<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____ to ____.
Commission file number 0-21342
WIND RIVER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2873391
(State of incorporation) (I.R.S. Employer Identification No.)
1010 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA 94501
(Address of principal executive office)
(510) 748-4100
(Telephone number)
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: 25,997,137 shares outstanding as of November 30, 1997
<PAGE>
WIND RIVER SYSTEMS, INC.
FORM 10-Q
QUARTER ENDED OCTOBER 31, 1997
INDEX
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Income Statements for the three
and nine month periods ended October 31,
1997 and October 31, 1996
Consolidated Balance Sheets at October 31,
1997 and January 31, 1997
Consolidated Cash Flows Statements for the
nine month periods ended October 31, 1997
and October 31, 1996
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II: OTHER INFORMATION
Item 6. Exhibits
Signature
2
<PAGE>
WIND RIVER SYSTEMS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying consolidated financial information is unaudited but, in the
opinion of management, reflects all adjustments (which include only normally
recurring adjustments) necessary for a fair presentation of the results for
the periods shown. The unaudited consolidated financial statements and
analyses should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended January 31, 1997
included in the Annual Report on Form 10-K previously filed with the
Securities and Exchange Commission.
The results for the three months and nine months ended October 31, 1997, are
not necessarily indicative of the results to be expected for the entire year.
3
<PAGE>
WIND RIVER SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------ ------------------------
October 31, October 31,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Products $ 16,932 $ 12,297 $ 46,115 $ 31,527
Services 7,068 4,303 18,285 12,673
----------- ----------- ----------- -----------
Total revenues 24,000 16,600 64,400 44,200
----------- ----------- ----------- -----------
Cost of revenues:
Products 1,564 1,126 4,571 3,461
Services 2,664 1,676 6,964 4,981
----------- ----------- ----------- -----------
Total cost of revenues 4,228 2,802 11,535 8,442
----------- ----------- ----------- -----------
Gross profit 19,772 13,798 52,865 35,758
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 8,153 6,133 23,753 17,039
Product development 2,877 1,883 8,316 5,391
General and administrative 1,531 1,224 4,634 3,375
----------- ----------- ----------- -----------
Total operating expenses 12,561 9,240 36,703 25,805
----------- ----------- ----------- -----------
Operating income 7,211 4,558 16,162 9,953
----------- ----------- ----------- -----------
Other income (expense):
Interest income 910 872 2,608 1,315
Minority interest in consolidated subsidiary 20 (37) 28 (95)
----------- ----------- ----------- -----------
Total other income 930 835 2,636 1,220
----------- ----------- ----------- -----------
Income before income taxes 8,141 5,393 18,798 11,173
Provision for income taxes 2,931 1,933 6,768 4,153
----------- ----------- ----------- -----------
Net income $ 5,210 $ 3,460 $ 12,030 $ 7,020
----------- ----------- ----------- -----------
Net income per share $ 0.18 $ 0.12 $ 0.43 $ 0.27
----------- ----------- ----------- -----------
Weighted average common and common equivalent
shares 28,276 27,986 28,208 25,568
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
WIND RIVER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amount)
(unaudited)
<TABLE>
<CAPTION>
October 31, January 31,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,218 $ 9,848
Short-term investments 154,566 46,895
Accounts receivable, net of allowances
of $1,241 and $1,204 13,569 13,296
Prepaid and other current assets 6,089 4,780
------------ ------------
Total current assets 190,442 74,819
Investments 64,259 43,004
Land and equipment, net of
accumulated depreciation of $9,897 and $7,328 23,819 8,426
Capitalized software costs, net of
accumulated amortization of $2,862 and $2,382 713 828
Deposits and other assets 9,702 1,584
------------ ------------
Total assets $ 288,935 $ 128,661
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,390 $ 1,340
Accrued liabilities 7,990 5,657
Accrued compensation 5,534 4,391
Income taxes payable 6,300 1,941
Deferred revenue 13,249 6,271
------------ ------------
Total current liabilities 35,463 19,600
Long-term debt 140,000 --
------------ ------------
Total liabilities 175,463 19,600
------------ ------------
Minority interest in consolidated subsidiary 284 312
------------ ------------
Stockholders' equity:
Common stock, par value $.001, 75,000
shares authorized, 25,983 and 25,382
shares issued, and 25,570 and 25,269
shares outstanding 26 25
Additional paid in capital 92,590 89,890
Cumulative translation adjustments (1,414) (310)
Unrealized gain (loss) on securities 323 (353)
Retained earnings 34,648 22,618
Treasury stock, 413 and 113 shares, at cost (12,985) (3,121)
------------ ------------
Total stockholders' equity 113,188 108,749
------------ ------------
Total liabilities and stockholders' equity $ 288,935 $ 128,661
------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
WIND RIVER SYSTEMS, INC.
CONSOLIDATED CASH FLOWS STATEMENTS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
--------------------------------
October 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,030 $ 7,020
Adjustments to reconcile net income to net cash
provided by operations:
Provision for doubtful accounts receivable 37 109
Depreciation and amortization 2,569 1,556
Amortization of capitalized software costs 480 450
Amortization of debt issuance costs 257 --
Deferred income taxes -- 37
Minority interest in consolidated subsidiary (28) 97
Change in assets and liabilities:
Accounts receivable (310) (2,627)
Prepaid and other assets (4,609) (1,779)
Accounts payable 1,050 (280)
Accrued liabilities 2,333 1,243
Accrued compensation 1,143 940
Income taxes payable 4,359 2,281
Deferred revenue 6,978 55
------------ ------------
Net cash provided by operating activities 26,289 9,102
------------ ------------
Cash flows from investing activities:
Capital expenditures (17,962) (4,777)
Capitalized software costs (365) (527)
Investment sales 74,455 50,743
Investment purchases (202,705) (115,565)
------------ ------------
Net cash used in investing activities (146,577) (70,126)
------------ ------------
Cash flows from financing activities:
Common stock issuances, net 2,701 55,840
Treasury stock purchases (9,864) (7,050)
Sales of treasury stock -- 9,532
Long-term debt issuance, net 134,925 --
------------ ------------
Net cash provided by financing activities 127,762 58,322
------------ ------------
Effect of exchange rate changes on cash (1,104) (461)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 6,370 (3,163)
------------ ------------
Cash and cash equivalents at beginning of period 9,848 9,205
------------ ------------
Cash and cash equivalents at end of period $ 16,218 $ 6,042
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 3,037 $ 2,421
------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
WIND RIVER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In accordance with the rules and regulations of the Securities and Exchange
Commission, the unaudited consolidated financial statements omit or condense
certain information and footnote disclosures normally required for complete
financial statements prepared in accordance with generally accepted
accounting principles.
Certain amounts in the fiscal 1997 consolidated financial statements have
been reclassified to conform to the fiscal 1998 presentation.
2. EARNINGS PER SHARE
Earnings per share is computed under the treasury stock method using the
weighted average number of common shares and dilutive common stock equivalent
shares outstanding during the period. The 5% Convertible Subordinated Notes
(see Note 5) are not common stock equivalents and, therefore, have been
excluded from the computation of earnings per share. The 5% Convertible
Subordinated Notes presently have an anti-dilutive effect on the three-month
and nine-month computations of fully diluted earnings per share.
3. COMMON STOCK TRANSACTIONS
On March 10, 1997, the Company effected a three-for-two stock split by means
of a stock dividend to holders of the Company's Common Stock on February 24,
1997. All share numbers and prices in this document have been retroactively
adjusted to give effect to the stock split.
The Company repurchased and held as treasury stock 100,000 shares of common
stock in each of the first, second and third quarters of fiscal year 1998, at
a cost of $2.3 million, $3.6 million and $4.0 million, respectively.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS 128), "Earnings per Share". The statement simplifies the
standards for computing earnings per share (EPS) previously found in APB
Opinion No. 15, "Earnings per Share", and makes them more comparable to
international EPS standards. The Standard replaces the presentation of
primary EPS with a
7
<PAGE>
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the financial statements for all entities with
complex capital structures. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS is computed
similarly to fully diluted EPS under APB Opinion No. 15. FAS 128 must be
adopted in connection with the Company's annual financial statements for the
year ending January 31, 1998. The following table represents unaudited, pro
forma disclosures of basic and diluted earnings per share in accordance with
FAS 128 assuming the standard was applied during all periods presented below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Three months ended Nine months ended
- -------------------------------------------------------------------------------------------
October 31, October 31,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income per common share, as reported $ 0.18 $ 0.12 $ 0.43 $ 0.27
Basic net income per common share, pro forma $ 0.20 $ 0.14 $ 0.48 $ 0.31
Diluted net income per common share, pro forma $ 0.18 $ 0.12 $ 0.43 $ 0.27
- -------------------------------------------------------------------------------------------
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (FAS 130), "Reporting
Comprehensive Income", and Statement of Financial Accounting Standards
No. 131 (FAS 131), "Disclosures about Segments of an Enterprise and
Related Information". The adoption of both statements is required for
fiscal years beginning after December 15, 1997.
FAS 130 establishes standards of disclosure and financial statement display
for reporting total comprehensive income and its individual components. FAS
131 changes current practice under FAS 14, "Financial Reporting of Segments
of a Business Enterprise", by establishing a new framework on which to base
segment reporting (referred to as the management approach) and also requires
interim reporting of segment information.
The Company is studying the implications of these new statements and the
impact of their implementation will have on its consolidated financial
statements.
In November 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" (the SOP).
This SOP is effective for transactions entered into in fiscal years beginning
after December 15, 1997. Retroactive application of the provisions of this
SOP is prohibited. The Company has reviewed the SOP and believes that, given
its current policies, the application of this SOP will not have a material
impact on the recording of future revenues.
8
<PAGE>
5. LONG-TERM DEBT
In July 1997, the Company issued $140 million of 5.0% Convertible
Subordinated Notes (the "Notes"), due 2002. The Notes are subordinated to all
existing and future senior debt and, commencing 90 days following original
issuance, are convertible into shares of the Company's common stock at a
conversion price of $48.50 per share. The Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after August
2, 2000 at 102% initially, and thereafter at prices declining to 100% at
maturity, in each case plus accrued interest. Each holder of these Notes has
the right, subject to certain conditions and restrictions, to require the
Company to offer to repurchase all outstanding Notes, in whole or in part,
owned by such holder, at specified repurchase prices plus accrued
interest upon the occurrence of certain events. The costs incurred in
connection with the offering of $5.1 million are included in the prepaid
and other assets balance. These costs are being amortized over the 5-year
term of the Notes using the straight-line method, which approximates the
effective interest method. Interest on the Notes began accruing July 31, 1997
and is payable semi-annually on February 1 and August 1, commencing February
1, 1998.
6. LAND ACQUISITION
On October 24, 1997, the Company purchased real property in the City of
Alameda, California for $11.1 million. The property is being developed to
construct the Company's new headquarters facility. The purchase was
primarily financed by the Company's existing liquid resources.
On September 12, 1997, the Company entered into a $35 million operating lease
agreement for the purpose of financing construction costs of its new
headquarters facility. The operating lease payments will commence on
completion of construction in 1998. The lease provides the Company with the
option at the end of the lease of either acquiring the building at its
original cost or arranging for the building to be acquired. If the Company
does not purchase the building at end of the lease, the Company will be
contingently liable to the lessor for a residual value that is a significant
percentage of the original cost. The Company is also required, periodically
during the construction period, to deposit funds with a custodian as an
interest bearing security deposit to secure the performance of its
obligations under the lease.
9
<PAGE>
WIND RIVER SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well
as in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997.
RESULTS OF OPERATIONS
REVENUES
Total revenues for the three and nine months ended October 31, 1997 were
$24.0 million and $64.4 million, respectively, compared to $16.6 million and
$44.2 million for the same periods in fiscal 1997.
Revenue from the sale of products increased 38% and 46% to $16.9 million and
$46.1 million for the three-month and nine-month periods in fiscal 1998,
compared to $12.3 million and $31.5 million for the same periods in fiscal
1997. These increases were due primarily to the continued market acceptance
of the Company's flagship product, Tornado-TM- and increased sales to the
telecommunication and computer equipment manufacturing industries.
Service revenues for the three and nine months ended October 31, 1997
increased $2.8 million and $5.6 million, respectively, representing increases
of 64% and 44%, respectively, over the comparable periods in fiscal 1997.
Increases in service revenues were due to an increased number of customers
requiring consulting and custom software design services. In addition,
increased sales of the Tornado-TM- software development environment has
generated additional revenue from maintenance support agreements.
COSTS OF REVENUES
The overall cost of products and services as a percentage of total revenues
increased to 18% in the three months ended October 31, 1997, from 17% in the
comparable period in fiscal 1997. The same percentages for the nine months
ended October 31, 1997 and 1996 were 18% and 19%, respectively.
Product-related cost of sales as a percentage of product revenues remained at
9% in the three-month period ended
10
<PAGE>
October 31, 1997 from the same period of fiscal 1997. The same percentage
decreased to 10% from 11% in the nine-month period ended October 31, 1997.
These decreases were due to increases in sales of products which did not
carry royalty costs. Service-related cost of revenues decreased as a
percentage of service revenues to 38% for the three-month and nine-month
periods of fiscal 1998, from 39% in the same periods in fiscal 1997. The
cost of service revenues as a percentage of total revenues slightly increased
in the three month period from the prior fiscal year. The Company believes
it will be necessary to make significant investments in support-related
services for its customers in the future. Accordingly, the Company expects
such percentage may continue to increase as a result of these increased
investments.
OPERATING EXPENSES
Sales and marketing expenses decreased as a percentage of total revenues to
34% and 37% for the three and nine months ended October 31, 1997,
respectively. The same expenses constituted 37% and 39% of total revenues in
the same periods of fiscal 1997. In overall dollars, sales and marketing
expenses increased $2.0 million and $6.7 million, or 33% and 39%, in the
three-month and nine-month periods of fiscal 1998, respectively, over
comparable periods in the prior fiscal year. The growth in total revenues
continued to increase at a faster rate than sales and marketing costs in both
the three-month and nine-month periods of fiscal year 1998. The increase in
overall dollars resulted primarily from increases in sales personnel and
increases in expenses related to marketing and advertising programs.
Management expects to continue investing heavily in sales and marketing over
the current year to expand its customer base and introduce new products.
Product development expenses, which consist primarily of personnel costs,
increased to 12% of total revenues for the third quarter of fiscal 1998, from
11% for the same period in fiscal 1997. Such expenses, as a percentage of
total revenues, increased to 13% for the first nine months of fiscal 1998
from 12% for the same period in fiscal 1997. In overall dollars, product
development expenses increased $1.0 million and $2.9 million, or 53% and 54%,
for the third quarter and first nine months of fiscal 1998, respectively,
over the comparable periods in fiscal 1997. The Company believes it will
continue to be necessary to make significant investments in product
development for the foreseeable future.
General and administrative expenses decreased to 6% of total revenues for the
third quarter of fiscal 1998 from 7% for the same period in fiscal 1997.
Such expenses, as a percentage of total revenues, decreased to 7% for the
first nine months of fiscal year 1998 from 8% for the same period of fiscal
1997. In overall dollars, these expenses increased $307,000 and $1.3 million
for the three-month and nine-month periods of fiscal 1998, respectively,
compared to the same periods of fiscal 1997. This increase was primarily due
to the growth in worldwide staff and infrastructure investments in the areas
of information systems, finance and administration.
11
<PAGE>
The effective tax rate in the third quarter of both fiscal 1998 and 1997
remained at 36%. The effective tax rate for the first nine months of fiscal
1998 decreased to 36% from 37% for the same period of fiscal 1997. The
provision for income taxes is an estimate based on the Company's anticipated
effective tax rate at the end of the fiscal year. The decrease in the
effective tax rate between the first quarters of fiscal 1998 and 1997 was due
to increased income from tax-free investment instruments.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
The Company typically charges a one-time fee for a development license and a
run-time license fee for each copy of the Company's operating system embedded
in the customer's product. A key component of the Company's strategy is to
increase revenue through run-time license fees. Any increase in the
percentage of revenues attributable to run-time licenses will depend on the
Company's successful negotiation of run-time license agreements and on the
successful commercialization by the Company's customers of the underlying
products. In addition, the Company has experienced significant
period-to-period fluctuations in revenues and operating results and
anticipates that such fluctuations will continue. These fluctuations have
been caused by a number of factors, including customer buying patterns,
product development cycles, delays in shipments of new products and the
timing of significant sales of the Company's products.
In connection with the sale of Convertible Subordinated Notes, the Company
incurred $140 million in debt which resulted in an increase in its ratio of
long-term debt to total capitalization. As a result of this additional
indebtedness, the Company's principal and interest obligations have increased
substantially. The degree to which the Company will be leveraged could
materially and adversely affect the Company's ability to obtain financing for
working capital, acquisitions or other purposes and could make it more
vulnerable to industry downturns and competitive pressures. The Company's
ability to meet its debt service obligations will be dependent upon the
Company's future performance, which will be subject to financial, business
and other factors affecting operations of the Company, many of which are
beyond its control.
Due to the foregoing factors, the Company believes that period-to-period
comparisons of its results of operations may not be meaningful and should not
be relied upon as an indication of future performance. It is likely that, in
some future quarters, the Company's operating results will be below the
expectations of stock market analysts and investors. In such event, the
price of the Company's Common Stock would likely be materially adversely
affected.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 (FAS 128), "Earnings per Share". The statement simplifies the standards
for
12
<PAGE>
computing earnings per share (EPS) previously found in APB Opinion No. 15,
"Earnings per Share", and makes them more comparable to international EPS
standards. The Standard replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the financial statements for all entities with
complex capital structures. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS is computed
similarly to fully diluted EPS under APB Opinion No. 15. FAS 128 must be
adopted in connection with the Company's annual financial statements for the
year ending January 31, 1998.
The following table represents unaudited, pro forma disclosures of basic and
diluted earnings per share in accordance with FAS 128 assuming the standard
was applied during all periods presented below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Three months ended Nine months ended
- -------------------------------------------------------------------------------------------
October 31, October 31,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income per common share, as reported $ 0.18 $ 0.12 $ 0.43 $ 0.27
Basic net income per common share, pro forma $ 0.20 $ 0.14 $ 0.48 $ 0.31
Diluted net income per common share, pro forma $ 0.18 $ 0.12 $ 0.43 $ 0.27
- -------------------------------------------------------------------------------------------
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (FAS 130), "Reporting
Comprehensive Income", and Statement of Financial Accounting Standards
No. 131 (FAS 131), "Disclosures about Segments of an Enterprise and
Related Information". The adoption of both statements is required for
fiscal years beginning after December 15, 1997.
FAS 130 establishes standards of disclosure and financial statement display
for reporting total comprehensive income and its individual components. FAS
131 changes current practice under FAS 14, "Financial Reporting of Segments
of a Business Enterprise", by establishing a new framework on which to base
segment reporting (referred to as the management approach) and also requires
interim reporting of segment information.
13
<PAGE>
The Company is studying the implications of these new statements and the
impact of their implementation will have on its consolidated financial
statements.
In November 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" (the SOP).
This SOP is effective for transactions entered into in fiscal years beginning
after December 15, 1997. Retroactive application of the provisions of this
SOP is prohibited. The Company has reviewed the SOP and believes that, given
its current policies, the application of this SOP will not have a material
impact on the recording of future revenues.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1997, the Company had working capital in excess of
approximately $155 million, and approximately $171 million in cash and
short-term investments. The Company also had long-term investments in excess
of $64 million.
Net cash provided by operating activities in the first nine months of fiscal
years 1998 and 1997 totaled $26.0 million and $9.1 million, respectively. In
the first nine months of fiscal 1998, net income, depreciation and
amortization, amortization of software costs, and changes in accounts
payable, accrued liabilities, accrued compensation, accrued income taxes
payable, and deferred revenue were partially offset by the change in accounts
receivable and prepaid and other assets. Deferred revenue increased because
of the increases in maintenance agreement sales and in prepaid distributor
purchase commitments. The increase in prepaid and other assets was due
primarily to deposits relating to the purchase of land. Income tax payable
increased due to increased operating income. In the same period of fiscal
1997, net income, depreciation and amortization, amortization of software
costs and changes in accrued liabilities and accrued income taxes payable
were partially offset by a change in accounts receivable and prepaid and
other assets.
Net cash used in investing activities in the first nine months of fiscal
years 1998 and 1997 totaled $146.6 million and $70.1 million, respectively.
In the first nine months of fiscal 1998, uses of cash in capital
expenditures, capitalized software costs, and purchases of security
investments were partially offset by cash provided from the sales of security
investments. In the same period of fiscal 1997, uses of cash in purchases of
security investments, capital expenditures and capitalized software cost were
partially offset by cash provided from the sales of security investments.
Capital expenditures were $18.0 million in the first nine months of fiscal
1998 compared to $4.8 million in the same period of fiscal 1997. The
increase was primarily due to the purchase of land for the Company's new
headquarters which was executed in October 1997.
Net cash provided by financing activities in the first nine months of fiscal
years 1998 and 1997 totaled $128.1 million and $58.3 million, respectively.
In July 1997, the Company sold $140 million of 5% Convertible Subordinated
Notes due 2002, realizing $134.9 million in proceeds after deducting
offering expenses. The Notes are convertible into common stock at a price of
$48.50 per share (see Note 5 of Notes
14
<PAGE>
to Consolidated Financial Statements). In the first nine months of fiscal
1998, the Company also repurchased and held as treasury stock 300,000 shares
of common stock at a cost of $9.9 million. The purchases of treasury stock
were partially offset by the issuance of common stock for employee stock
option exercises and for the employee stock purchase program in the first
nine-month period of fiscal year 1998. In the same period of fiscal 1997,
the sale of treasury stock and issuance of common stock as part of a public
offering were partially offset by the repurchase of common shares held as
treasury stock.
On March 10, 1997, the Company effected a three-for-two stock split by means
of a stock dividend to all holders of the Company's Common Stock on February
24, 1997. All share numbers and prices in this document have been
retroactively adjusted to give effect to the stock split.
On October 24, 1997, the Company purchased real property in the City of
Alameda, California for $11.1 million. The property is being developed to
construct the Company's new headquarters facility. The purchase was
primarily financed by the Company's existing liquid resources.
On September 12, 1997, the Company entered into a $35 million operating lease
agreement for the purpose of financing construction costs of its new
headquarters facility. The operating lease payments will commence on
completion of construction in 1998. The lease provides the Company with the
option at the end of the lease of either acquiring the building at its
original cost or arranging for the building to be acquired. If the Company
does not purchase the building at end of the lease, the Company will be
contingently liable to the lessor for a residual value that is a significant
percentage of the original cost. The Company is also required, periodically
during the construction period, to deposit funds with a custodian as an
interest bearing security deposit to secure the performance of its
obligations under the lease.
Management believes that the Company's working capital and the cash flow
generated from operations are sufficient to meet its working capital
requirements for planned expansion, product development and capital
expenditures for at lease the next twelve months.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
10.19 Lease Agreement between Deutsche Bank AG, New York Branch,
and Wind River Systems, Inc., dated as of September 12, 1997.
11 Computation of Earnings per Share
27 Financial Data Schedule
No other items.
SIGNATURE
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto authorized.
WIND RIVER SYSTEMS, INC.
Date: December 15, 1997 \s\ RICHARD W. KRABER
---------------------------
Richard W. Kraber
Chief Financial Officer
16
<PAGE>
- --------------------------------------------------------------------------
Recording requested by, and when x
recorded, please return to: x
x
Winston & Strawn x
35 West Wacker Drive x
Chicago, Illinois 60601 x
x
ATTN: John R. Grier, Esq. x
- --------------------------------------------------------------------------
(Space Above this line Reserved
for Recorder's Use Only)
- --------------------------------------------------------------------------
LEASE
between
DEUTSCHE BANK AG, NEW YORK BRANCH,
as Agent Lessor for the Lessors,
and
WIND RIVER SYSTEMS, INC.,
as Lessee
__________________________________
Dated as of September 12, 1997
__________________________________
- --------------------------------------------------------------------------
This Lease is subject to a security interest in favor of Deutsche Bank AG, New
York and/or Cayman Islands Branch as agent (the "Agent"), under a Credit
Agreement, dated as of September 12, 1997, among Deutsche Bank AG, New York
Branch, the Lenders, and the Agent, as amended or supplemented. This Lease has
been executed in several counterparts. To the extent, if any, that this Lease
constitutes chattel paper (as such term is defined in the Uniform Commercial
Code of the State of California), no security interest in this Lease may be
created through the transfer or possession of any counterpart other than the
original counterpart containing the receipt
<PAGE>
therefor executed by the Agent on the signature page hereof.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I ....................................................-1-
1.1 Definitions....................................-1-
ARTICLE II ...................................................-1-
2.1 Property ......................................-1-
2.2 Lease Term ....................................-1-
2.3 Title .........................................-1-
2.4 Lease Supplement ..............................-1-
ARTICLE III ..................................................-2-
3.1 Rent ..........................................-2-
3.2 Payment of Basic Rent .........................-2-
3.3 Supplemental Rent .............................-2-
3.4 Performance on a Non-Business Day. ............-3-
ARTICLE IV ...................................................-3-
4.1 Utility Charges ...............................-3-
ARTICLE V ....................................................-3-
5.1 Quiet Enjoyment ...............................-3-
ARTICLE VI ...................................................-3-
6.1 Net Lease; No Setoff; Etc. ....................-4-
6.2 No Termination or Abatement ...................-5-
ARTICLE VII ..................................................-5-
7.1 Ownership of the Property .....................-5-
ARTICLE VIII .................................................-8-
8.1 Condition of the Property .....................-8-
8.2 Possession and Use of the Property ............-8-
ARTICLE IX ...................................................-8-
9.1 Compliance with Legal Requirements and
Insurance Requirements ........................-8-
ARTICLE X ....................................................-9-
10.1 Maintenance and Repair; Return ................-9-
-i-
<PAGE>
10.2 Right of Inspection ...........................-9-
10.3 Environmental Inspection .....................-10-
ARTICLE XI ..................................................-10-
11.1 Modifications, Substitutions and
Replacements .................................-10-
ARTICLE XII .................................................-11-
12.1 Warranty of Title ............................-11-
12.2 Grants and Releases of Easements .............-12-
ARTICLE XIII ................................................-12-
13.1 Permitted Contests Other Than in Respect of
Impositions ..................................-12-
ARTICLE XIV .................................................-13-
14.1 Public Liability and Workers' Compensation
Insurance ....................................-13-
14.2 Hazard and Other Insurance ...................-13-
14.3 Coverage .....................................-14-
ARTICLE XV ..................................................-14-
15.1 Casualty and Condemnation ....................-14-
15.2 Environmental Matters ........................-16-
15.3 Notice of Environmental Matters ..............-16-
ARTICLE XVI .................................................-16-
16.1 Termination upon Certain Events ..............-16-
16.2 Procedures ...................................-17-
ARTICLE XVII ................................................-17-
17.1 Lease Events of Default ......................-17-
17.2 Final Liquidated Damages .....................-19-
17.3 Lease Remedies ...............................-20-
17.4 Waiver of Certain Rights .....................-24-
17.5 Assignment of Rights Under Contracts .........-24-
17.6 Power of Sale and Foreclosure ................-25-
17.7 Remedies Cumulative ..........................-28-
ARTICLE XVIII ...............................................-28-
18.1 Agent Lessor's Right to Cure Lessee's Lease
Defaults .....................................-28-
ARTICLE XIX .................................................-28-
19.1 Provisions Relating to Lessee's Termination
of this Lease or Exercise of Purchase
Options ......................................-28-
-ii-
<PAGE>
ARTICLE XX ..................................................-29-
20.1 Purchase Option ..............................-29-
20.2 Maturity Date Purchase Option ................-29-
20.3 Extension of Expiration Date ................-30-
ARTICLE XXI .................................................-30-
21.1 Sale Procedure ..............................-30-
21.2 Application of Proceeds of Sale ..............-31-
21.3 Indemnity for Excessive Wear .................-31-
21.4 Appraisal Procedure ..........................-31-
21.5 Certain Obligations Continue .................-31-
ARTICLE XXII ................................................-32-
22.1 Holding Over .................................-32-
ARTICLE XXIII ...............................................-32-
23.1 Risk of Loss .................................-32-
ARTICLE XXIV ................................................-32-
24.1 Subletting and Assignment ....................-32-
24.2 Subleases ....................................-33-
ARTICLE XXV .................................................-33-
25.1 Estoppel Certificates ........................-33-
ARTICLE XXVI ................................................-33-
26.1 No Waiver ....................................-33-
ARTICLE XXVII ...............................................-33-
27.1 Acceptance of Surrender ......................-33-
ARTICLE XXVIII ..............................................-33-
28.1 No Merger of Title ...........................-33-
ARTICLE XXIX ................................................-35-
29.1 Notices ......................................-35-
ARTICLE XXX .................................................-36-
30.1 Miscellaneous ................................-36-
30.2 Amendments and Modifications .................-36-
30.3 Successors and Assigns .......................-36-
-iii-
<PAGE>
30.4 Headings and Table of Contents ...............-36-
30.5 Counterparts .................................-36-
30.6 GOVERNING LAW ................................-36-
30.7 Limitations on Recourse ......................-36-
30.8 Recordation of Lease .........................-37-
30.9 Priority .....................................-37-
ARTICLE XXXI ................................................-37-
31.1 Ground Lease .................................-37-
Exhibits
Exhibit A Lease Supplement
-iv-
<PAGE>
LEASE (this "LEASE"), dated as of September 12, 1997, between DEUTSCHE
BANK AG, NEW YORK BRANCH, a duly licensed branch of Deutsche Bank AG, a
German corporation, having its principal office at 31 West 52nd Street, New
York, New York, 10019 as agent for the Lessors (in such capacity, the "AGENT
LESSOR"), and WIND RIVER SYSTEMS, INC., a Delaware corporation, having its
principal office at 1010 Atlantic Avenue, Alameda, California 94501, as
lessee (the "LESSEE").
In consideration of the mutual agreements herein contained, and of other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
I.1 DEFINITIONS. Capitalized terms used but not otherwise defined in
this Lease have the respective meanings specified in Annex A to the
Participation Agreement dated as of the date hereof among Lessee, the
Lessors, Agent, the Lenders named therein, Agent Lessor and the Arranger.
ARTICLE II
II.1 PROPERTY. Subject to the terms and conditions hereinafter set
forth and contained in the Lease Supplement relating to the Property, Agent
Lessor hereby leases to Lessee, and Lessee hereby leases from Agent Lessor,
the Property.
II.2 LEASE TERM. The Property is leased for the Term, unless extended
or earlier terminated in accordance with the provisions of this Lease.
II.3 TITLE. The Property is leased to Lessee without any
representation or warranty, express or implied, by Agent Lessor and subject
to the rights of parties in possession, the existing state of title
(including, without limitation, the Permitted Exceptions), the terms of the
Ground Lease and all applicable Legal Requirements. Lessee shall in no event
have any recourse against Agent Lessor for any defect in title to the
Property.
II.4 LEASE SUPPLEMENT. On the Property Closing Date, Lessee and Agent
Lessor shall each execute and deliver a Lease Supplement for the Property to
be leased on such date in substantially the form of EXHIBIT A hereto and
thereafter the Property shall be subject to the terms of this Lease.
II.5 EACH LESSOR TO HAVE AN UNDIVIDED INTEREST. Each party to this
Lease hereby
<PAGE>
acknowledges that Section 16.13 of the Participation Agreement applies in
full force and effect to this Lease, the Lease Supplement and each other
Operative Agreement.
ARTICLE III
III.1 RENT. (a) On each applicable Payment Date and on any date
when this Lease shall terminate, Lessee shall pay Basic Rent for the Property.
(b) Basic Rent shall be due and payable (i) during the Construction
Period, in the manner set forth in Section 2.3 of Credit Agreement and 2.7 of
the Participation Agreement and (ii) thereafter, in lawful money of the
United States and shall be paid by wire transfer of immediately available
funds on the due date therefor to such account or accounts at such bank or
banks or to such other Person or in such other manner as Agent Lessor shall
from time to time direct.
(c) Neither Lessee's inability or failure to take possession of all, or
any portion, of the Property when delivered by Agent Lessor, nor Agent
Lessor's inability or failure to deliver all or any portion of the Property
to Lessee, whether or not attributable to any act or omission of Lessee or
any act or omission of Agent Lessor, or for any other reason whatsoever,
shall delay or otherwise affect Lessee's obligation to pay Rent in accordance
with the terms of this Lease.
III.2 PAYMENT OF BASIC RENT. Basic Rent shall be paid absolutely
net to Agent Lessor, so that this Lease shall yield to Agent Lessor the full
amount thereof, without setoff, deduction or reduction.
III.3 SUPPLEMENTAL RENT. (a) Lessee shall pay to Agent Lessor or
the Person entitled thereto any and all Supplemental Rent promptly as the
same shall become due and payable, and if Lessee fails to pay any
Supplemental Rent, Agent Lessor shall have all rights, powers and remedies
provided for herein or by law or equity or otherwise in the case of
nonpayment of Basic Rent. Lessee shall pay to Agent Lessor as Supplemental
Rent, among other things, on demand, to the extent permitted by applicable
Requirements of Law, interest at the applicable Overdue Rate on any
installment of Basic Rent not paid when due for the period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when due or
demanded by Agent Lessor for the period from the due date or the date of any
such demand, as the case may be, until the same shall be paid. The
expiration or other termination of Lessee's obligations to pay Basic Rent
hereunder shall not limit or modify the obligations of Lessee with respect to
Supplemental Rent. Unless expressly provided otherwise in this Lease or any
other Operative Agreement, in the event of any failure on the part of Lessee
to pay and discharge any Supplemental Rent as and when due, Lessee shall also
promptly pay and discharge any fine, penalty, interest or cost which may be
assessed or added for nonpayment or late payment of such Supplemental Rent,
all of which shall also constitute Supplemental Rent.
<PAGE>
(b) Lessee shall make a payment of Supplemental Rent equal to the
Maximum Residual Guarantee Amount in accordance with Section 21.1(c).
III.4 PERFORMANCE ON A NON-BUSINESS DAY. If any payment is required
hereunder on a day that is not a Business Day, then such payment shall be due
on the next succeeding Business Day (subject to the definition of the term
"Interest Period").
III.5 METHOD OF PAYMENT. Each payment of Rent payable by Lessee to
Agent Lessor under this Lease or any other Operative Agreement shall be made
by Lessee to Agent as assignee of Agent Lessor under the Assignment of Lease
(or, if the Loans and all other amounts owing to the Lenders under the Credit
Agreement and the other Operative Agreements have been paid in full and all
Commitments of the Lenders have been permanently terminated, to Agent Lessor)
prior to 12:00 (Noon), (New York time) to the Account in immediately
available funds consisting of lawful currency of the United States of America
on the date when such payment shall be due. Payments received after 12:00
(Noon), (New York time) on the date due shall for the purpose of Section 17.1
hereof be deemed received on such day; provided, however, that for the
purposes of the second sentence of Section 3.3, such payments shall be deemed
received on the next succeeding Business Day and shall accrue interest at the
Overdue Rate as provided in such Section 3.3.
ARTICLE IV
IV.1 UTILITY CHARGES. Lessee shall pay, or cause to be paid, all
charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and utilities used in or on the Property during
the Term. Lessee shall be entitled to receive any credit or refund with
respect to any utility charge paid by Lessee and the amount of any credit or
refund received by Agent Lessor on account of any utility charges paid by
Lessee, net of the costs and expenses incurred by Lessor in obtaining such
credit or refund, shall be promptly paid over to Lessee. All charges for
utilities imposed with respect to the Property for a billing period during
which this Lease expires or terminates shall be adjusted and prorated on a
daily basis between Agent Lessor and Lessee, and each party shall pay or
reimburse the other for each party's pro rata share thereof.
ARTICLE V
V.1 QUIET ENJOYMENT. So long as no Lease Event of Default shall have
occurred and be continuing, Lessee shall peaceably and quietly have, hold and
enjoy the Property for the Term, free of any claim or other action by Agent
Lessor or the Lessors or anyone rightfully claiming by, through or under Agent
Lessor or the Lessors with respect to any matters arising
-3-
<PAGE>
from and after the Lease Commencement Date. Such right of quiet enjoyment is
independent of, and shall not affect the rights of Agent Lessor or the
Lessors (or anyone claiming by, through or under Agent Lessor or the Lessors)
otherwise to initiate legal action to enforce, the obligations of Lessee
under this Lease.
ARTICLE VI
VI.1 NET LEASE; NO SETOFF; ETC. This Lease shall constitute a net
lease and, notwithstanding any other provision of this Lease, it is intended
that Basic Rent and Supplemental Rent shall be paid without counterclaim,
setoff, deduction or defense of any kind and without abatement, suspension,
deferment, diminution or reduction of any kind, and Lessee's obligation to
pay all such amounts, throughout the Term, is absolute and unconditional. The
obligations and liabilities of Lessee hereunder shall in no way be released,
discharged or otherwise affected for any reason, including, without
limitation, to the maximum extent permitted by law: (a) any defect in the
condition, merchantability, design, construction, quality or fitness for use
of any portion of the Property, or any failure of the Property to comply with
all Legal Requirements, including any inability to occupy or use the Property
by reason of such noncompliance; (b) any damage to, abandonment, loss,
contamination of or Release from or destruction of or any requisition or
taking of the Property or any part thereof, including eviction; (c) any
restriction, prevention or curtailment of or interference with any use of the
Property or any part thereof, including eviction; (d) any defect in title to
or rights to the Property or any Lien on such title or rights or on the
Property; (e) any change, waiver, extension, indulgence or other action or
omission or breach in respect of any obligation or liability of or by any
Lessor, Agent Lessor, Agent or any Lender; (f) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other
like proceedings relating to Lessee, any Lessor, Agent Lessor, Agent, any
Lender or any other Person, or any action taken with respect to this Lease by
any trustee or receiver of Lessee, any Lessor, Agent Lessor, Agent, any
Lender or any other Person, or by any court, in any such proceeding; (g) any
claim that Lessee has or might have against any Person, including, without
limitation, any Lessor, Agent Lessor, Agent or any Lender; (h) any failure on
the part of Agent Lessor or any other Lessor to perform or comply with any of
the terms of this Lease, the Ground Lease, any other Operative Agreement or
of any other agreement; (i) any invalidity or unenforceability or
disaffirmance against or by Lessee of this Lease, the Ground Lease, or any
provision hereof or any of the other Operative Agreements or any provision of
any thereof; (j) the impossibility or illegality of performance by Lessee,
Agent Lessor, Lessors or all of them; (k) any action by any court,
administrative agency or other Governmental Authority; any restriction,
prevention or curtailment of or any interference with the construction on or
any use of the Property or any part thereof; or (m) any other occurrence
whatsoever, whether similar or dissimilar to the foregoing, whether or not
Lessee shall have notice or knowledge of any of the foregoing. This Lease
shall be noncancellable by Lessee for any reason whatsoever except as
expressly provided herein, and Lessee, to the extent permitted by Legal
Requirements, waives all rights now or hereafter conferred by statute or
otherwise to quit, terminate or surrender this Lease, or to any diminution,
abatement or reduction of Rent
-4-
<PAGE>
payable by Lessee hereunder. If for any reason whatsoever this Lease shall be
terminated in whole or in part by operation of law or otherwise, except as
otherwise expressly provided herein, Lessee shall, unless prohibited by any
Requirements of Law, nonetheless pay to Agent Lessor (or, in the case of
Supplemental Rent, to whomever shall be entitled thereto) an amount equal to
each Rent payment at the time and in the manner that such payment would have
become due and payable under the terms of this Lease if it had not been
terminated in whole or in part, and in such case, so long as such payments
are made and no Lease Event of Default shall have occurred and be continuing,
Agent Lessor will deem this Lease to have remained in effect. Each payment of
Rent made by Lessee hereunder shall be final and, absent manifest error in
the computation of the amount thereof, Lessee shall not seek or have any
right to recover all or any part of such payment from any Lessor, Agent
Lessor, Agent, any Lender or any party to any agreements related thereto for
any reason whatsoever. Lessee assumes the sole responsibility for the
condition, use, operation, maintenance, and management of the Property and
neither Agent Lessor nor any Lessor shall have any responsibility in respect
thereof or any liability for damage to the property of Lessee or any
subtenant of Lessee on any account or for any reason whatsoever.
VI.2 NO TERMINATION OR ABATEMENT. Lessee shall remain obligated under
this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting any Participant, or any action with respect to this
Lease which may be taken by any trustee, receiver or liquidator of any
Participant or by any court with respect to any Participant, except as
otherwise expressly provided herein. Lessee hereby waives all right (i) to
terminate or surrender this Lease, except as otherwise expressly provided
herein, or (ii) to avail itself of any abatement, suspension, deferment,
reduction, setoff, counterclaim or defense with respect to any Rent. Lessee
shall remain obligated under this Lease in accordance with its terms and
Lessee hereby waives any and all rights now or hereafter conferred by statute
or otherwise to modify or to avoid strict compliance with its obligations
under this Lease. Notwithstanding any such statute or otherwise, Lessee shall
be bound by all of the terms and conditions contained in this Lease.
ARTICLE VII
VII.1 OWNERSHIP OF THE PROPERTY. (a) The parties hereto intend that
(i) for financial accounting purposes with respect to Lessee, Agent Lessor, the
Lessors and the Lenders (A) this Lease will be treated as an "operating lease"
pursuant to Statement of Financial Accounting Standards (SFAS) No. 13, as
amended, (B) Agent Lessor will be treated as the owner and lessor of the
Property and (C) Lessee will be treated as the lessee of the Property, but (ii)
for federal, state and local income tax and all other purposes (A) this Lease
will be treated as a financing arrangement, (B) the Lessors and the Lenders
will be treated as lenders making loans to Lessee in an amount equal to the sum
of the Lessor Contributions and the outstanding principal amount of
-5-
<PAGE>
the Loans, which loans are secured by the Land and the Property, and (C)
Lessee will be treated as the owner of the Land and the Property and will be
entitled to all tax benefits ordinarily available to an owner of land and
property like the Land and the Property for such tax purposes.
VII.2 LIENS AND SECURITY INTERESTS. (a) The parties hereto further
intend and agree that, for the purpose of securing Lessee's obligations for
the repayment of the above-described loans, (i) this Lease shall also be
deemed to be a security agreement and financing statement within the meaning
of Article 9 of the Uniform Commercial Code and a real property mortgage or
deed of trust, as applicable; (ii) the conveyance provided for in Article II
shall be deemed a grant of a security interest in and a mortgage lien on
Lessee's beneficial ownership interest in the Land and the Property
(including the right to exercise all remedies as are contained in the Deed of
Trust upon the occurrence of a Lease Event of Default) and all proceeds of
the conversion, voluntary or involuntary, of the foregoing into cash,
investments, securities or other property, whether in the form of cash,
investments, securities or other property, for the benefit of the Agent
Lessor to secure Lessee's payment of all amounts owed by Lessee under this
Lease and the other Operative Agreements and Agent Lessor holds title to the
Property so as to create and grant a first lien and prior security interest
in the Property (A) pursuant to this Lease for the benefit of the Agent under
the Assignment of Lease, to secure to the Agent the obligations of Lessee
under the Lease and (B) pursuant to the Deed of Trust to secure to Agent the
obligations of the Agent Lessor under the Deed of Trust and the Notes; (iii)
the possession by Agent Lessor or any of its agents of notes and such other
items of property as constitute instruments, money, negotiable documents or
chattel paper shall be deemed to be "possession by the secured party" for
purposes of perfecting the security interest pursuant to Section 9-305 of the
Uniform Commercial Code; and (iv) notifications to Persons holding such
property, and acknowledgments, receipts or confirmations from financial
intermediaries, bankers or agents (as applicable) of Lessee shall be deemed
to have been given for the purpose of perfecting such security interest under
applicable law. The parties hereto shall, to the extent consistent with this
Lease, take such actions as may be necessary to ensure that, if this Lease
were deemed to create a security interest in the Property in accordance with
this Section, such security interest would be deemed to be a perfected
security interest of first priority under applicable law and will be
maintained as such throughout the Term. Nevertheless, Lessee acknowledges and
agrees that neither any Lessor, Agent Lessor, Agent, or any Lender has
provided or will provide tax, accounting or legal advice to Lessee regarding
this Lease, the Operative Agreements or the transactions contemplated hereby
and thereby, or made any representations or warranties concerning the tax,
accounting or legal characteristics of the Operative Agreements, and that
Lessee has obtained and relied upon such tax, accounting and legal advice
concerning the Operative Agreements as it deems appropriate.
(b) The parties hereto further intend and agree that in the event
of any insolvency or receivership proceedings or a petition under the United
States bankruptcy laws or any other applicable insolvency laws or statute of
the United States of America or any State or Commonwealth thereof affecting
any party hereto, the transactions evidenced by this Lease shall be regarded
as loans made by an unrelated third party lender to Lessee.
-6-
<PAGE>
(c) Specifically, but without limiting the foregoing or the
generality of Section 7.1, Lessee hereby grants, bargains, sells, warrants,
conveys, aliens, remises, releases, assigns, sets over and confirms to Agent
Lessor all of Lessee's right, title, and interest in and to the following
(collectively, the "MORTGAGED PROPERTY"): (i) Lessee's leasehold interest in
the Ground Lease, (ii) the Land and the Property and Appurtenant Rights
relating thereto and all proceeds, both cash and noncash thereof; (iii) all
easements, rights-of-way, strips and gores of land, vaults, streets, ways,
alleys, passages, sewer rights, waters, water courses, water rights, minerals,
flowers, shrubs, crops, trees, timber and other emblements now or hereafter
located on the Land or under or above the same or any part or parcel thereof,
and all estates, rights, titles, interests, tenements, hereditaments and
appurtenances, reversions and remainders whatsoever, in any way belonging,
relating or appertaining to the Land and the Property or any part thereof, or
which hereafter shall in any way belong, relate or be appurtenant thereto,
whether now owned or hereafter acquired by Lessee; (iv) all right, title and
interest of Lessee in all furnishings, furniture, fixtures, machinery,
apparatus, Equipment, fittings, appliances, building supplies and materials,
chattels, goods, consumer goods, farm products, inventory, warranties, chattel
paper, documents, accounts, general intangibles, trade names, trademarks,
servicemarks, logos (including any names or symbols by which the Property is
known) and goodwill related thereto, and all other articles of personal
property of every kind and nature whatsoever, tangible or intangible, now,
heretofore or hereafter acquired with any proceeds of the Advances and now,
heretofore or hereafter (A) arising out of or related to the ownership of the
Property, or (B) located in, on or about the Property, or (C) used or intended
to be used with or in connection with the construction, use, operation or
enjoyment of the Property; (v) all right, title and interest of Lessee in any
and all leases, rental agreements and arrangements of any sort now or hereafter
affecting the Property or any portion thereof and providing for or resulting in
the payment of money to Lessee for the use of the Property or any portion
thereof, whether the user enjoys the Property or any portion thereof as tenant
for years, licensee, tenant at sufferance or otherwise, and irrespective of
whether such leases, rental agreements and arrangements be oral or written, and
including any and all extensions, renewals and modifications thereof (the
"SUBJECT LEASES") and guaranties of the performance or obligations of any
tenants or lessees thereunder, together with all income, rents, issues, profits
and revenues from the Subject Leases (including all tenant security deposits
and all other tenant deposits, whether held by Lessee or in a trust account,
and all other deposits and escrow funds relating to any Subject Leases), and
all the estate, right, title, interest, property, possession, claim and demand
whatsoever at law, as well as in equity, of Lessee of, in and to the same;
provided, however, that although this Lease contains (and it is hereby agreed
that this Lease contains) a present, current, unconditional and absolute
assignment of all of said income, rents, issues, profits and revenues, Lessee
shall collect and apply such rental payments and revenues as provided in the
Lease and the other Operative Agreements (vi) all right, title and interest of
Lessee to and under all agreements, management contracts, consents,
authorizations, certificates and other rights of every kind and character of
any Governmental Authority affecting the Property, to the extent the same are
transferable, service contracts, utility contracts, leases of equipment,
documents and agreements relating to the
-7-
<PAGE>
construction of any Improvements (including any and all construction
contracts, architectural contracts, engineering contracts, designs, plans,
specifications, drawings, surveys, tests, reports, bonds and governmental
approvals) and all other contracts, licenses and permits now or hereafter
affecting the Property or any part thereof and all guaranties and warranties
with respect to any of the foregoing (the "SUBJECT CONTRACTS"); (vii) all
right, title and interest of Lessee in any insurance policies or binders now
or hereafter relating to the Property, including any unearned premiums
thereon, as further provided in this Lease; (viii) all right, title and
interest of Lessee in any and all awards, payments, proceeds and the right to
receive the same, either before or after any foreclosure hereunder, as a
result of any temporary or permanent injury or damage to, taking of or
decrease in the value of the Property by reason of casualty, condemnation or
otherwise as further provided in this Lease; (ix) all right, title and
interest of Lessee in all utility, escrow and all other deposits (and all
letters of credit, certificates of deposit, negotiable instruments and other
rights and evidence of rights to cash) now or hereafter relating to the
Property or the purchase, construction or operation thereof; (x) all claims
and causes of action arising from or otherwise related to any of the
foregoing, and all rights and judgments related to any legal actions in
connection with such claims or causes of action; and (xi) all Modifications,
extensions, additions, improvements, betterments, renewals and replacements,
substitutions, or proceeds of any of the foregoing, and all inventory,
chattel paper, documents, instruments, Equipment, fixtures, farm products,
consumer goods, general intangibles and other property of any nature
constituting proceeds acquired with proceeds of any of the property described
hereinabove; all of which foregoing items are hereby declared and shall be
deemed to be a portion of the security for the indebtedness and Advances
herein described, a portion of the above described collateral being located
upon the Land.
ARTICLE VIII
VIII.1 CONDITION OF THE PROPERTY. LESSEE ACKNOWLEDGES AND AGREES THAT
IT IS RENTING THE PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT
(EXPRESS OR IMPLIED) BY AGENT LESSOR AND SUBJECT TO (A) THE EXISTING STATE OF
TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF
FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW AND (D)
VIOLATIONS OF LEGAL REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF. NEITHER
ANY LESSOR, AGENT LESSOR, AGENT NOR ANY LENDER HAS MADE OR SHALL BE DEEMED TO
HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED,
INCLUDING THE CONDITION OF ANY IMPROVEMENTS THEREON, THE SOIL CONDITION, OR ANY
ENVIRONMENTAL OR HAZARDOUS MATERIAL CONDITION) OR SHALL BE DEEMED TO HAVE ANY
LIABILITY WHATSOEVER AS TO THE TITLE, VALUE, HABITABILITY, USE, CONDITION,
DESIGN, OPERATION, OR FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR
ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR
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IMPLIED, WITH RESPECT TO THE PROPERTY (OR ANY PART THEREOF) AND NEITHER ANY
LESSOR, AGENT LESSOR, AGENT NOR ANY LENDER SHALL BE LIABLE FOR ANY LATENT,
HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF THE PROPERTY, OR ANY PART
THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT.
VIII.2 POSSESSION AND USE OF THE PROPERTY. The Property shall be
used in a manner consistent with the Agency Agreement and, after the
Completion Date, as office buildings and in compliance with the Ground Lease.
Lessee shall pay, or cause to be paid, all charges and costs required in
connection with the use of the Property. Lessee shall not commit or permit
any waste of the Property or any part thereof.
ARTICLE IX
IX.1 COMPLIANCE WITH LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS.
Subject to the terms of Article XIII relating to permitted contests, Lessee,
at its sole cost and expense, shall (a) comply with all Legal Requirements
(including all Environmental Laws) and Insurance Requirements relating to the
Property, including the use, construction, operation, maintenance, repair and
restoration thereof, whether or not compliance therewith shall require
structural or extraordinary changes in the Improvements or interfere with the
use and enjoyment of the Property, and (b) procure, maintain and comply in
all material respects with all licenses, permits, orders, approvals, consents
and other authorizations required for the construction, renovation, use,
maintenance and operation of the Property and for the use, operation,
maintenance, repair and restoration of the Improvements.
ARTICLE X
X.1 MAINTENANCE AND REPAIR; RETURN. (a) Lessee, at its sole cost and
expense, shall maintain the Property in good condition (ordinary wear and
tear excepted) and make all necessary repairs thereto, of every kind and
nature whatsoever, whether interior or exterior, ordinary or extraordinary,
structural or nonstructural or foreseen or unforeseen, in each case as
required by all Legal Requirements and Insurance Requirements and on a basis
reasonably consistent with the operation and maintenance of commercial
properties comparable in type and location to the Property subject, however,
to the provisions of Article XV with respect to Condemnation and Casualty.
(b) Agent Lessor shall under no circumstances be required to build any
Improvements on the Property, make any repairs, replacements, alterations or
renewals of any nature or description to the Property, make any expenditure
whatsoever in connection with this Lease or maintain the Property in any way.
Agent Lessor shall not be required to maintain, repair or
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rebuild all or any part of the Property, and Lessee waives the right to (i)
require Agent Lessor to maintain, repair, or rebuild all or any part of the
Property, or (ii) make repairs at the expense of Agent Lessor pursuant to the
Ground Lease or any Legal Requirement, Insurance Requirement, contract,
agreement, covenants, condition or restriction at any time in effect.
(c) Lessee shall, upon the expiration or earlier termination of the
Term with respect to the Property not including a purchase thereof by Lessee,
vacate, surrender and transfer the Property to Agent Lessor or, at Agent
Lessor's request, the independent purchaser thereof, at Lessee's own expense,
free and clear of all Liens other than Permitted Liens and Lessor Liens, in
as good condition as they were on the Completion of the Improvements thereon,
ordinary wear and tear excepted, and in compliance with all Legal
Requirements and the other requirements of this Lease (and in any event
without (x) any asbestos installed or maintained in any part of the Property,
(y) any polychlorinated byphenyls (PCBs) in, on or used, stored or located at
the Property, and (z) any other Hazardous Substances). Lessee shall cooperate
with any independent purchaser of the Property in order to facilitate the
ownership or leasing and operation by such purchaser of the Property after
such expiration or earlier termination of the Term, including providing all
books, reports and records regarding the maintenance, repair and ownership of
the Property and all data and technical information relating thereto,
granting or assigning all licenses necessary for the operation and
maintenance of the Property and cooperating in seeking and obtaining all
necessary licenses, permits and approvals of Governmental Authorities. Lessee
shall have also paid the total cost for the completion of all Modifications
commenced prior to such expiration or earlier termination of the Term. The
obligation of Lessee under this Section 10.1(c) shall survive the expiration
or termination of this Lease.
X.2 RIGHT OF INSPECTION. Agent Lessor, any Lessor, Agent or any Lender
may, each not more than twice each year unless a Lease Event of Default
exists, at reasonable times and with reasonable prior notice, enter upon,
inspect and examine at its own cost and expense (unless a Lease Event of
Default exists, in which case the out-of-pocket costs and expenses of such
parties shall be paid by Lessee), the Property. Lessee shall furnish to Agent
Lessor statements, no more than once per year, accurate in all material
respects, regarding the condition and state of repair of the Property. Agent
Lessor shall have no duty to make any such inspection or inquiry and shall
not incur any liability or obligation by reason of not making any such
inspection or inquiry.
X.3 ENVIRONMENTAL INSPECTION. Upon surrender of possession of the
Property, or not more than 120 days nor less than 30 days prior to the
Expiration Date (unless Lessee has previously irrevocably exercised the
Purchase Option or Maturity Date Purchase Option), Lessee shall, at its sole
cost and expense, provide to Agent Lessor a report by an environmental
consultant selected by Lessee and reasonably satisfactory to Agent Lessor
certifying that Hazardous Substances have not at any time during the Term been
generated, used, treated or stored on, transported to or from, Released at, on
or from or deposited at or on the Property other than (i) as necessary to use,
operate, maintain, repair and restore the Property and (ii) in full compliance
with all Environmental Laws, and no portion of the Property has been used for
such
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purposes other than in full compliance with all Environmental Laws. If such
is not the case, the report shall set forth a remedial response plan relating
to the Property (which remedial response plan, if required by any
Environmental Law or Governmental Authority, shall be approved by the
appropriate Governmental Authority). Such remedial response plan shall
include, but shall not be limited to, plans for full response, remediation,
removal, or other corrective action, and the protection, or mitigative action
associated with the protection, of natural resources including wildlife,
aquatic species, and vegetation associated with the Property, as required by
all applicable Environmental Laws. If such report includes a remedial
response plan, Lessee shall promptly deposit funds in escrow with the Agent
sufficient to ensure the full execution and implementation of such plan.
ARTICLE XI
XI.1 MODIFICATIONS, SUBSTITUTIONS AND REPLACEMENTS. (a) So long as no
Lease Event of Default has occurred and is continuing, Lessee, at its sole
cost and expense, may at any time and from time to time make alterations,
renovations, improvements and additions to the Property or any part thereof
(collectively, "MODIFICATIONS"); PROVIDED, that: (i) except for any
Modification required to be made pursuant to a Legal Requirement or an
Insurance Requirement, no Modification, individually, or when aggregated with
any (A) other Modification or (B) grant, dedication, transfer or release
pursuant to Section 12.2, shall materially impair the value of the Property
or the utility or useful life of the Property from that which existed
immediately prior to such Modification; (ii) the Modification shall be
performed expeditiously and in a good and workmanlike manner; (iii) Lessee
shall comply with all Legal Requirements (including all Environmental Laws)
and Insurance Requirements applicable to the Modification, including the
obtaining of all permits and certificates of occupancy, and the structural
integrity of the Property shall not be adversely affected; (iv) Lessee shall
maintain or cause to be maintained builders' risk insurance at all times when
a Modification is in progress; (v) subject to the terms of Article XIII
relating to permitted contests, Lessee shall pay all costs and expenses and
discharge any Liens arising with respect to the Modification; (vi) such
Modifications shall comply with Sections 8.2 and 10.1 and shall not change
the primary character of the Property; and (vii) no Improvements shall be
demolished. All Modifications (other than those that may be readily removed
without impairing the value, utility or remaining useful life of the
Property) shall remain part of the Improvements and shall be subject to this
Lease, and title thereto shall immediately vest in Agent Lessor. So long as
no Lease Event of Default has occurred and is continuing, Lessee may place
upon the Property any inventory, trade fixtures, machinery, equipment or
other property belonging to Lessee or third parties and may remove the same
at any time during the term of this Lease; PROVIDED that such inventory,
trade fixtures, machinery, equipment or other property, or their respective
operations, do not materially impair the value, utility or remaining useful
life of the Property.
(b) Following the Completion Date with respect to the Property, Lessee
shall notify
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Agent Lessor of the undertaking of any construction, repairs or alterations
to the Property the cost of which is anticipated to exceed $500,000. Prior to
undertaking any such construction or alterations, Lessee shall deliver to
Agent Lessor (i) a brief narrative of the work to be done and a copy of the
plans and specifications relating to such work; and (ii) an Officer's
Certificate stating that such work when completed will not impair the value,
utility or remaining useful life of the Property. Agent Lessor, by itself or
its agents, shall have the right, but not the obligation, from time to time
to inspect such construction to ensure that the same is completed consistent
with such plans and specifications.
(c) Following the Completion Date with respect to the Property, Lessee
shall not without the consent of Agent Lessor undertake any construction or
alterations to the Property if such construction or alterations cannot, in
the reasonable judgement of Agent Lessor, be completed on or prior to the
date that is twelve months prior to the Expiration Date.
ARTICLE XII
XII.1 WARRANTY OF TITLE. (a) Lessee agrees that, except as
otherwise provided herein and subject to the terms of Article XIII relating
to permitted contests, Lessee shall not directly or indirectly create or
allow to remain, and shall promptly discharge at its sole cost and expense,
any Lien, defect, attachment, levy, title retention agreement or claim upon
the Property or any Modifications or any Lien, attachment, levy or claim with
respect to the Rent or with respect to any amounts held by Agent or the
Defeasance Deposit Depositary Bank pursuant to the Credit Agreement or the
Defeasance Deposit Agreement, other than Permitted Liens. Lessee shall
promptly notify Agent Lessor in the event it receives actual knowledge that a
Lien (other than a Permitted Lien) exists with respect to the Property or the
Collateral.
(b) Nothing contained in this Lease shall be construed as constituting
the consent or request of Agent Lessor, expressed or implied, to or for the
performance by any contractor, mechanic, laborer, materialman, supplier or
vendor of any labor or services or for the furnishing of any materials for
any construction, alteration, addition, repair or demolition of or to the
Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER AGENT
LESSOR, AGENT, ANY LESSOR NOR ANY LENDER IS OR SHALL BE LIABLE FOR ANY LABOR,
SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE
HOLDING THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO
MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL
ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO THE PROPERTY.
XII.2 GRANTS AND RELEASES OF EASEMENTS. Provided that no Lease Event
of Default shall have occurred and be continuing and subject to the provisions
of Articles VIII, IX, X and XI, Agent Lessor and each Lessor hereby consents to
the following actions by Lessee, in the name
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and stead of Agent Lessor and the Lessors, but at Lessee's sole cost and
expense: (a) the granting (prior to the Lien of the Deed of Trust) of
easements, licenses, rights-of-way and other rights and privileges in the
nature of easements reasonably necessary or desirable for the construction,
use, repair, renovation or maintenance of the Property as herein provided;
(b) the release (free and clear of the Lien of the Deed of Trust) of existing
easements or other rights in the nature of easements which are for the
benefit of the Property or adjacent properties (owned by the Lessee); (c) the
dedication or transfer (prior to the Lien of the Deed of Trust) of unimproved
portions of the Property for road, highway or other public purposes; (d) the
execution of petitions to have the Property annexed to any municipal
corporation or utility district; and (e) the execution of amendments to any
covenants and restrictions affecting the Property; PROVIDED, that in each
case Lessee shall have delivered to Agent Lessor an Officer's Certificate
stating that: (i) such grant, release, dedication or transfer does not
materially impair the value, utility or remaining useful life of the
Property, (ii) such grant, release, dedication or transfer is necessary in
connection with the construction, use, maintenance, alteration, renovation or
improvement of the Property or adjacent properties (owned by the Lessee),
(iii) Lessee shall remain obligated under this Lease and under any instrument
executed by Lessee consenting to the assignment of Agent Lessor's or any
Lessor's interest in this Lease as security for indebtedness, in each such
case in accordance with their terms, as though such grant, release,
dedication or transfer, had not been effected and (iv) Lessee shall pay and
perform any obligations of Agent Lessor or any Lessor under such grant,
release, dedication or transfer. Without limiting the effectiveness of the
foregoing, provided that no Lease Event of Default shall have occurred and be
continuing, Agent Lessor shall, upon the request of Lessee, and at Lessee's
sole cost and expense, execute and deliver any instruments necessary or
appropriate to confirm any such grant, release, dedication or transfer to any
Person permitted under this Section.
ARTICLE XIII
XIII.1 PERMITTED CONTESTS OTHER THAN IN RESPECT OF IMPOSITIONS. Except
to the extent otherwise provided for in Section 12.2 of the Participation
Agreement, Lessee, on its own or on Agent Lessor's and the Lessors' behalf but
at Lessee's sole cost and expense, may contest, by appropriate administrative
or judicial proceedings conducted in good faith and with due diligence, the
amount, validity or application, in whole or in part, of any Legal Requirement,
or utility charges payable pursuant to Section 4.1 or any Lien, attachment,
levy, encumbrance or encroachment, and Agent Lessor agrees not to pay, settle
or otherwise compromise any such item, provided that (a) the commencement and
continuation of such proceedings shall suspend the collection thereof from, and
suspend the enforcement thereof against, the Property, any Lessor, Agent, Agent
Lessor and the Lenders; (b) there shall be no risk of the imposition of a Lien
(other than a Permitted Lien) on the Property, any Rent or the Collateral, and
no part of the Property nor any Rent or any of the Collateral would be in any
danger of being sold, forfeited, lost or deferred; (c) at no time during the
permitted contest shall there be a risk of the imposition of criminal liability
or civil liability on any Lessor, Agent, Agent Lessor or any Lender for failure
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to comply therewith; and (d) in the event that, at any time, there shall be a
material risk of extending the application of such item beyond the Expiration
Date, then Lessee shall deliver to Agent Lessor an Officer's Certificate
certifying as to the matters set forth in clauses (a), (b) and (c) of this
Section 13.1. Agent Lessor, at Lessee's sole cost and expense, shall execute
and deliver to Lessee such authorizations and other documents as may
reasonably be required in connection with any such contest and, if reasonably
requested by Lessee, shall join as a party therein at Lessee's sole cost and
expense.
ARTICLE XIV
XIV.1 PUBLIC LIABILITY AND WORKERS' COMPENSATION INSURANCE. During
the Term, Lessee shall procure and carry, at Lessee's sole cost and expense,
commercial general liability insurance for claims for injuries or death
sustained by persons or damage to property while on the Property. Such
insurance shall be on terms and in amounts that are no less favorable than
insurance maintained by owners of similar properties, that are in accordance
with normal industry practice. The policy shall be endorsed to name each
Lessor, Agent Lessor, Agent and each Lender as additional insureds. The
policy shall also specifically provide that the policy shall be considered
primary insurance which shall apply to any loss or claim before any
contribution by any insurance which any Lessor, Agent Lessor, Agent or any
Lender may have in force. Lessee shall, in the operation of the Property,
comply with the applicable workers' compensation laws and protect each
Lessor, Agent Lessor, Agent and each Lender against any liability under such
laws.
XIV.2 HAZARD AND OTHER INSURANCE. (a) During the Term, Lessee shall
keep the Property insured against loss or damage by fire and other risks on
terms and in amounts that are no less favorable than insurance maintained by
owners of similar properties, that are in accordance with normal industry
practice, are in amounts equal to the actual replacement cost of the
Improvements. So long as no Lease Event of Default exists, any loss payable
under the insurance policy required by this Section will be paid to and
adjusted solely by Lessee, subject to Article XV. So long as no Lease Event
of Default exists, any loss payable under any title insurance policy covering
the Property will be paid to and adjusted solely by Lessee, subject to
Article XV.
(b) If at any time during the Term the area in which the Property is
located is designated a "flood-prone" area pursuant to the Flood Disaster
Protection Act of 1973 or any amendments or supplements thereto, then Lessee
shall comply with the National Flood Insurance Program as set forth in the
Flood Disaster Protection Act of 1973, as may be amended. In addition, Lessee
will fully comply with the requirements of the National Flood Insurance Act
of 1968 and the Flood Disaster Protection Act of 1973, as each may be amended
from time to time, and with any other Legal Requirement concerning flood
insurance to the extent that it applies to the Property.
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XIV.3 COVERAGE. (a) Lessee shall furnish Agent Lessor with
certificates showing the insurance required under Sections 14.1 and 14.2 to
be in effect and naming Agent Lessor as loss payee with respect to property
insurance and Agent, the Lenders, Agent Lessor and the Lessors as an
additional insured with respect to liability insurance and showing the
mortgagee endorsement required by Section 14.3(c). All such insurance shall
be at the cost and expense of Lessee. Such certificates shall include a
provision in which the insurer agrees to endeavor to provide thirty (30)
days' advance written notice by the insurer to Agent Lessor and Agent in the
event of cancellation or modification of such insurance. If a Lease Event of
Default has occurred and is continuing and Lessor so requests, Lessee shall
deliver to Agent Lessor copies of all insurance policies required by this
Lease.
(b) Lessee agrees that the insurance policy or policies required by
this Lease shall include an appropriate clause pursuant to which such policy
shall provide that it will not be invalidated should Lessee waive, in
writing, prior to a loss, any or all rights of recovery against any party for
losses covered by such policy. Lessee hereby waives any and all such rights
against each Lessor, Agent Lessor, Agent and each Lender to the extent of
payments made under such policies.
(c) All insurance policies required by Section 14.2 shall include a
"New York" or standard form mortgagee endorsement in favor of the Agent.
(d) Neither Agent Lessor nor any Lessor shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with any
insurance required under this Lease except that Agent Lessor and any Lessor
may carry separate liability insurance so long as (i) Lessee's insurance is
designated as primary and in no event excess or contributory to any insurance
such party may have in force which would apply to a loss covered under
Lessee's policy and (ii) each such insurance policy will not cause Lessee's
insurance required under this Lease to be subject to a coinsurance exception
of any kind.
(e) Lessee shall pay as they become due all premiums for the insurance
required by this Lease, shall renew or replace each policy prior to the
expiration date thereof and shall promptly deliver to Agent Lessor and Agent
certificates for renewal and replacement policies.
ARTICLE XV
XV.1 CASUALTY AND CONDEMNATION. (a) Subject to the provisions of this
Article XV and Article XVI (in the event Lessee delivers, or is obligated to
deliver, a Termination Notice), and prior to the occurrence and continuation
of a Lease Event of Default, Lessee shall be entitled to receive (and Agent
Lessor and each Lessor hereby irrevocably assigns to Lessee all of Agent
Lessor's and such Lessor's right, title and interest during such time in) any
award, compensation or insurance proceeds to which Lessee or Agent Lessor may
become entitled by reason of their
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respective interests in the Property (i) if all or a portion of the Property
is damaged or destroyed in whole or in part by a Casualty or (ii) if the use,
access, occupancy, easement rights or title to the Property or any part
thereof is the subject of a Condemnation; PROVIDED, HOWEVER, if a Default
shall have occurred and be continuing such award, compensation or insurance
proceeds shall be paid directly to Agent Lessor or, if received by Lessee,
shall be held in trust for Agent Lessor, and shall be paid over by Lessee to
Agent Lessor, and PROVIDED FURTHER that in the event of any Casualty or
Condemnation, the estimated cost of restoration of which is in excess of
$5,000,000, any such award, compensation or insurance proceeds shall be paid
directly to Agent Lessor, or if received by Lessee, shall be held in trust
for Agent Lessor and shall be paid over by Lessee to Agent Lessor.
(b) So long as no Lease Event of Default has occurred and is
continuing, Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust or appeal any claim for any award, compensation or
insurance payment on account of any such Casualty or Condemnation and shall
pay all expenses thereof; PROVIDED that if the estimated cost of restoration
of the Property or the payment on account of such title defect is in excess
of $5,000,000, then Agent Lessor shall be entitled to participate in any such
proceeding or action. At Lessee's reasonable request, and at Lessee's sole
cost and expense, Agent Lessor and Agent shall participate in any such
proceeding, action, negotiation, prosecution or adjustment. Agent Lessor,
each Lessor and Lessee agree that this Lease shall control the rights of
Agent Lessor, the Lessors and Lessee in and to any such award, compensation
or insurance payment.
(c) If any party shall receive notice of a Casualty or a possible
Condemnation of the Property or any interest therein, such party, as the case
may be, shall give notice thereof to Agent Lessor, Lessee and to Agent
promptly after the receipt of such notice.
(d) In the event of a Casualty or receipt of notice by Lessee or Agent
Lessor of a Condemnation, Lessee shall, not later than thirty (30) days after
such occurrence, deliver to Agent Lessor and the Agent an Officer's
Certificate stating that either (i) (x) such Casualty is not a Significant
Casualty or (y) such Condemnation is neither a Total Condemnation nor a
Significant Condemnation and that this Lease shall remain in full force and
effect with respect to the Property and, at Lessee's sole cost and expense,
Lessee shall promptly and diligently restore the Property in accordance with
the terms of Section 15.1 (e) or (ii) this Lease shall terminate with respect
to the Property in accordance with Section 16.1.
(e) If pursuant to this Section 15.1, this Lease shall continue in full
force and effect following a Casualty or Condemnation with respect to the
Property, Lessee shall, at its sole cost and expense, promptly and diligently
repair any damage to the Property caused by such Casualty or Condemnation in
conformity with the requirements of Sections 10.1 and 11.1 using the as-built
plans and specifications for the Property (as modified to give effect to any
subsequent Modifications, any Condemnation affecting the Property and all
applicable Legal Requirements) so as to restore the Property to the same
condition, operation, function and value as existed
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immediately prior to such Casualty or Condemnation. In such event, title to
the Property shall remain with Agent Lessor.
(f) In no event shall a Casualty or Condemnation with respect to which
this Lease remains in full force and effect under this Section 15.1 affect
Lessee's obligations to pay Rent pursuant to Section 3.1.
(g) Notwithstanding anything to the contrary set forth in Section
15.1(a) or Section 15.1(e), if during the Term a Casualty occurs with respect
to the Property or Lessee receives notice of a Condemnation with respect to
the Property, and following such Casualty or Condemnation, the Property
cannot reasonably be restored on or before the date which is twelve months
prior to the Maturity Date to substantially the same condition as existed
immediately prior to such Casualty or Condemnation or before such day the
Property is not in fact so restored, then Lessee shall exercise its Purchase
Option with respect to the Property on the next Payment Date or irrevocably
agree in writing to exercise the Maturity Date Purchase Option with respect
to the Property, and in either such event such remaining Casualty or
Condemnation proceeds shall be paid to the Agent, which shall pay such funds
to Lessee upon the closing of the purchase of the Property.
XV.2 ENVIRONMENTAL MATTERS. Promptly upon Lessee's actual knowledge of
the presence of Hazardous Substances in any portion of the Property in
concentrations and conditions that constitute an Environmental Violation,
Lessee shall notify Agent Lessor and Agent in writing of such condition. In
the event of such Environmental Violation, Lessee shall, not later than
thirty (30) days after Lessee has actual knowledge of such Environmental
Violation, either deliver to Agent Lessor and Agent an Officer's Certificate
and a Termination Notice with respect to the Property pursuant to Section
16.1, if applicable, or, at Lessee's sole cost and expense, promptly and
diligently undertake any response, clean up, remedial or other action
necessary to remove, cleanup or remediate the Environmental Violation in
accordance with the terms of Section 9.1. If Lessee does not deliver a
Termination Notice with respect to the Property pursuant to Section 16.1,
Lessee shall, upon completion of remedial action by Lessee, cause to be
prepared by an environmental consultant reasonably acceptable to Agent Lessor
and Agent a report describing the Environmental Violation and the actions
taken by Lessee (or its agents) in response to such Environmental Violation,
and a statement by the consultant that the Environmental Violation has been
remedied in full compliance with applicable Environmental Laws.
XV.3 NOTICE OF ENVIRONMENTAL MATTERS. Promptly, but in any event
within five (5) Business Days from the date Lessee has actual knowledge
thereof, Lessee shall provide to Agent Lessor and Agent written notice of any
material pending or threatened claim, action or proceeding involving any
Environmental Law or any Release on or in connection with the Property. All
such notices shall describe in reasonable detail the nature of the claim,
action or proceeding and Lessee's proposed response thereto. In addition,
Lessee shall provide to Agent
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Lessor and Agent, within five (5) Business Days of receipt, copies of all
written communications with any Governmental Authority relating to any
Environmental Violation in connection with the Property. Lessee shall also
promptly provide such detailed reports of any such environmental claims as
reasonably may be requested by Agent Lessor and Agent.
ARTICLE XVI
XVI.1 TERMINATION UPON CERTAIN EVENTS. (a) If Agent Lessor, any
Lessor or Lessee shall have received notice of a Total Condemnation, then
Lessee shall be obligated, within thirty (30) days after Lessee receives
notice thereof, to deliver a written notice in the form described in Section
16.2(a) (a "TERMINATION NOTICE") of the termination of this Lease.
(b) If either: (i) Lessee or Agent Lessor or any Lessor shall have
received notice of a Condemnation, and Lessee shall have delivered to Agent
Lessor and Agent an Officer's Certificate that such Condemnation is a
Significant Condemnation; or (ii) a Casualty occurs, and Lessee shall have
delivered to Agent Lessor and Agent an Officer's Certificate that such
Casualty is a Significant Casualty; or (iii) an Environmental Violation
occurs or is discovered and Lessee shall have delivered to Lessor an
Officer's Certificate stating that, in the reasonable, good-faith judgment of
Lessee, the cost to remediate the same will exceed $5,000,000; then, Lessee
shall, simultaneously with the delivery of the Officer's Certificate pursuant
to the preceding clause (i), (ii) or (iii), deliver a Termination Notice.
XVI.2 PROCEDURES. (a) A Termination Notice shall contain: (i)
notice of termination of this Lease on a date not more than thirty (30) days
after Agent Lessor's and Agent's receipt of such Termination Notice (the
"TERMINATION DATE"); (ii) a binding and irrevocable agreement of Lessee to
pay the Termination Value (offsetting, at the option of Lessee, against such
amount the aggregate amount of the Defeasance Deposit Collateral) and
purchase the Property on such Termination Date and (iii) the Officer's
Certificate described in Section 16.1(b).
(b) On the Termination Date, Lessee shall pay to Agent Lessor the
Termination Value for the Property, plus all amounts owing in respect of Rent
for such Property (including Supplemental Rent) theretofore accruing
(offsetting, at the option of Lessee, against such amount the aggregate
amount of the Defeasance Deposit Collateral) and Agent Lessor shall convey
the Property to Lessee (or Lessee's designee) all in accordance with Section
19.1.
ARTICLE XVII
XVII.1 LEASE EVENTS OF DEFAULT. If any one or more of the following
events (each a "LEASE EVENT OF DEFAULT") shall occur:
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(a) Lessee shall fail to make payment of (i) any Basic Rent or any
Supplemental Rent representing amounts owed under the Credit Agreement or
the other Credit Documents within five (5) Business Days after the same
has become due and payable or (ii) any Maximum Residual Guarantee Amount,
Purchase Option Price or Termination Value after the same has become due
and payable; or
(b) Lessee shall fail to make payment of any other Supplemental Rent
due and payable within five (5) Business Days after receipt of notice
thereof; or
(c) Lessee shall fail to maintain insurance as required by Article
XIV of this Lease; or
(d) Lessee shall fail to observe or perform any term, covenant or
condition of Lessee under this Lease, the Participation Agreement or any
other Operative Agreement to which it is a party (other than those set
forth in Section 17.1(a), (b), (c), (e) or (k) hereof) which failure, if
capable of cure, continues for thirty (30) days (or five (5) Business Days
in the case of Lessee's failure to observe or perform the terms, covenants
and conditions contained in Section 3(a) of the Defeasance Deposit
Agreement) after written notice thereof to Lessee by Agent Lessor or any
representation or warranty by Lessee set forth in this Lease or in any
other Operative Agreement or in any document entered into in connection
herewith or therewith or in any document, certificate or financial or
other statement delivered in connection herewith or therewith shall be
false or inaccurate in any material way unless capable of cure and cured
within thirty (30) days after written notice thereof to Lessee by Agent
Lessor; or
(e) an Agency Agreement Event of Default shall have occurred and be
continuing; or
(f) Lessee shall (i) admit in writing its inability to pay its debts
generally as they become due, (ii) file a petition under the United States
bankruptcy laws or any other applicable insolvency law or statute of the
United States of America or any State or Commonwealth thereof, (iii) make
a general assignment for the benefit of its creditors, (iv) consent to the
appointment of a receiver of itself or the whole or any substantial part
of its property, (v) fail to cause the discharge of any custodian, trustee
or receiver appointed for Lessee or the whole or a substantial part of its
property within sixty (60) days after such appointment, or (vi) file a
petition or answer seeking or consenting to reorganization under the
United States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof; or
(g) insolvency proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency law or statute of the
United States of America or
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any State or Commonwealth thereof shall be filed against Lessee and not
dismissed within sixty (60) days from the date of its filing, or a court
of competent jurisdiction shall enter an order or decree appointing,
without the consent of Lessee, a receiver of Lessee or the whole or a
substantial part of its property, and such order or decree shall not be
vacated or set aside within sixty (60) days from the date of the entry
thereof; or
(h) there shall be entered against Lessee or any Subsidiary one or
more judgments or decrees in an aggregate amount at any one time
outstanding in excess of $5,000,000, and such judgments or decrees shall
not have been satisfied, vacated, discharged, or stayed or bonded pending
appeal within thirty (30) days from entry thereof; or
(i) with respect to any Plan (other than a Multiemployer Plan) as to
which Lessee or any ERISA Affiliate of Lessee may have any liability,
there shall exist, for a period of thirty (30) days, a deficiency which is
material to the consolidated financial condition of Lessee and its
Subsidiaries in the Plan assets available to satisfy the benefits
guaranteeable under ERISA with respect to such Plan, and (i) steps are
undertaken to terminate such Plan or (ii) such Plan is terminated or (iii)
any Reportable Event which presents a material risk of termination with
respect to such Plan shall occur; or
(j) the Lessee or any of its Subsidiaries (i) shall default in the
payment when due, whether at stated maturity or otherwise, of principal,
interest or rent in respect of Indebtedness or Off Balance Sheet Debt of
$5,000,000 or more; or (ii) shall fail to perform or observe any other
condition or covenant, or any other event shall occur or condition exist,
under any agreement or instrument relating to any such Indebtedness or Off
Balance Sheet Debt of $5,000,000 or more, if the effect of any such
failure, event or condition is to cause, or to permit the holder or
holders of such Indebtedness or Off Balance Sheet Debt or beneficiary or
beneficiaries of such Indebtedness or Off Balance Sheet Debt (or a trustee
or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause such Indebtedness or Off Balance Sheet Debt to be
declared to be due and payable prior to its stated maturity, or cash
collateral in respect thereof to be demanded; or
(k) a Ground Lease Event of Default shall have occurred and be
continuing or Lessee shall fail to comply with its covenants set forth in
Section 31.1 hereof; or the Ground Lease shall, in whole or in part,
terminate, cease to be effective or cease to be the legal, valid and
binding obligation of Lessee;
then, in any such event, Agent Lessor may, in addition to the other rights and
remedies provided for in this Article XVII and in Section 18.1, terminate this
Lease by giving Lessee five (5) Business Days' notice of such termination, and
this Lease shall terminate. Lessee shall, to the fullest extent permitted by
law, pay as Supplemental Rent all costs and expenses incurred by or
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on behalf of Lessor, including fees and expenses of counsel, as a result of
any Lease Event of Default hereunder.
XVII.2 FINAL LIQUIDATED DAMAGES. If a Lease Event of Default shall
have occurred and be continuing, Agent Lessor shall have the right to
recover, by demand to Lessee and at Agent Lessor's election, and Lessee shall
pay to Agent Lessor, as and for final liquidated damages, but exclusive of
the indemnities payable under Section 12 of the Participation Agreement, and
in lieu of all damages beyond the date of such demand, the sum of (a) the
Termination Value, plus (b) all other amounts owing in respect of Rent and
Supplemental Rent theretofore accruing under this Lease (offsetting, at the
option of Agent Lessor, against such amount the aggregate amount of the
Defeasance Deposit Collateral). Upon payment of the amount specified
pursuant to the first sentence of this Section 17.2, Lessee shall be entitled
to receive from Agent Lessor, at Lessee's request and cost, an assignment of
Agent Lessor's right, title and interest in the Property, the Improvements,
Fixtures and Modifications, in each case in recordable form and otherwise in
conformity with local custom and free and clear of the Lien of the Deed of
Trust and any Lessor Liens. Lessee (or Lessee's designee) shall execute and
deliver to Agent Lessor an assumption of all of Agent Lessor's obligations
under the Ground Lease. The Property shall be conveyed to Lessee (or
Lessee's designee) "AS IS" and in its then present physical condition. If any
statute or rule of law shall limit the amount of such final liquidated
damages to less than the amount agreed upon, Agent Lessor shall be entitled
to the maximum amount allowable under such statute or rule of law; PROVIDED,
that Lessee shall not be entitled to receive an assignment of Lessor's
interest under the Ground Lease, if any, or in the Property, the
Improvements, the Fixtures and the Modifications unless Lessee shall have
paid in full the Termination Value of the Property and all such Rent and
Supplemental Rent.
XVII.3 LEASE REMEDIES. Agent Lessor and Lessee intend that for
commercial law and bankruptcy law purposes, this Lease will be treated as a
financing arrangement, as set forth in Article VII. If, as a result of
applicable state law, which cannot be waived, this Lease is deemed to be a
lease of the Property, rather than a financing arrangement, and Agent Lessor
is unable to enforce the remedies set forth in Section 17.2, the following
remedies shall be available to Agent Lessor:
(a) SURRENDER OF POSSESSION. If a Lease Event of Default shall have
occurred and be continuing, and whether or not this Lease shall have been
terminated pursuant to Section 17.1, Lessee shall, upon thirty (30) days
written notice, surrender to Agent Lessor possession of the Property and
Lessee shall quit the same. Agent Lessor may enter upon and repossess the
Property by such means as are available at law or in equity, and may remove
Lessee and all other Persons and any and all personal property and Lessee's
equipment and personalty and severable Modifications from the Property. Agent
Lessor shall have no liability by reason of any such entry, repossession or
removal performed in accordance with applicable law.
(b) RELETTING. If a Lease Event of Default shall have occurred and be
continuing, and
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whether or not this Lease shall have been terminated pursuant to Section
17.1, Agent Lessor may, but shall be under no obligation to, relet all, or
any portion, of the Property, for the account of Lessee or otherwise, for
such term or terms (which may be greater or less than the period which would
otherwise have constituted the balance of the Term) and on such conditions
(which may include concessions or free rent) and for such purposes as Agent
Lessor may reasonably determine, and Agent Lessor may collect, receive and
retain the rents resulting from such reletting which rents shall be applied
against amounts owing by Lessee. Agent Lessor shall not be liable to Lessee
for any failure to relet the Property or for any failure to collect any rent
due upon such reletting.
(c) DAMAGES. None of (a) the termination of this Lease pursuant to
Section 17.1; (b) the repossession of the Property; or (c) except to the
extent required by applicable law, the failure of Agent Lessor to relet all,
or any portion, of the Property, the reletting of all or any portion thereof,
nor the failure of Agent Lessor to collect or receive any rentals due upon
any such reletting shall relieve Lessee of its liability and obligations
hereunder, all of which shall survive any such termination, repossession or
reletting. If any Lease Event of Default shall have occurred and be
continuing and notwithstanding any termination of this Lease pursuant to
Section 17.1, Lessee shall forthwith pay to Agent Lessor all Basic Rent and
other sums due and payable hereunder to and including the date of such
termination. Thereafter, on the days on which the Basic Rent or Supplemental
Rent, as applicable, are payable under this Lease or would have been payable
under this Lease if the same had not been terminated pursuant to Section 17.1
and until the end of the Term or what would have been the Term in the absence
of such termination, Lessee shall pay Agent Lessor, as current liquidated
damages (it being agreed that it would be impossible accurately to determine
actual damages) an amount equal to the Basic Rent and Supplemental Rent that
are payable under this Lease or would have been payable by Lessee hereunder
if this Lease had not been terminated pursuant to Section 17.1, less the net
proceeds, if any, which are actually received by Agent Lessor with respect to
the period in question of any reletting of the Property or any portion
thereof (offsetting, at the option of Agent Lessor, against such amount the
aggregate amount of the Defeasance Deposit Collateral); PROVIDED that
Lessee's obligation to make payments of Basic Rent and Supplemental Rent
under this Section 17.3(c) shall continue only so long as Agent Lessor shall
not have received the amounts specified in Section 17.2 or Section 17.3(d).
In calculating the amount of such net proceeds from reletting, there shall be
deducted all of Agent Lessor's, Agent's and any Lender's expenses in
connection therewith, including repossession costs, brokerage commissions,
fees and expenses for counsel and any necessary repair or alteration costs
and expenses reasonably incurred in preparation for such reletting and all
damages, costs and expenses incurred by Agent Lessor under the Ground Lease.
To the extent Agent Lessor receives any damages pursuant to this Section
17.3(c), such amounts shall be regarded as amounts paid on account of Rent.
(d) ACCELERATION OF RENT. If a Lease Event of Default shall have
occurred and be continuing, and this Lease shall not have been terminated
pursuant to Section 17.1, and whether or not Agent Lessor shall have
collected any current liquidated damages pursuant to Section
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17.3(c), Agent Lessor may upon written notice to Lessee accelerate all
payments of Basic Rent due hereunder and, upon such acceleration, Lessee
shall immediately pay Agent Lessor, as and for final liquidated damages and
in lieu of all current liquidated damages on account of such Lease Event of
Default beyond the date of such acceleration (it being agreed that it would
be impossible accurately to determine actual damages) an amount equal to the
sum of (a) all Basic Rent (assuming interest at a rate per annum equal to the
Overdue Rate), as applicable, due from the date of such acceleration until
the end of the Term, PLUS (b) the Maximum Residual Guarantee Amount that
would be payable under Section 21.1(c) assuming the proceeds of the sale
pursuant to such Section 21.1(c) are equal to zero, which sum is then
discounted to present value at a rate equal to the rate then being paid on
United States treasury securities with maturities corresponding to the then
remaining Term (offsetting, at the option of Agent Lessor, against such
amount the aggregate amount of the Defeasance Deposit Collateral). Following
payment of such amount by Lessee, Lessee will be permitted to stay in
possession of the Property for the remainder of the Term, subject to the
terms and conditions of this Lease, including the obligation to pay
Supplemental Rent, provided that no further Lease Event of Default shall
occur and be continuing, following which Agent Lessor shall have all the
rights and remedies set forth in this Article XVII (but not including those
set forth in this Section 17.3). If any statute or rule of law shall limit
the amount of such final liquidated damages to less than the amount agreed
upon, Agent Lessor shall be entitled to the maximum amount allowable under
such statute or rule of law.
(e) SUBLETTING OF THE PROPERTY. In addition to the other rights and
remedies set forth herein, Agent Lessor shall have the right to continue this
Lease in effect and, as permitted by Section 1951.4 of the California Civil
Code, to enforce, by suit or otherwise, all covenants and conditions hereof to
be performed or complied with by Lessee and exercise all of Agent Lessor's
rights and remedies under this Lease, including, without limitation, the right
to recover Basic Rent and Supplemental Rent from Lessee as it becomes due under
this Lease, even though Lessee shall have breached this Lease and abandoned the
Property. Acts of maintenance or preservation, or efforts by Agent Lessor or
on Agent Lessor's behalf to relet the Property, or the appointment of a
receiver upon the initiative of Agent Lessor to protect Agent Lessor's interest
under this Lease shall not constitute a termination of Lessee's right to
possession of the Property; provided, however, that the foregoing enumeration
shall not be construed as in any way limiting the actions Agent Lessor may take
without terminating Lessee's right to possession. In furtherance of the rights
hereby granted to Agent Lessor, and to the extent, permitted by law, Lessee
hereby appoints Agent Lessor its agent and attorney-in-fact, which appointment
shall be deemed to be coupled with an interest and is irrevocable, with power
of substitution, to enter the Property upon a Lease Event of Default hereunder
and remove therefrom all persons and property (with the right to store such
property on the Property in a public warehouse or elsewhere at the cost and
risk and for the account of Lessee) and to alter the Property in such manner as
Agent Lessor may deem necessary or advisable so as to put the Property in good
order and to make the same rentable and from time to time sublet the Property
or any part thereof for such term or terms whether or not extending beyond the
then current term of this Lease (but such
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sublease may provide for a new and successive lease to commence immediately
upon the termination of this Lease), at such rentals and upon such other
terms as Agent Lessor in its sole discretion may deem advisable, and with the
right to make alterations and repairs to the Property; and Lessee agrees to
pay to Agent Lessor on demand all reasonable expenses incurred by Agent
Lessor in such subletting, and in altering, repairing and putting the
Property in good order and condition, and in reletting the same, including
fees of attorneys and architects, and all other reasonable expenses or
commissions. Agent Lessor shall be Lessee's agent and representative on the
Property in respect of all matters arising under or in connection with any
such sublease made for Lessee by Agent Lessor. Under each such sublease,
Lessee shall retain the right to enter upon and use the Property, subject to
the terms and conditions of such sublease and the rights of the sublessee
thereunder. Lessee further agrees to pay to Agent Lessor, following the date
of such subletting, to and including the date provided in this Lease for the
expiration of the Lease Term, the sums of money which would have been payable
by Lessee as Basic Rent and Supplemental Rent, deducting only the net amount
of rent, if any, which Agent Lessor shall actually receive (after deducting
from the gross receipts the expenses, costs and payments of Agent Lessor
which in accordance with the terms of this Lease would have been borne by
Lessee) in the meantime from and by any such subletting of the Property, and
Lessee hereby agrees to remain liable for all sums otherwise payable by
Lessee under this Lease, including, but not limited to, the expenses of Agent
Lessor aforesaid, as well as for any deficiency aforesaid. Agent Lessor
shall have the right from time to time to begin and maintain successive
actions or other legal proceedings against Lessee for the recovery of such
deficiency, expenses or damages or for a sum equal to any installments of
Basic Rent or Supplemental Rent and other sums payable hereunder, and to
recover the same upon the liability of Lessee herein provided, which
liability it is expressly covenanted shall survive the commencement or
determination of any action to secure possession of the Property. Nothing
herein contained shall be deemed to require Agent Lessor to wait to begin
such action or other legal proceedings until the date when this Lease would
have expired by limitation had there been no such Lease Event of Default.
Notwithstanding any such subletting without termination, pursuant to the
terms hereof, Agent Lessor shall retain the right to and may at any time
thereafter elect to terminate this Lease or Lessee's right to possession of
the Property for any previous breach which remains uncured or for any
subsequent breach by giving Lessee written notice thereof as herein provided,
and in such event Lessee shall forfeit any rights or interest under any such
sublease and thereafter the obligations of any such sublessee shall run
directly to Agent Lessor for its own account. Upon application by Agent
Lessor, a receiver may be appointed to take possession of the Property,
exercise all rights granted to Agent Lessor as agent and attorney-in-fact for
Lessee set forth in this Section 17.3(e) and apply any rentals collected from
the Property as hereinabove provided. No taking of possession of the
Property or other act by Agent Lessor as the agent and attorney-in-fact for
Lessee pursuant to the foregoing provisions, nor any subletting by Agent
Lessor for Lessee pursuant to the foregoing provisions, nor any such
appointment of a receiver shall constitute or be construed as an election by
Agent Lessor to terminate this Lease or Lessee's right to possession of the
Property unless a written notice of such intention be given to Lessee.
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(f) REPOSSESSION AND RECOVERABLE AMOUNTS. In the event of any
termination of the Term pursuant to Section 17.1 or as permitted by law,
Lessee shall quit and surrender the Property to Agent Lessor, and Agent
Lessor may without further notice enter upon, reenter, possess and repossess
the same by summary proceedings, ejectment or otherwise, and again have,
repossess and enjoy the same as if this Lease had not been made, and in any
such event neither Lessee nor any Person claiming through or under Lessee by
virtue of any law or an order of any court shall be entitled to possession or
to remain in possession of the Property but shall forthwith quit and
surrender the Property, and Agent Lessor shall, notwithstanding any other
provision of this Lease, be entitled to recover from Lessee the aggregate of
all amounts Agent Lessor is permitted to recover from Lessee, including:
(i) the worth at the time of award, as computed below, of the
unpaid rent (including, without limitation, Basic Rent and Supplemental
Rent) which had been earned at the time of termination of this Lease;
(ii) the worth at the time of award of the amount by which the
unpaid rent (including, without limitation, Basic Rent and Supplemental
Rent) which would have been earned after the time of termination of this
Lease until the time of award exceeds the amount of such rental loss
that Lessee proves could have been reasonably avoided;
(iii) the worth at the time of award of the amount by which
the unpaid rent (including, without limitation, Basic Rent and
Supplemental Rent) for the balance of the Term after the time of award
exceeds the amount of such rental loss for said balance of the Term that
Lessee proves could be reasonably avoided; and
(iv) any other amount necessary to compensate Agent Lessor and
each Lessor for all the detriment proximately caused by Lessee's failure
to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom; including without
limitation any loss or damage arising out of the failure of Agent Lessor
or any Lessor to receive the benefit of the performance by Lessee of any
obligation to purchase the Property under the provisions of this Lease.
Lessee acknowledges and agrees that, in reliance upon this Lease and
Lessee's covenants and agreements hereunder and the creditworthiness and
financial condition of Lessee, Agent Lessor has entered into certain
special transactions to finance the costs of leasing the Land and
constructing the Improvements and, in connection with such financing
transactions, Agent Lessor and each Lessor have incurred and will continue
to incur indebtedness and liabilities under and pursuant to the
Participation Agreement and the other Operative Agreements. Lessee
acknowledges and agrees that a Lease Event of Default will cause Agent
Lessor and each Lessor substantial damage and detriment due to its
obligations and liabilities under the Participation Agreement and the
other Operative Agreements, including, without limitation, the failure of
Agent Lessor and each Lessor to be fully compensated for the Advances made
to Lessee. Accordingly, in order to
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compensate Agent Lessor for all detriment proximately caused by Lessee's
failure to perform its obligations under this Lease, Agent Lessor shall
be permitted to recover from Lessee, without limitation, all amounts
necessary for Agent Lessor to be fully compensated for all of the
Advances made to the Lessee.
The "worth at the time of award," of the amounts referred to in the
foregoing subsections 17.3(f) (i) and (ii) shall be computed by allowing
interest at the Overdue Rate (or at the highest rate permitted by applicable
law, whichever is less) on each rental installment from the date the same was
due hereunder to the time of award. The "worth at the time of award" of the
amount referred to in the foregoing subparagraph (iii) shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of
New York at the time of the award plus one percent (1%). As used herein, the
term "time of award" shall mean either (A) the date upon which Lessee pays to
Agent Lessor the amount recoverable by Agent Lessor as hereinabove set forth
or (B) the date of entry of any determination, order or judgment of any
court, other legally constituted body, or any arbitrator(s), determining the
amount recoverable, whichever first occurs. If the time of award is
determined under clause (B), above, then the amount recoverable by Agent
Lessor hereunder shall bear interest from the time of award until paid at the
Overdue Rate (or at the highest rate permitted by applicable law, whichever
is less). Nothing herein contained shall limit or prejudice the right of
Agent Lessor, and Agent Lessor is hereby expressly granted the right, in any
bankruptcy or reorganization or insolvency proceedings, to prove for and
obtain as damages by reason of such termination, an amount equal to the
maximum allowed by any statute or rule of law whether such amount shall be
greater or less than the amounts referred to above.
XVII.4 WAIVER OF CERTAIN RIGHTS. If this Lease shall be terminated
pursuant to Section 17.1, Lessee waives, to the fullest extent permitted by
law, (a) any notice of re-entry or the institution of legal proceedings to
obtain re-entry or possession; (b) any right of redemption, re-entry or
repossession; (c) the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt; and (d) any other rights which
might otherwise limit or modify any of Agent Lessor's rights or remedies
under this Article XVII.
XVII.5 ASSIGNMENT OF RIGHTS UNDER CONTRACTS. If a Lease Event of
Default shall have occurred and be continuing, and whether or not this Lease
shall have been terminated pursuant to Section 17.1, Lessee shall upon Agent
Lessor's demand immediately assign, transfer and set over to Agent Lessor all
of Lessee's right, title and interest in and to each agreement executed by
Lessee in connection with the construction, renovation, development, use or
operation of the Property (including, without limitation, all right, title
and interest of Lessee with respect to all warranty, performance, service and
indemnity provisions), as and to the extent that the same relate to the
construction, renovation, and operation of the Property.
XVII.6 POWER OF SALE AND FORECLOSURE. Subject to ARTICLE XXI below, in
the event that a court of competent jurisdiction rules that this Lease
constitutes a mortgage, deed of trust or other
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secured financing, and subject to the availability of such remedy under
applicable law, then the Agent Lessor and the Lessee agree that the Lessee
hereby mortgages and grants to Agent Lessor a Lien against the Land and the
Property WITH POWER OF SALE, for the purpose of securing all of Lessee's
obligations hereunder (including the payment of Basic Rent, Supplemental Rent
and the Termination Value or Purchase Option Price) (collectively, the "LEASE
PAYMENT OBLIGATIONS"). In each case, upon the occurrence of any Lease Event
of Default which is continuing, the Agent Lessor shall have the power and
authority, to the extent provided by law, to exercise the following rights
and remedies:
(a) To declare the Lease Payment Obligations immediately due and
payable;
(b) With or without notice, and without releasing Lessee from any
obligation hereunder, to cure any default of Lessee and, in connection
therewith, to enter upon the Property and to perform such acts and things as
Agent Lessor deems necessary or desirable to inspect, investigate, assess and
protect the Property, including, without limitation of any of its other
rights: to obtain a court order to enforce Agent Lessor's right to enter and
inspect the Property pursuant to California Civil Code Section 2929.5, to
which the decision of Agent Lessor as to whether there exists a release or
threatened release of a Hazardous Substance onto the Property shall be deemed
reasonable and conclusive as between the parties hereto; to have a receiver
appointed pursuant to California Code of Civil Procedure Section 564 to
enforce Agent Lessor's right to enter and inspect the Property for Hazardous
Substances; to appear in and defend any action or proceeding purporting to
affect the Property or the rights or powers of Agent Lessor hereunder; to
pay, purchase, contest or compromise any encumbrance, charge, lien or claim
of lien which, in the judgment of Agent Lessor, is prior or superior hereto,
the judgment of Agent Lessor being conclusive as between the parties hereto;
to pay any premiums or charges with respect to insurance required to be
carried hereunder; and to employ counsel, accountants, contractors and other
appropriate persons to assist Agent Lessor;
(c) To commence and maintain an action or actions in any court of
competent jurisdiction to foreclose this instrument as a mortgage or to
obtain specific enforcement of the covenants of Lessee hereunder, and Lessee
agrees that such covenants shall be specifically enforceable by injunction or
any other appropriate equitable remedy and that for the purposes of any suit
brought hereunder, Lessee waives the defense of laches and any applicable
statute of limitations;
(d) Agent Lessor or its employees, acting by themselves or through a
court-appointed receiver, may enter upon, possess, manage, operate, dispose of
and contract to dispose of the Land and the Property or any part thereof;
negotiate with governmental authorities with respect to the Property's
environmental compliance and remedial measures; contract for goods and
services, hire agents, employees and counsel, make repairs, alterations and
improvements to the Property necessary, in Agent Lessor's judgment, to protect
or enhance the security hereof; to incur the risks and obligations ordinarily
incurred by owners of property
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(without any personal obligation on the part of the receiver); and/or to take
any and all other actions which may be necessary or desirable to comply with
Lessee's obligations hereunder and under the Operative Agreements. All sums
realized by Agent Lessor under this Section 17.6(d), less all costs and
expenses incurred by it under this Section 17.6(d), including attorneys'
fees, and less such sums as Agent Lessor deems appropriate as a reserve to
meet future expenses under this Section 17.6(d), shall be applied on any
Lease Payment Obligations secured hereby in such order as Agent Lessor shall
determine. Neither application of said sums to said indebtedness nor any
other action taken by Agent Lessor under this Section 17.6(d) shall cure or
waive any Lease Event of Default or notice of default hereunder or nullify
the effect of any such notice of default. Agent Lessor, or any employee or
agent of Agent Lessor, or a receiver appointed by a court, may take any
action or proceeding hereunder without regard to (i) the adequacy of the
security for the indebtedness secured hereunder, (ii) the existence of a
declaration that the indebtedness secured hereby has been declared
immediately due and payable, or (iii) the filing of a notice of default;
(e) To execute a written notice of such Lease Event of Default and
of its election to cause the Property to be sold to satisfy the obligations
secured hereby. Agent Lessor shall give and record such notice as the law
then requires as a condition precedent to a nonjudicial foreclosure sale.
When the minimum period of time required by law after such notice has
elapsed, Agent Lessor, without notice to or demand upon Lessee except as
otherwise required by law, shall sell the Property at the time and place of
sale fixed by it in the notice of sale and in such order as it or Agent
Lessor may determine, at public auction to the highest bidder for cash, in
lawful money of the United States, payable at time of sale (the Lease Payment
Obligations hereby secured being the equivalent of cash for purposes of said
sale). If the Land and/or the Property consist of several lots, parcels, or
items of property, Agent Lessor may: (i) designate the order in which such
lots, parcels, or items shall be offered for sale or sold, or (ii) elect to
sell such lots, parcels or items through a single sale, through two or more
successive sales, or in any other manner Agent Lessor deems in its best
interest. Lessee shall have no right to direct the order in which the Land
and the Property is sold. Agent Lessor may postpone sale of all or any
portion of the Land and the Property by public announcement at such time and
place of sale, and from time to time thereafter may postpone such sale by
public announcement at such time fixed by the preceding postponement. Agent
Lessor shall deliver to the purchaser at such sale a deed or other
appropriate transfer instrument conveying the Property or portion thereof so
sold, but without any covenant or warranty, express or implied. The recitals
in such deed of any matters or facts shall be conclusive proof of the
truthfulness thereof. Any person, including Agent Lessor or Lessee may
purchase at such sale.
In connection with any sale or sales hereunder, Agent Lessor may
elect to treat any of the Property which consists of a right in action or which
is property that can be severed from the real property covered hereby or any
improvements thereon without causing structural damage thereto as if the same
were personal property or a fixture, as the case may be, and dispose of the
same in accordance with applicable law, separate and apart from the sale of
real
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property. Any sale of any personal property or fixtures hereunder shall be
conducted in any manner permitted by the UCC.
After deducting all costs, fees and expenses of Agent Lessor and of
this trust, including all costs of evidence of title and attorneys' fees in
connection with sale, Agent Lessor shall apply the proceeds of sale to
payment of all sums so expended under the terms hereof not then repaid; the
payment of all other sums then secured hereby; and the remainder, if any, to
the person or persons legally entitled thereto;
(f) To resort to and realize upon the Property and any other
security now or hereafter held by Agent Lessor in such order and manner as
Agent Lessor may, in its sole discretion, determine; and resort to any or all
such security may be taken concurrently or successively and in one or several
consolidated or independent judicial actions or lawfully taken non-judicial
proceedings, or both;
(g) To commence and maintain an action or actions in any court of
competent jurisdiction pursuant to California Code of Civil Procedure Section
736, whether commenced prior to foreclosure of the Property or after
foreclosure of the Property, and to seek the recovery of any and all costs,
damages, expenses, fees, penalties, fines, judgments, indemnification
payments to third parties, and other out-of-pocket costs or expenses actually
incurred by Agent Lessor (collectively, the "ENVIRONMENTAL COSTS") incurred
or advanced by Agent Lessor relating to the cleanup, remediation or other
response action required by Applicable Law or which Agent Lessor believes
necessary to protect its interest in the Property, it being conclusively
presumed between Agent Lessor and Lessee that all such Environmental Costs
incurred or advanced by Agent Lessor relating to the cleanup, remediation or
other response action of or to the Property were made by Agent Lessor in good
faith. All Environmental Costs incurred by Agent Lessor pursuant to this
Section 17.6(g) (including, without limitation, court costs, consultants'
fees and attorneys' fees, whether incurred in litigation or not and whether
before or after judgment) shall bear interest at the Overdue Rate from the
date of expenditure until said sums have been paid. Agent Lessor shall be
entitled to bid, at the sale of the Property held pursuant to Section 17.6(e)
above, the amount of said costs, expenses and interest in addition to the
amount of the other Lease Payment Obligations hereby secured as a credit bid,
the equivalent of cash. For the purposes of any action brought under this
Section 17.6(g), Lessee hereby waives the defense of laches and any
applicable statute of limitations; and
(h) To waive its lien against the Property or any portion thereof,
whether fixtures or personal property, to the extent such property is found to
be environmentally impaired in accordance with California Code of Civil
Procedure Section 726.5 and to exercise any and all rights and remedies of an
unsecured creditor against Lessee and all of Lessee's assets and property for
the recovery of any deficiency and Environmental Costs, including, but not
limited to, seeking an attachment order pursuant to California Code of Civil
Procedure Section 483.010. As between Agent Lessor and Lessee, for purposes of
California Code of Civil Procedure
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Section 726.5, Lessee shall have the burden of proving that Lessee or any
related party (or any affiliate or agent of Lessee or any related party) was
not in any way negligent in permitting the release or threatened release of
the Hazardous Substance. For the purposes of any action brought under this
paragraph, Lessee hereby waives the defense of laches and any applicable
statute of limitations.
(i) All costs and expenses incurred by Agent Lessor pursuant to
this Section 17.6 (including without limitation court costs, consultants'
fees and attorneys' fees, whether incurred in litigation or not and whether
before or after judgment) shall bear interest at the Overdue Rate, from the
date of expenditure until said sums have been paid. Agent Lessor shall be
entitled to bid, at the sale of the Property held pursuant to subsection
17.4(e) above, the amount of said costs, expenses and interest in addition to
the amount of the other Lease Payment Obligations hereby secured as a credit
bid, which shall be deemed the equivalent of cash.
(j) Lessee hereby waives any right to require that any security
given hereunder or under any other agreement securing the Lease Payment
Obligations be marshalled and further waives any right otherwise available in
respect to marshalling of assets which secure any Lease Payment Obligation or
to require Agent Lessor to pursue its remedies against any such assets.
XVII.7 REMEDIES CUMULATIVE. The remedies herein provided shall be
cumulative and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise.
XVII.8 LESSEE'S RIGHT TO CURE. Notwithstanding any provision
contained in this Lease or any other Operative Agreement, if a Lease Event of
Default has occurred and is continuing, Lessee shall have the right to cure
such Lease Event of Default by exercising its Purchase Option at any time
prior to such time as a foreclosure upon or sale of the Property has been
completed.
ARTICLE XVIII
XVIII.1 AGENT LESSOR'S RIGHT TO CURE LESSEE'S LEASE DEFAULTS. Agent
Lessor, without waiving or releasing any obligation or Lease Event of
Default, may (but shall be under no obligation to) remedy any Lease Event of
Default for the account and at the sole cost and expense of Lessee, including
the failure by Lessee to maintain any insurance required by Article XIV, and
may, to the fullest extent permitted by law, and notwithstanding any right of
quiet enjoyment in favor of Lessee, enter upon the Property for such purpose
and take all such action thereon as may be necessary or appropriate therefor.
No such entry shall be deemed an eviction of Lessee. All out-of-pocket costs
and expenses so incurred (including the fees and expenses of counsel),
together with interest thereon at the Overdue Rate from the date on which
such sums or expenses are paid by Lessor, shall be paid by Lessee to Agent
Lessor on demand as Supplemental Rent.
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ARTICLE XIX
XIX.1 PROVISIONS RELATING TO LESSEE'S TERMINATION OF THIS LEASE OR
EXERCISE OF PURCHASE OPTIONS. In connection with any termination of this
Lease with respect to the Property pursuant to the terms of Section 16.2 or
Article XVII, or in connection with Lessee's exercise of its Purchase Option
or Maturity Date Purchase Option, upon the date on which this Lease is to
terminate with respect to the Property or upon the Expiration Date with
respect to the Property, and upon tender by Lessee of the amounts set forth
in Section 16.2(b), 17.2, 20.1 or 20.2, as applicable:
(a) Lessor shall execute and deliver to Lessee (or to Lessee's
designee) at Lessee's cost and expense an assignment of Agent Lessor's
entire interest in the Property, in each case in recordable form and
otherwise in conformity with local custom and free and clear of the Lien
of the Deed of Trust and any Lessor Liens; and
(b) The Property shall be conveyed to Lessee "AS IS" and in its then
present physical condition.
ARTICLE XX
XX.1 PURCHASE OPTION. Subject to Article XVII Lessee shall have the
option (exercisable by giving Agent Lessor irrevocable written notice (the
"PURCHASE NOTICE") of Lessee's election to exercise such option not less than
thirty (30) days prior to the date of purchase pursuant to such option) to
purchase the Property on the date specified in such Purchase Notice at a
price equal to the Termination Value (offsetting, at the option of Lessee,
against such amount the aggregate amount of the Defeasance Deposit
Collateral) (the "PURCHASE OPTION PRICE") (which the parties do not intend to
be a "bargain" purchase price) of the Property. If Lessee exercises its
option to purchase the Property pursuant to this Section 20.1 (the "PURCHASE
OPTION"), Lessor shall transfer to Lessee or Lessee's designee all of
Lessor's right, title and interest in and to the Property as of the date
specified in the Purchase Notice upon receipt of the Purchase Option Price
and all Rent and other amounts then due and payable under this Lease and any
other Operative Agreement, in accordance with Section 19.1.
XX.2 MATURITY DATE PURCHASE OPTION. Not less than twelve months prior
to the Maturity Date, Lessee may give Agent Lessor and Agent irrevocable
written notice (the "MATURITY DATE ELECTION NOTICE") that Lessee is electing
to exercise the Maturity Date Purchase Option or its option to remarket the
Property pursuant to Section 21.1. If Lessee does not give a Maturity Date
Election Notice on or before the date twelve months prior to the Maturity
Date, then Lessee shall be deemed to have exercised its Maturity Date
Purchase Option. If Lessee has
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elected, or is deemed to have elected, to exercise the Maturity Date Purchase
Option, then on the Maturity Date Lessee shall pay to Agent Lessor an amount
equal to the Termination Value for the Property (offsetting, at the option of
Lessee, against such amount the aggregate amount of the Defeasance Deposit
Collateral) (which the parties do not intend to be a "bargain" purchase
price) and, upon receipt of such amount plus all Rent and other amounts then
due and payable under this Lease and any other Operative Agreement, Agent
Lessor shall transfer to Lessee or Lessee's designee all of Agent Lessor's
and the Lessors' right, title and interest in and to the Property in
accordance with Section 19.1.
XX.3 EXTENSION OF EXPIRATION DATE. Lessee may extend the Expiration
Date and the Maturity Date subject to, and in accordance with, the terms and
conditions of Section 15 of the Participation Agreement.
ARTICLE XXI
XXI.1 SALE PROCEDURE. (a) Provided that no Lease Default or Lease
Event of Default shall have occurred and be continuing, at the expiration of
the Term, unless Lessee shall have (i) elected to extend the Expiration Date,
(ii) elected (or be deemed to have elected) to purchase the Property and paid
the Purchase Option Price with respect thereto, or (iii) otherwise terminated
this Lease with respect thereto and paid the Termination Value with respect
thereto, Lessee may elect to remarket the Property as provided in Section 20.2,
in which event Lessee shall (i) pay to Agent Lessor the Maximum Residual
Guarantee Amount for the Property (offsetting, at the option of Lessee, against
such amount the aggregate amount of the Defeasance Deposit Collateral), and
(ii) sell the Property to one or more third parties for cash in accordance with
Section 21.1(b).
(b) During the Marketing Period, Lessee, as nonexclusive broker for
Agent Lessor, shall use its best efforts to obtain bids for the cash purchase
of the Property for the highest price available in the relevant market, shall
notify Agent Lessor promptly of the name and address of each prospective
purchaser and the cash price which each prospective purchaser shall have
offered to pay for the Property and shall provide Agent Lessor with such
additional information about the bids and the bid solicitation procedure as
Agent Lessor may request from time to time. Agent Lessor may reject any and
all bids and may assume sole responsibility for obtaining bids by giving Lessee
written notice to that effect; PROVIDED, HOWEVER, that notwithstanding the
foregoing, Agent Lessor may not reject a bid if such bid is greater than or
equal to the sum of the Limited Recourse Amount and all costs and expenses of
sale and is a bona fide offer by a third party purchaser who is not an
Affiliate of Lessee. If the price which a prospective purchaser shall have
offered to pay for all or any of the Property is less than the sum of the
Limited Recourse Amount and all costs and expenses of sale, Agent Lessor may
elect to retain the Property by giving Lessee at least two Business Days' prior
written notice of Agent Lessor's election to retain the Property, and upon
receipt of such notice, Lessee shall surrender
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the Property to Agent Lessor pursuant to Section 10.1(c). Unless Agent
Lessor shall have elected to retain the Property pursuant to the preceding
sentence, Agent Lessor shall sell the Property free of any Lessor Liens
attributable to it, without recourse or warranty, for cash to the purchaser
or purchasers identified by Lessee or Agent Lessor, as the case may be, and
Lessee shall surrender the Property to such purchaser in the condition
specified in Section 10.1.
(c) On the date during the Marketing Period on which the Property
is sold pursuant to Section 21.1(b), or on the Maturity Date if the Property
remains unsold, Lessee shall pay to Agent Lessor the Maximum Residual
Guarantee Amount for the Property (after taking into account the application
of the proceeds of such sale pursuant to the terms of this Lease, the Credit
Agreement and the Participation Agreement and offsetting, at the option of
Lessee, against such amount the aggregate amount of the Defeasance Deposit
Collateral).
XXI.2 APPLICATION OF PROCEEDS OF SALE. Agent Lessor shall apply the
proceeds of sale of the Property pursuant to the provisions of the
Participation Agreement.
XXI.3 INDEMNITY FOR EXCESSIVE WEAR. If the proceeds of the sale
described in Section 21.1(b) with respect to the Property, less all expenses
incurred by Agent Lessor in connection with such sale, shall be less than the
Limited Recourse Amount for the Property at the time of such sale and if it
shall have been determined (pursuant to the Appraisal Procedure) that the
Fair Market Sales Value of the Property shall have been impaired by greater
than expected wear and tear during the Term, Lessee shall pay to Agent Lessor
within ten (10) days after receipt of Lessor's written statement (i) the
amount of such excess wear and tear determined by the Appraisal Procedure or
(ii) the amount of the Net Sale Proceeds Shortfall, whichever amount is less.
XXI.4 APPRAISAL PROCEDURE. For determining the Fair Market Sales
Value of the Property or any other amount which may, pursuant to any
provision of any Operative Agreement, be determined by an appraisal
procedure, Agent Lessor and Lessee shall use the following procedure (the
"APPRAISAL PROCEDURE"). Agent Lessor and Lessee shall endeavor to reach a
mutual agreement as to such amount for a period of ten (10) days from
commencement of the Appraisal Procedure, and if they cannot agree within ten
(10) days, then two qualified appraisers, one chosen by Lessee and one chosen
by Agent Lessor, shall mutually agree thereupon, but if either party shall
fail to choose an appraiser within twenty (20) days after notice from the
other party of the selection of its appraiser, then the appraisal by such
appointed appraiser shall be binding on Lessee and Agent Lessor. If the two
appraisers cannot agree within twenty (20) days after both shall have been
appointed, then a third appraiser shall be selected by the two appraisers or,
failing agreement as to such third appraiser within thirty (30) days after
both shall have been appointed, by the American Arbitration Association. The
decisions of the three appraisers shall be given within twenty (20) days of
the appointment of the third appraiser and the decision of the appraiser most
different from the average of the other two shall be discarded and such
average shall be binding on Agent Lessor and Lessee; PROVIDED that if the
highest appraisal and the
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lowest appraisal are equidistant from the third appraisal, the third
appraisal shall be binding on Agent Lessor and Lessee. The fees and expenses
of all of the appraisers shall be paid by Lessee.
XXI.5 CERTAIN OBLIGATIONS CONTINUE. During the Marketing Period,
the obligation of Lessee to pay Rent with respect to the Property (including
the installment of Basic Rent due on the Maturity Date) shall continue
undiminished until payment in full to Agent Lessor of the sale proceeds, the
Maximum Residual Guarantee Amount, if any, the amount due under Section 21.3,
if any, and all other amounts due to Agent Lessor with respect to the
Property. Agent Lessor shall have the right, but shall be under no duty, to
solicit bids, to inquire into the efforts of Lessee to obtain bids or
otherwise to take action in connection with any such sale, other than as
expressly provided in this Article XXI.
ARTICLE XXII
XXII.1 HOLDING OVER. If Lessee shall for any reason remain in
possession of the Property after the expiration or earlier termination of
this Lease (unless the Property is conveyed to Lessee), such possession shall
be as a tenancy at sufferance during which time Lessee shall continue to pay
Supplemental Rent that would be payable by Lessee hereunder were the Lease
then in full force and effect with respect to the Property and Lessee shall
continue to pay Basic Rent at an annual rate equal to the rate payable
hereunder immediately preceding such expiration or earlier termination;
PROVIDED, HOWEVER, that from and after the sixtieth (60th) day Lessee shall
remain in possession of the Property after such expiration or earlier
termination, Lessee shall pay Basic Rent at an annual rate equal to two
hundred percent (200%) of the Basic Rent payable hereunder immediately
preceding such expiration or earlier termination. Such Basic Rent shall be
payable from time to time upon demand by Agent Lessor. During any period of
tenancy at sufferance, Lessee shall, subject to the second preceding
sentence, be obligated to perform and observe all of the terms, covenants and
conditions of this Lease, but shall have no rights hereunder other than the
right, to the extent given by law to tenants at sufferance, to continue its
occupancy and use of the Property. Nothing contained in this Article XXII
shall constitute the consent, express or implied, of Agent Lessor to the
holding over of Lessee after the expiration or earlier termination of this
Lease as to the Property and nothing contained herein shall be read or
construed as preventing Agent Lessor from maintaining a suit for possession
of the Property or exercising any other remedy available to Agent Lessor at
law or in equity.
ARTICLE XXIII
XXIII.1 RISK OF LOSS. The risk of loss of or decrease in the enjoyment
and beneficial use of the Property as a result of the damage or destruction
thereof by fire, the elements, casualties, thefts, riots, wars or otherwise
is assumed by Lessee, and Agent Lessor shall in no event be answerable or
accountable therefor.
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ARTICLE XXIV
XXIV.1 SUBLETTING AND ASSIGNMENT. Lessee may not assign this Lease
or any of its rights or obligations hereunder in whole or in part. Lessee
may, without the consent of Agent Lessor, sublease the Property or a portion
thereof to any Person. No sublease or other relinquishment of possession of
the Property shall in any way discharge or diminish any of Lessee's
obligations to Agent Lessor hereunder and Lessee shall remain directly and
primarily liable under this Lease as to the Property, or any portion thereof,
so sublet. Any sublease of the Property shall be made subject to and
subordinate to this Lease and to the rights of Agent Lessor hereunder, and
shall expressly provide for the surrender of the Property after a Lease Event
of Default hereunder.
XXIV.2 SUBLEASES. Promptly following the execution and delivery of
any sublease permitted by this Article XXIV, Lessee shall deliver a copy of
such executed sublease to Agent Lessor and Agent.
ARTICLE XXV
XXV.1 ESTOPPEL CERTIFICATES. At any time and from time to time upon
not less than twenty (20) days' prior request by Agent Lessor, Lessee shall
furnish to Agent Lessor a certificate signed by an individual having the
office of vice president or higher in Lessee certifying that this Lease is in
full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications); the dates to which the Basic
Rent and Supplemental Rent have been paid; to the best knowledge of the
signer of such certificate, whether or not Agent Lessor is in default under
any of its obligations hereunder (and, if so, the nature of such alleged
default); and such other matters under this Lease as Agent Lessor may
reasonably request. Any such certificate furnished pursuant to this Article
XXV may be relied upon by Agent Lessor, and any existing or prospective
mortgagee, purchaser or lender, and any accountant or auditor, of, from or to
Agent Lessor (or any Affiliate thereof).
ARTICLE XXVI
XXVI.1 NO WAIVER. No failure by Agent Lessor or Lessee to insist upon
the strict performance of any term hereof or to exercise any right, power or
remedy upon a default hereunder, and no acceptance of full or partial payment
of Rent during the continuance of any such default, shall constitute a waiver
of any such default or of any such term. To the fullest extent permitted by
law, no waiver of any default shall affect or alter this Lease, and this
Lease shall continue in full force and effect with respect to any other then
existing or subsequent default.
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ARTICLE XXVII
XXVII.1 ACCEPTANCE OF SURRENDER. Except as otherwise expressly
provided in this Lease, no surrender to Agent Lessor of this Lease or of all
or any portion of the Property or of any interest therein shall be valid or
effective unless agreed to and accepted in writing by Agent Lessor and, prior
to the payment or performance of all obligations under the Credit Documents,
Agent, and no act by Agent Lessor or Agent or any representative or agent of
Agent Lessor or Agent, other than a written acceptance, shall constitute an
acceptance of any such surrender.
ARTICLE XXVIII
XXVIII.1 NO MERGER OF TITLE. There shall be no merger of this Lease or
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, in whole or in part,
(a) this Lease or the leasehold estate created hereby or any interest in this
Lease or such leasehold estate, (b) the fee estate in the Property, except as
may expressly be stated in a written instrument duly executed and delivered
by the appropriate Person, or (c) a beneficial interest in Agent Lessor.
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ARTICLE XXIX
XXIX.1 NOTICES. Unless otherwise specifically provided herein, all
notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person shall be given in writing by nationally recognized courier service and
any such notice shall become effective one Business Day after delivery to
such nationally recognized courier service specifying overnight delivery and
shall be directed to the address of such Person as indicated:
If to Lessee:
Wind River Systems, Inc.
1010 Atlantic Avenue
Alameda, California 94501
Attn: Chief Financial Officer
Telephone No.: (510) 748-4100
Telecopy No.: (510) 814-2010
If to Agent Lessor:
Deutsche Bank AG, New York Branch
31 West 52nd Street
New York, New York 10019
Attention: Nancy Zorn, Operations Administrator
Telephone No.: (212) 469-4112
Telecopy No.: (212) 469-4139
with a copy to the Agent:
Deutsche Bank AG, New York and/or
Cayman Islands Branch
31 West 52nd Street
New York, New York 10019
Attention: Nancy Zorn, Operations Administrator
Telephone No.: (212) 469-4112
Telecopy No.: (212) 469-4139
or such additional parties and/or other address as such party may hereafter
designate.
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ARTICLE XXX
XXX.1 MISCELLANEOUS. Anything contained in this Lease to the
contrary notwithstanding, all claims against and liabilities of Lessee or
Agent Lessor arising from events commencing prior to the expiration or
earlier termination of this Lease shall survive such expiration or earlier
termination. If any term or provision of this Lease or any application
thereof shall be declared invalid or unenforceable, the remainder of this
Lease and any other application of such term or provision shall not be
affected thereby. If any right or option of Lessee provided in this Lease,
including any right or option described in Articles XV, XVI, XX or XXI,
would, in the absence of the limitation imposed by this sentence, be invalid
or unenforceable as being in violation of the rule against perpetuities or
any other rule of law relating to the vesting of an interest in or the
suspension of the power of alienation of property, then such right or option
shall be exercisable only during the period which shall end twenty-one (21)
years after the date of death of the last survivor of the descendants of
Franklin D. Roosevelt, the former President of the United States, Henry Ford,
the deceased automobile manufacturer, and John D. Rockefeller, the founder of
the Standard Oil Company, known to be alive on the date of the execution and
delivery of this Lease.
XXX.2 AMENDMENTS AND MODIFICATIONS. Neither this Lease nor any
provision hereof may be amended, waived, discharged or terminated except by
an instrument in writing signed by Agent Lessor and Lessee.
XXX.3 SUCCESSORS AND ASSIGNS. All the terms and provisions of this
Lease shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
XXX.4 HEADINGS AND TABLE OF CONTENTS. The headings and table of
contents in this Lease are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.
XXX.5 COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
XXX.6 GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL IN
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION,
PERFECTION AND ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE
OF REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.
XXX.7 LIMITATIONS ON RECOURSE. Except as expressly set forth in the
Operative
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Agreements, Lessee agrees to look solely to Agent Lessor's estate and
interest in the Property, the proceeds of sale thereof, any insurance
proceeds or any other award or any third party proceeds received by Agent
Lessor in connection with the Property for the collection of any judgment
requiring the payment of money by Agent Lessor in the event of liability by
Agent Lessor, and no other property or assets of Agent Lessor, the Lessors or
any shareholder, owner or partner (direct or indirect) thereof, or any
director, officer, employee, beneficiary, Affiliate of any of the foregoing
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Lessee's remedies under or with respect to this Lease, the
relationship of Agent Lessor and Lessee hereunder or Lessee's use of the
Property or any other liability of Agent Lessor to Lessee; PROVIDED that
nothing in this Section shall be construed to impair or limit the rights of
Lessee against Agent Lessor under the Operative Agreements. Nothing in this
Section shall be interpreted so as to limit the terms of Section 6.1 or 6.2.
XXX.8 RECORDATION OF LEASE. This Lease and each Lease Supplement
shall be recorded in the jurisdiction in which the Property covered by such
Lease Supplement is located, at Lessee's sole cost and expense.
XXX.9 PRIORITY. On and prior to the Maturity Date, the Deed of
Trust shall be subject and subordinate to this Lease and following the
Maturity Date, the Deed of Trust shall be senior to this Lease without any
further act by any Person.
ARTICLE XXXI
XXXI.1 GROUND LEASE. During the Term, Lessee shall observe and
perform all of the obligations of Agent Lessor under the Ground Lease
(including, without limitation, the construction obligations and the payment
of all rent and other amounts thereunder) and, in connection therewith,
shall, prior to the occurrence and continuation of a Lease Event of Default,
have the benefit of all of Agent Lessor's rights as lessee under the Ground
Lease.
[signature page follows]
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IN WITNESS WHEREOF, the parties have caused this Lease be duly
executed and delivered as of the date first above written.
WIND RIVER SYSTEMS, INC.
By: _________________________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK BRANCH
as Agent Lessor for the Lessors
By: _________________________________________
Name:
Title:
By: _________________________________________
Name:
Title:
Receipt of this original counterpart of the foregoing Lease is
hereby acknowledged on this 12th day of September, 1997.
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS
BRANCH, as the Agent for the Lenders
By: _________________________________________
Name:
Title:
By: _________________________________________
Name:
Title:
<PAGE>
STATE OF __________ )
) SS.:
COUNTY OF _________ )
Before me, the undersigned, a Notary Public in and for the State
and County aforesaid, personally appeared Richard W. Kraber, with whom I am
personally acquainted (or proved to me on the basis of satisfactory
evidence), and who, upon oath, acknowledged himself to be the Vice President
of Finance and Chief Financial Officer of WIND RIVER SYSTEMS, INC., the
within named bargainor, a Delaware corporation, and that he as such Vice
President of Finance and Chief Financial Officer, being duly authorized so to
do, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such Vice President of
Finance and Chief Financial Officer.
WITNESS my hand and seal, at office, on this the ____ day of
September, 1997.
______________________________
Notary Public
My Commission Expires:
____________________________
<PAGE>
STATE OF ________ )
) SS.:
COUNTY OF _______ )
Before me, the undersigned, a Notary Public within and for the
State and County aforesaid, personally appeared ______________________ and
____________________, with whom I am personally acquainted (or proved to me
on the basis of satisfactory evidence), and who, upon oath, acknowledged
themselves to be a ______________________ and _________________,
respectively, of DEUTSCHE BANK AG, NEW YORK BRANCH, the within named
bargainor, a bank, and that they as such ________________________ and
___________________, respectively, being duly authorized so to do, executed
the foregoing instrument for the purposes therein contained by signing the
name of the bank by themselves as such _____________________ and
___________________, respectively.
WITNESS my hand and seal, at office, on this the __ day of
September, 1997.
______________________________
Notary Public
My Commission Expires:
____________________________
<PAGE>
- --------------------------------------------------------------------------
Recording requested by, and when x
recorded, please return to: x
x
Winston & Strawn x
35 West Wacker Drive x
Chicago, Illinois 60601 x
x
ATTN: John R. Grier, Esq. x
- --------------------------------------------------------------------------
(Space Above this line Reserved
for Recorder's Use Only)
EXHIBIT A
LEASE SUPPLEMENT NO. ____
THIS LEASE SUPPLEMENT NO. ___ (this "LEASE SUPPLEMENT") dated as of
__________________, between Deutsche Bank AG, New York Branch, a duly
licensed branch of Deutsche Bank AG, a German corporation, as agent for the
Lessors (in such capacity, the "AGENT LESSOR"), and Wind River Systems, Inc.,
a Delaware corporation, as lessee (the "LESSEE").
WHEREAS, Agent Lessor is the owner of a leasehold interest in the
Property described on Schedule I hereto (the "LEASED PROPERTY") and wishes to
lease the same to Lessee;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS; RULES OF USAGE. For purposes of this Lease
Supplement, capitalized terms used herein and not otherwise herein shall have
the meanings assigned to them in Appendix A to the Participation Agreement,
dated as of September 12, 1997, among Lessee, the Lessors, Agent Lessor,
Agent, the Lenders and the Arranger.
2. THE PROPERTY. Attached hereto as Schedule I is the
description of the Leased Property. Effective upon the execution and
delivery of this Lease Supplement by Agent Lessor and Lessee, the Leased
Property shall be subject to the terms and provisions of the Lease.
3. RATIFICATION. Except as specifically modified hereby, the
terms and provisions of the Lease are hereby ratified and confirmed and
remain in full force and effect.
4. ORIGINAL LEASE SUPPLEMENT. The single executed original of this
Lease
<PAGE>
Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on
the signature page thereof and containing the receipt of the Agent therefor
on or following the signature page thereof shall be the Original Executed
Counterpart of this Lease Supplement (the "ORIGINAL EXECUTED COUNTERPART").
To the extent that this Lease Supplement constitutes chattel paper, as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction, no security interest in this Lease Supplement may be created
through the transfer or possession of any counterpart other than the Original
Executed Counterpart.
5. GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL IN
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION,
PERFECTION AND ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE
OF REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.
6. COUNTERPART EXECUTION. This Lease Supplement may be executed
in any number of counterparts and by each of the parties hereto in separate
counterparts, all such counterparts together constituting but one and the
same instrument.
7. RECORDATION. Agent Lessor and Lessee agree that this Lease
Supplement No. ____ shall be recorded at Lessee's sole cost and expense as
required under the Lease.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease Supplement No.
_ be duly executed and delivered as of the date first above written.
WIND RIVER SYSTEMS, INC.
By: _________________________________________
Name: Richard W. Kraber
Title: Vice President of Finance and
Chief Financial Officer
DEUTSCHE BANK AG, NEW YORK BRANCH,
as Agent Lessor for the Lessors
By: ______________________________________
Name:
Title:
By: _________________________________________
Name:
Title:
<PAGE>
STATE OF __________ )
) SS.:
COUNTY OF _________ )
Before me, the undersigned, a Notary Public in and for the State
and County aforesaid, personally appeared Richard W. Kraber, with whom I am
personally acquainted (or proved to me on the basis of satisfactory
evidence), and who, upon oath, acknowledged himself to be the Vice President
of Finance and Chief Financial Officer of WIND RIVER SYSTEMS, INC., the
within named bargainor, a Delaware corporation, and that he as such Vice
President of Finance and Chief Financial Officer, being duly authorized so to
do, executed the foregoing instrument for the purposes therein contained by
signing the name of the corporation by himself as such Vice President of
Finance and Chief Financial Officer.
WITNESS my hand and seal, at office, on this the ____ day of
September, 1997.
______________________________
Notary Public
My Commission Expires:
____________________________
<PAGE>
STATE OF ________ )
) SS.:
COUNTY OF _______ )
Before me, the undersigned, a Notary Public within and for the
State and County aforesaid, personally appeared ______________________ and
____________________, with whom I am personally acquainted (or proved to me
on the basis of satisfactory evidence), and who, upon oath, acknowledged
themselves to be a ______________________ and _________________,
respectively, of DEUTSCHE BANK AG, NEW YORK BRANCH, the within named
bargainor, a bank, and that they as such ________________________ and
___________________, respectively, being duly authorized so to do, executed
the foregoing instrument for the purposes therein contained by signing the
name of the bank by themselves as such _____________________ and
___________________, respectively.
WITNESS my hand and seal, at office, on this the __ day of September,
1997.
______________________________
Notary Public
My Commission Expires:
____________________________
<PAGE>
Receipt of this original counterpart of the foregoing Lease
Supplement is hereby acknowledged on this _____ day of __________________,
____.
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS
BRANCH, as the Agent for the Lenders
By: _____________________________________
Name:
Title:
By: _____________________________________
Name:
Title:
<PAGE>
Exhibit 11
Wind River Systems, Inc.
Computation of Earnings per Share
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 25,480 24,853 25,409 22,461
Net effect of dilutive stock options 2,796 3,133 2,799 3,107
Total shares 28,276 27,986 28,208 25,568
Net income $ 5,210 $ 3,460 $ 12,030 $ 7,020
Net income per share $ 0.18 $ 0.12 $ 0.43 $ 0.27
</TABLE>
Note: Fully diluted earnings per share does not differ significantly from
primary earnings per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED INCOME STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 16,218
<SECURITIES> 154,566
<RECEIVABLES> 14,810
<ALLOWANCES> 1,241
<INVENTORY> 0
<CURRENT-ASSETS> 190,442
<PP&E> 33,716
<DEPRECIATION> 9,897
<TOTAL-ASSETS> 288,935
<CURRENT-LIABILITIES> 35,463
<BONDS> 140,000
0
0
<COMMON> 26
<OTHER-SE> 113,162
<TOTAL-LIABILITY-AND-EQUITY> 288,935
<SALES> 46,115
<TOTAL-REVENUES> 64,400
<CGS> 4,571
<TOTAL-COSTS> 11,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,798
<INCOME-TAX> 6,768
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,030
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
