UNITED STATES
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 March 31, 1996
Commission file number: 0-19512
READ-RITE CORPORATION
(Exact name of Registrant as specified in the charter)
Delaware 94-2770690
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
345 Los Coches Street, Milpitas, California 95035
(Address of principal executive offices)
(Zip Code)
(408) 262-6700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.0001 par value 46,490,805 Shares
(Class) (Outstanding at March 31, 1996)
READ-RITE CORPORATION
Index
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets-
March 31, 1996 and September 30, 1995 3
Consolidated Condensed Statements of Operations-
Three and Six Months Ended March 31, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flow-
Six Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-17
PART II- OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Stockholders 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 20
INDEX OF EXHIBITS 21
PART I. FINANCIAL STATEMENTS
READ-RITE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
March 31, September 30,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 95,241 $168,860
Short-term investments 94,192 93,293
Accounts receivable, net 149,539 147,277
Inventories 79,512 53,814
Prepaid expenses and other current assets 13,621 12,442
-------- --------
Total current assets 432,105 475,686
Property, plant and equipment, at cost 697,443 586,626
Less: Accumulated depreciation and
amortization 195,361 158,492
-------- --------
Net property, plant and equipment 502,082 428,134
Intangible and other assets 33,340 35,637
-------- --------
Total assets $967,527 $939,457
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ 1,000 $ 1,000
Accounts payable 101,213 72,667
Income taxes payable 33,929 42,222
Accrued compensation and benefits 30,708 33,740
Other accrued liabilities 32,698 16,951
Current portion of long-term debt and
capital lease obligations 15,402 22,204
-------- --------
Total current liabilities 214,950 188,784
Long-term debt and capital lease obligations 129,790 137,406
Deferred income taxes and other 14,009 17,004
-------- --------
Total liabilities 358,749 343,194
-------- --------
Minority interest in consolidated subsidiary 70,256 58,286
Stockholders' equity:
Common stock, $.0001 par value 5 5
Additional paid-in capital 332,531 370,623
Retained earnings 201,977 157,962
Cumulative translation adjustment 4,009 9,387
-------- --------
Total stockholders' equity 538,522 537,977
-------- --------
Total liabilities and
stockholders' equity $967,527 $939,457
======== ========
See accompanying notes to the consolidated condensed financial statements.
READ-RITE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended
March 31,
1996 1995
(Unaudited)
Net sales $258,219 $241,799
Cost of sales 215,510 185,590
-------- --------
Gross margin 42,709 56,209
Operating expenses:
Research and development 18,024 8,424
Selling, general and administrative 10,805 10,346
-------- --------
Total operating expenses 28,829 18,770
-------- --------
Operating income 13,880 37,439
Interest expense 2,970 1,442
Interest income and other, net 3,124 822
-------- --------
Income before income taxes and
minority interest 14,034 36,819
Provision for income taxes 8,136 8,653
-------- --------
Income before minority interest 5,898 28,166
Minority interest in net income of
consolidated subsidiary 4,611 3,167
-------- --------
Net income $ 1,287 $ 24,999
======== ========
Net income per share $ 0.03 $ 0.53
======== ========
Shares used in per share calculation 47,461 46,940
======== ========
Six Months Ended
March 31,
1996 1995
(Unaudited)
Net sales $557,430 $461,282
Cost of sales 431,319 358,951
-------- --------
Gross margin 126,111 102,331
Operating expenses:
Research and development 26,180 16,360
Selling, general and administrative 22,314 19,602
-------- --------
Total operating expenses 48,494 35,962
-------- --------
Operating income 77,617 66,369
Interest expense 6,093 2,770
Interest income and other, net 5,569 1,548
-------- --------
Income before income taxes and
minority interest 77,093 65,147
Provision for income taxes 23,900 15,310
-------- --------
Income before minority interest 53,193 49,837
Minority interest in net income of
consolidated subsidiary 9,335 5,263
-------- --------
Net income $ 43,858 $ 44,574
======== ========
Net income per share $ 0.91 $ 0.95
======== ========
Shares used in per share calculation 48,025 46,983
======== ========
See accompanying notes to the consolidated condensed financial statements.
READ-RITE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
Six Months Ended
March 31,
1996 1995
(Unaudited)
Cash flows from operating activities:
Net income $ 43,858 $ 44,574
Adjustments required to reconcile net income
to cash provided by operations:
Depreciation and amortization 44,464 28,989
Minority interest in net income of
consolidated subsidiary 9,335 5,263
Other, net 2,814 3,952
Changes in assets and liabilities:
Accounts receivable, net (5,699) (28,101)
Inventories (26,283) 7,264
Prepaid expenses and other current assets (1,244) (375)
Accounts payable, accrued liabilities and
income taxes payable 34,794 30,980
-------- --------
Net cash provided by operating activities 102,039 92,546
-------- --------
Cash flows from investing activities:
Capital expenditures, net (125,481) (74,741)
Sale of short-term investments 611,261 50,727
Purchase of short-term investments (612,570) (24,436)
Other assets and liabilities, net (4,154) (819)
-------- --------
Net cash used in investing activities (130,944) (49,269)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt -- 7,874
Payments of principal on long-term debt
and capital lease obligations (14,127) (5,886)
Repurchase of common stock (43,046) (7,879)
Proceeds from issuance of common stock 4,348 3,799
-------- --------
Net cash used in financing activities (52,825) (2,092)
-------- --------
Effect of exchange rate changes on cash 8,111 1,727
-------- --------
Net increase (decrease) in cash
and cash equivalents (73,619) 42,912
Cash and cash equivalents at beginning of period 168,860 65,477
-------- --------
Cash and cash equivalents at end of period $ 95,241 $108,389
======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest $5,809 $2,773
Income taxes $28,646 $1,175
See accompanying notes to the consolidated condensed financial statements.
READ-RITE CORPORATION
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1.
Read-Rite Corporation (the "Company") maintains a fifty-two/fifty-three
week fiscal year cycle ending on a Sunday. The second quarters of fiscal
1996 and 1995 ended on March 31, 1996 and April 2, 1995, respectively. To
conform the Company's fiscal year ends, the Company must add a fifty-third
week to every sixth or seventh fiscal year. Accordingly, the second
quarter of fiscal 1995 was a fourteen-week quarter. For convenience, the
accompanying financial statements have been shown as ending on the last day
of the calendar month.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation have
been included. The interim results are not necessarily indicative of the
operating results expected for later quarters or the full fiscal year
ending September 30, 1996. The accompanying unaudited financial statements
should be read in conjunction with the Company's audited financial
statements included in its 1995 Annual Report on Form 10-K.
Note 2.
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. Inventories (in thousands) consisted of the
following at:
March 31, September 30,
1996 1995
Raw materials $30,422 $17,588
Work-in-process 36,617 26,406
Finished goods 12,473 9,820
------- -------
Total inventories $79,512 $53,814
======= =======
For a discussion of certain risks associated with the Company's inventory,
see "Certain Additional Business Risks" below.
Note 3.
Income taxes were computed based on provisions of Statement of Financial
Accounting Standards No. 109. The provision for income taxes for the three
and six months ended March 31, 1996 is based upon the Company's estimated
annual effective tax rate for fiscal 1996. The effective tax rate differs
from the statutory federal income tax rate primarily due to net tax savings
associated with the Company's foreign operations and the utilization of net
operating losses of Sunward Technologies, Inc. ("Sunward"), a subsidiary of
the Company.
Note 4.
On March 29, 1996, the Company signed a definitive agreement to purchase
certain assets, assume certain liabilities and acquire a non-exclusive
license to intellectual property from Censtor Corporation, a developer of
planar pseudo-contact and contact recording technology for disk drives.
The purchase price includes a series of cash payments totaling
approximately $10.0 million payable over several quarters, the last $2.0
million of which is due nine months after the closing date, plus the
assumption of certain liabilities estimated at approximately $1.0 million
as of the closing date, and is allocated based on the estimated fair values
of the equipment and assembled workforce acquired, and the liabilities
assumed.
READ-RITE CORPORATION
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
Note 4. (Continued)
In determining the value of technology in development and related license,
the Company considered, among other factors, the stage of development of
the technology and the inherent difficulties, uncertainties in completing
the technology and converting it to a commercially viable product, and the
non-exclusivity of the license. Therefore, in accordance with generally
accepted accounting principles, the allocation of the purchase price
related to technology in the development stage was approximately $9.0
million and was expensed in March 1996 as acquired in-process research and
development. An intangible for assembled workforce was valued at $.8
million and will be amortized on a straight-line basis over its estimated
useful life of two years.
Note 5.
In January 1995, the Company's Board of Directors approved a stock
repurchase program authorizing the Company to repurchase up to 1,000,000
shares of its common stock on the open market, subject to certain
conditions. The Board increased such authorization by 1,000,000 shares in
October 1995. As of March 31, 1996, the Company had repurchased all of
the 2,000,000 shares authorized under this program. Of the total shares,
500,000 shares were repurchased during the fiscal year ended September 30,
1995 at an aggregate price of $7.9 million, an additional 1,000,000 shares
were repurchased during the first quarter of the current fiscal year at a
purchase price of $32.8 million, and the final 500,000 shares were
repurchased during the current quarter for $10.2 million. In February
1996, the Board authorized the repurchase of an additional 2,000,000 shares
of common stock on the open market, subject to certain conditions.
Note 6.
On April 25, 1996, the Company entered into a three-year operating lease
for a 23.5-acre parcel of undeveloped land across from its wafer
fabrication facility in Fremont, California on which additional office and
support facilities may be constructed over the next several years. This
lease provides for monthly payments which vary based on the London
interbank offering rate (LIBOR) plus 88.5 basis points, and requires the
Company to comply with certain minimum financial covenants similar to those
in the Company's revolving credit facility. In addition, the lease
provides the Company the option to purchase the subject property at its
original cost or arrange for the property to be acquired. The Company is
liable under the lease for approximately $10.7 million over the three year
term, based on current LIBOR rates.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations includes forward-looking information within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, and is subject to the
"safe harbor" created by those sections. The Company's actual results for
future periods could differ materially from those projected in such
forward-looking information. Some factors which could cause future actual
results to materially differ from the Company's recent results or those
projected in the forward-looking information are discussed in "Certain
Additional Business Risks" below.
Three and Six Months Ended March 31, 1996 Compared with Three and Six
Months Ended March 31, 1995
The following table sets forth certain financial data as a percentage of
net sales for the periods indicated:
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 83.5 76.7 77.4 77.8
----- ----- ----- -----
Gross margin 16.5 23.3 22.6 22.2
----- ----- ----- -----
Operating expenses:
Research and development 6.9 3.5 4.7 3.5
Selling, general and administrative 4.2 4.3 4.0 4.3
----- ----- ----- -----
Total operating expenses 11.1 7.8 8.7 7.8
----- ----- ----- -----
Operating income 5.4 15.5 13.9 14.4
Interest expense 1.2 0.6 .1 .6
Interest income and other, net 1.2 0.3 .0 .3
----- ----- ----- -----
Income before income taxes and
minority interest 5.4 15.2 13.8 14.1
Provision for income taxes 3.2 3.6 4.3 3.3
----- ----- ----- -----
Income before minority interest 2.2 11.6 9.5 10.8
Minority interest in net income of
consolidated subsidiary 1.7 1.3 1.6 1.1
----- ----- ----- -----
Net income 0.5 10.3 7.9 9.7
===== ===== ===== =====
Net Sales
Net sales for the three and six months ended March 31, 1996 were $258.2
million and $557.4 million, respectively, a 6.8% and 20.8% increase over
net sales of $241.8 million and $461.3 million, respectively, for the
comparable periods in fiscal 1995. The increase in net sales for the
current three- and six-month periods over the same periods during the
previous fiscal year was primarily due to increases in customer demand for
thin film and Metal-In-Gap ("MIG") products, partially offset by lower
average selling prices as the Company's product mix was weighted toward
more mature products.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Net Sales (Continued)
The Company's sales continue to shift from head gimbal assemblies ("HGAs")
to head stack assemblies ("HSAs") as these products were 45% and 54%,
respectively, of net sales during the current quarter, compared to 51% and
46% for the quarter ended March 31, 1995. The Company expects HSA sales as
a percentage of total sales to increase significantly for the remainder of
fiscal 1996.
Sales are primarily focused in the 3.5-inch form factor hard disk drive
market, which accounted for 88% of the Company's sales for the current
quarter, and 90% of sales for the six months ended March 31, 1996. These
products comprised 93% of sales for the same periods in fiscal 1995. The
Company's sales of 5.25-inch and 2.5-inch products accounted for 10% of
net sales in the three months ended March 31, 1996, compared to 4% of sales
for the same period of fiscal 1995.
For a discussion of certain risks associated with the Company's business,
see "Certain Additional Business Risks" below.
Principal Customers:
(As a Percentage of Net Sales)
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
Customer:
Western Digital 39.8% 36.4% 39.4% 38.4%
Quantum 30.6% 26.3% 31.4% 24.6%
Conner 9.3% 12.2% 9.7% 13.4%
Maxtor 13.2% 12.2% 12.7% 10.7%
All Others 7.1% 12.9% 6.8% 12.9%
Gross Margin
The Company's gross margins are primarily influenced by average sales
prices, process yields, the level of net sales in relation to fixed costs,
product mix (newer products and HGAs typically generate higher margins than
older products and HSAs), start-up costs associated with new product
programs, and material costs.
As mentioned above, HSAs typically have lower gross margins than HGAs.
HSAs consist of two or more HGAs and a variety of purchased components
which the Company assembles into a single unit. The cost of the purchased
components is a significant percentage of the total cost of the HSA; the
margin on such purchased components is substantially lower than the margin
on HGAs produced by the Company. The combination of the respective margins
on HGAs and non-HGA components and associated labor and overhead included
in HSAs thus produces a lower aggregate gross margin on HSA sales.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Gross Margin (Continued)
The Company's gross margin for the three months ended March 31, 1996 was
16.5%, compared to 23.3% for the same period in fiscal 1995. The decrease
in the margin during the current quarter in comparison to the previous
period is primarily attributable to a decrease in the average selling
prices for thin film HGAs and HSAs, shifts in the product mix toward HSAs
and older products carrying lower margins, a one-time charge of $6.0
million to cost of goods sold for the consolidation of the Company's San
Diego operations to Northern California, and significant start-up costs
associated with new programs not yet in volume production.
The Company's gross margin for the six months ended March 31, 1996 was
22.6% in comparison to 22.2% for the same period in fiscal 1995. The
margin is relatively consistent as increases attained in the first quarter
of fiscal 1996 from increased net sales in relation to fixed costs,
favorable product mix, and cost reductions were offset by decreases in the
second quarter for declining selling prices, less favorable product mix,
the consolidation charge of the Company's San Diego operations to Northern
California and significant start up costs associated with new programs.
For a discussion of certain risks associated with the Company's business,
see "Certain Additional Business Risks" below.
Research and Development Expenses
Research and development ("R&D") expenses were $18.0 million, or 6.9% of
net sales, for the three months ended March 31, 1996 compared to $8.4
million, or 3.5% of net sales, for the comparable period in 1995. R&D
expenses were $26.2 million, or 4.7% of net sales, for the six months ended
March 31, 1996 compared to $16.4 million, or 3.5% of net sales, for the six
months ended March 31, 1995.
The increase in 1996 compared to 1995 was primarily due to a $9.0 million
charge for an investment in planar recording technology as discussed below.
Excluding this charge, R&D expenses would have been 3.5% and 3.1% of sales,
respectively, for the quarter and six months ended March 31, 1996, compared
to 3.5% for the comparable periods in fiscal 1995.
On March 29, 1996, the Company signed a definitive agreement to purchase
certain assets, assume certain liabilities and acquire a non-exclusive
license to intellectual property from Censtor Corporation, a developer of
planar pseudo-contact and contact recording technology for disk drives. The
purchase price includes a series of cash payments totaling approximately
$10.0 million payable over several quarters, the last $2.0 million of which
is due nine months after the closing date, plus the assumption of certain
liabilities estimated at approximately $1.0 million as of the closing date,
and is allocated based on the estimated fair values of the equipment and
assembled workforce acquired, and the liabilities assumed.
In determining the value of technology in development and the related
license, the Company considered, among other factors, the stage of
development of the technology, the inherent difficulties and uncertainties
in completing the technology and converting it to a commercially viable
product, and the non-exclusivity of the license. Therefore, in accordance
with generally accepted accounting principles, the allocation of the
purchase price related to technology in the development stage was
approximately $9.0 million and was expensed in March 1996 as acquired in-
process research and development.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Research and Development Expenses (Continued)
As a result of the investment in planar technology, the associated addition
of 85 employees, and additional depreciation associated with capital
equipment investments necessary to support the development of the Company's
next generation of products and current technologies, the Company expects
R&D expenses, after excluding the $9.0 million charge, to increase in
absolute dollars and as a percentage of net sales.
Selling, General & Administrative Expenses
Selling, general and administrative ("SG&A") expenses were $10.8 million,
or 4.2% of net sales, for the three months ended March 31, 1996 compared to
$10.3 million, or 4.3% of net sales, for the comparable period in 1995.
SG&A expenses were $22.3 million, or 4.0% of net sales, for the six months
ended March 31, 1996 compared to $19.6 million, or 4.3% of net sales, for
the same six months in fiscal 1995.
The absolute dollar increases in SG&A expenses for the three and six-month
periods in 1996 over 1995 were primarily due to increased staffing and
overhead to support the increased level of net sales and volume. The
Company expects that SG&A expenses as a percent of net sales will vary from
period to period depending on the level of net sales.
Interest Expense
Interest expense was $3.0 and $6.1 million, respectively, for the three and
six months ended March 31, 1996, and $1.4 and $2.8 million, respectively,
for the comparable periods in 1995. The increase in interest expense in
the current periods is primarily due to the significant increase in the
average amount of debt outstanding.
Interest Income and Other, Net
Interest income and other, net for the three months ended March 31, 1996
was $3.1 million, compared to $0.8 million for the comparable period in
1995. Interest income and other, net for the six months ended March 31,
1996 was $5.6 million, compared to $1.5 million for the six months ended
March 31, 1995. Interest income and other, net is higher for the current
periods primarily due to significantly higher average cash, cash
equivalents and short-term investments balances during such periods.
Provision for Income Taxes
Income taxes were computed based on provisions of Statement of Financial
Accounting Standards No. 109. The Company's estimated annual effective tax
rate increased to 31% for the six months ended March 31, 1996, compared to
23.5% for the same period in fiscal 1995. The increase in the estimated
annual effective tax rate for fiscal 1996 is primarily due to higher net
tax from foreign operations. The fiscal 1996 effective rate for the three
and six month periods ended March 31, 1996 differ from the statutory
federal income tax rate primarily due to net tax savings associated with
the Company's foreign operations and the utilization of Sunward's net
operating losses.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Net Income
Net income for the three and six months ended March 31, 1996 was $1.3 and
$43.9 million, respectively, or 0.5% and 7.9% of net sales, compared to
$25.0 and $44.6 million, respectively, or 10.3% and 9.7% of net sales, for
the three and six months ended March 31, 1995. The percentage and absolute
dollar decrease in net income in the current quarter was principally due to
the decrease in gross margin, the increase in R&D expenses, and the higher
provision for income taxes as described above.
Liquidity and Capital Resources
As of March 31, 1996, the Company had cash, cash equivalents and short-term
investments of $189.4 million, total assets of $967.5 million and total
long-term debt, including the current portion, of $145.2 million. The
Company's cash generated by operating activities was $102.0 million for the
six months ended March 31, 1996, compared to $92.5 million for the same six
month period during the previous fiscal year.
The Company's business is highly capital intensive. During the six months
ended March 31, 1996, the Company incurred capital expenditures of
approximately $125.5 million, compared to $74.7 million during the same six
month period of the previous fiscal year. Capital expenditures have
primarily been made to expand production capacity in Thailand, to expand
wafer production in Milpitas, Fremont and Japan, and to support new
manufacturing processes and new technologies, such as magnetoresistive
("MR") and tripad technology. The Company plans total capital expenditures
of approximately $250 million in fiscal 1996; however, to the extent yields
for the Company's products are lower than expected, that demand for such
products exceeds Company expectations, and/or that the Company's
manufacturing process needs change significantly, such expenditures may
increase. As of March 31, 1996, total commitments for construction or
purchase of plant and equipment totaled approximately $108 million.
In January 1995, the Company's board of directors approved a stock
repurchase program authorizing the Company to repurchase up to 1,000,000
shares of its common stock on the open market, subject to certain
conditions. The Board increased such authorization by 1,000,000 shares in
October 1995. As of March 31, 1996, the Company had repurchased all of
the 2,000,000 shares authorized under this program. Of the total shares,
500,000 shares were repurchased during the fiscal year ended September 30,
1995 at an aggregate price of $7.9 million, an additional 1,000,000 shares
were repurchased during the first quarter of the current fiscal year at a
purchase price of $32.8 million, and the final 500,000 shares were
repurchased during the current quarter for $10.2 million. In February
1996, the Board authorized the repurchase of an additional 2,000,000 shares
of common stock on the open market, subject to certain conditions.
In September 1995, the Company completed the sale of $100 million in 7.53%
Senior Notes due September 15, 2000 ("Notes") to a group of four insurance
companies. Interest is paid semi-annually in March and September,
beginning March 1996. Principal is payable in three equal installments on
each of September 15, 1998, September 15, 1999 and September 15, 2000. The
terms of the Note Purchase Agreement pertaining to the Notes (the "Purchase
Agreement") require the Company to maintain certain financial ratios and
observe a series of additional covenants, and place a limit upon the
Company's ability to pay dividends. As of March 31, 1996, the entire $100
million represented by the Notes was outstanding, and the Company was in
compliance with the covenants under the Purchase Agreement.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
On April 25, 1996, the Company entered into a three-year operating lease
for a 23.5-acre parcel of undeveloped land across from its wafer
fabrication facility in Fremont, California on which additional office and
support facilities may be constructed over the next several years. This
lease provides for monthly payments which vary based on the London
interbank offering rate (LIBOR) plus 88.5 basis points, and requires the
Company to comply with certain minimum financial covenants similar to those
in the Company's revolving credit facility (described below). In addition,
the lease provides the Company the option to purchase the subject property
at its original cost or arrange for the property to be acquired. The
Company is liable under the lease for approximately $10.7 million over the
three year term, based on current LIBOR rates.
In December 1994, the Company and its lenders amended and restated the
Company's $65 million revolving credit facility (the "Revolving Facility")
to modify certain covenants and to extend the maturity date to October
1997. The Revolving Facility was amended in September 1995 to remove the
security interest previously held by the banks in stock and intercompany
receivables of the Company's subsidiary, Read-Rite International. The
terms of the Revolving Facility require the Company to maintain certain
financial ratios and observe a series of additional covenants, and prohibit
the Company from paying cash dividends without prior bank approval. The
interest rate on borrowings under the Revolving Facility depend on the
utilization of the Revolving Facility and are based, at the option of the
Company, on interest rates based upon the base rate or LIBOR plus a margin.
As of March 31, 1996, there were no borrowings outstanding against this
line and the Company was in compliance with the covenants thereunder.
The Company believes that its current level of liquid assets, credit
facilities, and cash generated from operations will be sufficient to fund
its operations for the next year. However, if industry conditions worsen
or if the Company does not consistently achieve timely customer
qualifications on new product programs, thus negatively affecting profits
and cash flows from operations, the Company's working capital and other
capital needs will increase. Conversely, if industry demand increases
significantly such that the Company's capital requirements exceed
management's current estimates, the Company may again need to raise
additional capital. The Company may seek such capital through additional
bank facilities, debt or equity offerings, or other sources. Further, the
Company may elect from time to time to seek additional financing. There
can be no assurance, however, that such financing, if needed, will be
available on terms and conditions acceptable to the Company.
The Company has never paid cash dividends on its capital stock. The
Company currently intends to retain any earnings for use in its business
and does not anticipate paying cash dividends in the foreseeable future.
The Revolving Facility prohibits payment of cash dividends without prior
bank approval.
Certain Additional Business Risks
The Company's financial condition and operating results can be impacted by
a number of factors, including but not limited to those set forth below,
any one of which could cause the Company's actual results to vary
materially from recent results or from the Company's anticipated future
results.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Certain Additional Business Risks (Continued)
The Company is a component supplier dependent upon a limited number of
customers in a volatile industry characterized by rapid technological
change, short product life cycles, intense competition and price erosion.
In addition, as demonstrated by the strong demand in the first half of
fiscal 1993 and the significant industry contraction in the latter half of
fiscal 1993, demand in the industry is highly variable and unpredictable.
The Company's primary revenues are derived from thin film inductive
products, which require substantial resources for product development and
manufacturing equipment to effectively extend the performance of these
products to compete with new products supporting higher areal densities.
To maintain its market position, the Company must continually and timely
improve its head, HGA and HSA technologies to meet industry demands, at
competitive costs. Given the Company's dependence on a limited number of
customers, the limited number of large volume programs conducted by these
customers at any given time, and strong competition among recording head
manufacturers, the failure by the Company to execute on technologies
necessary to consistently obtain qualification on any of such volume
programs will have a material adverse effect on the Company's business,
financial condition and results of operations. For example, during the
quarter ended March 31, 1996 the Company incurred significant start-up
costs on new product programs and did not achieve volume production on
those programs during the quarter necessary to absorb those costs, which
in turn reduced both sales and margins for the quarter. See "Net Sales"
and "Gross Margin" above.
The Company has invested significant resources to extend the performance of
its MIG products. However, it is becoming increasingly difficult to
achieve the necessary performance requirements with MIG technologies at a
cost competitive with the Company's thin film products; the Company
therefore believes its production of MIG-based products will decline over
the next several quarters. Accordingly, the Company has begun to
transition its Philippines operations from MIG production to thin film
production. The Company's failure to make this transition smoothly and
effectively or to replace its MIG production with thin film products as
required would have a material adverse effect on the Company's business,
financial condition and results of operations.
Further, the Company has also invested, and will continue to invest,
significant resources in product development and manufacturing equipment to
support the Company's efforts to develop and introduce cost-competitive
thin film MR heads. While the Company has made progress toward the
qualification of one of its new MR products in a customer program, there
can be no assurance that the Company will be qualified for such program,
that the Company will be successful in volume production on such program if
qualified, or that the Company will continue thereafter to timely and cost
effectively develop and manufacture in volume MR heads necessary to achieve
uninterrupted design-in wins or profitability.
As further described in "Research and Development Expenses", in March 1996,
the Company entered into an agreement to acquire a nonexclusive license to
the intellectual property of Censtor Corporation, a developer of planar
pseudo-contact and contact recording technology for disk drives. The
Company believes that it can extend recording areal densities beyond
conventional thin film inductive designs by combining the planar technology
acquired with the Company's proximity recording technology and
manufacturing processes. However, there can be no assurance that the
Company will be successful in this endeavor or that it will be able to
transition the technology into commercially viable volume production.
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Certain Additional Business Risks (Continued)
The Company's business is highly capital intensive. To maintain its market
position, the Company must anticipate demand for its products and the path
of new technologies so that production capacity, both in terms of amount
and the proper technologies, will be in place to meet customers' needs.
Accurate capacity planning is complicated by the pace of technological
change, unpredictable demand variations, the effects of variable
manufacturing yields, and the fact that most of the Company's plant and
equipment expenditures have long lead times, thus requiring major
commitments well in advance of actual requirements. The Company's
underestimation or overestimation of its capacity requirements, or failure
to successfully and timely put in place the proper technologies, would have
a material adverse effect on the Company's business, financial condition
and results of operations.
Over the past four fiscal years, the Company has made substantial capital
expenditures and installed significant production capacity to support new
technologies and increased demand for its products. The Company
anticipates capital expenditures in fiscal 1996 to be approximately $250
million, compared to $185 million for fiscal 1995. There can be no
assurance, however, that the Company's net sales will increase sufficiently
to absorb such additional costs, and that there will not be periods, such
as in the latter half of fiscal 1993, or in the current quarter, when net
sales decline period to period.
The Company's production process is also labor intensive. As a result, the
Company conducts substantially all of its HGA machining, assembly and test
operations, HSA assembly and tape head assembly operations offshore, and is
thus subject to the many risks associated with contracting with foreign
vendors and suppliers and with the ownership and operation of foreign
manufacturing facilities, including obtaining requisite governmental
permits and approvals, currency exchange fluctuations and restrictions,
variable or higher tax rates, political instability, changes in government
policies relating to foreign investment and operations, cultural issues,
labor problems, trade restrictions, transportation delays and
interruptions, and changes in tariff and freight rates.
The Company's manufacturing processes involve numerous complex steps.
Minor deviations can cause substantial yield loss, and in some cases, cause
production to be suspended. Yields for new products initially tend to be
low as the Company completes product development and commences volume
manufacturing, and thereafter typically increase as the Company ramps to
full production. The Company's forward product pricing reflects this
assumption of improving yields; as a result, material variances between
projected and actual yields have a direct effect on the Company's gross
margins and profitability. The difficulty of forecasting yields accurately
and maintaining cost competitiveness through improving yields will continue
to be magnified by ever-increasing process complexity and by the
compression of product life cycles, which requires the Company to bring new
products on line faster, and for shorter periods, and yet maintain
acceptable yields and quality, without, in many cases, reaching the longer-
term, high volume manufacturing conducive to higher yields and declining
costs.
As a high technology company in a narrowly defined industry, the Company is
often dependent upon a limited number of suppliers and subcontractors, and
in some cases on single sources, for critical components or supplies.
Limitation on or interruption of the supply of certain components or
supplies can severely and adversely affect the Company's production and
results of operations. For example, the Company buys all of its MIG sliders
from Hitachi Metals, a potential competitor of the Company, and from time
to time has been unable to secure its full requirements of MIG sliders. The
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Certain Additional Business Risks (Continued)
Company also has limited alternative sources of certain key materials such
as wafer substrates and photoresist, and frequently must rely on a single
equipment supplier for a given equipment type due to lack of viable
alternatives or to insure process consistency. Accordingly, capacity
constraints or production failures at, or restricted allocations by, the
Company's suppliers could have a material adverse effect on the Company's
own production, financial condition and results of operations.
The Company is continuing its efforts to broaden its customer base.
However, given the small number of high-performance disk drive
manufacturers who require an independent source of HGA or HSA supply, the
Company's dependence on a limited number of customers is expected to
continue. As demonstrated by the significant reduction in the level of the
Company's business in the second half of fiscal 1993, the loss of any large
customer, or a significant decrease in orders from one or more large
customers, would have a material adverse effect on the Company's business,
financial condition and results of operations. Moreover, given the
Company's dependence upon a limited number of customers, acquisitions and
consolidations affecting such customers could also have a material adverse
effect on the Company's sales and operating results. For example, Seagate
Technology, Inc. ("Seagate"), a competitor of the Company, recently
acquired the tape head operations of Applied Magnetics Corporation, and
also recently completed the acquisition of Conner Peripherals, Inc., a
major customer of the Company. As a result, there can be no assurance that
Seagate will continue Conner's previous practice of buying a portion of its
disk and tape head requirements from the Company since Seagate has
significant internal disk and tape head manufacturing capacity. Any
significant decrease in orders from these customers would have a material
adverse effect on the Company's business, financial condition and results
of operations.
Further, Singapore Technologies recently acquired the disk drive operations
of Micropolis, while Hyundai recently acquired Maxtor. The Company
believes it will remain a supplier to both Micropolis and Maxtor
notwithstanding these changes in ownership. However, there can be no
assurance that these customers will continue the prior practice of
purchasing a significant quantity of their respective head requirements
from the Company. Any significant decrease in orders from these customers
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Vertical integration by the Company's customers, through which a customer
acquires or increases internal HGA or HSA production capability, could also
materially and adversely affect the Company's business, financial condition
and results of operations. In 1994, Quantum, a principal customer of the
Company with no previous magnetic recording head capacity, acquired Digital
Equipment Corporation's ("DEC") recording head and disk drive operations.
While this integration has to date had no material adverse effects on the
Company's thin film head operations, there can be no assurance that Quantum
will continue to purchase a significant portion of its head requirements
from the Company, particularly as Quantum transitions its drive programs to
MR technology, the primary focus of Quantum's internal head operations.
Other acquisitions or significant transactions by the Company's customers
leading to further consolidation or vertical integration could also
materially and adversely affect the Company's business, financial condition
and results of operations.
The Company manufactures custom products for a limited number of customers.
Because its products are custom, the Company typically cannot shift raw
materials, work-in-process or finished goods from customer to customer, or
from one product program to another for a particular customer. However, to
enable its customers to get their products to market quickly and to address
READ-RITE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Certain Additional Business Risks (Continued)
its customers' demand requirements, the Company generally must invest
substantial resources and make significant materials commitments before the
market prospects for its customers' products are clear. Moreover, given
the rapid pace of technology advancement in the disk drive industry, the
disk drive products which do succeed have unpredictable, and often very
short, life cycles. Finally, in response to rapidly shifting business
conditions, the Company's customers have generally sought to limit their
purchase order commitments to the Company, and certain customers have
on occasion canceled or materially modified outstanding purchase orders
with the Company without significant penalties.
As a result of the above factors, the Company's inventory is subject to
substantial risk. To address these risks, the Company monitors its
inventories and provides inventory write-downs intended to cover inventory
risks. However, given the Company's dependence on a few customers, the
magnitude of the commitments the Company must make to support its
customers' programs and the Company's limited remedies in the event of
program cancellations, if a customer cancels or materially reduces one or
more product programs, or should a customer experience financial
difficulties, the Company may be required to take significant inventory
charges which, in turn, could materially and adversely affect the Company
and its results of operations. For example, in the third quarter of fiscal
1993, the Company incurred inventory write-down provisions of approximately
$10.0 million due to the bankruptcy filing of one customer and order
cancellations from customers due to reduced demand.
The Company has experienced substantial fluctuations in quarterly operating
results in the past, and the Company's future operating results could vary
substantially from quarter to quarter. The Company's operating results for
a particular quarter or longer periods may be materially and adversely
affected by numerous factors, such as delayed product introductions,
capacity constraints on certain technologies, low product yields, increased
material costs or material or equipment unavailability, disruptions in
foreign operations, decreased demand for or decreased average selling
prices of the Company's products, increased competition leading to a
failure by the Company to obtain "design-in wins" on one or more customer
programs, changes in product mix, increased operating costs associated with
the ramp-up of production as capacity is added or under-utilization of
capacity if demand is less than anticipated. The Company's sales will
generally be made pursuant to individual purchase orders which may be
changed or canceled by customers on short notice, often without material
penalties. Changes or cancellations of product orders could result in
under-utilization of production capacity and inventory write-offs. During
disk drive industry downturns, most recently in calendar 1993, the Company
experienced delays and cancellation of orders, reduced average selling
prices, inventory write-offs, accounts receivable write-offs, increased
unit costs due to under-utilization of production capacity, and, as a
consequence of the foregoing, significantly reduced revenues and gross
margins and, at times, operating losses. The Company expects periodic
fluctuations will occur in the future.
The trading price of the Company's Common Stock is expected to continue to
be subject to wide fluctuations in response to quarter-to-quarter
variations in operating results, announcements of technological innovations
or new products by the Company or its competitors, general conditions in
the disk drive and computer industries, and other events or factors. In
addition, stock markets have experienced extreme price volatility in recent
years. This volatility has had a substantial effect on the market price of
securities issued by many high technology companies for reasons unrelated
to the operating performance of the specific companies, and the Company's
Common Stock has experienced volatility not necessarily related to
announcements of Company performance. Broad market fluctuations may
adversely affect the market price of the Company's Common Stock.
READ-RITE CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Stockholders
The Company's 1996 Annual Meeting of Stockholders was held on February 22,
1996 at the Company's Fremont manufacturing facility. At the meeting,
46,741,474 shares were entitled to vote and 41,220,947 shares were present
by proxy.
(a) Election of Directors. Each person elected as a Director will serve
until the next annual meeting of stockholders or until such person's
successor is elected and qualified. The following nominees for Director
were elected:
Name of Nominee Votes Cast For Votes Withheld
Cyril J. Yansouni 40,978,126 242,821
Frederic Schwettmann 40,977,609 243,338
John G. Linvill 40,970,001 250,946
William J. Almon 40,991,117 229,830
Michael L. Hackworth 40,988,953 231,994
(b) Additional Shares Authorized. An increase in the number of authorized
shares of Common Stock by 60,000,000 shares to 160,000,000 shares was
approved by the stockholders with 36,098,489 voting in favor, 3,903,855
voting against and 1,218,603 representing abstentions and broker non-votes.
(c) Amendment to Employee Stock Option Plan. The Company's 1995 Stock
Plan, with 3,000,000 shares reserved for issuance thereunder, was approved
by the stockholders with 20,918,328 voting in favor, 13,597,037 voting
against and 6,705,582 representing abstentions and broker non-votes.
(d) Ratification of Independent Auditors. The ratification and
appointment of Ernst & Young LLP as independent public accountants of the
Company for fiscal 1996 was approved by the stockholders with 41,043,597
voting in favor, 73,962 voting against and 103,388 abstaining.
READ-RITE CORPORATION
PART II. OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
11.1 Statement Regarding Computation of Earnings Per Share
10.39 Agreement for Purchase and Sale of Assets By and Between
Read-Rite Corporation and Censtor Corporation
10.40 Fourth Amendment to Third Amended and Restated Credit
Agreement
10.41 Lease of the Land dated April 25, 1996 between Sumitomo Bank
Leasing and Finance, Inc., as landlord, and the Company, as
tenant, together with a Deed of Trust, Financing Statement,
Security Agreement and Fixture Filing with Assignment of
Rents and Leases
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended March 31,
1996.
READ-RITE CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: May 2, 1996 /s/ John T. Kurtzweil
John T. Kurtzweil
Vice President, Finance and
Chief Financial Officer
READ-RITE CORPORATION
Index of Exhibits
Exhibit No. Description Page No.
11.1 Statement Regarding Computation of 22
Earnings per Share
10.39 Agreement for Purchase and Sale of Assets By 23
and Between Read-Rite Corporation and
Censtor Corporation
10.40 Fourth Amendment to Third Amended and Restated 85
Credit Agreement
10.41 Lease of the Land dated April 25, 1996 between 96
Sumitomo Bank Leasing and Finance, Inc., as
landlord, and the Company, as tenant, together
with a Deed of Trust, Financing Statement,
Security Agreement and Fixture Filing with
Assignment of Rents and Leases
Exhibit 11.1
READ-RITE CORPORATION
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
(Unaudited) (Unaudited)
Net income $ 1,287 $24,999 $43,858 $44,574
======= ======= ======= =======
Weighted average common shares
outstanding 46,538 45,514 46,827 45,491
Common equivalent shares
issuable under dilutive stock
options after applying treasury
stock method, net of tax benefits 923 1,426 1,198 1,492
------- ------- ------- -------
Common and common equivalent
shares used in computing net
income per share 47,461 46,940 48,025 46,983
======= ======= ======= =======
Net income per share $ 0.03 $ 0.53 $ 0.91 $ 0.95
======= ======= ======= =======
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
BY AND BETWEEN
READ-RITE CORPORATION AND
CENSTOR CORPORATION
This AGREEMENT FOR PURCHASE AND SALE OF ASSETS (the "Agreement") is
made and entered into as of March 29, 1996 by and between Censtor
Corporation, a California corporation (the "Seller"), and Read-Rite
Corporation, a Delaware corporation (the "Buyer").
RECITALS
A. Seller is engaged in the business of designing, manufacturing and
selling magnetic recording heads for use in disk drives.
B. Buyer desires to purchase at the Closing (as hereinafter defined)
certain specified assets of Seller, but to assume only certain specified
liabilities of Seller, all in accordance with the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the representations, warranties
and agreements herein contained, the parties hereto agree as follows:
SECTION 1
I. DEFINITIONS. Capitalized terms in this Agreement shall have the
meanings stated in this Section 1 or defined elsewhere in this Agreement.
A reference to a particular Exhibit is to an Exhibit to this Agreement,
each of which is incorporated into and made a part of this Agreement by
that reference. A reference to a particular Section is to a Section of
this Agreement.
"Allocation Schedule" shall have the meaning set forth in Section 3.6.
"Assets" shall have the meaning set forth in Section 2.1.
"Assumed Contracts" shall have the meaning set forth in Section 3.5.
"Assumed Liabilities" shall have the meaning set forth in Section 3.5.
"CERCLA" shall mean the federal Comprehensive Environmental Response,
Compensation, and Liability Act.
"Claims" shall mean any and all personal injury, property damage,
nuisance, tort, contract or other claims, actions or demands brought at any
time, any and all demands, actions or claims for investigations,
remediation, removal, closure or other action with respect to Hazardous
Substances, and any and all other suits, demands, actions, fines,
penalties, claims, enforcement actions, Liens, Liabilities, damages,
deficiencies, injunctions, attorneys' fees, experts' fees, costs and
expenses imposed, threatened, paid or incurred at any time, whether
foreseeable or unforeseeable, conditional or unconditional.
"Closing" and "Closing Date" shall have the respective meanings set
forth in Section 4.1.
"Code" shall have the meaning set forth in Section 3.6.
"Compensation" shall mean all base straight time gross earnings,
commissions, overtime, shift premium, incentive compensation, incentive
payments, bonuses, health insurance benefits, payroll taxes and other
withholdings, and other compensation related amounts paid or accrued with
respect to any Employee.
"Disclosure Schedule" shall have the meaning set forth in Section 5.1.
"Employees" shall mean those individuals identified on Exhibit A
hereto who were employees of Seller on February 4, 1996 and who became
employees of Buyer on February 5, 1996.
"Environmental Laws" shall mean the common law and all local, state,
federal, foreign or international laws, statutes, ordinances, rules,
regulations, guidelines, judgments, injunctions, stipulations, decrees,
orders, permits, approvals, treaties, or protocols, and all amendments and
modifications of any of the foregoing, now or hereafter enacted, issued or
promulgated by any Governmental Body which relate to any Hazardous
Substance or any Hazardous Substance Activity.
"Environmental Liability" shall mean all Liabilities arising out of or
in connection with (a) Seller's Hazardous Substance Activities conducted
prior to the Closing Date or (b) the violation of any Environmental Law by
the Seller or the Facility (including without limitation the violation, of
any applicable building codes, regulations, ordinances or other laws in
effect on the Closing Date, resulting from the presence of any Hazardous
Substance in construction materials, structures or improvements of the
Facility on or after the Closing Date).
"Environmental Permit" shall mean any approval, permit, license,
clearance or consent required to be obtained from any private person or any
Governmental Body with respect to a Hazardous Substances Activity which is
or was conducted by the Seller at the Facility.
"Excluded Assets" shall have the meaning set forth in Section 2.2.
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"Hazardous Substance" shall mean any material or substance that is now
or hereafter prohibited or regulated by any statute, law, rule, regulation,
ordinance, judgment, stipulation, treaty or protocol or that is now or
hereafter designated by any Governmental Body to be radioactive, toxic,
hazardous or otherwise a danger to human health, reproduction or the
environment, including without limitation, asbestos, asbestos containing
materials, petroleum, including crude oil or any fraction thereof,
polychlorinated biphenyls or electro magnetic fields.
"Hazardous Substance Activity" shall mean the handling,
transportation, transfer, recycling, storage, use, treatment, manufacture,
investigation, removal, remediation, release, emissions, disposal,
exposure of any person to, sale, or distribution of any Hazardous Substance
or any product containing a Hazardous Substance.
"Lease Agreement" shall mean that certain lease agreement dated
November 28, 1983, as amended, between The Sobrato Group, a California
limited partnership, and Seller related to the premises at 530 Race Street,
San Jose, California.
"Liabilities" shall mean any and all liabilities (including strict
liability), claims, judgments, demands, actions, causes of action, damages,
losses, expenses, penalties, fines, obligations, encumbrances, liens,
costs, and expenses of investigation or defense of any claim, of whatever
kind or nature, whether absolute, contingent, accrued or otherwise, matured
or unmatured, foreseeable or unforeseeable.
"License Agreement" shall have the meaning set forth in
Section 4.2(e).
"Liens" shall mean mortgages, deeds of trust, pledges, taxes, security
interests, liens, leases, licenses, escrow arrangements, liabilities,
encumbrances, costs, charges and claims of any nature whatsoever, direct or
indirect, whether accrued, absolute, contingent or otherwise (including,
without limitation, any agreement to give any of the foregoing).
"Loan Adjustment Amount" shall have the meaning set forth in
Section 3.3.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or governmental body.
"Permitted Liens" shall mean (i) liens for current taxes which are not
yet due and payable, which liens in any event will not exist upon the
transfer of the Assets to Buyer at the Closing, and (ii) purchase-money
liens arising out of the purchase of equipment pursuant to those Equipment
Lease Agreements which are Assumed Contracts.
"Purchase Price" shall have the meaning set forth in Section 3.1.
"Returns" shall have the meaning set forth in Section 5.1(d).
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any
federal, state, local or foreign income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum, ad valorem, transfer or excise tax, or any
other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or penalty,
imposed by any Governmental Body.
SECTION 2
2. TRANSFER OF ASSETS.
2.1 Assets to be Purchased at the Closing. Subject to the
terms and conditions of this Agreement, Seller agrees to sell, transfer,
convey, assign and deliver to Buyer on the Closing Date (as defined
herein), and Buyer agrees to buy and acquire, all right, title and interest
of Seller in and to the following assets and properties of Seller as
provided herein (collectively, the "Assets").
(a) All machinery, tooling, computer hardware,
software and other equipment and all furnishings, furniture, office
supplies, leasehold improvements, fixtures and other tangible personal
property of Seller (other than those assets specifically identified in
Schedule 2.2(c) hereto), including but not limited to the assets listed in
Schedule 2.1(a) hereto;
(b) Prepaid expenses with respect to rent, services
and the like related to the Assumed Contracts;
(c) Copies, but not the originals, of all books,
records, accounts, correspondence and production records related to the
Assets;
(d) Copies of all manufacturing and technical
documentation (including any documentation set forth in magnetic, machine-
readable form) related to the Assets or used by Seller in the conduct of
the business related to the Assets; and
(e) All other assets of Seller which are not Excluded
Assets (as defined herein).
2.2 Excluded Assets. The Assets shall not include any of
the following assets and properties of Seller (collectively, the "Excluded
Assets").
(a) Seller's cash or cash equivalents;
(b) All know how, intellectual property, copyrights,
trade secrets, patents and patent applications, that are owned, controlled,
acquired or otherwise licensable by Seller; and
(c) All other assets which are specifically identified
on Schedule 2.2(c) hereto; and
(d) The originals of all items referenced in Section
2.1(c) and 2.1(d) above, and all other books, records, accounts, and
correspondence relating to Seller's business and to Seller.
SECTION 3
3. CONSIDERATION. In consideration for the transfer of the
Assets, Buyer agrees to make the following payments and assume the
following liabilities:
3.1 Purchase Price. Subject to any claims for Damages
under Section 8 hereof, the aggregate purchase price (the "Purchase Price")
to be paid by the Buyer to the Seller hereunder shall be Nine Million
Twenty-Five Thousand Dollars ($9,025,000). The Purchase Price shall be
payable in installments as follows: (i) Six Million Five Hundred Twenty-
Five Thousand Dollars ($6,525,000) shall be paid on the Closing Date, (ii)
Two Hundred Fifty Thousand Dollars ($250,000) shall be paid on November 15,
1996, (iii) Two Hundred Fifty Thousand Dollars ($250,000) shall be paid on
December 13, 1996, and (iv) Two Million Dollars ($2,000,000) (the "Final
Payment") shall be paid on the date which is nine (9) calendar months from
the Closing Date (the "Final Payment Date"). The latter three (3) payments
shall, however, be subject to any claims for Damages under Section 8
hereof. Notwithstanding the foregoing, Buyer shall be entitled to credit
against the portion of the Purchase Price to be paid to Seller on the
Closing Date any Loan Adjustment Amount (as defined in Section 3.3 hereof)
and all Seller Expenses (as defined in Section 3.4 hereof).
3.2 Payment to Seller on Closing Date. On the Closing
Date, Buyer shall pay Six Million Five Hundred Twenty-Five Thousand Dollars
($6,525,000) of the Purchase Price to Seller by check or wire transfer to
an account designated by the Seller. Notwithstanding the foregoing, Buyer
shall be entitled to credit against the portion of the Purchase Price to be
paid to Seller on the Closing Date any Loan Adjustment Amount (as defined
in Section 3.3 hereof) and all Seller Expenses (as defined in Section 3.4
hereof).
3.3 Initial Loan to Seller. In connection with that
certain Letter of Intent between Seller and Buyer dated February 2, 1996
(the "Letter Agreement"), Buyer agreed to loan Seller up to $900,000
pursuant to those certain Promissory Notes dated February 2, 1996, February
29, 1996 and March 22, 1996 (collectively, the "Promissory Notes"). The
amount of principal, interest and other amounts outstanding from time to
time under the Promissory Notes is hereafter referred to as the "Loan
Amount." Seller agrees that all amounts loaned to it by Buyer pursuant to
the Promissory Notes have been used and will be used by Seller as operating
funds in the normal and ordinary course of business. The "Loan Adjustment
Amount" shall equal (i) fifty percent (50%) of the Loan Amount outstanding
on the date hereof plus (ii) fifty percent (50%) of the Compensation
accrued or paid by Buyer with respect to the Employees through the date
hereof (provided that the amount of such Compensation shall not exceed the
rate of Compensation being paid by Seller to such Employees on February 4,
1996) plus (iii) fifty percent (50%) of all accrued but unpaid expenses of
Seller for the period beginning on February 2, 1996 through the date hereof
less (iv) all prepaid expenses of Seller outstanding on the date hereof to
the extent Seller can demonstrate that such expenses were paid from amounts
borrowed from Buyer pursuant to the Promissory Notes. The determination of
any accrued amounts or prepaid expenses shall be made in accordance with
generally accepted accounting principles consistently applied, and shall be
subject to the mutual review and agreement of Seller and Buyer. Buyer
hereby agrees with Seller that any Loan Amount outstanding as of the
Closing Date less the Loan Adjustment Amount shall be forgiven as of the
Closing Date and shall constitute additional consideration paid by Buyer to
Seller hereunder. The Loan Adjustment Amount shall be computed by Buyer,
and Buyer shall deliver a copy of such computation to Seller on or prior to
the Closing Date.
3.4 Additional Loan to Seller. Upon the execution and
delivery of this Agreement, Buyer shall agree to loan Seller up to an
additional $800,000, such loan to be evidenced by a promissory note in the
form attached hereto as Exhibit B (the "Bridge Note"). Buyer acknowledges
that the proceeds of any loans obtained by Seller from Buyer pursuant to
the Bridge Note may be used to fund ongoing costs incurred by Seller in the
usual and ordinary course of its business, including without limitation
Seller's accounting, legal and other costs related to the transactions
contemplated hereby and costs associated with the Assumed Contracts. For
purposes hereof, Seller and Buyer agree that any expenses of Seller related
to the period subsequent to the date hereof which are paid or accrued but
unpaid pursuant to the terms of the Assumed Contracts, including any lease
payments, property taxes, insurance, utilities or maintenance charges
(whether incurred to preserve the Facility of Seller referenced in the
Lease Agreement, any Asset being leased pursuant to those Equipment Lease
Agreements which constitute Assumed Contracts, or any of the other Assets)
are referred to herein as "Nonseller Expenses." All other expenses of any
kind whatsoever paid or accrued by Seller, including without limitation
legal and accounting fees, patent filing and maintenance fees, salaries and
benefits, workers' compensation expenses, any accrued interest under the
Bridge Note and any amounts owed by Seller to Buyer under the Bridge Note
which were not used by Seller to pay Nonseller Expenses are referred to
herein as "Seller Expenses." At the Closing, Buyer shall be entitled to
credit against the amount of the Purchase Price to be paid by Buyer to
Seller the full amount of any Seller Expenses, and any other amount due
under the Bridge Note shall be forgiven by Buyer and shall constitute addi-
tional consideration paid by Buyer to Seller hereunder. The determination
of any accrued amounts hereunder shall be made in accordance with generally
accepted accounting principles consistently applied, and shall be subject
to the mutual review and agreement of Seller and Buyer.
3.5 Assumed Liabilities. On the Closing Date, Buyer shall
assume and agree thereafter to pay, perform and discharge only Seller's
obligations under the Lease Agreement and the Equipment Lease Agreements to
which Seller is a party and which are specifically listed on Schedule 3.5
hereto (collectively, the "Assumed Contracts") and no others, but only to
the extent they remain unpaid and unperformed on the Closing Date and
excluding any such obligations or liabilities based on any actions by
Seller or any failure by Seller to perform its obligations under the
Assumed Contracts prior to the Closing Date (the "Assumed Liabilities").
Except for the Assumed Liabilities and as contemplated by Section 8.6
hereof, Buyer shall not assume, directly or indirectly, or have any
responsibility for any Liability of Seller, and Seller shall retain all
Liabilities arising from the operation of the Assets and the related
business prior to the Closing Date, other than the Assumed Liabilities.
Without limiting the foregoing, Buyer shall not directly or indirectly,
assume or have any responsibility for any liability for any Compensation or
other Liabilities related to the employment of the Employees by the Seller
prior to February 5, 1996.
3.6 Tax Allocation. The parties agree to allocate the
purchase price for the Assets in accordance with a schedule that Buyer
shall prepare and deliver to Seller at the Closing (the "Allocation
Schedule"). The Allocation Schedule shall be subject to Seller's approval,
which shall not be withheld unreasonably. Buyer and Seller agree that they
will prepare and file their federal and any state or local income tax
returns based on the purchase price allocation contained in the Allocation
Schedule and agree not to take a reporting position inconsistent therewith.
This allocation is intended to comply with Section 1060 of the Internal
Revenue Code of 1986, as amended (the "Code"), and Buyer and Seller hereby
agree to prepare and file all notices or other filings required pursuant to
such section and hereby further agree that all such notices or filings will
be based on the allocation contained in the Allocation Schedule.
SECTION 4
4. CLOSING.
4.1 Closing Date. The closing of the transactions
contemplated by this Agreement (the "Closing") shall occur at the offices
of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto,
California, as soon as practicable after the satisfaction or waiver of each
of the conditions set forth in this Section 4 or at such other time and
place as the parties hereto agree (the "Closing Date").
4.2 Conditions to Obligation of Buyer. The obligation of
Buyer to close hereunder is subject to the following conditions:
(a) Subject to changes (i) resulting from the actions
of Buyer contemplated by Section 8.6 hereof or (ii) that are not in the
aggregate materially adverse in the reasonable judgment of Buyer, the
representations and warranties made by Seller in this Agreement shall be
true and correct on and as of the Closing Date with the same effect as if
made on and as of the Closing Date, and Seller shall have performed and
complied with all agreements, covenants and conditions on its part required
to be performed or complied with on or prior to the Closing Date.
(b) Buyer shall have received a certificate of the
Secretary of Seller, dated the Closing Date, in form and substance
satisfactory to Buyer, as to (i) the Articles of Incorporation of Seller;
(ii) the by-laws of Seller; (iii) the resolutions of the Board of Directors
of Seller authorizing the execution and performance of this Agreement and
the other documents executed in connection herewith; and (iv) the
resolutions of the shareholders of Seller authorizing the execution and
performance of this Agreement.
(c) A duly authorized officer of Seller shall deliver
to Buyer, at the Closing, a certificate certifying as to the matters set
forth in Section 4.2(a) hereof and that there has been no adverse change
with respect to the Assets or the Assumed Liabilities since the date
hereof, except any such change resulting from the actions of Buyer
contemplated by Section 8.6 hereof.
(d) No legal action or proceeding shall be pending or
threatened (i) by any governmental agency seeking to restrain, prohibit,
invalidate or otherwise affect the consummation of the transactions
contemplated hereby or (ii) which is reasonably likely to have a material
adverse effect on the Assets or the use of the Assets by the Buyer.
(e) Buyer and Seller shall have entered into a license
agreement related to Seller's intellectual property, such license agreement
to be in the form attached hereto as Exhibit C (the "License Agreement").
(f) Seller shall have delivered to Buyer all bills of
sale, endorsements, assignments and other instruments as Buyer shall
reasonably request or as necessary or appropriate to sell, convey, assign,
transfer and deliver to Buyer good title, free and clear of all Liens
(except for Permitted Liens), to all the Assets.
(g) All necessary third party consents shall have been
obtained for Seller to transfer the Assumed Contracts to Buyer.
(h) Buyer shall have received an opinion of counsel to
the Seller, such opinion to be substantially in the form attached hereto as
Exhibit D, with such changes as may be reasonably acceptable to Buyer. In
addition, the list of "material agreements" to be referenced in such
opinion shall be reasonably acceptable to Buyer and shall include the
material contracts and license agreements of Seller.
(i) The transactions contemplated hereby shall have
been approved by all necessary action of Seller's shareholders.
(j) Seller shall have received (A) the written consent
of Maxtor Corporation ("Maxtor") to the transactions contemplated hereby
(including the License Agreement) as required by that certain License
Agreement between the Seller and Maxtor dated September 23, 1991 (the
"Maxtor Agreement"), and (B) written confirmation from Maxtor that Buyer
will not be obligated to extend any license rights to Maxtor pursuant to
Section 4.3 of the Maxtor Agreement or otherwise, such consent and
confirmation to be reasonably acceptable to Buyer.
(k) Seller shall have received the written consent of
Denki Kagaku Kogyo Kabushiki Kaisha ("Denka") to the transactions
contemplated hereby (including the License Agreement) to the extent
required by Seller's existing agreements with Denka, and such consent shall
be reasonably acceptable to Buyer.
(l) Seller shall have received the written consent of
NEC Corporation ("NEC") to the transactions contemplated hereby (including
the License Agreement) as required by that certain License Agreement
between the Seller and NEC dated August 7, 1995, and such consent shall be
reasonably acceptable to Buyer.
(m) Seller shall have received written confirmation
from Fujitsu Corporation ("Fujitsu") that Buyer will not be obligated to
extend any license rights to Fujitsu pursuant to Section 4.3 of the License
Agreement between Seller and Fujitsu dated February 28, 1991 or otherwise,
and such written confirmation shall be reasonably acceptable to Buyer.
4.3 Conditions of Obligation of Seller. The obligation of
Seller to close hereunder is subject to the following conditions:
(a) Subject to changes that are not in the aggregate
materially adverse in the reasonable judgment of Seller, the
representations and warranties made by Buyer in this Agreement shall be
true and correct on and as of the Closing Date with the same effect as if
made on and as of the Closing Date, and Buyer shall have performed and
complied with all agreements, covenants and conditions on its part required
to be performed or complied with on or prior to the Closing Date.
(b) No legal action or proceeding shall be pending or
threatened by any governmental agency seeking to restrain, prohibit,
invalidate or otherwise affect the consummation of the transactions
contemplated hereby.
SECTION 5
5. REPRESENTATIONS AND WARRANTIES.
5.1 Representations and Warranties of Seller. Except as
set forth in the Disclosure Schedule attached hereto as Exhibit E, which
schedule shall specifically reference the Sections of this Agreement to
which the disclosure therein applies, Seller represents and warrants to
Buyer as of the date of this Agreement and as of the Closing Date as
follows:
(a) Organization, Standing and Qualification. Seller
is a corporation duly organized, validly existing and in good standing
under the laws of California. Seller has all requisite corporate power and
authority and is entitled to carry on its business as it is now being
conducted, and to own, lease or operate the properties owned, leased and
operated by it in the places where such business is now conducted and where
the Assets and its other properties are now owned, leased or operated.
Seller is qualified to do business as a foreign corporation in all
jurisdictions where such qualification is required for the conduct of its
business, except where the failure to be so qualified would not have a
material adverse effect on Seller or the Assets.
(b) Execution, Delivery and Performance. Neither the
execution and delivery nor the performance of this Agreement by Seller
will, with or without the giving of notice or the passage of time, or both,
conflict with, result in a default, right to accelerate or loss of rights
under, or result in the creation of any lien, charge or encumbrance
pursuant to any provisions of Seller's Articles of Incorporation or Bylaws,
or any franchise, mortgage, deed of trust, lease, license, agreement
(including each of the Assumed Contracts) or understanding, or conflict
with, result in a default, right to accelerate or loss of rights under, or
result in the creation of any lien, charge or encumbrance pursuant to any
law, ordinance, rule or regulation, or any order, judgment, award or decree
to which Seller is a party or by which it may be bound or affected. Seller
has full corporate power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby, and all corporate and other
proceedings required to be taken to authorize the execution, delivery and
performance of this Agreement. This Agreement has been duly executed and
delivered by and constitutes the valid and binding obligation of Seller and
is enforceable in accordance with its terms.
(c) Good Title to Assets. Seller has good and
marketable title to all the Assets, and none of the Assets is subject to
any Lien (other than Permitted Liens).
(d) Taxes.
(i) To the extent a failure to do so could adversely
impact Buyer, the Assets or Buyer's use of the Assets, (a) Seller has
timely filed within the time period for filing or any extension granted
with respect thereto, all federal, state, local and foreign Tax returns,
reports and estimates ("Returns") which it is required to file relating or
pertaining to any and all Taxes attributable to or levied upon the Assets
and (b) paid any and all Taxes it is required to pay in connection with the
taxable periods to which such Returns relate. There are (and immediately
following the Closing Date there will be) no Liens on the Assets relating
or pertaining to Taxes. To the best knowledge of Seller, there is no basis
for the assertion of any claims which, if adversely determined, would
result in a Lien on the Assets or otherwise adversely effect Buyer or the
Assets.
(ii) To the extent relevant to the Assets, Seller shall
(a) provide Buyer with such assistance as may be required in connection
with the preparation of any Return and the conduct of any audit or other
examination by any taxing authority or in connection with judicial or
administrative proceedings relating to any liability for Taxes, provided
that Buyer shall reimburse Seller for any third party expenses reasonably
incurred by Seller in providing such assistance and (b) retain and provide
Buyer with all records or other information that may be relevant to the
preparation of any Returns, or the conduct of any audit or examination, or
other Tax proceeding by a Governmental Body or otherwise. Seller shall
retain all relevant documents, including prior year's Returns, supporting
work schedules and other records or information that may be relevant to
such returns and shall not destroy or otherwise dispose of any such records
without the prior written consent of Buyer.
(e) Claims and Litigation. No Claim (including
warranty claims), legal action, suit, arbitration, governmental
investigation or other legal, regulatory or administrative proceeding is
pending against Seller related to the Assets, nor to the best of Seller's
knowledge is there any threat thereof against or relating to the Assets or
the transactions contemplated by this Agreement, and to the best of
Seller's knowledge there is no basis for any such Claim, suit or other
proceeding.
(f) Suppliers. The Disclosure Schedule contains a
correct list of all of the current suppliers of supplies, equipment, spare
parts or similar goods for the use or operation of the Assets. To the best
of Seller's knowledge, such suppliers provide all of the supplies,
equipment, spare parts or similar goods necessary to use or operate the
Assets.
(g) Compliance with Laws and Regulations; Permits.
Seller is in compliance with all statutes, laws, rules and regulations with
respect to or affecting the ownership or operation of the Assets. Seller
is not presently subject to any judgment, order, injunction or decree
issued by any Governmental Body or court relating to the Assets. Seller
holds and has at all times held all licenses, permits and authorizations
necessary for the lawful conduct in all respects of its business wherever
conducted pursuant to all laws and regulations of any Governmental Body.
Seller does not know of any material violation of any of the foregoing
licenses, permits and authorizations and Seller has not received notice
from any Governmental Body of any such violation or the intention of such
Governmental Body to investigate the existence of any such violation.
(h) Real Property; Environmental Matters.
(i) As of the Closing Date, to the best knowledge of
Seller, no Hazardous Substance is present on the property subject to the
Lease Agreement (the "Facility") and, to the best knowledge of Seller, no
reasonable likelihood exists that any Hazardous Substance present on other
property will come to be present on the Facility and there are no
underground storage tanks, aboveground storage tanks, asbestos or PCBs
present on the Facility.
(ii) Seller has conducted all Hazardous Substance
Activities in compliance with all applicable Environmental Laws. The
Hazardous Substance Activities of Seller prior to the Closing Date have not
resulted in: (a) the exposure of any Employee to a Hazardous Substance in
a manner which has or will cause an adverse health effect to said person;
or (b) the presence of any Hazardous Substance at the Facility, or the air,
soil, groundwater or surface water thereof, in violation of Environmental
Law.
(iii) The Disclosure Schedule accurately describes
all of the Environmental Permits currently held by the Seller and such
Environmental Permits are all of the Environmental Permits necessary for
the continued conduct of any Hazardous Substance Activity of the Seller as
such activities are currently being conducted. Except as set forth in the
Disclosure Schedule, all such Environmental Permits are valid, in full
force and effect, and will survive the Closing without modification.
Seller has complied with all covenants and conditions of any Environmental
Permit which is or has been in force with respect to its Hazardous
Substances Activities. No circumstances exist which could cause any
Environmental Permit to be revoked, modified, or rendered non-renewable
upon payment of the permit fee or which could impose upon Seller the
obligation to obtain any additional Environmental Permit. All
Environmental Permits and all other consents and clearances required by any
Environmental Law or any agreement to which Seller is bound as a condition
to the performance and enforcement of this Agreement, including without
limitation, all environmental clearances or "closure" obligations required
by any Governmental Body have been obtained or will be obtained prior to
the Closing at no cost to Buyer.
(iv) In the best of Seller's knowledge, there is no
fact or circumstance which presently or with the passing of time could
involve the Facility in any proceeding concerning an Environmental
Liability or impose upon the Facility or Buyer any Environmental Liability.
(v) Seller has delivered to Buyer all records
concerning its Hazardous Substance Activities and all environmental audits
and environmental assessments of the Facility conducted at the request of,
or otherwise available to Seller. Seller has complied with all
environmental disclosure obligations imposed upon Seller with respect to
this transaction by applicable law.
(i) Property, Plant and Equipment. From the date hereof
until the Closing Date, none of the Assets shall be disposed of. All
tangible personal property, including machinery, equipment and fixtures,
included in the Assets is, and at the Closing Date will be, in good
operating condition and repair, ordinary wear and tear and routine
maintenance excepted. The present use of Seller's leased premises
conforms, and at the Closing Date will conform (assuming Buyer's use is
consistent with Seller's use prior to February 5, 1996), to the
requirements of the Lease Agreement. The Lease Agreement is valid and
enforceable and not in default. Seller is a legal and equitable owner and
holder of the leasehold interest in the Lease Agreement and Seller has not
assigned, transferred or encumbered its interest under the Lease Agreement
nor has Seller sublet all or any portion of the lease premises. The
improvements on the real property subject to the Lease Agreement are
permitted structures under applicable zoning and building laws and
ordinances and the present or contemplated uses of the improvements are
permitted uses under applicable zoning and building laws and ordinances.
The Facility is in good repair and to the best of Seller's knowledge, there
are no conditions existing on or relating to the Facility which might
result in any impairment of the use of the Facility by Seller or Buyer.
(j) Assumed Contracts. Seller has provided to Buyer copies
of each of the Assumed Contracts, and has performed all obligations
required to be performed by it to date under all of the Assumed Contracts.
Except as otherwise indicated in the Disclosure Schedule, (a) to Seller's
best knowledge each of the other parties to the Assumed Contracts or bound
thereby has performed all the obligations required to be performed by it to
date thereunder, (b) Seller does not know of the intention of any party to
terminate any such Assumed Contract, and (c) each Assumed Contract is
valid, binding and enforceable in accordance with its terms and is in full
force and effect with no default or dispute or basis therefor existing with
respect thereto.
(k) Employees. There are no suits, actions or
administrative, arbitration or other proceedings pending or threatened
against Seller or affecting Seller or its business concerning any Employee.
Seller has no Liabilities to any Employee or beneficiary of an Employee.
(l) Brokers or Finders. Seller is not obligated, directly
or indirectly, to any person for brokerage or finders' fees, agents'
commissions or any similar charges in connection with this Agreement or the
transactions contemplated hereby.
(m) Proxy Statement. The information statement or proxy
statement prepared by Seller in connection with the meeting of Seller's
shareholders to consider the transactions contemplated hereby (the
"Shareholders Meeting") (such information statement or proxy statement as
amended or supplemented is referred to herein as the "Proxy Statement")
shall not, on the date the Proxy Statement is first mailed to Seller's
shareholders, at the time of the Shareholders Meeting and at the Closing
Date, contain any statement which, at such time and in light of the
circumstances under which it is made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order
to make the statements made therein not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the
Shareholders Meeting which has become false or misleading. If at any time
prior to the Closing Date any event or information should be discovered by
Seller which should be set forth in a supplement to the Proxy Statement,
Seller shall promptly inform Buyer and take all action necessary to so
supplement the Proxy Statement.
(n) Vote Required. The affirmative votes of the holders of
a majority of the shares of Seller's Common Stock and Preferred Stock
outstanding on the record date set for the Shareholders Meeting is the only
vote of the holders of any of Seller's capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
(o) Board Approval. The Board of Directors of Seller has
unanimously (i) approved this Agreement and the transactions contemplated
hereby, and (ii) recommended that its shareholders approve this Agreement
and the transactions contemplated hereby.
(p) License Agreement. The representations and warranties
made by Seller in Section 3 of the License Agreement are hereby
incorporated by reference in their entirety.
(q) Representations Complete. None of the representations
or warranties made by Seller herein, nor any statement made in any schedule
or certificate furnished pursuant to this Agreement, contains or will
contain any untrue statement of a material fact at the Closing Date, or
omits or will omit to state any material fact necessary in order to make
the statements contained herein or therein not misleading. There is no
fact known to Seller or any of its management which adversely affects, or
could reasonably be expected to adversely affect, the Assets, Buyer's use
of the Assets or the ability of Seller to carry out the transactions
contemplated by this Agreement.
5.2 Representations and Warranties of Buyer. Buyer
represents and warrants to Seller as of the date of this Agreement and as
of the Closing Date as follows:
(a) Organization, Standing and Qualification. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Buyer has all requisite corporate power and
authority and is entitled to carry on its business as now conducted, and to
own, lease or operate its properties in the places where its business is
now conducted and such properties are now owned, leased or operated. Buyer
is qualified to do business in all foreign jurisdictions in which it is
required to be so qualified, except where the failure to be so qualified
would not have a material adverse effect on the business or assets of
Buyer.
(b) Execution, Delivery and Performance. Neither the
execution and delivery nor the performance of this Agreement by Buyer will,
with or without the giving of notice or the passage of time, or both,
conflict with, result in a default, right to accelerate or loss of rights
under, or result in the creation of any lien or charge or encumbrance
pursuant to any provision of Buyer's Certificate of Incorporation or
Bylaws, or any franchise, mortgage, deed of trust, lease, license,
agreement or understanding, or conflict with, result in a default, right to
accelerate or loss of rights under, or result in the creation of any lien,
charge or encumbrance pursuant to any law, ordinance, rule or regulation,
or any order, judgment, award or decree to which Buyer is a party or by
which it may be bound or affected. Buyer has full corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby, and all corporate and other proceedings required to be
taken to authorize the execution, delivery and performance of this
Agreement have been taken. This Agreement has been duly executed and
delivered by and constitutes the valid and binding obligation of Buyer and
is enforceable in accordance with its terms.
SECTION 6
6. ADDITIONAL AGREEMENTS.
6.1 Transfer Taxes. In connection with the transactions
contemplated hereunder, Seller shall pay all sales, use, transfer and other
similar taxes, if any, which may be or become due and payable as a result
hereof.
6.2 Operation of Business Prior to Closing Date. During
the period from the date of this Agreement up to the Closing Date, Seller
shall:
(a) conduct its business in the ordinary course consistent
with past practices, and use the Facility and the Assets in the usual,
regular and ordinary course and in substantially the same manner as
heretofore used, except for any actions of Buyer contemplated by Section
8.6 hereof;
(b) preserve and maintain the Assets in their condition as
of the date hereof (subject to use in the ordinary course of business),
except for any actions of Buyer contemplated by Section 8.6 hereof;
(c) perform all obligations required to be performed by it
under all of the Assumed Contracts, including the making of all payments
under the Assumed Contracts;
(d) give prompt notice to Buyer of any material adverse
change to the Assets or the Facility; and
(e) not mortgage, pledge or subject to Lien any of the
Assets or sell or transfer any of the Assets.
6.3 Discharge of Liabilities. From and after the date
hereof, Seller shall discharge when due all Liabilities of Seller, provided
that upon the Closing, Buyer shall be responsible for all Assumed
Liabilities.
6.4 Access to Information. Between the date of this
Agreement and the Closing Date, Seller shall give Buyer and its authorized
representatives reasonable access during normal working hours to Seller's
facilities and properties, and its books and records, shall permit Buyer to
make inspections thereof, and shall furnish Buyer with such financial and
operating information as Buyer may from time to time reasonably request.
6.5. Hiring of Employees. Seller acknowledges and agrees
that with Seller's consent, each of the Employees became employed by Buyer
on February 5, 1996. Seller further acknowledges and agrees that the
Employees were hired by Buyer at Seller's request. In Seller, on behalf of
itself, its shareholders, officers and directors and anyone claiming by or
through Seller, hereby releases and forever discharges Seller and all of
its subsidiaries, officers, directors, employees, agents and anyone acting
by or through Buyer from any and all Claims, demands, torts, causes or
action or claims for relief of whatever kind or nature, whether known or
unknown, which Seller may have or which may hereafter be asserted or accrue
against the Release Parties, or any of them, resulting from or in any way
relating to Buyer's hiring of the Employees.
6.6 No Other Negotiations. From and after the date of this
Agreement until the earlier of the Closing Date or the termination of this
Agreement in accordance with its terms, Seller shall not, directly or
indirectly (i) solicit, initiate discussion or engage in negotiations with
any person (whether such negotiations are initiated by Seller or otherwise)
or take any other action intended or designed to facilitate the efforts of
any person, other than Buyer, relating to the possible acquisition of
Seller or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any of its or their
capital stock or any material portion of its or their assets (with any such
efforts by any such person, including a firm proposal to make such an
acquisition, to be referred to as an "Acquisition Proposal"), (ii) provide
non-public information with respect to Seller or any of its subsidiaries to
any person, other than Buyer, relating to a possible Acquisition Proposal
by any person, other than Buyer, (iii) enter into an agreement with any
person, other than Buyer, providing for a possible Acquisition Proposal, or
(iv) make or authorize any statement, recommendation or solicitation in
support of any possible Acquisition Proposal by any person other than
Buyer. If Seller or any of its subsidiaries receives any unsolicited offer
or proposal to enter negotiations relating to an Acquisition Proposal,
Seller shall immediately notify Buyer thereof, including information as to
the identity of the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be. Seller
recognizes and acknowledges that a breach of this Section 6.6 may cause
irreparable and material loss and damage to Buyer as to which Buyer may not
have an adequate remedy at law or in damages and that, accordingly, Seller
agrees that the issuance of an injunction or other equitable remedy is the
appropriate remedy for any such breach. Notwithstanding the foregoing, in
the event that Seller receives a bona fide, unsolicited proposal relating
to an Acquisition Proposal by any person other than Buyer, which proposal,
in the reasonable good faith judgment of Seller's Board of Directors, is
financially more favorable to the shareholders of Seller than the terms of
this Agreement (a "Superior Proposal"), Seller's Board of Directors may
engage in discussions or negotiations with (but not soliciting or
initiating such discussions or negotiations or encouraging inquiries or the
making of an Acquisition Proposal by any third party other than the party
making the Superior Proposal) the party making the Superior Proposal if
Seller's Board of Directors determines in good faith, based on the written
advice of outside legal counsel, that such action is required by reason of
the fiduciary duties of the members of Seller's Board of Directors to
Seller's shareholders under applicable law; provided that in such event
Seller notifies Buyer of such determination by the Seller's Board of
Directors and provides Buyer with a true and complete copy of the Superior
Proposal received from such third party, if the Superior Proposal is in
writing, or a complete written summary thereof, if it is not in writing,
and provides Buyer with all documents containing or referring to non-public
information of Seller that are supplied to such third party.
6.7 Proxy Statement. As promptly as practicable after the
execution of this Agreement, Seller shall prepare, and file with the
Securities and Exchange Commission, preliminary proxy materials relating to
the approval of the transactions contemplated hereby by the shareholders of
Seller. The Proxy Statement shall include the recommendation of the Board
of Directors of Seller in favor of the transactions contemplated hereby.
6.8 Meetings of Shareholders. Seller shall promptly after
the date hereof take all action necessary in accordance with law and its
Articles of Incorporation and Bylaws to convene the Shareholders Meeting on
or prior to April 5, 1996 or as soon thereafter as is practicable. Seller
shall use its best efforts to solicit from its shareholders proxies in
favor of the transactions contemplated thereby and shall take all other
action necessary or advisable to secure the vote or consent of shareholders
required to effect the transactions contemplated thereby.
6.9 Public Disclosure. Seller and Buyer shall consult with
each other before issuing any press release or otherwise making any public
statement or making any other public (or non-confidential) disclosure
regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which
approval shall not be unreasonably withheld), except as may be required by
law.
6.10 Consents. Promptly after the date hereof, Seller and
Buyer shall consult with each other regarding the actions which are
required to be taken to cause the Assumed Contracts to be transferred to
Buyer on the Closing Date. Subject to such consultations, Seller shall
promptly apply for or otherwise seek, and use its best efforts to obtain,
all consents and approvals required to be obtained by it for the
consummation of the transactions contemplated hereby and shall use its best
efforts to obtain all necessary consents, waivers and approvals under any
of the Assumed Contracts in connection with the transaction for the
assignment thereof or otherwise.
6.11 Voting Agreements. Prior to or concurrently with the
execution of this Agreement, each of Seller's shareholders named in
Schedule 6.11 hereto shall have executed and delivered to Buyer a Voting
Agreement substantially in the form of Exhibit F attached hereto.
6.12 Buyer Subsidiary as Party. Seller acknowledges that
Buyer may create or use a subsidiary corporation that is wholly-owned
directly or indirectly by Buyer (a "Buyer Subsidiary") to own and operate
the Assets after the Closing Date. To the extent Buyer determines to
create the Buyer Subsidiary prior to the Closing Date, Seller agrees that
the Buyer Subsidiary shall be substituted for Buyer for the purpose of
exercising those rights and performing those obligations of Buyer as Buyer
shall designate. Following the Closing Date and the transfer of the Assets
to the Buyer Subsidiary, the Buyer Subsidiary shall be substituted for
Buyer for the purpose of such sections. The creation or use by Buyer of
the Buyer Subsidiary pursuant to this Section 6.12, shall not serve to
(i) excuse Buyer as a primary obligor with respect to any obligation
delegated to the Buyer Subsidiary; or (ii) limit in any manner the right of
Buyer to directly enforce any rights hereunder that Buyer may have
delegated to the Buyer Subsidiary.
6.13 Release of Liens. On or prior to the Closing Date, all
Liens on the Assets and Seller's intellectual property, including but not
limited to, (i) those in favor of Silicon Valley Bank, (ii) those in favor
of the investors listed or described on the Disclosure Schedule and (iii)
those otherwise listed or referred to in the Disclosure Schedule; shall
have been released or all such actions as may be required in the sole
judgment of Buyer to cause the release of such Liens shall have been taken.
6.14 Release of Denka Liens. On or prior to the Closing
Date, Seller shall have deposited in escrow with its legal counsel, all
amounts as are required to satisfy any obligations of Seller to Denka
necessary to obtain a release of all Liens on the Assets and Seller's
intellectual property in favor of Denka, all as further detailed in Section
2.3.3 of the License Agreement. Seller further covenants and agrees with
Buyer that Seller will take all such further actions as may be required in
the sole judgment of Buyer to cause all Liens in favor of Denka to be
released on or prior to July 31, 1996.
SECTION 7
7. TERMINATION. This Agreement may be terminated at any time
on or prior to the Closing Date:
7.1 Injunction. By Buyer or Seller if any court of
competent jurisdiction in the United States shall have issued an order
(other than a temporary restraining order), decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and such order, decree, ruling or other
action shall have become final and non-appealable.
7.2 Mutual Agreement. By mutual written agreement of
Seller and Buyer.
7.3 Seller Material Breach. By Buyer if there has been a
material breach on the part of Seller in its representations, warranties or
covenants set forth herein; provided, however, that if any such breach is
susceptible to cure Seller shall have ten (10) business days after receipt
of written notice from Buyer of its intention to terminate this Agreement
pursuant to this Section 7.3 in which to cure such breach.
7.4 Buyer Material Breach. By Seller if there has been a
material breach on the part of Buyer in its representations, warranties or
covenants set forth herein; provided, however, that if any such breach is
susceptible to cure Buyer shall have ten (10) business days after receipt
of written notice from Seller of its intention to terminate this Agreement
pursuant to this Section 7.4 in which to cure such breach.
7.5 Effects of Termination.
(a) If this Agreement is terminated pursuant to Section 7.1
or Section 7.2 hereof, at Buyer's election, Buyer and Seller shall enter
into a Limited License Agreement in substantially the form attached hereto
as Exhibit G (the "Limited License Agreement") and Buyer shall have the
right to continue to employ all of the Employees. In connection with the
payment to be made by Buyer to Seller pursuant to the Limited License
Agreement, the amount of such payment shall be reduced by the full amount
of the Loan Adjustment Amount (as defined in Section 3.3 hereof).
(b) If this Agreement is terminated pursuant to Section 7.3
hereof or in connection with a Superior Proposal (as defined in Section 6.6
hereof), at Buyer's election, Buyer shall have the right to continue to
employee all of the Employees and Buyer and Seller shall enter into the
Limited License Agreement. In such event, Buyer shall not be obligated to
make any payment to Seller under the Limited License Agreement. In
addition, Seller shall be obligated to repay all amounts which Seller has
borrowed from Buyer pursuant to the Promissory Notes, the Bridge Note or
otherwise.
(c) If this Agreement is terminated pursuant to Section 7.4
hereof, Buyer agrees that any and all amounts due and payable by Seller to
Buyer pursuant to the Promissory Notes, the Bridge Note or otherwise shall
be discharged and canceled. In such event, Buyer shall have the right to
continue to employ all of the Employees and, at Buyer's election, Buyer and
Seller shall enter into the Limited License Agreement.
SECTION 8
8. HOLDBACK OF FINAL PAYMENT; INDEMNIFICATION
8.1 Holdback of Final Payment. The payments referenced in
Section 3.1(ii) and (iii) above (the "Interim Payments") and the Final
Payment shall be retained by Buyer as security to compensate Buyer for any
loss, expense, liability or other damage, including attorneys' fees, to the
extent of the amount of such loss, expense, liability or other damage
(collectively "Damages") that Buyer has incurred or reasonably anticipates
incurring by reason of the breach by Seller of any representation,
warranty, covenant or agreement of, or misrepresentation by, Seller
contained in this Agreement or in the License Agreement. In the case of a
third party claim, any indemnification for Damages hereunder shall be
offset or reduced by any amount actually recovered by Buyer pursuant to
counterclaims made by it directly relating to the facts giving rise to such
third party claims. Nothing in this Agreement shall limit the liability
(i) of Seller for any breach of any representation, warranty or covenant if
the Closing does not occur, or (ii) of any shareholder of Seller in
connection with any breach by such shareholder of the Voting Agreement
signed by such shareholder in connection with this Agreement.
8.2 Claims upon Final Payment.
(a) Subject to the other provisions of this Section 8, the
Interim Payments and the Final Payment shall be paid by Buyer to Seller on
the respective payment dates set forth in Section 3.1; provided, however,
that Buyer shall have no obligation to pay to Seller such portion of such
payments which, in the reasonable judgment of Buyer, subject to the
objection of the Seller and the subsequent arbitration of the matter in the
manner provided below, is necessary to satisfy any unsatisfied claims
specified in any Officer's Certificate theretofore delivered to the Seller
on or prior to the relevant payment date until such claims have been
resolved. As soon as all such claims have been resolved, the Buyer shall
deliver to Seller the remaining portion of the applicable payment not
required to satisfy such claims.
(b) Upon receipt by the Seller on or before the applicable
payment date of a certificate signed by any officer of Buyer (an "Officer's
Certificate"):
(i) stating that Damages exist or are reasonably
anticipated to exist and specifying in reasonable detail the
individual items as to which Damages relate, the date each such
item was paid, or properly accrued or arose, and the nature of
the misrepresentation, breach of warranty or claim to which such
item is related, then
(ii) the applicable payment shall be reduced dollar
for dollar in an amount equal to such Damages.
(c) The Officer's Certificate shall be delivered
within a reasonable time after Buyer concludes that it has a claim for
Damages for which it will seek recovery and concerning which it has the
information required to be stated in the Officer's Certificate.
8.3 Objections to Claims. Upon the expiration of a thirty (30)
day period following delivery of the Officer's Certificate by Buyer to
Seller, the amount of the applicable payment shall be deemed to be reduced
by the amount of the Damages unless Seller shall object in a written
statement delivered to the Buyer prior to the expiration of such thirty
(30) day period. Notwithstanding anything herein to the contrary, Seller
shall not be liable for any claims for Damages unless the aggregate amount
of such Damages exceeds $50,000.00 or unless the amount of any individual
claim for Damages exceeds $25,000.00, provided that in either such case
Buyer shall be entitled to recover for its entire claim once either such
threshold is met. Except as set forth in Section 4.2 of this Agreement,
the holdback provisions contained in this Section 8 shall be deemed to be
the exclusive remedy of Buyer in the event of any breach by Seller of any
representation or warranty contained herein (or in any certificates or
documents delivered pursuant hereto), except for (i) claims relating to
fraud or willful concealment or willful misrepresentation by Seller, (ii)
any claim or action by Buyer under the License Agreement and (iii) any
claim or action by Buyer related to Seller's obligations under Section 6.16
hereof.
8.4 Resolution of Conflicts, Arbitration.
(i) In case the Seller shall so object in writing to
any claim or claims by Buyer made in any Officer's Certificate, Buyer shall
have thirty (30) days to respond in a written statement to the objection of
the Seller. If after such thirty (30) day period there remains a dispute
as to any claims, the Seller and Buyer shall attempt in good faith for
thirty (30) days to agree upon the rights of the respective parties with
respect to each of such claims. If the Seller and Buyer should so agree, a
memorandum setting forth such agreement shall be prepared and signed by
both parties.
(ii) If no such agreement can be reached after good
faith negotiation, either Buyer or the Seller may, by written notice to the
other, demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three (3) arbitrators. Within fifteen
(15) days after such written notice is sent, Buyer and the Seller shall
each select one (1) arbitrator, and the two (2) arbitrators so selected
shall select a third arbitrator. The decision of the arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Santa Clara, California under the commercial
rules then in effect of the American Arbitration Association. For purposes
of this Section 8.4, in any arbitration hereunder in which any claim or the
amount thereof stated in the Officer's Certificate is at issue, Buyer shall
be deemed to be the Non-Prevailing Party unless the arbitrators award Buyer
more than one-half (1/2) of the amount in dispute, plus any amounts not in
dispute; in that event, Seller shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own
expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the expenses, including without
limitation, attorneys' fees and costs, reasonably incurred by the other
party to the arbitration.
8.5 Third-Party Claims. In the event Buyer becomes aware of a
third-party claim which Buyer believes may result in a claim against the
Final Payment, Buyer shall notify the Seller of such claim, and the Seller
shall be entitled, its expense, to participate in any defense of such
claim. Buyer may not effect the settlement of any such claim without the
consent of the Seller, which consent shall not be unreasonably withheld.
In the event that the Seller has consented to any such settlement, the
Seller shall have no power or authority to object under any provision of
this Section 8 to the amount of any claim by Buyer against the Interim
Payments or the Final Payment for indemnity with respect to such
settlement.
8.6 Conduct of the Business of the Assets. Seller acknowledges
and agrees that at Seller's request and with Seller's informed consent,
Buyer has agreed to operate the Assets in place at the Facility from
February 5, 1996 until the Closing Date. Accordingly, Seller and Buyer
hereby agree that Buyer shall not be entitled to recover for any Damages
resulting from the actions of Buyer or any employee of Buyer to the extent
that any such action results in the breach by Seller of any representation,
warranty, covenant or agreement of Seller contained in this Agreement nor
shall such actions by Buyer constitute a breach by Seller of any covenant
or agreement hereunder or of any representation or warranty of Seller
hereunder.
SECTION 9
9. MISCELLANEOUS.
9.1 Absence of Third Party Beneficiary Rights. No provisions
of this Agreement are intended, nor will be interpreted, to provide or
create any third party beneficiary rights or any other rights of any kind
in any client, customer, affiliate, stockholder, partner or employee of any
party hereto or any other person or entity unless specifically provided
otherwise herein, and, except as so provided, all provisions hereof will be
personal solely between the parties to this Agreement.
9.2 Further Assurances. Each party agrees to cooperate fully
with the other party and to execute such further instruments, documents and
agreements and to give such further written assurances and to make physical
delivery of any Assets not already delivered or made reasonably available
to Buyer from and after the date hereof as may be reasonably requested to
evidence and reflect the transaction described herein.
9.3 Changes, Waivers, Etc. Neither this Agreement nor any
provision hereof may be amended, changed, waived, discharged or terminated
orally, except by a statement in writing which references this Agreement
and is signed by the party against whom enforcement of the amendment,
change, waiver, discharge or termination is sought.
9.4 Payment of Fees and Expenses. Each of the parties hereto
shall pay its own respective fees and expenses incurred in connection
herewith.
9.5 Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and
shall be delivered, sent by telecopy, or mailed first-class postage
prepaid, registered or certified mail,
If to Buyer: Read-Rite Corporation
345 Los Coches Street
Milpitas, CA 95035
Attention: Rex S. Jackson, Esq.
Telephone: (408) 262-6700
Telecopy: (408) 956-3203
with a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Frances S. Currie, Esq.
Telephone: (415) 493-9300
Telecopy: (415) 493-6811
If to Seller: Censtor Corporation
530 Race Street
San Jose, CA 95126
Attention: Garry A. Garrettson
Telephone: (408) 298-8400
Telecopy: (408) 288-9910
with a copy to: Heller, Ehrman, White & McAuliffe
525 University Avenue
Suite 1100
Palo Alto, CA 94301
Attention: Matthew Quilter
Telephone: (415) 324-7000
Telecopy: (415) 324-0638
Such notices and other communications shall for all purposes of this
Agreement be treated as being effective or having been given if delivered
personally or by telecopy on the date of delivery, or, if sent by mail,
five (5) days thereafter.
9.6 Entire Agreement. This Agreement, including the
schedules and exhibits which are incorporated into and made an integral
part of this Agreement by reference, sets forth the entire understanding of
the parties and supersedes all prior agreements of the parties (including
the Letter Agreement) with respect to the subject matter hereof.
9.7 Parties in Interest. All the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not.
9.8 Best Efforts. Each party will use its best efforts to
cause all conditions to its obligations hereunder to be timely satisfied
and to perform and fulfill all obligations on its part to be performed and
fulfilled under this Agreement to the end that the transactions
contemplated hereby shall be effected substantially in accordance with the
terms of this Agreement as soon as practicable.
9.9 Bulk Transfer Laws. Subject to Section 8, the parties
hereby waive compliance with any applicable bulk transfer laws, including,
but not limited to, the bulk transfer provisions of the Uniform Commercial
Code of any state, or any similar statute, with respect to the transactions
contemplated hereby.
9.10 Attorneys' Fees. If any litigation or arbitration is
commenced between the parties hereto or their representatives concerning
any provision of this Agreement or the rights and duties of any person or
entity hereunder, solely as between the parties hereto or their successors,
the party or parties prevailing in such proceeding (including any
arbitration) will be entitled to the reasonable attorneys' fees and
expenses of counsel and court costs and other out-of-pocket expenses
incurred by reason of such litigation or arbitration.
9.11 Equitable Remedies. The parties acknowledge that the
remedy at law for any breach, or threatened breach, of their respective
covenants to consummate the transactions contemplated hereby will be
inadequate and, accordingly, each covenants and agrees that, with respect
to any such breach or threatened breach, the other will, in addition to any
other rights or remedies that it may have and regardless of whether such
other rights or remedies have been previously exercised, be entitled to
such equitable and injunctive relief as may be available from any
appropriate court.
9.12 Headings; References to Agreement. The headings of the
sections of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement. References herein to
"this Agreement" shall include all schedules and exhibits hereto.
9.13 Choice of Law; Interpretation. It is the intention of
the parties that the laws of the State of California shall govern the
validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties. Each party
acknowledges and agrees that it has had the opportunity to seek advice from
legal counsel regarding the terms and provisions of this Agreement and
that, in any event, this Agreement shall not be construed against any party
by reason of its preparation or word processing.
9.14 Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
from this Agreement and the remaining provisions of this Agreement shall be
unaffected and shall continue in full force and effect.
9.15 Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
9.16 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered as of date and year first above written.
READ-RITE CORPORATION CENSTOR CORPORATION
By:/s/ Rex Jackson By:/s/ Garrett Garrettson
Title: V.P & General Counsel Title: President & CEO
ALLOCATION SCHEDULE
Patent License $ 6.0 Million
Know How License 2.0
Asset Purchase .2
Team Acquisition Costs .825
-------
TOTAL $ 9.025 Million
=======
Exhibit B
PROMISSORY NOTE
$800,000.00 March 29, 1996
For value received, the undersigned Censtor Corporation, a California
corporation ("Borrower"), irrevocably and unconditionally promises to pay
to the order of Read-Rite Corporation, a Delaware corporation ("Lender"),
at such place as the holder hereof may designate, in lawful money of the
United States of America and in immediately available funds, the principal
amount of Eight Hundred Thousand U.S. Dollars ($800,000.00), or so much
thereof as may be advanced by Lender to Borrower from time to time (the
"Loan").
This note ("Note") is issued pursuant to an Agreement for Purchase and
Sale of Assets by and between Borrower and Lender dated as of March 29,
1996 (the "Purchase Agreement"). Subject to the terms of the Purchase
Agreement, Borrower may request from Lender advances of the Loan on or
after the date hereof. Such requests shall be in writing, and Lender will,
upon approving such request, wire transfer said advance to Borrower.
Borrower shall pay interest on the aggregate unpaid principal advanced
hereunder at the per annum rate of ten percent (10%), which shall accrue on
the basis of actual days elapsed and a year of 360 days ("Interest").
Interest hereunder shall be due and payable on the tenth (10th) calendar
day of each month until all principal advanced hereunder shall have been
paid in full by Borrower.
All of the principal amount of the Loan and all other indebtedness of
Borrower accrued under this Note shall be due and payable in full on demand
by Lender made at any time after May 31, 1996; provided that upon the
Closing Date (as defined in the Purchase Agreement) or upon termination of
the Purchase Agreement, Borrower's repayment obligations shall be governed
by Section 3.4 and Section 7.5 of the Purchase Agreement, respectively.
Borrower promises to pay Lender all costs and expenses of collection
of this Note and to pay all reasonable attorney's fees incurred in such
collection, or in any judicial or other legal proceeding to collect this
Note or in appeal thereof (collectively, "Expenses"), within ten (10) days
after its receipt of Lender's invoice therefor.
If Borrower fails to fully pay when due any principal amount of the
Loan, accrued unpaid Interest or Expenses when due pursuant to this Note,
Borrower shall, in addition to the interest determined in accordance with
the foregoing paragraph, pay default interest at the per annum rate of
twelve and one-half percent (12.5%), which shall accrue on the basis of
actual days elapsed and a year of 360 days ("Default Interest"), on all
such over-due and unpaid principal, Interest and Expenses for a period from
the date on which such failure occurred through the date on which such
failure is cured, both inclusive.
Borrower understands and irrevocably agrees that time is of the
essence as to all obligations of Borrower hereunder and that no delay by
Lender in exercising any power or right hereunder shall operate as a waiver
of any power or right.
Borrower irrevocably waives the right to direct the application of any
and all payments at any time hereafter received by Lender from or on behalf
of Borrower, and Borrower irrevocably agrees that Lender shall have the
continuing exclusive right to apply any and all such payments against the
then due and owing obligations of Borrower as Lender may deem advisable.
In the absence of a specific determination by Lender with respect thereto
and except as otherwise provided herein, all payments shall be applied in
the following order: (a) then due and payable fees and expenses, (b) then
due and payable Default Interest payments, (c) then due and payable
Interest payments, and (d) then due and payable principal payments.
This Note shall be governed by, and construed in accordance with, the
laws of the State of California.
"Borrower"
CENSTOR CORPORATION
By: ______________________
Garry A. Garrettson
President and CEO
EXHIBIT C
LICENSE AGREEMENT
THIS License Agreement ("Agreement") is made as of ________ (the
"Effective Date") by and between Read-Rite Corporation, a Delaware
corporation, located at 345 Los Coches Street, Milpitas, CA 95035 ("RRC"),
and Censtor Corporation, a California corporation, located at 530 Race
Street, San Jose, CA 95126 ("Censtor").
BACKGROUND
Censtor has sold certain assets to RRC pursuant to an Agreement for
Purchase and Sale of Assets dated as of March 29, 1996 ("Asset Purchase
Agreement"). This Agreement sets forth the terms under which Censtor will
license its intellectual property rights to RRC in conjunction with the
Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and premises
herein contained, the parties hereto agree as follows:
I. DEFINITIONS
1.1 "Patents" shall mean any and all rights in and to any and all (i)
patents owned by Censtor as of the Effective Date (ii) patent
applications whenever filed if based on inventions made by Censtor on
or prior to the Effective Date, (iii) patents issuing on such patent
applications, and (iv) patents licensed by Censtor from a third party
licensor as of the Effective Date which Censtor has a right to license
to RRC without additional payments or other obligations to such third
party licensor, including without limitation those patents listed in
Exhibit A hereto, provided that Censtor shall sublicense the patents
to RRC that require such additional payments or obligations to the
extent they may be sublicensed if RRC elects to make such additional
payments or assume such other obligations. This definition of Patents
shall include any foreign counterparts, divisions, substitutions,
re-examinations, continuations, continuations-in-part, reissues,
patents of addition, renewals and extensions of the any patents or
patent applications owned by Censtor.
1.2 "Software" shall mean all software (i) owned by Censtor as of the
Effective Date, (ii) developed by Censtor on or prior to the Effective
Date, or (iii) or licensed to Censtor from a third party licensor as
of the Effective Date which Censtor has a right to license to RRC
without additional payments or other obligations to such third party
licensor, provided that Censtor shall sublicense the software that
requires such additional payments or obligations to RRC to the extent
it may be sublicensed if RRC elects to make such additional payments
or assume such other obligations. The Software licensed hereunder
shall be provided in source code form, except that if such Software is
licensed by Censtor from a third party and can only be licensed to RRC
in binary code form, such Software shall be provided in binary code
form to RRC.
1.3 "Technology" shall mean any and all rights in and to any and all
technology and know-how (i) owned by Censtor as of the Effective Date,
(ii) developed by Censtor on or prior to the Effective Date, or (iii)
licensed to Censtor from a third party licensor as of the Effective
Date which Censtor has a right to license to RRC without additional
payments or other obligations to such third party licensor, provided
that Censtor shall sublicense the technology to RRC that requires such
additional payments or obligations to the extent it may be sublicensed
if RRC elects to make such additional payments or assume such other
obligations. "Technology" shall include without limitation, technical
information, know-how, negative know-how, trade secrets, processes,
procedures, compositions, devices, methods, formulas, protocols,
techniques, designs, drawings, mask works, or data.
1.4 "Intellectual Property Rights" means, collectively, the Patents,
Technology and Software and all current and future worldwide patents,
trade secrets, copyrights, copyright registrations and applications
therefor, moral rights, and all other intellectual property rights and
proprietary rights arising under the Patents, Technology or Software,
whether arising under the laws of the United States or any other
state, country or jurisdiction, excluding any trademarks or
servicemarks.
1.5 "Affiliate" shall mean a company that is controlled by,
controlling, or in common control with a party hereto. Control shall
mean that more than fifty percent (50%) of the stock entitled to vote
for the election of directors is directly owned by a party hereto, but
only so long as such ownership exists. An "RRC Affiliate" shall
include, but not be limited to, Read-Rite International.
II. GRANT
2.1 Grant. Censtor grants to RRC a worldwide, perpetual, royalty-
free, fully-paid up, non-exclusive license, including the right to
sublicense to RRC Affiliates, under the Intellectual Property Rights
to make, have made, use, sell, offer for sale, import, export,
display, modify, and distribute any products, create derivative works,
practice any method, process, or procedure, and otherwise exploit the
Patents, Technology or Software. The license granted under this
Section 2.1 shall be revocable solely in the event that RRC fails to
make the Final Payment referenced in the Asset Purchase Agreement on
the Final Payment Date defined therein, net of any amounts withheld as
security for claims under Section 8 thereof. Upon RRC's payment to
Censtor of such Final Payment, the licenses granted hereunder shall
become irrevocable, notwithstanding any withholding by RRC of a
portion of such Final Payment pursuant to Section 8.2 of the Asset
Purchase Agreement.
2.2 Delivery. Censtor has delivered to RRC copies of all the
Patents, Technology and Software as of the Effective Date, which
copies shall be the property of RRC.
2.3 Security Interest. 2.3.1 Grant. RRC hereby retains and Censtor
hereby grants to RRC a security interest in the Intellectual Property
Rights licensed hereunder to RRC to secure Censtor's obligations under
Sections 2.4, 3.1 or 3.2 of this Agreement (the "Secured Obligations")
for the period commencing on the Effective Date and terminating on the
sixth anniversary of the Effective Date (the "Termination Date").
Censtor agrees to promptly execute documents requested by RRC to
perfect and protect such security interest at the Effective Date.
2.3.2 Termination of Security Interest; Escrow. Censtor may
terminate the security interest created hereunder on the third (3rd)
anniversary of the Effective Date by depositing an amount (the "Escrow
Amount") that is the greater of (i) four million dollars ($4,000,000)
or (ii) the full amount of any claim or claims asserted in writing by
RRC against Censtor for breach of any Secured Obligations (a "Secured
Obligation Claim") on or prior to such anniversary in cash into an
escrow account established pursuant to a mutually agreeable escrow
agreement. Said escrow agreement shall provide for a release of all
or a portion of the Escrow Amount to RRC to satisfy claims by RRC
against Censtor hereunder relating to any breach of the Secured
Obligations. Thereafter, Censtor may reduce the Escrow Amount by one
million dollars ($1,000,000) on each of the fourth (4th) and fifth
(5th) anniversaries of the Effective Date, respectively, provided,
however, that any such reduction shall not cause the funds remaining
in the escrow to be less than the amount of any Secured Obligation
Claim or Claims by RRC outstanding on such anniversaries. If RRC has
an outstanding Secured Obligation Claim at the Termination Date then
(i) if Censtor has not terminated the security interest by depositing
the Escrow Amount, the security interest shall survive until the
claims are finally resolved unless Censtor deposits cash in the full
amount of such claim in an escrow account to secure such claims, or
(ii) if Censtor has terminated the security interest, the escrow
shall survive the Termination Date until such claims are finally
resolved
2.3.3. Senior Security Interest; Subordination. Censtor represents
and warrants that the security interest granted herein is senior to
any other security interest granted in the Patents, Software or
Technology. Censtor shall not grant, issue, or convey security
interests to which the security interest granted herein would be
subordinate, except (i) any security interest granted for money
borrowed, provided that the amount borrowed shall not exceed two
million dollars ($2,000,000) at any time, and any such obligation to
repay money shall be a Secured Obligation hereunder, and RRC shall
have the option to repay on Censtor's behalf such borrowings at any
time and to add the amount of such repayments to any amounts due upon
exercise of the security interest, and (ii) RRC acknowledges that
Denki Kagaku Kogyo Kabushiki Kaisha ("Denka") holds a security
interest in certain Censtor Patents. To address said security
interest, concurrently herewith Censtor has delivered to Censtor's
counsel such sums as are required to satisfy any obligations of
Censtor to Denka necessary to obtain a release of said security
interest (the "Satisfaction Payment"), and caused to be delivered by
Denka to Censtor's counsel a fully executed, irrevocable release of
said security interest (the "Release"). Censtor covenants that, on or
before July 31, 1996, it will cause its counsel to simultaneously
deliver the Satisfaction Payment to Denka, and the Release to RRC.
RRC hereby agrees that the security interest granted hereunder is and
will be subject to (i) any license granted by Censtor in the
Intellectual Property Rights, including licenses granted after the
date of this Agreement, and (ii) any security interest to secure
obligations for money borrowed as provided above, including any such
security interest granted after the date of this Agreement. RRC hereby
agrees to promptly execute documents reasonably requested by Censtor
to acknowledge release of the security interest at the Termination
Date (or such later date as provided above) and to acknowledge the
subordination of its security interest for money borrowed granted by
Censtor as provided above.
2.4 Most Favored Licensee. If Censtor licenses the Intellectual
Property Rights to any person, firm or corporation under more
favorable terms and conditions than those granted to RRC, it shall
provide RRC the benefit of those terms and conditions effective upon
the date of execution of the more favorable license. For the purposes
of determining whether a license is more favorable than the present
Agreement under this Section 2.4, the parties agree to consider each
transaction as a whole. The parties agree that should Censtor enter
into a new components supply license, it shall deliver to RRC an
initial summary of the terms of such license. RRC shall have fifteen
(15) days following receipt of such summary to elect to retain RRC's
existing license per the terms set for herein, or to elect on a
preliminary basis to accept the terms of said new license. In the
latter event , Censtor shall prepare and submit for RRC's review a
draft license agreement, together with a signed certificate of an
officer of Censtor stating that said license agreement is the same as
the new components supply license in all material respects. RRC shall
thereafter have fifteen (15) additional days to make its final
election to accept or reject said new proposed license. In addition,
Censtor shall not grant rights in the Intellectual Property Rights to
any disk drive manufacturer under terms and conditions more favorable
than those granted by Censtor to Western Digital Corporation ("WDC")
or Maxtor Corporation ("MC"), respectively, without offering such
terms to WDC and MC; provided, however, that Censtor shall not be
required to (i) compare any terms granted to either WDC or MC to those
granted to the other, or (ii) offer license terms to WDC or MC if at
any time following the Effective Date WDC or MC, as the case may be,
ceases to be a licensee of Censtor. If Censtor is required by this
Section to offer license terms to either WDC or MC, Censtor shall
offer such terms pursuant to procedures specified in its licenses with
WDC or MC to the extent such procedures exist and, to the extent they
do not, pursuant to the procedures specified above for offering
license terms to RRC.
2.5 Limitations. No license or other right is granted, by
implication , estoppel or otherwise, to RRC or any other third parties
except for the licenses and rights expressly granted in this
Agreement.
III. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION.
3.1 Representations and Warranties. As of the Effective Date of this
Agreement, Censtor represents and warrants that, except as set forth
in Schedule 3.1 hereto, (i) Censtor has the right and authority to
enter into this Agreement and to grant the rights and licenses set
forth herein; (ii) to Censtor's best knowledge the use of the
Intellectual Property Rights in connection with Censtor's business
operations in the ordinary course prior to the Effective Date does not
constitute a direct infringement of the intellectual property rights
of any other person, (iii) Censtor, to its best knowledge is not aware
of any express challenge to, or any facts or circumstances that, on
their face, constitute the basis for a challenge to, the validity,
scope, enforceability, ownership or inventorship of the Intellectual
Property Rights; (iv) Censtor has not received any notice or other
communication alleging that the manufacture, sale or use of products
incorporating the Patents, Software or Technology infringe the
intellectual property rights of any third party or violate any other
third party rights; (v) Censtor has not granted any rights in the
Patents, Software and Technology to any third party that are
inconsistent with the rights and licenses granted to RRC by this
Agreement, and (vi) Censtor has delivered to RRC all of the Patents,
Technology and Software.
3.2 Covenants. Censtor covenants (i) that it will not grant any
rights in the Patents, Software or Technology to any third party that
conflict with the rights and licenses granted to RRC by this
Agreement; and (ii) that as of the Effective Date of this Agreement
there are no circumstances other than RRC's breach of this Agreement
or patent expiration whereby the rights and licenses granted hereunder
would be materially diminished, or have the effect of materially
diminishing such rights and licenses. RRC may, upon breach of this
Section, exercise its security interests under Section 2.2 above and
the right to seek indemnification under Section 3.4 below.
3.3 RRC Representations and Warranties. As of the Effective Date of
this Agreement, RRC represents and warrants that RRC has the right and
authority to enter into this Agreement.
3.4 Indemnification. As the sole remedy for a material breach of a
party's obligations under this Section 3, each party (as indemnitor)
agrees to defend, indemnify, and hold the other party (as indemnitee),
its Affiliates, shareholders, employees and agents harmless against
any loss, liability, and expense (including reasonable attorneys'
fees) arising from such material breach except in the case of RRC, RRC
may also exercise the remedies provided by Section 7.2. The
indemnitor shall have no obligation to indemnify the indemnitee under
this section unless the indemnitee provides the indemnitor with (i)
prompt written notice of such claim or action, (ii) control and
authority over the defense or settlement of such claim or action, and
(iii) proper and full information and reasonable assistance to defend
and/or settle such claim or action.
3.5 Disclaimer. EXCEPT AS EXPRESSLY WARRANTED IN SECTION 3.1 ABOVE,
(I) CENSTOR'S PATENTS, SOFTWARE, TECHNOLOGY AND INTELLECTUAL PROPERTY
RIGHTS ARE PROVIDED TO RRC "AS IS" WITHOUT WARRANTY OF ANY KIND, (II)
THE ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF ANY HARDWARE OR
SOFTWARE IS ASSUMED BY THE RECEIVING PARTY; AND (III) CENSTOR
DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO
ITS DELIVERABLES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES
OF MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR
PURPOSE. IN NO EVENT SHALL CENSTOR BE LIABLE FOR COST OF PROCUREMENT
OF SUBSTITUTE PRODUCTS, SERVICES, OR TECHNOLOGY. THESE LIMITATIONS
SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY.
IV. CONFIDENTIAL INFORMATION
4.1 General. The parties may, from time to time, in connection with
this Agreement, disclose to each other Confidential Information.
"Confidential Information" shall mean any information disclosed in
writing by a party to this Agreement to any of the other parties to
this Agreement, and marked by the disclosing party with the legend
"CONFIDENTIAL" or other similar legend sufficient to identify such
information as confidential proprietary information of the disclosing
party. Confidential Information shall include the terms and
conditions of this Agreement, but either party may disclose the
existence and purpose of this Agreement as recited in the Background
section. Neither party shall use any Confidential Information of the
other party except as expressly authorized under this Agreement, and
each party will use best efforts to prevent the disclosure of the
other party's Confidential Information to third parties; provided that
the parties may disclose Confidential Information, with similar
protections in place, to the extent reasonably necessary to exploit
the rights and license granted to such party hereunder (including the
rights to grant and authorize sublicenses); and provided further that
the recipient party's obligations under this Section 4 shall not apply
to Confidential Information that:
4.1.1 is disclosed orally without express designation as
Confidential Information; provided, however, that the
recipient party's obligations under this Section 4 shall
apply to information disclosed orally if such information is
confirmed in writing as "CONFIDENTIAL" by the disclosing
party within thirty (30) days after disclosure thereof;
4.1..2 is in the recipient party's possession at the time of
disclosure thereof;
4.1..3 is or later becomes part of the public domain through
no fault of the recipient party;
4.1.4 is received from a third party having no obligations of
confidentiality to the disclosing party;
4.1.5 is developed independently by the recipient party
without reliance upon or use of the disclosing party's
Confidential Information; or
4.1.6 is required by law or regulation to be disclosed;
provided, however, that the party subject to such disclosure
requirement has provided written notice to the other party
promptly to enable such other party to seek a protective
order or otherwise prevent disclosure of such Confidential
Information.
The parties agree to terminate on the Effective Date, all prior
confidentiality and nondisclosure agreements between the parties
including the Bilateral Non-Disclosure Agreement dated January 11,
1996; provided, however, that disclosures of Confidential Information
made prior to the Effective Date shall continue to be governed by the
terms of the applicable confidentiality or nondisclosure agreement.
V. PATENTS AND INVENTIONS
5.1 Disclosure of Inventions. Censtor will promptly disclose to RRC
in writing any invention conceived of or reduced to practice by
Censtor, its employees, contractors, or agents, alone or jointly with
others, as of the Effective Date of the Agreement. Censtor shall
release its employees from any confidentiality obligations to the
extent such obligations prohibit the disclosure of Censtor
Confidential Information to RRC; provided, however, that nothing in
this Agreement shall require Censtor, or its employees, contractors,
or agents, to disclose Confidential Information of any third party
unless Censtor is authorized to do so by license or agreement with
such third party.
5.2 Applications. Censtor shall file patent applications based on
the Patents and maintain the Patents during the term of this
Agreement. During the term of this Agreement, Censtor shall provide
RRC with a report once per month containing a list of patent
applications based on the patents that Censtor elects to abandon, or
Patents for which Censtor elects not to pay any fee required to
maintain such Patent. Censtor shall consider any request by RRC to
file or continue the prosecution of applications for Patents. If
Censtor elects not to file or continue the prosecution of an
application requested by RRC, RRC may request Censtor's consent to
pursue and have assigned to RRC such draft patent application or
patent application, which consent may be withheld only if Censtor
determines that the coverage of such draft patent application or
application is substantially covered by another application that is
being pursued by Censtor. If consent is granted and RRC files or
continues the prosecution of such application, RRC shall pay for the
costs, including reasonable attorney's fees and related filing and
maintenance costs, and RRC agrees to license Censtor on a world-wide,
royalty-free, fully paid, irrevocable, non-exclusive basis with a
right of sublicense to Patents issuing on such applications, provided
that Censtor pays one-half of the legal fees and costs incurred by
RRC for such Patents.
VI. INFRINGEMENT
6.1 Notice of Infringement. If RRC learns of any infringement of
Censtor's Intellectual Property Rights, RRC shall so inform Censtor
in writing and shall provide Censtor with reasonable evidence of
the infringement.
6.2 Legal Action. RRC may request that Censtor take legal action
against an alleged infringement of the Intellectual Property Rights.
If Censtor initiates such action at RRC's request, it shall do so at
its sole expense and RRC shall render all reasonable assistance that
may be required by Censtor for such action. RRC shall not make any
claim for damages recovered by Censtor. If Censtor does not initiate
the legal action requested by RRC, RRC may request Censtor to consent
to RRC initiating such action in Censtor's name. If Censtor consents
to such representation, RRC may initiate such action at its sole
expense and shall be entitled to take all necessary steps in the
name of Censtor. Censtor shall render all reasonable assistance that
may be required by RRC for such action and Censtor shall not make
any claim for damages recovered by RRC.
If Censtor does not consent to RRC commencing such action, then upon
the request of RRC the following representatives of RRC and Censtor
shall meet within ten (10) days after the date of the Censtor
decision to attempt to resolve the matter: the General Counsel of
RRC and the President of Censtor. If the matter has not been
resolved within twenty (20) days of their first meeting, the parties
shall attempt in good faith to resolve the controversy or claim in
accordance with the Mediation Service of Santa Clara County Bar
Association.
6.3 Cooperation. Each party shall cooperate with the other in
litigation proceedings instituted under this Agreement (including
without limitation by joining as a nominal party,) but at the
expense of the party by whom suit is brought. The party bringing
the suit will control that litigation, except that the other party
may elect to be represented at its own expense by counsel of its
choice. Upon the request and at the expense of requesting party,
the other party shall make available at reasonable times and
under appropriate conditions all relevant personnel, records,
papers, information, samples, specimens and other similar materials
in its possession.
6.4 Attorneys' Fees. Except as set forth in Section 3
(Indemnification), each party shall bear its own attorney' fees and
costs in connection with any dispute between the parties arising
under this Agreement.
VII. TERMS AND CONDITIONS
7.1 Term. This Agreement shall be perpetual.
7.2 Remedies for Breach. If Censtor is in material default of any
provision of this Agreement other than the Secured Obligations, and
such material default is not corrected within thirty (30) days of
receipt of written notice of such default from RRC, RRC may pursue
its available remedies in law or equity. If Censtor is in material
default of the Secured Obligations, and such material default is not
corrected with thirty (30) days of receipt of written notice of such
material default, RRC shall first pursue a remedy of monetary
damages or injunctive relief pursuant to Section 3.4. If RRC does
not receive full and complete payment or settlement of a claim based
on a material default by Censtor of a Secured Obligation within
thirty (30) days after the date of the final determination of such
claim, RRC shall have the right to proceed against the security
interests as provided under Section 2.3, including all rights of a
secured party under the California Uniform Commercial Code, in
addition to any other rights it may have in law or equity.
7.3 Remedies for Insolvency. RRC shall have the right to exercise
the security interest cited under Section 2.3, in addition to any
other rights it may have in law and equity, by writing immediately
if Censtor (i) voluntarily or involuntarily becomes the subject
of a petition in bankruptcy or of any proceeding relating to
insolvency, receivership, liquidation, or composition for the
benefit of creditors; or (ii) admits in writing its inability to
pay its debts as they become due.
7.4 Survival. The rights and obligations under Sections 2, 3, 4,
5, 6, 8, and 9 shall survive termination of this Agreement.
VIII. LIMITATION ON LIABILITY
UNDER NO CIRCUMSTANCES, OTHER THAN AS PROVIDED FOR IN SECTION 3
ABOVE, SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY
LOST DATA, LOST PROFITS, BUSINESS INTERRUPTION OR FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES
(EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), INCLUDING WITHOUT LIMITATION, LOSS OF REVENUE OR
ANTICIPATED PROFITS OR LOST BUSINESS. NOTWITHSTANDING THE FOREGOING,
THE MAXIMUM LIABILITY OF EITHER PARTY TO THE OTHER PARTY FOR DAMAGES,
OTHER THAN LIABILITY OF CENSTOR UNDER SECTION 3, FOR ANY AND ALL
CAUSES WHATSOEVER, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT, TORT OR OTHERWISE, SHALL BE LIMITED TO THE PURCHASE
PRICE SET FORTH IN THE ASSET PURCHASE AGREEMENT OF NINE MILLION
TWENTY-FIVE THOUSAND DOLLARS ($9,025,000); THE MAXIMUM LIABILITY
OF CENSTOR UNDER SECTION 3 TO RRC FOR DAMAGES FOR ANY AND ALL CAUSES
WHATSOEVER, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT,
TORT, OR OTHERWISE, SHALL BE LIMITED TO TEN MILLION DOLLARS
($10,000,000).
IX. GENERAL
9.1. Assignment. This Agreement may not be assigned by Censtor
without the prior written consent of RRC, except to a party that
succeeds to all or substantially all of Censtor's business or assets
relating to this Agreement whether by sale, merger, operation of
law or otherwise; provided that such assignee or transferee promptly
agrees in writing to be bound by the terms and conditions of this
Agreement.
9.2. Complete Agreement. This Agreement, the exhibits attached
hereto, and the Asset Purchase Agreement, constitute the entire
understanding and only agreements between the parties with respect
to the subject matter hereof and supersede any and all prior
negotiations, representations, agreements, and understandings,
written or oral, that the parties may have reached with respect to
the subject matter hereof. No provision of this Agreement shall be
varied, contradicted or explained by any oral agreement, course of
dealing or performance or any other matter not set forth in an
agreement in writing and signed by all parties.
9.3. Force Majeure. In the event either party hereto is prevented
from or delayed in the performance of any of its obligations here-
under by reason of acts of God, war, strikes, riots, storms, fires,
or any other cause whatsoever beyond the reasonable control of the
party, the party so prevented or delayed shall be excused from the
performance of any such obligation to the extent and during the
period of such prevention or delay. In the event of such an event,
the party whose performance is prevented or delayed shall give
prompt notice to the other party of the occurrence such event and of
removal of such event.
9.4. Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and
shall be delivered, sent by telecopy, or mailed first-class postage
prepaid, registered or certified mail, and shall be effective upon
receipt by the addressee, if addressed as follows:
If to RRC: Read-Rite Corporation
345 Los Coches Street
Milpitas, CA 95035-5428
Attention: Rex S. Jackson, V.P. & General
Counsel
Telephone: (408) 262-6700
Telecopy: (408) 945-9644
with a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Frances S. Currie, Esq.
Telephone: (415) 493-9300
Telecopy: (415) 493-6811
If to Censtor: Censtor Corporation
530 Race Street
San Jose, CA 95126
Attention: Garry A. Garrettson, President &
CEO
Telephone: (408) 298-8400
Telecopy: (408) 288-9910
with a copy to: Heller, Ehrman, White & McAuliffe
525 University Avenue
Palo Alto, California 94301-1900
Attention: Matthew P. Quilter, Esq.
Telephone: (415) 324-7000
Telecopy: (415) 324-0638
9.5 Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
California; provided, however, that all questions with respect to
validity of any patents or patent applications shall be determined in
accordance with the laws of the respective country in which such
patents or patent applications shall have been granted or filed, as
applicable.
9.6 Dispute Resolution. The parties shall resolve any disputes
arising under this Agreement utilizing the procedures set forth in
Section 8.4 of the Asset Purchase Agreement, to which this
Agreement is attached as Exhibit C.
9.7 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create
any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, stockholder, partner or employee of
any party hereto or any other person or entity unless specifically
provided otherwise herein, and, except as so provided, all provisions
hereof will be personal solely between the parties to this Agreement.
9.8 Bankruptcy Code. All rights and licenses granted under or
pursuant to this Agreement by Censtor to RRC are and shall otherwise
be deemed for the purposes of Section 365(n) of the United States
Bankruptcy Code, 11 U.S.C. Section 101, et seq. (the "Bankruptcy
Code"), licenses of rights to "intellectual property" as defined under
Section 101(56) of the Bankruptcy Code. The parties agree that RRC,
as a licensee of such rights and licenses, shall retain and may fully
exercise all of its rights and elections under the Bankruptcy Code.
9.9 No Waiver. A waiver, express or implied, by either party of any
right under this Agreement or of any failure to perform or breach
hereof by the other party hereto shall not constitute or be deemed to
be a waiver of any other right hereunder or of any other failure to
perform or breach hereof by such other party, whether of a similar or
dissimilar nature thereto.
9.10 Headings. Headings included herein are for convenience only, do
not form a part of this Agreement and shall not be used in any way to
construe or interpret this Agreement.
9.11. Severability. If any provision of this Agreement shall be
found by a court of competent jurisdiction to be void, invalid or
unenforceable, the same shall be reformed to comply with applicable
law or stricken if not so reformable, so as not to affect the validity
or enforceability of the remainder of this Agreement, provided that
the reformation complies with the intent of the parties.
9.12. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement.
Censtor Corporation ("Censtor") Read-Rite Corporation ("RRC")
By: ______________________________ By: _______________________________
Name: ___________________________ Name: _______________________________
Title: __________________________ Title:_______________________________
EXHIBIT A
Patents
SCHEDULE 3.1 TO LICENSE AGREEMENT
BETWEEN CENSTOR CORPORATION AND
READ-RITE CORPORATION, DATED
_____________________
1. IBM patents with an effective filing date prior to September 1, 1991.
2. Censtor's "best knowledge" under Sections 3.1(ii) and (iii) does not
include a detailed review of the copies of all third party patents within
Censtor's possession.
Exhibit D
[FORM OF OPINION OF HELLER, EHRMAN, WHITE & McAULIFFE]
______ __, 1996
Read-Rite Corporation
345 Los Coches Street
Milpitas, California 95035
Censtor Corp.
Ladies and Gentlemen:
We have acted as counsel to Censtor Corp., a California
corporation (the "Company"), in connection with the Agreement for Purchase
and Sale of Assets, dated as of March __, 1996, by and between Read-Rite
Corporation, a Delaware corporation (the "Purchaser"), and the Company (the
"Agreement"). This opinion is rendered to you pursuant to Section 4.2(h)
of the Agreement. Capitalized terms used without definition in this
opinion have the meanings given to them in the Agreement.
I.
We have assumed the authenticity of all records, documents and
instruments submitted to us as originals, the genuineness of all
signatures, the legal capacity of natural persons and the conformity to the
originals of all records, documents and instruments submitted to us as
copies. We have based our opinion upon our review of the following
records, documents, instruments and certificates and such additional
certificates relating to factual matters as we have deemed necessary or
appropriate for our opinion:
(a) The Agreement;
(b) The Promissory Note attached to the Agreement as Exhibit B;
(c) The Bill of Sale and Assignment of Contracts executed and
delivered by the Company to the Purchaser at the Closing (the
"Bill of Sale");
(d) The License Agreement attached to the Agreement as Exhibit C
(the "Purchaser's License"), which together with the agreements
referred to in Paragraphs (a), (b) and (c) above shall be
referred to herein collectively as the "Transactional
Agreements";
(e) The Assumed Contracts;
(f) The Articles of Incorporation of the Company certified by
the California Secretary of State as of _____ __, 1996, and
certified to us by an officer of the Company as being complete
and in full force and effect as of the date of this opinion;
(g) The Bylaws of the Company certified to us by an officer of
the Company as being complete and in full force and effect as of
the date of this opinion;
(h) Records certified to us by an officer of the Company as
constituting all records of proceedings and actions of the board
of directors and the shareholders of the Company relating to the
Transactional Agreements;
(i) A Certificate of Status - Domestic Corporation relating to
the Company issued by the Secretary of State of the State of
California, dated _____ __, 1996;
(j) A letter from the Franchise Tax Board of the State of
California stating that the Company is in good standing with that
agency, dated _____ __, 1996;
(k) A certificate of the Chief Executive Officer and President
and of the Chief Financial Officer of the Company as to the
material agreements and material instruments to which the Company
is a party or by which the Company's properties or assets are
bound and as to certain factual matters (the "Certificate
Relating to Agreements");
(l) Each of the agreements and instruments identified in the
Certificate Relating to the Agreements; and
(m) The proxy statement delivered to the Company's shareholders
in connection with the transactions contemplated by the
Transactional Agreements (the "Proxy Statement").
Our opinion expressed in Paragraph 1 of Part III as to the good
standing of the Company under the laws of the State of California is based
solely upon the Certificate of Status - Domestic Corporation and letter
from the Franchise Tax Board of the State of California identified above in
Paragraphs (h) and (i), respectively. We have made no additional
investigation after the respective dates of those documents in rendering
our opinion expressed in Paragraph 1 of Part III. We have further based
our opinion expressed in the second sentence of Paragraph 1 on a
certification to us by certain officers of the Company that the Company has
no employees or facilities outside of California.
In connection with our opinion relating to the agreements and
instruments identified in the Certificate Relating to Agreements, we have
not reviewed, and express no opinion on, (i) financial covenants or similar
provisions requiring financial calculations or determinations to ascertain
compliance, (ii) provisions relating to the occurrence of a "material
adverse event" or words of similar import or (iii) parol evidence bearing
on interpretation or construction. Moreover, to the extent that any of the
agreements and instruments identified in the Certificate Relating to
Agreements is governed by the laws of any jurisdiction other than the State
of California, our opinion relating to those agreements and instruments is
based solely upon the plain meaning of their language without regard to
interpretation or construction that might be indicated by the laws
governing those agreements and instruments.
Where our opinion relates to our "knowledge," that knowledge is
based upon our examination of the records, documents, instruments and
certificates enumerated or described above and the actual contemporaneous
knowledge of attorneys in this firm who are currently involved in legal
representation of the Company in connection with the Transactional
Agreements. We have not examined any records of any court, administrative
tribunal or other similar entity in connection with our opinion.
II.
We express no opinion as to:
A. Any anti-fraud provisions of the securities laws, rules or regulations
and any tax, anti-trust, land use, safety, bulk transfer,
environmental or hazardous materials laws, rules or regulations.
B. The effect on the Company's obligations, and your rights, under the
Transactional Agreements of laws relating to fraudulent transfers and
fraudulent obligations set forth in Sections 544 and 548 of the
federal Bankruptcy Code and Sections 3439 et seq. of the California
Civil Code.
This opinion is limited to the federal laws of the United States
of America and the laws of the State of California, and we disclaim any
opinion as to the laws of any other jurisdiction. We further disclaim any
opinion as to any statute, rule, regulation, ordinance, order or other
promulgation of any regional or local governmental body or as to any
related judicial or administrative opinion.
III.
Based upon the foregoing and our examination of such questions of
law as we have deemed necessary or appropriate for the purpose of our
opinion, and subject to the limitations and qualifications elsewhere in
this opinion, it is our opinion that:
1. The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of
California. The Company is not required to be qualified in any
state other than California.
2. The Company has all requisite corporate power and corporate
authority to enter into and perform its obligations under the
Transactional Agreements, to own its properties and to carry on
its business as, to our knowledge, it is now conducted. The
Company has all requisite corporate power and corporate authority
to sell, assign, convey and transfer the Assets to the Purchaser
and to assign, convey and transfer the Assumed Contracts to the
Purchaser.
3. Neither the execution and delivery of the Transactional
Agreements on behalf of the Company nor the consummation by the
Company of the transactions contemplated thereby, including
without limitation the transfer of Assets to the Purchaser and
the assumption of Assumed Contracts by the Buyer, (i) conflicts
with any provision of the Articles of Incorporation or Bylaws of
the Company, (ii) violates any law applicable to the Company,
(iii) results in a breach or violation of, or constitutes a
default under, any term of any agreement or instrument
identified in the Certificate Relating to
Agreements, or (iv) results in a breach or violation of, or
constitutes a default under, any term of any order, writ or
decree, of which we have knowledge, of any court, governmental
agency or body.
4. The execution, delivery and performance of the Transactional
Agreements have been duly authorized by all necessary corporate
action on the part of the Company and have been duly executed and
delivered on behalf of the Company. The Transactional Agreements
are valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject, as
to enforcement, (i) to bankruptcy, insolvency, reorganization,
arrangement, moratorium and other laws of general applicability
relating to or affecting creditors' rights and (ii) to general
principles of equity, whether such enforceability is considered
in a proceeding in equity or at law. All requisite third party
consents required for the execution, delivery and performance by
the Company of the Transactional Agreements, including without
limitation, the transfer of the Assets to the Purchaser and for
the transfer and assignment of the Assumed Contracts to the
Purchaser have been obtained and no governmental consents,
approvals, authorizations, registrations, declarations or filings
are required for the transfer of the Assets to the Purchaser and
for the transfer and assignment of the Assumed Contracts to the
Purchaser.
5. To our knowledge there is no action, suit or proceeding
against the Company or the Assets that is either pending or has
been threatened in writing which questions the validity or
propriety of any of the Transactional Agreements or the
transactions contemplated thereby, including without limitation
the purchase and sale of Assets or the transfer of the Assumed
Contracts to Purchaser and, to our knowledge, no inquiries have
been made by any governmental agency that might form the basis of
any such actions, suit, proceeding or investigation, or which
might require the Company to undertake a course of action which
may result in a charge against the Assets or the Assumed
Contracts.
6. To our knowledge, no consent, approval, order or
authorization of or application, designation, declaration or
filing with any governmental authority is required in connection
with the valid execution, delivery and performance of any of the
Transactional Agreements.
7. The Proxy Statement complies as to form in all material
respects with the requirements of the Securities Exchange Act of
1934 and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
8. The Bill of Sale is sufficient as to form to sell, transfer
and convey all of the Company's right, title and interest in and
to the Assets to the Purchaser.
IV.
We further advise you that:
A. As noted, the enforceability of the Transactional Agreements
is subject to the effect of general principles of equity. These
principles include, without limitation, concepts of commercial
reasonableness, materiality and good faith and fair dealing. As
applied to the Transactional Agreements, these principles will
require you to act reasonably, in good faith and in a manner that
is not arbitrary or capricious in the administration and
enforcement of the Transactional Agreements and will preclude you
from invoking penalties for defaults that bear no reasonable
relation to the damage suffered or that would otherwise work a
forfeiture.
B. The enforceability of the Transactional Agreements is
subject to the effects of (i) Section 1102 of the California
Uniform Commercial Code, which provides that obligations of good
faith, diligence, reasonableness and care prescribed by that Code
may not be disclaimed by agreement, although the parties may by
agreement determine the standards by which the performance of
such obligations is to be measured if those standards are not
manifestly unreasonable, (ii) Section 1203 of that Code, which
imposes an obligation of good faith in the performance or
enforcement of a contract and (iii) Section 1670.5 of the
California Civil Code, which provides that a court may refuse to
enforce, or may limit the enforcement of, a contract or any
clause of a contract that a court finds as a matter of law to
have been unconscionable at the time it was made.
C. The effectiveness of indemnities, rights of contribution,
exculpatory provisions and waivers of the benefits of statutory
provisions may be limited on public policy grounds.
D. Provisions of the Transactional Agreements requiring that
waivers must be in writing may not be binding or enforceable if a
non-executory oral agreement has been created modifying any such
provision or an implied agreement by trade practice or course of
conduct has given rise to a waiver.
V.
This opinion is rendered to you in connection with the Agreement
and is solely for your benefit. This opinion may not be relied upon by any
other person, firm, corporation or other entity without our prior written
consent. We disclaim any obligation to advise you of any change of law
that occurs, or any facts of which we become aware, after the date of this
opinion.
Very truly yours,
EXHIBIT F
VOTING AGREEMENT
This Voting Agreement (the "Agreement") is made and entered into as of
February 29, 1996, by and between Read-Rite Corporation, a Delaware
corporation ("Read-Rite"), and the undersigned shareholder ("Shareholder")
of Censtor Corporation, a California corporation ("Censtor").
RECITALS
A. Pursuant to an Agreement for Purchase and Sale of Assets by and
between Read-Rite and Censtor to be executed in March 1996 substantially in
the form of the agreement delivered to and reviewed by the Shareholder (the
"Purchase Agreement"), Read-Rite is purchasing certain assets and assuming
certain liabilities of Censtor (the "Transaction");
B. Shareholder is the beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
of such number of shares of the outstanding Common Stock, $0.01 par value
per share, and Preferred Stock, $0.01 par value per share, of Censtor as is
indicated on the signature page of this Agreement (the "Shares"); and
C. In consideration of the extension and continuation of credit by
Read-Rite and the execution of the Purchase Agreement by Read-Rite,
Shareholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Censtor acquired by
Shareholder hereafter and prior to the Expiration Date (as defined in
Section 1.1 below), and agrees to vote the Shares and any other such shares
of capital stock of Censtor so as to facilitate consummation of the
Transaction.
NOW, THEREFORE, the parties agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. Shareholder agrees not
to transfer, sell, exchange, pledge (except in connection with a bona fide
loan transaction, provided that any pledgee agrees not to transfer, sell,
exchange, pledge or otherwise dispose of or encumber the Shares or any New
Shares (as defined in Section 1.2) prior to the Expiration Date and to be
subject to the Proxy (as defined in Section 3)) or otherwise dispose of or
encumber the Shares or any New Shares, or to make any offer or agreement
relating thereto, at any time prior to the Expiration Date. As used
herein, the term "Expiration Date") shall mean the earlier to occur of (i)
such date and time as the Transaction shall become effective in accordance
with the terms and provisions of the Purchase Agreement, (ii) the close of
business on July 31, 1996 and (iii) the date of termination of the Purchase
Agreement.
1.2 New Shares. Shareholder agrees that any shares of
capital stock of Censtor that Shareholder purchases or with respect to
which Shareholder otherwise acquires beneficial ownership after the date of
this Agreement and prior to the Expiration Date ("New Shares") shall be
subject to the terms and conditions of this Agreement to the same extent as
if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the
shareholders of Censtor called with respect to any of the following, and at
every adjournment thereof, and on every action or approval by written
consent of the Shareholders of Censtor with respect to any of the
following, Shareholder shall vote the Shares and any New Shares in favor of
approval of the Purchase Agreement and the Transaction and any matter that
could reasonably be expected to facilitate the Transaction. This Agreement
is intended to bind Shareholder as a Shareholder of Censtor only with
respect to the specific matters set forth herein and shall not prohibit
Shareholder from acting in accordance with his or her fiduciary duties, if
applicable, as an officer or director of Censtor.
3. Irrevocable Proxy. Concurrently with the execution of this
Agreement, Shareholder agrees to deliver to Read-Rite a proxy in the form
attached hereto as Exhibit A (the "Proxy"), which shall be irrevocable to
the extent provided in Section 705(e) of the California General Corporation
Law, covering the total number of Shares and New Shares beneficially owned
or as to which beneficial ownership is acquired (as such term is defined in
Rule 13d-3 under the Exchange Act) by Shareholder set forth therein.
4. Representations, Warranties and Covenants of Shareholder.
Shareholder hereby represents, warrants and covenants to Read-Rite that
Shareholder (i) is the beneficial owner of the Shares, which at the date of
this Agreement are and at all times up until the Expiration Date will be
free and clear of any liens, claims, options, charges or other
encumbrances; (ii) does not beneficially own any shares of capital stock of
Censtor other than the Shares (excluding shares as to which Shareholder
currently disclaims beneficial ownership in accordance with applicable
law); and (iii) has full power and authority to make, enter into and carry
out the terms of this Agreement and the Proxy.
5. Additional Documents. Shareholder hereby covenants and
agrees to execute and deliver any additional documents necessary or
desirable, in the opinion of Read-Rite, to carry out the purpose and intent
of this Agreement.
6. Consent and Waiver. Shareholder hereby gives any consents
or waivers that are required for the consummation of the Transaction under
the terms of any agreement to which Shareholder is a party or pursuant to
any rights Shareholder may have.
7. Termination. This Agreement and the Proxy delivered in
connection herewith shall terminate and shall have no further force or
effect as of the Expiration Date.
8. Miscellaneous.
8.1 No Reliance on Read-Rite. Shareholder acknowledges
that it has had the opportunity to review this Agreement, the Proxy, the
Purchase Agreement and the terms of the Transaction with its own financial
advisors and legal counsel. Shareholder is relying solely on such advisors
and counsel and not on any statements or representations of Read-Rite or
any of its agents for financial or legal advice with respect to the
transactions contemplated hereby or thereby.
8.2 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
8.3 Binding Effect and Assignment. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted
assigns, but, except as otherwise specifically provided herein, neither
this Agreement nor any of the rights, interests or obligations of the
parties hereto may be assigned by either of the parties without the prior
written consent of the other.
8.4 Amendment and Modification. This Agreement may not be
modified, amended, altered or supplemented except by the execution and
delivery of a written agreement executed by the parties hereto.
8.5 Specific Performance; Injunctive Relief. The parties
hereto acknowledge that Read-Rite will be irreparably harmed and that there
will be no adequate remedy at law for a violation of any of the covenants
or agreements of Shareholder set forth herein. Therefore, it is agreed
that, in addition to any other remedies that may be available to Read-Rite
upon any such violation, Read-Rite shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or by
any other means available to Read-Rite at law or in equity.
8.6 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally
or by commercial delivery service, or mailed by registered or
certified mail (return receipt requested) or sent via facsimile (with
confirmation of receipt) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Read-Rite, to:
Read-Rite Corporation
345 Los Coches Street
Milpitas, CA 95035
Attention: Rex S. Jackson
Facsimile No.: (408) 956-3203
Telephone No.: (408) 262-6700
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94306
Attention: Francis S. Currie
Facsimile No.: (415) 493-9300
Telephone No.: (415) 493-6811
(b) if to Shareholder, to the address set forth below.
8.7 Governing Law. This Agreement and the Proxy shall be
governed by, construed and enforced in accordance with the internal laws of
the State of California.
8.8 Entire Agreement. This Agreement and the Proxy contain
the entire understanding of the parties in respect of the subject matter
hereof and supersede all prior negotiations and understandings between the
parties with respect to such subject matters.
8.9 Counterpart. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
8.10 Effect of Headings. The section headings herein are
for convenience only and shall not affect the construction or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
READ-RITE CORPORATION
By:
Title:
SHAREHOLDER
By:
Title:
Shareholder's Address for Notice:
Shares beneficially owned:
shares of Censtor Common Stock
shares of Censtor Preferred Stock
EXHIBIT A
IRREVOCABLE PROXY TO VOTE STOCK OF
CENSTOR CORPORATION
The undersigned shareholder of Censtor Corporation, a California
corporation ("Censtor"), hereby irrevocably (to the full extent permitted
by Section 705(e) of the California General Corporation Law appoints the
members of the Board of Directors of Read-Rite Corporation, a Delaware
corporation ("Read-Rite"), and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution
and resubstitution, to vote and exercise all voting and related rights (to
the full extent that the undersigned is entitled to do so) with respect to
all of the shares of capital stock of Censtor that now are or hereafter may
be beneficially owned by the undersigned, and any and all other shares or
securities of Censtor issued or issuable in respect thereof on or after the
date hereof (collectively, the "Shares") in accordance with the terms of
this Proxy. The Shares beneficially owned by the undersigned shareholder
of Censtor as of the date of this Proxy are listed below. Upon the
undersigned's execution of this Proxy, any and all prior proxies given by
the undersigned with respect to any Shares are hereby revoked and the
undersigned agrees not to grant any subsequent proxies with respect to the
Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the extent provided in Section 705(e) of
the California General Corporation Law), is granted pursuant to that cer-
tain Voting Agreement dated as of February 29, 1996, by and between Read-
Rite and the undersigned shareholder (the "Voting Agreement"), and is
granted in consideration of (i) the extension and continuation of credit by
Read-Rite to Censtor pursuant to those certain Promissory Notes dated
February 2, 1996 and February 29, 1996, and (ii) Read-Rite entering into
that certain Agreement for Purchase and Sale of Assets by and between
Censtor and Read-Rite (the "Purchase Agreement"). The Purchase Agreement
provides for the purchase by Read-Rite of certain assets of Censtor and the
assumption by Read-Rite of certain liabilities of Censtor (the
"Transaction"). As used herein, the term "Expiration Date" shall mean the
earlier to occur of (i) such date and time as the Transaction shall become
effective in accordance with the terms and provisions of the Purchase
Agreement, (ii) the close of business on July 31, 1996 and (iii) the date
of termination of the Purchase Agreement.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting and other rights of the undersigned with
respect to the Shares, at every annual, special or adjourned meeting of the
shareholders of Censtor and in every written consent in lieu of such
meeting in favor of approval of the Transaction and the Purchase Agreement
and in favor of any matter that could reasonably be expected to facilitate
the Transaction. The attorneys and proxies named above may not exercise
this Proxy on any other matter except as provided above. The undersigned
shareholder may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. This Proxy is irrevocable to
the extent provided in Section 705(e) of the California General Corporation
Law.
Dated: February 29, 1996
(Signature of Shareholder)
(Print Name of Shareholder)
Shares beneficially owned:
shares of Censtor Common Stock
shares of Censtor Preferred Stock
EXHIBIT G
LICENSE AGREEMENT
THIS License Agreement ("Agreement") is made as of ________ (the
"Effective Date") by and between Read-Rite Corporation, a Delaware
corporation, located at 345 Los Coches Street, Milpitas, CA 95035 ("RRC"),
and Censtor Corporation, a California corporation, located at 530 Race
Street, San Jose, CA 95126 ("Censtor").
BACKGROUND
Censtor and RRC have negotiated a proposed sale of certain Censtor
assets to RRC pursuant to a Letter of Intent dated February 2, 1996
("Letter of Intent"), but have not signed a definitive agreement for such
sale. This Agreement sets forth the terms under which Censtor will license
certain of its intellectual property rights to RRC pursuant to the Letter
of Intent.
NOW, THEREFORE, in consideration of the mutual covenants and premises
herein contained, the parties hereto agree as follows:
I. DEFINITIONS
1.1 "Software" shall mean all software (i) owned by Censtor as of the
Effective Date, (ii) developed by Censtor on or prior to the Effective
Date, or (iii) or licensed to Censtor from a third party licensor as
of the Effective Date which Censtor has a right to license to RRC
without additional payments or other obligations to such third party
licensor, provided that Censtor shall sublicense the software that
requires such additional payments or obligations to RRC to the extent
it may be sublicensed if RRC elects to make such additional payments
or assume such other obligations. The Software licensed hereunder
shall be provided in source code form, except that if such Software is
licensed by Censtor from a third party and can only be licensed to RRC
in binary code form, such Software shall be provided in binary code
form to RRC.
1.2 "Technology" shall mean any and all rights in and to any and all
technology and know-how (i) owned by Censtor as of the Effective Date,
(ii) developed by Censtor on or prior to the Effective Date, or (iii)
licensed to Censtor from a third party licensor as of the Effective
Date which Censtor has a right to license to RRC without additional
payments or other obligations to such third party licensor, provided
that Censtor shall sublicense the technology to RRC that requires such
additional payments or obligations to the extent it may be sublicensed
if RRC elects to make such additional payments or assume such other
obligations. "Technology" shall include without limitation, technical
information, know-how, negative know-how, trade secrets, processes,
procedures, compositions, devices, methods, formulas, protocols,
techniques, designs, drawings, mask works, or data.
1.3 "Intellectual Property Rights" means, collectively, the
Technology and Software and all current and future worldwide, trade
secrets, copyrights, copyright registrations and applications
therefor, moral rights, and all other intellectual property rights and
proprietary rights arising under the Technology or Software, whether
arising under the laws of the United States or any other state,
country or jurisdiction, excluding any trademarks or servicemarks.
1.4 "Affiliate" shall mean a company that is controlled by,
controlling, or in common control with a party hereto. Control shall
mean that, on a class by class basis, more than fifty percent (50%) of
the stock entitled to vote for the election of directors is directly
owned by a party hereto, but only so long as such ownership exists.
An "RRC Affiliate" shall include, but not be limited to, Read-Rite
International.
II. GRANT
2.1 Grant. Censtor grants to RRC a worldwide, perpetual,
irrevocable, royalty-free, fully-paid up, non-exclusive license,
including the right to sublicense to RRC Affiliates, under the
Intellectual Property Rights to make, have made, use, sell, offer for
sale, import, export, display, modify, and distribute any products,
create derivative works, practice any method, process, or procedure,
and otherwise exploit the Technology or Software.
2.2 Delivery. Censtor has delivered to RRC copies of all the
Technology and Software as of the Effective Date, which copies shall
be the property of RRC.
2.3 Limitations. No license or other right is granted, by
implication , estoppel or otherwise, to RRC or any other third parties
except for the licenses and rights expressly granted in this
Agreement.
2.4 Consideration. As consideration for the licenses and rights
granted under this Agreement, RRC shall pay Censtor a one time license
fee as set forth in the Agreement for Purchase and Sale of Assets to
which this Agreement is attached as Exhibit G.
III. REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION.
3.1 Representations and Warranties. As of the Effective Date of this
Agreement, Censtor represents and warrants that, except as set forth
in Schedule 3.1 hereto, (i) Censtor has the right and authority to
enter into this Agreement and to grant the rights and licenses set
forth herein; (ii) to Censtor's best knowledge the use of the
Intellectual Property Rights in connection with Censtor's business
operations in the ordinary course prior to the Effective Date does not
constitute a direct infringement of the intellectual property rights
of any other person, (iii) Censtor, to its best knowledge is not aware
of any express challenge to, or any facts or circumstances that, on
their face, constitute the basis for a challenge to, the validity,
scope, enforceability, ownership or inventorship of the Intellectual
Property Rights; (iv) Censtor has not received any notice or other
communication alleging that the manufacture, sale or use of products
incorporating the Software or Technology infringe the intellectual
property rights of any third party or violate any other third party
rights; (v) Censtor has not granted any rights in the Software and
Technology to any third party that are inconsistent with the rights
and licenses granted to RRC by this Agreement, and (vi) Censtor has
delivered to RRC all of the Technology and Software.
3.2 Covenants. Censtor covenants (i) that it will not grant any
rights in the Software or Technology to any third party that conflict
with the rights and licenses granted to RRC by this Agreement; and
(ii) that as of the Effective Date of this Agreement there are no
circumstances other than RRC's breach of this Agreement whereby the
rights and licenses granted hereunder would be materially diminished,
or have the effect of materially diminishing such rights and licenses.
RRC may, upon breach of this Section, exercise its right to seek
indemnification under Section 3.4 below.
3.3 RRC Representations and Warranties. As of the Effective Date of
this Agreement, RRC represents and warrants that RRC has the right and
authority to enter into this Agreement.
3.4 Indemnification. As the sole remedy for a material breach of a
party's obligations under this Section 3, each party (as indemnitor)
agrees to defend, indemnify, and hold the other party (as indemnitee),
its Affiliates, shareholders, employees and agents harmless against
any loss, liability, and expense (including reasonable attorneys'
fees) arising from such material breach. The indemnitor shall have no
obligation to indemnify the indemnitee under this section unless the
indemnitee provides the indemnitor with (i) prompt written notice of
such claim or action, (ii) control and authority over the defense or
settlement of such claim or action, and (iii) proper and full
information and reasonable assistance to defend and/or settle such
claim or action.
3.5 Disclaimer. EXCEPT AS EXPRESSLY WARRANTED IN SECTION 3.1 ABOVE,
(I) CENSTOR'S SOFTWARE, TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS
ARE PROVIDED TO RRC "AS IS" WITHOUT WARRANTY OF ANY KIND, (II) THE
ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF ANY HARDWARE OR
SOFTWARE IS ASSUMED BY THE RECEIVING PARTY; AND (III) CENSTOR
DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO
ITS DELIVERABLES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES
OF MERCHANTABILITY, NON-INFRINGEMENT AND FITNESS FOR A PARTICULAR
PURPOSE. IN NO EVENT SHALL CENSTOR BE LIABLE FOR COST OF PROCUREMENT
OF SUBSTITUTE PRODUCTS, SERVICES, OR TECHNOLOGY. THESE LIMITATIONS
SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY.
IV. CONFIDENTIAL INFORMATION
4.1 General. The parties may, from time to time, in connection with
this Agreement, disclose to each other Confidential Information.
"Confidential Information" shall mean any information disclosed in
writing by a party to this Agreement to any of the other parties to
this Agreement, and marked by the disclosing party with the legend
"CONFIDENTIAL" or other similar legend sufficient to identify such
information as confidential proprietary information of the disclosing
party. Confidential Information shall include the terms and
conditions of this Agreement, but either party may disclose the
existence and purpose of this Agreement as recited in the Background
section. Neither party shall use any Confidential Information of the
other party except as expressly authorized under this Agreement, and
each party will use best efforts to prevent the disclosure of the
other party's Confidential Information to third parties; provided that
the parties may disclose Confidential Information, with similar
protections in place, to the extent reasonably necessary to exploit
the rights and license granted to such party hereunder (including the
rights to grant and authorize sublicenses); and provided further that
the recipient party's obligations under this Section 4 shall not apply
to Confidential Information that:
4.1.1 is disclosed orally without express designation as
Confidential Information; provided, however, that the
recipient party's obligations under this Section 4 shall
apply to information disclosed orally if such information is
confirmed in writing as "CONFIDENTIAL" by the disclosing
party within thirty (30) days after disclosure thereof;
4.1..2 is in the recipient party's possession at the time of
disclosure thereof;
4.1..3 is or later becomes part of the public domain through
no fault of the recipient party;
4.1.4 is received from a third party having no obligations of
confidentiality to the disclosing party;
4.1.5 is developed independently by the recipient party
without reliance upon or use of the disclosing party's
Confidential Information; or
4.1.6 is required by law or regulation to be disclosed;
provided, however, that the party subject to such disclosure
requirement has provided written notice to the other party
promptly to enable such other party to seek a protective
order or otherwise prevent disclosure of such Confidential
Information.
The parties agree to terminate on the Effective Date, all prior
confidentiality and nondisclosure agreements between the parties
including the Bilateral Non-Disclosure Agreement dated January 11,
1996; provided, however, that disclosures of Confidential Information
made prior to the Effective Date shall continue to be governed by the
terms of the applicable confidentiality or nondisclosure agreement.
V. INVENTIONS
5.1 Disclosure of Inventions. Censtor will promptly disclose to RRC
in writing any invention conceived of or reduced to practice by
Censtor, its employees, contractors, or agents, alone or jointly with
others, as of the Effective Date of the Agreement. Censtor shall
release its employees from any confidentiality obligations to the
extent such obligations prohibit the disclosure of Censtor
Confidential Information to RRC; provided, however, that nothing in
this Agreement shall require Censtor, or its employees, contractors,
or agents, to disclose Confidential Information of any third party
unless Censtor is authorized to do so by license or agreement with
such third party.
VI. INFRINGEMENT
6.1 Notice of Infringement. If RRC learns of any infringement of
Censtor's Intellectual Property Rights, RRC shall so inform Censtor in
writing and shall provide Censtor with reasonable evidence of the
infringement.
6.2 Legal Action. RRC may request that Censtor take legal action
against an alleged infringement of the Intellectual Property Rights.
If Censor initiates such action at RRC's request, it shall do so at
its sole expense and RRC shall render all reasonable assistance that
may be required by Censtor for such action. RRC shall not make any
claim for damages recovered by Censtor. If Censtor does not initiate
the legal action requested by RRC, RRC may request Censtor to consent
to RRC initiating such action in Censtor's name. If Censtor consents
to such representation, RRC may initiate such action at its sole
expense and shall be entitled to take all necessary steps in the name
of Censtor. Censtor shall render all reasonable assistance that may
be required by RRC for such action and Censtor shall not make any
claim for damages recovered by RRC.
If Censtor does not consent to RRC commencing such action, then upon
the request of RRC the following representatives of RRC and Censtor
shall meet within ten (10) days after the date of the Censtor decision
to attempt to resolve the matter: the General Counsel of RRC and the
President of Censtor. If the matter has not been resolved within
twenty (20) days of their first meeting, the parties shall attempt in
good faith to resolve the controversy or claim in accordance with the
Mediation Service of the Santa Clara County Bar Association.
6.3 Cooperation. Each party shall cooperate with the other in
litigation proceedings instituted under this Agreement (including
without limitation by joining as a nominal party), but at the expense
of the party by whom suit is brought. The party bringing the suit
will control that litigation, except that the other party may elect to
be represented at its own expense by counsel of its choice. Upon the
request and at the expense of the requesting party, the other party
shall make available at reasonable times and under appropriate
conditions all relevant personnel, records, papers, information,
samples, specimens and other similar materials in its possession.
6.4 Attorneys' Fees. Except as set forth in Section 3
(Indemnification), each party shall bear its own attorney' fees and
costs in connection with any dispute between the parties arising under
this Agreement.
VII. TERM AND SURVIVAL
7.1. Term. This Agreement shall be perpetual.
7.2 Survival. The rights and obligations under Sections 2, 3, 4, 5,
6, 8 and 9 shall survive termination of this Agreement.
VIII. LIMITATION ON LIABILITY
UNDER NO CIRCUMSTANCES, OTHER THAN AS PROVIDED FOR IN SECTION 3 ABOVE,
SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOST DATA,
LOST PROFITS, BUSINESS INTERRUPTION OR FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES (EVEN IF THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), INCLUDING
WITHOUT LIMITATION, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST
BUSINESS. NOTWITHSTANDING THE FOREGOING, THE MAXIMUM LIABILITY OF
EITHER PARTY TO THE OTHER FOR DAMAGES, FOR ANY AND ALL CAUSES
WHATSOEVER, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT,
TORT OR OTHERWISE, SHALL BE LIMITED TO THE LICENSE FEE SET FORTH
HEREIN.
IX. GENERAL
9.1. Assignment. This Agreement may not be assigned by Censtor without
the prior written consent of RRC, except to a party that succeeds to
all or substantially all of Censtor's business or assets relating to
this Agreement whether by sale, merger, operation of law or otherwise;
provided that such assignee or transferee promptly agrees in writing
to be bound by the terms and conditions of this Agreement.
9.2. Complete Agreement. This Agreement, the exhibits attached
hereto, and the Asset Purchase Agreement, constitute the entire
understanding and only agreements between the parties with respect to
the subject matter hereof and supersede any and all prior
negotiations, representations, agreements, and understandings, written
or oral, that the parties may have reached with respect to the subject
matter hereof. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in
writing and signed by all parties.
9.3. Force Majeure. In the event either party hereto is prevented
from or delayed in the performance of any of its obligations hereunder
by reason of acts of God, war, strikes, riots, storms, fires, or any
other cause whatsoever beyond the reasonable control of the party, the
party so prevented or delayed shall be excused from the performance of
any such obligation to the extent and during the period of such
prevention or delay. In the event of such an event, the party whose
performance is prevented or delayed shall give prompt notice to the
other party of the occurrence such event and of removal of such event.
9.4. Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and
shall be delivered, sent by telecopy, or mailed first-class postage
prepaid, registered or certified mail, and shall be effective upon
receipt by the addressee, if addressed as follows:
If to RRC: Read-Rite Corporation
345 Los Coches Street
Milpitas, CA 95035-5428
Attention: Rex S. Jackson, V.P. & General
Counsel
Telephone: (408) 262-6700
Telecopy: (408) 945-9644
with a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attention: Frances S. Currie, Esq.
Telephone: (415) 493-9300
Telecopy: (415) 493-6811
If to Censtor: Censtor Corporation
530 Race Street
San Jose, CA 95126
Attention: Garry A. Garrettson, President &
CEO
Telephone: (408) 298-8400
Telecopy: (408) 288-9910
with a copy to: Heller, Ehrman, White & McAuliffe
525 University Avenue
Palo Alto, California 94301-1900
Attention: Matthew P. Quilter, Esq.
Telephone: (415) 324-7000
Telecopy: (415) 324-0638
9.5 Governing Law. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of
California; provided, however, that all questions with respect to
validity of any copyrights or copyright applications shall be
determined in accordance with the laws of the respective country in
which such copyright or copyright applications shall have been granted
or filed, as applicable.
9.6 Dispute Resolution The parties shall resolve any disputes
arising under this Agreement utilizing the following procedures:
(i) If a party shall make a written claim hereunder, the other party
shall have thirty (30) days to respond in a written statement. If
after such thirty (30) day period there remains a dispute as to any
claims, the parties shall attempt in good faith for thirty (30) days
to agree upon the rights of the respective parties with respect to
each of such claims. If the parties should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both
parties.
(ii) If no such agreement can be reached after good faith negotiation,
either party may, by written notice to the other, demand arbitration
of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration
shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter
shall be settled by arbitration conducted by three (3) arbitrators.
Within fifteen (15) days after such written notice is sent, RRC and
the Censtor shall each select one (1) arbitrator, and the two (2)
arbitrators so selected shall select a third arbitrator. The decision
of the arbitrators as to the validity and amount of any claim shall be
binding and conclusive upon the parties to this Agreement.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall
be held in Santa Clara, California under the commercial rules then in
effect of the American Arbitration Association. For purposes of this
Section 9.6, in any arbitration hereunder in which any claim or the
amount thereof is at issue, a party shall be deemed to be the Non-
Prevailing Party unless the arbitrators award such party more than
one-half (1/2) of the amount in dispute, plus any amounts not in
dispute; in that event, the other party shall be deemed to be the Non-
Prevailing Party. The Non-Prevailing Party to an arbitration shall
pay its own expenses, the fees of each arbitrator, the administrative
fee of the American Arbitration Association, and the expenses,
including without limitation, attorney's fees and costs, reasonably
incurred by the other party to the arbitration.
9.7 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create
any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, stockholder, partner or employee of
any party hereto or any other person or entity unless specifically
provided otherwise herein, and, except as so provided, all provisions
hereof will be personal solely between the parties to this Agreement.
9.8 Bankruptcy Code. All rights and licenses granted under or
pursuant to this Agreement by Censtor to RRC are and shall otherwise
be deemed for the purposes of Section 365(n) of the United States
Bankruptcy Code, 11 U.S.C. Section 101, et seq. (the "Bankruptcy
Code"), licenses of rights to "intellectual property" as defined under
Section 101(56) of the Bankruptcy Code. The parties agree that RRC,
as a licensee of such rights and licenses, shall retain and may fully
exercise all of its rights and elections under the Bankruptcy Code.
9.9 No Waiver. A waiver, express or implied, by either party of any
right under this Agreement or of any failure to perform or breach
hereof by the other party hereto shall not constitute or be deemed to
be a waiver of any other right hereunder or of any other failure to
perform or breach hereof by such other party, whether of a similar or
dissimilar nature thereto.
9.10 Headings. Headings included herein are for convenience only, do
not form a part of this Agreement and shall not be used in any way to
construe or interpret this Agreement.
9.11 Severability. If any provision of this Agreement shall be
found by a court of competent jurisdiction to be void, invalid or
unenforceable, the same shall be reformed to comply with applicable
law or stricken if not so reformable, so as not to affect the validity
or enforceability of the remainder of this Agreement, provided that
the reformation complies with the intent of the parties.
9.12 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement.
Censtor Corporation ("Censtor") Read-Rite Corporation ("RRC")
By: ______________________________ By: _______________________________
Name: ___________________________ Name: _______________________________
Title: __________________________ Title:____________________________
SCHEDULE 3.1 TO LICENSE AGREEMENT
BETWEEN CENSTOR CORPORATION AND
READ-RITE CORPORATION, DATED
_____________________
1. IBM patents with an effective filing date prior to September 1, 1991.
2. Censtor's "best knowledge" under Sections 3.1(ii) and (iii) does not
include a detailed review of the copies of all third party patents within
Censtor's possession.
READ-RITE CORPORATION
FOURTH AMENDMENT
TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT
AGREEMENT (this "Amendment") is dated as of March 1, 1996 and entered
into among Read-Rite Corporation, a Delaware corporation (the
"Borrower"), the financial institutions named on the signature pages
hereof (each a "Bank" and collectively, the "Banks"), CIBC Inc., as
agent for the Banks (the "Agent"), and Canadian Imperial Bank of
Commerce, New York Agency (the "Designated Issuer") and is made with
reference to that certain Third Amended and Restated Credit Agreement
dated as of December 14, 1994, subject to that certain Limited Waiver
dated as of February 1, 1995, as amended by that certain First
Amendment to Third Amended and Restated Credit Agreement dated as of
February 24, 1995, and as further amended by that certain Second
Amendment to Third Amended and Restated Credit Agreement dated as of
June 30, 1995, and as further amended by that certain Third Amendment
to Third Amended and Restated Credit Agreement dated as of September
22, 1995 (collectively, the "Credit Agreement") among the Borrower, the
Banks, the Designated Issuer and the Agent. Capitalized terms used
herein without definition shall have the same meanings herein as set
forth in the Credit Agreement.
RECITALS
WHEREAS, the Borrower and the Banks desire to amend a certain
covenant contained in the Credit Agreement as set forth below;
NOW, THEREFORE, in consideration of the promises and the
agreements, provisions and covenants herein contained, the parties
hereto agree as follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendments to Section 6.02: Negative Covenants
A. Section 6.02(h) of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(h) Dividends, Etc. Declare or pay any dividends, purchase or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as
such, or permit any of its Subsidiaries to purchase or otherwise
acquire for value any stock of the Borrower, provided that the Borrower
may declare and make any dividend payment or other distribution payable
in its equity securities, and the Borrower may redeem or repurchase its
securities in connection with any agreement between the Borrower or its
Subsidiaries and any officer, director, employee or consultant of the
Borrower or its Subsidiaries entered into in the ordinary course of
business wherein the Borrower (or its Subsidiary) is obligated or
entitled to repurchase from such officer, director, employee or
consultant shares of equity securities of the Borrower upon such
Person's termination of employment or services with the Borrower;
provided, further, that in connection with exercises of options to
purchase the Borrower's common stock, $.0001 par value per share
("Common Stock"), by optionees under the Borrower's stock option plan,
the Borrower may permit or require optionees concurrently to surrender
to the Borrower one or more of the shares of Common Stock acquired upon
such exercise having a value equal to the applicable withholding taxes
payable with respect to the options exercised (including for purposes
of such calculation the value of the shares surrendered) and the
Borrower may thereafter submit payment of such withholding taxes to the
appropriate authorities on the optionee's behalf; and provided,
further, that commencing February 1, 1995 the Borrower may repurchase
shares of its Common Stock in an amount not to exceed four
million (4,000,000) shares of Common Stock, so long as (i) the amount
of cash and marketable securities held by the Borrower on the last day
of the fiscal quarter immediately preceding the date of any such
repurchase exceeds the aggregate principal amount of all then
outstanding Revolving Loans by at least $100,000,000, (ii) the amount
of cash and marketable securities held by the Borrower immediately
following any such repurchase exceeds the aggregate principal amount of
all then outstanding Revolving Loans by at least $80,000,000, (iii) any
such repurchase is made on the open market in accordance with
Rule 10b-18 of the Securities and Exchange Act of 1934, as amended,
(iv) any such repurchase is made only during the "open trading window"
as defined in the Borrower's insider trading policy, and (v) no Event
of Default or Potential Event of Default has occurred and is then
continuing."
Section 2. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of March 1, 1996,
only upon the satisfaction of the condition precedent that on or before
the aforementioned date, the Agent shall have received for each Bank
counterparts hereof duly executed on behalf of the Borrower, the Agent,
and all of the Banks, or notice of the approval of this Amendment by
all of the Banks satisfactory to the Agent shall have been received by
the Agent. (The date of satisfaction of such condition being referred
to herein as the "Fourth Amendment Closing Date.")
Section 3. THE BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Amendment and
to amend the Credit Agreement in the manner provided herein, the
Borrower represents and warrants to each Bank that the following
statements are true, correct and complete:
A. Corporate Power and Authority. The Borrower has all
requisite corporate power and authority to enter into this Amendment
and to carry out the transactions contemplated by, and perform its
obligations under, the Credit Agreement as amended by this Amendment
(the "Amended Agreement"). The Bylaws of the Borrower have not been
amended since October 27, 1992.
B. Authorization of Agreements. The execution and delivery
of this Amendment and the performance of the Amended Agreement have
been duly authorized by all necessary corporate action on the part of
the Borrower.
C. No Conflict. The execution and delivery by the Borrower
of this Amendment do not and will not contravene (i) any law or any
governmental rule or regulation applicable to the Borrower or any of
its Subsidiaries, (ii) the Certificate of Incorporation or Bylaws of
the Borrower, (iii) any order, judgment or decree of any court or other
agency of government binding on the Borrower or any of its Subsidiaries
or (iv) any material agreement or instrument binding on the Borrower or
any of its Subsidiaries.
D. Governmental Consents. The execution and delivery by
the Borrower of this Amendment and the performance by the Borrower of
the Amended Agreement do not and will not require any registration
with, consent or approval of, or notice to, or other action to, with or
by, any federal, state or other governmental authority or regulatory
body.
E. Binding Obligation. This Amendment and the Amended
Agreement have been duly executed and delivered by the Borrower and are
the binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms, except in each case
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, liquidation, moratorium or other similar laws of
general application and equitable principles relating to or affecting
creditors' rights.
F. Incorporation of Representations and Warranties From
Credit Agreement. The representations and warranties contained in
Article V of the Credit Agreement are and will be true, correct and
complete in all material respects on and as of the Fourth Amendment
Closing Date to the same extent as though made on and as of that date,
except to the extent such representations and warranties specifically
relate to an earlier date, in which case they were true, correct and
complete in all material respects on and as of such earlier date.
G. Absence of Default. No event has occurred and is
continuing or will result from the consummation of the transactions
contemplated by this Amendment that would constitute an Event of
Default or a Potential Event of Default.
Section 4. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the
Other Loan Agreements.
(i) On and after the Fourth Amendment Closing Date, each
reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring to
the Credit Agreement, and each reference in the other Loan Agreements
to the "Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement shall mean and be a reference
to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Agreements shall remain in
full force and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a waiver of
any right, power or remedy of the Agent or any Bank under, the
Credit Agreement or any of the other Loan Agreements.
B. Fees and Expenses. The Borrower acknowledges that all
costs, fees and expenses as described in Section 9.05 of the Credit
Agreement incurred by the Agent and its counsel with respect to this
Amendment and the documents and transactions contemplated hereby shall
be for the account of the Borrower.
C. Headings. Section and subsection headings in this
Amendment are included herein for convenience of reference only and
shall not constitute a part of this Amendment for any other purpose or
be given any substantive effect.
D. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL
LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
E. Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute
but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so
that all signature pages are physically attached to the same document.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first written above.
BORROWER:
READ-RITE CORPORATION
By: \s\ John T. Kurtzweil
Title: CFO
AGENT:
CIBC INC., as Agent
By: \s\ Tom R. Wagner
Title: Vice President
BANKS:
CIBC INC.
By: \s\ Tom R. Wagner
Title: Director
THE FIRST NATIONAL BANK OF BOSTON
By: \s\ D.F. Wheeler
Title: Div. Exec.
ABN AMRO BANK N.V.
By: \s\ Robin S. Yim
Title: VP & Director
By: \s\ Inga C. Lapsins
Title: Officer
FIRST INTERSTATE BANK OF CALIFORNIA
By: \s\ Mary Lernihan
Title: Vice President
DESIGNATED ISSUER:
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY
By: \s\ Tom R. Wagner
Title: authorized officer
LEASE OF THE LAND
By and Between
SUMITOMO BANK LEASING AND FINANCE, INC.,
a Delaware corporation
as Landlord
and
READ-RITE CORPORATION,
a Delaware corporation
as Tenant
for
Premises located in
Fremont, California
THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE
FOR INCOME TAX PURPOSES. SEE SECTION 18.2
TABLE OF CONTENTS
Page
ARTICLE 1
BASIC LEASE PROVISIONS
1.1 Date of Lease 1
1.2 Landlord 1
1.3 Tenant 1
1.4 Land 1
1.5 Premises 1
1.6 Term 1
1.7 Rent Commencement Date 1
1.8 Base Rent 1
1.9 Addresses for Notice 1
1.10 Wire Transfer Instructions 2
ARTICLE 2
DEFINITIONS
2.1 Additional Rent 2
2.2 Advance 2
2.3 Base Rent 2
2.4 City 2
2.5 Commitment Amount 3
2.6 Consolidated Cash Flow 3
2.7 Consolidated Tangible Net Worth 3
2.8 Default Rate 3
2.9 Entity 3
2.10 ERISA Group 3
2.10 Eurocurrency Reserve Requirements 3
2.12 Event of Default 3
2.13 Governmental Action 3
2.14 Governmental Authority 3
2.15 Guaranteed Residual Value 4
2.16 Initial Advance 4
2.17 Land 4
2.18 Landlord Affiliate 4
2.19 Lease Investment Balance 4
2.20 Legal Requirements 4
2.21 LIBOR Rate 4
2.22 Multiemployer Plan 4
2.23 Notice 5
2.24 Official Records 5
2.25 Permitted Title Exceptions 5
2.26 Plan 5
2.27 Premises 5
2.28 Real Estate Taxes 5
2.29 Rent Commencement Date 5
2.30 Rent Payment Date 5
2.31 SBLF Deed of Trust 5
2.32 Taking 5
2.33 Tenant's Property 5
2.34 Term 5
2.35 Terminology 5
ARTICLE 3
DEMISE
3.1 Premises 6
ARTICLE 4
TERM
4.1 Term 6
4.2 Holding Over 6
ARTICLE 5
RENT
5.1 Base Rent 6
5.2 Proration 7
5.3 No Abatement of Rent 7
5.4 Delinquent Rent 7
5.5 Additional Rent 7
ARTICLE 6
TAXES
6.1 Real Estate Taxes 7
6.2 Personal Property Taxes 8
6.3 Right to Contest 8
6.4 Additional Charges 8
ARTICLE 7
INSURANCE
7.1 Liability Insurance 9
7.2 Builders' Risk Insurance 9
7.3 All-Risk Insurance 9
7.4 General Requirements 10
7.5 Waiver of Subrogation 10
7.6 Indemnity 10
ARTICLE 8
USE
8.1 Use 11
8.2 Contest of Legal Requirements 12
ARTICLE 9
UTILITIES AND SERVICES
9.1 Services to the Premises 13
ARTICLE 10
MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES
10.1 Tenant Obligation 13
10.2 Surrender of the Premises 13
ARTICLE 11
ASSIGNMENT BY LANDLORD
11.1 Further Mortgages or Encumbrances by Landlord 13
11.2 Landlord's Right to Sell 13
11.3 Transfer of Funds and Property 14
ARTICLE 12
ASSIGNMENT AND SUBLEASING
12.1 Right to Assign 14
12.2 Right to Sublet 14
12.3 Mortgage by Tenant 15
ARTICLE 13
EMINENT DOMAIN
13.1 Total or Substantial Taking 15
13.2 Partial Taking 15
13.3 Temporary Taking 15
13.4 Damages 15
13.5 Notice and Execution 15
ARTICLE 14
DAMAGE OR DESTRUCTION
14.1 Casualty Insurance Proceeds 16
ARTICLE 15
QUIET ENJOYMENT
15.1 Quiet Enjoyment 16
ARTICLE 16
DEFAULT
16.1 Default 16
16.2 Contest by Tenant 18
16.3 Landlord's Remedies 18
16.4 No Waiver 19
16.5 Effect of Assignment 19
16.6 Landlord Cure Right 20
ARTICLE 17
TENANT'S OPTION TO PURCHASE OR TERMINATE
17.1 Option To Purchase Premises 20
17.2 Termination Option 21
ARTICLE 18
MISCELLANEOUS
18.1 Relationship 23
18.2 Form of Transaction: Certain Tax Matters 23
18.3 Notices 23
18.4 Severability of Provisions 24
18.5 Entire Agreement: Amendment 24
18.6 Memorandum of Lease of the Land 24
18.7 Successors and Assigns 24
18.8 Commissions 24
18.9 Attorneys' Fees 24
18.10 Governing Law 24
18.11 Counterparts 25
18.12 Time Is of the Essence 25
18.13 No Third Party Beneficiaries 25
18.14 Limitations on Recourse 25
18.15 Estoppel Certificates 25
18.16 As-Is Lease 25
18.17 Net Lease 25
18.18 Landlord's Representations and Warranties 25
18.19 Tenant's Representations and Warranties 26
18.20 Tenant's Waiver of Demand for Possession 29
18.21 Financial Reporting 29
18.22 Regulation D Compensation 30
ARTICLE 19
INDEMNIFICATION
19.1 Tax Indemnity 30
19.2 Environmental Indemnity 31
19.3 General Indemnity 31
ARTICLE 20
COVENANTS OF LANDLORD
20.1 Title 31
20.2 Land Use 32
20.3 Transfer of Property Interests 32
LEASE OF THE LAND
THIS LEASE OF THE LAND ("Lease") by and between SUMITOMO BANK LEASING
AND FINANCE, INC., a Delaware corporation ("Landlord"), and READ-RITE
CORPORATION, a Delaware corporation ("Tenant"), is entered into as of the
date set forth in Article 1 and shall be effective and binding upon the
parties hereto as of such date. Capitalized terms used in this Lease shall
have the definitions set forth in Article 2 or in the text of this Lease.
In consideration of the Base Rent reserved herein, and the terms,
covenants and conditions set forth below, Landlord and Tenant hereby agree
as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
1.1 Date of Lease: April 25, 1996.
1.2 Landlord: Sumitomo Bank Leasing and Finance, Inc.,
a Delaware corporation.
1.3 Tenant: Read-Rite Corporation, a
Delaware corporation.
1.4 Land: That certain tract of land located in the City
of Fremont, County of Alameda, California, as more
particularly described on Exhibit A attached hereto
together with all easements, rights of way,
appurtenances and other rights and benefits belonging
or pertaining to such Land. Landlord makes no
representations as to the accuracy of the description
of the Land.
1.5 Premises: The Land.
1.6 Term: The Term of this Lease shall commence on the
Date of Lease set forth in Section 1.1 above and
shall expire on April 25, 1999 ("Expiration Date").
The Term shall cease upon, and shall not refer to
any period of time after, termination of this Lease
(whether pursuant to the terms of the Lease, by
operation of law, or otherwise).
1.7 Rent Commencement Date:
The rent commencement date shall be the Date of
Lease.
1.8 Base Rent: As described in Section 2.3.
1.9 Addresses for Notices:
LANDLORD: TENANT:
Sumitomo Bank Leasing and Read-Rite Corporation
Finance, Inc. 345 Los Coches Street
277 Park Avenue Milpitas, CA 95035
New York, NY 10172 Attention: Jane Conn,
Attention: Chief Credit Officer Treasurer
With a copy to: With a copy to:
Graham & James LLP Wilson, Sonsini, Goodrich & Rosati
One Maritime Plaza 650 Page Mill Road
Suite 300 Palo Alto, CA 94304
San Francisco, CA 94111 Attention: Bradford C. O'Brien, Esq.
Attention: Bruce W. Hyman, Esq.
1.10 Wire Transfer Instructions:
Morgan Guaranty Trust Company of New York
ABA#021000238
For credit to The Sumitomo Bank, Limited A/C #631-28-256
Further credit to Sumitomo Bank Leasing and Finance, Inc. A/C No. 283572
This Article 1 is intended to supplement and/or summarize the provisions
set forth in the balance of this Lease. If there is any conflict between
any provisions contained in this Article 1 and the balance of this Lease,
the balance of this Lease shall control.
ARTICLE 2
DEFINITIONS
For purposes of this Lease, the following defined terms shall have the
meanings set forth in this Article 2.
2.1 Additional Rent. "Additional Rent" shall mean any amounts other
than Base Rent payable by Tenant to Landlord or to other Entities on
Landlord's behalf as required under this Lease, specifically including, but
without limitation, payment of the Guaranteed Residual Value, and break-
funding costs of Landlord related to the Lease Investment Balance (as
defined below) arising out of unscheduled payments or exercise of the
Purchase Option pursuant to Section 17.1 below other than on a Rent Payment
Date.
2.2 Advance. "Advance" shall mean (i) the items and/or amounts
described in Exhibit B; (ii) Real Estate Taxes (excluding Landlord Taxes);
and (iii) any other payment paid by Landlord, as landlord under this Lease
for which Landlord is entitled to reimbursement or repayment by Tenant
pursuant to the terms of this Lease.
2.3 Base Rent. "Base Rent" shall mean, as of a Rent Payment Date,
that annual amount equal to the product obtained by multiplying the Lease
Investment Balance (at the time of the relevant calculation) by the sum of
the LIBOR Rate plus 88.5 basis points, which annual amount is then prorated
on the basis of a 360 day year and the actual number of days elapsed.
2.4 City. "City" shall mean the City of Fremont, California.
2.5 Commitment Amount. "Commitment Amount" shall mean TEN MILLION
and no/100 Dollars ($10,000,000.00).
2.6 Consolidated Cash Flow. "Consolidated Cash Flow" shall mean the
following amounts for Tenant and its subsidiaries on a consolidated basis
determined in accordance with GAAP for the period in question: Consolidated
Net Income (defined in accordance with GAAP) for such period, plus the
current portion of the provision for income tax for such period plus
interest expenses for such period plus operating lease expenses for such
period.
2.7 Consolidated Tangible Net Worth. "Consolidated Tangible Net Worth"
shall mean at any date as of which the amount thereof shall be determined,
the sum of the capital stock and additional paid-in capital plus retained
earnings (or minus accumulated deficit) of Tenant and its subsidiaries
minus intangible assets on a consolidated basis determined in accordance
with generally accepted accounting principles. Consolidated Tangible Net
Worth shall be calculated without giving effect to any foreign currency
translation adjustments.
2.8 Default Rate. "Default Rate" shall mean with respect to the Lease
Investment Balance, the one (1) month LIBOR Rate plus 245 basis points.
Notwithstanding the foregoing, in the event that the foregoing Default Rate
shall be in violation of any usury or similar law, then the Default Rate
shall be reduced to the extent necessary to cause the Default Rate to
comply with any usury or similar law.
2.9 Entity. "Entity" shall mean any person, corporation, partnership
(general or limited), joint venture, association, limited liability
company, joint stock company, trust or other business entity or
organization.
2.10 ERISA Group. "ERISA Group" shall mean Tenant and all members of
a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control which are treated as a single
employer under Section 414 of the Code.
2.11 Eurocurrency Reserve Requirements. "Eurocurrency Reserve
Requirements" shall mean the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System ("Board") or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board) maintained by a member bank of
the Federal Reserve System.
2.12 Event of Default. "Event of Default" shall have the meaning set
forth in Section 16.1.
2.13 Governmental Action. "Governmental Action" shall mean all
permits, authorizations, registrations, consents, approvals, waivers,
exceptions, variances, orders, judgments, written interpretations, decrees,
licenses, exemptions, publications, filings, notices to and declarations of
or with, or required by, any Governmental Authority, or required by any
applicable law, and shall include without limitation, all environmental and
operating permits and licenses that are required for the full use,
occupancy, zoning and operation of the Premises.
2.14 Governmental Authority. "Governmental Authority" shall mean any
nation or government, any state or other political subdivision thereof and
any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
2.15 Guaranteed Residual Value. "Guaranteed Residual Value" shall mean
ninety-seven percent (97%) of the Lease Investment Balance.
2.16 Initial Advance. "Initial Advance" shall mean the amounts
described in Exhibit B pertaining to execution of this Lease and the
acquisition of the Land.
2.17 Land. "Land" shall have the meaning set forth in the Basic Lease
Provisions.
2.18 Landlord Affiliate. "Landlord Affiliate" shall mean any entity
which controls, is controlled by or is under the common control of Landlord
and the acquisition of the Land.
2.19 Lease Investment Balance. "Lease Investment Balance" shall mean,
at the time in question, the aggregate amount of all Advances made by
Landlord reduced by the following: (1)the aggregate of all amounts received
by Landlord pursuant to the provisions of Article 13 (Eminent Domain),
Article 14 (Damage or Destruction), Section 16.3 (Landlord's Remedies),
Section 17.1 (Option to Purchase Premises), and/or Section 17.2
(Termination Option); and (2) the aggregate of all amounts received by
Landlord in respect of this Lease or any related agreement that are not
otherwise applied to reduce the Lease Investment Balance and which
constitute a repayment or reduction of the amounts placed at risk by the
Landlord, excluding for purposes of this clause amounts paid as rent
hereunder, reimbursement for expenses, fees and similar items incurred by
Landlord and payable by Tenant to Landlord under the Lease and the SBLF
Deed of Trust.
2.20 Legal Requirements. "Legal Requirements" shall mean all statutes,
codes, laws, acts, ordinances, orders, judgments, decrees, injunctions,
rules, regulations, permits, licenses, authorizations, directions and
requirements of all federal, state, county, municipal and other govern-
ments, departments, commissions, boards, courts, authorities, officials and
officers, which now or at any time hereafter are applicable to this Lease
or applicable to and enforceable against the Premises, any improvements or
any part thereof, as applicable.
2.21 LIBOR Rate. "LIBOR Rate" shall mean, for each Borrowing Period
(as defined below) the annualized rate determined by The Sumitomo Bank,
Limited (the "Bank") as the rate that would be offered to Bank's
San Francisco or New York office for U.S. dollar deposits in the London
Interbank Market as quoted for the mid-morning average Libor Rate published
by Reuters Monitoring Systems for the applicable Borrowing Period for the
entire then outstanding principal balance hereof (rounded upwards to the
next higher 1/16th of 1% if such quoted rate is not a multiple of 1/16) for
deposits by the Bank of immediately available dollars in the London
Interbank Market on the day two (2) business days preceding the first day
of the term of that Borrowing Period. In the event the Reuters quote is
not available, the British Banker's Association's Interest Settlement Rate
should be used.
"Borrowing Period" shall mean 1, 3, 6, 9 or 12 months as selected by Tenant
from time to time during the balance of the Term of the Lease at least
three (3) business days prior to the end of the then current Borrowing
Period (provided that, if Tenant fails to so select a Borrowing Period
prior to the end of the current Borrowing Period or if Tenant is then
in default under this Lease, a Borrowing Period of one (1) month shall
be deemed to have been selected by Tenant); provided, however, there shall
not be more than three (3) LIBOR rates in effect at any time.
2.22 Multiemployer Plan. "Multiemployer Plan" shall mean at any time
an employee pension benefit plan within the meaning of Section 4001(a)(3)
of ERISA to which any member of the ERISA Group is then making or accruing
an obligation to make contributions or has within the preceding five (5)
plan years made contributions, including for these purposes any person
which ceased to be a member of the ERISA Group during such five (5) year
period.
2.23 Notice. "Notice" shall mean a written advice, request, demand or
notification required or permitted by this Lease, as more particularly
provided in Section 18.3.
2.24 Official Records. "Official Records" shall mean the official
records of Alameda County, California.
2.25 Permitted Title Exceptions. "Permitted Title Exceptions" shall
mean the following: (1) the exceptions set forth in Exhibit C; (2) any
exceptions created or caused by Tenant or to which Tenant consents in
writing; (3) taxes and assessments (excluding Landlord Taxes as defined in
Section 6.1 below) not yet due and payable; (4) the SBLF Deed of Trust;
(5) all title defects, liens, encumbrances, deeds of trust, mortgages,
rights-of-way, and restrictive covenants and conditions affecting the Land
unless any of the foregoing arise as a result of Landlord's actions or with
Landlord's written consent (unless such actions taken or consent given by
Landlord are requested in writing by Tenant); and (6) this Lease.
2.26 Plan. "Plan" shall mean at any time an employee pension benefit
plan (other than a Multiemployer Plan) which either (i) is maintained, or
contributed to, by any member of the ERISA Group for employees of any
member of the ERISA Group, or (ii) has at any time within the preceding
five (5) years been maintained, or contributed to, by any person which was
at such time a member of the ERISA Group for employees of any person which
was at such time a member of the ERISA Group.
2.27 Premises. "Premises" shall have the meaning set forth in the
Basic Lease Provisions.
2.28 Real Estate Taxes. "Real Estate Taxes" shall have the meaning set
forth in Section 6.1(b).
2.29 Rent Commencement Date. "Rent Commencement Date" shall have the
meaning set forth in the Basic Lease Provisions.
2.30 Rent Payment Date. "Rent Payment Date" shall have the meaning
set forth in Section 5.1.
2.31 SBLF Deed of Trust. "SBLF Deed of Trust" shall mean that certain
deed of trust executed by Tenant in favor of Landlord of even date
herewith.
2.32 Taking. "Taking" shall have the meaning set forth in
Section 13.1.
2.33 Tenant's Property. "Tenant's Property" shall mean any process
equipment, fixtures, furniture, furnishings, personal property or trade
fixtures which are purchased or constructed with funds of Tenant and not
purchased, paid for, or otherwise financed by Advances made by Landlord,
whether or not installed upon the Land.
2.34 Term. "Term" shall have the meaning set forth in the Basic Lease
Provisions.
2.35 Terminology. All personal pronouns used in this Lease shall
include all other genders. The singular shall include the plural and the
plural shall include the singular. Titles of Articles, Sections and
Subsections in this Lease are for convenience only and neither limit nor
amplify the provisions of this Lease, and all references in this Lease to
Articles, Sections or Subsections shall refer to the corresponding Article,
Section or Subsection of this Lease unless specific reference is made to
the articles, sections or other subdivisions of another document or
instrument. The word "days" or "business days" as used herein shall mean
business days (i.e., excluding holidays when banks in California, New York
and London (with respect to payment of Base Rent and the determination of
the LIBOR Rate) are generally closed for business and weekends) unless
otherwise expressly stated. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time,
applied on a basis consistent with the most recent audited consolidated
financial statements of the Tenant and its subsidiaries delivered to
Landlord.
ARTICLE 3
DEMISE
3.1 Premises. Subject to the terms, covenants and conditions contained
herein, Landlord hereby leases the Premises to Tenant, and Tenant hereby
leases from Landlord, the Premises, together with all rights, privileges,
easements and appurtenances relating to the Premises.
ARTICLE 4
TERM
4.1 Term. The Term of this Lease is specified in Article 1.
4.2 Holding Over. If Tenant remains in possession of the Premises
after the expiration of the Term without executing a new lease, such hold-
ing over shall be construed as a tenancy from month-to-month, subject to
all terms, covenants and conditions herein contained, and the Base Rent
shall be calculated based upon the Default Rate and shall be required to
be paid by tenant during such holding over in the same manner as during
the Term.
ARTICLE 5
RENT
5.1 Base Rent. Commencing upon the Rent Commencement Date and
continuing thereafter throughout the Term, Tenant shall pay Base Rent to
Landlord, or at such other place as Landlord may from time to time
instruct. Tenant shall pay Base Rent by wire transfer. Landlord shall
supply Tenant with such bank account information as Tenant shall require to
enable payment by wire transfer of Federal funds or by ACH transfer to the
account described in Section 1.10. Rental payments shall be payable month-
ly in arrears on the twentieth (20th) day of each successive month, except
that the last installment of Base Rent shall be payable on the last day of
the Term (each such date shall be a "Rent Payment Date"). No sooner than
thirty (30) days or later than ten (10) days prior to the due date for any
installment of Base Rent hereunder, Landlord shall deliver to Tenant a
Notice indicating the exact dollar amount of the Base Rent that is due on
such due date ("Invoice"). If Landlord fails to send the Invoice, Tenant
shall pay the amount shown on the previous month's Invoice.
5.2 Proration. If the Term expires or is otherwise terminated on other
than the twentieth (20th) day of a calendar month, then Base Rent shall be
prorated for the period from the immediately preceding Rent Payment Date
until the end of the Term on the basis of actual days elapsed and a three
hundred sixty (360) day year.
5.3 No Abatement of Rent. Except as a consequence of a reduction in
the Lease Investment Balance or the terms of Section 13.1 (Total or
Substantial Taking) and Section 13.2 (Partial Taking) Tenant shall not be
entitled to any abatement, diminution, reduction, setoff or postponement of
Base Rent as a consequence of any inconvenience to, interruption of,
cessation of or loss of Tenant's use or enjoyment of the Premises or as a
result of any reason whatsoever.
5.4 Delinquent Rent. Any Base Rent not paid on the due date shall
accrue interest at the Default Rate from the date such Base Rent was
originally due until the date such Base Rent is paid. All interest accrued
on past due Base Rent shall be due and payable to Landlord at the time the
Base Rent is paid, or upon demand by Landlord, if earlier.
5.5 Additional Rent. Tenant agrees to pay all Additional Rent when
it becomes due and payable under this Lease.
ARTICLE 6
TAXES
6.1 Real Estate Taxes.
(a) Tenant shall pay, during the Term of this Lease, directly to
the appropriate taxing authority all Real Estate Taxes (as defined below).
If the Term expires or otherwise terminates at any time other than the
beginning or end of a taxable year, Tenant's obligation to pay Real Estate
Taxes shall be prorated on the basis of a 365-day year, so as to include
only that portion of the taxable year which is a part of the Term.
(b) Except to the extent that Real Estate Tax bills and statements
are sent directly to Tenant by the taxing authority, upon receipt by
Landlord of the tax bills or statements, Landlord will use reasonable
efforts to promptly advise Tenant in writing of all Real Estate Taxes and
shall deliver copies of all applicable tax bills or statements to Tenant.
Tenant shall pay directly to the taxing authority all Real Estate Taxes
prior to the later of (i) thirty (30) days after receipt by Tenant from
Landlord of a copy of such bills and statements referred to above, or (ii)
delinquency of any Real Estate Taxes. As used herein, the term "Real Estate
Taxes" shall mean any and all taxes, governmental fees and similar charges
or assessments levied or assessed against the improvements and/or the Land
including, without limitation, ad valorem taxes and special assessments
applicable to real property; provided, however, that Real Estate Taxes
shall not include any Landlord Taxes (as defined below). Real Estate Taxes
shall also include any and all documentary, transfer, sales, mortgage,
recording or similar taxes imposed on Landlord or Tenant in connection with
any sale of the Premises to a third party in accordance with this Lease
following an Event of Default by Tenant or in a transaction to which
Tenant is a party.
As used herein, the term "Landlord Taxes" shall mean any and all franchise,
gains, gift, succession, excess profits, gross receipts, revenue, estate,
rental, income or similar taxes or taxes in lieu thereof imposed upon
Landlord or any party other than Tenant (or an affiliate thereof) and any
withholding tax imposed as a collection device for, in lieu of, or other-
wise related to any of the foregoing without regard to whether such tax is
required to be collected by Tenant and without regard to whether Tenant
would be liable for such withholding tax in the event it failed to so
withhold. For purposes of the foregoing, an income tax shall include, with-
out limitation, any tax imposed under the United States Internal Revenue
Code, as well as any tax which could qualify as an "income tax" under
United States Treasury Regulation Section 1.901-2 (except to the extent
any such statute or regulation is subsequently modified to include a tax
or other governmental charge of a materially different type and nature from
the taxes currently described therein) and any income tax which may be
payable under the laws of any jurisdiction either now or in the future.
Real Estate Taxes for any given tax year shall exclude assessment
installments that are not due and payable during such tax year.
6.2 Personal Property Taxes. Tenant shall pay directly to the
appropriate taxing authorities prior to delinquency any and all taxes and
assessments levied or assessed during the Term upon or against Tenant's
furniture, equipment, trade fixtures and any other personal property in the
Premises.
6.3 Right to Contest. Tenant shall not be required to pay any Real
Estate Taxes or any other taxes for which Tenant is liable hereunder
(including, without limitation, any taxes for which Tenant is required to
indemnify Landlord under Section 19.1) (including penalties and interest),
so long as (i) Tenant shall contest the same or the validity thereof by
appropriate legal proceedings in such a manner to prevent the tax sale of
any portion of the Premises and (ii) the position to be taken by Tenant
pursuant to such contest would have a realistic possibility of success if
litigated. For purposes of this Lease, Tenant may conclusively establish
that a position to be taken in a contest would have a realistic
possibility of success if litigated by providing to Landlord a letter from
counsel stating an opinion to such effect. In the event of any such
contest, Tenant shall, within thirty (30) days after the final
determination thereof, pay and discharge the amounts determined to be due
in accordance therewith and with the provisions of this Lease, together
with any penalties, fines, interest, costs and expenses that may have
accrued thereon or that may have resulted from Tenant's contest. Tenant
also shall have a right to contest any taxes for which it is liable
hereunder, but with regard to which the position to be taken pursuant to
such contest would not have a realistic possibility of success if
litigated, provided that Tenant pays such taxes on or prior to the date
upon which such taxes are asserted to be due by the relevant governmental
authority. Notwithstanding the foregoing provisions of this Section 6.3,
Tenant shall have an unconditional right to contest (without prior payment)
any taxes imposed by law upon Tenant rather than upon Landlord. Tenant's
decision to pay any taxes prior to contesting its or another party's
underlying liability therefore shall not be deemed to imply or suggest
that the position to be taken in such contest would not have a
realistic possibility of success if litigated. Landlord shall
cooperate fully with Tenant in connection with the exercise of Tenant's
right of contest contained herein, and in the event that applicable law
shall require that Landlord, rather than Tenant, pursue legal proceedings
for such contest, Landlord will initiate and pursue such contest upon
Tenant's request and in accordance with Tenant's instructions (including,
without limitation, Tenant's instructions as to the selection of legal
counsel and matters of strategy or settlement); provided, however, that
Landlord shall not be subject to any liability for the payment of any costs
or expenses in connection with any such contest or proceedings, and Tenant
will indemnify and save harmless Landlord from any such costs and expenses
(including, without limitation, reasonable attorneys' fees, costs of court
and appraisal costs), reimbursing Landlord therefor upon demand (or paying
such costs and expenses directly when due, all as directed by Landlord).
Tenant shall be entitled to any refund of any taxes and penalties or
interest from any governmental authority to the extent the refund
represents monies paid to the governmental authority by Tenant or paid by
Landlord and reimbursed by Tenant.
6.4 Additional Charges. All payments made by Tenant under this Lease
shall be made free and clear of, and without reduction or withholding for
or on account of, any present or future taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed pursuant to any Legal Requirement,
excluding, however, any Landlord Taxes (all such nonexcluded taxes, levies,
imposts, deductions, charges or withholdings being hereinafter called
"Additional Charges"). Tenant shall be responsible for the payment of any
such Additional Charges; and if any such Additional Charges are required to
be withheld from any amounts payable to Landlord hereunder, then the
amounts so payable to Landlord shall be increased by an amount
("Additional Amount") necessary to yield to Landlord (after payment of
all Additional Charges) the Base Rent and other amounts payable
hereunder at the rates or in the amounts specified in this Lease.
Whenever any Additional Charges are required to be withheld by Tenant,
such Additional Charges shall be deducted or withheld by Tenant, and
shall be paid by Tenant to the appropriate governmental authority in
accordance with applicable Legal Requirements. As promptly as possible
thereafter, Tenant shall send to Landlord for its own account a copy of an
original official receipt (or other evidence of payment) received by Tenant
showing payment thereof. If Tenant is required to pay Landlord any
Additional Amount, Landlord shall use its best efforts (consistent with
its internal policy and legal and regulatory restrictions) to change its
jurisdiction if the making of such a change would avoid the need for, or
reduce to the greatest extent possible the amount of, any such Additional
Amount which may thereafter accrue and would not, in the reasonable
judgment of Landlord be otherwise disadvantageous to Landlord. If Landlord
subsequently receives a refund of any Additional Amounts, or if such
Additional Amounts result in a net benefit to Landlord, the amount of such
refund or net benefit shall be paid to Tenant within 30 days of the receipt
of such refund or net benefit; provided, however, that the payment to
Tenant shall not exceed the Additional Amount to which the refund or net
benefit relates. The agreements in this Section 6.4 shall survive the
termination of this Lease with respect to any Additional Charges that
become due during the Term.
ARTICLE 7
INSURANCE
7.1 Liability Insurance. At all times during the Term, Tenant shall
obtain at Tenant's sole cost and expense a policy or policies of commercial
general liability insurance on an "occurrence" basis against claims for
"personal injury" liability, including bodily injury, death or property
damage liability. The liability insurance policy shall contain coverage
limits no less than the following: (1) Three Million Dollars ($3,000,000)
per person; (2) Five Million Dollars ($5,000,000) per incident; and (3) One
Million Dollars ($1,000,000) for property damage.
7.2 Builders' Risk Insurance. With respect to any improvements which
may be constructed on the Land, Tenant shall maintain or cause to be
maintained a policy or policies of builders' risk insurance in an amount
equal to the value upon completion of the work (exclusive of land,
foundation, excavation, grading, landscaping, architectural and development
fees and other items customarily excluded from such coverage), insuring
against the risks customarily insured against under such insurance,
including, fire, vandalism, malicious mischief, sprinkler leakage,
lightning and windstorm.
7.3 All-Risk Insurance. With respect to any improvement now or
hereafter situated on the Land, prior to the termination of the builders'
risk insurance required by Section 7.2, and at all times thereafter, Tenant
shall, at Tenant's sole cost and expense, obtain and maintain, or cause to
be obtained and maintained, a policy or policies of all-risk insurance
covering the improvements, providing coverage against loss or damage by
fire, vandalism, malicious mischief, sprinkler leakage, lightning,
windstorm, and other insurable perils, as, under good insurance practice,
from time to time are insured against under all-risk coverage for
properties of similar character, age and location in an amount or amounts
not less than one hundred percent (100%) of the then actual replacement
cost (exclusive of land, foundation, excavations, grading, landscaping,
architectural and development fees and other items customarily excluded
from such coverage and without any deduction for depreciation).
7.4 General Requirements. The insurance required under this Article 7
may be furnished under a "primary" policy and an "umbrella" policy or
policies. Landlord shall be named as an additional insured under Tenant's
policy of insurance required under Section 7.1. Tenant shall furnish
Landlord with certificates from Tenant's insurers with respect to the
insurance required to be carried hereunder on or before the date such
insurance is required to be carried. The certificates shall state that such
insurance is in full force and effect and that coverage will not be reduced
below the amounts required under Section 7.1 or otherwise limited or
cancelled without thirty (30) days' prior written notice to Landlord.
Renewal certificates shall be furnished to Landlord not less than thirty
(30) days prior to the expiration of each such policy, provided, however,
that Tenant shall not be required to provide Landlord with such renewal
certificates prior to the expiration of each such policy so long as (i)
Tenant provides Landlord with reasonable assurances within ten (10) days
prior to the expiration of each such policy that there will be no lapse in
the insurance coverage provided under such policy, and (ii) Tenant provides
Landlord with such renewal certificates within ten (10) days following the
expiration of each such policy. Any blanket insurance policy or policies
that insure Tenant against the risks and for the amounts herein specified
shall be deemed to satisfy the obligation of Tenant hereunder, provided
that any such policy of blanket insurance shall specify the amount of the
total insurance allocated to the risks required to be insured hereunder
and such allocated amount meets the requirements of this Article 7. All
insurance required by this Article 7 shall be with an insurance company
licensed to do business in the State of California with a general policy-
holder's rating, as rated by the most current available "Bests" Insurance
Reports, of no less than A/XIII, and shall be non-contributing.
7.5 Waiver of Subrogation. Notwithstanding anything to the contrary
contained herein, to the extent permitted by law and so long as any in-
surance coverage maintained by Tenant is not diminished by reason thereof,
Tenant hereby (a) releases and waives any rights it may have against
Landlord and its officers, agents and employees on account of any loss or
damages occasioned to Tenant, its property or the Premises, and arising
from any risk covered by any fire and extended coverage insurance main-
tained by Tenant, whether or not due to the negligence of Landlord, its
agents, employees, contractors, licensees, invitees or other persons, and
(b) waives on behalf of any insurer providing such insurance to Tenant any
right of subrogation that any such insurer may have or acquire against
Landlord or such persons by virtue of payment of any loss under such
insurance. Tenant shall use its commercially reasonable efforts to cause
its insurance policies to contain a waiver of subrogation clause in
accordance with the foregoing.
7.6 Indemnity. After receiving written notice from Landlord of a claim
(failure to give such notice shall not relieve Tenant of its obligations
hereunder unless as a direct result of failure to give such notice), Tenant
shall protect, defend, indemnify, hold and save Landlord harmless from and
against any and all losses, costs, liabilities or damages (including
reasonable attorneys' fees and disbursements and court costs) arising by
reason of: (i) any and all injury or death of persons or damage to property
against which Tenant is obligated to maintain insurance for the benefit of
Landlord pursuant to this Article 7; (ii) the failure to obtain the waiver
of subrogation clause required by Section 7.5 hereof where such clause
could have been obtained through the exercise of Tenant's commercially
reasonable efforts; or (iii) the invalidation of such insurance policy
required to be obtained by Tenant hereunder by Tenant's insurer; provided
this subsection (iii) shall not apply to the extent Landlord actually
receives insurance for the aforesaid losses, costs, liabilities or damages
(including reasonable attorneys' fees and disbursements and court costs but
excluding costs, fees or premiums paid by Landlord in connection with such
insurance) or to the extent recovery of insurance proceeds is prevented by
Landlord's gross negligence. Tenant's duty to indemnify Landlord under
this Section 7.6 shall survive the expiration or earlier termination of
this Lease with respect to events occurring during the Term. Landlord
agrees to cooperate with Tenant in the defense of any claim undertaken by
Tenant pursuant to this Section.
ARTICLE 8
USE
8.1 Use.
(a) Permitted. Tenant may use the Premises for any lawful purpose.
(b) Environmental Compliance.
1) Defined Terms. The term "Applicable Environmental Laws" shall
mean any applicable laws, regulations or ordinances pertaining to health
or the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
by the Superfund Amendments and Reauthorization Act of 1986 or otherwise
(as amended, hereinafter called "CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act Amendments of 1980, the Hazardous and Solid Waste
Amendments of 1984 or otherwise (as amended, hereinafter called "RCRA"),
and the California Health & Safety Code Section 25501(j). The terms
"hazardous substance" and "release" as used in this Lease shall have the
meanings specified in CERCLA, and the terms "solid waste" and "disposal"
(or "disposed") shall have the meanings specified in RCRA; provided, in the
event either CERCLA or RCRA is amended or superseded by other laws so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment or other laws:
and, provided further, to the extent that the laws of the State of
California establish a meaning for "hazardous substance", "release", "solid
waste", or "disposal" which is broader than that specified in either
CERCLA or RCRA, such broader meaning shall apply.
2) Tenant's Covenants. Tenant will not cause or permit the
Premises to be in violation of, or do anything or permit anything to be
done which subjects Landlord, Tenant or the Premises to any remedial
obligations relating to the Premises under or which creates a valid claim
or cause of action against Landlord, Tenant (which relates to the Premises)
or the Premises under, any Applicable Environmental Laws, including, with-
out limitation, CERCLA, RCRA, and the California Health and Safety Code
25501(j), assuming disclosure to the applicable governmental authorities of
all relevant facts, conditions and circumstances, if any, pertaining to the
Premises and Tenant will promptly notify Landlord in writing of any
existing, pending or threatened investigation, claim or inquiry of which
Tenant has knowledge by any governmental authority in connection with any
Applicable Environmental Laws. Tenant shall obtain any permits, licenses
or similar authorizations to construct, occupy, operate or use any
improvements, fixtures and equipment at any time located on the Premises by
reason of any Applicable Environmental Laws. Tenant will not use the
Premises in a manner which will result in the disposal or other release of
any hazardous substance or solid waste on or to the Premises in violation
of Applicable Environmental Law and covenants and agrees to keep or cause
the Premises to be kept free of any hazardous substance, solid waste or
environmental contaminants (including, without limitation, arsenic in soil
and friable asbestos and any substance containing asbestos deemed hazardous
by any Applicable Environmental Law) to the extent required by Applicable
Environmental Law, and to remove the amounts of the same (or if removal is
prohibited by law, to take whatever action is required by law) promptly
upon discovery at Tenant's sole expense to the extent required by
Applicable Environmental Law. Tenant shall promptly notify Landlord in
writing of any disposal or other release of any hazardous substance,
environmental contaminants or solid wastes on or to the Premises in
violation of Applicable Environmental Law. In the event Tenant fails to
comply with or perform any of the foregoing covenants and obligations,
after thirty (30) days' prior written Notice to Tenant, Landlord may, but
shall be under no obligation to, cause the Premises to be freed from such
hazardous substance, solid waste or environmental contaminants (or if
removal is prohibited by law, to take whatever action is required by law)
to the extent required by Applicable Environmental Law and the reasonable
cost of the removal or such other action shall be a demand obligation owing
by Tenant to Landlord pursuant to this Lease. Notwithstanding the
foregoing, Landlord shall have no right to cause the removal of such
materials and no Event of Default (or default) shall be deemed to have
occurred under this Lease so long as Tenant both: (1) is diligently and
in good faith proceeding to comply with Tenant's obligation to remove such
amounts of such materials or otherwise to cure any default or state of
facts which may result in a default under this Section 8.1(b); and (2)
has the financial ability to so comply. Subject to the foregoing, Tenant
grants to Landlord and Landlord's agents and employees access to the
Premises, and the license to remove such hazardous substance,
solid waste or environmental contaminants (or if removal is prohibited by
law, to take whatever action is required by law to the extent required by
Applicable Environmental Law); and except for Landlord's willful misconduct
or gross negligence, agrees to indemnify and save Landlord harmless from
all reasonable costs and expenses involved and from all claims (including
consequential damages) asserted or proven against Landlord by any party in
connection therewith. Upon Landlord's reasonable request for "good cause"
(defined below), at any time and from time to time during the Term, Tenant
will provide at Tenant's sole expense an inspection or audit of the
Premises from an engineering or consulting firm approved by Landlord,
indicating the presence or absence of any hazardous substance, solid waste
or environmental contaminants located on the Premises. If Tenant fails to
provide same after sixty (60) days' notice, Landlord may order same, and
Tenant grants to Landlord and Landlord's employees and agents access to the
Premises and a license to undertake any testing reasonably required to
obtain such inspection or audit. The reasonable cost of obtaining such
inspection or audit and any expenses incurred by Landlord in connection
therewith, shall be a demand obligation owing by Tenant to Landlord
pursuant to this Lease. For purposes of this Section 8.1(b)(2), "good
cause" shall mean that Landlord shall have reasonable grounds to believe
that a release or disposal of hazardous substances or solid wastes in
violation of Applicable Environmental Law has occurred on the Premises.
(c) Compliance With Legal Requirements. Tenant shall at all-times
comply with all material Legal Requirements applicable to the Land or any
improvements now or hereafter situated on the Land and/or the use thereof.
8.2 Contest of Legal Requirements. Tenant shall have the right at its
sole cost and expense to contest the validity of any Legal Requirements
applicable to the Premises by appropriate proceedings diligently conducted
in good faith; and upon the request of Tenant and at Tenant's sole cost and
expense, Landlord will join and cooperate with Tenant in such proceedings.
Subject to Section 6.3, and any other provision of this Lease to the
contrary notwithstanding, Tenant's right to contest Legal Requirements must
be exercised in such a manner as to avoid any exposure of the Premises or
any part thereof to foreclosure or execution sale or exposure of Landlord
to civil or criminal penalties arising from Tenant's non-compliance with
such Legal Requirements. Tenant shall defend and indemnify Landlord
against, and hold Landlord harmless from, any and all liability, loss,
cost, damage, injury or expense (including, without limitation, attorneys'
fees and costs) which Landlord may sustain or suffer by reason of Tenant's
failure or delay in complying with, or Tenant's contest of, any such Legal
Requirements (or Landlord's contest, if requested in writing by Tenant),
and Tenant's duty to indemnify Landlord under this Section 8.2 shall
survive the expiration or earlier termination of this Lease.
ARTICLE 9
UTILITIES AND SERVICES
9.1 Services to the Premises. At Tenant's sole cost and expense,
Tenant shall make its own arrangements for the provision of all utilities
and services to be provided to or consumed on the Premises, if any,
including, without limitation, air conditioning and ventilation, service
contracts, heating, electric power, telephone, water (both domestic and
fire protection), sanitary sewer, storm drain, natural gas and janitorial
services, including for the installation, maintenance and repair of
service lines and meters to measure Tenant's consumption of such utilities.
ARTICLE 10
MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES
10.1 Tenant Obligations. Landlord shall have no obligation to
maintain the Premises. Tenant shall at all times and at Tenants' sole
cost and expense maintain the Premises in good repair, normal wear and
tear and casualty excepted.
10.2 Surrender of the Premises. Except as provided in Section 17.1
below, upon the expiration or earlier termination of the Term, Tenant shall
surrender the Premises to Landlord in its then "AS-IS" condition,
including, without limitation, any condition resulting from: (i) wear and
tear; (ii) obsolescence and damage by fire or other casualty, act of God
or the elements; (iii) damage that is caused by Landlord, its agents,
employees or contractors; and (iv) any improvements, in, to or of the
Premises or on the Land which are not Tenant's Property which Tenant may
elect to remain on the Land or the Premises. Title to all Tenant's
Property, shall be and remain in Tenant, and at any time during the Term
of this Lease, the same may be removed by Tenant, or, at Tenant's
abandonment or written election, surrendered with the Premises, in which
event title to such surrendered property shall, if Landlord so elects in
Landlord's sole discretion, be deemed transferred to Landlord. Any of
such property that is not removed from the Premises on or prior to the
expiration or early termination of this Lease shall be considered
abandoned and Landlord may deal with it as Landlord elects.
ARTICLE 11
ASSIGNMENT BY LANDLORD
11.1 Further Mortgages or Encumbrances by Landlord. Except for
the SBLF Deed of Trust (which is hereby approved by Tenant), Landlord
shall not cause or create any mortgages, deeds of trust, encumbrances or
exception to exist with respect to the Premises at any time.
11.2 Landlord's Right to Sell. Landlord may not transfer all or any
portion of its right, title and interest in the Premises; provided, however
that nothing contained in this Lease shall be deemed in any way to limit,
restrict or otherwise affect the right of Landlord at any time and from
time to time to sell or transfer all but not less than all of its right,
title and estate in the Premises to: (1) a Landlord Affiliate or another
financial institution (excluding, however, a non-substantive entity that is
formed specifically for purposes of owning the Premises subject to this
Lease and has no other substantive operations or which is a special purpose
entity under the provisions of EITF 90-15) provided such Landlord Affiliate
or other financial institution has a minimum capitalization and surplus in
excess of $50,000,000; or (2) if an Event of Default has occurred and is
continuing at the time of such sale or transfer, to any Entity. Any sale or
transfer by Landlord whatsoever shall by its express terms recognize and
confirm the right of possession of Tenant to the Premises and Tenant's
other rights arising out of this Lease shall not be affected or disturbed
in any way by any such sale, transfer, assignment or conveyance (except
for any disturbance resulting from a foreclosure sale conducted pursuant to
the laws of the State of California at which independent third party bids
were permitted pursuant to the SBLF Deed of Trust), and any transferee
shall expressly assume in writing all obligations of Landlord to be
performed following the date of transfer. Notwithstanding the foregoing,
nothing in this Section 11.2 shall be construed to prohibit Landlord from
selling rents to any Entity; provided that, such sale shall not release
Landlord of any of its obligations under this Lease.
11.3 Transfer of Funds and Property. At each time Landlord sells,
assigns, transfers or conveys the entire right, title and estate of
Landlord in the Premises and in this Lease, Landlord shall turn over to the
transferee any funds or other property then held by Landlord under this
Lease and thereupon all the liabilities and obligations on the part of the
Landlord under this Lease arising after the effective date of such sale,
assignment, transfer or conveyance shall terminate as to the transferor and
be binding upon the transferee.
ARTICLE 12
ASSIGNMENT AND SUBLEASING
12.1 Right to Assign.
(a) Tenant's Right. Provided that there is not an Event of Default
under this Lease which is continuing and uncured or if there is such an
Event of Default, provided that Tenant cures the Default in connection with
the assignment, Tenant shall have the right, at any time and from time to
time during the Term, to assign all or any portion of its right, title and
estate in the Premises and in this Lease without approval by Landlord. Any
such assignee, immediate or remote, shall have the same right of
assignment. Any such assignment shall be evidenced by a written instrument,
properly executed and acknowledged by all parties thereto and, at Tenant's
election, duly recorded in the Official Records, wherein and whereby the
assignee assumes all of the obligations of Tenant under this Lease.
Notwithstanding any such assignment and assumption or any sublease
permitted under Section 12.2 hereof, Tenant shall remain primarily liable
for all obligations and liabilities on the part of Tenant theretofore or
thereafter arising under this Lease.
(b) Notice. Tenant shall, promptly after execution of each
assignment, notify Landlord of the name and mailing address of the assignee
and shall, on demand, permit Landlord to examine and copy the assignment
agreement.
12.2 Right to Sublet.
(a) Tenant's Right. Tenant shall have the right, at any time and
from time to time during the Term, to sublet all or any portion of the
Premises and to extend, modify or renew any sublease without the approval
of Landlord.
(b) Notice. Tenant shall, promptly after execution of each
sublease, notify Landlord of the name and mailing address of the subtenant
and shall, on demand, permit Landlord to examine and copy the sublease.
12.3 Mortgage by Tenant. Tenant shall not have the right to mortgage,
pledge or otherwise encumber all or any portion of the right, title and
estate of Tenant in the Premises or in this Lease, without the consent of
Landlord.
ARTICLE 13
EMINENT DOMAIN
13.1 Total or Substantial Taking. If title or access is taken for any
public or quasi-public use, or under any statute or by right of condem-
nation or eminent domain, or by sale in lieu thereof (a "Taking") with
respect to all of the Premises, or if title to so much of the Premises or
access thereto is Taken, or if the Premises or access thereto is damaged,
blocked or impaired by the Taking, so that, in Tenant's reasonable
discretion, the Premises or access thereto, even after a reasonable amount
of reconstruction thereof, will no longer be suitable for the conduct of
Tenant's (and/or Tenant's subtenants') business, then in any such event,
this Lease shall terminate on the date of such Taking.
13.2 Partial Taking. If any part of the Premises, or access thereto,
shall be Taken, and the Premises or the remaining part thereof and access
thereto will be, in Tenant's reasonable discretion, suitable for the
conduct of Tenant's (and/or Tenant's subtenants') business in a manner
consistent with the conduct of such business prior to such Taking, all of
the terms, covenants and conditions of this Lease shall continue, except
that Base Rent shall be adjusted to reflect the decreased Lease
Investment Balance remaining after application thereto of the award made
to Landlord for such Taking.
13.3 Temporary Taking. If the whole or any part of the Premises is
Taken for temporary use or occupancy, this Lease shall not terminate by
reason thereof and Tenant shall continue to pay, in the manner and at the
times herein specified, the full amount of the Base Rent payable by Tenant
hereunder, and, except only to the extent that Tenant may be prevented from
so doing by reason of such Taking, Tenant shall continue to perform and
observe all of the other terms, covenants and conditions hereof on the part
of Tenant to be performed and observed, as though the Taking had not
occurred. In the event of any such temporary Taking, Tenant shall be
entitled to receive the entire amount of the award made for the Taking,
whether paid by way of damages, rent or otherwise. If the temporary Taking
is for a term in excess of thirty (30) days, then the Taking shall be
treated as a permanent Taking and be governed by Sections 13.1 or 13.2, as
applicable.
13.4 Damages. The compensation attributable to the Premises (in each
case the compensation or value shall be determined as of the date of the
Taking) awarded or paid upon any Taking (other than a temporary Taking,
which shall be governed by Section 13.3), whether awarded to Landlord,
Tenant, or both of them, shall be held by Landlord to be applied against
the Lease Investment Balance, including all accrued and unpaid Base Rent
and Additional Rent. Any compensation in excess of the Lease Investment
Balance plus all accrued and unpaid Base Rent and Additional Rent shall be
paid to Tenant.
13.5 Notice and Execution. Immediately upon service of process upon
Landlord or Tenant in connection with any Taking relating to the Premises
or any portion thereof or access thereto, each party shall give the other
Notice thereof. Each party agrees to execute and deliver to the other all
instruments that may be required to effectuate the provisions of this
Article 13. Tenant reserves the right to appear in and to contest any
proceedings in connection with any such Taking. Tenant shall immediately
reimburse Landlord on demand for all reasonable out-of-pocket costs and
expenses incurred by Landlord in complying with Landlord's obligations
under this Section 13.5.
ARTICLE 14
DAMAGE OR DESTRUCTION
14.1 Casualty Insurance Proceeds. In the event of any casualty, the
proceeds of any insurance policies maintained by Tenant pursuant to Section
7.2 or 7.3 shall be held, applied and dealt with as follows:
(a) Any proceeds (per occurrence) of such policies attributable to
the Premises shall be paid as follows: (1) to Landlord (but only to the
extent of the then-existing Lease Investment Balance); and (2) with any
remaining excess to be paid to Tenant.
(b) Any insurance proceeds paid to Landlord under this Article 14
shall reduce the Lease Investment Balance by a like amount.
ARTICLE 15
QUIET ENJOYMENT
15.1 Quiet Enjoyment. Landlord covenants to secure to Tenant the quiet
possession of the Premises for the full Term against all persons claiming
the same, by, through or in the right of Landlord, subject to Landlord's
rights and remedies under Article 16 upon an Event of Default by Tenant.
The existence of any Permitted Title Exceptions shall not be deemed to
constitute a breach of Landlord's obligations hereunder. Tenant shall,
immediately upon demand, reimburse Landlord for all reasonable costs,
expenses and damages incurred or paid by Landlord in the performance of
Landlord's obligations under this Article 15 (except for any costs,
expenses or damages arising from any Landlord liens or Landlord's willful
breach of this Lease).
ARTICLE 16
DEFAULT
16.1 Default. Each of the following events shall constitute an event
of default ("Event of Default") by Tenant:
(a) Failure to Pay Base Rent. Tenant's failure to pay any Base
Rent within five (5) days after the due date.
(b) Failure to Pay Additional Rent. Tenant's failure to pay any
Additional Rent which is due to Landlord within five (5) days after
telephonic or facsimile notice of any past due amount under this Lease
(which due date shall be the date of Tenant's receipt of Notice from
Landlord that such Additional Rent is due).
(c) Failure to Carry Insurance. Tenant's failure to carry any
policy of insurance required by Article 7, if Tenant does not cure such
failure prior to ten (10) days after written notice thereof is sent to
Tenant. If such failure is susceptible of cure but cannot with reasonable
diligence be cured within such ten (10) day period, and if Tenant shall
promptly have commenced to cure the same and shall thereafter prosecute the
curing thereof with reasonable diligence, the period within which such
failure may be cured shall be extended for such further period (not to
exceed an additional ten (10) days beyond the initial ten (10) days cure
period) as shall be reasonably necessary for the curing thereof.
(d) Insolvency. Subject to Section 16.2, the occurrence of: (i)
an assignment by Tenant for the benefit of creditors generally; or (ii) the
filing of a voluntary or involuntary petition by or against Tenant under
any present or future applicable federal, state or other statute or law
having for its purpose the adjudication of Tenant as a bankrupt; (iii) the
appointment of a receiver, liquidator or trustee for all or a substantial
portion of the Premises by reason of the insolvency or alleged insolvency
of Tenant; or (iv) the taking of possession by any department of city,
county, state or federal government, or any officer thereof duly authorized,
of all or a substantial portion of the Premises by reason of the insolvency
or alleged insolvency of Tenant; and Tenant's failure to timely give any
Notice it is permitted to give pursuant to Section 16.2 (or, in the event
Tenant gives timely Notice and pursues a contest under Section 16.2,
Tenant's failure to finally prevail in the contest).
(e) Default in Payment for other Credit Facility. The failure of
Tenant or any of its subsidiaries to make any payment required of Tenant or
any of its subsidiaries in connection with any other credit facility of
Tenant or any of its subsidiaries, the aggregate outstanding principal
amount of which credit facility is no less than $5,000,000, and which
default is not cured within any applicable notice and cure period provided
by such credit facility.
(f) Default in Payment of Lease Investment Balance. Failure of
Tenant to pay to Landlord the Lease Investment Balance at the end of the
Term or upon an Event of Default, unless Tenant has elected its option to
purchase or terminate under Article 17 and has satisfied its obligations
thereunder.
(g) Default in Completion of Purchase Option or Payment of
Guaranteed Residual Value. Failure of Tenant to complete the Purchase
Option after election (or deemed election) to do so, or failure of Tenant
to perform all of its obligations pursuant to the Termination Option if
Tenant has elected to exercise the Termination Option (and has not
rescinded its election to exercise such option) set forth in Section 17.2,
including, without limitation, the obligations to make the payments
required pursuant to Sections 17.2(b), (d) and (e).
(h) Financial Covenants. Tenant's failure at any time during the
Term of the Lease, subject to quarterly compliance (as measured on the last
day of each fiscal quarter of Tenant) to comply with the following
Financial Covenants:
(i) Tenant shall not permit the ratio of Consolidated Quick
Assets (defined in accordance with GAAP) to Consolidated Current
Liabilities (defined in accordance with GAAP) on the last day of each of
the fiscal quarters of Tenant ending on or after June 26, 1994 to be less
than 1.00 to 1.00.
(ii) Tenant shall not permit Consolidated Tangible Net Worth as
of December 31, 1995 to be less than $450,000,000, or at any time during
the Term permit Consolidated Tangible Net Worth to be less than
$450,000,000 plus (i) 80% of Consolidated Net Income (defined in
accordance with GAAP) (but not loss) for each fiscal quarter of Tenant
commencing with the quarter ending March 31, 1996 plus (ii) 100% of the
net increase in Consolidated Tangible Net Worth occurring after March 31,
1996 resulting from the issuance of equity securities of Tenant after
March 31, 1996.
(iii) Tenant shall not permit the Leverage Ratio (defined in
accordance with GAAP) on the last day of each of the fiscal quarters of
Tenant ending on or after December 31, 1995 to be greater than 0.75 to
1.00.
(iv) Tenant shall not permit Consolidated Net Income (defined
in accordance with GAAP) to be less than $0.00 for any two consecutive
fiscal quarters ending on or after December 31, 1995, calculated as of the
last day of each fiscal quarter of Tenant.
(v) Tenant shall not consolidate with or merge into any other
corporation or Entity except that any corporation or Entity may consolidate
with or merge into Tenant, provided that Tenant shall be the surviving
Entity of such merger or consolidation, and provided, further, that
immediately after the consummation of such consolidation of merger there
shall exist no condition or event which constitutes an Event of Default
hereunder.
(vi) Tenant shall not permit on the last day of the fiscal
quarter of Tenant ending after December 31, 1995, the ratio of Consolidated
Cash Flow for the twelve (12) month period ending on such date to Fixed
Charges (defined in accordance with GAAP) for such period to be less than
1.50 to 1.00
(i) Judgment. One or more judgments or decrees requiring the
payment of money shall be entered against Tenant or any of its
subsidiaries involving in the aggregate a liability (to the extent not
paid or covered by insurance) equal to or greater than $2,000,000 and such
judgment or decree shall not have been satisfied in full, vacated,
discharged or stayed or bonded pending appeal with sixty (60) days from
the entry thereof.
16.2 Contest by Tenant. If upon the filing of any involuntary petition
of the type described in Section 16.1(d) or upon the appointment of a
receiver, other than a receiver appointed in any voluntary proceeding
referred to in Section 16.1(d), or the taking of possession of all or a
substantial portion of the Premises by any department of the city, county,
state or federal government, or any officer thereof duly authorized, by
reason of the alleged insolvency of Tenant without the consent or over the
objection of Tenant, should Tenant desire to contest the same in good
faith, Tenant shall, within ninety (90) days after the filing of the
petition or after the appointment or taking of possession, give Notice to
Landlord that Tenant proposes to make the contest, and the same shall not
constitute an Event of Default so long as Tenant shall prosecute the
proceedings with due diligence and no part of the Premises shall be exposed
to sale by reason of the continuance of the contest.
16.3 Landlord's Remedies. Landlord shall have the remedies specified
below:
(a) Continue Lease. In connection with an Event of Default,
Landlord shall have the right to enforce, by suit or otherwise, all other
covenants and conditions hereof to be performed or complied with by Tenant
and to exercise all other remedies permitted by Section 1951.2 or 1951.4 of
the California Civil Code whichever is applicable, or any amendments
thereof. Landlord has the remedy described in California Civil Code Section
1951.2 or 1951.4. Upon application by Landlord, a receiver may be appointed
to take possession of the Premises and exercise all rights granted to
Landlord as set forth in this Section 16.3.
(b) Terminate Lease. In connection with an Event of Default,
Landlord may terminate this Lease, by giving Tenant Notice thereof, at any
time after the occurrence of such Event of Default and whether or not
Landlord has also exercised any right under Section 16.2. In such event
Tenant shall be obligated to purchase the Premises for an amount equal to
the Purchase Price described in the Purchase Option contained in Section
17.1 below (that is, all accrued Base Rent, Additional Rent and the Lease
Investment Balance). Landlord shall also have its other remedies at law
(including its rights under the SBLF Deed of Trust), provided, however,
that Tenant's obligation to purchase the Premises pursuant to Section 17.2
shall survive any termination of this Lease up through the date of
foreclosure sale under the SBLF Deed of Trust.
(c) Landlord's Continuing Obligation to Sell. Except in the case
of a foreclosure under the SBLF Deed of Trust, in the event Landlord
obtains possession of the Premises pursuant to the terms of this Lease
(because of Tenant's default, Lease expiration, failure of Tenant to sell
the Premises pursuant to the Termination Option, or otherwise), Landlord
shall be under a continuing obligation to use its commercially reasonable
efforts to sell the Premises to one or more unrelated third parties;
provided, however, that Landlord shall not be required to sell or attempt
to sell any portion of the Premises (i) in a manner, or under
circumstances, that could materially impair Landlord's ability to enforce
any of its rights or remedies under this Lease (as determined in Landlord's
sole discretion exercised in good faith) or (ii) at a time when market
conditions render it inadvisable to sell or attempt to sell the Premises
(as determined in Landlord's sole discretion exercised in good faith).
Upon the occurrence of any such sale Landlord shall be obligated to
pay to Tenant any excess of the amount realized by Landlord in
connection with such sale over the Purchase Price (defined below).
For purposes of the preceding sentence, the amount realized by
Landlord upon a sale of the Premises shall be net of Landlord's
reasonable sale expenses and other expenses reasonably incurred by Landlord
to consummate such sale. Landlord's obligation to pay such excess to
Tenant shall survive any termination of this Lease. Tenant agrees that the
Landlord will be deemed to be acting in good faith if it refuses to sell
its interest for less than the excess of the Lease Investment Balance over
the Guaranteed Residual Value.
In the event there is a foreclosure sale under the SBLF Deed of Trust,
then the party acquiring the property sold at such foreclosure sale (the
"Purchaser") shall have the option to purchase the fee simple interest in
all, but not less than all, of the then-existing Premises owned by Landlord
on the following terms: (i) such option to purchase must be exercised by
written notice delivered to Landlord no later than thirty (30) days
following the date of completion of the foreclosure sale, as evidenced by
the recordation of a deed conveying such property so sold at foreclosure by
the trustee under the SBLF Deed of Trust; (ii) the purchase price for the
fee simple interest in the then-existing Premises shall be the Purchase
Price set forth in Section 17.1(a) of this Lease (as adjusted to take into
account all reductions in the Lease Investment Balance resulting from
payments received by Landlord, including proceeds received by Landlord as a
result of the foreclosure sale); and (iii) the purchase and sale of the
then-existing Premises shall be consummated in the manner described in
Section 17.1(c) of this Lease. In the event such Purchaser fails to timely
exercise the foregoing purchase option, the purchase option shall expire
and Landlord shall thereafter have no further obligation to sell the then-
existing Premises.
16.4 No Waiver. No failure by Landlord or Tenant to insist upon the
strict performance of any term, covenant or condition of this Lease or to
exercise any right or remedy consequent upon a breach thereof and no
acceptance of full or partial Base Rent or Additional Rent during the
continuance of any breach shall constitute a waiver of any such breach or
of the term, covenant, or condition. No term, covenant or condition of this
Lease to be performed or complied with by Tenant or Landlord, and no breach
thereof, shall be waived, terminated, altered or modified except by a
written instrument executed by Landlord and Tenant. No waiver of any
breach shall affect or alter this Lease, but each and every term,
covenant, and condition of this Lease shall continue in full force and
effect with respect to any other then existing subsequent breach thereof.
16.5 Effect of Assignment. Notwithstanding an Entity's prior
assignment or transfer of its interest as Tenant under this Lease, so
long as Landlord has been given Notice of such assignment pursuant to
Sections 12.1 and 18.3, Landlord shall give such Entity copies of all
Notices required by this Article 16 in connection with any Event of
Default, and such Entity shall have the period granted hereunder to Tenant
to cure such Event of Default, unless such Entity shall have been released
from all obligations arising under this Lease. Landlord may not assert any
rights against such Entity in the absence of such Notice and opportunity to
cure, so long as Landlord has been given Notice of such assignment pursuant
to Sections 12.1 and 18.3.
16.6 Landlord Cure Right. If Tenant fails to perform any covenant or
agreement to be performed by Tenant under this Lease, and if the failure or
default continues for thirty (30) days after Notice to Tenant (except for
emergencies and except for payment of any lien or encumbrance threatening
the imminent sale of the Premises or any portion thereof, in which case
payment or cure may be made as soon as necessary to minimize the damage to
person or property caused by such emergency or to prevent any such sale),
Landlord may, but shall have no obligation to, pay the same and cure such
default on behalf of and at the expense of Tenant and do all reasonably
necessary work and make all reasonably necessary payments in connection
therewith including, but not limited to, the payment of reasonable
attorneys' fees and disbursements incurred by Landlord. Notwithstanding the
foregoing, Landlord shall have no right to cure any such failure to perform
by Tenant so long as Tenant: (1) is diligently and in good faith attempting
to cure such matter and prosecuting such cure to completion; (2) has the
financial ability to so comply; and (3) commenced cure of such matter with-
in thirty (30) days after Tenant's receipt of Notice thereof from Landlord.
Failure by Tenant to comply with the above shall allow Landlord to commence
in a reasonable and customary manner and in good faith to attempt to cure
such matter. Upon demand, Tenant shall reimburse Landlord for the
reasonable amount so paid, together with interest at the Default Rate from
the date incurred until the date repaid.
ARTICLE 17
TENANT'S OPTION TO PURCHASE OR TERMINATE
17.1 Option To Purchase Premises.
(a) Purchase Option. On any Rent Payment Date during the Term
Tenant shall have the option ("Purchase Option") to purchase all of the
then-existing Premises. The purchase price ("Purchase Price") for the
Premises shall be the sum of accrued and unpaid Base Rent, any accrued and
unpaid Additional Rent, plus the Lease Investment Balance.
(b) Purchase Option Exercise Notice. If Tenant desires to exer-
cise the Purchase Option, Tenant shall deliver to Landlord thirty (30) days
prior written notice ("Purchase Option Exercise Notice") of Tenant's
election. If Tenant does not exercise the Termination Option as provided
in Section 17.2 below it shall be deemed to have exercised the Purchase
Option.
(c) Transfer. If Tenant exercises the Purchase Option, the
purchase and sale of the Premises shall be consummated as follows:
(i) Landlord shall grant and convey the Premises to
Tenant, its authorized agent or assignee, pursuant to a duly executed and
acknowledged a grant deed (the "Deed"), free and clear of all title
defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and
restrictive covenants or conditions, of record, placed against the Premises
by Landlord except for the Permitted Title Exceptions (excluding the SBLF
Deed of Trust), and any UCC-1 filed or recorded which evidence security
interests encumbering the Premises or any part thereof in favor of SBLF,
which security interests SBLF shall cause to be released so that they no
longer affect the Premises).
(ii) The Purchase Price shall be paid upon delivery of the
Deed and any other documents reasonably requested by Tenant to evidence the
transfer of the Premises subject to the Permitted Title Exceptions
(excluding the SBLF Deed of Trust, and any UCC-1 filed or recorded which
evidence security interests encumbering the Premises or any part thereof in
favor of Landlord, which security interests Landlord shall cause to be
released so that they no longer affect the Premises) ("Additional
Documents"). In the event that Tenant elects to assign the Purchase Option
pursuant to Section 17.1(d) below, and Tenant's assignee pays an amount
less than the Purchase Price for the Premises, Tenant shall pay to Landlord
any excess of the Purchase Price over the amount paid by such assignee.
Landlord shall deliver the Deed and the Additional Documents to Tenant on
the date for closing specified by Tenant in the Purchase Option Exercise
Notice. The closing shall take place at the location and in the manner
reasonably set forth by Tenant in the Purchase Option Exercise Notice;
provided that the date of closing shall occur no later than the last day of
the Term of the Lease.
(iii) If Landlord shall fail to cause title to be in the
condition required in Section 17.1(c)(i) above within the time herein
prescribed for the delivery of the Deed, then Tenant shall have the right
(in addition to all other rights provided by law) by a written notice to
Landlord: (1) to extend the time in which Landlord shall clear title and
deliver the Deed and Additional Documents, during which extension this
Lease shall remain in full force and effect, except Tenant shall be re-
leased from its obligation to pay Base Rent during the extension; (2) to
accept delivery of the Deed and Additional Documents subject to such title
defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and
restrictive covenants or conditions specified and set forth in the Deed and
not cleared by Landlord; (3) to rescind, by notice to Landlord and without
any penalty or liability therefor, any and all obligations Tenant may have
under and by virtue of the Purchase Option or the exercise thereof, where-
upon this Lease shall remain in full force and effect; (4) if the title
exception is curable by the payment of money, Tenant may make such payment
and such payment shall be a credit against the Purchase Price in favor of
Tenant.
(iv) Base Rent shall be prorated and paid and all
Additional Rent which is then due and payable shall be paid as of the date
title to the Premises is vested of record in Tenant. Tenant shall pay the
escrow fees; the recorder's fee for recording the Deed; the premium for the
title insurance policy; all documentary transfer taxes; Tenant's attorneys'
fees; Landlord's reasonable attorneys' fees; all other costs and expenses
incurred by Tenant in consummating the transfer of the Premises; and all
reasonable expenses (except as specified in the next sentence) incurred by
Landlord in consummating the transfer of the Premises pursuant to this
Section 17.1. Landlord shall pay the costs and expenses of clearing title
as required by Section 17.1(c)(i).
(d) Assignment. Tenant shall have the right, without Landlord's
consent, to assign this Purchase Option, in whole, to any
Entity at any time, whether or not Tenant also assigns its interest in the
Lease.
17.2 Termination Option.
(a) Notice. Provided that no Event of Default has occurred and is
continuing, unless Tenant has notified Landlord prior to such date that it
elects the Purchase Option, Tenant may, on the date which is four (4)
months prior to the expiration of the Term, exercise an option
("Termination Option") to sell the Premises; provided, however that at any
time Tenant can rescind its election to exercise its Termination Option if
it then exercises its Purchase Option pursuant to Section 17.1 above. The
four (4) month period is referred to herein as the "Sales Period".
(b) Termination Option. After giving the notice set forth in
section (a) above Tenant shall then use its best efforts to sell the
Premises for cash to a third party purchaser (who is not an affiliate of
Tenant within the meaning of Rule 405 under the Securities Act of 1933)
and, if the Premises are not conveyed to such purchaser prior to the
expiration of the Term, Tenant shall have no further right to sell the
Premises and Landlord may, at its option either allow the Tenant to hold-
over pursuant to Section 4.2 above, or terminate the Lease in which case
Tenant shall immediately vacate the Premises, and quitclaim all interest of
Tenant, if any, therein to Landlord, and pay to Landlord the Guaranteed
Residual Value as provided in Section 17.2(d) below.
(c) Termination Option Procedures. In the event that Tenant elects
the Termination Option, Tenant shall use its best efforts throughout the
Sales Period to obtain a purchaser (who is not an affiliate of Tenant as
described above) for the Premises. Tenant shall have the exclusive right
to market the Premises during the first three (3) months of the Sales
Period (the "Exclusive Period"). Landlord may direct Tenant to hire and
pay for no more than one (1) commission sales agent after the expiration of
the Exclusive Period. Except as otherwise provided below, any sale by
Tenant shall be for the highest cash bid submitted to Tenant,
including any cash bid submitted by Landlord. The determination of
the highest bid shall be made by Landlord prior to the end of the Sales
Period. After the end of the Exclusive Period, Landlord may accept
any bid solicited by Landlord, Tenant or its agent, in which case
Tenant's sales effort may be suspended until the earlier of the
closing of such sale on the last day of the Term or revocation or
rejection of such cash bid. Notwithstanding the above provisions,
Tenant may (i) accept during the Exclusive Period any cash bid
(net of expenses of sale) which exceeds the Lease Investment Balance, and
(ii) rescind the Termination Option at any time so long as it is exercising
its Purchase Option, which shall be prior and superior to an accepted offer
from a third party. If Landlord undertakes any sales efforts, Tenant shall
promptly reimburse Landlord for any reasonable charges, costs and expenses
incurred in such effort, including any commissions, allocated time charges,
costs and expenses of internal counsel, external counsel or other
attorneys' fees.
(d) Payments under Termination Option. If Tenant elects the
Termination Option, Tenant shall pay to Landlord on the last day of the
Term in immediately available funds any Base Rent or Additional Rent due
and owing under the Lease. Except as provided in Section 17.2(e), the
proceeds (the "Proceeds") of any sale of the Premises pursuant to the
Termination Option shall be paid to Landlord upon any such sale without
deductions, and not later than the expiration of the Lease Term. If the
Premises are not sold and conveyed to a purchaser in exchange for Proceeds
on or before the expiration of the Lease Term, then on the expiration of
the Lease Term, Tenant shall pay to Landlord in immediately available
funds an amount equal to the then Guaranteed Residual Value.
(e) Procedures Upon Sale under the Termination Option. Any sale
pursuant to the Termination Option shall be consummated on the last day of
the Term. To the extent the Proceeds exceed the Lease Investment Balance,
such excess shall be paid out of escrow to Tenant. Upon payment to Landlord
of all amounts due it under this Lease, Landlord shall execute and deliver
to the purchaser of the Premises a grant deed in the same manner and
subject to the same conditions and obligations as are set forth in Section
17.1(c) above and have the same obligation to deliver title and remove
exceptions as set forth in said Section. Except as provided in the second
sentence of this subparagraph, the Proceeds shall be applied first to the
Lease Investment Balance, Tenant shall reimburse Landlord for the
difference between the Lease Investment Balance (calculated immediately
prior to receipt of the Proceeds) and the Proceeds, up to the amount of the
Guaranteed Residual Value.
ARTICLE 18
MISCELLANEOUS
18.1 Relationship. Neither this Lease nor any agreements or
transactions contemplated hereby shall in any respect be interpreted,
deemed or construed as constituting Landlord and Tenant as partners or
joint venturers, one with the other, or as creating any partnership, joint
venture, association or, except as set forth in Section 18.2 below, any
other relationship other than that of landlord and tenant: and, except as
set forth in Section 18.2 below, both Landlord and Tenant agree not to make
any contrary assertion, contention, claim or counterclaim in any action,
suit or other legal proceeding involving either Landlord or Tenant or the
subject matter of this Lease.
18.2 Form of Transaction: Certain Tax Matters.
(a) Landlord and Tenant hereby agree and declare that the
transactions contemplated by this Lease are intended to constitute, both as
to matters of form and substance:
(i) an operating lease for financial accounting purposes, and
(ii) a financing arrangement (and not a "true lease") for
purposes of Federal, state and local income, property or other forms of
tax.
Accordingly, and notwithstanding any other provision of this Lease to the
contrary, Landlord and Tenant agree and declare that (A) the transactions
contemplated hereby are intended to have a dual, rather than single, form
and (B) all references in this Lease to the "Lease" of the Premises which
fail to reference such dual form do so as a matter of convenience only and
do not reflect the intent of Landlord and Tenant as to the true form of
such arrangements.
(b) Landlord and Tenant agree that, in accordance
with their intentions and the substance of the transactions contemplated
hereby, Tenant (and not Landlord) shall be treated as the owner of the
Premises for Federal, state, local income and property tax purposes and
this Lease shall be treated as a financing arrangement. Tenant shall be
entitled to take any deduction, credit allowance or other reporting, filing
or other tax position consistent with such characterizations. Landlord
shall not file any Federal, state or local income tax returns, reports or
other statements in a manner which is inconsistent with the foregoing
provisions of this Section 18.2.
(c) Tenant acknowledges that it has retained accounting, tax and
legal advisors to assist it in structuring this Lease and Tenant is not
relying on any representations of Landlord regarding the proper treatment
of this transaction for accounting, income tax or any other purpose.
18.3 Notices. Each Notice shall be in writing and shall be sent by
personal delivery, overnight courier (charges prepaid or billed to the
sender) or by the deposit of such with the United States Postal Service, or
any official successor thereto, designated as registered or certified mail,
return receipt requested, bearing adequate postage and in each case
addressed as provided in the Basic Lease Provisions. Each Notice shall be
effective upon being personally delivered or actually received. The time
period in which a response to any such Notice must be given or any action
taken with respect thereto shall commence to run from the date of personal
delivery or receipt of the Notice by the addressee thereof, as reflected on
the return receipt of the Notice. Rejection or other refusal to accept
shall be deemed to be receipt of the Notice sent. By giving to the other
party at least thirty (30) days' prior Notice thereof, either party to this
Lease shall have the right from time to time during the Term of this Lease
to change the address(es) thereof and to specify as the address(es) thereof
any other address(es) within the continental United States of America.
18.4 Severability of Provisions. If any term, covenant or condition of
this Lease shall be invalid or unenforceable, the remainder of this Lease,
or the application of such term, covenant or condition to Entities or
circumstances other than those as to which it is invalid or unenforceable,
shall not be affected thereby.
18.5 Entire Agreement: Amendment. This Lease constitutes the entire
agreement of Landlord and Tenant with respect to the subject matter hereof.
Neither this Lease nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
18.6 Memorandum of Lease of the Land. Neither party shall record this
Lease. However, concurrently with the execution of this Lease, Landlord and
Tenant have executed a Memorandum of Lease of the Land ("Memorandum of
Lease") in the form attached hereto as Exhibit D and by this reference made
a part hereof, which Memorandum of Lease shall be promptly recorded in the
Official Records.
18.7 Successors and Assigns. Subject to Articles 11 and 12, this Lease
shall inure to the benefit of and be binding upon Landlord and Tenant and
their respective heirs, executors, legal representatives, successors and
assigns. Whenever in this Lease a reference to any Entity is made, such
reference shall be deemed to include a reference to the heirs, executors,
legal representatives, successors and assigns of such Entity.
18.8 Commissions. Landlord and Tenant each represent and warrant that
neither has dealt with any broker in connection with this transaction and
that no real estate broker, salesperson or finder has the right to claim a
real estate brokerage, salesperson's commission or finder's fee by reason
of contact between the parties brought about by such broker, salesperson or
finder. Each party shall hold and save the other harmless of and from any
and all loss, cost, damage, injury or expense arising out of or in any way
related to claims for real estate broker's or salesperson's commissions or
fees based upon allegations made by the claimant that it is entitled to
such a fee from the indemnified party arising out of contact with the
indemnifying party or alleged introductions of the indemnifying party to
the indemnified party.
18.9 Attorneys' Fees. In the event any action is brought by Landlord
or Tenant against the other to enforce or for the breach of any of the
terms, covenants or conditions contained in this Lease, the prevailing
party shall be entitled to recover reasonable attorneys' fees to be fixed
by the court, together with costs of suit therein incurred. Tenant shall
pay the reasonable attorneys' fees incurred by Landlord for the review and
negotiation of this Lease.
18.10 Governing Law. This Lease and the obligations of the parties
hereunder shall be governed by and interpreted, construed and enforced in
accordance with the laws of the State of California.
18.11 Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of
which together shall comprise but a single instrument.
18.12 Time Is of the Essence. Time is of the essence of this Lease,
and of each provision hereof.
18.13 No Third Party Beneficiaries. This Lease is entered into by
Landlord and Tenant for the sole benefit of Landlord and Tenant. There are
no third party beneficiaries to this Lease.
18.14 Limitations on Recourse. Except for the gross negligence or
willful misconduct of Landlord, the obligations of Tenant and Landlord
under this Lease shall be without recourse to any partner, officer,
trustee, beneficiary, shareholder, director or employee of Tenant or
Landlord. Landlord's liability to Tenant for any default by Landlord under
this Lease: (1) shall be limited to Landlord's equity in the Premises; and
(2) shall extend to any actual damages of Tenant, but shall not extend to
any foreseeable and unforeseeable consequential damages.
18.15 Estoppel Certificates. Within thirty (30) days after request
therefor by either party, the non-requesting party shall deliver, in
recordable form, a certificate to any proposed mortgagee, purchaser,
sublessee or assignee and to the requesting party, certifying (if such be
the case) that this Lease is in full force and effect, the date of Tenant's
most recent payment of Base Rent, that, to the best of its knowledge, the
non-requesting party has no defenses or offsets outstanding, or stating
those claimed, and any other information reasonably requested. Failure to
deliver said statement in time shall be conclusive upon the non-requesting
party that: (a) this Lease is in full force and effect, without modifi-
cation except as may be represented by the requesting party; (b) there
are no uncured defaults in the requesting party's performance and the
non-requesting party has no right of offset, counterclaim or deduction
against the non-requesting party's obligations hereunder; (c) no more than
one month's Base Rent has been paid in advance; and (d) any other matters
reasonably requested in such certificate.
18.16 As-Is Lease. Landlord makes no representations or warranties
concerning the condition, suitability or any other matters relating to the
Premises, and Tenant hereby acknowledges that Tenant leases the Premises
from Landlord on an "as is" basis.
18.17 Net Lease. Except for Landlord Taxes or as otherwise provided in
this Lease, Tenant agrees that this Lease is an absolute net Lease, and the
Base Rent called for hereunder shall be paid as required net of all
expenses associated with the Premises, including without limitation, Real
Estate Taxes and insurance premiums for the insurance required to be
carried hereunder, and all other reasonable and customary costs and
expenses incurred by Landlord and owed to independent third parties, in
connection with the Premises or this Lease, all of which shall be paid or
reimbursed by Tenant unless otherwise specifically provided herein. Tenant
agrees to reimburse Landlord, within five (5) business days following
receipt of any Notice therefor, for all reasonable and customary fees,
late charges, title endorsement and other costs and expenses charged to
Landlord which accrue during any period.
18.18 Landlord's Representations and Warranties. Landlord hereby
represents and warrants that:
(a) Landlord has the full right and authority to enter into this
Lease, consummate the sale, transfers and assignments contemplated herein
and otherwise perform its obligations under this Lease;
(b) the person or persons signatory to this Lease and any document
executed pursuant hereto on behalf of such party have full power and
authority to bind such party; and
(c) the execution and delivery of this Lease and the performance of
such party's obligations hereunder do not and shall not result in the
violation of its organizational documents or any material contract or
agreement to which such party may be a party.
18.19 Tenant's Representations and Warranties. Tenant hereby
represents and warrants to Landlord that:
(a) Corporate Status. Tenant (i) is a duly organized and validly
existing corporation in good standing under the laws of the State of
Delaware, and (ii) has duly qualified and is authorized to do business and
is in good standing in all jurisdictions where the failure to do so might
have a material adverse effect on it or its properties.
(b) Corporate Power and Authority. Tenant has the corporate power
and authority to execute, deliver and carry out the terms and provisions of
the Lease and the SBLF Deed of Trust ("Operative Documents") to which it is
or will be a party and has taken all necessary corporate action to
authorize the execution, delivery and performance of the Operative
Documents to which it is a party and has duly executed and delivered each
Operative Document required to be executed and delivered by it and,
assuming the due authorization, execution and delivery thereof on the part
of each other party thereto, each such Operative Document constitutes a
legal, valid and binding obligation, enforceable in accordance with their
respective terms except as limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally, and except as the remedy of specific
performance or of injunctive relief is subject to the discretion of the
court before which any proceeding therefor may be brought and except as
otherwise stated in the opinion of Tenant's counsel delivered to Landlord
in connection with the execution and delivery of this Lease.
(c) No Violation. Neither the execution, delivery and performance
by Tenant of the Operative Documents to which it is or will be a party nor
compliance with the terms and provisions thereof, nor the consummation by
the Tenant of the transactions contemplated therein (i) will result in a
violation by the Tenant of any applicable provision of any law, statute,
rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality having jurisdiction over the Tenant or the
Premises that would materially adversely affect (x) the validity or
enforceability of the Operative Documents to which the Tenant is a party,
or the title to, or value or condition of, the Premises, or (y) to the best
of the Tenant's knowledge, the consolidated financial position, business or
consolidated results of operations of the Tenant or the ability of the
Tenant to perform its obligations under the Operative Documents, (ii) will
conflict with or result in any breach which would constitute a default
under, or (other than pursuant to the Operative Documents) result in the
creation or imposition of (or the obligation to create or impose) any lien
upon any of the property or assets of the Tenant pursuant to the terms of
any indenture, loan agreement or other agreement for borrowed money to
which the Tenant is a party or by which it or any of its property or assets
is bound or to which it may be subject (other than Permitted Exceptions),
or (iii) will violate any provision of the certificate of incorporation or
by-laws of the Tenant.
(d) Litigation. Except as disclosed in Exhibit E, there are no
actions, suits or proceedings pending or, to the knowledge of the Tenant,
threatened (i) that are reasonably likely to have a material adverse effect
on the Premises or on the businesses, operations, financial condition or
material assets of the Tenant, or (ii) that question the validity of the
Operative Documents or the rights or remedies of the Landlord with respect
to the Tenant or the Premises under the Operative Documents.
(e) Governmental Approvals. Except as disclosed in Exhibit F, no
Governmental Action by any Governmental Authority having jurisdiction over
the Tenant, or the Premises is required to authorize or is required in
connection with (i) the execution, delivery and performance by the Tenant
of any Operative Document to which it is a party, or (ii) the legality,
validity, binding-effect or enforceability against the Tenant of any
Operative Document to which it is a party.
(f) Investment Company Act. Tenant is not an "investment company"
or company "controlled" by an "investment company," within the meaning of
the Investment Company Act of 1940 as amended.
(g) Public Utility Holding Company Act. Tenant is not a "holding
company" or a "subsidiary company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
(h) Provided Information. The information and materials which were
provided by Tenant to the Landlord prior to the Date of Lease and prepared
by Tenant and, to the actual knowledge of Tenant, all information and
materials not prepared by Tenant and provided by Tenant to Landlord prior
to the Date of Lease, are true and accurate in all material respects on the
date as of which such information and materials are dated or certified and
are not incomplete by omitting to state any fact necessary to make such
information (taken as a whole) not misleading at such time in light of the
circumstances under which such information was provided. Any loss, cost,
expense, liability, claim, cause of action or damages of any kind incurred
by Landlord, including reasonable attorneys' fees, arising because of any
errors, omissions or false statements contained in any such information or
materials, whether or not prepared by Tenant, shall constitute an
"obligation" of Tenant under this Lease, including without limitation,
under the provisions of Section 19.3 below.
(i) Taxes. All United States Federal income tax returns and all
other tax returns which are required to have been filed (other than those
the non-filing of which would not have a material adverse effect on the
business or operations of Tenant) have been or will be filed by or on
behalf of the Tenant by the respective due dates, including extensions,
and all taxes due with respect to the Tenant pursuant to such returns or
pursuant to any assessment received by the Tenant have been or will be
paid. The charges, accruals and reserves on the books of the Tenant in
respect of taxes or other governmental charges are, in the opinion of the
Tenant adequate.
(j) Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of the
Employee Retirement Income Security Act of 1974, as amended from time to
time ("ERISA") and the Internal Revenue Code of 1986, as amended from time
to time (the "Code") with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Code with respect to each Plan. No member of the ERISA Group has (i) sought
a waiver of the minimum funding standard under Section 412 of the Code in
respect of any Plan, (ii) failed to make any contribution or payment to any
Plan or Multiemployer Plan, or made any amendment to any Plan, which has
resulted or could result in the imposition of a lien or the posting of a
bond or other security under ERISA or the Code, or (iii) incurred any
liability under Title IV of ERISA other than a liability to the Pension
Benefit Guaranty Corporation (the "PBGC") for premiums under Section 4007
of ERISA. No "Plan Termination Event" has occurred with respect to any
Plan. No member of the ERISA Group has any knowledge of any event that
could result in a liability of any such member to the PBGC, whether under a
Plan, a Multiemployer Plan, or otherwise. There have not been any nor are
there now existing any events or conditions that would permit any Plan to
be terminated under circumstances that would cause the lien provided under
Section 4068 of ERISA to attach to the material assets of the Tenant or the
ERISA Group. The value of the Plans' benefits guaranteed under Title IV of
ERISA on the date hereof does not exceed the value of such Plans' assets
allocable to such benefits as of the date of this Lease. No member of the
ERISA Group has incurred any "withdrawal liability" within the meaning of
Title IV of ERISA with respect to a Multiemployer Plan. No "Prohibited
Transaction" within the meaning of Section 406 of ERISA exists or will
exist with respect to any Plan upon the execution and delivery of this
Lease or any Operative Document.
(k) Environmental Laws. To the best of Tenant's knowledge, except
as disclosed in Exhibit G, the Tenant is in compliance with all
Environmental Laws relating to pollution and environmental control in all
domestic jurisdictions in which all real property of the Tenant, including
the Land, are located, other than those the non-compliance with which would
not have a material adverse effect on such real property including the
Land, or the consolidated results of operations, business, or consolidated
financial position of the Tenant.
(l) Offer of Securities, etc. Neither the Tenant nor any person
authorized to act on the Tenant's behalf has, directly or indirectly,
offered any interest in the Premises or any other interest similar thereto
(the sale or offer of which would be integrated with the sale or offer of
such interest in the Premises), for sale to, or solicited any offer to
acquire any of the same from, any person other than the Landlord and other
"accredited investors" (as defined in Regulation D of the Securities and
Exchange Commission).
(m) Financial Statements.
(i) The submitted financial statements, copies of which have been
delivered to the Landlord, present fairly in all material respects, in
conformity with generally accepted accounting principles, the financial
position of the Tenant as of such date and its results of operations and
cash flows for such fiscal year.
(ii) The unaudited consolidated statement of financial position
of the Tenant as of December 31, 1995 and the related unaudited
consolidated statements of income, and cash flows for the year to date,
copies of which have been delivered to Landlord, present fairly in all
material respects, in conformity with generally accepted accounting
principles applied on a basis substantially consistent with the financial
statements referred to in clause (i) of this subsection (m), the
consolidated financial position of the Tenant as of such date and its
consolidated results of operations and cash flows for such year-to-date
period (subject to normal year-end adjustments).
(n) Premises. To the best of Tenant's knowledge, the Premises will
comply in all material respects with all material requirements of law
(including, without limitation, all zoning and land use laws and
environmental laws) and insurance requirements.
(o) Title. The Grant Deed will be in form and substance sufficient
to convey good and marketable title to the Premises in fee simple, subject
only to Permitted Exceptions.
(p) Flood Hazard Areas. To the best of Tenant's knowledge, except
as otherwise identified on the survey delivered to Landlord, no portion of
the Premises are located in an area identified as a special flood hazard
area by the Federal Emergency Management Agency or other applicable agency.
(q) Lease. Upon the execution and delivery of this Lease, (i) the
Tenant will have unconditionally accepted the Premises (provided that
nothing contained herein shall be deemed a waiver by the Tenant of any
right of action against persons with respect to title to and condition of
the Premises on the Date of Lease other than the Landlord) and will have
good and marketable title to a valid and subsisting leasehold interest in
the Premises, subject only to Permitted Exceptions, (ii) no right of offset
will exist with respect to any Rent or other sums payable under this Lease,
and (iii) no Rent under this Lease will have been prepaid.
(r) Title to Properties. The Tenant has good and marketable title
to all of its material assets reflected on the balance sheets in the
submitted financial statements, except for such material assets as has
been disposed of in the ordinary course of business, and all such
material assets are free and clear of any lien, except as reflected in said
submitted financial statements and/or notes thereto or as otherwise
permitted by the provisions hereof or under the Operative Documents, and
except for Permitted Exceptions. The Tenant has such trademarks, trademark
rights, trade names, trade name rights, franchises, copyrights, patents,
patent rights and licenses as to allow it to conduct its business as now
operated, without known conflict with the rights of others which may be
reasonably likely to have a material adverse effect on the Premises or on
the businesses, operations, financial condition or material assets of the
Tenant.
(s) Defaults. To the best of Tenant's knowledge, the Tenant is not
in material default under (and no event has occurred which with the lapse
of time or notice or action by a third party could result in a default
under, nor has Tenant received written notice of any event of default which
has not been cured) any instrument evidencing any debt or under any
agreement relating thereto or any indenture, mortgage, deed of trust,
security agreement, lease, franchise or other agreement or other instrument
to which Tenant is a party or by which Tenant or any of its material assets
is subject to or bound.
(t) Use of Advance. No part of any Advance will be used directly or
indirectly for the purpose of purchasing or carrying, or for payment in
full or in part of debt that was incurred for the purposes of purchasing or
carrying, any margin security as such term is defined in Section 207.2 of
Regulation G of the Board of Governors of the Federal Reserve System (12
C.F.R., Chapter II, Part 207).
18.20 Tenant's Waiver of Demand for Possession. Tenant waives any
demand for possession of the Premises and any demand for payment of Base
Rent and notice of intent to re-enter the Premises, or of intent to
terminate this Lease, and waives any and every other notice or demand
prescribed by any applicable statutes or laws.
18.21 Financial Reporting. Tenant shall provide to Landlord: (1)
annually, within ninety (90) days after the end of each of Tenant's fiscal
years during the Term, annual audited financial statements (including
balance sheet, income statements, and cash flow statements) of Tenant, (2)
quarterly, within forty-five (45) days after the end of each of Tenant's
fiscal quarters during the Term, quarterly unaudited financial statements
(including balance sheet, income statements, and cash flow statements) of
Tenant, and (3) as well as an officer's certificate delivered every
reporting period stating that no Event of Default has occurred under the
Lease in the form attached as Exhibit H.
18.22 Regulation D Compensation. For so long as the Landlord is
required to maintain reserves against Eurocurrency Liabilities (or any
other category of liabilities which include deposits by reference to which
the LIBOR Rate is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of the
Landlord to United States residents), and, as a result, the cost to the
Landlord (or its funding office) of making or maintaining its Advances is
increased, then the Landlord may require the Tenant to pay,
contemporaneously with each payment of Base Rent, an additional amount
at a rate per annum up to but not exceeding the excess of (i) (A) the
applicable LIBOR Rate divided by (B) one minus the Eurocurrency Reserve
Requirements, over (ii) the applicable LIBOR Rate. In the event that the
Landlord wishes to require payment of such additional amount, the Landlord
(x) shall so notify the Tenant, in which case such additional Base Rent
shall be payable to the Landlord at the place indicated in such notice with
respect to each Borrowing Period commencing at least three Business Days
after the giving of such notice and (y) shall furnish to the Tenant at
least five Business Days prior to each date on which Base Rent is payable
a certificate setting forth the amount to which it is then entitled under
this Section 18.22 (which shall be consistent with it's good faith
estimate of the level at which the related reserves are maintained
by it). Each such certificate shall be accompanied by such information
as the Tenant may reasonably request as to the computation set
forth therein.
ARTICLE 19
INDEMNIFICATION
19.1 Tax Indemnity. Notwithstanding anything in Article 6 to the
contrary, Tenant shall protect and defend Landlord from and against all
criminal prosecution regarding and shall indemnify and hold Landlord
harmless from and against any and all losses, costs, liabilities or damages
(including reasonable attorneys' fees and disbursements and court costs)
arising by reason of:
(a) Any and all U.S. Federal, state or local income taxes imposed
upon Landlord in consequence of Landlord being treated as the owner or
lessor of the Premises (or any part thereof) for such tax purposes;
provided Landlord has fully complied with Section 18.2;
(b) Any and all taxes imposed upon Tenant (except to the extent of
Landlord Taxes or to the extent that such taxes are imposed upon Tenant as
a result of Landlord's failure to comply with its obligations under this
Lease);
(c) Any and all taxes required to be withheld from payments made
by Tenant to a third party not related to or affiliated with Landlord;
(d) Any and all Real Estate Taxes;
(e) Any and all taxes owed by Landlord (other than Landlord Taxes)
as a result of payment made by Tenant to Landlord pursuant to Tenant's
indemnity obligations under this Section 19.1; and
(f) Any and all costs, liabilities or damages (including
reasonable attorneys' fees) incurred by Landlord in obtaining
indemnification payments from Tenant under the provisions of this Section
19.1.
Tenant's obligation to reimburse or indemnify Landlord for any taxes,
governmental fees, penalties, interest or other supplemental tax charges
under this Lease shall be reduced by the value of any related or offsetting
tax benefits derived or realized by Landlord. Tenant's duty to indemnify
Landlord under this Section 19.1 shall apply only to taxes arising during
the Term (whether or not due and payable at the conclusion of the Term),
but shall otherwise survive the expiration or earlier termination of this
Lease.
19.2 Environmental Indemnity. Tenant agrees to indemnify and hold
Landlord harmless from and against, and to reimburse Landlord with respect
to, any and all claims, demands, causes of action, losses, damages,
liabilities, costs and expenses (including attorneys' fees and court
costs), fines and/or penalties of any and every kind or character, known or
unknown, fixed or contingent, asserted or potentially asserted against or
incurred by Landlord at any time and from time to time by reason of, in
connection with or arising out of (A) the failure of Tenant to perform any
obligation herein required to be performed by Tenant regarding Applicable
Environmental Laws, (B) any violation of any Applicable Environmental Law
by Tenant or with respect to the Premises or any disposal or other release
by Tenant or with respect to the Premises of any hazardous substance,
environmental contaminants or solid waste on or to the Premises, whether or
not resulting in a violation of any Applicable Environmental Law, (C) any
act, omission, event or circumstance by Tenant or with respect to the
Premises which constitutes or has constituted violation of any Applicable
Environmental Law with respect to the Premises, regardless of whether the
act, omission, event or circumstance constituted a violation of any
Applicable Environmental Law at the time of its existence or occurrence,
and (D) except to the extent of Landlord's gross negligence or willful
misconduct, any and all claims or proceedings (whether brought by
private party or governmental agencies) for bodily injury, property
damage, abatement or remediation, environmental damage or impairment or
any other injury or damage resulting from or relating to any hazardous
or toxic substance or contaminated material located upon or migrating
into, from or through the Premises (whether or not the release of such
materials was caused by Tenant, a subtenant, a prior owner of the
Premises or any other Entity) which Landlord may incur.
Tenant's duty to indemnify Landlord under this Section 19.2 shall survive
the expiration or earlier termination of the Lease with respect to events
occurring during or prior to the expiration of the Term or after the Term
while Landlord has record title to and Tenant is occupying the Premises,
but shall terminate as to events occurring wholly after Tenant is no longer
in possession of the Premises.
19.3 General Indemnity. Except to the extent of Landlord's gross
negligence or willful misconduct, Tenant shall defend, indemnify, and hold
Landlord harmless from and against any and all losses, costs, expenses,
liabilities, claims, causes of action and damages of all kinds that may
result to Landlord, including reasonable attorneys' fees and disbursements
incurred by Landlord, arising because of any failure by Tenant to perform
any of its obligations under this Lease or any of the documents executed in
connection with this Lease. Tenant's duty to indemnify Landlord under this
Lease shall survive the expiration or earlier termination of this Lease.
ARTICLE 20
COVENANTS OF LANDLORD
20.1 Title. In the event Tenant so requests in writing (and so long as
either Tenant agrees to indemnify Landlord to Landlord's satisfaction from
any liabilities or obligations in connection therewith, or Landlord does
not incur any liabilities or obligations in connection therewith), Landlord
shall execute all documents, instruments and agreements reasonably re-
quested by Tenant in order to accomplish any of the following in the manner
reasonably requested by Tenant and within the time parameters reasonably
requested by Tenant: (1) remove exceptions to title to or affecting the
Premises; (2) create exceptions to title (including, without limitation,
easements and rights of way) to or affecting the Premises; or (3) modify
any then-existing exception to title. Tenant shall promptly reimburse
Landlord for, or at Landlord's request, pay directly in advance, all
reasonable costs, expenses and other amounts incurred or required to be
expended by Landlord in order to comply with Tenant's requests made in
accordance with the preceding sentence, and the failure of Tenant to
reimburse or pay any such amounts shall result in the suspension of
Landlord's obligations under such sentence with respect to that particular
request until the amounts required to be paid by Tenant under this sentence
have been paid.
20.2 Land Use. Except where requested by Tenant pursuant to this
Section 20.2, Landlord shall not cause or give its written consent to any
land use or zoning change affecting the Premises or any changes of street
grade. In the event Tenant so requests in writing (and so long as either
Tenant agrees to indemnify Landlord to Landlord's satisfaction, from any
liabilities or obligations in connection therewith, or Landlord does not
incur any liabilities or obligations in connection therewith), Landlord
shall execute all documents, instruments and agreements reasonably re-
quested by Tenant in order to accomplish any of the following in the manner
reasonably requested by Tenant and within the time parameters reasonably
requested by Tenant: (1) cause a change in any land use restriction or law
affecting the Premises; (2) cause a change in the zoning affecting the
Premises; or (3) cause a change in the street grade with respect to any
street in the vicinity of the Premises. Tenant shall promptly reimburse
Landlord for, or at Landlord's request, pay directly in advance, all
reasonable costs, expenses and other amounts incurred or required to be
expended by Landlord in order to comply with Tenant's requests made in
accordance with the preceding sentence, and the failure of Tenant to
reimburse or pay any such amounts shall result in the suspension of
Landlord's obligations under such sentence with respect to that particular
request until the amounts required to be paid by Tenant under this sentence
have been paid.
20.3 Transfer of Property Interests. Except as requested by Tenant
pursuant to this Lease, Landlord shall not transfer to any third party any
rights inuring to or benefits associated with the Premises (including,
without limitation, zoning rights, development rights, air space rights,
mineral, oil, gas or water rights). Nothing in this Section 20.3 shall
limit Landlord's right to transfer Landlord's interest in this Lease to a
third party or its rights to transfer the Premises, pursuant to
Section 11.2; provided that as to a transfer under Section 11.2 any
purchaser of Landlord's interest in the Premises shall be bound by the
terms of this Lease, including without limitation the terms of this
Section 20.3).
[Signatures begin on next page.]
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as
of the day and year first above written.
TENANT: READ-RITE CORPORATION, a
Delaware Corporation
By \s\ Rex S. Jackson
Name Rex S. Jackson
Its V.P./General Counsel
(Signatures continued on next page)
LANDLORD: SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware
corporation
By \s\ William M. Ginn
Name William M. Ginn
Its President
Dated: April 25, 1996
Exhibit A
DESCRIPTION OF THE LAND
Exhibit B
CLOSING COSTS AND FEES TO BE INCLUDED IN INITIAL ADVANCE
The following items shall be included in the definition of the Initial
Advance under Section 2.17 of the Lease:
1. Arrangement fee (SBLF) $ 89,662.75
2. Fees to Graham & James 12,500.00
3. Costs to Graham & James 1,675.00
4. Fees to Wilson, Sonsini 12,000.00
5. Appraisal Fee 4,500.00
6. Fees to Title Company 17,491.98
7. Acquisition Cost plus
Interest for Closing Delay 8,784,244.59
8. Other Misc. Fees and Costs 44,200.30
--------------
Total $ 8,966,274.62
==============
Exhibit C
PERMITTED TITLE EXCEPTIONS
1. TAXES for the fiscal year 1995-1996.
2. THE LIEN of supplemental taxes, if any, assessed pursuant to Chapter
3.5 commencing with Section 75 of the California Revenue and Taxation
Code.
3. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Clay Pipe Sewer Lines
Granted to : Union Sanitary District
Recorded : June 14, 1957, Book 8390, Page 123, Official
Records
Affects : The Westerly 10 feet of Parcel 2
4. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Railroad Spur Tract
Granted to : Inland Steel Productions Company
Recorded : April 27, 1960, Reel 75, Image 820, Official
Records
Affects : The most Southerly corner of Parcel 2
5. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Water Pipe Lines
Granted to : Alameda County Water District
Recorded : August 1, 1960, Reel 137, Image 313, Official
Records
Affects : An Easterly portion of Parcel 4
6. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Public Utilities
Granted to : Pacific Bell
Recorded : April 2, 1990, Series No. 90-88308, Official
Records
Affects : That portion on filed map marked "PUE"
7. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Flood Control Facilities and Appurtenances
and the Right of Ingress and Egress over all of said land
Granted to : Alameda Country Flood Control and Water
Conservation District, a body corporate and politic
Recorded : February 7, 1984, Series No. 84-025069, Official
Records
Affects : A Southerly portion of Parcel 2
8. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Ingress and Egress
Granted to : Alameda Country Flood Control and Water
Conservation District, a body corporate and politic
Recorded : February 7, 1984, Series Nos. 84-25070, 84-25071
and 84-25072, Official Records
Affects : All of Parcel Map 5447
9. EASEMENT shown on filed map, and incidents thereto
Purpose : Sanitary Sewer
Affects : A Northerly and Northwesterly portion of
Parcel 2
10. EASEMENT shown on filed map, and incidents thereto
Purpose : Private Storm Drain
Affects : A strip of land 15 feet wide over a
Southwesterly portion of Parcel 2
11. EASEMENT shown on filed map, and incidents thereto
Purpose : Storm Drain
Affects : The Westerly 320.10 feet of the Southerly 10 feet of
Parcel 3 and the Westerly 10 feet of Parcel 4
12. EASEMENT shown on filed map, and incidents thereto
Purpose : Landscape
Affects : The Easterly 20 feet of Parcels 3 and 4, and an 8
foot strip along the Westerly and Northerly line of Parcel 3
13. EASEMENT shown on filed map, and incidents thereto
Purpose : Public Utilities
Affects : The Easterly and Southerly 10 feet of Parcels 3 and
4 and the Easterly 10 feet of Parcel 2 which abuts Skyway Court
14. AGREEMENT on the terms and conditions contained therein.
Entitled : Agreement for Removal of Structural
Appurtenances (License to Encroach in Public Drain Easement)
Between : Sysco/Avard Continental Food Services, Inc., a
Delaware corporation
And : City of Fremont
Recorded : October 8, 1992, Series No. 92327105, Official
Records
15. Any rights, interests, or claims which may exist or arise by reason of
the following facts shown on a survey plat entitled ALTA/ACSM Land
Title Survey for the Read Rite Corporation, dated February 14, 1996,
prepare by Kier and Wright Civil Engineers and Surveyors, Inc., Job No.
89525-4.
A. The fact that a chain title fence along the Easterly and
Southerly boundaries of said lands are partly on said lands and
partly on adjoining lands, and;
B. The fact that an old wire fence along the Westerly boundary of
said lands is partly on said lands and partly on adjoining lands,
and;
C. The fact that a chain link fence along the Northerly and Westerly
boundary of said lands is partly on said lands and partly on
adjoining property.
Exhibit D
(MEMORANDUM OF LEASE OF THE LAND)
RECORDING REQUESTED BY, AND
WHEN RECORDED, RETURN TO:
Sumitomo Bank Leasing and Finance, Inc.
c/o Graham & James, LLP
One Maritime Plaza, Suite 100
San Francisco, CA 94111
Attention: Bruce W. Hyman, Esq.
MEMORANDUM OF LEASE OF THE LAND
THIS MEMORANDUM OF LEASE OF THE LAND ("Memorandum of Lease") is
executed as of April , 1996, by and between SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware corporation ("Landlord"), and READ-RITE
CORPORATION, a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant have executed that certain lease ("Lease")
dated as of April , 1996, covering a leasehold interest in certain land
located on the real property located in the City of Fremont, Alameda
County, California as more particularly described in Schedule 1 attached
hereto and incorporated herein by this reference ("Land") (the Land is
referred to herein as the "Premises"); and
WHEREAS, Landlord and Tenant desire to record notice of the Lease in
the real estate records of Alameda County, California:
NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant
hereby declare as follows:
1. Demise. Landlord hereby leases the Premises to Tenant and Tenant
hereby leases the Premises from Landlord, subject to the terms, covenants
and conditions contained in the Lease.
2. Expiration Date. The term of the Lease ("Term") shall commence
with respect to the Premises on the date hereof and shall expire on
April ,1999.
3. Option to Purchase. Tenant has an option to purchase the
Premises, as more particularly described in the Lease, at any time during
the Term (including any extension thereof).
4. Restrictions on Encumbrances. Landlord is prohibited from
recording against the Premises liens (including, without limitation, deeds
of trust), encumbrances, and other matters that would constitute exceptions
to title, and from amending or modifying any of the foregoing that may
exist now or during the Term, as more particularly described in the Lease.
5. Restrictions on Transfers by Landlord. Subject to certain
exceptions, Landlord may transfer its interest in the Premises to a third
party subject to the restrictions which are set forth with more
particularity in the Lease.
6. Counterparts. This Memorandum of Lease may be executed in any
number of counterparts, each of which shall be deemed to be an original and
all of which together shall comprise but a single instrument.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum
of Lease as of the date and year first written above.
TENANT: READ-RITE CORPORATION, a
Delaware Corporation
By
Name
Its
(Signatures continued on next page)
LANDLORD: SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware
corporation
By
Name
Its
Schedule 1 to Exhibit D
[to follow]
Exhibit E
LIST OF LITIGATION
None.
Exhibit F
LIST OF GOVERNMENTAL APPROVALS
None.
Exhibit G
LIST OF ENVIRONMENTAL LAWS
None.
Exhibit H
FORM OF OFFICERS' CERTIFICATE
The undersigned,_______________ of READ-RITE CORPORATION, a Delaware
corporation, hereby certifies that as of the date hereof the lease dated
April___, 1996 by and between SUMITOMO BANK LEASING AND FINANCE, INC., a
Delaware corporation, as Landlord and READ-RITE CORPORATION, a Delaware
corporation, as Tenant is in full force and effect, and Tenant is not in
default thereunder.
Date:__________________ ___________________________
Recording Requested By
And
When Recorded Return To:
Graham & James LLP
One Maritime Plaza, Suite 300
San Francisco, CA 94111
Attention: Bruce W. Hyman, Esq.
=================================================================
=================================================================
READ-RITE CORPORATION,
a Delaware corporation
as Trustor,
to
FIRST AMERICAN TITLE INSURANCE COMPANY,
a California corporation,
as Trustee,
for the benefit of
SUMITOMO BANK LEASING AND FINANCE, INC.,
a Delaware corporation,
as Beneficiary
=================================================================
=================================================================
DEED OF TRUST, FINANCING STATEMENT,
SECURITY AGREEMENT AND FIXTURE FILING
(WITH ASSIGNMENT OF RENTS AND LEASES)
=================================================================
Dated: April 25, 1996
=================================================================
=================================================================
This instrument is a Deed of Trust, Financing Statement, Security Agreement
and Fixture Filing (with Assignment of Rents and Leases) of both real and
personal property, including fixtures. This instrument contains provisions
accelerating the obligations hereby secured upon certain sales or further
encumbrances of the property hereby covered.
T A B L E O F C O N T E N T S
Section Page
GRANTING CLAUSES
GRANTING CLAUSE FIRST
Land 2
GRANTING CLAUSE SECOND
Improvements 3
GRANTING CLAUSE THIRD
Equipment 3
GRANTING CLAUSE FOURTH
Other and After Acquired Property 4
GRANTING CLAUSE FIFTH
Proceeds and Awards 4
ARTICLE 1
COVENANTS OF TRUSTOR
SECTION 1.1 Insurance 5
(a) Casualty Insurance 5
SECTION 1.2 Damage and Destruction 5
(a) Trustor's Obligations 5
(b) Beneficiary's Rights;
Application of Proceeds 5
(c) Effect on the Indebtedness 6
SECTION 1.3 Condemnation 6
(a) Trustor's Obligations; Proceedings 6
(b) Beneficiary's Rights to Proceeds 7
(c) Application of Proceeds - Total Taking 7
(d) Application of Proceeds - Partial Taking 7
(e) Right to Participate 8
(f) Effect on the Obligations 8
ARTICLE 2
ADDITIONAL ADVANCES; EXPENSES; INDEMNITY
SECTION 2.1 Additional Advances and Disbursements 9
SECTION 2.2 Other Expenses 9
SECTION 2.3 Indemnity 10
ARTICLE 3
DEFAULTS AND REMEDIES
SECTION 3.1 Events of Default 11
SECTION 3.2 Remedies 11
SECTION 3.3 Trustor's Personal Property and Trade
Fixtures 14
SECTION 3.4 Expenses 14
SECTION 3.5 Rights Pertaining to Sales 14
SECTION 3.6 Application of Proceeds 16
SECTION 3.7 Additional Provisions as to Remedies 17
SECTION 3.8 Waiver of Rights and Defenses 19
SECTION 3.9 Exercise by Trustee 21
ARTICLE 4
DEFEASANCE
SECTION 4.1 Defeasance 21
ARTICLE 5
ADDITIONAL PROVISIONS
SECTION 5.1 Provisions as to Payments, Advances 21
SECTION 5.2 Usury Savings Clause 22
SECTION 5.3 Separability 22
SECTION 5.4 Notices 22
SECTION 5.5 No Merger 23
SECTION 5.6 Applicable Law 23
SECTION 5.7 Provisions as to Covenants and
Agreements 23
SECTION 5.8 Matters to be in Writing 24
SECTION 5.9 Construction of Provisions 24
SECTION 5.10 Successors and Assigns 25
SECTION 5.11 Request for Notice 25
SECTION 5.12 Fixture Filing 25
SECTION 5.13 Entire Agreement 25
ARTICLE 6
PROVISIONS AS TO TRUSTEE
SECTION 6.1 Trustee's Appointment 26
ARTICLE 7
SPECIAL PROVISIONS
SECTION 7.1 Defeasance and Release 27
SECTION 7.2 Subordination 27
SECTION 7.3 Counterparts 27
EXHIBIT A - Property Description
THIS DEED OF TRUST, FINANCING STATEMENT, SECURITY AGREEMENT and FIXTURE
FILING (WITH ASSIGNMENT OF RENTS AND LEASES) ("Deed of Trust") is made this
25th day of April, 1996 by READ-RITE CORPORATION, a Delaware corporation
"Trustor"), whose address is 345 Los Coches Street, Milpitas, California,
95035 to FIRST AMERICAN TITLE INSURANCE COMPANY, a corporation organized
and existing under the laws of the State of California ("Trustee") for the
benefit of SUMITOMO BANK LEASING AND FINANCE, INC., a corporation having
its mailing address at 277 Park Avenue, New York, New York 10172
("Beneficiary").
W I T N E S S E T H :
WHEREAS, Concurrently herewith Beneficiary is entering into a lease
of the land of even date of that certain unimproved real property more
particularly described in Exhibit A attached hereto, with Trustor for the
purpose of financing the acquisition of such property that is part of the
Mortgaged Property (as defined below) and leasing such property to Trustor
(the "Lease"). Pursuant to the terms of the Lease, Beneficiary is
obligated to finance the acquisition of the Land in an amount up to, but
not to exceed, $10,000,000, including interest and fees which is to be
repaid to Beneficiary pursuant to the terms of the Lease.
WHEREAS, the total indebtedness and liabilities that are to be
secured by this Deed of Trust shall be as follows:
i) all amounts payable by Trustor under and in connection
with the Lease and under any other document or instrument executed by
Trustor, securing, evidencing or relating to the Lease or any of the
security therefor, (the Lease and such other documents and instruments
being hereinafter collectively referred to as the "Transaction
Documents"), in each case as the same may be modified, amended, or
supplemented from time to time including but not limited to Base Rent
and Additional Rent, as defined in the Lease, all sums Beneficiary may
advance, pay or incur under or in connection with the Lease that are
the obligation of Trustor under the Lease or any other sums advanced
by Trustee or Beneficiary for the benefit of Trustor under the Lease
that are the obligation of Trustor under the Lease;
ii) all amounts payable by Trustor, under or in connection with
this Deed of Trust, as the same may be amended, modified or
supplemented from time to time, including all sums, amounts and
expenses which Trustee or Beneficiary may advance, pay or incur in
connection with or any other sums advanced by Trustee or Beneficiary
for the protection of its security interests under the Transaction
Documents; and
iii) any other indebtedness, obligation or agreement of Trustor
when evidenced or set forth in a document or instrument executed by
Trustor reciting that it is secured by this Deed of Trust;
(all such amounts, obligations and liabilities described in
(i) through (iii) being hereinafter collectively referred to as the
"Obligations"); and
WHEREAS, it has been agreed that the payment and performance
of the Obligations shall be secured by a conveyance of certain property as
hereinafter described; and
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in order to secure the due and punctual payment in full
by Trustor, whether at stated maturity, by acceleration or otherwise, and
performance of the Obligations, Trustor does hereby, give, grant, bargain,
sell, warrant, mortgage, transfer, grant a security interest in, set over,
deliver, confirm and convey unto Trustee, in trust, with power of sale and
right of entry as hereinbelow provided, upon the terms and conditions of
this Deed of Trust, the following property described in Granting Clauses
FIRST through FIFTH below:
GRANTING CLAUSES
All the estate, right, title and interest of Trustor, whether now
owned or hereafter acquired, in, to and under, or derived from:
GRANTING CLAUSE FIRST
Land
All those certain lots, pieces or parcels of land located in the City
of Fremont, the County of Alameda and the State of California, as more
particularly described in Exhibit A attached hereto, as the description of
the same may be amended, modified or supplemented from time to time, all
rights, title and interest of Trustor therein, including Trustor's right,
title and interest in said real property, including such interests under
the Lease, and including Trustor's options to purchase said real property
under Article 17.1 of the Lease and all and singular reversions or
remainders in and to said land and the tenements, hereditaments,
transferable entitlements and development rights, easements (in gross
and/or appurtenant) existing as of the date hereof or arising thereafter,
agreements, rights-of-way or use rights (including alley, drainage,
horticultural, mineral, mining, water, oil and gas rights and any other
rights to produce or share in the production of anything therefrom or
attributable thereto), privileges, royalties and appurtenances to said
land, now or hereafter belonging or in anyway appertaining thereto,
including any such right, title, interest in, to or under any agreement or
right granting, conveying or creating, for the benefit of said land, any
easement, right or license in any way affecting said land and/or other land
and in, to or under any streets, ways, alleys, vaults, gores or strips of
land adjoining said land or any parcel thereof, or in or to the air space
over said land, all rights of ingress and egress with respect to said land,
and all claims or demands of Trustor, either at law or in equity, in
possession or expectancy, of, in or to the same (all of the foregoing
hereinafter collectively referred to as the "Land").
GRANTING CLAUSE SECOND
Improvements
All buildings, structures, facilities, landscaping and other
improvements now or hereafter located on the Land, and all building
material, building equipment, supplies and fixtures of every kind and
nature now or hereafter located on the Land or attached to, contained in or
used in connection with any such buildings, structures, facilities,
landscaping or other improvements, and all appurtenances and additions
thereto and betterments, renewals, substitutions and replacements thereof,
(all of the foregoing hereinafter collectively referred to as the
"Improvements").
GRANTING CLAUSE THIRD
Equipment
To the extent that the same are not Improvements but are located on
the Land, all machinery, apparatus, goods, equipment, materials, building
materials, fittings, chattels and tangible personal property, and all
appurtenances and additions thereto and betterments, renewals,
substitutions and replacements thereof, wherever situated on the Land, and
now or hereafter located on, attached to, contained in or used in
connection with the Land, or placed on any part thereof, though not
attached thereto, but excluding any and all trade fixtures and other items
of personal property now or hereafter installed or used by Trustor in
connection with the operation of its business in the Improvements
("Trustor's Property")(all of the foregoing hereinafter collectively
referred to as the "Equipment"), including without limitation all screens,
awnings, shades, blinds, curtains, draperies, carpets, rugs, furniture and
furnishings, heating, lighting, air conditioning, refrigerating,
incinerating and/or compacting plants, systems and equipment, hoists,
stoves, ranges, vacuum and other cleaning systems, call systems, sprinkler
systems and other fire prevention and extinguishing apparatus and
materials, motors, machinery, pipes, ducts, conduits, dynamos, engines,
compressors, generators, boilers, stokers, furnaces, pumps, tanks,
appliances, equipment and fittings (the Land, the Improvements and the
Equipment hereinafter collectively referred to as the "Premises"); all
contract rights of Trustor in construction contracts, plans and
specifications, and architects' agreements arising out of the improvements
of the Premises, all permits, licenses, franchises, certificates and other
rights and privileges obtained in connection with the Premises; all names
under which the Land and Improvements may at any time be operated or known
(provided that nothing herein shall give Beneficiary the right to use the
name or any derivative of the name of Trustor without the consent of
Trustor), and all proceeds, substitutions and replacements of all of the
foregoing. Trustor hereby grants to Trustee and Beneficiary, a security
interest in and to all of Trustor's present and future "equipment"
(excluding Trustor's Property)(as defined in the Uniform Commercial Code of
the State of California), to the extent that such equipment is located on
or used in connection with the Premises, that may be hereafter acquired by
Trustor, and Trustee and Beneficiary shall have, in addition to all rights
and remedies provided herein and in the Transaction Documents, all of the
rights and remedies of a "secured party" under said Uniform Commercial
Code. This Deed of Trust constitutes and shall be deemed to be a "security
agreement" for all purposes of said Uniform Commercial Code. It is agreed
that all Equipment is part and parcel of the Land and the Improvements and
appropriated to the use thereof and, whether affixed to the Land and/or the
Improvements or not, shall, for purposes of this Deed of Trust be deemed
conclusively to be real estate and mortgaged or otherwise conveyed or
encumbered hereby.
GRANTING CLAUSE FOURTH
Other and After Acquired Property
INTENTIONALLY DELETED
GRANTING CLAUSE FIFTH
Proceeds and Awards
All unearned premiums, accrued, accruing or to accrue under insurance
policies now or hereafter obtained by Trustor relating to the Land, all
proceeds (including funds, accounts, deposits, instruments, general
intangibles, notes or chattel paper) of the conversion, voluntary or
involuntary, of any of the property described in these Granting Clauses
into cash or other liquidated claims, including proceeds of hazard, title
and other insurance and proceeds received pursuant to any sales or rental
agreements of Trustor in respect of the property described in these
Granting Clauses, and all judgments, damages, awards, settlements and
compensation (including interest thereon) heretofore or hereafter made to
the present and all subsequent owners of the Premises and/or any other
property or rights conveyed or encumbered hereby for any injury to or
decrease in the value thereof for any reason, or by any governmental or
other lawful authority for the taking by eminent domain, condemnation or
otherwise of all or any part of the property covered hereby, including
awards for any change of grade of streets (the Premises and all other
property and rights described in Granting Clauses THIRD and FIFTH,
hereinafter sometimes collectively referred to as the "Mortgaged
Property").
Notwithstanding anything herein to the contrary, this Deed of Trust
shall not cover any personal property, process equipment, furniture,
furnishings, or trade fixtures which are not purchased, paid for, or
otherwise financed by "Advances" (as that term is defined in the Lease)
made by Beneficiary, whether or not installed upon the Land or within or
made part of the Improvements. This Deed of Trust does not encumber any
personal property of Trustor which is not related to the ownership,
development, improvement or operation of the Premises.
TO HAVE AND TO HOLD, all and singular the Mortgaged Property, whether
now owned or leased or hereafter acquired and whether now or hereafter
existing, together with all rights, privileges and appurtenances thereunto
belonging, unto Trustee and Beneficiary, forever, for the uses and purposes
herein set forth, subject however to the provisions of Article VI hereof.
AND Trustor covenants with and represents, warrants to and agrees with
Trustee and Beneficiary as follows:
ARTICLE 1.
COVENANTS OF TRUSTOR
Section 1.1 Insurance.
(a) Casualty Insurance. Trustor will keep the Premises insured
at all times at no cost to Beneficiary for the benefit of Trustee and
Beneficiary to the extent and in the manner described in the Lease and for
the coverages described in the Lease, naming Trustee and Beneficiary as
loss payees or additional insureds, as appropriate.
Section 1.2 Damage and Destruction.
(a) Trustor's Obligations. In the event of any material damage
to or loss or material destruction of the Land or Improvements, Trustor
shall promptly notify Beneficiary of such event.
(b) Beneficiary's Rights; Application of Proceeds. In the event
that any portion of the Land or Improvements is so damaged, destroyed or
lost, and any such damage, destruction or loss is covered, in whole or in
part, by insurance described in Section 1.1, then the following provisions
shall apply:
(1) If an Event of Default has occurred hereunder and is
continuing, (i) Beneficiary may, but shall not be obligated to, make proof
of loss if not made promptly by Trustor, and Beneficiary is hereby
authorized and empowered by Trustor to settle, adjust or compromise any
claims for damage, destruction or loss thereunder unless the proposed
amount of proceeds from such claims exceeds the then outstanding amount of
the Obligations, and (ii) each insurance company concerned is hereby
authorized and directed to make payment therefor directly to Beneficiary,
to be applied, at Beneficiary's option, to the Obligations then secured
hereby, in such order as Beneficiary may determine in its sole discretion.
Unless otherwise required by law, such application to the Obligations by
Beneficiary of such payments shall not, by itself, cure or waive any Event
of Default hereunder or notice of default under this Deed of Trust or any
other Transaction Document or invalidate any act done pursuant to such
notice.
(2) If no Event of Default hereunder has occurred and is
continuing, and if such proceeds are reasonably expected to be $100,000 or
less, Trustor shall be entitled to receive all such proceeds provided that
Trustor applies such proceeds to the restoration, replacement, and
rebuilding of that portion of the Land or Improvements so damaged,
destroyed or lost in accordance with the provisions of the Lease.
(3) If such proceeds are reasonably expected to exceed
$100,000 and if an Event of Default has not occurred hereunder or has
occurred but is not continuing, then if Trustor elects not to restore the
damage, the insurance proceeds shall be paid to the Beneficiary and applied
to the reduction of the Obligations.
(c) Effect on the Indebtedness. Any reduction in the
Obligations resulting from the application to the Obligations of insurance
proceeds shall be deemed to take effect only on the date of receipt by
Beneficiary of such proceeds and the application of such proceeds to the
Obligations; provided that if prior to the receipt by Beneficiary of such
proceeds, the Mortgaged Property shall have been sold on foreclosure of
this Deed of Trust, or shall have been transferred by deed in lieu of
foreclosure of this Deed of Trust, notwithstanding any limitation on
Trustor's liability contained herein or the other Transaction Documents,
Beneficiary shall have the right to receive the same to the extent of any
deficiency following such sale or conveyance, together with attorneys' fees
and disbursements incurred by Trustee and Beneficiary in connection with
the collection thereof. After payment in full of all Obligations, any
excess insurance proceeds shall be delivered to Trustor for disposition in
the manner set forth in the Lease.
Section 1.3 Condemnation.
(a) Trustor's Obligations; Proceedings. Trustor, promptly upon
obtaining knowledge of any pending or threatened institution of any
proceedings for the condemnation of the Land or Improvements, or any part
thereof or interest therein, or of any right of eminent domain, or of any
other proceedings arising out of injury or damage to or decrease in the
value of the Land or Improvements (including a change in grade of any
street), or any part thereof or interest therein (collectively referred to
herein as "Condemnation"), will notify Beneficiary of the threat or
pendency thereof and the following provisions shall apply:
(b) Beneficiary's Rights to Proceeds. If the amount of all
compensation, awards, proceeds and other payments or relief in connection
with such condemnation, including without limitation proceeds of sale in
lieu of Condemnation, made or granted to Trustor (collectively the
"Proceeds") is reasonably expected to be in excess of $100,000, all
Proceeds and all judgments, decrees and awards for injury or damage to the
Land and Improvements are hereby assigned to Beneficiary and shall be paid
to Beneficiary to be held and disbursed as hereinafter set forth. Trustor
agrees to execute and deliver such further assignments thereof as
Beneficiary may request to effectuate the foregoing and authorizes
Beneficiary to collect and receive the same for disbursement as hereinafter
set forth.
(c) Application of Proceeds - Total Taking. In the event of a
Condemnation of all or substantially all of the Land and Improvements (a
"Total Taking") or, without regard to whether there has been a Total Taking
or a Partial Taking (as defined below), if an Event of Default shall have
occurred hereunder and be continuing:
(1) Beneficiary shall be entitled to all Proceeds of such
Condemnation made or granted to Trustor (but not to any compensation, award
or other payment or relief made or granted for the benefit of tenants of
the Improvements) and, if an Event of Default shall have occurred and be
continuing shall be entitled, at Beneficiary's option, to commence, appear
in and prosecute in its own name any action or proceedings. All such
Proceeds shall be deemed assigned to Beneficiary to the extent of any sums
then secured by this Deed of Trust, and Trustor agrees to execute such
further assignments of the Proceeds as Beneficiary or Trustee may require.
(2) Beneficiary shall apply all such Proceeds, after
deducting therefrom all costs and expenses (regardless of the particular
nature thereof and whether incurred with or without suit), including
reasonable attorneys' fees, incurred by it in connection with the
collection of such Proceeds, to the Obligations secured by this Deed of
Trust, in such order as Beneficiary may determine in its sole discretion.
Unless otherwise required by applicable law, such application or release
shall not, by itself, cure or waive any Event of Default hereunder or
notice of default under this Deed of Trust or any other Transaction
Document or invalidate any act done pursuant to such notice. After payment
in full of all Obligations, any excess Proceeds shall be delivered to
Trustor for disposition in the manner set forth in the Lease.
(d) Application of Proceeds - Partial Taking. If an Event of
Default shall not have occurred hereunder and be continuing and in the
event of a Condemnation of less than all or substantially all of the Land
and/or Improvements (a "Partial Taking"), the following provisions shall
apply:
(1) In the event that such Proceeds are in an amount less
than $100,000, Trustor shall be entitled to receive all such Proceeds
provided that Trustor applies such Proceeds to the payment of the costs and
expenses of repairing and restoring the Land and Improvements.
(2) In the event that such Proceeds are in the amount of
$100,000 or more, the Proceeds shall be paid to and shall be disbursed by
Beneficiary in the same manner, for the same purposes and subject to the
same requirements as are applicable to insurance proceeds pursuant to the
provisions hereof.
(e) Right to Participate. If an Event of Default shall have
occurred and be continuing hereunder Beneficiary shall have the right to
settle, adjust or compromise any claim in connection with a Condemnation of
the Land and/or Improvements in its sole discretion. If an Event of
Default shall not have occurred hereunder or has occurred but is not
continuing then: (A) Trustor may settle, adjust or compromise any claim
which is reasonably expected to be in an amount less than $100,000; and
(B) with respect to any claim which is reasonably expected to be in the
amount of $100,000 or more, Beneficiary and Trustor shall each consult and
cooperate with the other and each shall be entitled to participate in all
meetings and negotiations with respect to the settlement of such claim.
Trustor at its expense shall deliver to Beneficiary copies of all papers
served in connection with such Condemnation. Any adjustment or settlement
by Trustor of any claim which is in an amount in excess of $100,000 shall
be subject to the reasonable approval of Beneficiary.
(f) Effect on the Obligations. Notwithstanding any
condemnation, taking or other proceeding referred to in this Section
causing injury to or decrease in value of the Premises (including a change
in grade of any street), or any interest therein, Trustor shall continue to
pay and perform the Obligations as provided herein. Any reduction in the
Obligations resulting from the application to the Obligations of any
proceeds, judgments, decrees or awards pursuant to Section 1.3(b), (c) or
(d) shall be deemed to take effect only on the date of receipt by
Beneficiary of such proceeds, judgments, decrees or awards and their
application against the Obligations; provided that if prior to the receipt
by Beneficiary of such proceeds, judgments, decrees or awards the Mortgaged
Property shall have been sold on foreclosure of this Deed of Trust, or
shall have been transferred by deed in lieu of foreclosure of this Deed of
Trust, Beneficiary shall have the right to receive the same to the extent
of any deficiency following such sale, with legal interest thereon together
with attorneys' fees and disbursements incurred by Trustee and Beneficiary
in connection with the collection thereof.
ARTICLE 2.
ADDITIONAL ADVANCES; EXPENSES; INDEMNITY
Section 2.1 Additional Advances and Disbursements. Trustor agrees that if
an Event of Default occurs hereunder and is continuing then Trustee and/or
Beneficiary shall have the right, but not the obligation, in Trustor's name
or in its or their own name, and without notice to Trustor to exercise any
and all rights and remedies of the landlord under the Lease, and, for such
purpose, Trustor expressly grants to Trustee and Beneficiary, in addition
and without prejudice to any other rights and remedies hereunder, the right
to enter upon and take possession of the Premises in accordance with
applicable law to such extent and as often as either of them may deem
necessary or desirable. Except as otherwise provided by law, no such
exercise shall be deemed to have cured such Event of Default with respect
thereto. All reasonable sums advanced and all reasonable expenses incurred
by Trustee and/or Beneficiary in connection with such exercise, and all
other reasonable sums advanced or expenses incurred by Beneficiary
hereunder or under applicable law (whether required or optional and whether
indemnified hereunder or not) shall be part of the Obligations, shall bear
interest at the Default Rate (as defined in Section 2.8 of the Lease) from
the date of disbursement until paid and shall be secured by this Deed of
Trust. Trustee and/or Beneficiary, upon making any such advance, shall be
subrogated to all of the rights of the person receiving such advance.
Section 2.2. Other Expenses.
(a) Trustor will pay or, on demand, reimburse Trustee and
Beneficiary for the payment of, all recording and filing fees, abstract
fees, title insurance premiums and fees, Uniform Commercial Code search
fees, escrow fees, reasonable attorneys' fees and disbursements and all
other reasonable costs and expenses incurred by Trustor, Trustee and/or
Beneficiary in connection with the granting, closing and enforcement
(including the preparation of the Transaction Documents) of the
transactions contemplated hereunder or under the other Transaction
Documents, or otherwise attributable or chargeable to Trustor as owner of
the Mortgaged Property. Notwithstanding anything to the contrary contained
herein in this Section 2.2(a), the provisions of this Section 2.2(a) shall
not be deemed or construed to authorize Beneficiary to undertake, exercise
or perform any action in the administration of the transactions
contemplated hereunder not otherwise (i) authorized by the terms of this
Deed of Trust or the Transaction Documents or (ii) permitted under
applicable law to be undertaken, exercised or performed by a trust deed
beneficiary to protect the security afforded by a deed of trust upon real
property.
(b) Trustor will pay or, on demand, reimburse Trustee and
Beneficiary for the payment of any reasonable costs or expenses (including
attorneys' fees and disbursements) incurred or expended in connection with
or incidental to (i) any Event of Default by Trustor or (ii) the exercise
or enforcement by or on behalf of Trustee and/or Beneficiary of any of
their rights or remedies or Trustor's obligations under this Deed of Trust
or under the other Transaction Documents, including the enforcement,
compromise or settlement of this Deed of Trust or the Obligations or the
defense or assertion of the rights and claims of Trustee and Beneficiary
hereunder in respect thereof, by litigation or otherwise.
Section 2.3. Indemnity.
(a) Trustor agrees to indemnify and hold harmless Trustee and
Beneficiary from and against any and all losses, liabilities, suits,
obligations, fines, damages, judgments, penalties, claims, charges, costs
and expenses (including attorneys' fees and disbursements) which may be
imposed on, incurred or paid by or asserted against Trustee and/or
Beneficiary by reason or on account of, or in connection with, (i) any
willful misconduct of Trustor or any Event of Default by Trustor hereunder,
(ii) Trustee's and/or Beneficiary's good faith and commercially reasonable
exercise of any of their rights and remedies, or the performance of any of
their duties, hereunder or under the other Transaction Documents to which
Trustor is a party, (iii) the construction, reconstruction or alteration of
the Premises by Trustor, (iv) any negligence of Trustor, or any negligence
or willful misconduct of any lessee of the Premises, or any of their
respective agents, contractors, subcontractors, servants, employees,
licensees or invitees, or (v) any accident, injury, death or damage to any
person or property occurring in, on or about the Premises or any street,
drive, sidewalk, curb or passageway adjacent thereto, in each case of (i)
through (v) above, except for the willful misconduct or gross negligence of
the indemnified person, or any of its agents, contractors, subcontractors,
servants, employees, licensees or invitees. Any amount payable to Trustee,
Beneficiary or counsel for Beneficiary under this Section 2.3 shall be due
and payable within five (5) days after demand therefor and receipt by
Trustor of a statement from Trustee, Beneficiary and/or counsel for
Beneficiary setting forth in reasonable detail the amount claimed and the
basis therefor, and such amounts shall bear interest at the Default Rate
(as defined in Section 2.8 of the Lease) from and after the date such
amounts are paid by counsel for Beneficiary, Beneficiary or Trustee until
paid in full by Trustor.
(b) Trustor's obligations under this Section shall not be
affected by the absence or unavailability of insurance covering the same or
by the failure or refusal by any insurance carrier to perform any
obligation on its part under any such policy of covering insurance. If any
claim, action or proceeding is made or brought against Trustee and/or
Beneficiary which is subject to the indemnity set forth in this Section,
Trustor shall resist or defend against the same, if necessary in the name
of Trustee and/or Beneficiary, by attorneys for Trustor's insurance carrier
(if the same is covered by insurance) or otherwise by attorneys approved by
Beneficiary. Notwithstanding the foregoing, Trustee and Beneficiary, in
their discretion, may engage their own attorneys to resist or defend, or
assist therein, and Trustor shall pay, or, on demand, shall reimburse
Trustee and Beneficiary for the payment of, the reasonable fees and
disbursements of said attorneys; provided, however, that for so long as
there is no Event of Default under this Lease, which Event of Default is
continuing, Trustor shall have the sole right to control settlement
discussions and decisions after consultation with the lawyer(s) for Trustee
and Beneficiary.
ARTICLE 3
DEFAULTS AND REMEDIES
Section 3.1. Events of Default. The term "Event of Default", as used in
this Deed of Trust, shall mean the occurrence of an "Event of Default"
under the Lease.
Section 3.2. Remedies. Upon the occurrence of any one or more Events of
Default subject to Article VII and Section 3.3 below, Trustee and/or
Beneficiary may (but shall not be obligated), in addition to any rights or
remedies available to them hereunder or under the other Transaction
Documents, take such action personally or by their agents or attorneys,
with or without entry, and without notice, demand, presentment or protest
(each and all of which are hereby waived to the extent permitted by law) as
they deem necessary or advisable to protect and enforce Beneficiary's
rights and remedies against Trustor and in and to the Mortgaged Property,
including the following actions, each of which may, subject to Section 3.3
hereof, be pursued concurrently or otherwise, at such time and in such
order as Trustee and/or Beneficiary may determine, in their sole
discretion, without impairing or otherwise affecting its or their other
rights or remedies:
(a) declare the entire balance of the Obligations (including the
entire principal balance thereof, all accrued and unpaid interest and any
premium thereon and all other such sums secured hereby) to be immediately
due and payable and upon any such declaration the entire unpaid balance of
the Obligations shall become and be immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by Trustor anything in the Transaction
Documents to the contrary notwithstanding; or
(b) institute a proceeding or proceedings, judicial or
otherwise, for the complete foreclosure of this Deed of Trust under any
applicable provision of law; or
(c) institute a proceeding or proceedings for the partial
foreclosure of this Deed of Trust under any applicable provision of law for
the portion of the Obligations then due and payable, subject to the lien of
this Deed of Trust continuing unimpaired and without loss of priority so as
to secure the balance of the Obligations not then due and payable; or
(d) cause any or all of the Mortgaged Property to be sold under
the power of sale granted by this Deed of Trust or any of the other
Transaction Documents in any manner permitted by applicable law. For any
sale under the power of sale granted by this Deed of Trust, Trustee or
Beneficiary must record and give all notices required by law and then, upon
the expiration of such time as is required by law, may sell the Mortgaged
Property, and all estate, right, title, interest, claim and demand of
Trustor therein, and all rights of redemption thereof, at one or more
sales, as an entirety or in parcels, with such elements of real and/or
personal property (and, to the extent permitted by applicable law, may
elect to deem all of the Mortgaged Property to be real property for
purposes thereof), and at such time or place and upon such terms as Trustee
and Beneficiary may determine and shall execute and deliver to the
purchaser or purchasers thereof a deed or deeds conveying the property
sold, but without any covenant or warranty, express or implied, and the
recitals in the deed or deeds of any facts affecting the regularity or
validity of the sale will be conclusive against all persons. In the event
of a sale, by foreclosure or otherwise, of less than all of the Mortgaged
Property, this Deed of Trust shall continue as a lien and security interest
on the remaining portion of the Mortgaged Property; or
(e) institute an action, suit or proceeding in equity for the
specific performance of any of the provisions contained in the Transaction
Documents; or
(f) apply for the appointment of a receiver, custodian, trustee,
liquidator or conservator of the Mortgaged Property, to be vested with the
fullest powers permitted under applicable law, as a matter of right and
without regard to or the necessity to disprove the adequacy of the security
for the Obligations or the solvency of Trustor or any other person liable
for the payment of the Obligations, and Trustor and each other person so
liable waives or shall be deemed to have waived such necessity and consents
or shall be deemed to have consented to such appointment; or
(g) subject to the provisions and restrictions of any applicable
law, enter upon the Premises, and exclude Trustor and its agents and
servants wholly therefrom, without liability for trespass, damages or
otherwise, and take possession of all books, records and accounts relating
thereto and all other Mortgaged Property but not as to Trustor's business
conducted thereon and Trustor agrees to surrender possession of the
Mortgaged Property and of such books, records and accounts to Trustee or
Beneficiary on demand after the happening of any Event of Default
(provided, however, that Trustee and/or Beneficiary may not take possession
of any books, records and/or accounts relating to the Premises or other
Mortgaged Property unless Trustee or Beneficiary shall have given written
notice to Trustor demanding that Trustor deliver to the appropriate person
all such books, records, and/or accounts and Trustor shall have failed to
deliver such books, records and/or accounts on or before two (2) business
days following the date that Trustor shall have received such notice); and
having and holding the same may use, operate, manage, preserve, control and
otherwise deal therewith, either personally or by its superintendents,
managers, agents, servants, attorneys or receivers, without interference
from Trustor; and upon each such entry and from time to time thereafter
may, at the expense of Trustor and the Mortgaged Property, without
interference by Trustor and as Beneficiary may reasonably deem advisable to
protect the value thereof, (i) either by purchase, repair or construction,
maintain and restore the Premises, (ii) insure or reinsure the same, (iii)
make all necessary or proper repairs, renewals, replacements, alterations,
additions, betterments and improvements thereto and thereon, and (iv) in
every such case in connection with the foregoing have the right to exercise
all rights and powers of Trustor with respect to the Mortgaged Property,
either in Trustor's name or otherwise, including the right to make,
terminate, cancel, enforce or modify leases, obtain and evict tenants and
subtenants on such terms as Beneficiary shall deem advisable and to take
any actions described in subsection (i) of this Section; or
(h) subject to the provisions and restrictions of any applicable
law, may, with or without the entrance upon the Premises, collect, receive,
sue for and recover in its own name all Rents and cash collateral derived
from the Premises, and after deducting therefrom all reasonable costs,
expenses and liabilities of every character incurred by Trustee and/or
Beneficiary in collecting the same and in using, operating, managing,
preserving and controlling the Premises, and otherwise in exercising
Trustee's and/or Beneficiary's rights under subsection (g) of this Section,
including all amounts necessary to pay taxes, assessments, insurance
premiums and other reasonable charges in connection with the Premises, as
well as reasonable compensation for the services of Trustee and Beneficiary
and their respective attorneys, agents and employees, to apply the
remainder as provided in Section 3.6; or
(i) with the consent of Trustor, release any portion of the
Mortgaged Property for such consideration as Beneficiary may require
without, as to the remainder of the Mortgaged Property, in any way
impairing or affecting the lien or priority of this Deed of Trust, or
improving the position of any subordinate lienholder with respect thereto,
except to the extent that the Obligations shall have been reduced by the
actual monetary consideration, if any, received by Trustee and/or
Beneficiary for such release, and may accept by assignment, pledge or
otherwise any other property in place thereof as Trustee and/or Beneficiary
may require without being accountable for so doing to any other lienholder;
or
(j) may take all actions permitted under the Uniform Commercial
Code of the State of California; or
(k) may take any other action, or pursue any other right or
remedy, as Trustee and/or Beneficiary may have under applicable law, and
Trustor does hereby grant the same to Trustee and Beneficiary.
In the event that Trustee and/or Beneficiary shall exercise any of the
rights or remedies set forth in subsections (g) and (h) of this Section,
neither Trustee nor Beneficiary shall be deemed to have entered upon or
taken possession of the Mortgaged Property except upon the exercise of its
option to do so, evidenced by its demand and overt act for such purpose,
nor shall it be deemed a beneficiary or mortgagee in possession by reason
of such entry or taking possession, unless applicable law requires that it
be deemed to be a beneficiary or mortgagee in possession. Neither Trustee
nor Beneficiary shall be liable to account for any action taken pursuant to
any such exercise other than for rents actually received by such party, nor
liable for any loss sustained by Trustor resulting from any failure to let
the Premises, or from any other act or omission of Trustee and/or
Beneficiary, except to the extent such loss is caused by the willful
misconduct or bad faith of such party or such liability may not be waived
under applicable law. Trustor hereby consents to, ratifies and confirms
the exercise by Trustee and/or Beneficiary of said rights and remedies.
Section 3.3. Trustor's Personal Property and Trade Fixtures. Trustor shall
be entitled up to ten (10) days after the consummation of a foreclosure
sale hereunder to enter the Mortgaged Property during normal business hours
for the purpose of removing its personal property and trade fixtures there-
from at its expense, provided that it repairs only damage to the Mortgaged
Property caused by such removal.
Section 3.4. Expenses. If any action is commenced to foreclose this Deed of
Trust, or to enforce any other remedy of Trustee and/or Beneficiary under
any of the Transaction Documents, whether such action is judicial or
pursuant to the power of sale contained herein or otherwise, there shall be
added to the Obligations secured by this Deed of Trust all reasonable costs
and expenses, including reasonable attorney's fees, plus interest thereon
at the Default Rate (as defined in Section 2.8 of the Lease) until paid, in
the commencement and prosecution of such action, whether or not such action
results in a foreclosure sale, foreclosure or other judicial decree or
judgment.
Section 3.5 Rights Pertaining to Sales. Subject to the provisions or other
requirements of law, the following provisions shall apply to any sale or
sales of the Mortgaged Property under or by virtue of this Article III,
whether made under the power of sale herein granted or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale:
(a) Trustee, at the request of Beneficiary, may conduct any
number of sales from time to time. The power of sale set forth in
Section 3.2(d) hereof shall not be exhausted by any one or more such sales
as to any part of the Mortgaged Property which shall not have been sold,
nor by any sale which is not completed or is defective in Trustee's or
Beneficiary's opinion, until the Obligations shall have been paid in full.
(b) Any sale may be postponed or adjourned by public
announcement at the time and place appointed for such sale or for such
postponed or adjourned sale without further notice.
(c) After each sale, Trustee, or an officer of any court
empowered to do so, shall execute and deliver to the purchaser or
purchasers at such sale a good and sufficient instrument or instruments
granting, conveying, assigning and transferring all right, title and
interest of Trustor in and to the Mortgaged Property and rights sold and
shall receive the proceeds of said sale or sales and apply the same as
herein provided. Trustee is hereby appointed the true and lawful
attorney-in-fact of Trustor, which appointment is irrevocable and shall be
deemed to be coupled with an interest, in Trustor's name and stead, to make
all necessary conveyances, assignments, transfers and deliveries of the
property and rights so sold, and for that purpose Trustee may execute all
necessary instruments of conveyance, assignment, transfer and delivery, and
may substitute one or more persons with like power, Trustor hereby
ratifying and confirming all that said attorney or such substitute or
substitutes shall lawfully do by virtue thereof. Nevertheless, Trustor, if
requested by Trustee or Beneficiary, shall ratify and confirm any such sale
or sales by executing and delivering to Trustee or such purchaser or
purchasers all such instruments as may be advisable, in Trustee's or
Beneficiary's judgment, for the purposes as may be designated in such
request.
(d) Any and all statements of fact or other recitals made in any
of the instruments referred to in subsection (c) of this Section given by
Trustee and/or Beneficiary as to nonpayment of the Obligations, or as to
the occurrence of any Event of Default, or as to Beneficiary having
declared all or any of the Obligations to be due and payable, or as to the
request to sell, or as to notice of time, place and terms of sale and of
the property or rights to be sold having been duly given, or as to the
refusal, failure or inability to act of Trustee, or as to the appointment
of any substitute or successor Trustee, or as to any other act or thing
having been duly done by Trustor, Beneficiary, or by such Trustee, shall be
taken as conclusive and binding against all persons as to evidence of the
truth of the facts so stated and recited. Trustee and/or Beneficiary may
appoint or delegate any one or more persons as agent to perform any act or
acts necessary or incident to any sale so held, including the posting of
notices and the conduct of sale, but in the name and behalf of Trustee or
Beneficiary, as applicable.
(e) The receipt of Trustee for the purchase money paid at any
such sale, or the receipt of any other person authorized to receive the
same, shall be sufficient discharge therefor to any purchaser of any
property or rights sold as aforesaid, and no such purchaser, or its
representatives, grantees or assigns, after paying such purchase price and
receiving such receipt, shall be bound to see to the application of such
purchase price of any part thereof upon or for any trust or purpose of this
Deed of Trust or, in any manner whatsoever, be answerable for any loss,
misapplication or non-application of any such purchase money, or part
thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
(f) Any such sale or sales shall operate to divest all of the
estate, right, title, interest, claim and demand whatsoever, whether at law
or in equity, of Trustor in and to the properties and rights so sold, and
shall be a perpetual bar both at law and in equity against Trustor and any
and all persons claiming or who may claim the same, or any part thereof or
any interest therein, by, through or under Trustor to the fullest extent
permitted by applicable law.
(g) Upon any such sale or sales, Beneficiary may bid for and
acquire the Mortgaged Property and, in lieu of paying cash therefor, may
make settlement for the purchase price by crediting against the Obligations
the amount of the bid made therefor, after deducting therefrom the expenses
of the sale, the cost of any enforcement proceeding hereunder and any other
sums which Trustee or Beneficiary is authorized to deduct under the terms
hereof, to the extent necessary to satisfy such bid.
(h) In the event that Trustor, or any person claiming by,
through or under Trustor, shall transfer or refuse or fail to surrender
possession of the Mortgaged Property after any sale thereof, then Trustor,
or such person shall be deemed a tenant at sufferance of the purchaser at
such sale, subject to eviction by means of forcible entry and detainer
proceedings, or subject to any other right or remedy available hereunder or
under applicable law.
(i) Upon any such sale, it shall not be necessary for Trustee,
Beneficiary or any public officer acting under execution or order of court
to have present or constructively in its possession any of the Mortgaged
Property.
(j) In the event of any sale referred to in this Section, the
entire Obligations, if not previously due and payable, immediately
thereupon shall, notwithstanding anything to the contrary herein or in the
other Transaction Documents, become due and payable.
(k) In the event a foreclosure hereunder shall be commenced by
Trustee at the request of Beneficiary, Trustee or Beneficiary may at any
time before the sale of the Mortgaged Property abandon the sale, and may,
subject to Article VII hereof, institute suit for the collection of the
Obligations and for the foreclosure of this Deed of Trust, or in the event
that Trustee or Beneficiary should institute a suit for collection of the
Obligations, and for the foreclosure of this Deed of Trust, Beneficiary may
at any time before the entry of final judgment in said suit dismiss the
same and sell or require Trustee to sell the Mortgaged Property in
accordance with the provisions of this Deed of Trust.
Section 3.6. Application of Proceeds. The purchase money, proceeds or
avails of any sale referred to in Section 3.5, together with any other sums
which may be held by Trustee or Beneficiary hereunder, whether under the
provisions of this Article III or otherwise, shall, except as herein
expressly provided to the contrary, be applied as follows:
First: To the payment of the costs and expenses of any such
sale, including compensation to Trustee and/or Beneficiary, their
agents and counsel, and of any judicial proceeding wherein the same
may be made, and of all expenses, liabilities and advances made or
incurred by Trustee and/or Beneficiary hereunder, together with
interest thereon as provided herein, and all taxes, assessments and
other charges, except any taxes, assessments or other charges subject
to which the Mortgaged Property shall have been sold.
Second: To the payment in full of the Obligations (including
interest and fees) in such order as Beneficiary may elect.
Third: To the payment of any other sums secured hereunder or
required to be paid by Trustor pursuant to any provision of the
Transaction Documents.
Fourth: To the payment of the surplus, if any, to whomsoever may
be lawfully entitled to receive the same.
Section 3.7. Additional Provisions as to Remedies.
(a) No right or remedy herein conferred upon or reserved to
Trustee or Beneficiary is intended to be exclusive of any other right or
remedy, and each and every such right or remedy shall be cumulative and
continuing, shall be in addition to every other right or remedy given
hereunder, or under the other Transaction Documents or now or hereafter
existing at law or in equity, and may be exercised from time to time and as
often as may be deemed expedient by Trustee or Beneficiary.
(b) No delay or omission by Trustee or Beneficiary to exercise
any right or remedy hereunder upon any default or Event of Default shall
impair such exercise, or be construed to be a waiver of any such default or
Event of Default or an acquiescence therein.
(c) The failure, refusal or waiver by Trustee or Beneficiary of
its right to assert any right or remedy hereunder upon any default or Event
of Default or other occurrence shall not be construed as waiving such right
or remedy upon any other or subsequent default or Event of Default or other
occurrence.
(d) Neither Trustee nor Beneficiary shall have any obligation to
pursue any rights or remedies they may have under any other agreement prior
to pursuing their rights or remedies hereunder or under the other
Transaction Documents.
(e) No recovery of any judgment by Trustee or Beneficiary and no
levy of an execution upon the Mortgaged Property or any other property of
Trustor shall affect, in any manner or to any extent, the lien of this Deed
of Trust upon the Mortgaged Property, or any liens, rights, powers or
remedies of Trustee or Beneficiary hereunder, and such liens, rights,
powers and remedies shall continue unimpaired as before.
(f) Beneficiary may resort or cause Trustee to resort to any
security given by this Deed of Trust or any other security now given or
hereafter existing to secure the Obligations, in whole or in part, in such
portions and in such order as Beneficiary may deem advisable, and no such
action shall be construed as a waiver of any of the liens, rights or
benefits granted hereunder.
(g) Acceptance of any payment after the occurrence of any
default or Event of Default shall not be deemed a waiver or a cure of such
default or Event of Default, and acceptance of any payment less than any
amount then due shall be deemed an acceptance on account only.
(h) In the event that Trustee or Beneficiary shall have
proceeded to enforce any right or remedy hereunder by foreclosure, sale,
entry or otherwise, and such proceeding shall be discontinued, abandoned or
determined adversely for any reason, then Trustor, Trustee and Beneficiary
shall be restored to their former positions and rights hereunder with
respect to the Mortgaged Property, subject to the lien hereof.
(i) In every instance when a receiver is appointed with respect
to all or any portion of the Mortgaged Property pursuant to Section 3.2(f)
above or otherwise, at Beneficiary's discretion, the receiver shall be
authorized, among other such duties and powers as may be ordered or granted
by the court, to take possession of the Mortgaged Property; to manage,
control and protect the Mortgaged Property; to collect the rents, issues,
profits, revenues, earnings and income arising therefrom, and to apply the
same toward the payment of reasonable expenses, including reasonable
management and operating expenses, taxes, assessments, utilities, mortgage
payments and insurance premiums of or in connection with the Mortgaged
Property; to maintain the Mortgaged Property in a reasonable state of
repair so that there will be no excessive depreciation or devaluation
thereof arising from lack of prudent management; to enter into such lease
agreements or rental agreements with new tenants for the Mortgaged Property
as such receiver deems reasonable and prudent; to amend, extend or renew
existing leases upon such terms as such receiver deems reasonable and
prudent; to, if necessary, retain a property management firm to assist in
such duties upon such terms as such receiver deems reasonable and
appropriate; and to take such other action as is necessary in order to
provide services to the tenants under any existing or future leases or as
is necessary to accomplish any of the foregoing.
Section 3.8. Waiver of Rights and Defenses. To the full extent Trustor may
lawfully do so, Trustor agrees with Beneficiary as follows:
(a) Trustor will not at any time, insist on, plead, claim or
take the benefit or advantage of any statute or rule of law now or
hereafter in force providing for any appraisement, valuation, stay,
extension, moratorium or redemption, or of any statute of limitations, and
Trustor, for itself and its heirs, devises, representatives, successors and
assigns, and for any and all persons ever claiming an interest in the
Mortgaged Property (other than Beneficiary) hereby, to the extent permitted
by applicable law, waives and releases all rights of redemption, valuation,
appraisement, notice of intention to mature or declare due the whole of the
Obligations, and all rights to a marshalling of the assets of Trustor,
including the Mortgaged Property, or to a sale in inverse order of
alienation, in the event of foreclosure of the liens and security interests
created hereunder.
(b) Trustor shall not have or assert any right under any statute
or rule of law pertaining to any of the matters set forth in subsection (a)
of this Section, to the administration of estates of decedents or to any
other matters whatsoever to defeat, reduce or affect any of the rights or
remedies of Trustee and Beneficiary hereunder, including the rights of
Trustee and/or Beneficiary hereunder to a sale of the Mortgaged Property
for the collection of the Obligations without any prior or different resort
for collection, or to the payment of the Obligations out of the proceeds of
sale of the Mortgaged Property in preference to any other person.
(c) If any statute or rule of law referred to in this Section
and now in force, of which Trustor or any of its representatives,
successors or assigns and such other persons claiming any interest in the
Mortgaged Property might take advantage despite this Section, shall
hereafter be repealed or cease to be in force, such statute or rule of law
shall not thereafter be deemed to preclude the application of this Section.
(d) Trustor shall not be relieved of its obligation to pay the
Obligations at the time and in the manner provided herein and in the other
Transaction Documents, nor shall the lien or priority of this Deed of Trust
or any other Transaction Documents be impaired by any of the following
actions, non-actions or indulgences by Trustee or Beneficiary:
(i) any failure or refusal by Trustee or Beneficiary to
comply with any request by Trustor (X) to consent to any action by
Trustor or (Y) to take any action to foreclose this Deed of Trust or
otherwise enforce any of the provisions hereof or of the other
Transaction Documents;
(ii) any release, regardless of consideration, of the whole
or any part of the Mortgaged Property or any other security for the
Obligations, or any person liable for payment of the Obligations;
(iii) any waiver by Beneficiary of compliance by Trustor with
any provision of this Deed of Trust or the other Transaction
Documents, or consent by Beneficiary to the performance by Trustor of
any action which would otherwise be prohibited thereunder, or to the
failure by Trustor to take any action which would otherwise be
required hereunder or thereunder; and
(iv) any agreement or stipulation between Trustee or
Beneficiary and Trustor, or, with or without Trustor's consent,
between Trustee or Beneficiary and any subsequent owner or owners of
the Mortgaged Property or any other security for these Obligations,
renewing, extending or modifying the time of payment or the terms of
this Deed of Trust or any of the other Transaction Documents
(including a modification of any interest rate), and in any such event
Trustor shall continue to be obligated to pay the Obligations at the
time and in the manner provided herein and in the other Transaction
Documents, as so renewed, extended or modified, unless expressly
released and discharged by Beneficiary.
(e) Regardless of consideration, and without the necessity for
any notice to or consent by the holder of any subordinate lien,
encumbrance, right, title or interest in or to the Mortgaged Property,
Beneficiary may release any person at any time liable for the payment of
the Obligations or any portion thereof or any part of the security held for
the Obligations and may extend the time of payment or otherwise modify the
terms of this Deed of Trust or of any of the Transaction Documents, without
in any manner impairing or affecting this Deed of Trust, as so extended and
modified, as security for the Obligations over any such subordinate lien,
encumbrance, right, title or interest. Beneficiary may resort for the
payment of the Obligations to any other security held by Beneficiary (or
any trustee for the benefit of Beneficiary) in such order and manner as
Beneficiary in its discretion, may elect. Beneficiary may take or cause to
be taken action to recover the Obligations, or any portion thereof, or to
enforce any provision hereof or of the other Transaction Documents without
prejudice to the right of Beneficiary thereafter to foreclose or cause to
be foreclosed this Deed of Trust. Beneficiary shall not be limited
exclusively to the right and remedies herein stated but shall be entitled
to every additional right and remedy now or hereafter afforded by law or
equity. The rights of Trustee and Beneficiary under this Deed of Trust
shall be separate, distinct and cumulative and none shall be given effect
to the exclusion of the others. No act of Trustee and/or Beneficiary shall
be construed as an election to proceed under any one provision herein to
the exclusion of any other provision.
Section 3.9. Exercise by Trustee. Notwithstanding anything herein to the
contrary, Trustee (a) shall not exercise, or waive the exercise of, any of
its rights or remedies under this Article (other than its right to
reimbursement) except upon the request of Beneficiary, and (b) shall
exercise, or waive the exercise of, any or all of such rights or remedies
upon the request of Beneficiary and at the direction of Beneficiary as to
the manner of such exercise or waiver, provided that Trustee shall have the
right to decline to follow any of such request or direction if Trustee
shall be advised by counsel that the action or proceeding, or manner
thereof, so directed may not lawfully be taken or waived.
Section 3.10. Rights of Beneficiary. Notwithstanding anything
contained herein to the contrary, Beneficiary shall not be entitled to
exercise its remedies under Article III hereof upon any failure by Trustor
to perform any of its obligations hereunder unless and until an Event of
Default has occurred under Section 3.1 hereof.
ARTICLE 4.
DEFEASANCE
Section 4.1. Defeasance. If all of the Obligations shall be paid, then and
in that event only all rights hereunder shall terminate and the Mortgaged
Property shall become wholly released and cleared of the liens, security
interests, conveyances and assignments evidenced hereby, upon receipt by
Beneficiary of payment of all Obligations secured hereby. In such event
Trustee shall at the request of the Trustor, execute and promptly deliver
to Trustor, in recordable form, all such documents as shall be necessary to
release the Mortgaged Property from the liens, security interests,
conveyances and assignments created or evidenced hereby and any such
documents, when duly executed by the Trustee and duly recorded in the
Counties where this Deed of Trust is recorded, shall conclusively evidence
the reconveyance of this Deed of Trust. Notwithstanding anything in the
preceding sentence to the contrary, Trustee shall so release the Mortgaged
Property only upon the direction of Beneficiary.
ARTICLE 5
ADDITIONAL PROVISIONS
Section 5.1. Provisions as to Payments, Advances.
(a) To the extent that any part of the Obligations is used to
pay indebtedness secured by any outstanding lien, security interest, charge
or encumbrance against the Mortgaged Property that is superior to this Deed
of Trust, or to pay in whole or in part the purchase price therefor,
Trustee and Beneficiary shall be subrogated to any and all rights, security
interests and liens held by any owner or holder of the same, whether or not
the same are released. Trustor agrees that, in consideration of such
payment by Trustee or Beneficiary, effective upon such payment Trustor
shall and hereby does waive and release all demands, defenses and causes of
action for offsets and payments with respect to the same.
(b) Any payment made under this Deed of Trust by any person at
any time liable for the payment of the Obligations, or by any subsequent
owner of the Mortgaged Property or by any person or entity that might be
prejudiced in the event of a failure to make such payment, or by any
partner, stockholder, officer or director thereof, shall be deemed, as
between Trustee or Beneficiary and all such persons, to have been made on
behalf of all such persons.
Section 5.2. Usury Savings Clause. All agreements in this Deed of Trust and
in the other Transaction Documents are expressly limited so that in no
contingency or event whatsoever, whether by reason of advancement or
acceleration of maturity of the Obligations, or otherwise, shall the amount
paid or agreed to be paid hereunder for the use, forbearance or detention
of money exceed the highest lawful rate permitted under applicable usury
laws, if any. If, from any circumstance whatsoever, fulfillment of any
provision of the Transaction Documents, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law which a court of competent jurisdiction may deem
applicable hereto, then, ipso facto, the obligation to be fulfilled shall
be reduced to the limit of such validity and if, from any circumstance
whatsoever, Beneficiary shall ever receive as interest an amount which
would exceed the highest lawful rate, the receipt of such excess shall be
deemed a mistake and shall be cancelled automatically or, if theretofore
paid, such excess shall be credited against the Obligations to which the
same may lawfully be credited, and any portion of such excess not capable
of being so credited shall be rebated to Trustor.
Section 5.3. Separability. If all or any portion of any provision of this
Deed of Trust or the other Transaction Documents shall be held to be
invalid, illegal or unenforceable in any respect, then such invalidity,
illegality or unenforceability shall not affect any other provision hereof
or thereof, and such provision shall be limited and construed in such
jurisdiction as if such invalid, illegal or unenforceable provision or
portion thereof were not contained herein or therein.
Section 5.4. Notices. Any notice, demand, consent, approval, direction,
agreement or other communication (any "Notice") required or permitted
hereunder or under the other Transaction Documents shall be in writing and
shall be validly given and effectively served if mailed by United States
mail, first class or certified mail, return receipt requested, postage
prepaid, or by hand delivery by a recognized courier service, or by next
day delivery by recognized overnight courier service, courier charges
prepaid:
(a) If to Trustor:
Read-Rite Corporation
345 Los Coches Street
Milpitas, CA 95035
Attn: Jane Conn, Treasurer
With a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attn: Bradford C. O'Brien, Esq.
(b) If to Beneficiary:
Sumitomo Bank Leasing and Finance Inc.
277 Park Avenue
New York, NY 10172
Attn: Chief Credit Officer
With a copy to:
Graham & James LLP
One Maritime Plaza, Suite 300
San Francisco, CA 94111
Attention: Bruce W. Hyman, Esq.
Any Notice shall be deemed to have been validly given and effectively
served hereunder three (3) days after so mailed.
Any person shall have the right to specify, from time to time, as its
address or addresses for purposes of this Deed of Trust, any other address
or addresses. Such Notice of change of address or addresses shall be
effective only upon actual receipt.
Section 5.5. No Merger. If both the lessor's and the lessee's interest
under the Lease or any other lease shall at any time become vested in any
one person, this Deed of Trust and the lien and security interest created
hereby shall not be destroyed or terminated by the application of the
doctrine of merger and, in such event, Trustee and Beneficiary shall
continue to have and enjoy all of the rights and privileges of Trustee and
Beneficiary hereunder as to each separate estate.
Section 5.6. Applicable Law. This Deed of Trust shall be governed by, and
construed in accordance with, the law of the State of California.
Section 5.7. Provisions as to Covenants and Agreements. All of Trustor's
covenants and agreements hereunder shall run with the land and time is of
the essence with respect thereto.
Section 5.8. Matters to be in Writing. This Deed of Trust cannot be
altered, amended, modified, terminated or discharged except in a writing
signed by the party against whom enforcement of such alteration, amendment,
modification, termination or discharge is sought. No waiver, release or
other forbearance by Trustee or Beneficiary will be effective against
Trustee or Beneficiary unless it is in a writing signed by Beneficiary, and
then only to the extent expressly stated.
Section 5.9. Construction of Provisions. The following rules of
construction shall be applicable for all purposes of this Deed of Trust and
all documents or instruments supplemental hereto, unless the context
otherwise requires:
(a) All references herein to numbered Articles or Sections or to
lettered Exhibits are references to the Articles and Sections hereof and
the Exhibits annexed to this Deed of Trust, unless expressly otherwise
designated in context.
(b) The terms "include", "including" and similar terms shall be
construed as if followed by the phrase "without being limited to."
(c) The term "knowledge" or "to best of knowledge" when and if
used in connection with a representation or warranty made by Trustor means
that Trustor and/or the representatives of Trustor have interviewed such
persons, representatives, and responsible employees of Trustor, of the
constituent general partners of Trustor and of the constituent general
partners of such general partners, as may be applicable, as such
representatives have determined are likely, in the ordinary course of their
respective duties, to have knowledge of the matters set forth herein.
(d) The terms "Mortgaged Property" and "Premises" shall be
construed as if followed by the phrase "or any part thereof."
(e) The term "Obligations" shall be construed as if followed by
the phrase "or any other sums secured hereby, or any part thereof."
(f) Words of masculine, feminine or neuter gender shall mean and
include the correlative words of the other genders, and words importing the
singular number shall mean and include the plural number, and vice versa.
(g) The term "person" shall include natural persons, firms,
partnerships, corporations and any other public and private legal entities.
(h) The term "provisions," when used with respect hereto or to
any other document or instrument, shall be construed as if preceded by the
phrase "terms, covenants, agreements, requirements, conditions and/or."
(i) All Article, Section and Exhibit captions herein are used
for convenience and reference only and in no way define, limit or describe
the scope or intent of, or in any way affect, this Deed of Trust.
(j) The cover page of and all recitals set forth in, and all
Exhibits to, this Deed of Trust are hereby incorporated in this Deed of
Trust.
(k) All obligations of Trustor hereunder shall be performed and
satisfied by or on behalf of Trustor at Trustor's sole cost and expense.
(l) The term "Lease" shall mean "tenancy, subtenancy, lease or
sublease," the term "lessor" shall mean "landlord, sublandlord, owner,
lessor and sublessor" and the terms "lessee" or "tenant" shall mean
"tenant, subtenant, lessee and sublessee."
Section 5.10. Successors and Assigns. The provisions hereof shall be
binding upon Trustor and the heirs, devises, representatives, successors
and assigns of Trustor, including successors in interest of Trustor, in and
to all or any part of the Mortgaged Property, and shall inure to the
benefit of Trustee, Beneficiary and their respective heirs, successors,
substitutes and assigns. All references in this Deed of Trust to Trustor,
Trustee or Beneficiary shall be construed as including all of such other
persons with respect to the person referred to. Where two or more persons
have executed this Deed of Trust, the obligations of such persons shall be
joint and several except to the extent the context clearly indicates
otherwise.
Section 5.11. Request for Notice. Pursuant to California Government
Code Section 27321.5(b), Trustor hereby requests that a copy of any notice
of default and a copy of any notice of sale given pursuant to this Deed of
Trust be mailed to Trustor at the address set forth herein above.
Section 5.12. Fixture Filing. Portions of the Mortgaged Property are
goods which are or are to become fixtures relating to the Land and/or the
Premises, and Trustor covenants and agrees that the filing of this Deed of
Trust in the real estate records of the county where the Premises are
located shall also operate from the time of filing as a fixture filing in
accordance with Section 9313 of the California Uniform Commercial Code.
Section 5.13. Entire Agreement. This Deed of Trust together with the
related Transaction Documents contains the entire agreement between
Trustor, Beneficiary and Trustee with regard to the rights and obligations
of the Trustor, Beneficiary and Trustee in connection with the financing
transaction contemplated herein.
ARTICLE 6
PROVISIONS AS TO TRUSTEE
Section 6.1. Trustee's Appointment. Trustee accepts this Trust when this
Deed of Trust, duly executed and acknowledged, is made public record as
provided by law. Trustee may resign by an instrument in writing addressed
to Beneficiary, or Trustee may be removed at any time with or without cause
by an instrument in writing executed by Beneficiary and duly recorded. In
case of the death, resignation, removal or disqualification of Trustee or
if for any reason Beneficiary shall deem it desirable to appoint a
substitute or successor trustee to act instead of Trustee herein named or
any substitute or successor Trustee, then Beneficiary shall have the right
and is hereby authorized and empowered to appoint a successor Trustee, or
a substitute Trustee, without other formality than appointment and
designation in writing executed and acknowledged by Beneficiary and the
recordation of such writing in the office where this Deed of Trust is
recorded, and the authority hereby conferred shall extend to the appoint-
ment of other successor and substitute Trustees successively until the
Obligations are paid in full or until the Mortgaged Property are sold
hereunder. Such appointment and designation by Beneficiary shall be full
evidence of the right and authority to make the same and of all facts
therein recited. If such appointment is executed on behalf of
Beneficiary by an officer of Beneficiary, such appointment shall be
conclusively presumed to be executed with authority and shall be
valid and sufficient without proof of any action by the Trustee or
any superior officer of Beneficiary. Upon the making of
such appointment and designation, all of the estate and title of
Trustee in the Mortgaged Property shall vest in the named successor or
substitute Trustee and it shall thereupon succeed to and shall hold,
possess and execute all the rights, powers, privileges, immunities and
duties herein conferred upon Trustee; but, nevertheless, upon the written
request of Beneficiary or of the successor or substitute Trustee, Trustee
ceasing to act shall execute and deliver an instrument transferring to such
successor or substitute Trustee all of the estate and title in the
Mortgaged Property of Trustee so ceasing to act, together with all the
rights, powers, privileges, immunities and duties herein conferred upon
Trustee, and shall duly assign, transfer and deliver any of the properties
and moneys held by said Trustee hereunder to said successor or substitute
Trustee. All references herein to Trustee shall be deemed to refer to
Trustee (including any successor or substitute, appointed and designated,
as herein provided) from time to time acting hereunder. Trustor hereby
ratifies and confirms any and all acts which Trustee herein named or its
successor or successors, substitute or substitutes, in this Deed of Trust,
shall do lawfully by virtue hereof.
ARTICLE 7
SPECIAL PROVISIONS
Section 7.1. Subordination. Provided there is no Event of Default or event
which would constitute an Event of Default but for the passage of time or
the giving of notice, or both, Beneficiary agrees to subordinate the lien
of this Deed of Trust to any easements created by Trustor under Section 2.1
of the Lease, provided Trustor reimburses Beneficiary for all costs and
expenses incurred in connection therewith.
Section 7.2. Counterparts. This Deed of Trust may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall comprise but a single instrument.
[Signatures begin on next page.]
IN WITNESS WHEREOF, the undersigned have executed this Deed of Trust
the day first set forth above.
"Trustor"
READ-RITE CORPORATION,
a Delaware corporation
By: \S\ Rex Jackson
Its: Vice President,
General Counsel
[All Signatures must be acknowledged]
Exhibit "A"
LEGAL DESCRIPTION
Description of the Land
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
On the 24th day of April, 1996, before me, the undersigned, a Notary
Public in and for said State, personally appeared Rex Jackson, personally
known to me or proved to me on the basis of satisfactory evidence to be the
person(s) whose name(s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
\s\ Barbara Ann Pollock,
Notary Public
(SEAL)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AT MARCH 31, 1996 (UNAUDITED) AND
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH
31, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-1-1995
<PERIOD-END> MAR-31-1996
<CASH> 95,241
<SECURITIES> 94,192
<RECEIVABLES> 151,944
<ALLOWANCES> 2,405
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<TOTAL-ASSETS> 967,527
<CURRENT-LIABILITIES> 214,950
<BONDS> 129,790
0
0
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<TOTAL-LIABILITY-AND-EQUITY> 967,527
<SALES> 557,430
<TOTAL-REVENUES> 557,430
<CGS> 431,319
<TOTAL-COSTS> 431,319
<OTHER-EXPENSES> 48,494
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,093
<INCOME-PRETAX> 77,093
<INCOME-TAX> 23,900
<INCOME-CONTINUING> 43,858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> .91
<EPS-DILUTED> .91
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