCE": any hazardous or toxic substance, material,
pollutant, waste or similar designation, defined, listed, classified, or
regulated as such in or under any Environmental Laws, including asbestos,
petroleum, or petroleum products (including gasoline, crude oil, or any fraction
thereof), polychlorinated biphenyls, and urea-formaldehyde insulation.
"IRS": the Internal Revenue Service or any entity succeeding to any of its
principal functions under the Code.
"L/C OUTSTANDING AMOUNT": at any time, the undrawn amount at such time of
any letter of credit issued hereunder, plus the amount of all drafts or drawings
paid or accepted by the Bank which have not yet been reimbursed to the Bank,
plus any other obligation or liability of the Borrower or any Acceptable
Subsidiary to the Bank with respect to any letter of credit issued under this
Agreement.
"LOCAL CURRENCY": specified in subsection 2.01(b).
"LOCAL CURRENCY ADVANCE": specified in subsection 2.01(b).
"MATERIAL ADVERSE EFFECT": (a) a material adverse change in, or a material
adverse effect upon, the operations, business, properties, or condition
(financial or otherwise) of the Borrower or the Borrower and its Subsidiaries
taken as a whole; (b) a material impairment of the ability of the Borrower or
any Acceptable Subsidiary to perform under any Credit Document; or (c) a
material adverse effect upon the legality, validity, binding effect or
enforceability of any Credit Document.
"NOTICE OF BORROWING" means a notice in substantially the form of
EXHIBIT B.
"NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially the
form of EXHIBIT C.
"OFFSHORE CREDIT PROVIDER": a foreign office, foreign branch or foreign
affiliate of the Bank, acceptable to the Bank.
"OFFSHORE RATE": for each Offshore Rate Interest Period, the rate of
interest (rounded upward to the next 1/16th of 1%) determined pursuant to the
following formula:
Offered Rate
Offshore Rate = ------------------------------------
1.00 - Eurodollar Reserve Percentage
Where:
OFFERED RATE" means the rate of interest at which
deposits in the applicable currency in the approximate
amount of the Offshore Rate Advance to be made and having
a maturity comparable to such Offshore Rate Interest Period
would be offered by the Bank's London
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Branch (or such other office as may be designated for such
purpose by the Bank) to major banks in the London interbank
market upon request of such banks at approximately 11:00 a.m.
(London, England time) two Business Days prior to the first
day of such Offshore Rate Interest Period.
"EURODOLLAR RESERVE PERCENTAGE" means, for any Offshore
Rate Interest Period, the maximum reserve percentage (expressed
as a decimal, rounded upward to the next 1/100th of 1%) in
effect on the first day of such Offshore Rate Interest Period
(whether or not applicable to the Bank) under regulations
issued from time to time by the FRB for determining the maximum
reserve requirement (including any emergency, supplemental or
other marginal reserve requirement) with respect to
Eurocurrency funding (currently referred to as "Eurocurrency
liabilities") having a term comparable to such Offshore Rate
Interest Period.
"OFFSHORE RATE ADVANCE": an Advance for which interest is based on the
Offshore Rate.
"OFFSHORE RATE INTEREST PERIOD": for each Offshore Rate Advance the
period commencing on the date the Offshore Rate Advance begins to bear
interest at a rate based on the Offshore Rate and ending one, two, three, or
six months thereafter, as requested by the Borrower; provided, however, that
the last day of each Offshore Rate Interest Period shall be determined in
accordance with the practices of the applicable offshore interbank markets as
from time to time in effect, and provided further that no such interest
period shall extend beyond the Final Maturity Date.
"PBGC": the Pension Benefit Guaranty Corporation or any entity succeeding
to any of its principal functions under ERISA.
"PENSION PLAN": a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA which the Borrower sponsors, maintains, or to which
it makes, is making, or is obligated to make contributions, or in the case of
a multiple employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five plan years.
"PERMITTED SWAP OBLIGATIONS": all obligations (contingent or otherwise)
of the Borrower or any Subsidiary existing or arising under Swap Contracts,
provided that each of the following criteria is satisfied: (a) such
obligations are (or were) entered into by such Person in the ordinary course
of business for the purpose of directly mitigating risks associated with
liabilities, commitments or assets held by such Person, or changes in the
value of securities issued by such Person in conjunction with a securities
repurchase program not otherwise
5
<PAGE>
prohibited hereunder, and not for purposes of speculation or taking a "market
view;" and (b) such Swap Contracts do not contain (i) any provision
("walk-away" provision) exonerating the non-defaulting party from its
obligation to make payments on outstanding transactions to the defaulting
party or (ii) except in the case of a swap contract with the Bank or an
affiliate of the Bank, any provision creating or permitting the declaration
of an event of default, termination event or similar event upon the
occurrence of an Event of Default hereunder (other than an Event of Default
under subsection 8.01(a)).
"PERSON": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture or governmental authority.
"PLAN": an employee benefit plan (as defined in Section 3(3) of ERISA)
which the Borrower sponsors or maintains or to which the Borrower makes, is
making, or is obligated to make contributions and includes any Pension Plan.
"REFERENCE RATE": for any day, the rate of interest in effect for such
day as publicly announced from time to time by the Bank in San Francisco,
California, as its "reference rate." It is a rate set by the Bank based upon
various factors including the Bank's costs and desired return, general
economic conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above, or below such announced
rate. Any change in the Reference Rate announced by the Bank shall take
effect at the opening of business on the day specified in the public
announcement of such change.
"REFERENCE RATE ADVANCE": an Advance that bears interest based on the
Reference Rate.
"REPORTABLE EVENT": any of the events set forth in Section 4043(c) of
ERISA or the regulations thereunder, other than any such event for which the
30-day notice requirement under ERISA has been waived in regulations issued
by the PBGC.
"REVOLVING FACILITY": the line of credit described in Section 2.01.
"SPOT RATE": for a currency, the rate quoted by the Bank as the spot
rate for the purchase by the Bank of such currency with another currency
through its Foreign Exchange Trading Center #5193, San Francisco, California,
or such other of the Bank's offices as it may designate from time to time, at
approximately 8:00 a.m. (San Francisco time) on the date two Business Days
prior to the date as of which the foreign exchange computation is made.
"SWAP CONTRACT": any agreement, whether or not in writing, relating to
any transaction that is a rate swap, basis swap,
6
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forward rate transaction, commodity swap, commodity option, equity or equity
index swap or option, bond, note or bill option, interest rate option,
forward foreign exchange transaction, cap, collar or floor transaction,
currency swap, cross-currency rate swap, swaption, currency option or any
other, similar transaction (including any option to enter into any of the
foregoing) or any combination of the foregoing, and, unless the context
otherwise clearly requires, any master agreement relating to or governing any
or all of the foregoing.
"SUBSIDIARY": of the Borrower, any corporation, association,
partnership, joint venture, or other business entity of which more than 50%
of the voting stock or other equity interests (in the case of entities other
than corporations), is owned or controlled directly or indirectly by the
Borrower or one or more Subsidiaries of the Borrower or a combination thereof.
"TANGIBLE NET WORTH": the gross book value of the assets of the Borrower
and its Subsidiaries on a consolidated basis (exclusive of goodwill, patents,
trademarks, trade names, organization expense, treasury stock, unamortized
debt discount and expense, deferred charges, and other like intangibles and
monies due from Affiliates other than Subsidiaries of the Borrower, officers,
directors, or shareholders of the Borrower) less (a) reserves applicable
thereto, and (b) all liabilities (including accrued and deferred income taxes).
"UNFUNDED PENSION LIABILITY": the excess of a Plan's benefit liabilities
under Section 4001(a)(16) of ERISA, over the current value of that Plan's
assets, determined in accordance with the assumptions used for funding the
Pension Plan pursuant to Section 412 of the Code for the applicable plan year.
1.02 FINANCIAL REQUIREMENTS. Unless otherwise specified in this
Agreement, all accounting terms used in this Agreement shall be interpreted,
all financial computations required under this Agreement shall be made, and
all financial information required under this Agreement shall be prepared, in
accordance with generally accepted accounting principles in effect from time
to time in the United States, consistently applied.
ARTICLE II
THE CREDIT FACILITIES
2.01 THE REVOLVING FACILITY. (a) From time to time during the
Availability Period, subject to the terms and provisions hereof, the Bank, on
a revolving basis, will (i) make Advances to the Borrower or an Acceptable
Subsidiary (iii) create and issue commercial and standby letters of credit
for the Borrower's or an Acceptable Subsidiary's account.
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(b) Advances hereunder may be made in (i) dollars ("DOLLAR
ADVANCES"), or (ii) in a lawful currency other than dollars which is
available at a branch or affiliate of the Bank located in a country other
than the United States and is the legal tender of that country where the
branch or affiliate is located (a "LOCAL CURRENCY") ("LOCAL CURRENCY
ADVANCES").
(c) The aggregate dollar Equivalent Amount of (i) all Advances, and
(ii) the L/C Outstanding Amount of all letters of credit may not exceed at
any one time the Credit Limit.
(d) The aggregate dollar Equivalent Amount of the L/C Outstanding
Amounts in respect of both commercial and standby letters of credit may not
exceed at any time $5,000,000.
2.02 DOLLAR ADVANCES UNDER THE REVOLVING FACILITY. (a) Subject to the
other provisions of this Section, Dollar Advances under the Revolving
Facility shall bear interest at a rate per annum equal to the Reference Rate
(the Reference Rate is sometimes referred to herein as the "FLOATING RATE").
The Borrower or an Acceptable Subsidiary shall request Floating Rate Advances
(i) by giving irrevocable written notice in the form of a Notice of Borrowing
or (ii) by giving irrevocable oral notice by telephone in accordance with
Section 9.10 followed promptly by facsimile confirmation in the form of a
Notice of Borrowing; prior to 9:00 a.m. San Francisco time on the requested
date of the Advance. The Borrower shall pay or cause the applicable
Acceptable Subsidiary to pay interest quarterly, on the last day of each
calendar quarter until the Final Maturity Date, on which date all accrued and
unpaid interest shall be due and payable. The Borrower shall repay or cause
the applicable Acceptable Subsidiary to repay the principal amount of each
Reference Rate Advance on the Final Maturity date and on the date such
advance is converted into an Offshore Rate Advance under subsection (b) below.
(b) In lieu of the Floating Rate, the Borrower or the applicable
Acceptable Subsidiary may elect during the Availability Period to have all or
portions of Advances under the Revolving Facility bear interest at the
Offshore Rate plus 1.0% per annum during an Offshore Rate Interest Period,
subject to the following requirements:
(i) Each Offshore Rate Advance shall be for an amount not
less than $250,000 and multiples of $50,000 in excess thereof.
(ii) The Borrower shall pay or shall cause the applicable
Acceptable Subsidiary to pay interest on each Offshore Rate Advance on
the last day of the Offshore Rate Interest Period for such Advance;
PROVIDED, HOWEVER, that if any Interest Period for an Offshore Rate
Advance exceeds three months, interest shall also be payable on the date
which falls three months after the beginning of such
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Interest Period and on each date which falls three months after any such
interest payment date. The Borrower shall repay or shall cause the
applicable Acceptable Subsidiary to repay the principal balance of each
Offshore Rate Advance on the last day of the Offshore Rate Interest
Period for such Advance, and (if sooner occurring) on the Final Maturity
Date.
(iii) Any payment of an Offshore Rate Advance prior to
the last day of the Offshore Rate Interest Period for such Advance,
whether voluntary, by reason of acceleration or otherwise, including any
mandatory payments required under this Agreement and applied by the Bank
to an Offshore Rate Advance, shall be accompanied by the amount of
accrued interest on the amount repaid and by the amount (if any)
required by Section 3.11.
The Borrower or an Acceptable Subsidiary shall request Offshore Rate
Advances by giving irrevocable written notice in the form of a Notice of
Borrowing prior to 9:00 a.m. San Francisco time three Business Days prior to
the requested date of the Advance.
2.03 CONVERSION AND CONTINUATION ELECTIONS. (a) The Borrower or an
Acceptable Subsidiary may, upon irrevocable written notice in the form of a
Notice of Conversion/Continuation.
(i) elect, as of any Business Day, in the case of
Floating Rate Advances, or as of the last day of the applicable Offshore
Rate Interest Period, in the case of any Offshore Rate Advance, to
convert any such Advances (or any part thereof in an amount not less
than $250,000, or that is in an integral multiple of $50,000 in excess
thereof) into Advances of the other type; or
(ii) elect, as of the last day of the applicable Offshore
Rate Interest Period, to continue any Offshore Rate Advance having
Interest Periods expiring on such day (or any part thereof in an amount
not less than $250,000 or that is in an integral multiple of $50,000 in
excess thereof);
PROVIDED, that if at any time the aggregate amount of Offshore Rate Advances
is reduced, by payment, prepayment, or conversion of part thereof to be less
than $250,000, such Offshore Rate Advances shall automatically convert into
Floating Rate Advances, and on and after such date the right of the Borrower
or an Acceptable Subsidiary to continue such Advances as, and convert such
Advances into, Offshore Rate Advances shall terminate.
(b) The Borrower or an Acceptable Subsidiary shall deliver a Notice
of Conversion/Continuation to be received by the Agent not later than 9:00
a.m. San Francisco time at least
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(i) three Business Days in advance of the Conversion/Continuation Date, if
the Advances are to be converted into or continued as Offshore Rate Advances;
and (ii) on or before the Conversion/Continuation Date, if the Advances are
to be converted into Floating Rate Loans.
(c) If upon the expiration of any Offshore Rate Interest Period,
the Borrower or an Acceptable Subsidiary has failed to select timely a new
Offshore Rate Interest Period to be applicable to such Offshore Rate
Advances, or if any Default or Event of Default then exists, the Borrower or
an Acceptable Subsidiary shall be deemed to have elected to convert such
Offshore Rate Advances into Floating Rate Advances effective as of the
expiration date of such Offshore Rate Interest Period.
2.04 COMMERCIAL LETTERS OF CREDIT UNDER THE REVOLVING FACILITY. (a)
Each commercial letter of credit shall be issued pursuant to the terms and
conditions hereof and of a Bank standard form Application and Security
Agreement for Commercial Letter of Credit (or such other form as the Bank may
require) executed by the Borrower or an Acceptable Subsidiary.
(b) Each commercial letter of credit shall:
(i) expire on or before six months after the date such
letter of credit is issued, but in no event later than the Final
Maturity Date;
(ii) require drafts payable in dollars at sight;
(iii) be in favor of beneficiaries and for purposes not
prohibited by any law or regulation; and
(iv) be otherwise in form and substance satisfactory to
the Bank.
(c) The Borrower shall pay or cause the applicable Acceptable
Subsidiary to pay to the Bank an issuance fee of .125% of the face amount,
and a negotiation fee of .125% of the face amount, and such other standard
fees and commissions charged to Bank customers at the times and in the
amounts the Bank advises the Borrower from time to time as being applicable
to the Borrower's or the Acceptable Subsidiary's commercial letters of credit.
(d) In the event of any request for a drawing under a commercial
letter of credit, the Bank will notify the Borrower. The Borrower or the
applicable Acceptable Subsidiary may, subject to satisfaction of all
conditions to borrowing set forth in this Agreement, convert the amount of
each drawing into a Reference Rate Advance (which conversion shall be deemed
to be a new Advance). With respect to any unreimbursed drawing which is not
converted into a Reference Rate Advance in whole or in part, because of the
Borrower's failure to satisfy the conditions set
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forth in Section 4.02 or for any other reason, the Borrower shall reimburse
or cause the applicable Acceptable Subsidiary to reimburse the Bank prior to
11:00 a.m. (San Francisco time), on each date that any amount is paid by the
Bank under any commercial letter of credit, in an amount equal to the amount
so paid by the Bank. Such reimbursement obligations in respect of drawings,
if not paid when due, shall bear interest, payable on demand, from the date
of such drawing or payment, at the Floating Rate plus 2.0%.
(e) At the expiration of the Availability Period, the Bank may
require the Borrower to provide or cause the applicable Acceptable Subsidiary
to provide cash collateral in the amount of the L/C Outstanding Amount of any
commercial letters of credit outstanding under this Agreement. In addition
to any other rights or remedies which the Bank may have under this Agreement
or otherwise, upon the occurrence of an Event of Default, the Bank may
require the Borrower to provide or cause the applicable Acceptable Subsidiary
to provide cash collateral in the amount of the L/C Outstanding Amount of any
commercial letters of credit outstanding under this Agreement.
2.05 STANDBY LETTERS OF CREDIT UNDER THE REVOLVING FACILITY. (a) Each
standby letter of credit shall be issued pursuant to the terms and conditions
hereof and of a Bank standard form Application and Agreement for Standby
Letter of Credit (or such other form as the Bank may require) executed by the
Borrower or an Acceptable Subsidiary.
(b) Each standby letter of credit shall: (i) expire on or before
one year after the date such letter of credit is issued, but in no event
later than the Final Maturity Date; (ii) be in favor of beneficiaries and for
purposes not prohibited by any law or regulation; and (iii) be otherwise in
form and substance satisfactory to the Bank.
(c) The Borrower shall pay or cause the applicable Acceptable
Subsidiary to pay to the Bank a non-refundable fee equal to 1.0% per annum of
the outstanding undrawn amount of each financial standby letter of credit and
.50% per annum of the outstanding undrawn amount of each performance standby
letter of credit payable quarterly in advance, and calculated on the basis of
the face amount outstanding on the day the fee is calculated. However, if an
Event of Default exists, at the option of the Bank, the amount of the fee
shall be increased to 2.0% per annum, commencing on the day the Bank provides
notice of the increase to the Borrower. The Borrower shall also pay or cause
the applicable Acceptable Subsidiary to pay the standard fees and commissions
charged to Bank customers at the times and in the amounts the Bank advises
the Borrower from time to time as being applicable to the Borrower's or the
Acceptable Subsidiary's standby letters of credit.
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(d) In the event of any request for a drawing under a standby
letter of credit, the Bank will notify the Borrower. The Borrower or the
applicable Acceptable Subsidiary may, subject to satisfaction of all
conditions to borrowing set forth in this Agreement, convert the amount of
each drawing into a Reference Rate Advance (which conversion shall be deemed
to be a new Advance). With respect to any unreimbursed drawing which is not
converted into a Reference Rate Advance in whole or in part, because of the
Borrower's failure to satisfy the conditions set forth in Section 4.02 or for
any other reason, the Borrower shall reimburse or cause the applicable
Acceptable Subsidiary to reimburse the Bank prior to 11:00 a.m. (San
Francisco time), on each date that any amount is paid by the Bank under any
standby letter of credit, in an amount equal to the amount so paid by the
Bank. Such reimbursement obligations in respect of drawings, if not paid
when due, shall bear interest, payable on demand, from the date of such
drawing or payment, at the Floating Rate plus 2.0%.
(e) At the expiration of the Availability Period, the Bank may
require the Borrower to provide or cause the applicable Acceptable Subsidiary
to provide cash collateral in the amount of the L/C Outstanding Amount of any
standby letters of credit outstanding under this Agreement. In addition to
any other rights or remedies which the Bank may have under this Agreement or
otherwise, upon the occurrence of an Event of Default, the Bank may require
the Borrower to provide or cause the applicable Acceptable Subsidiary to
provide cash collateral in the amount of the L/C Outstanding Amount of any
standby letters of credit outstanding under this Agreement.
2.06 LOCAL CURRENCY ADVANCES. (a) From time to time during the
Availability Period, the Borrower or an Acceptable Subsidiary may request by
giving written notice in the form of a Notice of Borrowing the Bank or any
Offshore Credit Provider may, in its sole discretion, make Local Currency
Advances to the Borrower or to an Acceptable Subsidiary.
(b) Neither the Bank nor any Offshore Credit Provider shall have
any obligation to make any Local Currency Advance unless the following
conditions are satisfied:
(i) the Bank and the Borrower or the relevant Acceptable
Subsidiary agree, at the time of Borrower's or such Acceptable Subsidiary's
request for a Local Currency Advance, on the currency, the amount, the date
of the Advance, the principal payment date(s), the interest rate and payment
date(s), the prepayment and overdue payment terms, and the reserve, tax and
other material provisions for such Advance; and
(ii) The Borrower or such Acceptable Subsidiary shall execute
such additional documentation as the Bank or such Offshore Credit Provider
may require relating to each Local Currency Advance.
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2.07 INTENTIONALLY OMITTED.
2.08 MANDATORY PAYMENT. If at any time and for any reason the total
amount of credit outstanding under this Agreement exceeds the limitations set
forth herein, the Borrower shall or shall cause the applicable Acceptable
Subsidiary to pay to the Bank, upon demand, the amount of the excess
provided, that if the foregoing applies due to a change between Dollars and
Local Currencies, the Borrower shall be obligated to pay or cause the payment
of such amount only if the excess is greater than $100,000 or the Equivalent
Amount thereof. Payments under this Section may be applied to the
obligations of the Borrower or the Acceptable Subsidiaries to the Bank in the
order and manner as the Bank in its discretion may determine; PROVIDED,
however, that if no Default or Event of Default exists at the time of such
payments, Borrower may designate the obligations to which such payments shall
be applied. Payments may also be held as cash collateral to secure letters
of credit and may be used to prepay drafts accepted under letters of credit,
at the Bank's option.
2.09 INTENTIONALLY OMITTED.
2.10 COMMITMENT FEE. The Borrower shall pay to the Bank a commitment
fee at the rate of .20% per annum on the average daily unused portion of the
credit provided under this Agreement. For purposes of computing the unused
portion, the L/C Outstanding Amount shall be deemed to be usage. The
commitment fee shall be computed on a calendar quarter basis, except for the
first period which shall commence on the Closing Date, and end on September
30, 1997, and the last period which shall end on the Final Maturity Date in
respect of Advances. The commitment fee shall be payable in arrears on
September 30, 1997, on the last day of each successive quarter thereafter,
and on the Final Maturity Date in respect of Advances.
2.11 DEFAULT RATE. Upon the occurrence and during the continuation of
any Event of Default, and without constituting a waiver of any such Event of
Default, Advances under the Revolving Facility shall at the option of the
Bank bear interest at a rate per annum which is 2.0% per annum higher than
the rate of interest otherwise provided under this Agreement.
2.12 EARLY TERMINATION OF COMMITMENT. The Borrower may at any time
terminate or permanently reduce by increments of $1,000,000 the Bank's
(including any Offshore Credit Provider's) commitment to extend credit
hereunder by giving no less than five Business Days' prior notice to the Bank
and paying in full the entire amount of credit outstanding hereunder
(including the L/C Outstanding Amount) or, in the case of a reduction of the
commitment, that amount which is in excess of the reduced commitment,
together with any sums due under Section 3.11. If the commitment is
terminated, payments shall be applied to letters of credit and drafts
accepted under letters of credit,
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may, at the Bank's option, be used to prepay, or held as cash collateral to
secure, the Borrower's and Acceptable Subsidiaries' obligations to the Bank
or any Offshore Credit Provider with respect thereto. All accrued commitment
fees to, but not including the effective date of any termination of the
commitment, shall be paid on the effective date of such termination.
ARTICLE III
EXTENSIONS OF CREDIT, PAYMENTS AND INTEREST CALCULATIONS
3.01 INTENTIONALLY OMITTED.
3.02 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each
payment by the Borrower or an Acceptable Subsidiary under this Agreement
shall be made in the funds and at such branch of the Bank as the Bank may
from time to time select.
3.03 INTENTIONALLY OMITTED.
3.04 EVIDENCE OF INDEBTEDNESS. Principal, interest, and all other sums
due to the Bank (or any Offshore Credit Provider) under this Agreement shall
be evidenced by entries in records maintained by the Bank (or such Offshore
Credit Provider), and, if required by the Bank, by a promissory note or
notes. Each payment on and any other credits with respect to principal,
interest, and all other sums due under this Agreement shall be evidenced by
entries to records maintained by the Bank or such Offshore Credit Provider.
The loan accounts or records maintained by the Bank or any Offshore Credit
Provider shall be conclusive absent manifest error of the amount of the
credit extended hereunder and the interest and payments thereon. Any failure
to so record or any error in doing so shall not, however, limit or otherwise
affect the obligation of the Borrower or any Acceptable Subsidiary hereunder
to pay any amount owing.
3.05 INTEREST CALCULATION. Interest based on the Reference Rate shall
be computed on the basis of a 365/366-day year and actual days elapsed. All
other interest and fees payable under this Agreement shall be computed on the
basis of a 360 day year and actual days elapsed, which results in more
interest or a larger fee than if a 365-366 day year were used.
3.06 LATE PAYMENTS; COMPOUNDING. Any sum payable by the Borrower or an
Acceptable Subsidiary hereunder (including unpaid interest) if not paid when
due shall bear interest (payable on demand) from its due date until payment
in full at a rate per annum equal to the Floating Rate plus 2.0% per annum.
At the option of the Bank, in each instance, any sum payable hereunder which
is not paid when due (including unpaid interest) may be
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added to principal of the Revolving Facility and shall thereafter bear
interest at the rate applicable to principal.
3.07 BUSINESS DAY. Any sum payable by the Borrower or an Acceptable
Subsidiary hereunder which becomes due on a day which is not a Business Day
shall be due on the next Business Day after such due date, unless, in the
case of an Offshore Rate Loan, the result of such extension would be to carry
such Offshore Rate Interest Period into another calendar month, in which
event such Offshore Rate Interest Period shall end on the immediately
preceding Business Day. Any payments received by the Bank or an Offshore
Credit Provider on a day which is not a Business Day shall be deemed to be
received on the next Business Day after such date of receipt.
3.08 TAXES AND OTHER CHARGES. (a) (i) If any taxes (other than taxes
on net income (A) imposed by the country or any subdivision of the country in
which the Bank's or any Offshore Credit Provider's principal office or actual
lending office is located and (B) measured by the United States taxable
income the Bank would have received if all payments under or in respect of
this Agreement and any instrument or agreement required hereunder were exempt
from taxes levied by the Borrower's or the applicable Acceptable Subsidiary's
country) are at any time imposed on any payments under or in respect of this
Agreement or any instrument or agreement required hereunder including, but
not limited to, payments made pursuant to this Section, the Borrower shall
pay or shall cause the applicable Acceptable Subsidiary to pay all such taxes
and shall also pay or cause to be paid to the Bank, at the time interest is
paid, all additional amounts which the Bank specifies as necessary to
preserve the after-tax yield the Bank would have received if such taxes had
not been imposed.
(ii) The additional amounts necessary to preserve the
after-tax yield the Bank would have received if such taxes had not been
imposed shall be calculated pursuant to the formula:
(w)(t)(i)
y = -----------
1-w-t
where the terms are defined as follows:
y = additional payment to be made to the Bank
w = withholding tax rate levied by foreign government
t = the Bank's combined Federal and state tax rate
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i = amount of interest to be paid on Credit (computed by using
the Offshore Rate or Reference Rate or other index rate, as
applicable plus the quoted margin over such rate)
1 = one
(b) The Borrower will provide the Bank with original tax receipts,
notarized copies of tax receipts, or such other documentation as will prove
payment of tax in a court of law applying the United States Federal Rules of
Evidence, for all taxes paid by the Borrower or an Acceptable Subsidiary
pursuant to subsection (a) above. The Borrower will deliver receipts to the
Bank within 30 days after the due date for the related tax.
3.09 ILLEGALITY. (a) If the Bank determines that (i) the
introduction of any law, rule, regulation, treaty, or determination of an
arbitrator or court or other governmental authority or any change in or in
the interpretation or administration thereof has made it unlawful, or that
any central bank or other governmental authority has asserted that it is
unlawful, for the Bank (directly or through any Offshore Credit Provider) to
make or extend any Advance or other credit under this Agreement, or (ii) any
order, judgment, or decree of any governmental authority or arbitrator
purports by its terms to enjoin or restrain the Bank (or any Offshore Credit
Provider) from making or extending any Advance or other credit hereunder,
THEN, on notice thereof by the Bank to the Borrower, the obligation of the
Bank to make or extend such Advance or other credit (directly or through any
Offshore Credit Provider) shall be suspended until the Bank shall have
notified the Borrower that the circumstances giving rise to such
determination no longer exist.
(b) If the Bank determines that it is unlawful for it or any
applicable Offshore Credit Provider to maintain any Offshore Rate Advance or
Local Currency Advance hereunder, the Borrower shall or shall cause the
applicable Acceptable Subsidiary to prepay in full all Offshore Rate Advances
or Local Currency Advances, as the case may be then outstanding, together
with interest accrued thereon, either on the last day of the applicable
Offshore Rate Interest Period or the interest period applicable to the Local
Currency Advance if the Bank or such Offshore Credit Provider may lawfully
continue to maintain such Advances to such day and such loans have an
interest period, or immediately, if the Bank may not lawfully continue to
maintain such Advances or such loans have no interest period, together with
any amounts required to be paid in connection therewith pursuant to Section
3.11.
3.10 INCREASED COSTS. (a) If the Bank determines that, due to either
(i) the introduction of or any change (other than any
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change by way of imposition of or increase in reserve requirements included
in the calculation of the Offshore Rate) in or in the interpretation of any
law or regulation or (ii) the compliance by the Bank with any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law), there shall be any increase in the cost to the Bank
of agreeing to make or making, funding or maintaining any Offshore Rate
Advances, then the Borrower shall be liable for, and shall from time to time,
upon demand (with a copy of such demand to be sent to the Agent), pay to the
Bank, additional amounts as are sufficient to compensate the Bank for such
increased costs.
(b) If the Bank shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other governmental
authority charged with the interpretation or administration thereof, or (iv)
compliance by the Bank (or its Offshore Credit Provider) or any corporation
controlling the Bank with any Capital Adequacy Regulation, affects or would
affect the amount of capital required or expected to be maintained by the
Bank or any corporation controlling the Bank and (taking into consideration
the Bank's or such corporation's policies with respect to capital adequacy
and the Bank's desired return on capital) determines that the amount of such
capital is increased as a consequence of its commitment, Advances, credits or
obligations under this Agreement, then, upon demand of the Bank to the
Borrower, the Borrower shall pay to the Bank, from time to time as specified
by the Bank, additional amounts sufficient to compensate the Bank for such
increase.
3.11 FUNDING LOSSES. The Borrower shall reimburse the Bank and hold the
Bank harmless from any loss or expense which the Bank may sustain or incur as
a consequence of the failure of the Borrower (or any Acceptable Subsidiary)
to make any payment or prepayment of principal of any Advance hereunder made
at a rate of interest related to the Offshore Rate (including payments made
after any acceleration thereof), or to borrow at such a rate, or the
prepayment of an Advance which bears interest at such a rate on a day which
is not the last day of the interest period with respect thereto (including
payments made after any acceleration thereof or because the total amount of
credit exceeds the limitations set forth herein), or the redenomination and
conversion, upon the occurrence of any Event of Default, of an Advance which
bears interest at such a rate; including any such loss or expense arising
from the liquidation or reemployment of funds obtained by it to maintain its
Advances made at a rate related to the Offshore Rate hereunder or from fees
payable to terminate any deposits from which such funds were obtained or
deemed obtained.
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3.12 INABILITY TO DETERMINE RATES. The Bank has no obligation to accept
an election for an Offshore Rate Advance if (a) deposits in the applicable
currency and in the principal amount, and for the period equal to the
interest period, for such Advance are not available in the applicable funding
market; or (b) the Offshore Rate does not accurately reflect the cost of such
Advance. Nothing contained herein shall, however, obligate the Bank to
obtain the funds for any Advance in any particular manner.
3.13 CERTIFICATE OF THE BANK. If the Bank claims any reimbursement or
compensation pursuant to Section 3.10 or Section 3.11, then the Bank shall
deliver to the Borrower a certificate setting forth in reasonable detail the
amount payable to the Bank thereunder and such certificate shall be
conclusive and binding on the Borrower in the absence of manifest error.
3.14 SURVIVAL. The agreements and obligations of the Borrower under
Sections 3.08 through 3.11 shall survive the expiration or termination of the
commitment to extend credit hereunder and the payment of all other
obligations of the Borrower and the Acceptable Subsidiaries hereunder.
ARTICLE IV
CONDITIONS TO AVAILABILITY OF CREDIT.
The Bank's obligation to extend credit under this Agreement is subject to
the Bank's receipt of the following, each in form and substance satisfactory
to the Bank:
4.01 CONDITIONS TO FIRST EXTENSION OF CREDIT. Before the first
extension of credit to the Borrower or, as the case may be, to an Acceptable
Subsidiary:
(a) This Agreement, executed by the Borrower;
(b) Satisfactory evidence of due authorization of the execution,
delivery, and performance by the Borrower and, as required by the Bank, the
Acceptable Subsidiary of this Agreement and any other Credit Documents,
including certified resolutions, incumbency certificate, articles of
incorporation and bylaws;
(c) If requested by the Bank, an opinion of counsel for the
Borrower or the Acceptable Subsidiary (which counsel must be satisfactory to
the Bank) with respect to such legal matters relating hereto as the Bank may
reasonably request;
(d) Certificates of state officials showing that the Borrower and
the Acceptable Subsidiary is in good standing or qualified to conduct
business under the laws of the state of its
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organization and, if requested by the Bank, in any other state in which the
Borrower and the Acceptable Subsidiary is required to be so qualified;
(e) A certificate of an appropriate officer of the Borrower as to
the matters set forth in Section 4.02(a) and (b);
(f) Payment of any fee or expense required hereunder prior to the
first extension of credit;
(g) In the case of the first extension of credit to the Acceptable
Subsidiary, a continuing guaranty in favor of the Bank, executed by the
Borrower, guaranteeing all debts and obligations (whether contingent or
otherwise) of that Acceptable Subsidiary arising under or in connection with
this Agreement;
(h) Such other approvals, opinions, documents or instruments as the
Bank may reasonably request.
4.02 CONDITIONS TO EACH EXTENSION OF CREDIT. Before each extension or
renewal of credit (including pursuant to any election under Section 2.02(b)),
including the first:
(a) The representations and warranties of the Borrower contained in
this Agreement shall be true in all material respects on and as of the date
of each extension of credit (except to the extent such representations and
warranties relate to an earlier date, in which case, they are true and
correct in all material respects on and as of that date);
(b) Immediately prior to and immediately after giving effect to
such extension of credit, no Default or Event of Default shall exist;
(c) Executed originals of all Credit Documents required under
Article II shall have been delivered to the Bank.
Each request for an extension of credit hereunder shall constitute a
representation and warranty by the Borrower, as of the date of each such
request and as of the date of each extension of credit, that the conditions
in this Section are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
5.01 CORPORATE EXISTENCE AND POWER. The Borrower and each of its
Subsidiaries: (a) is a corporation duly organized and existing under the
laws of the jurisdiction of its organization; (b) has the power and authority
and all governmental licenses, authorizations, consents, and approvals to own
its assets, carry
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on its business, and to execute, deliver, and perform its obligations under,
the Credit Documents to which it is a party; and (c) is duly qualified and
properly licensed and in good standing under the laws of each jurisdiction
where the failure to so qualify would have a Material Adverse Effect.
5.02 AUTHORIZATION. The execution, delivery, and performance by the
Borrower and each Acceptable Subsidiary of this Agreement and any other
Credit Document to which any of them is a party, have been duly authorized by
all necessary corporate action, and do not and will not:
(a) contravene the terms of any organizational or charter documents;
(b) conflict with or result in any breach or contravention of, or
the creation of any lien, security interest, or charge under, any material
agreement, contract, indenture, document, or instrument to which the Borrower
or any Acceptable Subsidiary is a party or by which any property is bound, or
any order, injunction, writ, or decree of any governmental authority to which
the Borrower or any Acceptable Subsidiary or any property is subject; or
(c) violate any law, rule, regulation, or determination of an
arbitrator or of a court or other governmental authority, in each case
applicable to or binding upon the Borrower or any Acceptable Subsidiary or
any property.
5.03 ENFORCEABILITY. This Agreement is a legal, valid, and binding
agreement of the Borrower, enforceable against the Borrower in accordance
with its terms, and the other Credit Documents and any other instrument or
agreement required under this Agreement, when executed and delivered, will be
legal, valid, binding, and enforceable in accordance with its terms against
the Borrower or the Acceptable Subsidiary, as applicable.
5.04 COMPLIANCE WITH LAWS. The Borrower and each of its Subsidiaries is
in compliance with all foreign, federal, state and local laws, rules,
regulations and determinations of arbitrators, courts and other governmental
authorities materially affecting the business, operations or property of the
Borrower and its Subsidiaries (including Environmental Laws).
5.05 PERMITS, FRANCHISES. The Borrower and its Subsidiaries possess all
permits, memberships, franchises, contracts, and licenses required and all
trademark rights, trade name rights, patent rights, and fictitious name
rights necessary to enable the Borrower and its Subsidiaries to conduct the
businesses in which they are now engaged.
5.06 LITIGATION. There is no litigation, tax claim, proceeding,
governmental or administrative action,
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investigation, arbitration proceeding or dispute pending, or, to the
knowledge of the Borrower, threatened, against or affecting the Borrower or
any of its Subsidiaries or any of their properties, the adverse determination
of which would result in a Material Adverse Effect.
5.07 NO EVENT OF DEFAULT. There exists no Default or Event of Default.
5.08 OTHER OBLIGATIONS. As of the Closing Date, the Borrower and its
Subsidiaries are not in default under any other material agreement involving
the borrowing of money, the extension of credit, or the lease of real or
personal property, to which the Borrower or any of its Subsidiaries is a
party as borrower, guarantor, installment purchaser, or lessee, except as
disclosed in writing to the Bank prior to the Closing Date.
5.09 TAX RETURNS. The Borrower has no knowledge of any material pending
assessments or adjustments with respect to its or its Subsidiaries' income
tax liabilities for any year, except as disclosed in writing to the Bank
prior to the Closing Date.
5.10 INFORMATION SUBMITTED. All financial and other information that
has been submitted by the Borrower or any of its Subsidiaries to the Bank in
connection with this Agreement, including the Borrower's financial statement
delivered to the Bank most recently prior to the Closing Date: (a) in the
case of financial statements, is prepared in accordance with generally
accepted accounting principles consistently applied; and (b) is true and
correct in all material respects and is complete insofar as may be necessary
to give the Bank true and accurate knowledge of the subject matter thereof.
5.11 NO MATERIAL ADVERSE EFFECT. Since March 31, 1996, there has been
no Material Adverse Effect.
5.12 ERISA COMPLIANCE. Except as specifically disclosed to the Bank in
writing prior to the Closing Date: (a) each Plan is in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law; (b) there are no pending, or to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any
governmental authority, with respect to any Plan which has resulted or could
reasonably be expected to result in a Material Adverse Effect; (c) there has
been no prohibited transaction or other violation of the fiduciary
responsibility rule with respect to any Plan which could reasonably result in
a Material Adverse Effect; (d) no ERISA Event has occurred or is reasonably
expected to occur with respect to any Pension Plan; (e) no Pension Plan has
any Unfunded Pension Liability; (f) the Borrower has not incurred, nor does
it reasonably expect to incur, any liability under Title IV of ERISA with
respect to any Pension Plan (other than premiums due and not delinquent under
Section 4007 of ERISA); (g) no trade or business (whether or not
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incorporated under common control with the Borrower within the meaning of
Section 414(b), (c), (m) or (o) of the Code) maintains or contributes to any
Pension Plan or other Plan subject to Section 412 of the Code; and (h)
neither the Borrower or entity under common control with the Borrower in the
preceding sentence has ever contributed to any multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA.
5.13 ENVIRONMENTAL MATTERS. (a) Except to the extent that, in the
aggregate, a Material Adverse Effect could not result therefrom, (i) the
properties of the Borrower and its Subsidiaries do not contain and have not
previously contained (at, under, or about any such property) any Hazardous
Substances or other contamination (A) in amounts or concentrations that
constitute or constituted a violation of, or could give rise to liability
under, any Environmental Laws, (B) which could interfere with the continued
use, occupation or operation of such property, (C) which could impair the
fair market value thereof, or (D) in levels or concentrations requiring
cleanup or other management under applicable standards or guidelines of
foreign, federal, state, or local environmental agencies; and (ii) there has
been no transportation or disposal of Hazardous Substances from, nor any
release or threatened release of Hazardous Substances at or from, any
property of the Borrower or any of its Subsidiaries in violation of or in any
manner which could give rise to liability under any Environmental Laws.
(b) Neither the Borrower nor any of its Subsidiaries has received
or is aware of any material claim or notice of material violation, alleged
material violation, non-compliance, liability or potential liability
regarding environmental matters, Hazardous Substances or compliance with
Environmental Laws with regard to the properties or operations of the
Borrower or any of its Subsidiaries, nor does the Borrower have knowledge or
reason to believe that any such action is being contemplated, considered, or
threatened.
5.14 SWAP OBLIGATIONS. Neither the Borrower nor any of its Subsidiaries
has incurred any outstanding obligations under any Swap Contracts, other than
Permitted Swap Obligations.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as credit is available under this Agreement and until full and
final payment of all of the Borrower's and any Acceptable Subsidiaries'
obligations under this Agreement and any other Credit Document:
6.01 NOTICES OF CERTAIN EVENTS. The Borrower shall promptly give
written notice to the Bank of:
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(a) all litigation, proceedings or actions affecting the Borrower
or its Subsidiaries where the amount claimed is $1,000,000 or more;
(b) any substantial dispute which may exist between the Borrower or
its Subsidiaries and any governmental regulatory body or law enforcement
authority;
(c) any Default or Event of Default;
(d) any of the representations and warranties in Article V which
ceases to be true and correct in all material respects; and
(e) any other matter which has resulted or could reasonably be
expected to result in a Material Adverse Effect.
6.02 FINANCIAL AND OTHER INFORMATION. The Borrower shall deliver to the
Bank in form and detail satisfactory to the Bank, and in such number of
copies as the Bank may request:
(a) Within 90 days after the end of each fiscal year, the
Borrower's consolidated financial statements for such year audited by a
certified public accountant together with an unqualified opinion of such
certified public accountant and including, at a minimum, the Borrower's
balance sheet and statements of income, retained earnings, and cash flow;
(b) Within 45 days after the end of each fiscal quarter, the
Borrower's consolidated financial statements for such period prepared by the
Borrower and including, at a minimum, the Borrower's balance sheet and
statements of income, retained earnings, and cash flow;
(c) Concurrently with the delivery of the financial statements
referred to in subsections 6.02(a) and (b), a completed Compliance
Certificate executed by the chief financial officer or treasurer of the
Borrower or other officer having substantially the same authority and
responsibility;
(d) Within 15 days after the date of filing with the Securities and
Exchange Commission, copies of any of the Borrower's Form 10-K Annual
Reports, Form 10-Q Quarterly Reports and Form 8-K Current Reports; and
(e) Promptly upon request, such other materials and information
relating to the Borrower or its Subsidiaries as the Bank may reasonably
request.
6.03 BOOKS, RECORDS, AUDITS AND INSPECTIONS. The Borrower shall, and
shall cause its Subsidiaries to, maintain adequate books, accounts and
records, and prepare all financial statements required hereunder in
accordance with generally accepted accounting principles consistently
applied, and in
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compliance with the regulations of any governmental regulatory body having
jurisdiction over the Borrower or its Subsidiaries, or the Borrower's or its
Subsidiaries' businesses, and permit employees or agents of the Bank at any
reasonable time to inspect the Borrower's and its Subsidiaries' properties,
and to examine or audit the Borrower's and its Subsidiaries' books, accounts,
and records and make copies and memoranda thereof.
6.04 USE OF FACILITY. The Borrower shall use and shall cause the
Acceptable Subsidiaries to use the credit facility provided herein solely for
working capital and other general corporate purposes not in contravention of
any requirement of law.
6.05 INSURANCE. The Borrower shall, and shall cause its Subsidiaries
to, maintain and keep in force insurance of the types and in amounts
customarily carried in lines of businesses similar to those of the Borrower
and its Subsidiaries, including fire, extended coverage, public liability
(including coverage for contractual liability), property damage (including
use and occupance), business interruption, and workers' compensation, all
carried by insurers and in amounts reasonably satisfactory to the Bank, and
deliver to the Bank from time to time, at the Bank's request, a copy of each
insurance policy, or if permitted by the Bank, a certificate of insurance
setting forth all insurance then in effect.
6.06 COMPLIANCE WITH LAWS. The Borrower shall at all times comply in
all material respects with, and cause its Subsidiaries to comply with, all
laws, statutes (including any fictitious name statute), rules, regulations,
orders, and directions of any governmental authority having jurisdiction over
the Borrower or any of its Subsidiaries or the business of the Borrower or
any of its Subsidiaries (including all Environmental Laws).
6.07 CHANGE IN NAME, STRUCTURE OR LOCATION. The Borrower shall notify
the Bank in writing prior to any change in (a) the Borrower's name or the
name of any Acceptable Subsidiary, (b) the Borrower's or any Acceptable
Subsidiary's business or legal structure, or (c) the Borrower's or any
Acceptable Subsidiary's place of business or chief executive office if the
Borrower has more than one place of business.
6.08 EXISTENCE AND PROPERTIES. The Borrower shall, and shall cause each
of its Subsidiaries to, maintain and preserve its existence and all rights,
privileges, and franchises necessary to conduct its business, conduct its
business in an orderly, efficient, and customary manner, keep all the its
properties in good working order and condition, and from time to time make
all needed repairs, renewals, or replacements thereto and thereof so that the
efficiency of such property shall be fully maintained and preserved.
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ARTICLE VII
NEGATIVE COVENANTS
So long as credit is available under this Agreement and until full and
final payment of all of the Borrower's and any Acceptable Subsidiary's
obligations under this Agreement and any other Credit Document:
7.01 OTHER INDEBTEDNESS. The Borrower shall not, and shall not suffer
or permit any Subsidiary to, create, incur, assume, or permit to exist any
indebtedness or liabilities for or resulting from borrowed money, loans, or
advances, or for the deferred purchase price of property under capital
leases, or under or in connection with any Swap Contract, whether secured or
unsecured, matured or unmatured, liquidated or unliquidated, joint or
several, or become liable as a surety, guarantor, accommodation endorser, or
otherwise for or upon the obligation of any other Person; provided, however,
that this Section shall not prohibit:
(a) indebtedness and guarantees in favor of the Bank or any affiliate
of the Bank;
(b) indebtedness, liabilities, and guarantees outstanding as of the
date of this Agreement and specifically disclosed in SCHEDULE 7.01 and
refinancings of such existing indebtedness, liabilities, and guarantees on
substantially similar terms as is promptly reported on an amended SCHEDULE 7.01;
(c) the acquisition of goods, supplies, or merchandise on normal
trade credit;
(d) the execution of bonds or undertakings in the ordinary course of
its business as presently conducted;
(e) the endorsement of negotiable instruments received in the ordinary
course of its business as presently conducted;
(f) indebtedness arising from purchase money financing of the type
described in subsection 7.02(f);
(g) Permitted Swap Obligations;
(h) indebtedness, liabilities and guarantees of all Persons
acquired by, consolidated with or merged into the Borrower or its
Subsidiaries as permitted by Section 7.08 of the Agreement; PROVIDED that
such obligations were not incurred in anticipation of the acquisition,
consolidation or merger and do not in aggregate amount exceed $10,000,000; and
(i) other unsecured indebtedness not to exceed $5,000,000.
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7.02 LIENS. The Borrower shall not, and shall not suffer or permit any
of its Subsidiaries to, create, assume, or suffer to exist any security
interest, deed of trust, mortgage, lien (including the lien of an attachment,
judgment, or execution), or encumbrance, securing a charge or obligation, on
or of any of its or their property, real or personal, whether now owned or
hereafter acquired, except: (a) security interests and deeds of trust in
favor of the Bank; (b) liens, security interests, and encumbrances in
existence as of the date of this Agreement and specifically disclosed in
SCHEDULE 7.02; (c) liens for current taxes, assessments, or other governmental
charges which are not delinquent or remain payable without any penalty; (d)
liens in connection with workers' compensation, unemployment insurance, or
other social security obligations; (e) mechanics', worker's, materialmen's,
landlords', carriers', or other like liens arising in the ordinary and normal
course of business with respect to obligations which are not due; (f) purchase
money security interests in personal or real property hereafter acquired when
the security interest does not extend beyond the property purchased and where
the debt secured does not exceed the value of the property acquired; (g)
liens consisting of pledges of cash collateral or government securities to
secure on a mark-to-market basis Permitted Swap Obligations only, provided
that (i) the counterparty to any Swap Contract relating to any such Permitted
Swap Obligation is under a similar requirement to deliver similar collateral
from time to time to the Borrower or the Subsidiary party thereto on a
mark-to-market basis; and (ii) the aggregate value of such collateral so
pledged by the Borrower and its Subsidiaries together in favor of any
counterparty does not at any time exceed $1,000,000; (h) liens, security
interests and encumbrances on the assets of any Person acquired by,
consolidated with or merged into the Borrower or its Subsidiaries as
permitted by Section 7.08 of this Agreement; PROVIDED that such liens,
security interests and encumbrances were not created in anticipation of the
acquisition, consolidation or merger and secure liabilities in an aggregate
amount not exceeding, at any one time, $5,000,000; and (i) additional
security interests or liens which secure liabilities in an aggregate
principal amount not exceeding, at any one time, $1,000,000.
7.03 INTENTIONALLY OMITTED.
7.04 INTENTIONALLY OMITTED.
7.05 INTENTIONALLY OMITTED.
7.06 DIVIDENDS. The Borrower shall not, and shall not suffer or permit,
any of its Subsidiaries that is not wholly-owned by the Borrower to, declare
or pay any dividends or distributions on any of its shares now or hereafter
existing, or purchase, redeem or otherwise acquire for value any of its
shares, or create any sinking fund in relation thereto, except, dividends
payable solely in its capital stock.
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7.07 LOANS. The Borrower shall not, and shall not suffer or permit any
of its Subsidiaries to, make any loans, advances, or other extensions of
credit to any of the Borrower's or such Subsidiary's executives, officers, or
directors or shareholders (or any relatives of any of the foregoing) other
than in the ordinary course of business, or make loans, advances or other
extensions of credit to or invest in any other Person, other than (a)
investments in cash equivalents; (b) extensions of credit in the nature of
accounts receivable or notes receivable arising from the sale or lease of
goods or services in the ordinary course of business; (c) extensions of
credit by the Borrower to any of its wholly-owned Subsidiaries or by any of
its wholly-owned Subsidiaries to another of its wholly-owned Subsidiaries;
(d) investments constituting Permitted Swap Obligations or payments or
advances under Swap Contracts relating to Permitted Swap Obligations.
7.08 LIQUIDATIONS AND MERGERS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, (i) liquidate or dissolve, (ii) enter
into any consolidation, merger, partnership, joint venture, or other
combination, or (iii) acquire or purchase control of, or the assets or
business of, any other Person, except that (a) any Subsidiary may merge with
the Borrower, provided that the Borrower shall be the continuing or surviving
corporation, or with any one or more Subsidiaries, provided that if any
transaction shall be between a Subsidiary and a wholly-owned Subsidiary, the
wholly-owned Subsidiary shall be the continuing or surviving corporation; (b)
any Subsidiary may sell all or substantially all of its assets (upon voluntary
liquidation or otherwise), to the Borrower or another wholly-owned
Subsidiary, and (c) notwithstanding clauses (ii) and (iii), the Borrower and
its Subsidiaries may enter into any consolidation, merger, partnership, joint
venture or other combination with, make loans or other extensions of credit
to or other investments in, or purchase or acquire control or any part of the
capital stock, assets or business of, any other Person if (w) such Persons
are engaged in business activities (including development activities) or
operations substantially similar to or related to present software and other
business activities and operations of the Borrower and its Subsidiaries, (x)
immediately prior to and after giving effect thereto, there exists no Default
or Event of Default, (y) in the case of a merger of the Borrower, the
Borrower is the surviving corporation, and (z) such transaction has been
undertaken in accordance with all applicable requirements of law.
7.09 SALE OF ASSETS. The Borrower shall not, and shall not suffer or
permit any of its Subsidiaries to, (a) sell, lease, or otherwise dispose of
its business or assets as a whole or such as in the reasonable opinion of the
Bank constitutes a substantial portion of its business or assets; (b) sell or
otherwise dispose of any of its accounts receivable except in connection with
the collection of same in the ordinary course of business; (c) sell or
otherwise dispose of any of its assets
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except for full, fair and reasonable consideration; or (d) enter into any
sale and leaseback agreement covering any of its fixed or capital assets.
7.10 BUSINESS ACTIVITIES. The Borrower shall not, and shall not suffer
or permit any of its Subsidiaries to, engage in any business activities or
operations substantially different from or unrelated to present business
activities and operations.
7.11 REGULATIONS G, T, U, AND X. The Borrower shall not, and shall not
suffer or permit any of its Subsidiaries to, use any portion of the proceeds
of any Advances or extensions of credit hereunder, directly or indirectly,
(i) to purchase or carry margin stock (within the meanings of Regulations G,
T, U, and X of the FRB), (ii) to repay or otherwise refinance indebtedness of
the Borrower or others incurred to purchase or carry any such margin stock,
(iii) to extend credit for the purpose of purchasing or carrying any such
margin stock, or (iv) to acquire any security in any transaction that is
subject to Section 13 or 14 of the Securities Exchange Act of 1934, as
amended.
7.12 INTENTIONALLY OMITTED.
7.13 QUICK RATIO. The Borrower shall not permit as of the last day of
any fiscal quarter on a consolidated basis the sum of cash, short-term cash
investments, marketable securities not classified as long-term investments
and accounts receivable to be less than 1.35 times current liabilities (which
shall include the dollar Equivalent Amount of all outstanding Advances and
the L/C Outstanding Amount).
7.14 TANGIBLE NET WORTH. The Borrower shall not permit as of the last
day of any fiscal quarter on a consolidated basis its Tangible Net Worth to
be less than (i) 90% of its Tangible Net Worth as of December 31, 1996, PLUS
(ii) 100% of the net proceeds received from the issuance of equity after
December 31, 1996, LESS up to $20,000,000 in intangible assets acquired after
December 31, 1996 to the extent that such intangible assets are recognized as
a result of an acquisition of a company or line of business and the
intangible assets are recorded on the Borrower's books in the same quarter as
that in which the acquisition is consummated.
7.15 TOTAL LIABILITIES TO TANGIBLE NET WORTH. The Borrower shall not
permit as of the last day of any fiscal quarter on a consolidated basis the
Borrower's total liabilities (which shall include the dollar Equivalent
Amount of all outstanding Advances and the L/C Outstanding Amount) to exceed
0.75 times its Tangible Net Worth.
7.16 CONSECUTIVE QUARTERLY LOSSES; LOSSES IN ONE QUARTER. The Borrower
on a consolidated basis shall not incur, (a) any quarterly net or operating
losses in any two consecutive fiscal
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quarters or (b) any quarterly net or operating loss in excess of 5% of
consolidated Tangible Net Worth computed as of the last day of the
immediately preceding fiscal quarter.
ARTICLE VIII
EVENTS OF DEFAULT
8.01 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "EVENT OF DEFAULT" under this Agreement:
(a) FAILURE TO PAY. The Borrower fails to pay when due, or any
Acceptable Subsidiary fails to pay within one Business Day after the date
when due, any installment of principal, or either the Borrower or any
Acceptable Subsidiary fails to pay within three Business Days after the date
when due any interest, fee or any other sum due under this Agreement or any
other Credit Document in accordance with the terms hereof or thereof.
(b) BREACH OF REPRESENTATION OR WARRANTY. Any representation or
warranty herein or in any other Credit Document proves to have been false or
misleading in any material respect when made.
(c) SPECIFIC DEFAULTS. The Borrower fails to perform or observe
any term, covenant or agreement contained in Section 6.01, 6.02 or 6.03 or
Article VII.
(d) OTHER DEFAULTS. The Borrower or any Acceptable Subsidiary
fails to perform or observe any other term or covenant contained in this
Agreement or any Credit Document, and such default shall continue unremedied
for a period of 30 days after the earlier of (i) the date upon which the
chief executive or chief financial officer of the Borrower knew or should
have known of such failure or (ii) the date upon which written notice thereof
is given to the Borrower by the Bank.
(e) JUDGMENTS. (i) One or more non-interlocutory judgments or
arbitration awards are entered against the Borrower or any of its
Subsidiaries and the same shall remain unsatisfied, unvacated and unstayed
for a period of 30 days after the entry thereof, or (ii) the Borrower or any
of its Subsidiaries enters into any settlement agreement with respect to any
litigation or arbitration, and the aggregate amount of such judgments,
arbitration awards and settlements which are not covered by third-party
insurance exceeds $2,000,000.
(f) FAILURE TO PAY DEBTS; VOLUNTARY BANKRUPTCY. The Borrower or
any Subsidiary (i) fails to pay the Borrower's or such Subsidiary's debts
generally as they come due, or (ii) files any petition, proceeding, case, or
action for relief
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under any bankruptcy, reorganization, insolvency, or moratorium law, or any
other law or laws for the relief of, or relating to, debtors.
(g) INVOLUNTARY BANKRUPTCY. An involuntary petition is filed
under any bankruptcy or similar statute against the Borrower or any
Subsidiary, or a receiver, trustee, liquidator, assignee, custodian,
sequestrator, or other similar official is appointed to take possession of
the properties of the Borrower or any Subsidiary and such petition or
appointment is not set aside or withdrawn within 60 days or continues in
effect for 60 days or more from the date of said filing or appointment.
(h) DEFAULT OF OTHER FINANCIAL OBLIGATIONS. (i) Any default
occurs under any other agreement involving the borrowing of money or the
extension of credit having an aggregate principal amount (including undrawn
committed or available amounts and including amounts owing to all creditors
under any combined or syndicated credit arrangement) of more than $1,000,000
to which the Borrower or any Subsidiary may be a party as borrower, guarantor,
or installment purchaser, if such default consists of the failure to pay any
obligation when due and such failure continues after the applicable grace or
notice period, if any, specified in the relevant document or if such default
gives to the holder of the obligation concerned the right to accelerate the
obligation or (ii) there occurs under any Swap Contract an Early Termination
Date resulting from (1) any event of default under such Swap Contract as to
which the Borrower or any Subsidiary is the Defaulting Party or (2) any
Termination Event as to which the Borrower or any Subsidiary is an Affected
Party, and, in either event, the Swap Termination Value owed by the Borrower
or such Subsidiary as a result thereof is greater than $1,000,000 (for
purposes of this clause (ii), the terms "Early Termination Date", "Defaulting
Party", "Termination Event", and "Affected Party" shall have the meanings
assigned to them in the relevant Swap Contract, it being understood that such
definitions contemplate Swap Contracts documented on International Swaps and
Derivatives Association ("ISDA") standard forms; if such Swap Contract is not
documented on an ISDA standard form, such terms shall be given similar or
analogous meanings as used in such non-ISDA standard agreements).
(i) DEFAULT OF OTHER BANK OBLIGATIONS. Any default occurs under
any other obligation of the Borrower or any Subsidiary to the Bank or to any
affiliate of the Bank and such default continues after the applicable grace
or notice period.
(j) MATERIAL ADVERSE EFFECT. There occurs a Material Adverse
Effect.
(k) ERISA. (i) An ERISA Event shall occur with respect to a
Pension Plan which has resulted or could reasonably be expected to result in
liability of the Borrower under Title
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IV of ERISA to the Pension Plan or PBGC in an aggregate amount in excess of
$500,000; (ii) the commencement or increase of contributions to, or the
adoption of or the amendment of a Pension Plan by the Borrower which has
resulted or could reasonably be expected to result in an increase in Unfunded
Pension Liability among all Pension Plans in an aggregate amount in excess of
$500,000; or (iii) any of the representations and warranties contained in
Section 5.12 shall cease to be true and correct which, individually or in
combination, has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(l) CHANGE OF CONTROL. (i) any Person or two or more Persons
acting in concert shall acquire beneficial ownership, directly or indirectly,
of securities of the Borrower (or other securities convertible into such
securities) representing 40% or more of the combined voting power of all
securities of the Borrower entitled to vote in the election of directors; or
(ii) during any period of up to 12 consecutive months, commencing after the
Closing Date, individuals who at the beginning of such 12-month period were
directors of the Borrower shall cease for any reason to constitute a majority
of the Board of Directors of the Borrower unless the persons replacing such
individuals were nominated by the Board of Directors of the Borrower; or
(iii) any Person or two or more Persons acting in concert acquiring by
contract or otherwise, or entering into a contract or arrangement which upon
consummation will result in its or their acquisition of, or control over,
securities of the Borrower (or other securities convertible into such
securities) representing 40% or more of the combined voting power of all
securities of the Borrower entitled to vote in the election of directors.
8.02 REMEDIES. If any Event of Default occurs,
(a) any indebtedness of the Borrower or of any Acceptable Subsidiary
under any of the Credit Documents, any term thereof to the contrary
notwithstanding, shall at the Bank's option (but automatically upon the
occurrence of an Event of Default described in subsection 8.01(f)(ii) or
subsection 8.01(g)) and without notice become immediately due and payable
without presentment, demand, protest, or notice of dishonor, or any other
notice, all of which are hereby expressly waived by the Borrower to the full
extent permitted by law, and the Bank may declare an amount equal to the
maximum aggregate amount that is or at any time thereafter may become
available for drawing under any then-outstanding letters of credit, (whether
or not any beneficiary shall have presented, or be entitled at such time to
present, the drafts or other documents required to draw under such letters of
credit) to be immediately due and payable;
(b) the obligation, if any, of the Bank (including through any
Offshore Credit Provider) to make further loans or
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extensions of credit hereunder shall immediately cease and terminate, and
(c) the Bank and each Offshore Credit Provider shall have all
rights, powers, and remedies available under each of the Credit Documents, or
accorded by law, including the right to resort to any or all security for any
credit accommodation described herein, and to exercise any or all of the
rights of a beneficiary or secured party pursuant to applicable law.
All rights, powers, and remedies of the Bank and each Offshore Credit Provider
may be exercised at any time by the Bank or such Offshore Credit Provider and
from time to time after the occurrence of an Event of Default. All rights,
powers, and remedies of the Bank and any Offshore Credit Provider in connection
with each of the Credit Documents are cumulative and not exclusive and shall be
in addition to any other rights, powers, or remedies provided by law or equity.
ARTICLE IX
MISCELLANEOUS
9.01 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that the Borrower shall not assign this Agreement or any
other Credit Document or any of the rights, duties or obligations of the
Borrower hereunder without the prior written consent of the Bank.
9.02 CONSENTS AND WAIVERS. No failure to exercise and no delay in
exercising, on the part of the Bank or any Offshore Credit Provider, any
right, remedy, power, or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy,
power, or privilege hereunder preclude any other or further exercise thereof
or the exercise of any other right, remedy, power, or privilege. No consent
or waiver under this Agreement shall be effective unless in writing. No
waiver of any breach or default shall be deemed a waiver of any breach or
default thereafter occurring.
9.03 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California.
9.04 COSTS AND ATTORNEYS' FEES. The Borrower shall, whether or not the
transactions contemplated hereby shall be consummated, pay or reimburse the
Bank on demand for all reasonable costs and expenses incurred by the Bank in
connection with the development, preparation, delivery, administration, and
execution of, and any amendment, supplement, waiver or modification to, this
Agreement and any other Credit Document and the consummation of the
transactions contemplated hereby and
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thereby, including reasonable attorney fees and disbursements and the
allocated cost of internal counsel and disbursements, incurred by the Bank
with respect thereto; and in connection with the enforcement, attempted
enforcement or preservation of any rights or remedies hereunder or under any
Credit Document, including any "workout" or restructuring under this
Agreement, including attorney fees and disbursements and the allocated cost
of internal counsel and disbursements. The agreements and obligations of the
Borrower under this Section shall survive the expiration or termination of
the commitment to extend credit hereunder and the payment of all other
obligations of the Borrower and the Acceptable Subsidiaries hereunder.
9.05 INTEGRATION; AMENDMENT. This Agreement, together with the other
Credit Documents, embodies the entire agreement and understanding between the
Borrower and the Bank. This Agreement may be amended or modified only in
writing, signed by the Borrower and the Bank.
9.06 CONFIDENTIALITY. The Bank agrees to take normal and reasonable
precautions and to exercise due care to maintain the confidentiality of all
information identified as "confidential" or "secret" by the Borrower and
provided to it by the Borrower or any of its Subsidiaries under this
Agreement or any other Credit Document, and neither it nor any of its
Affiliates shall use any such information other than in connection with or in
enforcement of this Agreement and the other Credit Documents or in connection
with other business now or hereafter existing or contemplated with the
Borrower or any Subsidiary; except to the extent such information (i) was or
becomes generally available to the public other than as a result of
disclosure by the Bank, or (ii) was or becomes available on a
non-confidential basis from a source other than the Borrower, provided that
such source is not bound by a confidentiality agreement with the Borrower
known to the Bank; PROVIDED, HOWEVER, that the Bank may disclose such
information (A) at the request or pursuant to any requirement of any
governmental authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable requirement of law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Bank
may be party; (E) to the extent reasonably required in connection with the
exercise of any remedy hereunder or under any other Credit Document; (F) to
the Bank's independent auditors and other professional advisors; (G) to any
participant or assignee, actual or potential, provided that such person
agrees in writing to keep such information confidential to the same extent
required of the Bank hereunder; (H) as to the Bank or its Affiliate, as
expressly permitted under the terms of any other document or agreement
regarding confidentiality to which the Borrower or any Subsidiary is party or
is deemed party with the Bank or such Affiliate; and (I) to its Affiliates
which have a need to know such information in connection with the
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evaluation or administration of this Agreement or any other Credit Document
and which shall keep such information confidential to the same extent
required of the Bank hereunder.
9.07 PARTICIPATIONS. The Bank may at any time sell, assign, grant
participations in, or otherwise transfer to any other Person (a "PARTICIPANT")
all or part of the obligations of the Borrower and any Acceptable Subsidiary
under this Agreement and any other Credit Document. The Borrower authorizes
the Bank and each Participant, upon the occurrence of an Event of Default, to
proceed directly by right of setoff, banker's lien, or otherwise, against any
assets of the Borrower and any Acceptable Subsidiary which may be in the
hands of the Bank or such Participant, respectively. The Borrower authorizes
the Bank to disclose to any prospective Participant and any Participant any
and all information in the Bank's possession concerning the Borrower and its
Subsidiaries, this Agreement or any other Credit Document; provided, however,
that any such prospective Participant or Participant shall agree to keep any
such information confidential.
9.08 GENERAL INDEMNIFICATION. The Borrower shall pay and indemnify the
Bank, the Offshore Credit Providers, the Bank's parent company, and each of
their respective officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an "INDEMNIFIED PERSON") harmless from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses, or disbursements (including
attorneys' fees and disbursements and the allocated costs of internal
counsel) of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance, and administration of this Agreement and
any other Credit Documents, or the transactions contemplated hereby and
thereby, and with respect to any investigation, litigation, or proceeding
related to this Agreement, any violation of any Environmental Law by the
Borrower or its Subsidiaries, any use, generation, manufacture, production,
storage, release, threatened release, discharge, disposal or presence
(whether actual or alleged) of a Hazardous Substance on, under or about the
property or operations of or property leased to the Borrower or any of its
Subsidiaries, any transportation from or other off-site management of any
Hazardous Substance generated or used by the Borrower or any of its
Subsidiaries, or the loans and other extensions of credit hereunder or the
use of the proceeds thereof, whether or not any Indemnified Person is a party
thereto (all the foregoing, collectively, the "INDEMNIFIED LIABILITIES");
PROVIDED, that the Borrower shall have no obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of such Indemnified Person. The
agreements and obligations of the Borrower under this Section shall survive
the expiration or termination of the commitment to extend credit hereunder
and the payment of all other obligations of the Borrower and the Acceptable
Subsidiaries hereunder.
34
<PAGE>
9.09 ARBITRATION; REFERENCE PROCEEDING. (a) Any controversy or claim
between or among the parties arising out of or relating to this Agreement or
any other Credit Document or other agreements or instruments relating hereto
or delivered in connection herewith and any claim based on or arising from an
alleged tort, shall at the request of any party be determined by arbitration.
The arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The arbitration shall be conducted within
the following California county or counties: San Francisco. The
arbitrator(s) shall give effect to statutes of limitation in determining any
claim. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of
an action for judicial relief or pursuit of a provisional or ancillary remedy
shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the controversy or claim to arbitration if any other
party contests such action for judicial relief.
(b) Notwithstanding the provisions of subsection (a) of this
Section, no controversy or claim shall be submitted to arbitration without
the consent of all parties if, at the time of the proposed submission, such
controversy or claim arises from or relates to an obligation to the Bank
which is secured by real property collateral located in California. If all
parties do not consent to submission of such a controversy or claim to
arbitration, the controversy or claim shall be determined as provided in
subsection (c) of this Section.
(c) A controversy or claim which is not submitted to arbitration as
provided and limited in subsections (a) and (b) of this Section shall, at the
request of any party, be determined by a reference in accordance with
California Code of Civil Procedure Sections 638 ET SEQ. If such an election
is made, the parties shall designate to the court a referee or referees
selected under the auspices of the AAA in the same manner as arbitrators are
selected in AAA-sponsored proceedings. The presiding referee of the panel,
or the referee if there is a single referee, shall be an active attorney or
retired judge. Judgment upon the award rendered by such referee or referees
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of any
party to this Agreement to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or
security, or to obtain provisional or ancillary remedies from a court of
competent jurisdiction before, after, or during the pendency of any
35
<PAGE>
arbitration or other proceeding. The exercise of a remedy does not waive the
right of either party to resort to arbitration or reference. At the Bank's
option, foreclosure under a deed of trust or mortgage may be accomplished
either by exercise of power of sale under the deed of trust or mortgage or by
judicial foreclosure.
9.10 NOTICES. (a) All notices, requests and other communications
provided for hereunder shall be in writing and mailed or delivered to a party
at its address specified on the signature pages hereof, or to such other
address as shall be designated by such party in a written notice to the other
parties.
(b) All such notices and communications shall, when transmitted by
overnight delivery, be effective when delivered for overnight delivery, or if
personally delivered, upon such personal delivery, except that notices
pursuant to Article II shall not be effective until actually received by the
Bank.
(c) The Borrower acknowledges and agrees that any agreement of the
Bank pursuant to Article II to receive notices by telephone or facsimile is
solely for the convenience and at the request of the Borrower. Telephone
requests may be made by any individual identified in writing to the Bank on a
form acceptable to the Bank as being authorized to make such requests. The
Bank shall be entitled to rely upon any written or telephone request from
persons it reasonably believes to be authorized by the Borrower to make such
requests without making independent inquiry. The Borrower assumes the full
risk of, and the Bank shall not be responsible for, any delays or errors in
transmission, and the obligation of the Borrower to repay the loans and other
extensions of credit hereunder shall not be affected in any way or to any
extent by any failure by the Bank to receive written confirmation of any
telephonic or facsimile notice or the receipt by the Bank of a confirmation
which is at variance with the terms understood by the Bank to be contained in
the telephonic or facsimile notice.
9.11 HEADINGS; INTERPRETATION. Article, section, and paragraph headings
are for reference only and shall not affect the interpretation or meaning of
any provisions of this Agreement. The meaning of defined terms shall be
equally applicable to the singular and plural forms of the defined terms.
The words "hereof", "herein", "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 Article, subsection, section,
schedule and exhibit references are to this Agreement unless otherwise
specified. The term "including" is not limiting and means "including without
limitation." In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words
"to" and
36
<PAGE>
"until" each mean "to but excluding", and the word "through" means "to and
including."
9.12 SEVERABILITY. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not
in any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required
hereunder.
9.13 COUNTERPARTS. This Agreement may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts each of which, when so executed,
shall be deemed an original but all such counterparts shall constitute but
one and the same agreement.
9.14 WAIVER OF JURY TRIAL. IF A CONTROVERSY OR CLAIM IS NOT SUBMITTED
TO ARBITRATION AS PROVIDED AND LIMITED IN SUBSECTIONS (a) AND (b) OF SECTION
9.09 OR IS NOT DETERMINED BY A REFERENCE AS PROVIDED IN SUBSECTION (c) OF
SUBSECTION 9.09, THEN THE BORROWER AND THE BANK WAIVE THEIR RESPECTIVE RIGHTS
TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF OR RELATED TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH AGREE THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS
TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE
OTHER CREDIT DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
DIGITAL MICROWAVE CORPORATION
By: /s/ CHARLES D. KISSNER
----------------------------------------
Typed Name: Charles D. Kissner
--------------------------------
Title: Chairman of the Board, President
and Chief Executive Officer
-------------------------------------
By: /s/ CARL A. THOMSEN
----------------------------------------
Typed Name: Carl A. Thomsen
--------------------------------
Title: Vice President, Chief Financial
Officer and Secretary
-------------------------------------
Address where notices to
Borrower are to be sent:
170 Rose Orchard Way
-------------------------------------------
San Jose, CA 95134
-------------------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ DEBRA C. STAIGER
----------------------------------------
Typed Name: Debra C. Staiger
--------------------------------
Title: Vice President
-------------------------------------
Address where notices to
Bank are to be sent:
530 Lytton Avenue, 2nd Floor
-------------------------------------------
Palo Alto, CA 94301
-------------------------------------------
38
<PAGE>
Schedule 7.01
EXISTING INDEBTEDNESS
As of May 31, 1997
Amount Description
------ -----------
$2,016,443 Coast Business Credit $25,000,000 facility (terminated and
paid in full as of June 30, 1997)
1,226,518 Balance of lease obligations under capital equipment and
---------- auto leases
$3,242,961 Total Indebtedness as of May 31, 1997
----------
----------
39
<PAGE>
Schedule 7.02
EXISTING LIENS
As of May 31, 1997
Amount Description
------ -----------
$2,016,443 Amount of outstanding indebtedness under Coast Business
Credit $25,000,000 facility terminated and paid in full as
of June 30, 1997, security interest filed on all receivables,
inventory and supplies related to sales of its goods and
services
1,226,518 Amount of outstanding liability under capital lease
---------- obligations for which liens are in effect on the leased
asset
$3,242,961 Total Amount of Liabilities Subject to Liens
----------
----------
40
<PAGE>
Exhibit A
DIGITAL MICROWAVE CORPORATION
COMPLIANCE CERTIFICATE
Date: _____________, 199_
Pursuant to that Credit Agreement dated as of June 30, 1997 (as amended,
modified or supplemented from time to time, the "Credit Agreement";
capitalized terms not otherwise defined herein being used herein as defined
in the Credit Agreement) between Digital Microwave Corporation (the
"Borrower") and Bank of America National Trust and Savings Association (the
"Bank"), the undersigned responsible officer, certifies that he/she is the
__________________ of the Borrower, and that, as such, he/she is authorized
to execute and deliver this Certificate, and that:
[Use this paragraph if this Certificate is delivered in connection with the
financial statements required by subsection 6.02(a) of the Credit Agreement.]
1. Attached as Schedule 1 hereto is a true and correct copy of the
Borrower's audited consolidated balance sheet as at the end of the fiscal
year ended ______________, 199_ and the related consolidated statements of
income, retained earnings and cash flow for such fiscal year, setting forth
in each case in comparative form the figures for the previous fiscal year,
and accompanied by the unqualified opinion of _____________________
[nationally-recognized independent public accounting firm].
or
[Use this paragraph if this Certificate is delivered in connection with the
financial statements required by subsection 6.02(b) of the Credit Agreement.]
1. Attached as Schedule 1 hereto is a true and correct copy of the
unaudited consolidated balance sheet of the Borrower for the fiscal quarter
ended _________________, 199_ and the related consolidated statements of
income, retained earnings and cash flow for the period commencing on the
first day and ending on the last day of such quarter and for the portion of
the fiscal year ending on the last day of such quarter.
2. The attached financial statements are complete and correct and fairly
present, in accordance with GAAP, the financial position and results of
operations of the Borrower and the Borrower's consolidated Subsidiaries.
3. The undersigned has reviewed and is familiar with the terms of the
Credit Agreement and has made, or has caused to be made under his/her
supervision, a detailed review of the
A-1
<PAGE>
transactions and conditions of the Borrower during the accounting period
covered by the attached financial statements.
4. To the best of the undersigned's knowledge, the Borrower, during such
period, has observed, performed or satisfied all of its covenants and other
agreements, and satisfied every condition in the Credit Agreement to be
observed, performed or satisfied by the Borrower, and the undersigned has no
knowledge of any Default or Event of Default (both as defined in the Credit
Agreement).
5. The following financial covenant analyses and information set forth
on Schedule 2 attached hereto are true and accurate on and as of the date of
this Certificate. All amounts and ratios in Schedule 2 refer to the
financial statements attached as Schedule 1 hereto and are determined in
accordance with the specifications set forth in the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
______________________, 199_.
DIGITAL MICROWAVE CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
A-2
<PAGE>
Date: ______________, 199__
For the fiscal quarter/year
ended ______________, 199__
SCHEDULE 2
to the Compliance Certificate
($ in 000's)(1)
ACTUAL REQUIRED/PERMITTED
------ ------------------
1. SECTION 7.13 QUICK RATIO.
The ratio of:
A. the sum of:
(i) cash
PLUS -------
-
(ii) short-term cash investments
PLUS -------
-
(iii) marketable securities not
classified as long-term
investments
PLUS -------
-
(iv) current accounts receivable
-------
-
(i)+(ii)+(iii)+(iv) = -------
-
B. Current Liabilities(2)
-------
-
A
---
B =
-------- Not less than 1.35 to 1.00.
--------
- -----------
(1) Determined on a consolidated basis, in accordance with GAAP.
(2) Including, without duplication, the dollar Equivalent Amount of all
outstanding Advances and the L/C Outstanding Amount.
A-3
<PAGE>
ACTUAL REQUIRED/PERMITTED
------ ------------------
2. SECTION 7.14 MINIMUM TANGIBLE
NET WORTH.
Tangible Net Worth: Not to be less than the sum of:
(i) Total assets A. 90% of consolidated Tangible
------ Net Worth as of
12/31/96
LESS -----------
PLUS
(ii) goodwill, patents, trademarks,
trade names, organization B. 100% of the net proceeds
expense, treasury stock, received from the issuance
unamortized debt discount and of equity after 12/31/96
expense, deferred charges and
other like intangibles and -----------
monies due from Affiliates other
than Subsidiaries of the Borrower, LESS
officers, directors, or
shareholders ------ C. up to $20,000,000 in
intangible assets acquired
LESS after 12/31/96
----------
(iii) reserves applicable thereto ------
LESS
(iv) all liabilities (including
accrued and deferred income
taxes) -------
(i)-(ii)-(iii)-(iv) = ------- A + B - C = -----------
------- -----------
A-4
<PAGE>
ACTUAL REQUIRED/PERMITTED
------ ------------------
3. SECTION 7.15 TOTAL LIABILITIES
TO TANGIBLE NET WORTH.
The ratio of:
A. Total Liabilities(3)
------
B. Tangible Net Worth (from 2.
above) ------
A
---
B Not greater than 0.75 to 1.00.
------
------
4. SECTION 7.16(a)
LOSSES IN TWO CONSECUTIVE
QUARTERS.
A. (i) Operating loss for fiscal
quarter just ended ------- Not to exceed 0 if (ii) shows
------- a loss.
(ii) Operating loss for the
fiscal quarter immediately
preceding the fiscal quarter
just ended --------
--------
B. (i) Net loss for fiscal quarter
just ended -------- Not to exceed 0 if (ii) shows
------- a loss.
(ii) Net loss for the fiscal
quarter immediately preceding
the fiscal quarter just ended -------
-------
5. SECTION 7.16(b) LOSSES IN ONE QUARTER.
Operating loss for fiscal quarter
just ended ------- Not to exceed 5% of Tangible
------- Net Worth as of immediately
preceding fiscal quarter:
Tangible Net Worth
from last quarter's
Compliance Certif-
icate Item No. 2
----------
x 5%
=
----------
----------
Net loss for fiscal quarter
just ended ------- Not to exceed 5% of Tangible
------- Net Worth as of immediately
preceding fiscal quarter
as computed above:
----------
----------
- ----------
(3) Including, without duplication, the dollar Equivalent Amount of all
outstanding Advances and the L/C Outstanding Amount.
A-5
<PAGE>
EXHIBIT B
NOTICE OF BORROWING
Date: _________________, 199_
To: Bank of America National Trust and Savings Association, (the "BANK")
Re: Credit Agreement dated as of June 30, 1997 (as extended, renewed, amended
or restated from time to time, the "CREDIT AGREEMENT") between Digital
Microwave Corporation and Bank of America National Trust and Savings
Association
Ladies and Gentlemen:
The undersigned, ___________________________ (the "BORROWER"), refers to
the Credit Agreement and hereby gives you notice irrevocably, pursuant to
Section [2.02/2.06] of the Credit Agreement, of the specified Advance requested
below. The terms defined in the Credit Agreement which are used herein have
the meanings therein defined.
1. The Business Day of the proposed Advance is __________________,
19___.
2. The aggregate amount of the proposed Advance is
[$_____________________.] [or specify the amount and currency of any
Local Currency Advances].
3. A Dollar Advance is to be a [Reference Rate] [Offshore Rate]
Advance.
4. The duration of the Interest Period for the [Offshore Rate
Advance or Local Currency Advance] shall be [_____ days] [_______ months].
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the proposed Advance,
before and after giving effect thereto and to the application of the proceeds
therefrom:
(a) the representations and warranties of the Borrower contained
in Article V of the Credit Agreement are true and correct in all material
respects as though made on and as of such date (except to the extent
such representations and warranties relate to an earlier date, in which
case they are true and correct in all material respects as of such date);
(b) no Default or Event of Default has occurred and is continuing,
or would result from such proposed Advance; and
B-1
<PAGE>
(c) The proposed Advance will not cause the aggregate principal
amount of all outstanding Advances PLUS the aggregate amount of all L/C
Outstanding Amounts to exceed the Credit Limit.
Digital Microwave Corporation
By:
-----------------------------------
Title:
--------------------------------
[By:
----------------------------------
Title: ]
--------------------------------
B-2
<PAGE>
EXHIBIT C
NOTICE OF CONVERSION/CONTINUATION
Date: _________________, 199_
To: Bank of America National Trust and Savings Association, (the "BANK")
Re: Credit Agreement dated as of June 30, 1997 (as extended, renewed, amended
or restated from time to time, the "CREDIT AGREEMENT") between Digital
Microwave Corporation and Bank of America National Trust and Savings
Association
Ladies and Gentlemen:
The undersigned, ___________________________ (the "BORROWER"), refers to
the Credit Agreement and hereby gives you notice irrevocably, pursuant to
Section 2.03 of the Credit Agreement, of the [conversion] [continuation] of
the Advances specified herein. The terms defined in the Credit Agreement
which are used herein have the meanings therein defined.
1. The conversion/continuation Date is _____________,
19____.
2. The aggregate amount of the Advances to be [converted]
[continued] is $_____________.
3. The Advances are to be [converted into] [continued as]
[Reference Rate] [Offshore Rate] Advances.
4. [If applicable:] The duration of the Offshore Rate Interest
Period for the Advances included in the [conversion] [continuation]
shall be [_____ days] [_____ months].
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the proposed conversion/continuation
Date, before and after giving effect thereto and to the application of the
proceeds therefrom:
(a) the representations and warranties of the Borrower contained
in Article V of the Credit Agreement are true and correct in all material
respects as though made on and as of such date (except to the extent
such representations and warranties relate to an earlier date, in which
case they are true and correct in all material respects as of such date);
C-1
<PAGE>
(b) no Default or Event of Default has occurred and is continuing,
or would result from such proposed [conversion] [continuation][; and
(c) the proposed [conversion][continuation] will not cause the
aggregate principal amount of all outstanding Advances PLUS the aggregate
amount of all L/C Outstanding Amounts to exceed the Credit Limit.
Digital Microwave Corporation
By:
-----------------------------------
Title:
--------------------------------
[By:
----------------------------------
Title: ]
--------------------------------
C-2
<PAGE>
LEASE
180 Rose Orchard Way
San Jose, California
(For a portion of Building E at Technology Centre)
LANDLORD: Metropolitan Life Insurance Company
a New York corporation
TENANT: Digital Microwave Corporation
a Delaware corporation
<PAGE>
LEASE
BASIC LEASE INFORMATION
- -------------------------------------------------------------------------------
A. REFERENCE DATE: April 5, 1995
B. LANDLORD: Metropolitan Life Insurance Company
a New York Corporation
C. TENANT: Digital Microwave Corporation
a Delaware Corporation
D. TRADE NAME (if any):
E. GUARANTOR (if any): N/A
F. PREMISES (Paragraph 1, Exhibit A):
Approximately 12,333 square feet of Rentable Area, known as 180
Rose Orchard Way, located in the City of San Jose, County of Santa
Clara, State of California, more particularly described as
Building E in Exhibit A hereto.
Project:
The building, other buildings, landscaping, parking spaces,
roadways and walkways on the land commonly known as Technology
Centre, San Jose, California. A general site plan of the plan of
the Project is set forth in Exhibit A hereto.
G. PARKING SPACES (Paragraph 29):
Nonexclusive use of 52 Parking Spaces.
H. TERM (Paragraph 2):
Projected Commencement Date: June 1, 1995
Expiration Date: September 30, 2001
I. BASE ANNUAL RENT (Paragraph 5):
Advance Rent payable upon Tenant's execution: eight thousand nine
hundred forty one dollars and forty two cents ($8,941.42).
Base Annual Rent: One hundred seven thousand two hundred ninety
seven dollars and four cents ($107,297.04).
Monthly Installments:
Months 1 through 75: Eight thousand nine hundred forty one dollars
and forty two cents ($8,941.42).
-i-
<PAGE>
J. PERMITTED USE (Section 4.1):
Subject to the prohibition of Hazardous Material and other
limitations and provisions of this Section, the Premises shall be
used only for general office, research and development, light
manufacturing and assembly.
K. ADDRESS FOR NOTICES (Paragraph 38):
To Landlord: With Copies to:
Metropolitan Life Insurance Company Metropolitan Life Insurance Company
One Madison Avenue 101 Lincoln Centre Drive, 6th Floor
New York, New York 10010 Foster City, California 94404
Attention: Senior Vice President Attention: Assistant Vice President
To Tenant:
BEFORE COMMENCEMENT DATE: AFTER COMMENCEMENT DATE:
Digital Microwave Corporation Digital Microwave Corporation
170 Rose Orchard Way 180 Rose Orchard Way
San Jose, California 95134 San Jose, California 95134
Attention: Vice President Attention: Vice President
L. TAXES AND OPERATING COSTS (Paragraph 7, 8 and 9)
Tenant's Proportionate Share of Building: 22.38%
Tenant's Proportionate Share of Project: 3.15%
Tenant's Proportionate Share of Lot: 22.36%
M. SECURITY DEPOSIT (Article 24):
Eight thousand nine hundred forty one dollars and forty two cents
($8,941.42).
N. BROKER(S) (Paragraph 34):
Commercial Property Services Co.
1740 Technology Drive, Suite 180
San Jose, California 95110
Attention: Sutton Roley
License No. 00707261
COOPERATING BROKERS:
Parrish Colliers International
1960 The Alameda, Suite 100
San Jose, California 95110
Attention: Martin A. Morici
-ii-
<PAGE>
License No. 00490878
The General Lease Provisions identified above in parentheses are those
provisions making reference to above-described Basic Terms. Each such
reference in the General Lease Provisions each comprise a part of this lease,
and in the event of any conflict between the Summary of Basic Terms and the
General Lease Provisions, the latter shall control.
TENANT: LANDLORD:
Digital Microwave Corporation Metropolitan Life Insurance Company
a Delaware Corporation a New York Corporation
By: /s/ CARL A. THOMSEN By: /s/ EDWARD J. HAYES
------------------------------- -------------------------------
CARL A. THOMSEN EDWARD J. HAYES
------------------------------- -------------------------------
Its: VP - CFO Its: Assistant Vice President
------------------------------- ------------------------------
-iii-
<PAGE>
TABLE OF CONTENTS
PAGE
PARAGRAPH DESCRIPTION NUMBER
1. Premises ............................................ 1
2. Term ................................................ 1
3. Construction of Premises ............................ 1
4. Acceptance by Tenant ................................ 2
5. Common Areas ........................................ 2
6. Rent ................................................ 2
7. Security Deposit .................................... 3
8. Operation Expenses .................................. 3
9. Taxes ............................................... 5
10. Utilities ........................................... 6
11. Use ................................................. 6
12. Compliance With The Law ............................. 7
13. Alterations and Additions ........................... 7
14. Repairs and Maintenance ............................. 9
15. Waste ............................................... 9
16. Liens ............................................... 9
17. Assignment and Subletting ........................... 10
18. Indemnity ........................................... 12
19. Damage to Premises or Building ...................... 13
20. Tenant's Insurance .................................. 13
21. Ad Valorem Taxes .................................... 14
22. Waiver .............................................. 15
23. Entry by Landlord ................................... 15
24. Casualty Damage ..................................... 16
25. Condemnation ........................................ 17
26. Tenant's Default .................................... 19
27. Remedies for Tenant's Default ....................... 20
28 Surrender of Premises ............................... 21
-iv-
<PAGE>
29. Default by Landlord ................................. 22
30. Parking ............................................. 22
31. Estoppel Certificate ................................ 23
32. Sale of Premises .................................... 23
33. Subordination, Attornment ........................... 23
34. Authority of Parties ................................ 24
35. Brokers ............................................. 24
36. Holding Over ........................................ 24
37. Rules and Regulations ............................... 25
38. General Provisions .................................. 25
39. Notices ............................................. 28
40. Intentionally deleted ............................... 28
41. Cross Default ....................................... 28
42. Intentionally deleted ............................... 29
43. Tenant's Right of First Opportunity to Negotiate .... 29
44. Hazardous Materials ................................. 31
LIST OF EXHIBITS
Exhibit A. Property Description
Exhibit B Tenant Improvements
Exhibit C Rent Schedule
Exhibit D Intentionally deleted
Exhibit E Rules and Regulations
Exhibit F Intentionally deleted
Exhibit G Building G Lot
-v-
<PAGE>
TECHNOLOGY CENTRE
LEASE AGREEMENT
(180 Rose Orchard Way)
This Technology Centre Lease Agreement (180 Rose Orchard Way) ("Lease")
is made and entered into as of April 5, 1995 ("Lease Date") by and between
Digital Microwave Corporation, a Delaware corporation ("Tenant"), whose
address is 170 Rose Orchard Way, San Jose, California 95134, and Metropolitan
Life Insurance Company, a New York corporation ("Landlord"), whose address is
101 Lincoln Centre Drive, 6th Floor, Foster City, California 94404.
This Lease sets forth the lease terms, covenants and conditions with
respect to the Premises (as defined hereinbelow):
The Basic Lease Information set forth on the cover page and this Lease
are and shall be construed as a single instrument.
1. PREMISES: Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord upon the terms and conditions contained herein the Premises in the
Building included in Technology Centre, which are more particularly described
in Exhibit A attached hereto and made a part hereof (the "Premises") and the
tenant improvements (the "Tenant Improvements") thereon to be constructed in
accordance with Exhibit B, attached hereto and made a part hereof. As
hereinafter used in this Lease, the term "Building" shall refer to a portion
of the entire structure in which the Premises are located, the term "Lot"
shall refer to the Assessor's tax parcel on which the Building is situated,
and the term "Project" shall refer to Technology Centre project as shown on
Exhibit A.
2. TERM: The term of this Lease (the "Term") shall be as shown in Item H
of the Summary of Basic Terms and shall commence on the first to occur of
seven days after the date on which Landlord substantially completes the
construction of the Tenant Improvements in accordance with the Work Letter
and tenders possession of the same to Tenant (regardless of whether Tenant
takes possession of the Premises on such date), such earlier date as Tenant
takes possession or commences use of the Premises for any purpose, other than
as permitted under the Work Letter, or such earlier date required by the
terms of the Work Letter or this Lease (the "Commencement Date"). As used
herein, Landlord shall be deemed to have "substantially completed" the Tenant
Improvements when the work of constructing the Tenant Improvements is
complete, as stated in a notice prepared by Landlord's architect,
notwithstanding that minor details of construction, mechanical adjustments or
decorations which do not materially interfere with Tenant's use of the
Premises (so-called "punchlist" items) remain to be performed or that
Tenant's furniture, telephones, telecopiers, photocopiers, computers and
other business machines or equipment have not been installed by Tenant.
Notwithstanding the foregoing, the Commencement Date shall be advanced one
(1) day for each day of Tenant Delay, as defined in the Work Letter. The
actual Commencement Date and the resulting expiration date (the "Expiration
Date") shall be confirmed by Landlord in writing to Tenant upon such
commencement.
3. CONSTRUCTION OF PREMISES: Landlord shall have no obligation to
improve, alter, repair or remodel the Premises for occupancy by Tenant. All
existing installations
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and improvements in the nature of real property or fixtures shall be and
remain the property of Landlord.
4. ACCEPTANCE BY TENANT: Neither Landlord nor Landlord's representatives
have made any representations or promises with respect to the Project,
Building or the Premises except as herein expressly set forth. Tenant
acknowledges and agrees: (a) that Tenant has been afforded ample opportunity
to inspect the Premises and the Building, and has investigated their
conditions to the extent Tenant desires to do so, including their
environmental conditions, and (b) that Landlord has no obligation to remodel
or to make any repairs, alterations or improvements to the Premises or the
Building or remediate any condition therein, except as expressly provided in
the Lease. Except as expressly provided in Paragraph 2 with respect to
punchlist items, the taking of possession of the Premises by Tenant shall be
conclusive evidence, as against Tenant, that Tenant accepts the same in its
then "As Is" conditions and that the Premises, the Building and the Project
were in good and satisfactory condition at the time such possession was so
taken, and that the Tenant Improvements are constructed in accordance with
the criteria set forth in Exhibit B.
5. COMMON AREAS: The term "Common Areas" shall refer to all areas and
facilities outside the Premises and within the Project that are provided and
designated by Landlord from time to time for the general nonexclusive use of
Landlord, Tenant, and of other tenants in the Project and their
representative employees, suppliers, shippers, customers, and invitees.
Landlord hereby grants to Tenant, during the term of this Lease, the
nonexclusive right to use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rules,
regulations, and restrictions governing the use of the Project. Under no
circumstances shall the right granted herein to use the Common Areas be
deemed to include the right to store any property in the Common Areas.
Landlord reserves the right at any time to make alterations in or additions
to the Project and to the Common Areas.
6. RENT:
a. Tenant agrees to pay to Landlord as base rent for the Premises,
without prior notice or demand, the amount of base rent set forth in the
Basic Lease Information on the cover page and as shown on the Rent Schedule
attached hereto as Exhibit C and made a part hereof. The term "Rent" as used
herein shall mean all amounts payable to Landlord under this Lease whether or
not characterized as Rent hereunder, including, but not limited to, the base
rent set forth in Exhibit C, late charges, administrative fees, interest
payments, as well as Tenant's, share of Operating Expenses, as specified in
Paragraph 8, Taxes as specified in Paragraph 9, Utilities referred to in
Paragraph 10 below, and the term "Rent" wh enever used herein refers to all
these amounts.
b. Rent shall be payable on or before the first day of each month,
throughout the term of the Lease, except that the first month's Rent shall be
paid upon the execution of this Lease. Rent for any period during the term
hereof which is for less than one (1) month shall be a prorated portion of
the monthly installment based upon a thirty (30) day month. Rent shall be
paid in full without abatement, deduction, or offset. Tenant shall pay Rent
to Landlord at 101 Lincoln
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Centre Drive, 6th Floor, Foster City, California 94404, Attention: Assistant
Vice President, or to such other person or at such other place as Landlord
may from time to time designate in writing.
c. The Rent has been established in contemplation that Tenant will
occupy the Premises for the entire term. In the event of an assignment or
sublease of the Lease, Landlord and Tenant have agreed that Landlord shall
have the rights provided in paragraph 17 of this Lease and Tenant expressly
acknowledges and agrees that such agreement was a material inducement to
Landlord in establishing the Rent and that Landlord has relied on this
agreement in executing this Lease.
7. SECURITY DEPOSIT: Upon execution of this Lease, Tenant shall deposit
with Landlord the sum shown in the Basic Lease Information on page 1 as
security for the fall and faithful performance by Tenant of the provisions of
this Lease (the "Security Deposit"). If Tenant is in default, Landlord may
use the Security Deposit, or any portion of it, to cure the default or to
compensate Landlord for all damage which Landlord may suffer by reason of
Tenant's default. Tenant shall immediately on demand pay to Landlord a sum
equal to the portion of the Security Deposit expended or applied by Landlord
as provided in this paragraph so as to maintain the Security Deposit in the
sum initially deposited with Landlord. At the expiration or termination of
this Lease, Landlord shall return the Security Deposit to Tenant, less such
amounts as are reasonably necessary to remedy Tenant's defaults in payment of
Rent, to repair damages to the Premise caused by Tenant or to clean the
Premises upon such termination, as soon as practicable thereafter.
Landlord's obligations with respect to the Security Deposit are those of a
debtor and not a trustee. Landlord can maintain the security deposit
separate and apart from Landlord's general funds or can commingle the
Security Deposit with Landlord's general and other funds. Landlord shall not
be required to pay Tenant interest on the Security Deposit.
8. OPERATING EXPENSES:
a. As additional Rent, Tenant shall pay currently Tenant's
proportionate share of all Operating Expenses which is that percentage set
forth in the Basic Lease Information on page 1 as "Tenant's Proportionate
Share of the Project" and "Tenant's Proportionate Share of the Building".
The term "Operating Expenses" means the total amounts paid or payable by
Landlord or others on behalf of Landlord in connection with the ownership,
maintenance, repair, and operation of the Premises, the Building, and the
Project, and includes, but is not limited to, the amount paid for all hot and
cold water, the amount paid for Project lighting; the amount paid for all
labor and/or wages and other payments including cost to Landlord of Workmen's
Compensation and disability insurance, payroll taxes, welfare and fringe
benefits made to janitors, employees, building, managers, contractors, and
subcontractors of the Landlord involved in the operation, maintenance, repair
and restoration of the Building, the cost of maintenance and repair of the
roof, landscaping, sidewalks, driveways, parking lots, fences and other
exterior Common Areas; modifications to the Building occasioned by any rules,
regulations, or laws effective subsequent to the Commencement Date; permits,
licenses, and certificates necessary to operate and manage the Building;
managerial fees and managerial, administrative, and telephone expenses
related to the Building , the total charges of any independent contractors
employed in the care and operation, maintenance, leasing; cleaning, repair,
and restoration of the Building and the Project
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landscaping; the amount paid for all supplies, tools, equipment, and
necessities which are occasioned by everyday wear and tear; the costs of
window and exterior wall cleaning; the cost of accounting services necessary
to compute the Rent and charges payable by tenants; legal, inspection, and
consulting services; and the amount paid for premiums for all insurance
required from time to time, by Landlord or Landlord's mortgages.
b. Tenant acknowledges that Landlord shall have no obligation
whatsoever to provide guard service or other security measures for the
benefit of the Premises or Project. Should Landlord elect to provide
security protection for the Project, the cost of guards and other protection
services shall be included within the definition of Operating Expenses.
c. Operating expenses shall not, however, include interest on debt,
capital retirement of debt, depreciation, expenses properly chargeable to
capital account except for capital expenditures primarily designed to reduce
operating expenses or as required or reasonably requested by governmental
authority (which capital expenditures shall be amortized over such reasonable
period. not exceeding five (5) years, as Landlord shall determine), and
expenses directly chargeable by the Landlord to any tenant or tenants. The
term "Operating Expenses" shall also not include (i) advertising costs, legal
fees or brokerage commissions incurred in connection with entering into any
lease; (ii) repairs, alterations, additions, improvements or replacements
made to rectify or correct any defect in the design, materials or workmanship
of the Building or Common Areas; (iii) damage and repairs attributable to
fire or other casualty in excess of any deductible payable by Landlord
pursuant to any insurance policy carried by Landlord, or to condemnation;
(iv) damage and repairs covered under any insurance policy carried by
Landlord in connection with the Building or Common Areas in excess of any
deductible; (v) damage and repairs necessitated by the sole active negligence
or willful misconduct of Landlord or Landlord's employees, contractors or
agents; (vi) executive salaries or salaries of service personnel to the
extent that such service personnel perform services other than in connection
with the management, operation, repair or maintenance of the Building or
Common Areas; (vii) Landlord's general overhead expenses not related to the
Building or Common Areas; (viii) legal fees, accountant fees and other
expenses incurred in connection with disputes with other tenants or other
tenants or other occupants of the Building or associated with the enforcement
of any leases or defense of Landlord's title to or interest in the Building
or any part thereof; (ix) any other expense which is in excess of those that
would be reasonable incurred by prudent operators and managers of similar
buildings in similar projects. The reference to "Building" in this paragraph
shall include all corridors, lobbies, sidewalks, loading areas, and parking
areas, if any, and driveways and other public areas in or around the
Building. Notwithstanding the provisions of this paragraph 8, Tenant agrees
that any cost or expense which arises from Tenant's particular use or
occupancy of the Building shall be paid in full by Tenant upon demand from
Landlord.
d. Failure of Tenant to pay any of the foregoing amounts and charges
shall constitute a default under the terms hereof in like manner as failure
to pay Rent when due.
e. The Operating Expense amounts set forth above shall be paid as
follows: Landlord shall determine or estimate the amount due for the calendar
year in which the Lease or occupancy commences. Commencing on the earlier of
the Commencement Date or the date the
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occupancy commences, one twelfth (1/12) of the amount due or estimated by
Landlord to be due shall be paid by Tenant to Landlord on the first day of
each month of the remaining months of the calendar year. Thereafter,
Landlord may estimate such increases as of the beginning of each calendar
year and require Tenant to pay one-twelfth (1/12) of such estimated amount as
additional Rent hereunder as of the first of each month. Not later than March
31st of the following calendar year or as soon thereafter as reasonably
possible, including the year following the year in which this Lease
terminates, Landlord shall endeavor to Furnish Tenant with a true and correct
accounting of actual costs with respect to the items set forth above, which
accounting shall be binding on Tenant, and within thirty (30) days of
Landlord's delivery of such accounting, Tenant shall pay to Landlord the
amount of any underpayment. Notwithstanding the foregoing failure by
Landlord to give such accounting by such date shall not constitute a waiver
by Landlord of its right to collect Tenant's share of any underpayment
Landlord shall credit the amount of any overpayment of Tenant toward the next
Rent falling due, or where the term of the Lease has expired, refund the
amount of overpayment (less any other payments Tenant is obligated to make to
Landlord under this Lease then due and payable) to Tenant. Landlord may upon
notice to Tenant change from a calendar year period for estimating Operating
Expenses to any other twelve (12) consecutive month period, and in the event
of any such change Tenant's proportionate share of Operating Expenses shall
be equitably adjusted. Landlord shall not recover, through Operating
Expenses, any item of cost more than once.
f. Tenant shall have the right on an annual basis to inspect
Landlord's annual reconciliation of Operating Expenses in order to verify the
accuracy of Landlord's allocation of Operating Expenses. To the extent of
any overpayment by Tenant, Landlord shall credit the amount of such
overpayment toward the next estimated monthly installment(s) falling due, or
where the term of the Lease has expired, refund the amount of overpayment
(less any other payments Tenant is obligated to make to Landlord under this
Lease, than due and payable) to Tenant. To the extent such reconciliation
shows an underpayment (the "Shortfall") of Operating Expenses, Tenant shall
pay the Shortfall within five (5) business days of Landlord's request for
payment. Under no circumstances shall Tenant withhold estimated payments of
Operating Expenses or of the Shortfall, however Tenant shall have the right
to inspect the invoices used in the preparation of Landlord's annual
reconciliation. So long as the Operating Expenses are in conformance with
this Paragraph 8 such accounting shall be binding on Tenant.
9. TAXES:
a. Tenant shall pay as additional Rent Tenant's proportionate of all
Taxes applicable to the land, improvements, fixtures, and equipment included
within the Lot. Tenant's proportionate share of the Taxes is that percentage
set forth in the Basic Lease Information on page 1 as "Tenant's share of the
Lot". The term "Taxes" includes any form of assessment, general, special,
ordinary or extraordinary, commercial rental tax, improvement bond or bonds,
license fee, license tax, rental tax, levy, penalty, or tax other than
inheritance or estate taxes imposed by any authority having the direct or
indirect power of tax, including any city, county, state, or federal
government or any school, agricultural, lighting, drainage, or other
improvement district hereof, as against any legal or equitable interest of
Landlord in the Premises or in the real property of which the Premises are a
part, as against Landlord's right to Rent or other income
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therefrom, or as against Landlord's business of leasing the Premises or the
occupancy of Tenant, or any other tax, fee, or excise, however described,
including any value added tar, or any tax or any tax imposed substitution,
partially or totally, for any of the foregoing or otherwise. Taxes shall also
include reasonable legal fees and costs incurred in connection with
proceedings to contest, determine, or reduce taxes. The term "Taxes" shall
not include (i) any state, local, federal, personal or corporate income tax
measured by the income of Landlord from all sources or from sources other
than rent alone; (ii) any franchise, succession or transfer taxes; or (iii)
interest on taxes or penalties resulting from Landlord's failure to pay taxes.
b. Taxes shall be paid as follows: Landlord shall determine or
estimate the amount due for Tenant's share of the Taxes for the calendar year
in which the Lease or occupancy commences. Commencing on the earlier of the
Commencement Date or the date the occupancy commenced, one-twelfth (1/12) of
the amount due or estimated by Landlord to be due shall be paid by Tenant to
Landlord on the first day of each month of the remaining months of the
calendar year. Thereafter, Landlord may estimate the amount of Tenant's share
of the Taxes as of the beginning of each calendar year and require Tenant to
pay one-twelfth (1/12) of such estimated amount as additional Rent hereunder
as of the first of each month. As soon as reasonably possible after Landlord
has received the tax bill for the year, Landlord shall endeavor to furnish
Tenant with a true and correct tax statement, and within thirty (30) days of
Landlord's delivery of such statement, Tenant shall pay to Landlord the
amount of any underpayment. Landlord shall credit the amount if any
overpayment of Tenant toward the next estimated monthly installment(s)
falling due, or where the term of the Lease has expired, refund the amount of
overpayment to Tenant.
c. Tenant shall pay before delinquent all taxes assessed against
and upon equipment, furniture, fixtures, and other personal property of
Tenant.
10. UTILITIES: Tenant shall be solely responsible for paying the cost of
all utilities, including, but not limited to, sewer use and connection fees,
water, gas, heat, electricity, telephone, and other utilities (the
"Utilities") billed or metered separately to Tenant. Landlord may in its
sole discretion at any time during the term of the Lease install or cause
submeters to be installed or otherwise cause the Utilities to be separately
metered for the Premises in which case Tenant shall reimburse Landlord any
cost incurred as a result of the installation of the separate meter(s) and
shall reimburse Landlord for Tenant's actual Utility use. If the Utilities
are not separately billed to Tenant, Tenant shall pay to Landlord within
fifteen (15) days after receiving a bill from Landlord a proportionate share
of the Utilities billed to the Building. Tenant's proportionate share of the
Utilities shall be that percentage set forth in the Basic Lease Information
on page 1 as "Tenant's Share of the Building" or in Landlord's sole
discretion the amount that is actually attributable to Tenant's use.
11. USE: Tenant shall use the Premises solely for the uses set forth in
the Basic Lease Information on page 1 and shall not use the Premises for any
other purpose without obtaining the prior written consent of Landlord.
Tenant warrants that it shall not make any use of the Premises which may
cause contamination of the soil, the subsoil or ground water. Tenant shall
not do, bring, or keep anything in or about the Premises that will cause a
cancellation of any insurance covering the Premises. If the rate of any
insurance carried by Landlord is increased as a result of
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Tenant's use, Tenant shall pay to Landlord within thirty (30) days before the
date Landlord is obligated to pay a premium on the insurance, or within ten
(10) days after Landlord delivers to Tenant a certified statement from
Landlord's insurance carrier stating that the rate increase was caused solely
by an activity of Tenant on the Premises as permitted in this Lease,
whichever date is later, a sum equal to the difference between the original
premium and the increased premium.
Tenant acknowledges that the Premises may become subject to certain
covenants, conditions, and restrictions (the "CC&R's"). After CC&R's
affecting the Project are recorded, Landlord shall deliver a copy of the same
to Tenant and thereafter throughout the term of this Lease and any extensions
thereof, Tenant shall faithfully and timely perform and comply with the
CC&R's and any modification or amendments thereof. Tenant shall hold
Landlord harmless and indemnify Landlord against any loss, expense, damage,
attorney's fees, and costs or liability arising out of the failure of Tenant
to so perform or comply with the CC&R's.
12. COMPLIANCE WITH THE LAW: Tenant shall not use the Premises or permit
anything to be done in or about the Premises which will in any way conflict
with any law, statute, zoning restriction, ordinance or governmental law or
rule, regulation, or requirement of any duly constituted public authorities
now in force or which may hereafter be enacted or promulgated or subject
Landlord to any liability for injury to any person or property by reason of
any business operation being conducted in or about the Premises. Tenant
shall not store any hazardous materials on the Premises without the prior
written approval of Landlord and shall not cause any hazardous materials to
be placed in the sewage or any other drainage system in the Park. Tenant
shall, at its sole cost and expense, promptly comply with all laws, statutes,
ordinances, and governmental rules, regulations, or requirements of any board
or fire insurance underwriters or other similar bodies, now or hereafter
constituted, relating to or affecting the condition, use, or occupancy of the
Premises, excluding structural changes not related to or affected by Tenant's
improvements or acts. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any law, statute, ordinance,
or governmental rule, regulation, or requirement, shall be conclusive of that
fact as between Landlord and Tenant.
13. ALTERATIONS AND ADDITIONS:
a. Tenant shall not make or suffer to be made any alterations,
additions, or improvements to or of the Premises, or any part thereof
("Alterations"), without first obtaining the written consent of Landlord.
Any Alterations to or of said Premises, including, but not limited to, wall
covering, paneling, and built-in cabinet work, but excepting movable
furniture and trade fixtures, shall on the expiration of the term become a
part of the realty and belong to Landlord, and shall be surrendered with the
Premises. Before such consent will be given Tenant shall submit detailed
specifications, floor plans and necessary permits (if applicable) to Landlord
for review. In no event shall any Alterations affect the structure of the
Building or its facade. As a condition to its consent, Landlord may request
adequate assurance that all contractors who will perform such work have in
force workmen's compensation, and such other employee and public liability
insurance as Landlord deems necessary to supplement the insurance coverage
provided for in Paragraph 20 below, and where the Alterations are material,
Landlord may require Tenant, or its
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contractors to post adequate completion and performance bonds. In the event
Landlord consents to the making of any alterations to the Premises by Tenant,
the same shall be made by Tenant at Tenant's sole cost and expense, completed
to the satisfaction of Landlord, and any contractor or person selected by
Tenant to make the same must first be approved in writing by Landlord.
b. In the event Landlord is required to make modifications to the
Budding as the result of any rules, regulations, or laws promulgated by any
governmental entity after the Commencement Date, such compliance by Landlord
and the making of such alterations shall in no event entitle Tenant to any
damages, relieve Tenant of its obligations to pay Rent, or be construed as a
constructive eviction of Tenant.
c. Tenant may make non-structural Alterations wholly within the
Premises without the consent of Landlord if such Alterations shall cost less
than $5,000; all non-structural Alterations costing in excess of $5,000 shall
require the prior written consent of Landlord which consent shall not be
unreasonably withheld; provided, however, that as a condition to the granting
of Landlord's consent, Tenant shall pay to Landlord the unamortized cost of
any tenant improvements installed and paid for (whether prior to or during
the term of this Lease) by or on behalf of Landlord which Tenant proposes to
remove by virtue of such Alterations. Tenant will advise Landlord at least
five (5) business days prior to its commencement of Alterations to permit
Landlord to post an appropriate notice of non-responsibility. Tenant will
deliver to Landlord copies of as-built drawings upon completion of the
Alterations.
d. Subject to Tenant's right to leave (with Landlord's permission)
Tenant Improvements in the Premises, Tenant shall save, indemnify and hold
Landlord harmless from any loss, cost or expense whatsoever with respect to
any alterations authorized pursuant to Paragraph 14a below. In addition,
Tenant shall comply with the requirements of Landlord with respect to the
time and manner of construction, the removal of debris and such other matters
as Landlord shall reasonably require; whether or not Landlord shall be
required to approve Alterations.
e. At the same time Tenant submits detailed specifications. floor
plans and necessary permits to Landlord for review for the purpose of
obtaining Landlord's consent to any proposed Alterations Tenant may request
Landlord to indicate whether or not such proposed Alterations is to be
removed from the Premises upon the expiration of the Term of this Lease and
whether Tenant is to perform all restoration made necessary by the removal of
any such Alterations. In the event Tenant does not request Landlord to make
such indication, or when Tenant does not obtain Landlord's prior consent to
any Alterations pursuant to this Lease, Landlord shall have the right to
require Tenant to remove any Alterations and to perform all restoration made
necessary by such removal. Tenant shall have the right to remove any
Alterations installed at its sole expense if such removal does not cause
structural damage to the Building and if Tenant repairs any other damage to
the Building caused by the installation or removal of said Alterations.
f. Whether or not the Landlord has the right to approve in advance
any Alterations, all such Alterations (i) shall be done in a good and
workmanlike manner; (ii) shall be
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performed by contractors who or which shall be subject to Landlord's prior
approval, which approval shall not be unreasonably withheld or unduly delayed
and (iii) shall comply with all other terms, covenants and conditions of this
Lease.
14. REPAIRS AND MAINTENANCE:
a. Tenant acknowledges that the Premises is in good, sanitary order,
condition and repair. Tenant shall, at Tenant's sole cost and expense,
maintain the Premises, and the areas adjacent thereto in good, clean and safe
condition and repair. Without limiting the generality of the foregoing,
Tenant shall be solely responsible for maintaining and repairing all
plumbing, heating, air conditioning, ventilation, electrical fighting,
ceilings, flooring, windows, doors, plate glass, skylights, and interior
walls. Except as required for the maintenance and repair of the heating,
ventilation and air conditioning systems, Tenant shall have no right of entry
or access to the roof of the Building, and only qualified installation or
repair personnel shall be permitted access to the roof for such purposes.
Tenant shall obtain heating, ventilating, and air conditioning systems,
preventative maintenance contracts with monthly service, which shall be
subject to the reasonable approval of Landlord, paid for by Tenant and which
shall provide for and include without limitation replacement of filters,
oiling and lubricating of machinery, parts replacement adjustment of drive
belts, oil changes, and other preventive maintenance; provided, however, that
Tenant shall have the benefit of all warranties available to Landlord
regarding the equipment in said systems. Landlord reserves the alternative
right to procure and maintain heating, ventilating, and air conditioning
systems, maintenance contracts and if Landlord so elects, Tenant shall
reimburse Landlord, upon demand, for the cost thereof. Tenant waives the
provisions of Sections 1941 and 1942 of the California Civil Code, and any
similar or successor law regarding Tenant's right to make repairs and deduct
the expenses of such repairs from the Rent due under this Lease.
b. Landlord shall be responsible for all structural repairs to the
Building and shall maintain the roof, sidewalks, and foundations of the
Building in good, clean and safe condition and repair. Landlord shall be
entitled to approve the sealing of any roof penetrations caused by any
Alterations, which approval shall not be unreasonably withheld. Landlord
shall also maintain all landscaping, driveways, parking lots, fences, signs,
sidewalks and other exterior Common Areas of the Park.
c. Tenant's obligation to repair shall not extend to (i) damage
caused in whole or in part by the sole active negligence or willful
misconduct of Landlord or Landlord's agents, employees, invitees or
licensees, but only to the extent attributable to Tenant or such other
parties; (ii) except as provided in Paragraph 24 of the Lease, damage due to
fire, earthquake, acts of God, the elements or other casualty; or (iii)
damage caused by Landlord's failure to comply with the provisions of this
Lease, including Landlord's repair obligations.
15. WASTE: Tenant shall not use the Premises in any manner that will
constitute waste, nuisance, or unreasonable annoyance to owners or occupants
of adjacent properties or to other tenants of the Building.
16. LIENS: Tenant shall keep the Premises and the property on which the
Premises are situated free from any liens arising out of any work performed,
materials furnished, or obligations
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incurred by Tenant. Landlord may require, at its sole option, that Tenant
shall provide to Landlord, at Tenant's sole cost and expense, labor and
materials or a completion bond in an amount equal to one and one-quarter
(1-1/4) times any and all estimated cost of any improvements, additions, or
alterations to the Premises, to insure Landlord against any liability for
mechanics' and materialmens' liens and to insure completion of work.
Landlord may, at its election, and upon ten (10) days' notice to Tenant,
remove any liens, in which case Tenant shall pay to Landlord the cost of
removing the lien, including attorney's fees. Landlord shall have the right
at all times to post on the Premises any notices permitted or required by law
for the protection of Landlord, the Premises, or the Building from mechanics'
and materialmens' liens.
17. ASSIGNMENT AND SUBLETTING:
a. Tenant shall not, either voluntarily or by operation of law,
assign, transfer, mortgage, pledge, hypothecate, or encumber this Lease or
any interest therein, nor sublet the Premises or any part thereof, or any
right or privilege appurtenant thereto, without the prior written consent of
the Landlord, which consent shall not be unreasonably withheld. Any
attempted assignment, transfer, mortgage, encumbrance, or subletting without
such consent shall be void and shall constitute a breach of this Lease
without the need for notice to Tenant. Tenant shall give Landlord at least
ninety (90) days' written notice of Tenant's desire to assign or sublet all
or some portion of the Premises and the date on which Tenant wishes to make
such assignment or sublease. The withholding of Landlord's consent to any
assignment or sublease shall be deemed to have been reasonable if
(i) the use to be made of the Premises by the proposed
assignee or subtenant (1) is not consistent with the character or
nature of all other tenancies in the Project or a use permitted
under this Lease; (2) conflicts with any so-called "exclusive use"
clause then given in favor of another tenant of the Project, or (3)
would be prohibited by any other provision in this Lease (including
but not limited to any Rules and Regulations then in effect; or
(ii) the character, business history, moral stability,
reputation or financial soundness and responsibility of the
proposed assignee or subtenant are not reasonably satisfactory to
Landlord; or
(iii) the proposed assignee or subtenant is a then-existing or
prospective tenant of the Project; or
(iv) Landlord withholds its consent pursuant to any other
provision of this Lease.
(b) If Landlord's consent to the assignment or subletting cannot
reasonably be withheld, Landlord shall then have a period of thirty (30) days
following receipt of such notice within which to notify Tenant in writing
that Landlord elects either (i) to terminate this Lease as to that portion of
the Premises so affected as of the date so specified by Tenant, in which
event Tenant will be relieved of all further obligations hereunder as to such
portions of the Premises, or (ii) to permit Tenant to make such assignment or
sublease subject to the following:
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(1) Any such assignment, sublease or the like must be pursuant to
a written agreement in a form acceptable to Landlord and must provide
that such assignee, subtenant, or other transferee agrees to be bound
by all the terms and conditions of this Lease. No sublease or
assignment by Tenant shall relieve Tenant of any liability hereunder.
Any sublease must provide that Tenant (Sublessor) has the right to
reenter the Premises upon termination of such sublease. No subtenant
shall further assign or sublet all or any part of the Premises without
Landlord's prior written consent.
(2) It is the intent of both Landlord and Tenant that the purpose
of any assignment or sublease is to aid Tenant in meeting its
obligations under this Lease and not to allow Tenant to gain
financially from any such assignment or sublease. To this end it is
agreed that fifty percent (50%) of any sums or other economic
consideration received by Tenant as a result of any such assignment or
sublease, whether denominated as rent under the assignment or sublease
or otherwise (less (i) any rent or other payments received which are
attributable to the cost of leasehold improvements made to the Premises
or the portion thereof to be occupied by the assignee or subtenant for
such assignee or subtenant amortized over the term of the assignment or
sublease and paid for by Tenant and (ii) any legal fees and leasing
commissions, if any, paid by Tenant amortized over the term of the
assignment or sublease) which exceed in the aggregate the monthly
payments of rent which Tenant is obligated to pay Landlord under this
Lease (prorated if appropriate, to reflect obligations allocable to that
portion of the Premises subject to any such sublease), shall be payable
to Landlord as Rent under this Lease without affecting or limiting any
other obligations of Tenant hereunder.
(3) Tenant immediately and irrevocably assigns to Landlord, as
security for Tenant's obligations under this lease, all Rent from any
subletting of all or a part of the Premises as permitted by this Lease,
and Landlord, as assignee and attorney-in-fact for Tenant, or a
receiver for Tenant appointed on Landlord's application, may collect
such Rent and apply it toward Tenant's obligations under this Lease,
except that until the occurrence of an act of default by Tenant, Tenant
shall have the right to collect such Rent. Tenant shall be entitled to
collect all rents from a permitted assignee or subtenant unless and
until there occurs an event of default pursuant to Paragraph 26 of the
Lease, and to promptly remit to Landlord the amount due under Paragraph
17b.(2). After the occurrence and during the continuance of a default by
Tenant, Landlord shall have the right to collect all rents from any
subtenant or assignee and the rents which would otherwise be payable to
Tenant may be used by Landlord to offset any of Tenant's obligations
under the Lease. Landlord and Tenant agree that neither the share of
excess rents, if any, required to be paid pursuant to Paragraph 17b.(2)
nor the incurrence of costs of assigning or subleasing for which Tenant
does not receive reimbursement from rentals received by Tenant shall
reduce or offset Tenant's obligations to pay Basic Rent under the
Lease. Landlord and Tenant agree that neither the share of excess rents,
if any, required to be paid pursuant to Paragraph 17b.(2) nor the
incurrence of
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costs of assigning or subleasing for which Tenant does not receive
reimbursement from rentals received by Tenant shall reduce or
offset Tenant's obligations to pay Basic Rent under the Lease
c. Landlord shall only have the right to terminate the Lease as
provided in clause (i) of Paragraph 17b., as to that portion of the Premises
affected by a proposed assignment or sublease if the term of such proposed
assignment or sublease is twelve (12) months or longer, or if Tenant shall
elect to assign or sublet more than twenty percent (20%) of the Premises at
any one time.
Notwithstanding the provision of the immediately preceding sentence,
Landlord may not terminate the Lease as provided in clause (i) of Paragraph
17b., if a proposed sublease:
(i) is to commence in the second lease year;
(ii) is for less than twenty-four (24) months;
(iii) is for no more than thirty-three percent (33%) of the
Premises; and
(iv) is otherwise in accordance with the provisions of this
Lease.
d. Any sale or transfer, including transfer by consolidation, merger
or reorganization of the majority of the voting stock of Tenant if Tenant is
a corporation or any sale or other transfer of a majority of the partnership
interests in Tenant if Tenant is a partnership, shall not be an assignment
for purposes of this Paragraph 17, provided the surviving entity (i) has a
financial net worth at least equal to or greater than that of Tenant
immediately prior to such sale or transfer and (ii) expressly agrees to be
(or reaffirms its obligation to be) bound by all of the terms and conditions
of this Lease. In the event these two conditions are not absolutely and
unconditionally satisfied, any such sale or transfer shall be an assignment
for the purposes of this Paragraph 17.
18. INDEMNITY:
a. Tenant shall indemnify and hold Landlord harmless against and
from all claim arising from Tenant's use of the Premises for the conduct of
Tenant's business or from any activity, work, or other thing done, permitted
or suffered by Tenant in or about the Building and shall further indemnify
and hold Landlord harmless against and from any and all claims directly
arising from any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease, or arising from
any act or negligence of the Tenant or any officer, agent, employee, guest,
or invitee of Tenant, and from all and against all costs, attorneys' fees,
expenses and liabilities incurred in or about such claim or any action or
proceeding brought thereon, and, in any case, action, or proceeding brought
against Landlord by reason of any such claim. Tenant upon notice from
Landlord shall defend the same at Tenant's expense by counsel reasonably
satisfactory to Landlord or Landlord may, at its election, defend the same in
which case Tenant shall reimburse Landlord for all costs incurred, including
attorneys' fees. Tenant as a material part of the consideration to Landlord
hereby assumes all risk or damage to property or
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injury to persons in, upon or about the Premises, except that Tenant shall
not assume any risk for damage to Tenant resulting from the sole active
negligence of Landlord or its authorized representatives.
b. Nothing contained in Paragraph 18a. shall be deemed (i) to
obligate Tenant to indemnify and hold Landlord harmless from damage, loss or
injury arising from the sole active negligence or willful misconduct of
Landlord, Landlord's officers, employees, agents, servants and contractors or
from Landlord's failure to perform its obligations under this Lease or (ii)
to be a waiver by Tenant of any claims or causes of action it may have
against Landlord, Landlord's officers, employees, agents, servants or
contractors for damage or injury caused by the sole active negligence or
willful misconduct of Landlord, its agents, servants or employees. Tenant's
obligation to indemnify Landlord and save Landlord harmless hereunder shall
not apply to the extent that insurance carried by Landlord covers such loss
and the proceeds thereof are actually received by Landlord.
19. DAMAGE TO PREMISES OR BUILDING: All injury to the Premises or the
Building caused by moving the property of Tenant or its employees, agents,
guests or invitees into, in or out of the Building and all breakage done by
Tenant or the agents, servants, employees, and visitors of Tenant, as well as
any damage to the Premises or the Building due to the negligence of Tenant or
its agents, servants, employees and visitors shall be repaired as determined
by the Landlord at the expense of Tenant.
20. TENANT'S INSURANCE:
a. Tenant shall, at all times during the term of this Lease and at
its sole cost and expense, maintain (i) Commercial General liability
Insurance (including protective liability coverage on operations of
independent contractors engaged in construction and also blanket contractual
liability insurance) on an "occurrence" basis for the benefit of Tenant and
Landlord as named insured against claims for "personal injury" liability
including without limitation bodily injury, death, or property damage
liability with a limit of not less than Three Million Dollars ($3,000,000) in
the event of "personal injury" to any number of persons or of damages to
property arising out of any one "occurrence"; such insurance may be furnished
under a "primary" policy and an "umbrella" policy, provided that it is
primary insurance and not excess over or contributory with any insurance in
force for Landlord, and (ii) insurance against loss or damage by fire and
such other risks and hazards as are insurable under present and future
standard forms of fire and extended coverage insurance policies, to the
personal property, furniture, furnishings and fixtures belonging to Landlord
located in the Premises for not less than 100% of the actual replacement
value thereof. Such insurance shall provide for a waiver of the insurer's
right of subrogation against Landlord.
b. Landlord shall procure at Tenant's expense: (i) Fire, Extended
Coverage, and Vandalism and Malicious Mischief Insurance on the Building in
an amount not less than the full replacement value thereof without Tenant
being deemed a coinsurer under the terms of the applicable policy, and
against such additional perils and for other amounts as may from time to time
be required by Landlord without deduction for physical depreciation thereof,
such insurance
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on the Premises shall contain the "Replacement Cost Endorsement"; (ii) in the
event that such equipment is installed in the Premises, Boiler and Machinery
Equipment Insurance in the amount of One Million Dollars ($1,000,000) or such
greater amount as Landlord may at any time reasonably require, coveting
boilers, pressure vessels, pressure piping, all major components of any
central air conditioning or heating system, and such additional equipment as
Landlord may at any time reasonably require; (iii) Business Interruption
Insurance against loss of income by reason of any hazard covered under the
insurance required under subsections a. and b. of this Paragraph 20 in an
amount sufficient to avoid any coinsurance penalty, but in any event for not
less than one year's gross Rent from the Premises; and (iv) such other
insurance as may be reasonably required by Landlord from time to time in
connection with the Building or tenant's activities in the Project including
earthquake insurance, but only if earthquake insurance is customarily
required to be obtained by institutional lenders on similar buildings in
similar projects in the vicinity of the Project.
c. All insurance Tenant is obligated to obtain under this Paragraph
20 shall (i) name Owner as an additional insured, (ii) be effected under
policies issued by insurers which are rated A+7 or better by the latest issue
of "Best Key Rating Guide", (iii) be in forms and for amounts approved by
Landlord, and (iv) provide that Landlord shall receive thirty (30) days'
written notice from the insurer prior to cancellation or change of coverage.
Tenant shall deliver policies of such insurance or certificates thereof to
Landlord on or before the Commencement Date, and thereafter at least thirty
(30) days before the expiration dates of expiring policies; and, in the event
Tenant shall fail to procure such insurance or to deliver such policies or
certificates, Landlord may, at its option, procure same for the account of
Tenant, and the cost thereof shall be paid to Landlord within ten (10) days
after delivery to Tenant of bills therefore. Nothing contained in this
Paragraph 20 shall in any way limit the extent of Tenant's liability under
any other provisions of this Lease.
d. As long as their respective insurers so permit, Landlord and
Tenant hereby mutually waive their respective rights of recovery against each
other from any loss insured by fire, extended coverage, and other property
insurance policies existing for the benefit of the respective parties and to
the extent of insurance proceeds collected. Each party shall obtain any
special endorsements, if required by their insurer to evidence compliance
with the aforementioned waiver. Provided, however, if Landlord's insurer
charges an additional fee for such endorsement, said additional fee shall
constitute an Operating Expense.
21. AD VALOREM TAXES: Tenant shall pay, or cause to be paid, before
delinquency, any and all taxes levied or assessed and which become payable
during the term hereof upon all Tenant's leasehold improvements, equipment,
furniture, fixtures, and personal property located in the Premises, except
that which has been paid for by Landlord and is the standard of the Building.
In the event any or all of the Tenant's leasehold improvements, equipment,
furniture, fixtures, and personal property shall be assessed and taxed with
the Building, Tenant shall pay to Landlord its share of such taxes within ten
(10) days after delivery to Tenant by Landlord of a statement in writing
setting forth the amount of such taxes applicable to Tenant's property.
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22. WAIVER:
a. No. delay or omission in the exercise of any right or remedy of
Landlord on any default by Tenant shall impair such a right or remedy or be
construed as a waiver.
b. The subsequent acceptance of Rent by Landlord after breach by
Tenant of any covenant or term of this Lease shall not be deemed a waiver of
such breach, other than a waiver of timely payment for the particular Rent
payment involved, and shall not prevent Landlord from maintaining an unlawful
detainer or other action based on such breach.
c. No act or conduct of Landlord, including without limitation the
acceptance of the keys to the Premises, shall constitute an acceptance of the
surrender of the Premises by Tenant before the expiration of the term. Only
a notice from Landlord to Tenant shall constitute acceptance of the surrender
of the Premises and accomplish a termination of the Lease.
d. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
e. Any waiver by Landlord of any default must be in writing and
shall not be a waiver of any other default concerning the same or any other
provision of the Lease.
f. The review, approval, or inspection by Landlord of any item, to
be reviewed, approved or inspected by Landlord under the terms of this Lease
shall not constitute the assumption of any responsibility by Landlord for the
accuracy or sufficiency of any such item or the quality or suitability of
such item for its intended use.
23. ENTRY BY LANDLORD:
a. Landlord reserves and shall at any and all reasonable times have
the right to enter the Premises, inspect the same, supply any service to be
provided by Landlord to Tenant hereunder, to submit the Premises to
prospective purchasers or tenants, to post notices of non-responsibility, and
to maintain and repair the Premises and any portion of the Building that
Landlord may deem necessary or desirable, without abatement of rent, and may
for that purpose erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, always
providing that the entrance to the Premises shall not be blocked thereby and
further providing that die business of the Tenant shall not be interfered
with unreasonably. Tenant hereby waives any claim for damages or for any
injury or inconvenience to or interference with Tenant's business, any loss
of occupancy or quiet enjoyment of the Premises, and any other loss
occasioned thereby, except to the extent Landlord fails to use due care for
Tenant's property with due consideration to the circumstances requiring the
entry to the Premises. IN NO EVENT SHALL LANDLORD EVER BE LIABLE TO TENANT
FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, LANDLORD'S LIABILITY, IF ANY, BEING
LIMITED TO TENANT'S ACTUAL DAMAGES AND OTHER TERMS OF THIS LEASE. For each
of the aforesaid purposes, Landlord shall at all times have and retain a key
with which to unlock all of the doors in, upon and about the Premises,
excluding Tenant's vaults, safes
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and files, and Landlord shall have the right to use any and all means which
Landlord may deem proper to open said doors in an emergency, in order to
obtain entry to the Premises without liability to Landlord. Any entry to the
Premises obtained by Landlord by any of said means or otherwise shall not
under any circumstances be construed or be deemed to be a forcible or
unlawful entry into, or a detainer of the Premises, or an eviction of Tenant
from the Premises or any portion thereof.
b. Landlord shall be (i) required to give at least 24 hours notice
prior to entry of the Premises, except in the event of an emergency as
perceived by Landlord or its employees or agents;. (ii) accompanied at all
times by an employee of Tenant, except in the event of an emergency; (iii)
required security regulations to comply with Tenant's reasonable, except in
the event of an emergency, or in the event of Tenant's default under this
Lease; and (iv) prohibited from showing the premises to prospective tenants
except during the Last one hundred eighty (180) days of the Lease Term.
c. Under no circumstances shall Landlord ever be liable to Tenant
for the acts of any public agencies or bodies (such as police or fire
department officials or employees) entering the Premises.
24. CASUALTY DAMAGE:
a. If the Premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give prompt written notice thereof to Landlord.
In case the Building shall be so damaged by fire or other casualty that
substantial alteration or reconstruction of the Building shall, in Landlord's
reasonable opinion, be required, and such alterations or reconstructions
cannot be completed within one hundred twenty (120) days from the date of the
casualty (whether or not the Premises shall have been damaged by such fire or
other casualty), or in the event any mortgagee under a mortgage or deed of
trust covering the Building should require that the insurance proceeds
payable as a result of said fire or other casualty be used to retire the
mortgage debt, Landlord may, at its option, terminate this Lease and the term
and estate hereby granted by notifying Tenant in writing of such termination
within sixty (60) days after the date of such casualty, in which event the
Rent shall be abated as of the date of such damage. If (i) the damage does
not require substantial alteration or reconstruction; (ii) such alterations
or reconstruction can be completed within one hundred twenty (120) days from
the date of the casualty; or (iii) Landlord does not thus elect to terminate
this Lease, then Landlord shall within ninety (90) days after the date of
such damage commence to repair and restore the Building and shall proceed
with reasonable diligence to restore the Building (except that Landlord shall
not be responsible for delays outside its control) to substantially the same
condition in which it was immediately prior to the happening of the casualty,
except that Landlord shall not be required to rebuild, repair or replace any
part of Tenant's furniture and furnishings or fixtures and equipment
removable by Tenant under the provisions of this Lease, but such work shall
not exceed the scope of the work done by Landlord in originally constructing
the Building, nor shall Landlord in any event be required to spend for such
work an amount in excess of the insurance proceeds actually received by
Landlord as a result of the fire or other casualty, Landlord shall not be
liable for any inconvenience or annoyance to Tenant, or injury to the
business of Tenant, resulting in any way
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from such damage or the repair thereof, except that, subject to the
provisions of the next sentence, Landlord shall allow Tenant a diminution of
Rent (on a square footage basis during the time and to the extent the
Premises are unfit for occupancy. If the Premises or any other portion of the
Building are damaged by fire or other casualty resulting from the fault or
negligence of Tenant or any of Tenant's agents, employees, or invitees, the
Rent shall not be diminished during the repair of such damage and Tenant
shall be liable to Landlord for the cost and expense of the repair and
restoration of the Building caused thereby to the extent such cost and
expense is not covered by insurance proceeds. Any insurance which may be
carried by Landlord or Tenant against loss or damage to the Building or to
the Premises shall be for the sole benefit of the party carrying such
insurance and under its sole control.
b. Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises, the
Building, Tenant's personal property, or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration. And if
such fire or other casualty results from acts, omissions, or neglect of
tenant or its agents, employees, invitees, or visitors, there shall be no
abatement of rent as otherwise provided herein.
c. Tenant hereby specifically waives any and all rights it may have
under any law, statute, ordinance or regulation to terminate the Lease by
reason of casualty or damage to the Premises or Building, and the parties
hereto specifically agree that the Lease shall not automatically terminate by
law upon destruction of the Premises. Except as otherwise provided in this
Paragraph 24, Tenant hereby waives the provisions of Section 1932(2),
1933(4), 1941 and 1942 of the California Civil Code.
d. If the Premises are damaged or destroyed and (i) cannot be
rebuilt for Tenant's occupancy within one hundred twenty (120) days from the
date of casualty as determined by Landlord's architect, or (ii) if there is
less than two (2) years remaining on the lease term as of the date of the
casualty, Tenant may at its option terminate this lease by written notice to
Landlord of such termination. If Tenant's termination is pursuant to clause
(i) above, such notice shall be given within ten (10) days from the date of
Landlord's architect's determination. If Tenant's termination is pursuant to
clause (ii), such notice shall be given within ten (10) days of casualty.
Time is of the essence with respect to Tenant's notice of termination.
25. CONDEMNATION:
a. If the whole or, on the sole opinion of Landlord, substantially
the whole of the Premises should be condemned, or if any mortgagee under any
deed of trust or mortgage covering the Building shall determine to apply
condemnation proceeds to retire mortgage debt, then Landlord shall have the
right to terminate this Lease as of the date when physical possession of the
Building or the Premises is taken by the condemning authority.
b. If less than the whole or, in the sole opinion of Landlord less
than substantially the whole of the Building or the Premises is thus taken or
sold, Landlord (whether or not the Premises are affected thereby) may
terminate this Lease by giving written notice thereof to Tenant within sixty
(60) days after the right of election accrues, in which event this Lease
shall
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terminate as of the date when physical possession of such portion of the
Building or Premises is taken by the condemning authority. If upon any such
condemnation of less than the whole or less than substantially the whole of
the Building or the Premises, and this Lease shall not be thus terminated,
the Rent payable hereunder shall be diminished by an amount representing that
part of the Rent as shall properly be allocable to the portion of the
Premises which was so condemned and Landlord shall, at Landlord's sole
expense, restore and reconstruct the Building and the Premises to
substantially their former condition to the extent that the same, in
Landlord's judgment, may be feasible, but such work shall not exceed the
scope of the work done in originally constructing the Building, nor shall
Landlord in any event be required to spend for such work an amount in excess
of the amount received by Landlord as compensation awarded upon a taking of
any part or all of the Building or the Premises.
c. In the event more than fifty percent (50%) of the Premises should
be condemned or taken, Tenant may elect at any time with in thirty (30) days
of the date of such condemnation or taking to cancel this Lease upon written
notice to Landlord. and thereupon this Lease shall terminate upon the date
specified in said notice, which date shall be no earlier than the date of the
actual taking. Except as specifically provided in the previous sentence,
Tenant hereby specifically waives any and all rights it may have under any
law, statute, ordinance or regulation to terminate this Lease upon partial
condemnation of the Premises or Building, and the parties hereto specifically
agree that this Lease shall not automatically terminate upon condemnation.
d. Subject to the rights of any mortgagee under a mortgage or deed
of trust covering the Building, Landlord shall be entitled to and shall
receive the total amount of any award made with respect to condemnation of
the Premises or Building, regardless of whether the award is based on a
single award or a separate award as between the respective parties, and to
the extent that any such award or awards shall be made to Tenant or to any
person claiming through or under Tenant, Tenant hereby irrevocably assigns to
Landlord all of its rights, tide and interest in and to any such awards. No
portion of any such award or awards shall be allocated to or paid to Tenant
for any so called bonus or excess value of this Lease by reason of the
relationship between the rental payable under this Lease and what may at the
time be a fair market rental for the Premises, nor for Tenant's unamortized
costs of leasehold improvements. The foregoing notwithstanding, and if Tenant
be not in default for any reason, Landlord shall turn over to Tenant,
promptly after receipt thereof by Landlord, that portion of any such award
received by Landlord hereunder which is attributable to Tenant's fixtures and
equipment which are condemned as part of the property taken but which Tenant
would otherwise be entitled to remove, and the appraisal of the condemning
authority with respect to the amount of any such award allocable to such
items shall be conclusive.
e. Landlord may, without any obligation or liability to Tenant and
without affecting the validity and existence of this Lease other than as
hereafter expressly provided, agree to sell and/or convey to the condemnor,
without first requiring that any action or proceeding be instituted, or if
such action or proceeding shall have been instituted, without first requiring
any trial or hearing thereof (and Landlord is expressly empowered to
stipulate to judgment therein), the Premises or portion hereof, sought by the
condemnor free from this Lease and the rights of Tenant hereunder.
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f. If all or any portion of the Premises is condemned or otherwise
taken for a limited period of time, this Lease shall remain in full force and
effect and Tenant shall continue to perform all terms and covenants of this
Lease, provided, however, Rent shall abate during such limited period in
proportion to the portion of the Premises that is rendered unusable as a
result of such condemnation or other taking.
g. The words "condemnation" or "condemned" as used herein shall mean
the taking for any public or quasi-public use under any governmental law,
ordinance, or regulation, or the exercise of, or the intent to exercise, the
power of eminent domain, expressed in writing, as well as the filing of any
action or proceeding for such purpose, by any person, entity, body, agency,
or authority having the right or power of eminent domain, and shall include a
voluntary sale by Landlord to any such person, entity, body, agency, or
authority, either under threat of condemnation expressed in writing or while
condemnation proceedings are pending, and shall occur in point of time upon
the actual physical taking of possession pursuant to the exercise of said
power of eminent domain.
26. TENANT'S DEFAULT: The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
a. The abandonment of the Premises by Tenant or the vacation of the
Premises by Tenant in breach of the provisions of Paragraph 41 of this Lease.
b. The failure by Tenant to make any payment of Rent or any other
payment required to be made by Tenant hereunder as and when due, where such
failure shall continue for a period of five (5) days after Tenant receives
written notice of such failure, which five (5) days' notice shall be in lieu
of three (3) days' notice provided for in Section 1161 of the California Code
of Civil Procedure.
c. Tenant's failure to observe or perform any of the covenants,
conditions, or provisions of this Lease to be observed or performed by
Tenant, other than as described in subparagraph b. above, where such failure
shall continue for a period of ten (10) days after written notice thereof by
Landlord to Tenant (which notice shall be in lieu of the three days' notice
provided for in Section 1161 of the California Code of Civil Procedure);
provided, however, that if the nature of Tenant's default is such that more
than ten (10) days are reasonably required for its cure, then Tenant shall
not be deemed to be in default if Tenant commences such cure within said ten
(10) day period and thereafter diligently prosecutes such cure to completion
but in no event later than sixty (60) days after such written notice.
d. The making by Tenant of any general assignment or general
arrangement for the benefit of creditors, or the appointment of a trustee or
a receiver to take possession of substantially all of Tenant's assets located
at the Premises or of Tenant's interest in this Lease, where possession is
not restored to Tenant within thirty (30) days, or the attachment, execution,
or other judicial seizure of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where such seizure is not
discharged in thirty (30) days.
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e. The filing of any voluntary petition in bankruptcy by Tenant, or
the filing of any involuntary petition by Tenant's creditors, which
involuntary petition remains undischarged for a period of thirty (30) days.
In the event that under applicable law the trustee in bankruptcy or Tenant
has the right to affirm this Lease and perform the obligations of Tenant
hereunder, such trustee or Tenant shall, in such time period as may be
permitted by the bankruptcy court having jurisdiction, cure all defaults of
Tenant hereunder outstanding as of the date of the affirmance of this Lease,
and provide to Landlord such adequate assurances as may be necessary to
ensure Landlord of the continued performance of Tenant's obligation under
this Lease.
f. The occurrence of any event which constitutes a default and
breach under the 170 Rose Orchard Way Restated Lease, the 130 Rose Orchard
Way Restated Lease or in the 110 Rose Orchard Way Restated Lease.
27. REMEDIES FOR TENANT'S DEFAULT: In the event of Tenant's default,
Landlord may:
a. Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event,
Landlord shall be entitled to recover from Tenant:
(i) the worth at the time of the award of any unpaid rent which
had been earned at the time of such termination; plus
(ii) the worth at the time of the award of the amount by
which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such
rental loss which Tenant proves could have been reasonably avoided,
plus
(iii) 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 such rental loss which Tenant proves
could be reasonably avoided, plus
(iv) any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom (including, without
limitation, the cost of recovering possession of the Premises,
expenses of reletting including necessary renovation and alteration
of the Premises, reasonable attorney's fees, and real estate
commissions actually paid and that portion of the leasing
commission paid by Landlord and applicable to the unexpired portion
of this Lease), plus
(v) such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable
California law.
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As used in subsections (i) and (ii) above, the "worth at the time of award"
shall be computed by allowing interest at the greater of ten percent (10%)
per annum, or five percent (5%) per annum plus the rate prevailing on the
twenty-fifth (25th) day of the month preceding the earlier of:
(1) the date on which it is deemed a contract to make a loan
or forbearance herein was executed; or
(2) the date of making the loan or forbearance as established
by the Federal Reserve Bank of San Francisco, on advances to
member banks under SS 13 and 13a of the Federal Reserve Act.
As used in subsection (iii) above, the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%). In
the event Tenant shall have abandoned the Premises, Landlord shall have the
option of taking possession of the Premises and recovering from Tenant the
amount specified in this subparagraph, or proceeding under the provisions of
subparagraph b. below.
b. Landlord can continue this Lease in full force and effect, and
the Lease will continue in effect, as long as Landlord does not terminate
Tenant's right to possession, and Landlord shall have the right to collect
rent when due. During the period Tenant is in default, Landlord can enter the
Premises and relet them, or any part of them, to third parties for Tenant's
account. Tenant shall be liable immediately to Landlord for all costs
Landlord incurs in reletting the Premises, including, without limitation,
brokers' commissions, expenses of remodeling the Premises required by the
reletting, and like costs. Reletting can be for a period shorter or longer
than the remaining term of this Lease. Tenant shall pay to Landlord the rent
due under this Lease on the dates the rent is due, less the rent Landlord
receives from any reletting. No act by Landlord allowed by this paragraph
shall terminate this Lease unless Landlord notifies Tenant the Landlord
elects to terminate this Lease. After Tenant's default and for as long as
Landlord does not terminate Tenant's right to possession of the Premises if
Tenant obtains Landlord's consent, Tenant shall have the right to sublet its
interest in this Lease, but Tenant shall not be released from liability.
Landlord's consent to a proposed assignment or subletting shall not be
unreasonably withheld.
c. The foregoing remedies are not exclusive; they are cumulative in
addition to any remedies now or later allowed by law, to any equitable
remedies Landlord may have, and to any remedies Landlord may have under
bankruptcy laws or laws affecting creditors' rights generally.
28. SURRENDER OF PREMISES: On expiration of this Lease or within five (5)
days after the earlier termination of the term, Tenant shall surrender to
Landlord the Premises in good condition (except for ordinary wear and tear
occurring after the last necessary maintenance made by Tenant and destruction
to the Premises covered by paragraph 24). Tenant shall remove all its
personal property within the above-stated time. Tenant shall perform all
restoration made necessary by the removal of any Alterations or Tenant's
personal property within the time periods stated in this paragraph.
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Landlord can elect to retain or dispose of in any manner any
Alterations or any of Tenant's personal property that Tenant does not remove
from the Premises on expiration or termination of the term as allowed or
required by this Lease by giving at least ten (10) days' notice to Tenant.
Title to any such Alterations or any of Tenant's personal property that
Landlord elects to retain or dispose of on expiration of the ten (10) day
period shall vest in Landlord. Tenant waives all claims against Landlord for
any damage to Tenant resulting from Landlord's retention or disposition of
any such Alterations or of any of Tenant's personal property. Tenant shall
be liable to Landlord for Landlord's costs for storing, removing, and
disposing of any alterations or any of Tenant's personal property.
If Tenant fails to surrender the Premises to Landlord on expiration
or five (5) days after termination of the term as required by this paragraph,
Tenant shall hold Landlord harmless from all damages resulting from Tenant's
failure to surrender the Premises, including, without limitation, claims made
by a succeeding tenant resulting from Tenant's failure to surrender the
Premises.
29. DEFAULT BY LANDLORD:
a. Landlord shall not be deemed to be in default in the performance
of any obligation required to be performed by it hereunder unless and until
it has failed to perform such obligations within 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 its performance, then Landlord shall not be deemed to be in default if it
shall commence such performance within such thirty (30) day period and
thereafter diligently prosecute the same to completion. In no event shall
Landlord be liable to Tenant for loss of profits, business interruption, or
consequential damages if Landlord performs its obligations within the time
periods specified in this paragraph.
b. Tenant agrees to give any mortgage and/or trust deed holders, by
Certified Mail, a copy of any notice of default served upon the Landlord,
provided that prior to such notice Tenant has been notified in writing (by
way of any notice of assignment of rents and leases, or otherwise) of the
address of such mortgage and/or trust deed holder. Tenant further agrees
that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the mortgagees and/or trust deed holders
shall have any additional thirty (30) days within which to cure such default,
or if such defau lt cannot be cured within that time, then such additional
time as may be necessary if within such thirty (30) days mortgagee and/or
trust deed holder has commenced and is diligently pursuing the remedies
necessary to cure such default (including, but not limited to, commencement
of foreclosure proceedings, if necessary to effect such cure), in which event
this Lease shall not be terminated while remedies are being so diligently
pursued.
30. PARKING: Tenant shall have the use of the undesignated parking spaces
set forth above in the Basic Lease Information on the cover page. Landlord
shall use all reasonable efforts to insure that such space is available for
Tenant's use, but shall not be required to tow parked cars, provide sanctions
against improper parking, or otherwise take steps to free occupied parking
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spaces for Tenant's use. Tenant shall not use any parking spaces for truck
parking or loading except for spaces specifically designated for such use by
Landlord.
31. ESTOPPEL CERTIFICATE: Tenant shall at any time and from time to time
upon not less than ten (10) days' prior written notice from Landlord execute,
acknowledge, and deliver to Landlord a statement in writing (a) certifying
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease as
modified is in full force and effect) and the date to which the Rent and
other charges are paid in advance, if any; (b) certifying that the Premises
have been accepted by Tenant; (c) confirming the Commencement Date and the
expiration date of the Lease; and (d) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of the Landlord
hereunder, or specifying such defaults, if any are claimed. Any such
statement may be relied upon by a prospective purchaser or encumbrancer of
all or any portion of the real property of which the Premises are a part.
Provided Tenant is not in default or breach of any term covenant or condition
of this Lease and upon not less than ten (10) days prior written notice from
Tenant, Landlord shall execute and deliver to any prospective lender or
purchaser of Tenant a similar statement.
32. SALE OF PREMISES: In the event of any sale of the Building, and upon
its transferee's assumption of Landlord's obligations hereunder Landlord
shall be and hereby is entirely freed and relieved of all liability under any
and all of its covenants and obligations contained in or derived from this
Lease and the transferee, at such sale or any subsequent sale of the Premises
shall be deemed, without any further agreement between the parties of their
successor in interest or between the parties and any such transferee, to have
assumed and agreed to carry out any and all of the covenants and obligations
of Landlord under this Lease.
33. SUBORDINATION, ATTORNMENT:
a. This Lease is and shall be subordinate to any encumbrance now of
record or recorded after the date of this Lease affecting the Building, other
improvements, and land of which the Premises are a part. Such subordination
is effective without any further act of Tenant. If any mortgagee, trustee,
or ground landlord shall elect to have this Lease and any options granted
hereby prior to the lien of its mortgage, deed of trust, or ground lease, and
shall give written notice thereof to Tenant, this Lease and such options
shall be deemed prior to such mortgage, deed of trust, or ground lease,
whether this Lease or such options are deeded prior or subsequent to the date
of said mortgage, deed of trust, or ground lease, or the date of recording
thereof.
b. In the event any proceedings are brought for foreclosure, or in
the event of a sale or exchange of the real property on which the Building is
located, or in the event of the exercise of the power of sale under any
mortgage or deed of trust made by Landlord covering the Premises, at
Purchaser's election Tenant shall attorn to the purchaser upon any such
foreclosure or sale and recognize such purchaser as the Landlord under this
Lease.
c. Tenant agrees to execute any documents required to effectuate an
attornment or to make this Lease or any option granted herein prior to the
lien of any mortgage, deed of trust, or ground lease, as the case may be. If
Tenant fails to execute and deliver any such
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documents or instruments, Tenant irrevocably constitutes and appoints
Landlord as Tenant's special attorney-in-fact to execute and deliver any such
documents or instruments.
34. AUTHORITY OF PARTIES:
a. Tenant's Authority: If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants
that he is duly authorized to execute and deliver this Lease an behalf of
said corporation, in accordance with a duly adopted resolution of the board
of directors of said corporation or in accordance with the bylaws of said
corporation, and that this Lease is binding upon said corporation in
accordance with its terms. If Tenant is a partnership, each individual
executing this Lease on behalf of said partnership represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf of
said partnership under the terms of the partnership agreement of said
partnership.
b. Landlord's Authority: The individual executing this Lease on
behalf of Landlord, represents and warrants that it is duly authorized to
execute and deliver this Lease on behalf of Landlord, and that this Lease is
binding upon Landlord in accordance with its term.
35. BROKERS: Landlord and Tenant each warrants that it has had no
dealings with any real estate broker or agents in connection with the
negotiation of this Lease except for the broker or brokers fisted in the
Basic Lease Information on page 2 of this Lease, and it knows of no other
real estate broker or agent who is entitled to a commission in connection
with the Lease. Landlord agrees to pay any commission it is obligated to pay
pursuant to a written brokerage agreement by and between Landlord and
Landlord's Broker in connection with this Lease. Tenant agrees to indemnify
and defend Landlord and hold Landlord harmless from any claims for brokerage
commissions arising out of any discussion allegedly had by Tenant with any
broker including, but not limited to, Tenant's Broker.
36. HOLDING OVER:
a. If Tenant holds over after the Term with the express written
consent of Landlord such tenancy shall be from month to month only and shall
not be a renewal hereof, and Tenant shall pay as Rent to Landlord for the use
and occupancy of the Premises for each month Tenant holds over an amount
agreed to be one and one-half (1.5) times the Rent which is due on the last
month of the Term, and Tenant shall also comply with all of the terms,
covenants, conditions, provisions and agreements of this Lease for the time
during which Tenant holds over.
b. If without the express written consent of Landlord, Tenants shall
fail to vacate the Premises after the expiration of the Term or sooner
termination or this Lease for any cause or after Tenants right to occupy the
Premises ceases, thereafter, and notwithstanding anything to the contrary
contained elsewhere in this Lease, Tenant shall pay as Rent to Landlord for
the use and occupancy of the Premises for each month Tenant holds over an
amount agreed to be one and one-half (1.5) times the Rent which is due on the
last month of the Term, and Tenant shall also comply with all of the terms,
covenants, conditions, provisions and agreements of this Lease for the time
during which Tenant holds over. If the Premises are not surrendered at the
end of the Term or of a permitted hold over period, Tenant shall be
additionally responsible to
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Landlord for all damage (including but not limited to the loss of Rent) which
Landlord shall suffer by reason thereof, and Tenant hereby indemnifies
Landlord against All claims made by any succeeding Tenant against Landlord,
resulting from delay by Landlord in delivering possession of the Premises to
such succeeding Tenant.
c. Tenant's obligation to observe or perform all of the terms,
covenants, conditions, provisions and agreements of this Paragraph shall
survive termination of this Lease.
37. RULES AND REGULATIONS: Tenant shall faithfully observe and comply
with the reasonable rules and regulations that Landlord shall from time to
time promulgate. Landlord reserves the right from time to time to make all
reasonable modifications to said rules. The additions and modifications to
those rules shall be binding upon Tenant upon delivery of a copy of them to
Tenant. (A copy of the present rules and regulations is attached hereto as
Exhibit E). Landlord shall not be responsible to Tenant for the
nonperformance of any said rules by any other tenants or occupants.
38. GENERAL PROVISIONS:
a. PLATS AND RIDERS: Clauses, plats, addenda and riders, if any,
signed by the Landlord and Tenant and endorsed on or affixed to this Lease
are a part hereof.
b. JOINT OBLIGATION: If there be more th an one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several.
c. MARGINAL HEADINGS: The marginal headings and titles to the
paragraphs of this Lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof
d. TIME: Time is of the essence in this Lease and with respect to
each and all of its provisions in which performance is a factor.
e. RECORDATION: Tenant shall not record this Lease or a short form
memorandum hereof without the prior written consent of Landlord.
f. QUIET POSSESSION: Subject to the provisions of Paragraph 33 upon
Tenant paying the Rent reserved hereunder, and observing and performing all
of the covenants, conditions and provisions on Tenant's part to be observed
and performed hereunder, Tenant shall have quiet possession of the Premises
for the entire term hereof, subject to all the provisions of this Lease.
g. PRIOR AGREEMENTS: This Lease contains all of the agreements of
the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreements or understanding pertaining to any such
matters shall be effective for any purpose. No provision of this Lease may
be amended or added to except by an agreement in writing signed by the
parties hereto or their respective successors in interest. This Lease shall
not be effective or binding on any party until fully executed by both parties
hereto.
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h. INABILITY TO PERFORM:
(i) This lease and obligation of Tenant to pay Rent and a other
sums due hereunder to keep, observe and perform all of the other terms,
covenants, conditions, provisions and agreements of this Lease on the
part of Tenant to be kept, observed or performed shall in no way be
affected, impaired or excused because Landlord is unable to fulfill any
of its obligations under this Lease, or is delayed or curtailed in any
way from doing so, by reason of any cause beyond Landlord's reasonable
control, including, but not limited to, acts of God, strike or labor
troubles, fuel or energy shortages, governmental preemption or
curtailment in connection with a national emergency or in connection
with any rule, order, guideline or regulation of any department or
governmental agency or by reason of the conditions of supply and demand
which have been or are affected by a war or other emergency ("Force
Majeure"). Any such prevention, delay or curtailment shall be deemed
excused and Landlord shall not be subject to any liability resulting
therefrom.
(ii) Notwithstanding the foregoing, in the event Landlord is
unable to fulfill any of its obligations under this Lease, or is
delayed or curtailed in any way front doing so, within the time
periods set forth herein, for more than one hundred eighty (180)
days by reason for Force Majeure, Tenant may terminate this Lease
by written notice to Landlord.
i. JURY TRIAL: The parties hereto shall and they hereby do, waive
trial by jury in any action, proceeding, or counterclaim brought by either of
the parties hereto against the other on any matters whatsoever arising out of
or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises and/or any claim of injury
or damage. In the event Landlord commences any proceedings for nonpayment of
rent, Tenant will not interpose any counterclaim of whatever nature or
description in any such proceedings except for compulsory counterclaims.
This shall not, however, be construed as a waiver of the Tenant's right to
assert such claim in any separate action or actions brought by the Tenant.
j. LANDLORD'S PERSONAL LIABILITY: The liability of Landlord to
Tenant for any default by Landlord under the terms of this Lease shall be
limited to the interest of Landlord and its present or future partners in the
Building, and Tenant agrees to look solely to Landlord's or Landlord's
present or future partners' interest in the Building for recovery of any
judgment from Landlord, it being intended that Landlord shall not be
personally liable for any judgment or deficiency.
k. SEPARABILITY: Any provisions of this Lease which shall prove to
be invalid, void, and illegal shall in no way affect, impair, or invalidate
any other provisions hereof, and such other provisions shall remain in full
force and effect, unless Landlord in its sole discretion determines that the
invalid or illegal provision affects a material benefit or obligation
hereunder.
1. CHOICE OF LAW: This Lease shall be governed by the laws of the
State in which the Premises are located.
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M. SIGNS: Tenant shall not place any sign upon the Premises without
Landlord's prior written consent. Landlord's consent to Tenant's signs shall
not be unreasonably withheld if Tenant's signs comply with Landlord's signage
program.
n. LATE CHARGES: Tenant acknowledges that late payment by Tenant to
Landlord of Rent will came Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing
charges, accounting charges, and late charges that may be imposed on Landlord
by the terms of any encumbrance and note secured by any encumbrance covering
the Premises. Therefore, if any installment of Rent or other sums due from
Tenant is not received by Landlord on the date same are due, Tenant shall pay
to Landlord an additional sum equal to five percent (5%) of such overdue
amount as a late charge. This late charge shall be due and payable one day
after the date any such overdue amount was due. The parties agree that this
late charge represents a fair and reasonable estimate of the administrative
and other costs that Landlord will incur by reason of late payment by Tenant.
Acceptance of any late charge shall not constitute a waiver of Tenant's
default with respect to the overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies available to Landlord.
o. INTEREST: Notwithstanding any other provisions of this Lease,
including paragraph 38n., any installment of Rent or other amounts due under
this Lease not paid to Landlord when due shall bear interest from the date
due or from the date of expenditure by Landlord for the account of Tenant,
until the same have been fully paid, at a rate per annum which is the lesser
of the reference rate of Bank of America or the highest rate allowed by law.
The payment of such interest shall not constitute a waiver of any default by
Tenant hereunder.
p. ATTORNEYS' FEES: In the event any legal action is brought to
enforce or interpret the provisions of this Lease, the prevailing party
therein shall be entitled to recover all costs and expenses including
reasonable attorneys' fees.
q. MODIFICATION: This Lease contains the entire agreement between
the parties relating to the rights herein granted and the obligations herein
assumed. Any oral representations of modifications concerning this Lease
shall be of no force and effect, excepting a subsequent modification in
writing signed by the party to be charged.
r. EXECUTION: Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
s. VACATION OF THE PREMISES: Upon not less than thirty (30) days
prior written notice to Landlord and upon satisfaction of all of the
following conditions, Tenant may temporarily vacate the Premises for a period
of not more than thirty (30) days during any consecutive twelve (12) mouth
period: (i) Tenant, at its sole expense, shall comply with Landlord's
security requirements to protect the Premises; (ii) Tenant shall make
arrangements satisfactory to Landlord to maintain the Premises; and (iii)
Tenant shall not otherwise be in default under this Lease. Under no
circumstances shall Landlord be responsible for the Premises (except
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as provided in this Lease) during Tenant's vacation thereof or for any of
Tenant's property at any time.
t. NONDISCRIMINATION: Tenant herein 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
following conditions:
That there shall be no discrimination against or segregation of any
person or group of persons, on account of race, color, religion,
sex, age, marital status, creed, national origin, or ancestry, in
the leasing, subleasing, transferring, use, occupancy, tenure, or
enjoyment of the Premises herein leased nor shall the Tenant
itself, 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, or vendees in the Premises
herein leased.
39. NOTICES:
a. Except as otherwise in this Lease provided, a bill, demand,
statement, consent, notice or communication which Landlord may desire or be
required to give to Tenant shall be deemed sufficiently given or rendered if
in writing, delivered personally to Tenant or sent by certified mail (return
receipt requested) or private express mail courier (postage and/or handling
charges fully prepaid) addressed to Tenant at the address set forth in the
Basic Lease Information. or at such other address as Tenant shall designate
by notice given as herein provided. Any notice, request, demand or
communication by Tenant to Landlord must be in writing and delivered
personally to Landlord or sent by certified mail (return receipt requested)
or express private mail courier (postage and/or handling charges fully
prepaid), addressed to Landlord, at the address set forth in the Basic Lease
Information or at such other address as Landlord shall designate by notice
given as herein provided.
b. The time of the rendition of such bills or statements and of the
giving of such consents, notices, demands, requests or communications by
Tenant or Landlord shall be deemed to be the earlier of (i) the date
received; (ii) if the notice is sent by certified mail, two (2) days after
the same is mailed; or (iii) if the notice is sent by private express mail
courier, one (1) day after the same is sent.
c. Rejection or refusal to accept a notice, request, demand or the
inability to deliver same because of a changed address of which no notice was
given shall be deemed to be a receipt of the notice, request or demand sent.
40. INTENTIONALLY DELETED.
41. CROSS DEFAULT: Any default or breach in the performance of any terms,
conditions or covenants contained in the 170 Rose Orchard Way Restated Lease,
the 110 Rose Orchard Way Restated Lease or in the 130 Rose Orchard Way
Restated Lease shall constitute a default under this Lease. Any default or
breach in the performance of any terms, conditions or
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covenants contained in this Lease shall contstitute a default under the 170
Rose Orchard Way Restated Lease, the 110 Rose Orchard Way Restated Lease and
under the 130 Rose Orchard Way Restated Lease.
42. INTENTIONALLY DELETED.
43. TENANT'S RIGHT OF FIRST OPPORTUNITY TO NEGOTIATE:
a. Landlord hereby grants Tenant a one-time right of first
opportunity to negotiate an agreement (i) to lease a proposed building known
as "Building G", which is as yet of undefined size and character, which shall
eventually be built on the land site designated as "Building G Lot" on the
attached Exhibit G to the Lease, before construction is commenced on Building
G or a lease for Building G is consummated with a third party, or (ii) to
purchase the Building G Lot, pursuant to the terms of this Lease. This right
of first opportunity to negotiate shall be a one-time right only, except that
one or more good faith unsolicited inquiries from Tenant shall not operate so
as to terminate Tenants right of first opportunity hereunder. Tenants right
of first opportunity to negotiate to purchase the Building G Lot shall
automatically terminate upon Landlord's giving of the Notice to Lease (as
defined below).
b. When and if Landlord determines that it desires to construct and
lease Building G, Landlord shall so inform Tenant by written notice ("Notice
to Lease"). In the event Landlord determines that it desires to sell the
Building G Lot without constructing Building G, Landlord shall so inform
Tenant by written notice ("Notice to Sell"). Within thirty (30) days after
the giving of the Notice to Lease or the Notice to Sell, Tenant shall inform
Landlord by written notice either: (i) that Tenant does not desire to lease
Building G (in the event it receives a Notice to Lease), or to purchase the
Building G Lot (in the event it receives a Notice to Sell), in which event
Landlord shall have the right to negotiate the lease of Building G, construct
Budding G, and to lease or sell Building G and/or the Building G Lot to any
person or entity other than Tenant without further obligation to Tenant with
respect to such negotiation, construction, lease or sale; or (ii) that Tenant
desires to lease Building G (in the event it receives a Notice to Lease) or
that Tenant desires to purchase the Building G Lot (in the event it receives
a Notice to Sell). Tenant's failure to provide such written notice within
the prescribed time period shall constitute Tenant's rejection of the
opportunity to enter into negotiation to lease Building G and to purchase the
Building G Lot.
c. In the event Tenant informs Landlord of Tenant's desire to lease
Building G, or to purchase the Building G, Lot as the case may be, then
Landlord and Tenant shall negotiate in good faith a written lease for the
lease of Building G or a purchase agreement for the sale of the Building
within sixty (60) days of the Notice to Lease or the Notice to Sell (as the
case may be), then Landlord shall have the right to negotiate the lease of
Building G and to construct, lease, and/or sell Building G and/or the
Building G Lot to any person or entity other than Tenant at any time
thereafter without further obligation to Tenant with respect to such
negotiation, construction, lease or sale under any term, covenants and
conditions, whether or not they confirm to those offered to Tenant.
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d. The right of first opportunity to negotiate set forth in this
Lease in no manner precludes Landlord from considering or negotiating any
unsolicited inquiries or offers to lease or purchase Building G and/or the
Building G Lot. In the event Landlord receives any unsolicited inquiry or
offer to purchase or lease and the right of first opportunity to negotiate
set forth in this Lease has not terminated, (i) Landlord shall inform named
Tenant that it has received an unsolicited inquiry or offer to purchase or
lease (the "Unsolicited Inquiry Notice", and (ii) within one (1) business day
after the Unsolicited Inquiry Notice is given, Tenant shall inform Landlord
by written notice either:
(a) that Tenant does not desire to lease Building G (in the
event the unsolicited inquire or offer is to lease Building G) or
to purchase the Building G Lot (in the event the unsolicited
inquiry or offer is to purchase Building G), in which event
Landlord shall have the right to negotiate the lease of Building G,
construct Building G, and to lease or sell Building G and/or the
Building G Lot to any person or entity other than Tenant without
further obligation to Tenant with respect to such negotiation,
construction, lease or sale; or
(b) that Tenant desires to lease Building G (in the event the
unsolicited inquiry or offer is to lease Building G) or that Tenant
desires to purchase the Building G Lot (in the event the
unsolicited inquiry or offer is to purchase Building G).
Tenant's failure to provide such written notice within the prescribed time
period shall constitute Tenant's rejection of the opportunity to enter into
negotiation to lease Building G and to purchase the Building G Lot. Landlord
shall not be obligated to disclose the terms and conditions of any
unsolicited inquiry or offer in the Unsolicited Inquiry Notice. In the event
that an unsolicited inquiry or offer results in the lease or sale of Building
G and/or the Building G Lot, Tenant's right of first opportunity to negotiate
an agreement to lease Building G or to purchase the Building G Lot set forth
in this Lease shall become null and void and Tenant shall cease to have any
right of first opportunity to negotiate any such agreement.
e. In the event, pursuant to the previous paragraph, Tenant informs
Landlord of Tenant's desire to lease Building G, or to purchase the Building
G Lot, as the case may be, then Landlord and Tenant shall negotiate in good
faith a written lease for the lease of Building G or a purchase agreement for
the sale of the Building G Lot. In the event Landlord and Tenant do not (i)
within three (3) business days after the Unsolicited Inquiry Notice is given
to Tenant, agree to all primary terms, covenants and conditions to lease or
purchase (as the case may be), and (ii) within ten (10) business days after
the Unsolicited Inquiry Notice is given to Tenant, execute a final written
lease or purchase agreement (as the case may be), then Landlord shall have
the right to negotiate the lease of Building G and to construct, lease,
and/or sell Building G and/or the Building G Lot to any person or entity
other than Tenant at any time thereafter without further obligation to Tenant
with respect to such negotiation, construction, lease, or sale under any tam,
covenants and conditions, whether or not they conform to those offered to
Tenant.
30
<PAGE>
f. Tenant's right of first opportunity to negotiate an agreement to
lease Building G or to purchase the Building G Lot granted under this Lease
(i) are personal to the Tenant named in this Lease and no subtenant or
assignee of Tenant shall have any such right, and (ii) shall lapse if (x) at
or after the date Landlord gives the Notice to Lease, the Notice to Sell or
the Unsolicited Inquiry Notice to Tenant and before the consummation of any
lease or purchase agreement with Tenant, Tenant is in default under the terms
of this Lease, (y) Tenant has assigned its interest in this Lease, or (z)
this Lease is terminated or has expired.
44. HAZARDOUS MATERIALS:
a. Tenant will not use, generate manufacture, produce, store,
release, discharge or dispose of, on, under or about the Premises or
transport to or from the Premises any Hazardous Material (is defined below)
or allow its employees, agents, contractors, invitees or any other person or
entity to do so.
b. Tenant shall keep and maintain the Premises in compliance with,
and shall not cause or permit the Premises to be in violation of any
environmental Law (any and all federal, state or local laws, ordinances,
rules or regulations pertaining to health, industrial hygiene or the
environmental conditions on, under or about the Premises, including without
limitation the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 as amended, 42 U.S.C. Section 9601 ET SEQ., ("CERCLA"),
the Resource Clean Air Act, 42 U.S.C. Section 7401 ET SEQ., the Porter
Cologne Water Quality Control Act, California Water Code Section 13000 ET
SEQ. California Hazardous Waste Control Act, Health and Safety Code Section
25100 ET SEQ., Carpenter-Presley-Tanner Hazardous Substance Account Act,
California Health and Safety Code Section 25300 ET SEQ., those laws described
in Paragraph 12 hereof and implementing regulations and rules, all as are or
which may be amended, are herein collectively referred to as "Environmental
Laws") (the "Environmental Laws" and the "Plan" are hereinafter collectively
referred to as the "Regulations"). Tenant shall surrender the Premises in as
good a condition as when received by Tenant, reasonable wear and tear
excepted, it being specifically agreed to by Landlord and Tenant that the
presence at expiration or termination of this Lease of Hazardous Materials
which are generated, released, discharged or disposed of by Tenant on, under
or about the Premises, shall not be "reasonable wear and tear" as that term,
is used in this Lease.
c. Tenant agrees to provide Landlord with (i) a copy of any
hazardous material management plan or similar document required by any
governmental entity or by Landlord as set forth herein, and (ii) copies of
all reports, studies and written results of tests or inspections conducted at
the Premises with respect to Hazardous Materials, whether conducted by Tenant
or any other person including but not limited to any governmental entity
(collectively "Reports"). Tenant shall deliver all Reports to Landlord no
later than forty-eight (48) hours following Tenant's obtainment of such
Reports.
d. At least once every twelve (12) months during the Term, and more
often as is permitted pursuant to the provisions of section (B) hereinbelow,
Landlord may install permanent testing wells to be installed at or about the
Premises and may cause the ground water to be tested to detect the presence
of Hazardous Materials by the use of such wells as are then customarily used
31
<PAGE>
for such purposes. If Tenant so requests, Landlord shall supply Tenant with
copies of such test results. The cost of such tests and of the installation,
maintenance, repair and replacement of such welts shall be paid by Tenant.
e. Landlord and its representatives shall have the right, at the
following times, to enter the Premises and to (i) conduct any testing,
monitoring and analysis for Hazardous Materials; and (ii) review any
documents, materials, inventory, financial data or notices or correspondence
to or from private parties or governmental entities in connection therewith.
(A) At any time during the term of this Lease if, in Landlord's
reasonable judgment, Tenant is breaching its obligations under this
Addendum or is not in substantial compliance with any other
provisions of this Lease; and
(B) As permitted by Paragraph 23 of this Lease.
f. Prior to Landlord retailing any independent consultant(s)
pursuant to the provisions of Paragraph d. or e., if Landlord determines that
the aggregate cost(s) of such consultant(s) in any one calendar year shall
exceed five thousand dollars ($5,000.00), Landlord shall consult, in good
faith, with Tenant with respect to the need to retain such consultants.
Also, prior to Landlord, pursuant to the provisions of Paragraph d.,
installing, placing or otherwise causing to be constructed any test wells on
or about Technology Centre Landlord shall consult, in good faith, with Tenant
with respect to the need to construct additional test wells. All costs and
expenses reasonably incurred by Landlord in connection with any Inspection
pursuant to this Lease shall become due and payable by Tenant as additional
rent, upon presentation by Landlord of an invoice therefor.
g. Tenant shall give immediate written notice to Landlord of:
(i) Any action, proceeding or inquiry by any governmental
authority (including, without limitation, the California State
Department of Health Services, the State or any Regional Water
Quality Control Board, the Bay Area Air Quality Management District
or any local government entity) with respect to the presence of any
Hazardous Material on the Premises or the migration thereof from or
to other property;
(ii) All demands or claims made or threatened by any third
party against Tenant or the Premises relating to any loss or injury
resulting from any Hazardous Materials; and
(iii) Any spill, release, discharge or non-routine disposal
of Hazardous Materials that occurs with respect to the Premises or
Tenant's operations, including, without limitation, those that
would constitute a violation of Health and Safety Code Section
25249.5 or any other environmental Law;
(iv) All matters of which Tenant is required to give notice
of pursuant to Section 25359.7 of the California Health and Safety
Code; and
32
<PAGE>
(v) Tenant's discovery of any occurrence or condition
on, under or about the Premises or any real property adjoining or
in the vicinity of the Premises or any part thereof to be subject
to any restrictions on the ownership, occupancy, transferability or
use of the Premises under any Environmental Law including without
limitation, Tenant's discovery of any occurrence or conditions on
any real property adjoining or in the vicinity of the Premises that
could cause the Premises or any part thereof to be classified as
'border-zone property' under the provisions of California Health
and Safety Code Sections 25220 ET SEQ. or any regulation adopted in
accordance therewith, or to be otherwise subject to any
restrictions on the ownership, occupancy, transferability or use of
the Premises under any Environmental Law.
h. Landlord shall have the right to join and participate in as a
party if it so elects, any legal proceedings or actions affecting the
Premises initiated in connection with any Environmental Law and have its
attorneys' fees in connection therewith paid by Tenant.
i. Tenant shall indemnify and hold harmless Landlord, its directors,
officers, employees, agents, successors and assigns (collectively "Landlord")
from and against any and all claim arising from Tenant's use of the Premises
for the conduct of its business or from any activity, work or other things
done or suffered by the Tenant in or about the Buildings and shall further
indemnify and hold harmless Landlord against and from any and all claims
directly arising from breach or default in performance of any obligation on
Tenant's part to be performed under the terms of this Lease, or arising from
any act or negligence of the Tenant, or any officer, agent, employee, guest
or invitee of Tenant, and from all and against all costs, attorneys' fees,
expenses and liabilities incurred in or about any such claim or any action or
proceeding brought thereon, including, without limitation, claims, fines,
judgments, penalties, losses, damages, costs, expenses or liabilities
(including attorneys' fees and costs) directly or indirectly arising, in any
manner whatsoever, out of or attributable to the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a Hazardous Material on, under or about the Premises
(collectively a "Release") including without limitation, (i) all foreseeable
consequential damages including without limitation loss of rental income and
diminution in property value; and (ii) the costs of any investigation,
monitoring, removal, restoration, abatement, repair, cleanup, detoxification
or other ameliorative work of any kind or nature required by any governmental
agency having jurisdiction thereof or Landlord (collectively "Remedial Work")
and the preparation and implementation of any closure, remedial or other
required plans. This indemnity shall survive the expiration or termination
of this Lease. In any action or proceeding brought against Landlord by
reason of any such claim, Tenant upon notice from Landlord shall defend the
same at Tenant's expense by counsel reasonably satisfactory to Landlord. In
addition, Tenant as a material part of the consideration to Landlord, hereby
assumes all risk or damage to property or injury to persons, in, upon or
about the Premises, except that Tenant shall not assume any risk for damage
to Tenant resulting from the acts or omissions of Landlord or its authorized
representatives.
j. In the event of the occurrence of a Release, Tenant shall, at its
sole expense and within thirty (30) days after demand by Landlord (or such
shorter period of time as may be
33
<PAGE>
required under applicable laws or by any governmental entity having
jurisdiction thereof) commence to perform and thereafter diligently prosecute
to completion such Remedial Work as is necessary to restore the Premises to
the condition existing prior to the introduction of any Hazardous Materials.
All such Remedial Work shall be performed in conformance with the
requirements of Landlord and all applicable Environmental Laws. All Remedial
Work shall be performed by one or more contractors, approved in advance in
writing by Landlord, and under the supervision of a consulting engineer
approved in advance in writing by Landlord. All costs and expenses of such
Remedial Work shall be paid by Tenant including, without limitation, to the
charges of such contractor(s) and/or the consulting engineer, and Landlord's
reasonable attorneys' fees and costs incurred in connection with monitoring
or review of such Remedial Work. In the event Tenant shall fail to timely
commence or cause to be commenced, or fail to diligently prosecute to
completion such Remedial Work, Landlord may, but shall not be required to,
cause such Remedial Work to be performed and all costs and expenses thereof,
or incurred in connection therewith, shall become immediately due and payable.
k. The term "Hazardous Material" shall include without limitation:
(i) Those substances included within the definitions of "hazardous
substances", "hazardous materials", "toxic substances", or "solid waste"
in CERCLA, RCRA, and the Hazardous Materials Transportation Act,
49 U.S.C. Sections 1801 ET SEQ. and in the regulations promulgated
pursuant to said laws:
(ii) Those substances defined as "hazardous wastes" in
Section 25117 of the California Health & Safety Code, or as "hazardous
substances" in Section 25316 of the California Health & Safety Code,
and in the regulations promulgated pursuant to said laws;
(iii) Those substances fisted in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto);
(iv) Such other substances, materials and wastes which are or
become regulated under applicable local, state or federal law, or the
United States government, or which are classified as hazardous or toxic
under federal, state, or local laws or regulations including without
limitation California Health and Safety Code, Division 20, and
California Administrative Code, Division 4;
(v) Any material, waste or substance which is (A) petroleum, (B)
asbestos, (C) polychlorinated biphenyls, (D) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
Sections 1251 ET SEQ. (33 U.S.C. Section 1321) or listed pursuant to
Section 307 of the Clean Water Act (33 U.S.C. Section 1317); (E)
flammable explosives, or (F) radioactive materials.
34
<PAGE>
l. Notwithstanding anything to the contrary set forth in this
Paragraph or in the Lease, including without limitation, the provisions of
Paragraph 26 of the Lease, Tenant's failure to observe or perform any of the
covenants, conditions or provisions of this Paragraph 44 to be observed or
performed by Tenant shag constitute a default and breach of this Lease by
Tenant upon the delivery of written notice of such failure by Landlord to
Tenant.
IN WITNESS WHEREOF, this Lease Agreement is executed on the date and
year first above written.:
LANDLORD:
METROPOLITAN LIFE INSURANCE COMPANY
a New York corporation
By: /S/ EDWARD J. HAYES
--------------------------------
Print Name: EDWARD J. HAYES
------------------------
Title: ASSISTANT VICE PRESIDENT
-----------------------------
TENANT:
DIGITAL MICROWAVE CORPORATION
a Delaware corporation
By: /S/ CARL A. THOMSEN
--------------------------------
Print Name: CARL A. THOMSEN
------------------------
Title: VP - CFO
-----------------------------
35
<PAGE>
EXHIBIT A
[GRAPHICS: LEASE PREMISES]
A-1
<PAGE>
EXHIBIT B
Page 1 of 1
To the Lease Agreement dated April 5, 1995 by and between
Metropolitan Life Insurance Company, as Owner and Landlord
and
Digital Microwave Corporation, as Tenant
For a Portion of 180 Rose Orchard Way, San Jose, California (Building E)
1. Landlord and Tenant agree that Landlord will provide a tenant
improvement allowance in an amount not to exceed Forty Nine Thousand Three
Hundred Thirty Two Dollars and No Cents ($49,332.00) Landlord's Maximum
Contribution).
2. The cost of the Landlord's Work ("Landlord's Work Costs") to be paid
by Landlord from said allowance shall include:
(a) The costs of preliminary space planning (including one revision)
and final architectural and engineering plans and specifications
(Construction Drawings) for the Landlord's Work, and engineering costs
associated with completion of the State of California energy utilization
calculations under Title 24 legislation;
(b) All costs of obtaining building permits and other necessary
authorizations from the City of San Jose and State of California;
(c) All costs of interior design and finish schedule plans and
specifications including as-built drawings;
(d) All direct and indirect costs of procuring and installing
Landlord's work in the Premises, including the construction fee for overhead
and profit and the cost of all on-site supervisory and administrative staff,
office, equipment and temporary services rendered by Landlord's contractor in
connection with construction of the Landlord's Work; and
(e) All fees payable to Landlord's architectural and engineering firm
if it is required by Tenant to redesign any portion of the Landlord's Work
following Tenant's approval of the Construction Drawings.
In no event shall the Landlord's Work Costs include any costs or
procuring or installing in the Premises any trade fixtures, equipment,
furniture, furnishings, telephone equipment or other personal property
("Personal Property") to be used in the Premises by Tenant, and the cost of
such Personal Property shall be paid by Tenant.
LANDLORD: TENANT:
METROPOLITAN LIFE INSURANCE COMPANY DIGITAL MICROWAVE CORPORATION
By: /s/ CARL A. THOMSEN By: /s/ EDWARD J. HAYES
-------------------------------- -------------------------------
Print Name: CARL A. THOMSEN Print Name: EDWARD J. HAYES
------------------------ -----------------------
Its: VP - CFO Its: ASSISTANT VICE PRESIDENT
------------------------------- ------------------------------
B-1
<PAGE>
EXHIBIT B-1
[GRAPHICS: LEASE PREMISES]
<PAGE>
EXHIBIT B-2
[Graphics: Lease Premises]
<PAGE>
EXHIBIT C
RENT SCHEDULE
Page 1 of 1
To the Lease Agreement dated April 5, 1995 by and between
Metropolitan Life Insurance Company, as Owner and Landlord
and
Digital Microwave Corporation, as Tenant
For a portion of 180 Rose Orchard Way, San Jose, California (Building E)
Tenant shall pay Rent in advance on the first day of each month as set
forth hereinbelow:
June 1, 1995 through September 30, 2001
at $8,941.42 per month
In addition to the Rent set forth above, Tenant shall pay his share of
Operating Expenses, as specified in Paragraph 8, taxes as specified in
Paragraph 9 and Utilities Referred to in Paragraph 10 commencing on june 1,
1995.
C-1
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
Page 1 of 2
To the Lease Agreement dated April 5, 1995 by and between
Metropolitan Life Insurance Company, as Owner and Landlord
and
Digital Microwave Corporation, as Tenant
For a portion of 180 Rose Orchard Way, San Jose, California (Building E)
1. No advertisement, picture or sign of any sort shall be displayed on
or outside the Premises without the prior written consent of the Landlord.
Landlord shall have the right to remove any such unapproved item without
notice and at Tenant's expense.
2. Except in the normal conduct of its business, Tenant shall not
regularly park motor vehicles in designated parking areas after the
conclusion of normal daily business activities.
3. Tenant shall not use any method of heating or air conditioning other
than that supplied by Landlord without the consent of Landlord.
4. All window coverings installed by Tenant and visible from the
outside of the building require the prior written approval of Landlord.
5. Tenant shall not use, keep or permit to be used or kept any foul or
obnoxious gas or substance or any inflammable or combustible materials on or
around the Premises.
6. With respect to any locks for which Landlord has not been given a
key, Tenant shall provide Landlord a list of individuals who possess such
keys and their telephone numbers.
7. Tenant shall park motor vehicles in those general parking areas as
designated by Landlord except for loading and unloading. During those
periods of loading and unloading, Tenant shall not unreasonably interfere
with traffic flow within the project and loading and unloading areas of other
Tenants.
8. Tenant shall not solicit, canvas or unreasonably disturb any
occupant of the building or project and shall cooperate to prevent same.
9. No persons shall go on the roof without Landlord's permission.
10. Business machines and mechanical equipment belonging to the tenant
which cause noise or vibration that may be transmitted to the structure of
the building, to such a degree as to be
E-1
<PAGE>
objectionable to Landlord or other Tenants, shall be placed and maintained by
tenant, at tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise vibration.
11. All goods, including materials used to store goods, delivered to the
premises of the Tenant shall be immediately moved into the premises and shall
not be left in parking or receiving areas overnight.
12. Tractor trailers which must be unhooked or parked with dolly wheels
beyond the concrete loading areas must use steel plates or wood blocks under
the dolly wheels to prevent damage to the asphalt paving surfaces. No
parking or storing of such trailers will be permitted in the auto parking
areas of the Project or on streets adjacent thereto.
13. Forklifts which operate on asphalt paving areas shall not have solid
rubber tires and shall only use tires that do not damage the asphalt.
14. Tenant is responsible for the proper storage of all trash. All such
trash and refuse shall be contained in suitable receptacles stored behind
screened enclosures at locations approved by the landlord.
15. Tenant shall not store or permit the storage or placement of goods
or merchandise in or around the common areas surrounding the Premises. No
displays or sales of merchandise shall be allowed in the parking lots or
other common areas.
E-2
<PAGE>
To the Lease Agreement Dated April 5, 1995
METROPOLITAN LIFE INSURANCE COMPANY as Landlord
and
DIGITAL MICROWAVE CORPORATION, as Tenant
180 Rose Orchard Way
San Jose, California 95134
AMENDMENT No. 1
Page 1 of 1
This Amendment to Lease is entered into this 12th day of April 1995
between METROPOLITAN LIFE INSURANCE COMPANY as Landlord, (hereinafter called
"Lessor"), and Digital Microwave Corporation as Tenant, (hereinafter called
"Lessee").
WHEREAS the parties hereto desire to amend that certain Lease made by
the Parties on April 5, 1995 for the premises located at 180 Rose Orchard
Way, San Jose, California 95134.
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, effective June 15, 1995, the parties agree as follows:
1. TERM: The term of the Lease shall be amended to commence June 15,
1995 and expire on September 30, 2001.
Except as set forth in this Amendment, all terms and conditions of the
Lease shall remain in full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Amendment on
the date and year first above written.
LESSOR:
METROPOLITAN LIFE INSURANCE COMPANY,
a New York corporation
By: /s/ EDWARD J. HAYES Dated: 7/21/95
------------------------------------------- ----------------
Edward J. Hayes, Assistant Vice President
LESSEE:
DIGITAL MICROWAVE CORPORATION,
a Delaware corporation
By: /s/ JOHN P. O'NEIL Dated: JULY 5, 1995
------------------------------------------- ----------------
1
<PAGE>
Exhibit 11.1
DIGITAL MICROWAVE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
June 30,
--------
1997 1996
------ ------
Primary:
Weighted average shares outstanding 18,615 15,864
Common stock equivalents 868 378
------ ------
19,483 16,242
------ ------
------ ------
Fully Diluted:
Weighted average shares outstanding 18,615 15,864
Common stock equivalents 999 667
------ ------
19,614 16,531
------ ------
------ ------
Earnings per share:
Primary $ .30 $ .07
------ ------
------ ------
Fully Diluted $ .29 $ .07
------ ------
------ ------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL QUARTER ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) QUARTERLY
REPORT ON FORM 10Q FOR THE FISCAL QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,897
<SECURITIES> 15,114
<RECEIVABLES> 55,922
<ALLOWANCES> 3,770
<INVENTORY> 48,863
<CURRENT-ASSETS> 132,503
<PP&E> 54,446
<DEPRECIATION> 33,744
<TOTAL-ASSETS> 168,243
<CURRENT-LIABILITIES> 43,656
<BONDS> 0
0
0
<COMMON> 186
<OTHER-SE> 1,433
<TOTAL-LIABILITY-AND-EQUITY> 168,243
<SALES> 56,733
<TOTAL-REVENUES> 56,733
<CGS> 37,060
<TOTAL-COSTS> 37,060
<OTHER-EXPENSES> 13,613
<LOSS-PROVISION> 402
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 6,428
<INCOME-TAX> 643
<INCOME-CONTINUING> 5,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,785
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
</TABLE>
