<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 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
0-17157
Novellus Systems, Inc.
(Exact name of Registrant as specified in its charter)
California 77-0024666
(State or other jurisdiction (I.R.S. Employer
of incorporation of Identification
organization) Number)
3970 North First Street
San Jose, California
(Address of principal 95134
executive offices) (Zip Code)
Registrant's telephone number, including area code:
(408) 943-9700
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
------- -------
As of June 28, 1997 16,629,566 shares of the Registrant's common stock, no par
value, were issued and outstanding.
<PAGE> 2
NOVELLUS SYSTEMS, INC.
FORM 10-Q
QUARTER ENDED JUNE 28, 1997
INDEX
Part I: Financial Information
<TABLE>
<CAPTION>
Item 1: Condensed Consolidated Financial Statements Page
<S> <C>
Condensed Consolidated Balance Sheets at
June 28, 1997 and December 31, 1996. 3
Condensed Consolidated Statements of Income
for the three and six months ended June 28, 1997
and June 30, 1996. 4
Condensed Consolidated Statements of Cash Flows for
the six months ended June 28, 1997
and June 30, 1996. 5
Notes to Condensed Consolidated Financial
Statements. 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 3: Not Applicable
Part II: Other Information
Item 1: Legal Proceedings 13
Item 4: Submission Of Matters to A Vote of Security Holders 15
Item 6: Exhibits and Reports on Form 8-K 15
Signatures 17
</TABLE>
2
<PAGE> 3
NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------------------------------------------
Assets June 28, December 31,
1997 1996 (1)
(unaudited)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $34,116 $65,762
Short-term investments 15,557 110,906
Accounts receivable, net 134,157 119,710
Inventories 92,989 55,448
Deferred income taxes 16,299 18,058
Prepaid and other current assets 32,151 4,085
---------------------
Total current assets 325,269 373,969
Property and equipment:
Machinery and equipment 89,099 60,240
Furniture and fixtures 4,643 4,660
Leasehold improvements 37,273 36,309
---------------------
131,015 101,209
Less accumulated depreciation and amortization 43,031 34,991
---------------------
87,984 66,218
Deferred income taxes 24,674 --
Other assets 25,376 19,600
---------------------
$463,303 $459,787
=====================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------------
Current liabilities:
Current obligations under lines of credit $13,053 $13,153
Accounts payable 31,724 26,047
Accrued payroll and related expenses 16,760 17,404
Accrued warranty 33,310 18,566
Other accrued liabilities 54,858 10,210
Income taxes payable -- 771
----------------------
Total current liabilities 149,705 86,151
Long-term debt 65,000 --
Commitments and contingencies
Shareholders' equity:
Common stock 142,406 128,751
Cumulative translation adjustment (442) (81)
Retained earnings 106,634 244,966
----------------------
Total shareholders' equity 248,598 373,636
----------------------
$463,303 $459,787
======================
</TABLE>
See accompanying notes.
(1) Derived from the December 31, 1996 audited financial statements.
3
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NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ----------------------
(in thousands, except per share data) Three Months Ended Six Months Ended
(unaudited) June 28, June 30, June 28, June 30,
1997 1996 1997 1996
- ----------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales $114,466 $120,248 $216,094 $235,532
Cost of sales 51,510 50,430 97,242 98,849
------------------- ----------------------
Gross profit 62,956 69,818 118,852 136,683
Operating expenses
Research and development 19,655 12,443 36,497 24,746
Selling, general and administrative 18,595 18,283 36,126 35,489
In-process research and development 119,246 -- 119,246 --
Restructuring and other costs 14,243 -- 14,243 --
Litigation settlement and related legal costs 84,021 -- 84,021 --
Bad debt write-off 17,700 -- 17,700 --
------------------- ----------------------
Total operating expenses 273,460 30,726 307,833 60,235
------------------- ----------------------
Operating income (loss) (210,504) 39,092 (188,981) 76,448
Interest income, net 1,370 1,684 3,503 3,573
------------------- ----------------------
Income (loss) before income taxes (209,134) 40,776 (185,478) 80,021
Provision (benefit) for income taxes (55,395) 14,272 (47,352) 28,008
------------------- ----------------------
Net income (loss) ($153,739) $26,504 ($138,126) $52,013
=================== ======================
Net income (loss) per share ($9.31) $1.60 ($8.40) $3.15
=================== ======================
Shares used in per share calculations 16,510 16,531 16,445 16,520
=================== ======================
</TABLE>
See accompanying notes.
4
<PAGE> 5
NOVELLUS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(in thousands) Six Months Ended
(unaudited) June 28, June 30,
1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income ($138,126) $52,013
Adjustments to reconcile net income to net cash
provided by operating activities:
In-process research & development 119,246 --
Restructuring & other costs 14,243 --
Bad debt write-off 17,700 --
Deferred income taxes (24,674) --
Depreciation and amortization 8,132 5,496
Changes in operating assets and liabilities
Accounts receivable (18,331) (2,254)
Inventories (13,431) (18,067)
Prepaid taxes and other current assets (638) (1,561)
Accounts payable (2,363) (9,807)
Accrued payroll and related expenses (3,167) (1,350)
Accrued warranty 1,025 1,240
Other accrued liabilities 15,110 4,131
Income taxes payable / refundable (21,730) (5,032)
-----------------------
Total adjustments 91,122 (27,204)
-----------------------
Net cash provided by operating activities (47,004) 24,809
-----------------------
Cash flows from investing activities:
Maturities and sale (purchases) of Available-For-Sale
Debt Securities, net 95,349 (20,445)
Purchase of the net assets of the Thin Film Systems
business of Varian Associates (148,325) --
Capital expenditures (12,556) (18,514)
(Increase) decrease in other assets 6,830 (828)
-----------------------
Net cash used for investing activities (58,702) (39,787)
-----------------------
Cash flows from financing activities:
Proceeds (payments)on lines of credit, net (100) 4,541
Borrowings under long-term debt 65,000 --
Repurchase of common stock (206) (592)
Proceeds from sale of common stock 9,366 3,027
-----------------------
Net cash provided by financing activities 74,060 6,976
-----------------------
Net increase decrease in cash and cash equivalents (31,646) (8,002)
Cash and cash equivalents at the beginning of the period 65,762 60,114
-----------------------
Cash and cash equivalents at the end of the period $34,116 $52,112
=======================
Supplemental Disclosures Cash paid during the period for:
Interest $265 $176
Income taxes $359 $31,563
Other noncash charges:
Income tax benefits from employee stock plans $4,289 $1,442
</TABLE>
See accompanying notes.
5
<PAGE> 6
NOVELLUS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
28, 1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
June 28, 1997 Dec 31, 1996
- ----------------------------------------------------------------
<S> <C> <C>
Purchased parts $56,879 $40,211
Work-in-process 32,397 11,347
Finished goods 3,713 3,890
-------- -----------
$92,989 $55,448
======== ===========
</TABLE>
3. LINES OF CREDIT
The Company has lines of credit with four banks under which the Company can
borrow up to $15,053,000 at the banks' prime rate which expire at various dates
through June 1998. A portion of this facility ($13,053,000) is available to the
Company's Japanese subsidiary, Nippon Novellus Systems K.K. Borrowings by the
subsidiary are at the banks' offshore reference rate. At June 28, 1997 there
were no borrowings by the parent company, and $13,053,000 by the subsidiary.
4. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on weighted average common and dilutive
common equivalent shares outstanding during the period. Stock options are
considered common stock equivalents and are included in the weighted average
computation using the treasury stock method. Stock options were not included in
the computation of loss per share for the three and six months ended June 28,
1997 as their effect was antidilutive.
In February 1997, the Financial Accounting Standards Board issued the Statement
on Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share,"
which is required to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements, primary
earnings per share will be replaced by basic earnings per share. The primary
difference between primary earning per share and basic earnings per share is the
dilutive effect of stock options is excluded from
6
<PAGE> 7
basic earnings per share. The impact is expected to result in an increase in
calculated earnings (loss) per share for the second quarter ended June 28, 1997
and June 30, 1996 of $0.00 and $0.05 per share, respectively and for the 6
months ended June 28, 1997 and June 30, 1996 of $0.00 and $0.10 per share,
respectively. The impact of SFAS 128 on the calculation of fully diluted
earnings per share for these quarters is not expected to be material.
5. LITIGATION
On May 4, 1997, the Company entered into a comprehensive global settlement of
all of its ongoing legal disputes, to that date, with Applied Materials, Inc.
("Applied"). The Company recorded an expense of $84.0 million relating to the
settlement, consisting of a cash payment of $80.0 million to Applied and $4.0
million primarily related to legal costs associated with the settlement. See
Part II, Item 1 of this Form 10-Q for a description of Legal Proceedings.
6. ACQUISITION OF THE THIN FILM SYSTEMS BUSINESS OF VARIAN ASSOCIATES
On June 20, 1997, the Company completed the acquisition of the Thin Film Systems
business("TFS") of Varian Associates ("Varian"). TFS manufactures and markets
equipment for physical vapor deposition ("PVD"), a critical technology in the
production of advanced semiconductor logic and memory devices. The acquisition
has been accounted for under the purchase method of accounting, and accordingly,
the accompanying financial statements include the results of operations of TFS
subsequent to the acquisition date.
The currently estimated total purchase price of $148.3 million, consisted of a
cash payment of $145.5 million to Varian and $2.8 million of related acquisition
expenses. Acquired assets and liabilities were recorded at their estimated fair
values at the date of the acquisition. The aggregate purchase price, plus
related acquisition expenses, have been allocated to the assets and liabilities
acquired based on independent valuations. Amounts allocated to in-process
research and development of approximately $119.2 million were written-off at the
acquisition date, representing an estimated value (using risk-adjusted cash
flows, discounted at 35%) of development programs that have not yet reached
technological feasibility. Amounts allocated to developed technology, $11.7
million and workforce in place, $1.0 million are amortized on a straight line
basis over periods of seven and three years, respectively.
Pro-forma results of operations as if the transaction had occurred at the
beginning of fiscal 1996 are not shown as the information is unavailable at the
time of this filing. Pro-forma information is expected to be included in an
amendment to the Form 8-K, filed by the Company on July 7, 1997, reporting the
purchase of TFS. The purchase price allocation is preliminary and is dependent
on the Company's completion of the opening balance sheet audit of TFS.
7
<PAGE> 8
As a result of the acquisition of TFS the Company recorded restructuring costs
of $14.2 million comprised primarily of write-offs of duplicative assets and
exiting certain facilities. The Company expects that primarily all of these
actions will be incurred in the year ended December 31, 1997, with the exception
of certain lease commitments. The components of the restructuring charge are
summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
June 28, 1997
- -----------------------------------------------------------
<S> <C>
Duplicative machinery and equipment $ 9,039
Lease commitments and leasehold improvements 3,143
Other exiting costs 2,061
--------
$14,243
========
</TABLE>
7. LONG-TERM DEBT
In June 1997, the Company entered into a five year $125 million Senior Credit
Facility structured as an unsecured revolving credit line. The borrowings, at
the option of the Company bear interest at either a base rate plus a margin or
the London Interbank Offering Rate ("LIBOR") plus a margin for interest periods
of one to six months. As of June 28, 1997, total borrowings under the revolving
credit line were $65 million with a weighted average interest rate of
approximately 6.5%. The Senior Credit facility requires the Company maintain
compliance with certain financial covenants. At June 28, 1997, the Company was
in compliance with these financial covenants. The Senior Credit Facility
currently prohibits the Company from paying dividends.
8. BAD DEBT WRITE-OFF
In June 1997, the Company determined that due to the financial difficulties
facing one of its customers and lack of a satisfactory response from the
customer, during the quarter, the outstanding accounts receivable balance was at
risk for collection. Accordingly, the Company recorded a write-off of $17.7
million, representing the outstanding accounts receivable balance and other
related expenses for the repossession of its equipment.
9. COMMITMENTS
In June 1997, the Company entered into two new lease agreements adding two
buildings to the five existing buildings and 4.4 acres of undeveloped land
leased by the Company at December 31, 1996 . The agreements are for five years
each at an interest rate that approximates LIBOR. At current interest rates the
annual lease payments total approximately $3.5 million. During the term of the
lease, the Company may elect to purchase the properties for an amount that
approximates the lessor's cost of the property and any current rent due and
payable. The guaranteed residual amount under the lease agreements is
approximately $53.9 million.
The Company's facilities leases contain certain restrictive financial covenants.
At June 28, 1997, the Company was in compliance with these covenants.
8
<PAGE> 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended June 28, 1997 were $114.5 million, compared
with $120.2 million for the comparable year-ago quarter, and $101.6 million for
the immediately preceding quarter. Net sales for the six months ended June 28,
1997 were $216.1 million as compared with $235.5 million for the comparable
period a year ago. There was no material impact on the current quarter revenues
associated with the June 20, 1997 purchase of the Thin Film Systems business
("TFS"), of Varian Associates ("Varian"). The increase in net sales from the
immediately preceding quarter reflects increasing shipments of the Company's
Concept Two product line (which has a higher average selling price than the
Concept One product) and an overall increase in demand for semiconductor
equipment. The Company continues to see strong demand for its Concept Two
product line. Bookings for the second quarter of 1997 were greater than a 1:1
ratio. The decreases in net sales from the comparable year-ago periods was
primarily due to an overall decline in demand for semiconductor equipment which
began in the third quarter of 1996.
International net sales (including export sales) for the three and six months
ended June 28, 1997, were 30.6% and 42.3%, respectively, as a percentage of
total net sales, which compares to the prior year periods of 69.9% and 72.8%,
respectively. The decrease relates primarily to increased sales in the U.S.
offsetting the slow down in Japan, for which net sales as a percentage of
revenue have decreased to 10% and 11.1% for the three and six months ended June
28, 1997, from 35.1% and 35.4% for the comparable year-ago periods. The
Company's international system sales are primarily made directly to its
customers.
Gross profit as a percentage of net sales for the three and six months ended
June 28,1997 was 55%, compared with 58% for the comparable year-ago periods and
55% for the immediately preceding quarter. Gross profit as a percentage of sales
remained flat against the immediately preceding period, reflecting the continued
shift in mix away from the Company's higher margin Concept One product to its
Concept Two products, offset by increased absorption of fixed overhead costs due
to the increased manufacturing activity. The decreases in gross profit as a
percentage of net sales from the comparable year-ago periods is due to several
factors which include the shift in mix from the Company's high margin Concept
One product to its Concept Two products, pricing pressures due to the industry
slow-down and lower absorption of fixed overhead costs due to reduced
manufacturing activity. In addition, as a result of the TFS acquisition the
Company expects gross margins to decline in the third and fourth quarters of
fiscal 1997.
Research and development expenses for the three and six months ended June 28,
1997 were $19.7 million and $36.5 million respectively, an increase of $7.2
million and $11.8 million when compared with comparable periods last year and an
increase of $2.8 million when compared with the immediately preceding quarter.
Research and development expenses as a percentage of net sales for the three and
six months ended June 28,1997 represented 17.2% and 16.9% respectively, compared
with 10.3% and 10.5% for the comparable year-ago periods, and 16.6% for the
immediately preceding quarter. Absolute dollar levels of research and
development expenses increased significantly in the reported periods reflecting
the Company's increasing commitment to research and development spending on new
product development, even during periods of
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<PAGE> 10
flat to declining revenues, particularly in the development of the Company's
Concept two and 300mm product lines. This spending, expressed as a percentage of
sales, increased dramatically because of the impact of lower net sales for the 6
months ended June 28, 1997.
Selling, general, and administrative expenses for the three and six months ended
June 28, 1997 were $18.6 million and $36.1 million respectively, essentially
flat compared with the comparable periods last year, and an increase of $1.1
million compared to the immediately preceding quarter. Selling, general, and
administrative expenses as a percentage of net sales for the three and six
months ended June 28,1997 were 16.2% and 16.7% respectively, compared with 15.2%
and 15.1% for the comparable year-ago periods and 17.2% for the immediately
preceding quarter. The increase in selling, general, and administrative expenses
as a percentage of sales from the year ago periods is primarily due to the
impact of the addition of TFS. The decrease in selling, general, and
administrative expenses as a percentage of sales from the immediately preceding
quarter is a result of increased sales levels quarter over quarter.
Acquisition of TFS. On June 20, 1997, the Company completed the acquisition of
TFS. In connection with this, the Company recorded pre tax charges of $133.5
million during the three months ended June 28, 1997. These charges included
$119.3 million for in-process research and development and $14.2 million
attributed to restructuring charges, relating to write-offs of duplicative
assets and facilities at the Company.
To determine the value of the acquired in-process research and development
technology, the Company considered, among other factors, the stage of
development of each project, the time and resources needed to complete each
project, expected income, target markets and associated risks. Associated risks
include the inherent difficulties and uncertainties in completing each project
and thereby achieving technological feasibility, and the risks related to the
viability of potential changes in future target markets. Due to the absence of a
completed working model at which point functions, features and technical
performance requirements can be demonstrated, as of the date of the acquisition,
the Company concluded that the in-process technology had no alternate future use
after considering potential future usage in different products, resale, and
internal usage. A discount rate of 35% was applied in the independent valuation
of in-process technology. The analysis resulted in a valuation of $119.3
million. Therefore, in accordance with generally accepted accounting principles,
the $119.3 million was expensed. The estimated cost associated with the
remaining development of these projects is expected to be $54.8 million, which
the Company expects to incur over the next three to four years.
Other charges. The Company recorded one time charges of $84.0 million and $17.7
million related to the settlement of the Applied Materials CVD patent suit and a
customer account write-off, respectively. (See Part II, Item 1 of this Form 10-Q
for a description of Legal Proceedings.)
Net interest income decreased by $0.3 million and $0.1 million for the three and
six months ended June 28, 1997 compared with the comparable year-ago periods,
and $0.7 million for the immediately preceding quarter. The decreases from the
year-ago periods and the immediately preceding period is due to lower cash
balances, as a result of the payment of $80 million to Applied Materials, for
the settlement of the CVD patent suit and to a lesser extent, the payment to
Varian for the acquisition of TFS.
The Company's effective tax rate for the three and six months ended June 28,1997
was 26% compared with 35% for the comparable year-ago periods and 34% for the
immediately preceding period. The decrease is primarily attributable
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<PAGE> 11
to the valuation reserve established against a portion of the deferred tax asset
arising from the write-off of the purchased in-process research & development.
The Company expects that taxable income in future periods will be sufficient to
realize all the benefits of the recorded net deferred tax assets. The effective
tax rate for the remainder of fiscal 1997 is anticipated to be 34%.
Net income (loss) for the three and six months ended June 28,1997 was $(153.7)
million or $(9.31) per share and $(138.1) million or $(8.40) per share
respectively, compared with $26.5 million or $1.60 per share and $52.0 million
or $3.15 per share for the comparable year-ago periods, and $15.6 million or
$0.91 per share for the immediately preceding quarter. The change to a net loss
from a net income for the three and six month ended June 28, 1997, is
attributable to the impact of the charges of $119.2 million related to the
in-process research and development and $14.2 million attributed to
restructuring charges, in connection with the acquisition of TFS, and charges of
$84.0 million and $17.7 million related to the settlement of the Applied
Materials CVD patent suit and a customer account write-off, respectively.
Without giving effect to these charges the Company's operating results reflected
net income for the three and six months ended June 28, 1997 of $17.2 million or
$1.00 per share and $32.8 million or $1.91 per share, respectively.
The number of shares used in the per share calculations for the three and six
months ended June 28,1997 was 16.5 million and 16.4 million respectively,
compared with 16.5 million for the comparable year-ago periods and 17.1 million
for the immediately preceding period. The decrease in shares used compared to
the immediately preceding quarter is the impact of the exclusion of common stock
equivalents for the three and six months ended June 28, 1997 as they are
antidilutive to loss periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations and capital resources
through cash flow from operations, sales of equity securities, and borrowings.
The Company's primary sources of funds at June 28, 1997 consisted of $49.7
million of cash, cash equivalents and short term investments. This amount
represents a decrease of $127.0 million from the December 31, 1996 balance of
$176.7 million. During the quarter the Company entered into a five year $125
million Senior Credit Facility structured as an unsecured revolving credit line.
The borrowings, at the option of the Company bear interest at either a base rate
plus a margin or LIBOR plus a margin for interest periods of one to six months.
As of June 28, 1997, total borrowings under the Senior Credit Facility were $65
million with a weighted average interest rate of approximately 6.5%. The Senior
Credit facility requires the Company to be in compliance with certain financial
covenants. At June 28, 1997, the Company was in compliance with these financial
covenants. The Senior Credit Facility currently prohibits the Company from
paying dividends. In addition at June 28, 1997, there was $15 million available
under bank lines of credit that expire at various dates through June 1998. At
June 28, 1997 approximately $13.1 million was outstanding under these bank lines
of credit which bear interest at the banks' prime lending rates or offshore
reference rates.
During the six months ended June 28, 1997, the Company's cash and cash
equivalents decreased $31.6 million to $34.1 million from $65.7 million at
December 31, 1996. Net cash used by operating activities during the first six
months of 1997 was $(47.0) million due primarily to a net loss of $138.1
million, increases in accounts receivable and inventories of $18.3 million and
$13.4 million respectively, income taxes payable / refundable of $21.7 million,
and the impact of recording the deferred income tax asset of $24.7
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<PAGE> 12
million. These amounts were partially offset by non-cash charges of $119.2
million, $14.2 million and $17.7 million, relating to the write-off of
in-process research and development, restructuring costs and a bad debt
write-off, respectively. The increase in accounts receivable was primarily due
to the increased level of sales for the quarter ended June 28, 1997 as compared
to the quarter ended December 31, 1996.
Net cash flows from investing activities used $58.7 million during the first six
months of 1997. During this period, the Company paid $148.3 million for the
purchase of TFS and had capital expenditures of $12.6 million, which was offset
by the net sales of Available-For-Sale Debt Securities which generated $95.3
million.
During the first six months of 1997, net cash provided by financing activities
was $74.3 million, due primarily to the drawing down of $65 million on the $125
million Senior Credit Facility. Additionally, the Company has received proceeds
from common stock option exercises of $9.4 million. The Company believes that
its current cash position and cash generated through operations, if any, will be
sufficient to meet the Company's needs through at least the next twelve months.
The Company expects investment in property and equipment in the current fiscal
year to approximate $42 million of which $12.5 million has been incurred as of
June 28, 1997. The Company intends to finance these investments from existing
cash balances and cash flows from operations.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The statements regarding the Company continuing to see strong demand for
its Concept Two product line, the statement regarding the Company's increasing
commitment to research and development spending on new product development. The
statement regarding the estimated cost associated with the remaining development
of TFS research and development projects, the statement regarding the Company's
cash needs over the next twelve months, the statement regarding the Company's
expectation that gross margins will decline in third and fourth quarters of
fiscal 1997, the statement regarding the Company's expectation that taxable
income in future periods will be sufficient to realize the benefits of the
recorded net deferred tax assets, the statement regarding the effective tax rate
for the remainder of fiscal 1997 is anticipated to be 34%, and the statements as
to the Company's anticipated investments in property and equipment in the
current fiscal year and the Company's intentions as to the source of financing
for these investments, except for any historical data, are forward-looking
statements. The forward-looking statements involve risks and uncertainties
including, but not limited to, economic conditions, product demand and industry
capacity, competitive products and pricing, manufacturing efficiencies, new
product development, ability to enforce patents, the outcome of litigation (see
"Legal Proceedings" Part II Item 1), availability of raw materials and critical
manufacturing equipment, new plant startups, the regulatory and trade
environment, and other risks indicated in filings with the Securities and
Exchange Commission (SEC). Actual results may differ materially. Novellus
assumes no obligation to update this information. For more details, please refer
to other SEC filings, including its most recent Annual Report on Form 10-K and
Quarterly Report on Form 10-Q.
12
<PAGE> 13
PART II OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
Applied Materials, Inc. vs. Novellus Systems, Inc. (Case No. C-95-0243-CAL).
On April 11, 1997, after a jury trial, a jury verdict was entered in favor of
Applied Materials, Inc. ("Applied") and against the Company in the TEOS action,
case no. C-95-0243-CAL in the United States District Court for the Northern
District of California. On May 4, 1997, the Company entered in to a
comprehensive global settlement of all of its then-ongoing legal disputes with
Applied. Pursuant to the terms of a Settlement Agreement, Applied and the
Company agreed as follows:
(1) the Company and Applied agreed to dismiss with prejudice all legal actions
then-ongoing between Applied and the Company and entered into mutual general
releases of any related claims;
(2) the Company agreed to pay Applied $80 million;
(3) Applied granted the Company a non-exclusive, worldwide, non-transferable
and, with limited exceptions, non-assignable license under U.S. patent no.
5,362,526 (the "526 Patent") to make, use, sell, lease, service, support and
import TEOS systems manufactured by or, under limited circumstances, for the
Company until expiration of the `526 patent and related foreign patents;
(4) the Company agreed to pay Applied a royalty based on a percentage of net
revenue of licensed TEOS systems and subsystems until the expiration of the `526
patent;
(5) the Company granted Applied a royalty-free, non-exclusive, worldwide,
non-transferable and, with limited exceptions, non-assignable license under
certain of the Company's chemical vapor deposition ("CVD") patents to make, use,
sell, lease, service, support and import equipment manufactured and marketed by
Applied until the expiration of such patents;
(6) Applied granted to the Company a royalty-free, non-exclusive, worldwide,
non-transferable and, with limited exceptions, non-assignable license under
certain of Applied's chemical vapor deposition ("CVD") patents to make, use,
sell, lease, service, support and import equipment manufactured and marketed by
the Company until the expiration of such patents; and
(7) the Company gave Applied the right to terminate the Settlement Agreement,
including the license of Applied's `526 and CVD patents upon the sale by the
Company of all or substantially all of specified portions of the Company's
business or assets or the occurrence of certain merger, combination or
investment transactions involving the Company.
13
<PAGE> 14
Applied Materials, Inc. vs. Varian Associates Inc. and Novellus Systems, Inc.
(Case No. 6-97-20523).
On July 7, 1997, prior to the consummation of the purchase of the Thin Film
Systems Business ("TFS") of Varian Associates ("Varian"), Applied Materials,
Inc. ("Applied") filed a complaint (the "Complaint") against Varian in the
United States District Court for the Northern District of California San Jose
Division, Civil Action No. C-97-20523 RMW, alleging, among other things,
infringement by Varian (including the making, using, selling, operating, and/or
offering for sale of certain products and systems made by TFS) of United States
Patent Nos. 5,171,412, 5,186,718, 5,496,455 and 5,540,821 (the "Applied
Patents"), which patents are owned by Applied. After consummation of the TFS
purchase, Applied amended the Complaint to add the Company as a defendant. In
addition to a request for a permanent injunction against further infringement,
the Complaint includes requests for damages for alleged prior infringement and
treble damages for alleged "willful" infringement. In connection with the
consummation of the TFS purchase, Varian agreed, under certain circumstances, to
reimburse the Company for certain of its legal and other expenses in connection
with the defense and prosecution of this litigation, and to indemnify the
Company for a portion of any losses incurred by the Company arising from this
litigation (including losses resulting from a permanent injunction). The Company
believes, and has been advised by Varian, that Varian believes that there are
meritorious defenses to Applied's allegations, including among other things,
that the Company's operations (including TFS products and systems) do not
infringe the Applied Patents and that a portion of the Applied Patents are
invalid. However, the resolution of intellectual property disputes is often fact
intensive and, therefore, inherently uncertain. Although the Company believes
that the ultimate outcome of the dispute with Applied will not have a material
adverse effect on the Company's business or results of operations (taking into
account both the defenses available to the Company and Varian's reimbursement
and indemnity obligations), there can be no assurances that Applied will not
ultimately prevail in this dispute and that, in such an event, Varian's
reimbursement and indemnity obligations will not be sufficient to fully
reimburse the Company for its losses.
Other Litigation
In the normal course of business, the Company from time to time receives
inquiries with regard to possible patent infringements. Management believes that
it is unlikely that the outcome of the patent infringement inquiries will have a
material adverse effect on the Company's financial position or results of
operations.
14
<PAGE> 15
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders, held on May 23, 1997, the
following proposals were adopted by the margins indicated.
1. Election of Directors
<TABLE>
<CAPTION>
Nominee In Favor Withheld
------- -------- --------
<S> <C> <C>
Richard S. Hill 14,800,793 49,589
D. James Guzy 14,800,460 49,922
Tom Long 14,798,318 52,064
Glen Possley 14,796,517 53,865
Robert H. Smith 14,797,459 52,923
Joseph Van Pappelen 14,798,052 52,330
</TABLE>
2. Approval of an Amendment to the Company's 1992 Stock Option Plan to Increase
the Shares Reserved for Issuance by 660,000 Shares
<TABLE>
<CAPTION>
In Favor Opposed Abstained Broker Non-Votes
-------- ------- --------- ----------------
<S> <C> <C> <C>
7,409,474 7,102,260 37,490 301,158
</TABLE>
3. Approval of an Amendment to the Company's 1992 Employee Stock Purchase Plan
to Increase the Shares Reserved for Issuance by 40,000 Shares
<TABLE>
<CAPTION>
In Favor Opposed Abstained Broker Non-Votes
-------- ------- --------- ----------------
<S> <C> <C> <C>
14,376,641 206,513 37,643 229,585
</TABLE>
4. Ratification of Appointment of Ernst & Young LLP as Certified Public
Accountants of the Company for the next fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
In Favor Opposed Abstained
-------- ------- ---------
<S> <C> <C>
14,827,765 9,501 13,116
</TABLE>
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) 2.1 Asset Purchase Agreement by and between Varian Associates, Inc. and the
Company dated May 7, 1997, attached as Exhibit 2.1 to the Company's Form 8-K
dated July 7, 1997 and incorporated herein by reference thereto.
2.2 First Amendment to Asset Purchase Agreement by and between Varian
Associates, Inc. and the Company dated June 20, 1997 attached as Exhibit 2.2 to
the Company's Form 8-K dated July 7, 1997 and incorporated herein by reference
thereto.
2.3 Assignment and Assumption of Lessee's Interest in Lease (Units 8
and 9, Palo Alto) and Covenants, Conditions and Restrictions on Leasehold
Interests (Units 1-12 Palo Alto) by and between Varian Associates, Inc. and
15
<PAGE> 16
the Company dated May 7, 1997 attached as Exhibit 2.3 to the Company's Form 8-K
dated July 7, 1997 and incorporated herein by reference thereto.
2.4 Sublease (Portion of Unit 9, Palo Alto) by and between Varian
Associates, Inc. and the Company dated May 7, 1997 attached as Exhibit 2.4 to
the Company's Form 8-K dated July 7, 1997 and incorporated herein by reference
thereto.
2.5 Shared Use Agreement by and between Varian Associates, Inc. and the
Company dated May 7, 1997 attached as Exhibit 2.5 to the Company's Form 8-K
dated July 7, 1997 and incorporated herein by reference thereto.
2.6 Environmental Agreement by and between Varian Associates, Inc. and
the Company dated May 7, 1997 attached as Exhibit 2.6 to the Company's Form 8-K
dated July 7, 1997 and incorporated herein by reference thereto.
2.7 Cross License Agreement by and between Varian Associates, Inc. and
the Company dated May 7, 1997 attached as Exhibit 2.7 to the Company's Form 8-K
dated July 7, 1997 and incorporated herein by reference thereto.
2.8 Parts Supply Agreement by and between Varian Associates, Inc. and
the Company dated May 7, 1997 attached as Exhibit 2.8 to the Company's Form 8-K
dated July 7, 1997 and incorporated herein by reference thereto.
10.1 Settlement Agreement by and between Applied Materials, Inc. and
the Company dated May 7, 1997. Confidential treatment has been requested with
respect to portions of this Exhibit.
10.2 Credit Agreement by and among ABN AMRO Bank, N.V., as agent, the
lenders named therein, and the Company dated May 7, 1997.
10.3 Facility 1 Lease Agreement, Deed of Trust With Assignment of
Rents, Security Agreement and Fixture Filing by and between Lease Plan North
America, Inc. and the Company dated June 9, 1997.
10.4 Facility 2 Lease Agreement, Construction Deed of Trust With
Assignment of Rents, Security Agreement and Fixture Filing by and between Lease
Plan North America, Inc. and the Company dated June 9, 1997.
(b) Report on Form 8-K (No. 000 17157) was filed by Company the July 7, 1997
with respect to the Company's purchase of the Thin Film Systems Business of
Varian Associates, Inc. as described in item 2 of the Form 8-K.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVELLUS SYSTEMS, INC.
----------------------
REGISTRANT
/S/ ROBERT H. SMITH
---------------------------------------------
Robert H. Smith
Executive Vice President
Finance and Administration
(Principal Financial and Accounting Officer)
August 11, 1997
---------------
Date
17
<PAGE> 18
EXHIBIT INDEX
10.1 Settlement Agreement by and between Applied Materials, Inc. and
the Company dated May 7, 1997. Confidential treatment has been requested with
respect to portions of this Exhibit.
10.2 Credit Agreement by and among ABN AMRO Bank, N.V., as agent, the
lenders named therein, and the Company dated May 7, 1997.
10.3 Facility 1 Lease Agreement, Deed of Trust With Assignment of
Rents, Security Agreement and Fixture Filing by and between Lease Plan North
America, Inc. and the Company dated June 9, 1997.
10.4 Facility 2 Lease Agreement, Construction Deed of Trust With
Assignment of Rents, Security Agreement and Fixture Filing by and between Lease
Plan North America, Inc. and the Company dated June 9, 1997.
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is made and entered this 4th
day of May, 1997 (the "Effective Date"), by and between Novellus Systems, Inc.,
a corporation organized and existing under the laws of the State of California
with offices in San Jose, California, and Applied Materials, Inc., a corporation
organized and existing under the laws of the State of Delaware with offices in
Santa Clara, California.
RECITALS
WHEREAS, on January 20, 1995, Applied Materials commenced an action for
patent infringement against Novellus in the United States District Court,
Northern District of California, Civil Action No. C-95-0243-CAL (the "TEOS
Action"), in which Applied Materials asserted that Novellus was infringing U.S.
Patent No. 5,362,526; and
WHEREAS, after a jury trial, a jury verdict was entered in favor of
Applied Materials and against Novellus in the TEOS Action on April 11, 1997; and
WHEREAS, on September 15, 1995, Applied Materials commenced an action
for patent infringement against Novellus in the United States District Court,
Northern District of California, Civil Action No. C-95-3244-CAL, in which
Applied Materials asserted that Novellus was infringing U.S. Patent No.
5,028,565, and on
<PAGE> 2
September 15, 1995, Novellus commenced an action for patent infringement against
Applied Materials in the United States District Court, Northern District of
California, Civil Action No. C-95-3262-CAL, in which Novellus asserted that
Applied Materials was infringing U.S. Patent No. 5,230,741, No. 5,374,594, No.
5,238,499, and No. 5,425,803, which two actions are referred to as the "Tungsten
Actions"; and
WHEREAS, in the Tungsten Actions, Novellus denied the material
allegations of Applied Materials, denied it infringed Applied Materials' patent,
and asserted various affirmative defenses and counterclaims, and Applied
Materials denied the material allegations of Novellus, denied it infringed
Novellus' patents, and asserted various affirmative defenses and counterclaims;
and
WHEREAS, Novellus and Applied Materials desire to compromise their
differences and settle and resolve the TEOS Action and the Tungsten Actions,
NOW, THEREFORE, in consideration of the covenants and promises set
forth herein, and for other good and valuable consideration, Novellus and
Applied Materials agree as follows:
2
<PAGE> 3
1. DEFINITIONS
Unless otherwise defined herein, terms in all capital letters
used in this Agreement shall have the meanings as set forth below:
a. '526 PATENT means U.S. Patent No-5,362,526, any foreign
counterpart patents that issue or have issued from any application which led to
or resulted in the '526 patent, any patents that result or have resulted from
any divisionals, continuations, or continuations-in-part from any application
which led to or resulted in the '526 patent or such foreign counterpart patents,
and any reissues, extensions, and reexamination certificates of any of the
foregoing patents.
b. APPLIED CVD PATENTS means the patents which claim [*] as follows: (1)
the issued patents owned by or assigned to APPLIED MATERIALS as of the Effective
Date which are set forth on Exhibit A hereto and any reissues, extensions, and
reexamination certificates of such patents, (2) any patents resulting from the
applications pending as of the Effective Date which are set forth on Exhibit B
hereto and any reissues, extensions, and re-examination certificates of such
patents, and
3
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 4
(3) any patents resulting from any divisionals, continuations, or
continuations-in-part (whether filed before or after the Effective Date) of the
pending applications which are set forth on Exhibit B hereto and any reissues,
extensions, and reexamination certificates of such patents. If a patent
satisfies all aspects of the foregoing description and conditions and is not on
Exhibit A or Exhibit B, it shall nonetheless be deemed to be APPLIED CVD PATENT.
c. APPLIED MATERIALS means Applied Materials, Inc. and any subsidiary
or other entity in which Applied Materials, Inc. owns 50% or more of the
capital, assets, voting securities, partnership, or other ownership interest.
d. COMPETITOR means any company, partnership, joint venture, or other
entity which competes with APPLIED MATERIALS or NOVELLUS in the manufacture,
design, development, service or sale of SEMICONDUCTOR MANUFACTURING EQUIPMENT.
e. CVD PATENTS means the APPLIED CVD PATENTS and the NOVELLUS CVD
PATENTS.
f. DISTRIBUTOR or RESELLER means any company, partnership or other
business entity which is not a COMPETITOR and which is authorized to sell
LICENSED TEOS SYSTEMS solely and exclusively to SEMICONDUCTOR MANUFACTURERS
consistent with the terms and conditions of this Agreement.
4
<PAGE> 5
g. INTEREST RATE means, with respect to any amount, an annual interest
rate of twelve percent (12%) calculated on the basis of a 360 day year or, if
the 12% rate exceeds the maximum interest rate permissible under applicable law,
then the maximum allowable interest rate.
h. LICENSED TEOS SYSTEM means any SEMICONDUCTOR MANUFACTURING EQUIPMENT,
whether single or multi-station, that is wholly or partly configured or enabled
to use TEOS. All parts, components, subassemblies, assemblies, retrofits, and
upgrades (but excluding spares) that are or become part of a LICENSED TEOS
SYSTEM are included in the term LICENSED TEOS SYSTEM. By way of illustration
only, LICENSED TEOS SYSTEM includes without limitation Concept One, Concept Two,
Maxus, Speed, Altus, or any other machine, apparatus, or device which is
configured or enabled to use TEOS, in whole or in part, as well as all parts,
components, subassemblies, assemblies, retrofits, and upgrades (but excluding
spares) that are or become part of such machines, apparatuses or devices, such
as pumps, gas lines, gas panel, mass flow controller, etc. A LICENSED TEOS
SYSTEM shall include any SEMICONDUCTOR MANUFACTURING EQUIPMENT which after
shipment becomes enabled to use TEOS, such as, for illustration only, the
shipment of a Concept One for silane chemistries which after shipment becomes
enabled to use TEOS through the purchase of a
5
<PAGE> 6
Sigma 6 system; provided however that when such LICENSED TEOS SYSTEM has been
used for production of integrated circuits, semiconductor devices or thin film
transistors by the user thereof without being enabled to use TEOS for a period
of continuous production of at least one year, then for the purposes of the
royalty calculation under section 3(b) below, NOVELLUS shall be obligated to pay
royalties on (i) one hundred percent (100%) of the price of the parts,
components, assemblies, subassemblies, retrofits, and upgrades (but excluding
spares) that become part of such LICENSED TEOS SYSTEM in order to configure or
enable it to use TEOS, and (ii) on the following percentages of the price of
such LICENSED TEOS SYSTEMS:
<TABLE>
<CAPTION>
Period of Continuous Production Percentage
- ------------------------------- ----------
<S> <C>
Greater than 1 but less than 2 years 80%
Greater than 2 but less than 3 years 60%
Greater than 3 but less than 4 years 40%
Greater than 4 but less than 5 years 20%
Greater than 5 years 0%
</TABLE>
i. LICENSEE shall mean APPLIED MATERIALS or NOVELLUS as a licensee of
patents hereunder, either singly or in combination as appropriate in context.
6
<PAGE> 7
j. LICENSOR shall mean APPLIED MATERIALS or NOVELLUS as a licensor of
patents hereunder, either singly or in combination as appropriate in context.
k. NET REVENUE means (1) the price invoiced (or if not invoiced, the
price actually charged) by NOVELLUS to a SEMICONDUCTOR MANUFACTURER (or
DISTRIBUTOR or RESELLER in the case of indirect sales) in a transaction in which
the consideration is entirely monetary, or the list price in any transaction
which includes any non-monetary consideration, and in either case less (a) any
sales taxes, use taxes, and value-added taxes (to the extent they are separately
stated in the invoice and included in the invoice price or price charged), (b)
duties, tariffs, freight and insurance charges (to the extent such charges are
actually incurred by NOVELLUS and included in the invoice price or price
charged), and (c) amounts attributable to returns of LICENSED TEOS SYSTEMS; and
(2) any amounts invoiced or charged by NOVELLUS to (or if not invoiced or
charged, then received from) a SEMICONDUCTOR MANUFACTURER in any lease, revenue
participation, financing or other transaction that is other than a sale.
1. NOVELLUS means Novellus Systems, Inc. and any subsidiary or other
entity in which Novellus Systems, Inc, owns
7
<PAGE> 8
50% or more of the capital, assets, voting securities, partnership, or other
ownership interest.
m. NOVELLUS CVD PATENTS means all patents of NOVELLUS as follows: (1)
all issued patents owned by or assigned to NOVELLUS as of the Effective Date,
which patents are set forth on Exhibit C hereto and any reissues, extensions,
and re-examination certificates of such patents, except United States patents
numbers 5,188,717 and 5,171,415, any foreign counterpart patents that issue or
have issued from any application which led to or resulted in the '717 and '415
patents, any patents that result or have resulted from any divisionals,
continuations or continuations-in-part from any application which led to or
resulted in the '717 and '415 patents or such foreign counterpart patents, and
any reissues, extensions, and re-examination certificates of any of the
foregoing patents, (2) any patents resulting from any or all applications
pending as of the Effective Date, all of which pending applications are set
forth on Exhibit D hereto and any reissues, extensions, and reexamination
certificates of such patents, and (3) any patents resulting from any
divisionals, continuations, or continuations-in-part (whether filed before or
after the Effective Date) of the pending applications which are set forth on
Exhibit D hereto and any reissues, extensions, and re-examination certificates
of such
8
<PAGE> 9
patents. If a patent satisfies all aspects of the foregoing description and
conditions and is not on Exhibit C or Exhibit D, it shall nonetheless be deemed
to be a NOVELLUS CVD PATENT.
n. PROCESSING STATION means any chamber, module, vessel, enclosure,
station, or other device or area in or on which a material, film, or layer (or
any portion of such material, film, or layer) is deposited, etched, converted,
annealed, formed, patterned, grown or otherwise processed. The term PROCESSING
STATION does not include any chamber, module, vessel, enclosure, station, or
other device or area primarily configured, or enabled for heating, cooling,
degassing, orienting, passing through, transferring, holding, or storing wafers
or other substrates.
o. SEMICONDUCTOR MANUFACTURER means (1) any bona fide entity in the
business of making and selling integrated circuits, semiconductor devices, or
thin film transistors using SEMICONDUCTOR MANUFACTURING EQUIPMENT, (2) any bona
fide college or university that is fully accredited by an independent nationally
recognized organization as an institution of higher learning and that is
involved in using SEMICONDUCTOR MANUFACTURING EQUIPMENT solely for education or
research and development in the areas of integrated circuits, semiconductor
devices, or thin film transistors, and (3) any nationally or internationally
recognized semiconductor industry consortium,
9
<PAGE> 10
provided that such consortium is not more than thirty percent (30%) owned or
otherwise controlled individually or collectively by one or a combination of
COMPETITORS.
p. SEMICONDUCTOR MANUFACTURING EQUIPMENT means any machine, device or
apparatus that is designed, configured, requested, ordered, recommended,
marketed or enabled for use in manufacturing, processing, designing, diagnosing,
testing, forming or patterning integrated circuits, semiconductor devices, or
thin film transistors or any material, film, layer, or other part of such
integrated circuits, semiconductor devices or thin film transistors.
q. TEOS means tetraethylorthosilicate (also known as tetraethoxysilane,
ethyl silicate, silicic acid, tetraethyl ester, ethyl orthosilicate, tetraethyl
silicate, or tetraethyl ester silicate acid) and for the purposes of defining a
LICENSED TEOS SYSTEM also includes tetramethylcyclotetrasiloxane (also known as
TMCT or TMCTS) and tetramethoxysilane (also known as TMOS).
2. PAYMENT
Upon execution of this Agreement, NOVELLUS shall pay to APPLIED
MATERIALS the non-refundable sum of Eighty Million United States Dollars
(US$80,000,000.00). Payment shall be made of all funds by wire transfer of funds
to APPLIED MATERIALS' account as
10
<PAGE> 11
follows: [*] no later than seventy-two (72) hours following execution of this
Agreement. The parties shall cooperate to ensure that the funds are transferred
timely and correctly to APPLIED MATERIALS' account.
3. '526 PATENT LICENSE
a. Subject to the terms and conditions set forth in this Agreement,
APPLIED MATERIALS grants to NOVELLUS a non-exclusive, worldwide,
non-transferable and non-assignable (except as provided in paragraph 20 below)
license under the '526 PATENT to make and use LICENSED TEOS SYSTEMS and to sell,
lease, service, support and import LICENSED TEOS SYSTEMS that are manufactured
by NOVELLUS and branded and marketed by NOVELLUS under NOVELLUS' brand name to
SEMICONDUCTOR MANUFACTURERS (including through DISTRIBUTORS or RESELLERS).
NOVELLUS shall not have the right under the license granted herein to have-made
or subcontract the manufacture of LICENSED TEOS SYSTEMS, except that NOVELLUS
may have-made or subcontract the manufacture of individual assemblies,
subassemblies or components of a LICENSED TEOS SYSTEM (provided that such
subcontractor is not an APPLIED MATERIALS COMPETITOR and is only permitted to
sell such assemblies,
11
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 12
subassemblies and components to NOVELLUS for incorporation into LICENSED TEOS
SYSTEMS). NOVELLUS shall not have the right to sublicense the license granted
herein, except that NOVELLUS may sublicense SEMICONDUCTOR MANUFACTURERS which
purchase a LICENSED TEOS SYSTEM solely for the limited purpose of permitting
such SEMICONDUCTOR MANUFACTURERS to use the LICENSED TEOS SYSTEM in making
integrated circuits, semiconductor devices, or thin film transistors. The
license herein shall be subject to and conditioned upon NOVELLUS' timely payment
of the amount set forth in paragraph 2 above and NOVELLUS' 'timely payment of
all royalties as provided in subparagraph 3(b) below.
b. As a condition of the license granted above in subparagraph (a),
NOVELLUS shall pay to APPLIED MATERIALS, for each LICENSED TEOS SYSTEM shipped
after the Effective Date, the following royalties:
(1) If every PROCESSING STATION of the LICENSED TEOS SYSTEM is
configured or enabled to use TEOS, [*] of the NET REVENUE of the LICENSED TEOS
SYSTEM;
(2) If not all PROCESSING STATIONS of the LICENSED TEOS SYSTEM are
configured or enabled to use TEOS, [*] of the NET REVENUE of the LICENSED TEOS
SYSTEM multiplied by a fraction which represents the number of PROCESSING
STATIONS of the LICENSED TEOS SYSTEM that are
12
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 13
configured or enabled to use TEOS divided by the total number of PROCESSING
STATIONS of the LICENSED TEOS SYSTEM.
c. Royalties on a LICENSED TEOS SYSTEM shall be deemed to accrue upon
shipment of a LICENSED TEOS SYSTEM.
d. NOVELLUS shall pay royalties to APPLIED MATERIALS within forty-five
(45) days of the end of each NOVELLUS fiscal quarter (or portion thereof)
beginning with the fiscal quarter that ends June 30, 1997. NOVELLUS shall remit
royalty payments to APPLIED MATERIALS by wire transfer of funds to such bank
account as APPLIED MATERIALS shall designate from time to time.
e. On the date of each royalty payment, NOVELLUS shall provide APPLIED
MATERIALS with a written royalty report identifying, the total number of
LICENSED TEOS systems shipped and for each LICENSED TEOS SYSTEM shipped during
that quarter, the total number of PROCESSING STATIONS associated with each
LICENSED TEOS SYSTEM, and the total number of PROCESSING STATIONS wholly or
partly configured or enabled to use TEOS, and the NET REVENUE of the LICENSED
TEOS SYSTEM (including any amounts for taxes, freight, and insurance deducted to
arrive at NET REVENUE). Each royalty report (i) shall be certified by an officer
of NOVELLUS to be correct to the best knowledge and information of NOVELLUS;
(ii) may be copied and distributed for the purpose of assisting in assuring
accurate and complete royalty payments only
13
<PAGE> 14
to the Auditor, two (2) people within APPLIED MATERIALS' law department and two
(2) people within APPLIED MATERIALS' finance department; and (iii) may be
discussed, with no copies, originals or transcriptions provided, with other
employees of APPLIED MATERIALS who have a "need-to-know" the information for the
purpose of assisting in assuring accurate and complete royalty payments only,
provided that NOVELLUS' pricing, unit volume, configuration and NET REVENUE
information shall not be disclosed or discussed.
f. In the event that any royalties due to APPLIED MATERIALS from
NOVELLUS are not paid when due, NOVELLUS shall pay on demand to APPLIED
MATERIALS interest on the overdue amount at the INTEREST RATE from the date such
amount was due until the date such amount and all interest thereon is paid in
full.
g. NOVELLUS agrees to keep true, complete, and accurate records in
compliance with generally accepted accounting principles consistently applied
for the purpose of making royalty reports and to retain such records for a
period of at least three (3) years after submitting the royalty report to which
the records pertain. Such records shall contain sufficient detail to permit a
determination of the accuracy of the royalty reports. Independent nationally
recognized accountants (the "Auditor") designated by APPLIED MATERIALS and
reasonably acceptable to
14
<PAGE> 15
NOVELLUS shall have the right, no more than twice every twelve (12) months, at
APPLIED MATERIALS' expense and upon reasonable notice, to conduct audits of all
of the relevant books and records of NOVELLUS in order to determine the accuracy
of the quarterly royalty reports and to verify the computation of the royalties
due. NOVELLUS shall provide the Auditor all information reasonably requested by
the Auditor. In the event such audit reveals that NOVELLUS underpaid or
under-reported royalties due, NOVELLUS shall promptly (unless such amount is
contested in good faith by NOVELLUS) pay APPLIED MATERIALS the deficiency, and
if such deficiency is in excess of five percent (5%) of the amount actually due
for the audited period, NOVELLUS shall also reimburse APPLIED MATERIALS for the
reasonable costs of the audit and shall pay interest to APPLIED MATERIALS at the
INTEREST RATE on the amount of such deficiency from the date such deficiency was
due until the date the amount of such deficiency and the interest thereon is
paid in full. The Auditor shall keep confidential all NOVELLUS' confidential
information examined during the audit and may discuss the amount, reasons and
business records or information concerning such deficiency only with (i) two (2)
people in APPLIED MATERIALS' law department and two (2) people in APPLIED
MATERIALS' finance department and (ii) may be discussed in general, with no copy
of the royalty report or other
15
<PAGE> 16
detailed information provided to or learned by the Auditor, with other employees
of APPLIED MATERIALS who have a "need-to-know" such information for the purpose
of assisting in assuring accurate and complete royalty payments only, provided
that NOVELLUS' pricing, unit volume, configuration and NET REVENUE information
shall not be disclosed or discussed.
4. CVD PATENT CROSS-LICENSES
a. NOVELLUS grants to APPLIED MATERIALS a royalty-free, non-exclusive,
worldwide, non-transferable and non-assignable (except as provided in paragraph
20) license under the NOVELLUS CVD PATENTS to make and use SEMICONDUCTOR
MANUFACTURING EQUIPMENT and to sell, lease, service, support and import
SEMICONDUCTOR MANUFACTURING EQUIPMENT that is manufactured by APPLIED MATERIALS
and branded and marketed by APPLIED MATERIALS under APPLIED MATERIALS' brand
name to SEMICONDUCTOR MANUFACTURERS (including through DISTRIBUTORS or
RESELLERS). APPLIED MATERIALS shall not have the right under the license granted
herein to have-made or subcontract the manufacture of SEMICONDUCTOR
MANUFACTURING EQUIPMENT, except that APPLIED MATERIALS may have-made or
subcontract the manufacture of individual assemblies, subassemblies or
components of SEMICONDUCTOR MANUFACTURING EQUIPMENT, provided that such
subcontractor is not a NOVELLUS COMPETITOR and is only permitted to sell such
assemblies,
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subassemblies and components to APPLIED MATERIALS. APPLIED MATERIALS shall not
have the right to sublicense the license granted herein, except that APPLIED
MATERIALS may sublicense SEMICONDUCTOR MANUFACTURERS which purchase
SEMICONDUCTOR MANUFACTURING EQUIPMENT solely for the limited purpose of
permitting such SEMICONDUCTOR MANUFACTURERS to use the SEMICONDUCTOR
MANUFACTURING EQUIPMENT in making integrated circuits, semiconductor devices, or
thin film transistors.
b. APPLIED MATERIALS grants to NOVELLUS a royalty-free, non-exclusive,
worldwide, non-transferable and non-assignable (except as provided in paragraph
20) license under the APPLIED CVD PATENTS to make and use SEMICONDUCTOR
MANUFACTURING EQUIPMENT and to sell, lease, service, support and import
SEMICONDUCTOR MANUFACTURING EQUIPMENT that is manufactured by NOVELLUS and
branded and marketed by NOVELLUS under NOVELLUS' brand name to SEMICONDUCTOR
MANUFACTURERS (including through DISTRIBUTORS or RESELLERS). NOVELLUS shall not
have the right under the license granted herein to have-made or subcontract the
manufacture of SEMICONDUCTOR MANUFACTURING EQUIPMENT, except that NOVELLUS may
have-made or subcontract the manufacture of individual assemblies, subassemblies
or components of SEMICONDUCTOR MANUFACTURING EQUIPMENT, provided that such
subcontractor is not an APPLIED MATERIALS COMPETITOR and is only permitted to
sell
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such assemblies, subassemblies and components to NOVELLUS. NOVELLUS shall not
have the right to sublicense the license granted herein, except that NOVELLUS
may sublicense SEMICONDUCTOR MANUFACTURERS which purchase SEMICONDUCTOR
MANUFACTURING EQUIPMENT solely for the limited purpose of permitting such
SEMICONDUCTOR MANUFACTURERS to use the SEMICONDUCTOR MANUFACTURING EQUIPMENT in
making integrated circuits, semiconductor devices, or thin film transistors.
APPLIED MATERIALS' grant of the foregoing license in this subparagraph 4(b) is
subject to and conditioned upon NOVELLUS' performance of its obligations under
paragraphs 2 and 3 above.
5. NO IMPLIED LICENSES
Except as expressly granted in this Agreement, nothing contained in
this Agreement shall be construed as a grant to a LICENSEE of any license or
right, expressly, by implication, or by estoppel, to any copyrights, trademarks,
trade names, trade secrets, mask work rights or other proprietary rights of
LICENSOR, or to any patents of LICENSOR other than those expressly set forth in
this Agreement. Except as expressly provided herein, no release or license is
granted by LICENSOR, either directly or by implication, estoppel, or otherwise,
under any patent to third parties acquiring product or service from
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LICENSEE. All rights not expressly granted to LICENSEE under this Agreement are
reserved and retained by LICENSOR.
6. OWNERSHIP OF INTELLECTUAL PROPERTY
Each LICENSEE acknowledges and agrees that the patents licensed
hereunder are the sole property of LICENSOR and that title and full ownership
rights in the patents licensed hereunder are reserved to and remain with
LICENSOR. Nothing contained herein shall be construed as a transfer by LICENSOR
of any of its title or ownership rights in its patents to LICENSEE.
7. MARKING
LICENSEE shall use commercially reasonable efforts to mark each product
it sells, transfers or otherwise disposes of with the number(s) of the patents
licensed to it hereunder in the manner required by 35 U.S.C. Section 287. The
parties shall cooperate with each other regarding the implementation of this
obligation.
8. TERM/TERMINATION
a. The term of this Agreement shall begin upon the EFFECTIVE DATE and
continue until either (i) the expiration of the last to expire patent licensed
hereunder; or (ii) the termination of this Agreement. NOVELLUS' obligation to
pay royalties to APPLIED MATERIALS for the '526 PATENT shall continue until the
expiration of the last to expire of (i) U.S. Patent No. 5,362,526 and any
reissues, extensions, and re-examination
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<PAGE> 20
certificates thereof, (ii) any foreign counterpart patents that issue or have
issued from any application which led to or resulted in the '526 patent and any
reissues, extensions, and reexamination certificates thereof, or (iii) any
patents that result or have resulted from any divisionals, continuations, or
continuations-in-part from any application which led to or resulted in the '526
patent and any reissues, extensions, and reexamination certificates thereof;
except that, in the event there is a final determination by courts of competent
jurisdiction (after exhaustion of all appeals and appeal periods) that all '526
PATENTS in one of the following [*] regions - [*] - are invalid, unenforceable
or otherwise not owned (including by way of assignment) by APPLIED MATERIALS,
then NOVELLUS' obligation to pay royalties with respect to sales of LICENSED
TEOS SYSTEMS shipped for end use by a SEMICONDUCTOR MANUFACTURER to said region
shall terminate; nevertheless, NOVELLUS shall continue to pay royalties on
sales of LICENSED TEOS SYSTEMS shipped for end use by a SEMICONDUCTOR
MANUFACTURER to each of said regions where all '526 PATENTS have not been
finally determined by courts of competent jurisdiction (after exhaustion
20
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 21
of all appeals and appeal periods) to be invalid, unenforceable or otherwise not
owned (including by way of assignment) by APPLIED MATERIALS.
b. Either party may terminate this Agreement by providing written
notice of termination to the other party:
(1) in the event of the other party's breach of any term of this
Agreement in any material respect, including without limitation the failure to
make any payment fully or timely as required herein, provided that such material
breach is not cured within thirty (30) days after receipt by the breaching
party of written notice complaining thereof; provided that in the event of a
good faith dispute as to the amounts owed under paragraph 3 only, this Agreement
shall not be terminable so long as NOVELLUS makes timely payment to APPLIED
MATERIALS of the undisputed amount, makes a timely deposit into an escrow
account reasonably acceptable to both parties of the disputed amount, and the
parties submit the dispute to binding arbitration with a mutually acceptable
arbitrator through J.A.M.S. ENDISPUTE within five (5) days of the date the
amount became payable. Any such dispute shall be resolved by a binding,
non-appealable arbitration order within ninety (90) days of submission. Both
parties shall, in good faith, use reasonable efforts to reach a mutually
satisfactory resolution of the dispute. In the event any such
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dispute for any reason is not resolved within ninety (90) days of submission,
NOVELLUS agrees promptly and immediately to release the disputed amount from
escrow to APPLIED MATERIALS, and NOVELLUS agrees to waive and release all claims
concerning such disputed amount unless there is a delay in the ability of the
arbitrator to make a decision within the ninety (90) day period, which delay is
primarily attributable to the fault of APPLIED MATERIALS (as determined by the
arbitrator), then NOVELLUS shall not have waived and released all claims
concerning such disputed amount, and the arbitration process may continue for a
maximum of a second ninety (90) day period. If NOVELLUS fails to release the
disputed amount from escrow to APPLIED MATERIALS in the first ninety (90) days,
then this Agreement shall then become immediately terminable by APPLIED
MATERIALS; provided, however, that if it is subsequently determined that the
full amount of such disputed amount was not owed to APPLIED MATERIALS, then
NOVELLUS shall be entitled to deduct from the next royalty payments) due to
APPLIED MATERIALS hereunder an amount equal to the difference between the amount
released from escrow and the amount found to be actually owed; or
(2) (a) upon or after the filing by the other party of a petition in
bankruptcy or insolvency, (b) upon or after any adjudication by a court of
competent jurisdiction that the other
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party is insolvent, (c) upon or after the filing by the other party of any
petition or answer seeking reorganization, readjustment or arrangement of the
business of the other party under any law relating to bankruptcy or insolvency,
(d) upon or after the appointment of a trustee or receiver or the other party as
debtor-in-possession for all or substantially all of the assets of the other
party, (e) upon or after the making by the other party of any assignment or
attempted assignment for the benefit of creditors, (f) upon or after the
institution of any proceedings for the liquidation or winding up of the other
party's business, or for the termination of its corporate charter, (g) upon or
after the filing against the other party of a petition in bankruptcy or
insolvency seeking reorganization, readjustment or arrangement of the business
of the other party under any law relating to bankruptcy or insolvency that is
not dismissed, withdrawn or otherwise cured within thirty (30) days.
C. APPLIED MATERIALS shall have the right to terminate this Agreement,
the APPLIED CVD PATENTS license and/or the '526 PATENT license by providing
NOVELLUS written notice upon the occurrence of any of the following:
(1) if NOVELLUS (i) acquires or is acquired by, merges with or into,
reorganizes, or in any other transaction, whether in a single action or series
of actions, combines with another
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<PAGE> 24
corporation, partnership or other entity, with the result that just after the
completion of any such transaction, the combined entities have annual gross
revenues that exceed [*] of NOVELLUS' annualized gross revenues (revenues of the
most recently completed fiscal quarter for NOVELLUS and the other entity
involved in the transaction multiplied by four (4) just before the transaction;
however, in no event, shall the aggregate annualized gross revenues (revenues of
the fiscal quarter most recently completed just prior to the transaction
multiplied by four (4) of all entities, other than NOVELLUS, measured in each
case as of the time of each such transaction, which NOVELLUS acquires or is
acquired by, merges with or into, reorganizes, or in any other transaction,
whether in a single action or series of actions, combines with another
corporation, partnership or other entity, (i) for the period of time from the
Effective Date until three (3) years after the Effective Date exceed [*]; (ii)
for the period of time from more than three (3) years after the Effective Date
until [*] after the Effective Date exceed [*]; and (iii) more than [*] years
after the Effective Date, the foregoing dollar limitation shall not apply; or
(ii) sells or otherwise transfers all or substantially all of its CVD business
or assets,
24
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 25
then NOVELLUS shall provide APPLIED MATERIALS written notice within two (2)
business days of the occurrence of any of the foregoing events. APPLIED
MATERIALS shall have the right to exercise its right of termination under this
subparagraph no later than thirty (30) days after receiving written notice from
NOVELLUS of any of the foregoing events.
(2) if a COMPETITOR of APPLIED MATERIALS, in a single action or
series of actions, obtains [*] or more of the capital, assets, voting
securities, partnership or other ownership interest of NOVELLUS, then NOVELLUS
shall provide APPLIED MATERIALS written notice within two (2) business days of
after NOVELLUS' knowledge of the occurrence of such event. APPLIED MATERIALS
shall have the right to exercise its right of termination under this
subparagraph no later than thirty (30) days after receiving written notice
from NOVELLUS of such event.
d. The termination of this Agreement shall not affect any royalty or
other obligation arising prior to the effective date of such termination.
(1) Upon the termination of this Agreement in accordance with
subparagraph 8(b) or 8(c) above by APPLIED MATERIALS: (i) any or all licenses
granted by APPLIED MATERIALS to NOVELLUS, at APPLIED MATERIALS' sole election,
may terminate as of the date of termination of this Agreement; and (ii) all
25
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 26
licenses granted by NOVELLUS to APPLIED MATERIALS shall survive the termination
of this Agreement, but shall be subject to termination in accordance with the
terms of this Agreement, to the same extent as if this Agreement had not
terminated, in the event of a subsequent breach of the terms hereof by APPLIED
MATERIALS.
(2) Upon the termination of this Agreement in accordance with
subparagraph 8(b) above by NOVELLUS: (i) all licenses granted by NOVELLUS to
APPLIED MATERIALS, at NOVELLUS' sole election, may terminate as of the date of
termination of this Agreement; and (ii) all licenses granted by APPLIED
MATERIALS to NOVELLUS shall survive the termination of this Agreement, provided
that and only so long as NOVELLUS continues to fulfill its royalty obligations
pursuant to paragraph 3; but shall be subject to termination in accordance with
the terms of this Agreement, to the same extent as if this Agreement had not
terminated, in the event of a subsequent breach of the terms hereof by NOVELLUS.
(3) Notwithstanding any termination of this Agreement, the parties
acknowledge that paragraphs 1, 2, 5, 6, 8(d)(1), 8(d)(2), 9, 10, 12, 14, 15, 16,
and 19 through 25 shall survive the termination of this Agreement in accordance
with their respective terms.
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9. STIPULATED DISMISSALS WITH PREJUDICE
Within three (3) business days after APPLIED MATERIALS receives payment
of the funds pursuant to paragraph 2 above, NOVELLUS and APPLIED MATERIALS will
execute and file stipulated dismissals with prejudice of the TEOS Action and the
Tungsten Actions in the form of Exhibit E hereto, with each side bearing its own
costs and attorneys' fees. Each party represents and warrants that it has not
filed any other complaint, counterclaim, action or other claim against the other
party, its legal representatives, predecessors, successors, or assigns, or any
of its officers, directors, shareholders, employees, subsidiaries, divisions,
partnerships, joint ventures, affiliated companies, attorneys, and agents.
10. RELEASES
a. NOVELLUS, for itself, its legal representatives, predecessors,
successors, and assigns, and each of its past and present officers, directors,
shareholders, employees, subsidiaries, divisions, partnerships, joint ventures,
affiliated companies, attorneys, and agents, hereby unconditionally releases and
forever discharges APPLIED MATERIALS, each of its legal representatives,
predecessors, successors, and assigns, and each of its past and present
officers, directors, shareholders, employees, subsidiaries, divisions,
partnerships, joint ventures,
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<PAGE> 28
affiliated companies, attorneys, and agents from any and all claims, causes of
action, demands, costs, obligations, damages, and liabilities of every kind,
nature, and description whatsoever arising before the Effective Date, whether
individual or derivative, state or federal, known or unknown, suspected or
unsuspected, whether or not concealed or hidden, that arose under or relate to
the TEOS Action, the Tungsten Actions, or any NOVELLUS CVD PATENTS, including
without limitation all claims in law or in equity that were asserted or could
have been asserted by NOVELLUS in connection with the TEOS Action or the
Tungsten Actions.
b. APPLIED MATERIALS, for itself, its legal representatives,
predecessors, successors, and assigns, and each of its past and present
officers, directors, shareholders, employees, subsidiaries, divisions,
partnerships, joint ventures, affiliated companies, attorneys, and agents,
hereby unconditionally releases and forever discharges NOVELLUS, each of its
legal representatives, predecessors, successors, and assigns, and each of its
past and present officers, directors, shareholders, employees, subsidiaries,
divisions, partnerships, joint ventures, affiliated companies, attorneys, and
agents from any and all claims, causes of action, demands, costs, obligations,
damages, and liabilities of every kind, nature, and
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description whatsoever arising before the Effective Date, whether individual or
derivative, state or federal, known or unknown, suspected or unsuspected,
whether or not concealed or hidden, that arose under or relate to the TEOS
Action, the Tungsten Actions, or any APPLIED CVD PATENTS, including without
limitation all claims in law or in equity that were asserted or could have been
asserted by APPLIED MATERIALS in connection with the TEOS Action or the Tungsten
Actions.
c. As further consideration for the Agreement and for the purpose of
implementing full and complete mutual releases, NOVELLUS and APPLIED MATERIALS
hereby expressly acknowledge and agree that the releases described above in
subparagraph (a) and (b) shall include without limitation all matters described
therein which may be unknown, unsuspected, or unanticipated; that the releases
described above in subparagraphs (a) and (b) contemplate the extinction of all
claims described therein, including claims for attorneys, fees and costs; that
NOVELLUS and APPLIED MATERIALS expressly waives any right to assert hereafter
that any claim described above in subparagraphs (a) or (b) has been, through
ignorance, oversight, or negligence, omitted from the scope of the release; and
that NOVELLUS and APPLIED MATERIALS expressly waive any right or benefit which
may be available under Section 1542 of the California Civil Code, which
provides:
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A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
11. DISCLAIMERS
Nothing in this Agreement shall be construed as:
a. a warranty, representation, or promise relating to the licensed
patents, including, without limitation, the validity, enforceability, scope or
suitability for any purpose of the licensed patents, the merchantability of the
technology of the licensed patents, or the non-infringement of intellectual
property rights or other rights owned by third parties by the licensed patents;
or
b. an obligation to furnish any manufacturing or technical information
to the other party; or
c. an obligation to bring or prosecute actions or suits against third
parties, or defend actions or suits brought against the other party, or
indemnify the other party for any reason; or
d. imposing any liability on one party with respect to the manufacture,
use, or sale of SEMICONDUCTOR MANUFACTURING EQUIPMENT by the other party,
SEMICONDUCTOR MANUFACTURERS which purchase SEMICONDUCTOR MANUFACTURING EQUIPMENT
from it, or other third parties; or
30
<PAGE> 31
e. conferring upon either party the right, to use in advertising,
publicity, or otherwise any trademark, service mark, or trade name of the other
party; or
f. conferring upon either party, by implication or otherwise, any right
or license under any patents or other industrial or intellectual property rights
(including, without limitation, trademarks, service marks, trade names, and
copyrights) except for the rights and licenses expressly granted herein; or an
inducement by one party to the other to use the licensed patents or to make,
use, or sell SEMICONDUCTOR MANUFACTURING EQUIPMENT covered by the licensed
patents, or an inducement of the other party's customers to purchase or
otherwise use SEMICONDUCTOR MANUFACTURING EQUIPMENT covered by the licensed
patents.
12. REPRESENTATIONS AND WARRANTIES
a. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN
THIS AGREEMENT, THE PARTIES MAKE NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED.
b. The parties, and each of them, represent and warrant to the other
that they have the authority to enter into this Agreement, including the
releases and licenses contained herein, and that they and their counsel have the
authority to execute and file a stipulated dismissal with prejudice of the TEOS
Action and
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the Tungsten Actions in their entirety in the form attached to this Agreement as
Exhibit E.
c. Each party represents and warrants that this Agreement constitutes
the legal, valid, and binding obligation of each of them, enforceable in
accordance with its terms.
d. Each party represents and warrants that this Agreement shall be
binding upon, and inure to the benefit of, the parties and each of their
respective 50% or more owned subsidiaries, 50% or more owned affiliated
companies, divisions, officers, directors, employees, agents, attorneys, legal
representatives, successors, and assigns.
e. Each party represents and warrants that they have not transferred or
assigned or purported to transfer or assign any of the claims, causes of action,
demands, costs, obligations, damages, or liabilities being released under this
Agreement, and each party agrees to indemnify the other from and against any
claim based upon, connected with, or arising out of any such assignment or
transfer or purported assignment or transfer.
13. CONFIDENTIALITY
This Agreement, and all information concerning its terms and the
negotiations leading up to this Agreement, and the trial transcript and all
confidential information of the other party contained in admitted evidence in
the TEOS Action, are
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confidential and shall not be disclosed to any person or entity other than the
parties hereto and their counsel, except that (a) the parties may make such
disclosures as are required by law or based upon advice of counsel for purposes
of compliance with public reporting, (b) the parties may issue a joint press
release to be agreed upon by the parties, (c) the parties and their counsel may
disclose to third parties the fact that the parties have settled the TEOS Action
and Tungsten Actions referred to above and have entered into a license
agreement, (d) the parties may disclose internally on a "need-to-know" basis;
and (e) with respect to the trial transcript only, the confidentiality
obligations shall apply from and after the Effective Date. Should any party be
required by law to disclose this Agreement, any of its terms or the trial
transcript or confidential information of the other party contained in admitted
evidence in the TEOS Action to a third party, the party making the disclosure
shall undertake reasonable efforts to ensure the continued confidentiality of
this Agreement (for example, by requesting that government agencies treat this
Agreement and its terms as confidential).
14. THIRD PARTY LAWSUITS
Both NOVELLUS and APPLIED MATERIALS acknowledge that the other is or
may become involved in other lawsuits involving third
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<PAGE> 34
parties in which claims of patent infringement have been or may be made, and the
parties, and each of them, agree (a) that they will not make witnesses available
to such third parties for interviews, (b) they will not produce witnesses for
deposition or trial at the request of such third parties unless required to do
so by law, and (c) they will not produce documents, exhibits, deposition
testimony, or trial testimony generated or produced in the TEOS Action or the
Tungsten Actions to such third parties unless required by law to do so.
15. NO CHALLENGES
a. LICENSEE agrees that it shall not challenge the validity or
enforceability of any patent licensed herein or interfere with the prosecution
of any pending patent application listed herein.
b. NOVELLUS agrees and acknowledges that this Agreement is being
entered into for, among other reasons settlement of litigation and claims and
that all amounts paid by NOVELLUS to APPLIED MATERIALS under paragraphs 2 and 3
are nonrefundable, even if the validity, scope, or enforceability of the '526
PATENT is subsequently challenged and the '526 PATENT is deemed by a court of
competent jurisdiction to be held invalid, of narrower scope, or unenforceable.
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<PAGE> 35
16. DESTRUCTION OF CONFIDENTIAL AND PROPRIETARY DOCUMENTS
The parties agree that upon filing of dismissals with prejudice of the
TEOS Action and the Tungsten Actions, all "Confidential Information" and
"Documents" of the other party which have been designated as "CONFIDENTIAL", as
"CONFIDENTIAL ATTORNEYS ONLY" or as "HIGHLY SENSITIVE CONFIDENTIAL - ATTORNEYS
ONLY" (as those terms are defined in the Stipulated Protective Orders for the
TEOS Action and Tungsten Actions) which were received, generated or obtained
during the course of the TEOS Action or the Tungsten Actions, shall be
destroyed. This includes all such materials in the possession, custody or
control of the parties, respective counsel of record, consultants, experts, or
any other attorneys, agents or representatives. The parties shall certify by
letter of an authorized officer, and the parties' respective counsel of record
shall certify by letter of a partner, within thirty (30) days of the filing of
such dismissals that destruction of such materials is complete. Notwithstanding
the above, lead trial counsel for each party may retain one copy only of the
trial transcript and all evidence admitted at trial.
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17. RELATIONSHIP OF THE PARTIES
The relationship between the parties is that of LICENSOR and LICENSEE.
This Agreement does not in any way create a relationship of principal and agent,
partnership or joint venture between the parties. Neither party hereto shall
under any circumstances act as or represent itself to be such.
18. NOTICE
a. Any notice, report or other document required or permitted hereunder
shall be sufficiently given when personally delivered, faxed with confirmed
receipt, delivered by overnight courier, or mailed with the U.S. Postal Service
prepaid first class registered or certified mail and addressed to the party for
whom it is intended at its record address, and such notice shall be effective
upon receipt if delivered personally, faxed, or delivered by overnight courier,
or shall be effective five (5) days after it is deposited in the mail if mailed.
The record addresses and facsimile numbers of the parties are set forth below:
Applied Materials, Inc.
3050 Bowers Avenue, M/S 2064
Santa Clara, CA 95054
Attention: Vice President, Legal Affairs and
Intellectual Property
Fax No.: (408) 563-4635
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<PAGE> 37
Novellus Systems, Inc.
3970 North First Street
San Jose, CA 95134
Attention: Chief Financial Officer
Fax No.: (408) 943-3448
b. Either party, at any time, may change its previous record address or
facsimile number by giving written notice of the substitution.
19. MEET AND CONFER
During the term of this Agreement, with respect to disputes between the
parties which allege a material breach hereof, the parties and each of them,
agree that prior to sending a notice terminating this Agreement, they will meet
and confer to discuss in good faith the reasons and basis for possible
termination, and possible remedies other than termination. Participants in the
discussion shall include a vice president or above with authority to resolve the
matter and the discussion shall occur within five (5) business days after
receipt of the notice. In the event that NOVELLUS is not available for this
discussion during the five (5) business days after receipt of the notice, then
NOVELLUS shall be deemed to have waived this meet and confer obligation. The
parties agree that they will not assert or claim that, based upon the passage of
these five (5) days, the other party has waived or should be estopped from
asserting or claiming immediate or irreparable harm.
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20. ASSIGNMENT
This Agreement and the licenses granted herein shall not be
transferable or assignable by either party hereto without the consent in writing
by a duly authorized officer of the other party. Notwithstanding the foregoing,
but subject to paragraph 8(c) above, either party hereto may assign this
Agreement and the licenses granted hereunder in connection with the acquisition
of the assigning party, whether by merger, consolidation, sale of assets or
otherwise, without the consent of the non-assigning party, provided that (i)
such acquiring company agrees to be bound by all terms and conditions of this
Agreement and (ii) such acquiring company provides written notice to the other
party of the fact of the acquisition and the identity of the acquiring company
within five (5) business days of the closing of any such acquisition. This
Agreement shall not be assignable by NOVELLUS or APPLIED MATERIALS, as a
debtor-in-possession, or by a bankruptcy trustee or receiver, to any third party
in connection with any proceeding under applicable bankruptcy law.
21. INTEGRATION AND HEADINGS
The parties, and each of them, represent and warrant that, as to the
subject matter hereof, this Agreement sets forth the entire agreement between
NOVELLUS and APPLIED MATERIALS; no promise, inducement, understanding, or
agreement not expressly
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<PAGE> 39
contained herein has been made; this Agreement merges any and all previous
negotiations and agreements between the parties; and the terms of this Agreement
are contractual and not merely recitals. The numbered headings contained in this
Agreement are for reference purposes only and do not comprise any portion of
this Agreement.
22. WAIVER AND MODIFICATION
No alteration, modification, or amendment to this Agreement shall be
valid except in writing signed by NOVELLUS and APPLIED MATERIALS. The delay or
failure of a party to exercise any right, power, remedy, or privilege hereunder
or failure to strictly enforce any breach, violation, default, provision or
condition shall not impair any such right, power, remedy or privilege nor shall
it constitute a waiver thereof or acquiescence thereto unless explicit written
notice is provided. Any waiver, permit, consent, or approval of any kind
regarding any breach, violation, default, provision or condition of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in writing. No partial waiver of any such right, power,
privilege, breach, violation, default, provision or condition on any one
occasion shall preclude any other or further exercise thereof or constitute a
waiver thereof
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<PAGE> 40
or acquiescence thereto on any subsequent occasion unless clear and express
notice thereof in writing is provided.
23. SEVERABILITY
If any provision of this Agreement is declared invalid, illegal or
unenforceable by any court of competent jurisdiction, then such provision shall
be reformed to the extent legally practical to accomplish the legal intent of
the parties and such reformed provision shall be deemed a provision of this
Agreement as though originally included herein. If the provision deemed invalid,
illegal or unenforceable is of such a nature that it cannot be so adjusted, the
provision shall be deemed deleted from this Agreement as though the provision
had never been included herein. If any provision of this Agreement is deemed
invalid or unenforceable, the parties agree to negotiate, in good faith, a
substitute valid provision which most nearly meets the parties' intent in
entering into this Agreement. In either case, the remaining provisions of this
Agreement shall remain in full force and effect.
24. DRAFTING
All parties and their counsel have reviewed and had the opportunity to
contribute to the drafting of this Agreement, and the rule of construction
providing that any ambiguities are to be resolved against the drafting party
shall not be employed in the
40
<PAGE> 41
interpretation of this Agreement. This Agreement shall be construed as drafted
by both parties.
25. CHOICE OF LAW
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California without regard to what laws might otherwise
govern under applicable principles of conflict or choice of law. Any action or
proceeding arising out of or related to this Agreement shall be brought in a
state or federal court of competent subject matter jurisdiction located in Santa
Clara County, California. The parties consent specifically to personal
jurisdiction of such courts and each party irrevocably waives its right to
contest venue in any such courts.
26. NULLIFICATION
In the event that APPLIED MATERIALS does not receive the payment set
forth in paragraph 2 above within seventy-two (72) hours of the date on which
NOVELLUS executes this Agreement, APPLIED MATERIALS may nullify this Agreement,
whereupon this Agreement will become null and void.
41
<PAGE> 42
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement, on the dates below indicated.
NOVELLUS SYSTEMS, INC. APPLIED MATERIALS, INC.
BY: [SIG] BY: [SIG]
------------------------------- -----------------------------------
TITLE: Ex. V.P. - C.F.O. TITLE: President
---------------------------- --------------------------------
DATE: 5/4/97 DATE: 5/4/97
----------------------------- ---------------------------------
42
<PAGE> 43
The following exhibits to the Settlement Agreement have been omitted. Such
exhibits will be submitted to the Securities and Exchange Commission upon
request:
Exhibits
A Issued Patents
B Patent Applications
<PAGE> 1
EXHIBIT 10.2
------------
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
AMONG
NOVELLUS SYSTEMS, INC.
AND
THE LENDERS NAMED HEREIN
AND
ABN AMRO BANK N.V.,
AS AGENT FOR THE LENDERS
JUNE 9, 1997
================================================================================
<PAGE> 2
CREDIT AGREEMENT
Table of Contents
-----------------
<TABLE>
<S> <C> <C>
SECTION I. INTERPRETATION
1.01. Definitions.................................................... 1
1.02. GAAP........................................................... 21
1.03. Headings....................................................... 21
1.04. Plural Terms................................................... 21
1.05. Time........................................................... 21
1.06. Governing Law.................................................. 21
1.07. Construction................................................... 22
1.08. Entire Agreement............................................... 22
1.09. Calculation of Interest and Fees............................... 22
1.10. Other Interpretive Provisions.................................. 22
SECTION II. CREDIT FACILITY
2.01. Revolving Loans................................................ 23
2.02. Notice of Borrowing............................................ 23
2.03. Interest Rates................................................. 24
2.04. LIBOR Loan Interest Periods.................................... 24
2.05. Scheduled Loan Payments........................................ 25
2.06. Purpose........................................................ 25
2.07. Commitment Reductions, Etc..................................... 25
2.08. Fees........................................................... 26
2.09. Prepayments.................................................... 26
2.10. Other Payment Terms............................................ 27
2.11. Notes and Interest Account..................................... 28
2.12. Loan Funding................................................... 28
2.13. Pro Rata Treatment............................................. 29
2.14. Change of Circumstances........................................ 31
2.15. Taxes on Payments.............................................. 33
2.16. Funding Loss Indemnification................................... 35
2.17. Replacement of Lenders......................................... 36
SECTION III. CONDITIONS PRECEDENT
3.01. Initial Conditions Precedent................................... 36
3.02. Conditions Precedent to Each Credit Event...................... 36
3.03. Covenant to Deliver............................................ 37
SECTION IV. REPRESENTATIONS AND WARRANTIES
4.01. Borrower's Representations and Warranties...................... 37
4.02. Reaffirmation.................................................. 42
SECTION V. COVENANTS
5.01. Affirmative Covenants.......................................... 42
5.02. Negative Covenants............................................. 46
5.03. Financial Covenants............................................ 54
SECTION VI. DEFAULT
6.01. Events of Default.............................................. 55
6.02. Remedies....................................................... 58
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION VII. THE AGENT AND RELATIONS AMONG LENDERS
7.01. Appointment, Powers and Immunities............................. 58
7.02. Reliance by Agent.............................................. 59
7.03. Defaults....................................................... 59
7.04. Indemnification................................................ 60
7.05. Non-Reliance................................................... 60
7.06. Resignation or Removal of Agent................................ 61
7.07. Authorization.................................................. 61
7.08. Agent in its Individual Capacity............................... 61
SECTION VIII. MISCELLANEOUS
8.01. Notices........................................................ 61
8.02. Expenses....................................................... 62
8.03. Indemnification................................................ 63
8.04. Waivers; Amendments............................................ 63
8.05. Successors and Assigns......................................... 64
8.06. Setoff......................................................... 68
8.07. No Third Party Rights.......................................... 68
8.08. Partial Invalidity............................................. 68
8.09. Jury Trial..................................................... 68
8.10 Counterparts................................................... 69
8.11. Confidentiality................................................ 69
SCHEDULES
I Lenders
1.01 Pricing Grid
3.01 Initial Conditions Precedent
4.01(g) Litigation
4.01(g) Subsidiaries
5.02(a) Existing Indebtedness
5.02(b) Existing Liens
5.02(e) Existing Investments
EXHIBITS
A Notice of Borrowing (2.02))
B Notice of Interest Period Selection (2.04(b))
C Note (2.11(a))
D Assignment Agreement (8.05(c))
</TABLE>
ii
<PAGE> 4
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of June 9, 1997, is entered into by
and among:
(1) NOVELLUS SYSTEMS, INC., a California corporation
("Borrower");
(2) Each of the financial institutions from time to time
listed in Schedule I hereto, as amended from time to time (such
financial institutions to be referred to herein collectively as the
"Lenders"); and
(3) ABN AMRO BANK N.V., acting through its San Francisco
International Branch, as agent for the Lenders (in such capacity,
"Agent").
RECITALS
A. Borrower has requested the Lenders to provide a revolving loan
facility to Borrower.
B. The Lenders are willing to provide such a facility upon the terms
and subject to the conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
SECTION I. INTERPRETATION.
1.01. Definitions. Unless otherwise indicated in this Agreement or any
other Credit Document, each term set forth below, when used in this Agreement or
any other Credit Document, shall have the respective meaning given to that term
below or in the provision of this Agreement or other document, instrument or
agreement referenced below.
"ABN AMRO" shall mean ABN AMRO Bank N.V.
"Acquired Varian Assets" shall mean the "Assets" as defined in
the Varian Purchase Agreement.
"Adjusted Net Income, shall mean, with respect to Borrower
for any period, the sum, determined on a consolidated basis in
accordance with GAAP, of the following:
<PAGE> 5
(a) The net income or net loss of Borrower and its
Subsidiaries for such period before provision for income taxes;
plus
(b) The sum (to the extent deducted in calculating net income
or loss in clause (a) above) of (i) all Interest Expenses of Borrower
and its Subsidiaries accruing during such period, (ii) all depreciation
and amortization expenses of Borrower and its Subsidiaries accruing
during such period, and (iii) all rental expenses of Borrower and its
Subsidiaries accruing during such period;
minus
(c) Fifty percent (50%) of all Capital Expenditures of
Borrower and its Subsidiaries accruing during such period;
plus
(d) In calculating the Adjusted Net Income of Borrower for any
period that includes the fiscal quarter ending June 30, 1997, the
lesser of (i) the sum (to the extent deducted in calculating net income
or loss in clause (a) above) of all charges taken by Borrower during
the fiscal quarter ending June 30, 1997 in connection with the
settlement by Borrower of its patent litigation with Applied Materials,
Inc. relating to Applied's Patent No. 5,362,526, and (ii) $84,000,000;
plus
(e) In calculating the Adjusted Net Income of Borrower for any
period that includes the fiscal quarter ending June 30, 1997, the
lesser of (i) the sum (to the extent deducted in calculating net income
or loss in clause (a) above) of all charges taken by Borrower during
the fiscal quarter ending June 30, 1997 in connection with the
write-off of in-process research and development charges relating to
Borrower's purchase of the Acquired Varian Assets, and (ii)
$115,000,000;
plus
(f) In calculating the Adjusted Net Income of Borrower for any
period that includes the fiscal quarter ending June 30, 1997, September
30, 1997 or December 31, 1997, the lesser of (i) the sum (to the extent
deducted in calculating net income or loss in clause (a) above) of all
other non-recurring, non-cash
2
<PAGE> 6
charges taken by Borrower during the period between the date of this
Agreement and December 31, 1997, and (ii) $40,000,000.
"Affiliate" shall mean, with respect to any Person, (a) each Person
that, directly or indirectly, owns or controls, whether beneficially or as a
trustee, guardian or other fiduciary, five percent (5%) or more of any class of
Equity Securities of such Person, (b) each Person that controls, is controlled
by or is under common control with such Person or any Affiliate of such Person
or (c) each of such Person's officers, directors, joint venturers and partners;
provided, however, that in no case shall Agent or any Lender be deemed to be an
Affiliate of Borrower or any of its Subsidiaries for purposes of this Agreement.
For the purpose of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
"Agent" shall have the meaning given to that term in clause (3) of the
introductory paragraph hereof.
"Agent's Fee Letter" shall mean the letter agreement dated as of May 9,
1997 between Borrower and Agent.
"Agreement" shall mean this Credit Agreement.
"Applicable Lending Office" shall mean, with respect to any Lender, (a)
in the case of its Base Rate Loans, its Domestic Lending Office, and (b) in the
case of its LIBOR Loans, its Euro-Dollar Lending Office.
"Applicable Margin" shall mean, with respect to any Loan at any time,
the per annum margin which is determined pursuant to the Pricing Grid and added
to the Base Rate or LIBO Rate, as the case may be, for such Loan; provided,
however, that each Applicable Margin determined pursuant to the Pricing Grid
shall be increased by two percent (2.00%) on the date an Event of Default occurs
and shall continue at such increased rate unless and until such Event of Default
is waived in accordance with this Agreement. The Applicable Margins shall be
determined as provided in the Pricing Grid and may change for each Pricing
Period.
"Assignee Lender" shall have the meaning given to that term in
Subparagraph 8.05(c).
"Assignment" shall have the meaning given to that term in Subparagraph
8.05(c).
"Assignment Agreement" shall have the meaning given to that term in
Subparagraph 8.05(c).
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<PAGE> 7
"Assignment Effective Date" shall have, with respect to each Assignment
Agreement, the meaning set forth therein.
"Assignor Lender" shall have the meaning given to that term in
Subparagraph 8.05(c).
"Base Rate" shall mean, on any day, the greater of (a) the Prime Rate
in effect on such date and (b) the Federal Funds Rate for such day plus one-half
percent (0.50%).
"Base Rate Loan" shall mean, at any time, a Loan which then bears
interest as provided in Subparagraph 2.03(a).
"Borrower" shall have the meaning given to that term in clause (1) of
the introductory paragraph hereof.
"Borrowing" shall mean a borrowing by Borrower consisting of the Loans
made by each of the Lenders on the same date and of the same Type pursuant to a
single Notice of Borrowing.
"Business Day" shall mean any day on which (a) commercial banks are not
authorized or required to close in San Francisco, California or New York, New
York and (b) if such Business Day is related to a LIBOR Loan, dealings in Dollar
deposits are carried out in the London interbank market.
"Capital Adequacy Requirement" shall have the meaning given to that
term in Subparagraph 2.14(d).
"Capital Asset shall mean, with respect to any Person, any tangible
fixed or capital asset owned or leased (in the case of a Capital Lease) by such
Person, or any expense incurred by such Person that is required by GAAP to be
reported as a non-current asset on such Person's balance sheet.
"Capital Expenditures" shall mean, with respect to any Person and any
period, all expenses accrued by such Person during such period for the
acquisition of Capital Assets (including all indebtedness incurred or assumed in
connection with Capital Leases).
"Capital Leases" shall mean any and all lease obligations that, in
accordance with GAAP, are required to be capitalized on the books of a lessee.
"Cash Equivalents" shall mean:
(a) Direct obligations of, or obligations the principal and
interest on which are unconditionally guaranteed by, the United States
of America or
4
<PAGE> 8
obligations of any agency of the United States of America to the extent
such obligations are backed by the full faith and credit of the United
States of America, in each case maturing within one year from the date
of acquisition thereof;
(b) Certificates of deposit maturing within one year from the
date of acquisition thereof issued by a commercial bank or trust
company organized under the laws of the United States of America or a
state thereof or that is a Lender, provided that (A) such deposits are
denominated in Dollars, (B) such bank or trust company has capital,
surplus and undivided profits of not less than $100,000,000 and (C)
such bank or trust company has certificates of deposit or other debt
obligations rated at least A-1 (or its equivalent) by Standard and
Poor's Ratings Group or P-1 (or its equivalent) by Moody's Investors
Service, Inc.;
(c) Open market commercial paper maturing within 270 days from
the date of acquisition thereof issued by a corporation organized under
the laws of the United states of America or a state thereof, provided
such commercial paper is rated at least A-1 (or its equivalent) by
Standard and Poor's Ratings Group or P-1 (or its equivalent) by Moody's
Investors Service, Inc.; and
(d) Any repurchase agreement entered into with a commercial
bank or trust company organized under the laws of the United States of
America or a state thereof or that is a Lender, provided that (A) such
bank or trust company has capital, surplus and undivided profits of not
less than $100,000,000, (B) such bank or trust company has certificates
of deposit or other debt obligations rated at least A-1 (or its
equivalent) by Standard and Poor's Ratings Group or P-1 (or its
equivalent) by Moody's Investors Service, Inc., (C) the repurchase
obligations of such bank or trust company under such repurchase
agreement are fully secured by a perfected security interest in a
security or instrument of the type described in clause (a), (b) or (c)
above and (D) such security or instrument so securing the repurchase
obligations has a fair market value at the time such repurchase
agreement is entered into of not less than 100% of such repurchase
obligations.
"Change of Control" shall mean, with respect to Borrower, (a) the
acquisition by any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934 (as amended, the "Exchange Act"))
of (i) beneficial ownership (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Exchange Act) of twenty-five
percent
5
<PAGE> 9
(25%) or more of the outstanding Equity Securities of Borrower entitled to vote
for members of the board of directors, or (ii) all or substantially all of the
assets of Borrower and its Subsidiaries taken as a whole; or (b) during any
period of twelve (12) consecutive calendar months, individuals who are directors
of Borrower on the first day of such period ("Initial Directors") and any
directors of Borrower who are specifically approved by two-thirds of the Initial
Directors and previously-approved Directors shall cease to constitute a majority
of the Board of Directors of Borrower before the end of such period.
"Change of Law" shall have the meaning given to that term in
Subparapraph 2.14(b).
"Closing Date" shall mean the date, not later than July 15, 1997
designated by Borrower in the initial Notice of Borrowing as the date for the
initial Borrowing.
"Commitment" shall mean, with respect to any Lender at any time, such
Lender's Proportionate Share at such time of the Total Commitment at such time.
"Commitment Fee Percentage" shall mean, with respect to the Unused
Commitment at any time, the per annum rate which is determined pursuant to the
Pricing Grid and used to calculate the Commitment Fees.
"Commitment Fees" shall have the meaning given to that term in
Subparagraph 2.08(b).
"Compliance Certificate" shall have the meaning given to that term in
Subparagraph 5.01(a).
"Contingent Obligation" shall mean, with respect to any Person, (a) any
Guaranty Obligation of that Person; and (b) any direct or indirect obligation or
liability, contingent or otherwise, of that Person (i) in respect of any Surety
Instrument issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments, (ii) as a partner or
joint venturer in any partnership or joint venture, (iii) to purchase any
materials, supplies or other property from, or to obtain the services of,
another Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property, or for
such services, shall be made regardless of whether delivery of such materials,
supplies or other property is ever made or tendered, or such services are ever
performed or tendered, or (iv) in respect to any Rate Contract that is not
entered into in connection with a bona fide hedging operation that provides
offsetting benefits to such Person. The amount of any Contingent Obligation
shall (subject, in the case of Guaranty Obligations, to the last sentence of
6
<PAGE> 10
the definition of "Guaranty Obligation") be deemed equal to the maximum
reasonably anticipated liability in respect thereof, and shall, with respect to
item (b)(iv) of this definition be marked to market on a current basis.
"Contractual Obligation" of any Person shall mean, any indenture, note,
lease, loan agreement, security, deed of trust, mortgage, security agreement,
guaranty, instrument, contract, agreement or other form of contractual
obligation or undertaking to which such Person is a party or by which such
Person or any of its property is bound.
"Credit Documents" shall mean and include this Agreement, the Notes and
the Agent's Fee Letter; all other documents, instruments and agreements
delivered to Agent or any Lender pursuant to Paragraph 3.01; and all other
documents, instruments and agreements required to be delivered by Borrower or
any of its Subsidiaries to Agent or any Lender in connection with this Agreement
on or after the date of this Agreement.
"Credit Event" shall mean the making of any Loan; or the selection of
a new Interest Period for any LIBOR Loan.
"Debt Service Coverage Ratio" shall mean, with respect to Borrower for
any period, the ratio, determined on a consolidated basis in accordance with
GAAP, of:
(a) The Adjusted Net Income of Borrower for such period;
to
(b) The sum of (i) all Interest Expenses of Borrower and its
Subsidiaries accruing during such period, (ii) all rental expenses of
Borrower and its Subsidiaries accruing during such period, and (iii)
all payments of principal (or, in the case of Capital Leases, amounts
attributable to principal) of Funded Indebtedness paid or scheduled to
be paid by Borrower and its Subsidiaries during such period.
"Default" shall mean an Event of Default or any event or circumstance
not yet constituting an Event of Default which, with the giving of any notice or
the lapse of any period of time or both, would become an Event of Default.
"Defaulting Lender" shall mean a Lender which has failed to fund its
portion of any Borrowing which it is required to fund under this Agreement
and has continued in such failure for three (3) Business Days after written
notice from Agent.
7
<PAGE> 11
"Dollars" and "$" shall mean the lawful currency of the United States
of America and, in relation to any payment under this Agreement, same day or
immediately available funds.
"Domestic Lending Office" shall mean, with respect to any Lender, (a)
initially, its office designated as such in Schedule I (or, in the case of any
Lender which becomes a Lender by an assignment pursuant to Subparagraph 8.05(c),
its office designated as such in the applicable Assignment Agreement) and (b)
subsequently such other office or offices as such Lender may designate to Agent
as the office at which such Lender's Base Rate Loans will thereafter be
maintained and for the account of which all payments of principal of, and
interest on such Lender's Base Rate Loans will thereafter be made.
"EBITDA" shall mean, with respect to Borrower for any period, the sum,
determined on a consolidated basis in accordance with GAAP, of the following:
(a) The net income or net loss of Borrower and its
Subsidiaries for such period before provision for income taxes;
plus
(b) The sum (to the extent deducted in calculating net income
or loss in clause (a) above) of (i) all Interest Expenses of Borrower
and its Subsidiaries accruing during such period and (ii) all
depreciation and amortization expenses of Borrower and its Subsidiaries
accruing during such period;
plus
(c) In calculating EBITDA of Borrower for any period that
includes the fiscal quarter ending June 30, 1997, the lesser of (i) the
sum (to the extent deducted in calculating net income or loss in clause
(a) above) of all charges taken by Borrower during the fiscal quarter
ending June 30, 1997 in connection with the settlement by Borrower of
its patent litigation with Applied Materials, Inc. relating to
Applied's Patent No. 5,362,526, and (ii) $84,000,000;
Plus
(d) In calculating EBITDA of Borrower for any period that
includes the fiscal quarter ending June 30, 1997, the lesser of (i) the
sum (to the extent deducted in calculating net income or loss in clause
(a) above) of all charges taken by Borrower during the fiscal quarter
ending June 30, 1997 in connection with the
8
<PAGE> 12
write-off of in-process research and development charges relating to
Borrower's purchase of the Acquired Varian Assets, and (ii)
$115,000,000;
plus
(e) In calculating EBITDA of Borrower for any period that
includes the fiscal quarter ending June 30, 1997, September 30, 1997 or
December 31, 1997, the lesser of (i) the sum to the extent deducted in
calculating net income or loss in clause (a) above) of all other
non-recurring, non-cash charges taken by Borrower during the period
between the date of this Agreement and December 31, 1997, and (ii)
$40,000,000.
"Eligible Assignee" shall mean (a) a commercial bank organized under
the laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100,000,000; (b) a commercial bank organized
under the laws of any other country which is a member of the organization for
Economic Cooperation and Development (the "OECD"), or a political subdivision of
any such country, and having a combined capital and surplus of at least
$100,000,000, provided that such bank is acting through a branch or agency
located in the United States; or (c) a Person that is primarily engaged in the
business of commercial banking and that is (i) a Subsidiary of a Lender, (ii) a
Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of
which a Lender is a Subsidiary.
"Employee Benefit Plan" shall mean any employee benefit plan within the
meaning of section 3(3) of ERISA maintained or contributed to by Borrower or any
ERISA Affiliate, other than a Multiemployer Plan.
"Environmental Laws" shall mean the Clean Air Act, 42 U.S.C. Section
7401 et seq; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et
seq; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901
et seq; the Comprehensive Environment Response, Compensation and Liability Act
of 1980 (including the Superfund Amendments and Reauthorization Act of 1986,
"CERCLA"), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act, 29 U.S.C.
Section 651; the Emergency Planning and Community Right-to-Know Act of 1986, 42
U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of 1977, 30 U.S.C.
Section 801 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f et
seq.; and all other Governmental Rules relating to the protection of human
health and the environment, including all Governmental Rules pertaining to
reporting, licensing, permitting, transportation, storage, disposal,
investigation, and
9
<PAGE> 13
remediation of emissions, discharges, releases, or threatened releases of
Hazardous Materials into the air, surface water, groundwater, or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of Hazardous Materials.
"Equity Securities" of any Person shall mean (a) all common stock,
preferred stock, participations, shares, partnership interests or other equity
interests in and of such Person (regardless of how designated and whether or not
voting or non-voting) and (b) all warrants, options and other rights to acquire
any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may from time to time be amended or supplemented, including any
rules or regulations issued in connection therewith.
"ERISA Affiliate" shall mean any Person which is treated as a single
employer with Borrower under Section 414 of the IRC.
"Euro-Dollar Lending Office" shall mean, with respect to any Lender,
(a) initially, its office designated as such in Schedule I (or, in the case of
any Lender which becomes a Lender by an assignment pursuant to Subparagraph
8.05(c), its office designated as such in the applicable Assignment Agreement)
and (b) subsequently, such other office or offices as such Lender may designate
to Agent as the office at which such Lender's LIBOR Loans will thereafter be
maintained and for the account of which all payments of principal of, and
interest on, such Lender's LIBOR Loans will thereafter be made.
"Event of Default" shall have the meaning given to that term in
Paragraph 6.01.
"Federal Funds Rate" shall mean, for any day, the rate per annum set
forth in the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Board (including any
such successor publication, "H.15 (519)") for such day opposite the caption
"Federal Funds (Effective)". If on any relevant day, such rate is not yet
published in H.15 (519), the rate for such day shall be the rate set forth in
the daily statistical release designated as the Composite 3:30 p.m. Quotations
for U.S. Government Securities, or any successor publication, published by the
Federal Reserve Bank of New York (including any such successor publication, the
"Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds
Effective Rate". If on any relevant day, such rate is not yet published in
either H.15 (519) or the Composite 3:30 p.m. Quotations, the rate for such day
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<PAGE> 14
shall be the arithmetic means, as determined by Agent, of the rates quoted to
Agent for such day by three (3) Federal funds brokers of recognized standing
selected by Agent.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
"Financial Statements" shall mean, with respect to any accounting
period for any Person, statements of income, shareholders' equity and cash flows
of such Person for such period, and a balance sheet of such Person as at the end
of such period, setting forth in each case-in comparative form figures for the
corresponding period in the preceding fiscal year if such period is less than a
full fiscal year or, if such period is a full fiscal year, corresponding figures
from the preceding annual audit, all prepared in reasonable detail and in
accordance with GAAP.
"Funded Indebtedness" shall mean of any Person shall mean, without
duplication:
(a) All obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments and all other obligations of
such Person for borrowed money (including obligations to repurchase
receivables and other assets sold with recourse);
(b) All obligations of such Person for the deferred purchase
price of property or services (including obligations under letters of
credit and other credit facilities which secure or finance such
purchase price and obligations under synthetic leases), other than
trade payables incurred by such Person in the ordinary course of its
business on ordinary terms and not overdue;
(c) All obligations of such Person under conditional sale or
other title retention agreements with respect to property acquired by
such Person (to the extent of the value of such property if the rights
and remedies of the seller or lender under such agreement in the event
of default are limited solely to repossession or sale of such
property); and
(d) All obligations of such Person as lessee under or with
respect to Capital Leases.
"Funded Indebtedness/Capital Ratio" shall mean, with respect to
Borrower at any time, the ratio, determined on a consolidated basis in
accordance with GAAP, of:
(a) The Funded Indebtedness of Borrower and its Subsidiaries
at such time;
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<PAGE> 15
to
(b) The sum of (i) the Funded Indebtedness of Borrower and its
Subsidiaries at such time, plus (ii) the Tangible Net Worth of Borrower
and its Subsidiaries at such time.
"Funded Indebtedness/EBITDA Ratio" shall mean, with respect to Borrower
for any consecutive four-fiscal quarter period, the ratio, determined on a
consolidated basis in accordance with GAAP, of:
(a) The Funded Indebtedness of Borrower and its Subsidiaries
on the last day of such period; to
(b) The EBITDA of Borrower and its Subsidiaries for such
period.
"GAAP" shall mean generally accepted accounting principles and
practices as in effect in the United States of America from time to time,
consistently applied.
"Governmental Authority" shall mean any domestic or foreign national,
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of the foregoing, or any other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, without limitation, the
Federal Deposit Insurance Corporation, the Federal Reserve Board, the
Comptroller of the Currency, any central bank or any comparable authority.
"Governmental Charges" shall mean, with respect to any Person, all
levies, assessments, fees, claims or other charges imposed by any Governmental
Authority upon such Person or any of its property or otherwise payable by such
Person.
"Governmental Rule" shall mean any law, rule, regulation, ordinance,
order, code interpretation, judgment, decree, directive, guidelines, policy or
similar form of decision of any Governmental Authority.
"Guaranty Obligation" shall mean, with respect to any Person, any
direct or indirect liability of that Person with respect to any indebtedness,
lease, dividend, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person, whether or not contingent, (a) to purchase,
repurchase or otherwise acquire such primary obligations or any Property
constituting direct or indirect security therefor, or (b) to advance or provide
funds
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<PAGE> 16
(i) for the payment or discharge of any such primary obligation, or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet item, level of income
or financial condition of the primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (d) otherwise to assure or hold harmless the holder
of any such primary obligation against loss in respect thereof. The amount of
any Guaranty Obligation shall be deemed equal to the stated or determinable
amount of the primary obligation in respect of which such Guaranty Obligation is
made or, if not stated or if indeterminable, the maximum reasonably anticipated
liability in respect thereof.
"Hazardous Materials" shall mean all materials, substances and wastes
which are classified or regulated as "hazardous," "toxic" or similar
descriptions under any Environmental Law or which are hazardous, toxic, harmful
or dangerous to human health.
"Indebtedness" of any Person shall mean, without duplication:
(a) All obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments and all other obligations
of-such Person for borrowed money (including obligations to repurchase
receivables and other assets sold with recourse);
(b) All obligations of such Person for the deferred purchase
price of property or services (including obligations under letters of
credit and other credit facilities which secure or finance such
purchase price and obligations under "synthetic" leases);
(c) All obligations of such Person under conditional sale or
other title retention agreements with respect to property acquired by
such Person (to the extent of the value of such property if the rights
and remedies of the seller or lender under such agreement in the event
of default are limited solely to repossession or sale of such
property);
(d) All obligations of such Person as lessee under or with
respect to Capital Leases;
(e) All non-contingent payment or reimbursement obligations of
such Person under or with respect to Surety Instruments;
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<PAGE> 17
(f) All net obligations of such Person, contingent or
otherwise, under or with respect to Rate Contracts;
(g) All Guaranty Obligations of such Person With respect to
the obligations of other Persons of the types described in clauses (a)
- (f) above and all other Contingent Obligations of such Person; and
(h) All obligations of other Persons of the types described in
clauses (a) - (f) above to the extent secured by (or for which any
holder of such obligations has an existing right, contingent or
otherwise, to be secured by) any Lien in any property (including
accounts and contract rights) of such Person, even though such Person
has not assumed or become liable for the payment of such obligations.
"Interest Account" shall have the meaning given to that term in
Subparagraph 2.11(b).
"Interest Expenses" shall mean, with respect to any Person for any
period, the sum, determined on a consolidated basis in accordance with GAAP, of
(a) all interest accruing on the Indebtedness of such Person during such period
(including, without limitation, interest attributable to Capital Leases) plus
(b) all fees in respect of outstanding letters of credit payable by such Person
and accruing during such period.
"Interest Period" shall mean, with respect to any LIBOR Loan, the time
period selected by Borrower pursuant to Paragraph 2.02 which commences on the
first day of such Loan or the effective date of any conversion and ends on the
last day of such time period, and thereafter, each subsequent time period
selected by Borrower pursuant to Paragraph 2.04 which commences on the last day
of the immediately preceding time period and ends on the last day of that time
period.
"Investment" of any Person shall mean any loan or advance of funds by
such Person to any other Person (other than advances to employees of such Person
for moving and travel expenses, drawing accounts and similar expenditures in the
ordinary course of business), any purchase or other acquisition of any Equity
Securities or Indebtedness of any other Person, any capital contribution by such
Person to or any other investment by such Person in any other Person (including
any Guaranty Obligations of such Person and any indebtedness of such Person of
the type described in clause (h) of the definition of "Indebtedness" on behalf
of any other Person); provided, however, that Investments shall not include (a)
accounts receivable or other indebtedness owed by customers of such Person which
are current assets, not overdue and arose from sales of inventory in the
ordinary
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<PAGE> 18
course of such Person's business or (b) prepaid expenses of such Person incurred
and prepaid in the ordinary course of business.
"IRC" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Lenders" shall have the meaning given to that term in clause (2) of
the introductory paragraph hereof.
"LIBO Rate" shall mean with respect to any Interest Period for the
LIBOR Loans in any Borrowing consisting of LIBOR Loans, a rate per annum equal
to the quotient of (a) the arithmetic mean (rounded upward if necessary to the
nearest 1/16 of one percent) of the rates per annum appearing on the Telerate
Page 3750 (or any successor publication) on the second Business Day prior to the
first day of such Interest Period at or about 11:00 A.M. (London time) (for
delivery on the first day of such Interest Period) for a term comparable to such
Interest Period, divided by (b) one minus the Reserve Requirement for such Loans
in effect from time to time. If for any reason rates are not available as
provided in clause (a) of the preceding sentence, the rate to be used in
clause (a) shall be the arithmetic mean (rounded upward if necessary to the
nearest 1/16 of one percent) of the rates per annum at which Dollar deposits are
offered by each of the Reference Banks to prime banks in the London interbank
market on the second Business Day prior to the first day of such Interest Period
at or about 11:00 A.M. (London time) (for delivery on the first day of such
Interest Period) in an amount substantially equal to such Reference Bank's LIBOR
Loan in such Borrowing and for a term comparable to such Interest Period. The
LIBO Rate shall be adjusted automatically as to all LIBOR Loans then outstanding
as of the effective date of any change in the Reserve Requirement.
"Lien" shall mean, with respect to any property, any security interest,
mortgage, pledge, lien, charge or other encumbrance in, of, or on such property
or the income therefrom, including, without limitation, the interest of a vendor
or lessor under a conditional sale agreement, Capital Lease or other title
retention agreement, or any agreement to provide any of the foregoing, and the
filing of any financing statement or similar instrument under the Uniform
Commercial Code or comparable law of any jurisdiction.
"LIBOR Loan" shall mean, at any time, a Loan which then bears interest
as provided in Subparagraph 2.03(b).
"Loan" shall have the meaning given to that term in Paragraph 2.01.
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<PAGE> 19
"Margin Stock" shall have the meaning given to that term in Regulation
issued by the federal Reserve Board, as amended from time to time, and any
Successor regulation thereto.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, assets, operations, prospects or financial or other condition of
Borrower and its Subsidiaries, taken as a whole; (b) the ability of Borrower to
pay or perform the obligations in accordance with the terms of this Agreement
and the other Credit Documents; or (c) the ability of Agent or any Lender to
exercise any of its rights or remedies under this Agreement, the other Credit
Documents or any related document, instrument or agreement.
"Material Subsidiary" shall mean, as of any date, each Subsidiary of
Borrower whose assets on the last day of the immediately preceding fiscal year
equalled or exceeded five percent (5%) of the consolidated total assets of
Borrower and all of its Subsidiaries on such day. As used herein, "assets" shall
mean the net book value of assets calculated in accordance with GAAP.
"Maturity" shall mean, with respect to any Loan, interest, fee or other
amount payable by Borrower under this Agreement or the other Credit Documents,
the date such Loan, interest, fee or other amount becomes due, whether upon the
stated maturity or due date, upon acceleration or otherwise.
"Maturity Date" shall mean June 28, 2002.
"Multiemployer Plan" shall mean any multiemployer plan within the
meaning of section 3(37) of ERISA maintained or contributed to by Borrower or
any ERISA Affiliate.
"Net Proceeds" shall mean, with respect to any sale or issuance of any
Equity Security or any other security by any Person, the aggregate consideration
received by such Person from such sale or issuance less the sum of the actual
amount of the customary fees and commissions payable to Persons other than such
Person or any Affiliate of such Person, the reasonable legal expenses and the
other customary costs and expenses directly related to such sale or issuance
that are to be paid by such Person.
"Note" shall have the meaning given to that term in Subparagraph
2.11(a).
"Notice of Borrowing" shall have the meaning given to that term in
Paragraph 2.02.
"Notice of Interest Period Selection" shall have the meaning given to
that term in Subparagraph 2.04 (b).
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<PAGE> 20
"Obligations" shall mean and include, with respect to Borrower, all
loans, advances, debts, liabilities, and obligations, howsoever arising, owed by
Borrower to Agent or any Lender of every kind and description (whether or not
evidenced by any note or instrument and whether or not for the payment of
money), direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising pursuant to the terms of this Agreement or any of
the other Credit Documents, including without limitation all interest, fees,
charges, expenses, attorneys' fees and accountants' fees chargeable to Borrower
or payable by Borrower hereunder or thereunder.
"Participant" shall have the meaning given to that term in Subparagraph
8.05(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Indebtedness" shall have the meaning given to that term in
Subparagraph 5.02(a).
"Permitted Liens" shall have the meaning given to that term in
Subparagraph 5.02(b).
"Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, an
unincorporated association, a limited liability company, a joint venture, a
trust or other entity or a Governmental Authority.
"Pricing Grid" shall mean Schedule 1.01.
"Pricing Period" shall mean (a) the period commencing on the date of
this Agreement and ending on March 31, 1998, (b) the two-calendar month period
commencing April 1, 1998 and ending May 31, 1998, (c) the three-calendar month
period commencing June 1, 1998 and ending August 31, 1998 and (c) each
consecutive three-calendar month period thereafter which commences on the day
following the last day of the immediately preceding three-calendar month period
and ends on the last day of that time period.
"Prime Rate" shall mean the per annum rate publicly announced by ABN
AMRO from time to time at its Chicago Office. The Prime Rate is determined by
ABN AMRO from time to time as a means of pricing credit extensions to some
customers and is neither directly tied to any external rate of interest or index
nor necessarily the lowest rate of interest charged by ABN AMRO at any given
time for any particular class of customers or credit extensions. Any change in
the Base Rate resulting from a change in the Prime Rate shall become effective
on the Business Day on which each change in the Prime Rate occurs.
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<PAGE> 21
"Proportionate Shares" shall mean, with respect to each Lender, the
percentage set forth under the caption "Proportionate Share" opposite such
Lender's name on Schedule I, or, if changed, such percentage as may be set forth
for such Lender in the Register.
"Quick Ratio" shall mean, with respect to Borrower at any time, the
ratio, determined on a consolidated basis in accordance with GAAP, of:
(a) The remainder of (i) the sum (without duplication) of all
cash, Cash Equivalents and net accounts receivable of Borrower and its
subsidiaries at such time, minus (ii) the sum (without duplication) of
all such cash, Cash Equivalents and net accounts receivable that are
subject to a Lien or are otherwise restricted;
to
(b) The current liabilities of Borrower and its Subsidiaries
at such time (including current liabilities of Borrower and its
Subsidiaries in connection with synthetic leases and other off-balance
sheet Funded Indebtedness).
"Rate Contracts" shall mean swap agreements (as that term is defined in
Section 101 of the Federal Bankruptcy Reform Act of 1978, as amended) and any
other agreements or arrangements designed to provide protection against
fluctuations in interest or currency exchange rates.
"Reference Banks" shall mean ABN AMRO or, at any time other banks are
Lenders, ABN AMRO and an additional Lender or additional Lenders (but not more
than two additional Lenders) acceptable to Borrower and Agent.
"Related Lease" shall mean the Lease Agreement dated as of June 9, 1997
between Borrower, as lessee, and Lease Plan North America, Inc., as lessor.
"Related Lease Documents" shall mean the Related Lease, the Related
Lease Participation Agreement and the other "Operative Documents," as such term
is defined in the Related Lease Participation Agreement.
"Related Lease Obligations" shall mean the "Lessee Obligations," as
such term is defined in the Related Lease Participation Agreement.
"Related Lease Participation Agreement" shall mean the Participation
Agreement dated as of June 9, 1997 among Borrower, Lease Plan North America,
Inc., the financial
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<PAGE> 22
institutions from time to time parties thereto, and ABN AMRO as agent for such
financial institutions.
"Register" shall have the meaning given to that term in Subparagraph
8.05 (d).
"Reportable Event" shall have the meaning given to that term in ERISA
and applicable regulations thereunder.
"Required Lenders" shall mean (a) at any time Loans are outstanding,
Lenders holding sixty-six and two-thirds percent (66 2/3%) or more of the
aggregate principal amount of such Loans and (b) at any time no Loans are
outstanding, Lenders whose Proportionate Shares equal or exceed sixty-six and
two-thirds percent (66 2/3%).
"Requirement of Law" applicable to any Person shall mean (a) the
Articles or Certificate of Incorporation and By-laws, Partnership Agreement or
other organizational or governing documents of such Person, (b) any Governmental
Rule applicable to such Person, (c) any license, permit, approval or other
authorization granted by any Governmental Authority to or for the benefit of
such Person or (d) any judgment, decision or determination of any Governmental
Authority or arbitrator, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"Reserve Requirement" shall mean, with respect to any day in an
Interest Period for a LIBOR Loan, the aggregate of the reserve requirement rates
(expressed as a decimal) in effect on such day for eurocurrency funding
(currently referred to as "Eurocurrency liabilities" in Regulation D of the
Federal Reserve Board) maintained by a member bank of the Federal Reserve
System. As used herein, the term "reserve requirement" shall include, without
limitation, any basic, supplemental or emergency reserve requirements imposed on
Lender by any Governmental Authority.
"Senior Officer" shall mean, with respect to Borrower, the Chief
Executive Officer, the Chief Financial Officer, the Executive Vice President of
Operations, the Executive Vice President of Sales or the Treasurer of Borrower.
"Solvent" shall mean, with respect to any Person on any date, that on
such date (a) the fair value of the property of such Person is greater than the
fair value of the liabilities (including, without limitation, contingent,
liabilities) of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such
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<PAGE> 23
Person's ability to pay as such debts and liabilities mature and (d) such Person
is not engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person's property would constitute an
unreasonably small capital.
"Subsidiary" of any Person shall mean (a) any corporation of which more
than 50% of the issued and outstanding Equity Securities having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by one or
more of such Person's other Subsidiaries, (b) any partnership, joint venture, or
other association of which more than 50% of the equity interest having the power
to vote, direct or control the management of such partnership, joint venture or
other association is at the time owned and controlled by such Person, by such
Person and one or more of the other Subsidiaries or by one or more of such
Person's other Subsidiaries or (c) any other Person included in the Financial
Statements of such Person on a consolidated basis.
"Surety Instruments" shall mean all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"Tangible Net Worth" shall mean, with respect to Borrower at any time,
the remainder at such time, determined on a consolidated basis in accordance
with GAAP, of (a) the total assets of Borrower and its Subsidiaries, minus (b)
the sum (without limitation and without duplication of deductions) of (i) the
total liabilities of Borrower and its Subsidiaries, (ii) all reserves
established by Borrower and its Subsidiaries for anticipated losses and expenses
(to the extent not deducted in calculating total assets in Clause (a) above) and
(iii) all intangible assets of Borrower and its Subsidiaries (to the extent
included in calculating total assets in clause (a) above), including, without
limitation, goodwill (including any amounts, however designated on the balance
sheet, representing the cost of acquisition of businesses and investments in
excess of underlying tangible assets), trademarks, trademark rights, trade name
rights, copyrights, patents, patent rights, licenses, Unamortized debt discount,
marketing expenses, organizational expenses, non-compete agreements and deferred
research and development.
"Taxes" shall have the meaning given to such term in Subparagraph
2.15(a).
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"Total Commitment" shall mean, at any time, One Hundred
Twenty-Five Million Dollars ($125,000,000) or, if such amount is
reduced pursuant to Subparagraph 2.07(a), the amount to which so
reduced and in effect at such time.
"Type" shall mean, with respect to any Loan or Borrowing at
any time, the classification of such Loan or Borrowing by the type of
interest rate it then bears, whether an interest rate based upon the
Base Rate or the LIBOR Rate.
"Unused Commitment" shall mean, at any time, the remainder of
(a) the Total Commitment at such time minus (b) the aggregate principal
amount of all Loans outstanding at such time.
"Varian Purchase Agreement" shall mean the Asset Purchase
Agreement dated as of May 7, 1997 between Varian Associates, Inc. and
Borrower.
1.02. GAAP. Unless otherwise indicated in this Agreement or any other
Credit Document, all accounting terms used in this Agreement or any other Credit
Document shall be construed, and all accounting and financial computations
hereunder or thereunder shall be computed, in accordance with GAAP. If Borrower
changes its accounting practices during the term of this Agreement such that any
covenants contained herein would then be calculated in a different manner or
with different components, Borrower, the Lenders and Agent agree to negotiate in
good faith to amend this Agreement in such respects as are necessary to conform
those covenants as criteria for evaluating Borrower's financial condition to
substantially the same criteria as were effective prior to such change in GAAP;
provided, however, that, until Borrower, the Lenders and Agent so amend this
Agreement, all such covenants shall be calculated in accordance with Borrower's
accounting practices as in effect on the date of this Agreement.
1.03. Headings. Headings in this Agreement and each of the other Credit
Documents are for convenience of reference only and are not part of the
substance hereof or thereof.
1.04. Plural Terms. All terms defined in this Agreement or any other
Credit Document in the singular form shall have comparable meanings when used in
the plural form and vice versa.
1.05. Time. All references in this Agreement and each of the other
Credit Documents to a time of day shall mean San Francisco, California time,
unless otherwise indicated.
1.06. Governing Law. This Agreement and each of the other Credit
Documents (unless otherwise provided in such other Credit Documents) shall be
governed by and construed in
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accordance with the laws of the State of California without reference to
conflicts of law rules.
1.07. Construction. This Agreement is the result of negotiations among,
and has been reviewed by, Borrower, each Lender, Agent and their respective
counsel. Accordingly, this Agreement shall be deemed to be the product of all
parties hereto, and no ambiguity shall be construed in favor of or against
Borrower, any Lender or Agent.
1.08. Entire Agreement. This Agreement and each of the other Credit
Documents, taken together, constitute and contain the entire agreement of
Borrower, the Lenders and Agent and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications among the
parties, whether written or oral, respecting the subject matter hereof
(including the commitment letter dated as of May 9, 1997 between Borrower and
ABN AMRO).
1.09. Calculation of Interest and Fees. All calculations of interest
and fees under this Agreement and the other Credit Documents for any period (a)
shall include the first day of such period and exclude the last day of such
period and (b) shall be calculated on the basis of a year of 360 days for actual
days elapsed, except that during any period any Loan bears interest based upon
the Prime Rate, such interest shall be calculated on the basis of a year of 365
or 366 days, as appropriate, for actual days elapsed.
1.10. Other Interpretive Provisions. References in this Agreement to
"Recitals," "Sections," "Paragraphs," "Subparagraphs," "Exhibits" and
"Schedules" are to recitals, sections, paragraphs, subparagraphs, exhibits and
schedules herein and hereto unless otherwise indicated. References in this
Agreement and each of the other Credit Documents to any document, instrument or
agreement (a) shall include all exhibits, schedules and other attachments
thereto, (b) shall include all documents, instruments or agreements issued or
executed in replacement thereof, and (c) shall mean such document, instrument or
agreement, or replacement or predecessor thereto, as amended, modified and
supplemented from time to time and in effect at any given time. References in
this Agreement and each of the other Credit Documents to any statute or other
law (i) shall include any successor statute or law, (ii) shall include all rules
and regulations promulgated under such statute or law (or any successor statute
or law), and (iii) shall mean such statute or law (or successor statute or law)
and such rules and regulations, as amended, modified, codified or reenacted from
time to time and in effect at any given time. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement or any other
Credit Document shall refer to this Agreement or such other Credit Document, as
the case may be, as a whole and not to any particular provision of this
Agreement or such other Credit Document, as the case may be. The words
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"include" and "including" and words of similar import when used in this
Agreement or any other Credit Document shall not be construed to be limiting or
exclusive. In the event of any inconsistency between the terms of this Agreement
and the terms of any other Credit Document, the terms of this Agreement shall
govern.
SECTION II. CREDIT FACILITY.
2.01. Revolving Loans. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to advance to Borrower from time to time
during the period beginning on the Closing Date and ending on the Maturity Date
such loans as Borrower may request under this Section II (individually, a
"Loan"); provided, however, that,(a) the aggregate principal amount of all Loans
made by such Lender at any time outstanding shall not exceed such Lender's
Commitment at such time and (b) the aggregate principal amount of all Loans made
by all Lenders at any time outstanding shall not exceed the Total Commitment at
such time. All Loans shall be made on a pro rata basis by the Lenders in
accordance with their respective Proportionate Shares, with each Borrowing to be
comprised of a Loan by each Lender equal to such Lender's Proportionate Share of
such Borrowing. Except as otherwise provided herein, Borrower may borrow, repay
and reborrow Loans until the Maturity Date.
2.02. Notice of Borrowing. Borrower shall request each Borrowing by
delivering to Agent an irrevocable written notice in the form of Exhibit A,
appropriately completed (a "Notice of Borrowing"), which specifies, among other
things:
(a) Amount. The principal amount of the requested Borrowing,
which shall be in the amount of (A) $1,000,000 or an integral multiple
of $100,000 in excess thereof in the case of a Borrowing consisting of
Base Rate Loans; or (B) $2,500,000 or an integral multiple of $500,000
in excess thereof in the case of a Borrowing consisting of LIBOR Loans;
(b) Type. Whether the requested Borrowing is to consist of
Base Rate Loans or LIBOR Loans;
(c) Interest Period. If the requested Borrowing is to consist
of LIBOR Loans, the initial Interest Periods selected by Borrower for
such Loans in accordance with Subparagraph 2.04; and
(d) Date. The date of the requested Borrowing, which shall be
a Business Day;
Provided, however, that all Borrowings made during the period commencing on the
date of this Agreement and ending three (3) Business Days thereafter shall
consist solely of Base Rate Loans.
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Borrower shall give each Notice of Borrowing to Agent at least three (3)
Business Days before the date of the requested Borrowing in the case of a
Borrowing consisting of LIBOR Loans and at least one (1) Business Day before the
date of the requested Borrowing in the case of a Borrowing consisting of Base
Rate Loans. Each Notice of Borrowing shall be delivered by first-class mail or
facsimile to Agent at the office or facsimile number and during the hours
specified in Paragraph 8.01; provided, however, that Borrower shall promptly
deliver to Agent the original of any Notice of Borrowing initially delivered by
facsimile. Agent shall promptly notify each Lender of the contents of each
Notice of Borrowing and of the amount and Type of (and, if applicable, the
Interest Period for) each Loan to be made by such Lender as part of
the requested Borrowing.
2.03. Interest Rates. Borrower shall pay interest on the unpaid
principal amount of each Loan from the date of such Loan until the maturity
thereof, at one of the following rates per annum:
(a) Base Rate Loans. During such periods as such Loan is a
Base Rate Loan, at a rate per annum equal to the Base Rate plus the
Applicable margin therefor, such rate to change from time to time as
the Base Rate or Applicable Margin shall change; and
(b) LIBOR Loans. During such periods as such Loan is a LIBOR
Loan, at a rate per annum equal at all times during each Interest
Period for such LIBOR Loan to the LIBO Rate for such Interest Period
plus the Applicable Margin therefor, such rate to change from time to
time during such Interest Period as the Applicable Margin shall change.
All Loans in each Borrowing shall, at any given time prior to maturity, bear
interest at one, and only one, of the above rates. The number of Borrowings
consisting of LIBOR Loans shall not exceed five (5) at any time.
2.04. LIBOR Loan Interest Periods.
(a) Terms. The initial and each subsequent Interest Period
selected by Borrower for a LIBOR Loan shall be one (1), two (2), three
(3) or six (6) months; provided, however, that (i) any Interest Period
which would otherwise end on a day which is not a Business Day shall be
extended to the next succeeding Business Day unless such next Business
Day falls in another calendar month, in which case such Interest Period
shall end on the immediately preceding Business Day; (ii) any Interest
Period which begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the
last Business Day of a calendar month; (iii) no Interest Period shall
end after the Maturity Date; and (iv) no
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Interest Period that commences during the first three (3) months after
the date of this Agreement shall exceed one (1) month.
(b) Notice of Interest Period Selection. Borrower shall notify
Agent by an irrevocable written notice in the form of Exhibit B,
appropriately completed (a "Notice of Interest Period Selection"), at
least three (3) Business Days prior to the last day of each Interest
Period for LIBOR Loans of the Interest Period selected by Borrower for
the next succeeding Interest Period for such Loans. Each Notice of
Interest Period Selection shall be given by first-class mail or
facsimile to the office or the facsimile number and during the hours
specified in Paragraph 8.01; provided, however, that Borrower shall
promptly deliver to Agent the original of any Notice of Interest Period
Selection initially delivered by facsimile. If Borrower fails to notify
Agent of the next Interest Period for LIBOR Loans in accordance with
this Subparagraph 2.04, such Loans shall automatically convert to Base
Rate Loans on the last day of the current Interest Period therefor.
2.05. Scheduled Loan Payments. Borrower shall repay the principal
amount of the Loans on the Maturity Date. Borrower shall pay accrued interest on
the unpaid principal amount of each Loan in arrears (a) in the case of a Base
Rate Loan, on the last day in each March, June, September and December, (b) in
the case of a LIBOR Loan, on the last day of each Interest Period therefor (and,
if any such Interest Period is longer than three (3) months, every three (3)
months); and (c) in the case of all Loans, upon prepayment (to the extent
thereof) and at maturity.
2.06. Purpose. Borrower shall use the proceeds of the Loans to pay all
or a portion of the purchase price for the Acquired Varian Assets and for
Borrower's general corporate needs.
2.07. Commitment Reductions. Etc,
(a) Reduction or Cancellation of Commitments. Borrower may,
upon five (5) Business Days written notice to Agent, permanently reduce
the Total Commitment by the amount of Five Million Dollars ($5,000,000)
or an integral multiple thereof or cancel the Total Commitment in its
entirety; provided, however, that:
(i) Borrower may not reduce the Total Commitment
prior to the Maturity Date, if, after giving effect to such
reduction, the aggregate principal amount of Loans then
outstanding would exceed the Total Commitment; and
(ii) Borrower may not cancel the Total Commitment
prior to the Maturity Date, if, after giving effect to
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such cancellation, any Loan would then remain outstanding.
(b) Effect Of Commitment Reductions. From the effective date
of any reduction of the Total Commitment, the Commitment Fees payable
pursuant to Subparagraph 2.08(b) shall be computed on the basis of the
Total Commitment as so reduced. Once reduced or cancelled, the Total
Commitment may not be increased or reinstated without the prior written
consent of all Lenders. Any reduction of the Total Commitment pursuant
to Subparagraph 2.07(a) shall be applied ratably to reduce each
Lender's Commitment in accordance with clause (i) of Subparagraph
2.13(a).
2.08. Fees.
(a) Agent's Fee. Borrower shall pay to Agent, for its own
account, agent's fees and other compensation in the amounts and at the
times set forth in the Agent's Fee Letter.
(b) Commitment Fees. Borrower shall pay to Agent, for the
ratable benefit of the Lenders as provided in clause (iv) of
Subparagraph 2.13(a), nonrefundable commitment fees (the "Commitment
Fees") equal to the Commitment Fee Percentage on the daily average
Unused Commitment for the period beginning on the earlier of June 16,
1997 and the Closing Date and ending on the Maturity Date. The
Commitment Fee Percentage shall be determined as provided in the
Pricing Grid and, as provided in the Pricing Grid, may change for each
Pricing Period. Borrower shall pay the Commitment Fees in arrears on
the last day in each March, June, September and December and on the
Maturity Date (or if the Total Commitment is cancelled on a date prior
to the Maturity Date, on such prior date).
2.09. Prepayments.
(a) Terms of all Prepayments. Upon the prepayment of any Loan
(whether such prepayment is an optional prepayment under Subparagraph
2.09(b), a mandatory prepayment required by Subparagraph 2,09(c) or a
mandatory prepayment required by any other provision of this Agreement
or the other Credit Documents, including, without limitation, a
prepayment upon acceleration), Borrower shall pay to the Lender which
made such Loan (i) all accrued interest to the date of such prepayment
on the amount prepaid and (ii) if such prepayment is the prepayment of
a LIBOR Loan on a day other than the last day of an Interest Period for
such LIBOR Loan, all amounts payable to such Lender pursuant to
Paragraph 2.16.
(b) Optional Prepayments. At its option, Borrower may, upon
one (1) Business Day notice to Agent in the case of Base Rate Loans and
three (3) Business Days notice to
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Agent in the case of LIBOR Loans, prepay the Loans in any Borrowing in
part, in an aggregate principal amount of $1,000,000 or an integral
multiple thereof, or in whole.
(c) Mandatory Prepayments. If, at any time, the aggregate
principal amount of all Loans then outstanding exceeds the Total
Commitment at such time, Borrower shall immediately prepay Loans in an
aggregate principal amount equal to such excess.
2.10. Other Payment Terms.
(a) Place and Manner. Borrower shall make all payments due to
each Lender or Agent hereunder by payments to Agent at Agent's office
located at the address specified in Paragraph 8.01, with each payment
due to a Lender to be for the account of such Lender and such Lender's
Applicable Lending Office. Borrower shall make all payments hereunder
in lawful money of the United States and in same day or immediately
available funds not later than 11:00 a.m. on the date due. Agent shall
promptly disburse to each Lender each payment received by Agent for the
account of such Lender.
(b) Date. Whenever any payment due hereunder shall fall due on
a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall be included
in the computation of interest or fees, as the case may be.
(c) Late Payments. If any amounts required to be paid by
Borrower under this Agreement or the other Credit Documents (including,
without limitation, principal or interest payable on any Loan, any fees
or other amounts) remain unpaid after such amounts are due, Borrower
shall pay interest on the aggregate, outstanding balance of such
amounts from the date due until those amounts are paid in full at a per
annum rate equal to the Base Rate plus two percent (2.0%), such rate to
change from time to time as the Base Rate shall change.
(d) Application of Payments. All payments hereunder shall be
applied first to unpaid fees, costs and expenses then due and payable
under this Agreement or the other Credit Documents, second to accrued
interest then due and payable under this Agreement or the other Credit
Documents and finally to reduce the principal amount of outstanding
Loans.
(e) Failure to Pay Agent. Unless Agent shall have received
notice from Borrower at least one (1) Business Day prior to the date on
which any payment is due to the Lenders hereunder that Borrower will
not make such payment in full, Agent shall be entitled to assume that
Borrower has made or
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will make such payment in full to Agent on such date and Agent may, in
reliance upon such assumption, cause to be paid to the Lenders on such
due date an amount equal to the amount then due such Lenders. If and to
the extent Borrower shall not have so made such payment in full to
Agent, each such Lender shall repay to Agent forthwith on demand such
amount distributed to such Lender together with interest thereon, for
each day from the date such amount is distributed to such Lender until
the date such Lender repays such amount to Agent, at (i) the Federal
Funds Rate for the first three (3) days and (ii) the per annum rate
applicable to Base Rate Loans thereafter. A certificate of Agent
submitted to any Lender with respect to any amounts owing by such
Lender under this Subparagraph 2.10(e) shall be conclusive absent
manifest error.
2.11. Notes and Interest Account.
(a) Notes. The obligation of Borrower to repay the Loans made
by each Lender and to pay interest thereon at the rates provided herein
shall be evidenced by a promissory note in the form of Exhibit C
(individually, a "Note") which note shall be (i) payable to the order
of such Lender, (ii) in the amount of such Lender's Commitment, (iii)
dated the Closing Date and (iv) otherwise appropriately completed.
Borrower authorizes each Lender to record on the schedule annexed to
such Lender's Note the date and amount of each Loan made by such Lender
and of each payment or prepayment of principal thereon made by
Borrower, and agrees that all such notations shall constitute prima
facie evidence of the matters noted; provided, however, that any
failure by a Lender to make any such notation shall not affect the
Obligations. Borrower further authorizes each Lender to attach to and
make a part of such Lender's Note continuations of the schedule
attached thereto as necessary.
(b) Interest Account. Borrower authorizes Agent to record in
an account or accounts maintained by Agent on its books (the "Interest
Account") (i) the interest rates applicable to all Loans and the
effective dates of all changes thereto, (ii) the Interest Period for
each LIBOR Loan, (iii) the date and amount of each principal and
interest payment on each Loan and (iv) such other information as Agent
may determine is necessary for the computation of interest payable by
Borrower hereunder.
2.12. Loan Funding.
(a) Lender Funding and Disbursement to Borrower. Each Lender
shall, before 11:00 a.m. on the date of each Borrowing, make available
to Agent at Agent's office specified in Paragraph 8.01, in same day or
immediately available funds, such Lender's Proportionate Share of such
Borrowing. After Agent's receipt of such funds and upon
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satisfaction of the applicable conditions set forth in Section III,
Agent shall promptly disburse such funds to Borrower in same day or
immediately available funds. Unless otherwise directed by Borrower,
Agent shall disburse the proceeds of each Borrowing by disbursement to
the account or accounts specified in the applicable Notice of
Borrowing.
(b) Lender Failure to Fund. Unless Agent shall have received
notice from a Lender prior to the date of any Borrowing that such
Lender will not make available to Agent such Lender's Proportionate
Share of such Borrowing, Agent shall be entitled to assume that such
Lender has made or will make such portion available to Agent on the
date of such Borrowing in accordance with Subparagraph 2.12(a), and
Agent may on such date, in reliance upon such assumption, disburse or
otherwise credit to Borrower a corresponding amount. If any Lender does
not make the amount of its Proportionate Share of any Borrowing
available to Agent on or prior to the date of such Borrowing, such
Lender shall pay to Agent, on demand, interest which shall accrue on
such amount from the date of such Borrowing until such amount is paid
to Agent at rates equal to (i) the daily Federal Funds Rate during the
period from the date of such Borrowing through the third Business Day
thereafter and (ii) the rate applicable to Base Rate Loans thereafter.
A certificate of Agent submitted to any Lender with respect to any
amounts owing under this Subparagraph 2.12(b) shall be conclusive
absent manifest error. If the amount of any Lender's Proportionate
Share of any Borrowing is not paid to Agent by such Lender within three
(3) Business Days after the date of such Borrowing, Borrower shall
repay such amount to Agent, on demand, together with interest thereon,
for each day from the date such amount was disbursed to Borrower until
the date such amount is repaid to Agent, at the interest rate
applicable at the time to the Loans comprising such Borrowing.
(c) Lenders' Obligations Several. The failure of any Lender to
make the Loan to be made by it as part of any Borrowing shall not
relieve any other Lender of its obligation hereunder to make its Loan
on the date of such Borrowing, but no Lender shall be obligated in any
way to make any Loan which another Lender has failed or refused to make
or otherwise be in any way responsible for the failure or refusal of
any other Lender to make any Loan required to be made by such other
Lender on the date of any Borrowing.
2.13. Pro Rata Treatment.
(a) Borrowings, commitment Reductions, Etc. Except as
otherwise provided herein:
(i) Each Borrowing and each reduction of the Total
Commitment shall be made or shared among the
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Lenders pro rata according to their respective Proportionate
Shares;
(ii) Each payment of principal of Loans in any
Borrowing shall be shared among the Lenders which made or
funded the Loans in such Borrowing pro rata according to the
respective unpaid principal amounts of such Loans so made or
funded by such Lenders;
(iii) Each payment of interest on Loans in any
Borrowing shall be shared among the Lenders which made or
funded the Loans in such Borrowing pro rata according to (A)
the respective unpaid principal amounts of such Loans so made
or funded by such Lenders and (B) the-dates on which such
Lenders so made or funded such Loans;
(iv) Each payment of Commitment Fees shall be shared
among the Lenders pro rata according to (A) their respective
Proportionate Shares and (B) in the case of each Lender which
becomes a Lender hereunder after the date hereof, the date
upon which such Lender so became a Lender;
(v) Each payment of interest (other than interest on
Loans) shall be shared among the Lenders and Agent owed the
amount upon which such interest accrues pro rata according to
(A) the respective amounts so owed such Lenders and Agent and
(B) the dates on which such amounts became owing to such
Lenders and Agent; and
(vi) All other payments under this Agreement and the
other Credit Documents shall be for the benefit of the Person
or Persons specified.
(b) Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any
right of setoff, or otherwise) on account of Loans owed to it in excess
of its ratable share of payments on account of such Loans obtained by
all Lenders entitled to such payments, such Lender shall forthwith
purchase from the other Leaders such participations in the Loans as
shall be necessary to cause such purchasing Lender to share the excess
payment ratably with each of them; provided, however, that if all or
any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase shall be rescinded and each other
Lender shall repay to the purchasing Lender the purchase price to the
extent of such recovery together with an amount equal to such other
Lender's ratable share (according to the proportion of (i) the amount
of such other Lender's required repayment to (ii) the total amount so
recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total
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amount so recovered. Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this Subparagraph
2.13(b) may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of setoff) with respect to such
participation as fully as if such Lender were the direct creditor of
Borrower in the amount of such participation.
2.14. Change of Circumstances.
(a) Inability to Determine Rates. If, on or before the first
day of any Interest Period for any LIBOR Loan, (i) any Lender shall
advise Agent that the LIBO Rate for such Interest Period cannot be
adequately and reasonably determined due to the unavailability of
funds in or other circumstances affecting the London interbank market
or (ii) any Lender shall advise Agent that the rate of interest for
such Loan does not adequately and fairly reflect the cost to such
Lender of making or maintaining such LIBOR Loan, Agent shall
immediately give notice of such condition to Borrower and the other
Lenders. After the giving of any such notice and until Agent shall
otherwise notify Borrower that the circumstances giving rise to such
condition no longer exist, Borrower's right to request the making of,
and the Lenders' obligations to make LIBOR Loans shall be suspended.
Any LIBOR Loans outstanding at the commencement of any such suspension
shall be prepaid at the end of the then current Interest Period for
such LIBOR Loans (whether from the proceeds of a Base Rate Borrowing or
otherwise), unless such suspension has then ended.
(b) Illegality. If, after the date of this Agreement, the
adoption of any Governmental Rule, any change in any Governmental Rule
or the application or requirements thereof (whether such change occurs
in accordance with the terms of such Governmental Rule as enacted, as a
result of amendment or otherwise), any change in the interpretation or
administration of any Governmental Rule by any Governmental Authority,
or compliance by any Lender with any request or directive (whether or
not having the force of law) of any Governmental Authority (a "Change
of Law") shall make it unlawful or impossible for any Lender to make or
maintain any LIBOR Loan, such Lender shall immediately notify Agent and
Borrower of such Change of Law. Upon receipt of such notice, (i)
Borrower's right to request the making and such Lender's obligation to
make LIBOR Loans shall be terminated, and (ii) Borrower shall, at the
request of such Lender, prepay any such LIBOR Loans then outstanding
(whether from the proceeds of a Base Rate Borrowing or otherwise) at
the end of the current Interest Periods for such LIBOR Loans or, if
such Lender shall notify Borrower that such Lender may not lawfully
continue to fund and maintain such LIBOR Loans, immediately. Any
prepayment of LIBOR Loans made pursuant to the preceding sentence prior
to the last day of an Interest
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Period for such LIBOR Loans shall be deemed a prepayment thereof for
Purposes of Paragraph 2.16. After an Lender notifies Agent and Borrower
of such a Change of Law and until such Lender notifies Agent and
Borrower that it is no longer unlawful or impossible for such Lender to
make or maintain a LIBOR Loan, all Loans of such Lender shall be Base
Rate Loans.
(c) Increased costs. If, after the date of this Agreement, any
Change of Law:
(i) Shall subject any Lender to any tax, duty or
other charge with respect to any LIBOR Loan, or shall change
the basis of taxation of payments by Borrower to any Lender on
such a LIBOR Loan or in respect to such a LIBOR Loan under
this Agreement (except for changes in the rate of taxation on
the overall net income of any Lender imposed by its
jurisdiction of incorporation or the jurisdiction in which its
Euro-Dollar Lending Office is located); or
(ii) Shall impose, modify or hold applicable any
reserve (excluding any Reserve Requirement or other reserve to
the extent included in the calculation of the LIBO Rate for
any Loans), special deposit or similar requirement against
assets held by, deposits or other liabilities in or for the
account of, advances or loans by, or any other acquisition of
funds by any Lender for any LIBOR Loan; or
(iii) Shall impose on any Lender any other condition
related to any LIBOR Loan or such Lender's Commitment;
And the effect of any of the foregoing is to increase the cost to such
Lender of making, issuing, renewing, or maintaining any such LIBOR Loan
or its Commitment or to reduce any amount receivable by such Lender
hereunder; then Borrower shall from time to time, within five (5)
Business Days after demand by such Lender, pay to such Lender
additional amounts sufficient to reimburse such Lender for such
increased costs or to compensate such Lender for such reduced amounts.
A certificate as to the amount of such increased costs or reduced
amounts, submitted by such Lender to Borrower shall, in the absence of
manifest error, be conclusive and binding on Borrower for all purposes.
The obligations of Borrower under this Subparagraph 2.14(c) shall
survive the payment and performance of the Obligations and the
termination of this Agreement.
(d) Capital Requirements. If, after the date of this
Agreement, any Lender determines that (i) any Change of Law affects the
amount of capital required or expected to be maintained by such Lender
or any Person controlling such
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Lender (a "Capital Adequacy Requirement") and (ii) the amount of
capital maintained by such Lender or such Person which is attributable
to or based upon the Loans, the Letters of Credit, the Commitments or
this Agreement must be increased as a result of such Capital Adequacy
Requirement (taking into account such Lender's or such Person's
policies with respect to capital adequacy), Borrower shall pay to such
Lender or such Person, within five (5) Business Days after demand of
such Lender, such amounts as such Lender or such Person shall determine
are necessary to compensate such Lender or such Person for the
increased costs to such Lender or such Person of such increased
capital. A certificate of any Lender setting forth in reasonable detail
the computation of any such increased costs, delivered by such Lender
to Borrower shall, in the absence of manifest error, be conclusive and
binding on Borrower for all purposes. The obligations of Borrower under
this Subparagraph 2.14(d) shall survive the payment and performance of
the Obligations and the termination of this Agreement.
(e) Mitigation. Any Lender which becomes aware of (i) any
Change of Law which will make it unlawful or impossible for such Lender
to make or maintain any LIBOR Loan or (ii) any Change of Law or other
event or condition which will obligate Borrower to pay any amount
pursuant to Subparagraph 2.14(c) or Subparagraph 2.14(d) shall notify
Borrower and Agent thereof as promptly as practical. If any Lender has
given notice of any such Change of Law or other event or condition and
thereafter becomes aware that such Change of Law or other event or
condition has ceased to exist, such Lender shall notify Borrower and
Agent thereof as promptly as practical. Each Lender affected by any
Change of Law which makes it unlawful or impossible for such Lender to
make or maintain any LIBOR Loan or to which Borrower is obligated to
pay any amount pursuant to Subparagraph 2.14(c) or Subparagraph 2.14(d)
shall use reasonable commercial efforts (including changing the
jurisdiction of its Applicable Lending Office) to avoid the effect of
such Change of Law or to avoid or materially reduce any amounts which
Borrower is obligated to pay pursuant to Subparagraph 2.14(c) or
Subparagraph 2.14(d) if, in the reasonable opinion of such Lender, such
efforts would not be disadvantageous to such Lender or contrary to such
Lender's normal banking practices.
2.15. Taxes on Payments.
(a) Payments Free of Taxes. All payments made by Borrower
under this Agreement and the other Credit Documents shall be made free
and clear of, and without deduction or withholding for or on account
of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any
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Governmental Authority (except net income taxes and franchise taxes in
lieu of net income taxes imposed on Agent or any Lender by its
jurisdiction of incorporation or the jurisdiction in which its
Applicable Lending Office is located) (all such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions and withholdings
being hereinafter called "Taxes"). If any Taxes are required to be
withheld from any amounts payable to Agent or any Lender hereunder or
under the other Credit Documents, the amounts so payable to Agent or
such Lender shall be increased to the extent necessary to yield to
Agent or such Lender (after payment of all Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts
specified in this Agreement and the other Credit Documents. Whenever
any Taxes are payable by Borrower, as promptly as possible thereafter,
Borrower shall send to Agent for its own account or for the account of
such Lender, as the case may be, a certified copy of an original
official receipt received by Borrower showing payment thereof. If
Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to Agent the required receipts or other
required documentary evidence, Borrower shall indemnify Agent and the
Lenders for any incremental taxes, interest or penalties that may
become payable by Agent or any Lender as a result of any such failure.
The obligations of Borrower under this Subparagraph 2.15(a) shall
survive the payment and performance of the Obligations and the
termination of this Agreement.
(b) Withholding Exemption Certificates. On or prior to the date of
the initial Borrowing or, if such date does not occur within thirty
(30) days after the date of this Agreement, by the end of such 30-day
period, each Lender which is not organized under the laws of the United
States of America or a state thereof shall deliver to Borrower and
Agent two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224 (or successor applicable form), as the case
may be, certifying in each case that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any
United States federal income taxes. Each Lender which delivers to
Borrower and Agent a Form 1001 or 4224 pursuant to the immediately
preceding sentence further undertakes to deliver to Borrower and Agent
two further copies of Form 1001 or 4224 (or successor applicable
forms), as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form previously delivered by such
Lender to Borrower and Agent, certifying that such Lender is entitled
to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes. Each Lender
which is not organized under the laws of the United States of America
or a state thereof further agrees (i) promptly to notify Agent and
Borrower of any
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change of circumstances (including without limitation any change in any
treaty, law or regulation) which would prevent such Lender from
receiving payments hereunder without any deduction or withholding of
United States federal income tax and (ii) to furnish to Agent and
Borrower any other manner of certification as Agent or Borrower may
reasonably request to establish the right of such Lender to receive
payments hereunder without any deduction or withholding of United
States federal income tax.
(c) Mitigation. If Agent or any Lender claims any additional
amounts to be payable to it pursuant to this Paragraph 2.15, such
Person shall use reasonable commercial efforts to file any certificate
or document requested in writing by Borrower (including without
limitation copies of Internal Revenue Service Form 1001 (or
successor forms) reflecting a reduced rate of withholding) or to change
the jurisdiction of its Applicable Lending Office if the making of such
a filing or such change in the jurisdiction of its Applicable Lending
Office would avoid the need for or materially reduce the amount of any
such additional amounts which may thereafter accrue and if, in the
reasonable opinion of such Person, in the case of a change in the
jurisdiction of its Applicable Lending Office, such change would not be
disadvantageous to such Person or contrary to such Person's normal
banking practices.
(d) Tax Returns. Nothing contained in this Paragraph 2.15 shall
require Agent or any Lender to make available any of its tax returns
(or any other information relating to its taxes which it deems to be
confidential).
2.16. Funding Loss Indemnification. If Borrower shall (a) repay or
prepay any LIBOR Loan on any day other than the last day of an Interest Period
therefor (whether a scheduled payment, an optional prepayment or conversion, a
mandatory prepayment or conversion, a payment upon acceleration or otherwise) or
(b) fail to borrow any LIBOR Loan for which a Notice of Borrowing has been
delivered to Agent (whether as a result of the failure to satisfy any applicable
conditions or otherwise), Borrower shall, upon demand by any Lender, reimburse
such Lender for and hold such Lender harmless from all costs and losses incurred
by such Lender as a result of such repayment, prepayment or failure. Borrower
understands that such costs and losses may include, without limitation, losses
incurred by a Lender as a result of funding and other contracts entered into by
such Lender to fund a LIBOR Loan. Each Lender demanding payment under this
Paragraph 2.16 shall deliver to Borrower, with a copy to Agent, a certificate
setting forth the amount of costs and losses for which demand is made, which
certificate shall set forth in reasonable detail the calculation of the amount
demanded. Such a certificate so delivered to Borrower shall constitute prima
facie evidence of such costs and losses. The obligations of Borrower under this
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Paragraph 2.16 shall survive the payment and performance of the Obligations and
the termination of this Agreement.
2.17. Replacement of Lenders. If any Lender shall (a) become a
Defaulting Lender more than two (2) times in a period of twelve (12) consecutive
months, (b) continue as a Defaulting Lender for more than five (5) Business Days
at any time, (c) suspend its obligation to make or maintain LIBOR Loans pursuant
to Subparagraph 2.14(b) for a reason which is not applicable to Required Lenders
or (d) demand any payment under Subparagraph 2.14(c), 2.14(d) 2.15(a) for a
reason which is not applicable to Required Lenders, then Agent may (or upon the
written request of Borrower, shall) replace such Lender (the "affected Lender"),
or cause such affected Lender to be replaced, with another lender (the
"replacement Lender") satisfying the requirements of an Assignee Lender under
Subparagraph 8.05 (c), by having the affected Lender sell and assign all of its
rights and obligations under this Agreement and the other Credit Documents to
the replacement Lender pursuant to Subparagraph 8.05(c); provided, however, that
if Borrower seeks to exercise such right, it must do so within sixty (60) days
after it first knows or should have known of the occurrence of the event or
events giving rise to such right, and neither Agent nor any Lender shall have
any obligation to identify or locate a replacement Lender for Borrower. Upon
receipt by any affected Lender of a written notice from Agent stating that Agent
is exercising the replacement right set forth in this Paragraph 2.17, such
affected Lender shall sell and assign all of its rights and obligations under
this Agreement and the other Credit Documents to the replacement Lender pursuant
to an Assignment Agreement and Subparagraph 8.05(c) for a purchase price equal
to the sum of the principal amount of the affected Lender's Loans so sold and
assigned, all accrued and unpaid interest thereon and its ratable share of all
fees to which it is entitled.
SECTION III. CONDITIONS PRECEDENT.
3.01. Initial Conditions Precedent. The obligations of the Lenders to
make the Loans comprising the initial Borrowing are subject to receipt by Agent,
on or prior to the Closing Date, of each item listed in Schedule 3.01, each in
form and substance satisfactory to Agent and each Lender, and with sufficient
copies for, Agent and each Lender.
3.02. Conditions Precedent to Each Credit Event. The occurrence of each
Credit Event (including the initial Borrowing) is subject to the further
conditions that:
(a) Borrower shall have delivered to Agent the Notice of Borrowing
or Notice of Interest Period Selection, as the case may be, for such
Credit Event in accordance with this Agreement; and
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(b) On the date such Credit Event is to occur and after giving
effect to such Credit Event, the following shall be true and correct:
(i) The representations and warranties set forth in Paragraph
4.01 and in the other Credit Documents are true and correct in all
material respects as if made on such date (except for
representations and warranties expressly made as of a specified
date, which shall be true as of such date);
(ii) No Default has occurred and is continuing or will result
from such Credit Event; and
(iii) All of the Credit Documents are in full force and effect.
The submission by Borrower to Agent of each Notice of Borrowing and
each Notice of Interest Period Selection shall be deemed to be a
representation and warranty by Borrower that each of the statements set
forth above in this Subparagraph 3.02(b) is true and correct as of the
date of such notice.
3.03. Covenant to Deliver. Borrower agrees (not as a condition but as a
covenant) to deliver to Agent each item required to be delivered to Agent as a
condition to the occurrence of any Credit Event if such Credit Event occurs.
Borrower expressly agrees that the occurrence of any such Credit Event prior to
the receipt by Agent of any such item shall not constitute a waiver by Agent or
any Lender of Borrower's obligation to deliver such item.
SECTION IV. REPRESENTATIONS AND WARRANTIES.
4.01. Borrower's Representations and Warranties. In order to induce
Agent and the Lenders to enter into this Agreement, Borrower hereby represents
and warranties to Agent and the Lenders as follows:
(a) Due Incorporation, Qualification, etc. Each of Borrower and
Borrower's Subsidiaries (i) is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation; (ii) has the power and authority to own, lease and
operate its properties and carry on its business as now conducted; and
(iii) is duly qualified, licensed to do business and in good standing
as a foreign corporation in each jurisdiction where the failure to be
so qualified or licensed is reasonably likely to have a Material
Adverse Effect.
(b) Authority. The execution, delivery and performance by Borrower
of each Credit Document executed, or
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to be executed, by Borrower and the consummation of the transactions
contemplated thereby (i) are within the power of Borrower and (ii) have
been duly authorized by all necessary actions on the part of Borrower.
(c) Enforceability. Each Credit Document executed, or to be
executed, by Borrower has been, or will be, duly executed and delivered
by Borrower and constitutes, or will constitute, a legal, valid and
binding obligation of Borrower, enforceable against Borrower in
accordance with its terms, except as limited by bankruptcy, insolvency
or other laws of general application relating to or affecting the
enforcement of creditors, rights generally and general principles of
equity.
(d) Non-Contravention. The execution and delivery by Borrower of
the Credit Documents executed by Borrower and the performance and
consummation of the transactions contemplated thereby do not (i)
violate any Requirement of Law applicable to Borrower; (ii) violate any
provision of, or result in the breach or the acceleration of, or
entitle any other Person to accelerate (whether after the giving of
notice or lapse of time or both), any Contractual Obligation of
Borrower; or (iii) result in the creation or imposition of any Lien (or
the obligation to create or impose any Lien) upon any property, asset
or revenue of Borrower (except such Liens as may be created in favor of
Agent pursuant to this Agreement or the other Credit Documents).
(e) Approvals. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority or
other Person (including, without limitation, the shareholders of any
Person) is required in connection with the execution and delivery of
the Credit Documents executed by Borrower and the performance and
consummation by Borrower of the transactions contemplated thereby,
except such as have been made or obtained and are in full force and
effect.
(f) No Violation or Default. Neither Borrower nor any of its
Subsidiaries is in violation of or in default with respect to (i) any
Requirement of Law applicable to such Person; (ii) any Contractual
Obligation of such Person (nor is there any waiver in effect which,
if not in effect, would result in such a violation or default), where,
in each case, such violation or default is reasonably likely to have a
Material Adverse Effect. Without limiting the generality of the
foregoing, neither Borrower nor any of its Subsidiaries (A) has
violated any Environmental Laws, (B) has any liability under any
Environmental Laws or (C) has received notice or other communication of
an investigation or is under investigation by any Governmental
Authority having authority to enforce Environmental Laws, where such
violation, liability or investigation is reasonably likely
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to have a Material Adverse Effect. No Default has occurred and is
continuing.
(g) Litigation. Except as set forth (with estimates of the dollar
amounts involved) in Schedule 4.01(g), no actions (including, without
limitation, derivative actions), suits, proceedings or investigations
are pending or, to the knowledge of Borrower, threatened against
Borrower or any of its Subsidiaries at law or in equity in any court or
before any other Governmental Authority which (i) is reasonably likely
(alone or in the aggregate) to have a Material Adverse Effect or (ii)
seeks to enjoin, either directly or indirectly, the execution, delivery
or performance by Borrower of the Credit Documents or the transactions
contemplated thereby.
(h) Title; Possession Under Leases. Borrower and its Subsidiaries
own and have good and marketable title, or a valid leasehold interest
in, all their respective properties and assets as reflected in the most
recent Financial Statements delivered to Agent (except those assets and
properties disposed of in the ordinary course of business or otherwise
in compliance with this Agreement since the date of such Financial
Statements) and all respective assets and properties acquired by
Borrower and its Subsidiaries since such date (except those disposed of
in the ordinary course of business or otherwise in compliance with this
Agreement), except in any case where the failure so to own or to have
such title is not reasonably likely to have a Material Adverse Effect.
Such assets and properties are subject to no Lien, except for Permitted
Liens. Each of Borrower and its Subsidiaries has complied with all
material obligations under all material leases to which it is a party
and all such leases are in full force and effect. Each of Borrower and
its Subsidiaries enjoys peaceful and undisturbed possession under such
leases.
(i) Financial Statements. The Financial Statements of Borrower and
its Subsidiaries which have been delivered to Agent, (i) are in
accordance with the books and records of Borrower and its Subsidiaries,
which have been maintained in accordance with good business practice;
(ii) have been prepared in conformity with GAAP; and (iii) fairly
present the financial conditions and results of operations of Borrower
and its Subsidiaries as of the date thereof and for the period covered
thereby. Neither Borrower nor any of its Subsidiaries has any
Contingent Obligations, liability for taxes or other outstanding
obligations which are material in the aggregate, except as disclosed
in the audited Financial Statements dated December 31, 1996, furnished
by Borrower to Agent prior to the date hereof, or in the Financial
Statements delivered to Agent pursuant to clause (i) or (ii) of
Subparagraph 5.01(a).
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(j) Equity Securities. All outstanding Equity Securities of
Borrower are duly authorized, validly issued, fully paid and
non-assessable. All Equity Securities of Borrower have been offered and
sold in compliance with all federal and state securities laws and all
other Requirements of Law.
(k) No Agreements to sell Assets; Etc. Neither Borrower nor any of
its Subsidiaries has any legal obligation, absolute or contingent, to
any Person to sell the assets of Borrower or any of its Subsidiaries
(other than sales in the ordinary course of business), or to effect any
merger, consolidation or other reorganization of Borrower or any of its
Subsidiaries or to enter into any agreement with respect thereto,
except for sales permitted by Subparagraph 5.02(c).
(1) Employee Benefit Plans.
(i) Based on the latest valuation of each Employee Benefit Plan
that either Borrower or any ERISA Affiliate maintains or
contributes to, or has any obligation under (which occurred within
twelve months of the date of this representation), the aggregate
benefit liabilities of such plan within the meaning of Section 4001
of ERISA did not exceed the aggregate value of the assets of such
plan. Neither Borrower nor any ERISA Affiliate has any liability
with respect to any post-retirement benefit under any Employee
Benefit Plan which is a welfare plan (as defined in section 3(1) of
ERISA), other than liability for health plan continuation coverage
described in Part 6 of Title I(B) of ERISA, which liability for
health plan contribution coverage is not reasonably likely to have
a Material Adverse Effect.
(ii) Each Employee Benefit Plan complies, in both form and
operation, in all material respects, with its terms, ERISA and the
IRC, and no condition exists or event has occurred with respect to
any such plan which would result in the incurrence by either
Borrower or any ERISA Affiliate of any material liability, fine or
penalty. Each Employee Benefit Plan, related trust agreement,
arrangement and commitment of Borrower or any ERISA Affiliate is
legally valid and binding and in full force and effect. No Employee
Benefit Plan is being audited or investigated by any government
agency or is subject to any pending or threatened claim or suit.
Neither Borrower nor any ERISA Affiliate nor any fiduciary of any
Employee Benefit Plan has engaged in a prohibited transaction under
section 406 of ERISA or section 4975 of the IRC.
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(iii) Neither Borrower nor any ERISA Affiliate contributes to
or has any material contingent obligations to any Multiemployer
Plan. Neither Borrower nor any ERISA Affiliate has incurred any
material liability (including secondary liability) to any
Multiemployer Plan as a result of a complete or partial withdrawal
from such Multiemployer Plan under Section 4201 of ERISA or as a
result of a sale of assets described in Section 4204 of ERISA.
Neither Borrower nor any ERISA Affiliate has been notified that any
Multiemployer Plan is in reorganization or insolvent under and
within the meaning of Section 4241 or Section 4245 of ERISA or that
any Multiemployer Plan intends to terminate or has been terminated
under Section 4041A of ERISA.
(m) Other Regulations. Borrower is not subject to regulation under
the Investment Company Act of 1940, the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act, any
state public utilities code or to any other Governmental Rule limiting
its ability to incur indebtedness.
(n) Patent and Other Rights. Borrower and its Subsidiaries own,
license or otherwise have the right to use, under validly existing
agreements, all patents, licenses, trademarks, trade names, trade
secrets, service marks, copyrights and all rights with respect thereto,
which are required to conduct their businesses as now conducted.
(o) Governmental Charges. Borrower and its Subsidiaries have filed
or caused to be filed all tax returns which are required to be filed by
them. Borrower and its Subsidiaries have paid, or made provision for
the payment of, all taxes and other Governmental Charges which have or
may have become due pursuant to said returns or otherwise and all other
indebtedness, except such Governmental Charges or indebtedness, if any,
which are being contested in good faith and as to which adequate
reserves (determined in accordance with GAAP) have been provided or
which are not reasonably likely to have a Material Adverse Effect if
unpaid.
(p) Margin Stock. Borrower owns no Margin Stock which, in the
aggregate, would constitute a substantial part of the assets of
Borrower, and no proceeds of any Loan will be used to purchase or
carry, directly or indirectly, any Margin Stock or to extend credit,
directly or indirectly, to any Person for the purpose of purchasing or
carrying any Margin Stock.
(Q) Subsidiaries, etc. Set forth in Schedule 4.01(g) (as
supplemented by Borrower from time to time in a written notice to
Agent) is a complete list of all of Borrower's
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Subsidiaries, the jurisdiction of incorporation of each, the classes of
Equity Securities of each and the number of shares and percentages of
shares of each such class owned directly or indirectly by Borrower.
Except for such Subsidiaries, Borrower has no Subsidiaries, is not a
partner in any partnership or a joint venturer in any joint venture.
(r) Catastrophic Events. Neither Borrower nor any of its
Subsidiaries and none of their properties is or has been affected by
any fire, explosion, accident, strike, lockout or other labor dispute,
drought, storm, hail, earthquake, embargo, act of God or other casualty
that is reasonably likely to have a Material Adverse Effect. There are
no disputes presently subject to grievance procedure, arbitration or
litigation under any of the collective bargaining agreements,
employment contracts or employee welfare or incentive plans to which
Borrower or any of its Subsidiaries is a party, and there are no
strikes, lockouts, work stoppages or slowdowns, or, to the best
knowledge of Borrower, jurisdictional disputes or organizing activities
occurring or threatened which alone or in the aggregate are reasonably
likely to have a Material Adverse Effect.
(s) No Material Adverse Effect. No event has occurred and is
continuing and no condition exists which is reasonably likely to have a
Material Adverse Effect.
(t) Accuracy of Information Furnished. None of the Credit Documents
and none of the other certificates, statements or information furnished
to Agent or any Lender by or on behalf of Borrower or any of its
Subsidiaries in connection with the Credit Documents or the
transactions contemplated thereby contains or will contain any untrue
statement of a material fact or omits or will omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.02. Reaffirmation. Borrower shall be deemed to have reaffirmed, for
the benefit of the Lenders and Agent, each representation and warranty contained
in Paragraph 4.01 on and as of the date of each Credit Event (except for
representations and warranties expressly made as of a specified date, which
shall be true as of such date).
SECTION V. COVENANTS.
5.01. Affirmative Covenants. Until the termination of this Agreement
and the satisfaction in full by Borrower of all Obligations, Borrower will
comply, and will cause compliance, with the following affirmative covenants,
unless Required Lenders shall otherwise consent in writing:
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(a) Financial Statements, Reports, etc. Borrower shall furnish to
Agent, with sufficient copies for each Lender, the following, each in
such form and such detail as Agent or the Required Lenders shall
reasonably request:
(i) As soon as available and in no event later than fifty (50)
days after the last day of each fiscal quarter of Borrower (other
than the last quarter in any fiscal year), a copy of the Financial
Statements of Borrower and its Subsidiaries (prepared on a
consolidated basis) for such quarter and for the fiscal year to
date, certified by the president or chief financial officer of
Borrower to present fairly the financial condition, results of
operations and other information reflected therein and to have been
prepared in accordance with GAAP (subject to normal year-end audit
adjustments);
(ii) As soon as available and in no event later than one
hundred (100) days after the close of each fiscal year of Borrower,
(A) copies of the audited Financial Statements of Borrower and its
Subsidiaries (prepared on a consolidated basis) for such year,
prepared by Ernst & Young or by other independent certified public
accountants of recognized national standing acceptable to Agent,
(B) copies of the unqualified opinions (or qualified opinions
reasonably acceptable to Required Lenders) and management letters
delivered by such accountants in connection with all such Financial
Statements and (C) certificates of such accountants to Agent
stating that in making the examination necessary for their opinion
they have reviewed this Agreement and have obtained no knowledge of
any Default which has occurred and is continuing, or if, in the
opinion of such accountants, a Default has occurred and is
continuing, a statement as to the nature thereof;
(iii) Contemporaneously with the quarterly and year-end
Financial Statements required by the foregoing clauses (i) and
(ii), a compliance certificate of the president or chief financial
officer of Borrower which (A) states that no Default has occurred
and is continuing, or, if any such Default has occurred and is
continuing, a statement as to the nature thereof and what action
Borrower proposes to take with respect thereto and (B) sets forth,
for the quarter or year covered by such Financial Statements or as
of the last day of such quarter or year (as the case may be), the
calculation of the financial ratios and tests provided in Paragraph
5.03;
(iv) As soon as available and in no event later than fifty (50)
days after the last day of each fiscal
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quarter of Borrower, a certificate of the chief financial officer
of Borrower which sets forth the calculation of the Funded
Indebtedness/EBITDA Ratio for the consecutive four-quarter period
ending on such day;
(v) As soon as possible and in no event later than five (5)
Business Days after any Senior Officer of Borrower knows of the
occurrence or existence of (A) any Reportable Event under any
Employee Benefit Plan or Multiemployer Plan; (B) any actual or
threatened litigation, suits, claims or disputes against Borrower
or any of its Subsidiaries involving potential monetary damages
payable by Borrower or its Subsidiaries of $2,500,000 or more
(alone or in the aggregate); (C) any other event or condition which
is reasonably likely to have a Material Adverse Effect; or (D) any
Default; the statement of the president or chief financial officer
of Borrower setting forth details of such event, condition or
Default and the action which Borrower proposes to take with respect
thereto;
(vi) As soon as available and in no event later than five (5)
Business Days after they are sent, made available or filed, copies
of (A) all registration statements and reports filed by Borrower or
any of its Subsidiaries with any securities exchange or the
Securities and Exchange Commission (including, without limitation,
all 10-Q, 10-K and 8-Q reports); (B) all reports, proxy statements
and financial statements sent or made available by Borrower or any
of its Subsidiaries to its security holders; and (C) all press
releases and other similar public, concerning any material
developments in the business of Borrower or any of its Subsidiaries
made available by Borrower or any of its Subsidiaries to the public
generally;
(vii) As soon as available and in no event later than five (5)
Business Days after they are filed, copies of all IRS Form 5500
reports for all Employee Benefit Plans required to file such form;
(viii) As soon as available and in no event later than ten (10)
days before the first day of each fiscal year of Borrower, the
consolidated plan and forecast of Borrower and its Subsidiaries for
such fiscal year, including quarterly cash flow projections and
quarterly projections of Borrower's compliance with each of the
covenants set forth in Paragraph 5.03;
(ix) As soon as possible and in no event later than (A) ten
(10) days prior to the acquisition by Borrower or any of its
Subsidiaries of any new
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Subsidiary or all or substantially all of the assets of any other
Person, written notice thereof; and
(x) Such other instruments, agreements, certificates, opinions,
statements, documents and information relating to the operations or
condition (financial or otherwise) of Borrower or its Subsidiaries,
and compliance by Borrower with the terms of this Agreement and the
other Credit Documents as Agent may from time to time reasonably
request.
For the purposes of this Subparagraph 5.01(a), (1) the timely delivery
by Borrower to Agent pursuant to clause (vi) of a copy of the Form 10-Q
report filed by Borrower with the Securities and Exchange Commission
for any quarter shall satisfy the requirements of clause (i) for such
quarter and (2) the timely delivery by Borrower to Agent pursuant to
clause (vi) of a copy of the Form 10-K report filed by Borrower with
the Securities and Exchange Commission for any year shall satisfy the
requirements of clause (ii)(A) for such year, provided that such
reports are required to contain the same information as required by
clause (ii)(A), respectively.
(b) Books and Records. Borrower and its Subsidiaries shall at all
times keep proper books of record and account in which full, true and
correct entries will be made of their transactions in accordance with
GAAP.
(c) Inspections. Borrower and its Subsidiaries shall permit any
Person designated by any Lender, upon reasonable notice and during
normal business hours, to visit and inspect any of the properties and
offices of Borrower and its Subsidiaries, to examine the books and
records of Borrower and its Subsidiaries and make copies thereof and to
discuss the affairs, finances and business of Borrower and its
Subsidiaries with, and to be advised as to the same by, their officers,
auditors and accountants, all at such times and intervals as any Lender
may reasonably request.
(d) Insurance. Borrower and its Subsidiaries shall:
(i) Carry and maintain insurance of the types and in the
amounts customarily carried from time to time during the term of
this Agreement by others engaged in substantially the same business
as such Person and operating in the same geographic area as such
Person, including, but not limited to, fire, public liability,
property damage and worker's compensation; and
(ii) Carry and maintain each policy for such insurance with
financially sound insurers.
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(e) Governmental Charges and other Indebtedness. Borrower and its
Subsidiaries shall promptly pay and discharge when due (i) all taxes
and other Governmental Charges prior to the date upon which penalties
accrue thereon, (ii) all indebtedness which, if unpaid, could become a
Lien upon the property of Borrower or its Subsidiaries and (iii)
subject to any subordination provisions applicable thereto, all other
Indebtedness which, if unpaid, is reasonably likely to have a Material
Adverse Effect, except such Indebtedness as may in good faith be
contested or disputed, or for which arrangements for deferred payment
have been made, provided that in each such case appropriate reserves as
required by GAAP are maintained.
(f) Use of Proceeds. Borrower shall use the proceeds of the Loans
only for the purposes set forth in Subparagraph 2.01(f). Borrower shall
not use any part of the proceeds of any Loan, directly or indirectly,
for the purpose of purchasing or carrying any Margin Stock or for the
purpose of purchasing or carrying or trading in any securities under
such circumstances as to involve Borrower, any Lender or Agent in a
violation of Regulations G, T, U or X issued by the Federal Reserve
Board.
(g) General Business Operations. Each of Borrower and its
Subsidiaries shall (i) preserve and maintain its corporate existence
and all of its rights, privileges and franchises reasonably necessary
to the conduct of its business, (ii) conduct its business activities in
compliance with all Requirements of Law and Contractual Obligations
applicable to such Person, the violation of which is reasonably likely
to have a Material Adverse Effect and (iii) keep all property useful
and necessary in its business in good working order and condition,
ordinary wear and tear excepted; provided, however, that Borrower and
its Subsidiaries may dissolve or liquidate any Subsidiary if such
Subsidiary is not a Material Subsidiary and such dissolution or
liquidation is not reasonably likely to have a Material Adverse Effect.
Borrower shall maintain its chief executive office and principal place
of business in the United States and shall not relocate its chief
executive office or principal place of business outside of California
except upon not less than thirty (30) days prior written notice to
Agent.
5.02. Negative Covenants. Until the termination of this Agreement and
the satisfaction in full by Borrower of all Obligations, Borrower will comply,
and will cause compliance, with the following negative covenants, unless
Required Lenders shall otherwise consent in writing:
(a) Indebtedness. Neither Borrower nor any of its Subsidiaries
shall create, incur, assume or permit to exist
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any Indebtedness except for the following ("Permitted Indebtedness"):
(i) The Obligations of Borrower under the Credit Documents;
(ii) The Related Lease Obligations;
(iii) Indebtedness of Borrower and its Subsidiaries listed in
Schedule 5.02(a) and existing on the date of this Agreement;
(iv) Indebtedness of Borrower and its Subsidiaries arising from
the endorsement of instruments for collection in the ordinary
course of Borrower's or a Subsidiary's business;
(v) Indebtedness of Borrower and its Subsidiaries for trade
accounts payable, provided that (A) such accounts arise in the
ordinary course of business and (B) no material part of any such
account is more than ninety (90) days past due (unless subject to a
bona fide dispute and for which adequate reserves as required by
GAAP have been established);
(vi) Indebtedness of Borrower and its Subsidiaries under Rate
Contracts, provided that all such Rate Contracts are entered into
in connection with bona fide hedging operations and not for
speculation;
(vii) Indebtedness of Borrower and its Subsidiaries under
purchase money loans and Capital Leases incurred by Borrower or any
of its Subsidiaries to finance the acquisition by such Person of
real property, fixtures or equipment provided that in each case,
(A) such Indebtedness is incurred by such Person at the time of, or
not later than thirty (30) days after, the acquisition by such
Person of the property so financed, (B) such Indebtedness does not
exceed the purchase price of the property so financed, and (C) no
Default has occurred and is continuing at the time such
Indebtedness is incurred or will occur after giving effect to such
Indebtedness;
(viii) Indebtedness of Borrower and its Subsidiaries under
initial or successive refinancings of any Indebtedness permitted by
clause (iii) above, provided that (A) the principal amount of any
such refinancing does not exceed the principal amount of the
Indebtedness being refinanced (except to the extent otherwise
permitted by clause (x) below) and (B) the material terms and
provisions of any such refinancing (including maturity, redemption,
prepayment, default
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and subordination provisions) are no less favorable to the Lenders
than the Indebtedness being refinanced;
(ix) Indebtedness of Borrower and its Subsidiaries with respect
to surety, appeal, indemnity, performance or other similar bonds in
the ordinary course of business; and
(x) Other Indebtedness of Borrower and its Subsidiaries,
provided that the aggregate principal amount of all such other
Indebtedness does not exceed $25,000,000 at any time.
(b) Liens. Neither Borrower nor any of its Subsidiaries shall
create, incur, assume or permit to exist' any Lien on or with respect
to any of its assets or property of any character, whether now owned or
hereafter acquired, except for the following ("Permitted Liens"):
(i) Liens in favor of Agent or any Lender securing the
Obligations;
(ii) Liens in favor of the lessor, participants or agent under
the Related Lease Participation Agreement securing the Related
Lease Obligations;
(iii) Liens listed in Schedule 5.02(b) and existing on the date
of this Agreement;
(iv) Liens for taxes or other Governmental Charges not at the
time delinquent or thereafter payable without penalty or being
contested in good faith, provided that adequate reserves for the
payment thereof as required by GAAP have been established;
(v) Liens of carriers, warehousemen, mechanics, materialmen,
vendors, and landlords and other similar Liens imposed by law
incurred in the ordinary course of business for sums not overdue or
being contested in good faith, provided that adequate reserves for
the payment thereof as required by GAAP have been established;
(vi) Deposits under workers' compensation, unemployment
insurance and social security laws or to secure the performance of
bids, tenders, contracts (other than for the repayment of borrowed
money) or leases, or to secure statutory obligations of surety or
appeal bonds or to secure indemnity, performance or other similar
bonds in the ordinary course of business;
(vii) Zoning restrictions, easements, rights-of-way, title
irregularities and other similar encumbrances, which alone or in
the aggregate are not
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substantial in amount and do not materially detract from the value
of the property subject thereto or interfere with the ordinary
conduct of the business of Borrower or any of its Subsidiaries;
(viii) Banker's Liens and similar Liens (including set-off
rights) in respect of bank deposits;
(ix) Liens on property or assets of any corporation which
becomes a Subsidiary of Borrower or on any property or assets
acquired by Borrower or any of its Subsidiaries after the date of
this Agreement, provided that (A) such Liens exist at the time the
stock of such corporation or such assets or property is or are
acquired by Borrower and (B) such Liens were not created in
contemplation of such acquisition by Borrower;
(x) Judgement Liens, provided that such Liens do not have a
value in excess of $2,500,000 or such Liens are released, stayed,
vacated or otherwise dismissed within twenty (20) days after issue
or levy and, if so stayed, such stay is not thereafter removed;
(xi) Rights of vendors or lessors under conditional sale
agreements, Capital Leases or other title retention agreements,
provided that, in each case, (A) such rights secure or otherwise
relate to Permitted Indebtedness, (B) such rights do not extend to
any property other than property acquired with the proceeds of such
Permitted Indebtedness and (C) such rights do not secure any
Indebtedness other than such Permitted Indebtedness;
(xii) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties and in
connection with the importation of goods in the ordinary course of
Borrower's and its Subsidiaries' businesses;
(xiii) Liens securing Indebtedness which constitutes Permitted
Indebtedness under clause (vii) of Subparagraph 5.02(a) provided
that, in each case, such Lien (A) covers only those assets, the
acquisition of which was financed by such Permitted Indebtedness,
and (B) secures only such Permitted Indebtedness;
(xiv) Liens on the property or assets of any Subsidiary of
Borrower in favor of Borrower or any other Subsidiary of Borrower;
(xv) Liens incurred in connection with the extension, renewal
or refinancing of the Indebtedness secured by the Liens described
in clause (iii) above,
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provided that any extension, renewal or replacement Lien (A) is
limited to the property covered by the existing Lien and (B)
secures Indebtedness which is no greater in amount and has material
terms no less favorable to the Lenders than the Indebtedness
secured by the existing Lien;
(xvi) Liens on insurance proceeds in favor of insurance
companies with respect to the financing of insurance premiums;
(xvii) Permitted Property Liens (as defined in the Related
Lease Participation Agreement) in the Property (as defined in the
Related Lease Participation Agreement); and
(xviii) Other Liens on the property of Borrower and its
Subsidiaries, provided that the aggregate principal amount of all
Indebtedness secured by such other Liens does not exceed at any
time ten percent (10%) of the consolidated total assets of Borrower
and its Subsidiaries at such time.
(c) Asset Dispositions. Neither Borrower nor any of its
Subsidiaries shall sell, lease, transfer or otherwise dispose of any of
its assets or property, whether now owned or hereafter acquired, except
for the following:
(i) Sales of inventory by Borrower and its Subsidiaries in the
ordinary course of their businesses;
(ii) Sales of surplus, damaged, worn or obsolete equipment or
inventory for not less than fair market value;
(iii) Sales or other dispositions of Investments permitted by
clauses (i) and (iii) of Subparagraph 5.02(e) for not less than
fair market value;
(iv) Sales or assignments of defaulted receivables to a
collection agency in the ordinary course of business;
(v) Licenses by Borrower or its Subsidiaries of its patents,
copyrights, trademarks, trade names and service marks in the
ordinary course of its business provided that, in each case, the
terms of the transaction are terms which then would prevail in the
market for similar transactions between unaffiliated parties
dealing at arm's length;
(vi) Sales or other dispositions of assets and property by
Borrower to any of Borrower's Subsidiaries
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<PAGE> 54
or by any of Borrower's Subsidiaries to Borrower or any of its
other Subsidiaries, provided that the terms of any such sales or
other dispositions by or to Borrower are terms which are no less
favorable to Borrower then would prevail in the market for similar
transactions between unaffiliated parties dealing at arm's length;
(vii) Sales of accounts receivable of Borrower and its
Subsidiaries, provided that (A) each such sale is (1) for not less
than fair market value and (2) for cash, and (B) the aggregate book
value of all such accounts receivable so sold in any consecutive
four-quarter period does not exceed ten percent (10%) of the
consolidated total accounts receivable of Borrower and its
Subsidiaries on the last day immediately preceding such
four-quarter period; and
(viii) other sales, leases, transfers and disposals of assets
and property for not less than fair market value, provided that the
aggregate book value of all such assets and property so sold,
leased, transferred or otherwise disposed of in any consecutive
four-quarter period does not exceed five percent (5%) of the
consolidated total assets of Borrower and its Subsidiaries on the
last day immediately preceding such four-quarter period.
(d) Mergers, Acquisitions, Etc. Neither Borrower nor any of its
Subsidiaries shall consolidate with or merge into any other Person or
permit any other Person to merge into it, establish any new Subsidiary,
acquire any Person as a new Subsidiary or acquire all or substantially
all of the assets of any other Person, except for the following:
(i) Any Subsidiary of Borrower may merge or consolidate with
any other Subsidiary of Borrower;
(ii) Any Subsidiary of Borrower may merge or consolidate with
Borrower, provided that Borrower is the surviving corporation; and
(iii) Borrower may merge or consolidate with any other
corporation, establish a new Subsidiary, acquire any Person as a
new Subsidiary or acquire all or substantially all of the assets of
any other Person, provided that:
(A) In the case of any merger or consolidation, either
(1) Borrower is the surviving corporation or (2) the surviving
corporation (y) is a Solvent United States corporation with a
financial condition equal to or better than the financial
condition of Borrower immediately prior to such merger or
consolidation
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<PAGE> 55
and (z) assumes all of the obligations in a manner reasonably
acceptable to the Required Lenders;
(B) No Default has occurred and is continuing at the time
of such merger, consolidation, establishment or acquisition or
will occur after giving effect to such merger, consolidation or
acquisition; and
(C) The aggregate cost of any such merger, consolidation,
establishment or acquisition does not exceed the amounts
permitted under Subparagraph 5.02(e)(iv).
(e) Investments. Neither Borrower nor any of its Subsidiaries shall
make any Investment except for Investments in the following:
(i) Investments of Borrower and its Subsidiaries in Cash
Equivalents;
(ii) Any transaction permitted by Subparagraph, 5.02(a);
(iii) Money market mutual funds registered with the Securities
and Exchange Commission, meeting the requirements of Rule 2a-7
promulgated under the Investment Company Act of 1940;
(iii) Investments listed in Schedule 5.02(2) existing on the
date of this Agreement; and
(iv) Other Investments, provided that the aggregate amount of
such other Investments plus the aggregate cost of all mergers and
consolidations consummated, Subsidiaries established and
Subsidiaries and assets acquired by Borrower pursuant to
Subparagraph 5.02(d) does not exceed in any fiscal year (A)
$100,000,000 for any amounts paid in cash and (B) $500,000,000 for
any amounts paid with shares of common stock of Borrower (as
determined according to the stock price of such shares on the date
of transfer) and accounted for on a pooling basis in accordance
with GAAP.
(f) Dividends, Redemptions, Etc. Neither Borrower nor any of its
Subsidiaries shall pay any dividends or make any distributions on its
Equity Securities; purchase, redeem, retire, defease or otherwise
acquire for value any of its Equity Securities; return any capital to
any holder of its Equity Securities as such; make any distribution of
assets, Equity Securities, obligations or securities to any holder of
its Equity Securities as such; or set apart any sum for any such
purpose; except as follows:
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<PAGE> 56
(i) Either Borrower or any of its Subsidiaries may pay
dividends on its capital stock payable solely in such Person's own
capital stock;
(ii) Any Subsidiary of Borrower may pay dividends to Borrower;
(iii) Borrower may purchase shares of its capital stock for its
employee stock option plans, provided that (A) the aggregate amount
of such purchases does not exceed $50,000,000 in any fiscal year
and (B) no Default has occurred and is continuing at the time of
such purchase or will occur after giving effect to such purchase;
and
(iv) Borrower may purchase shares of its capital stock with the
proceeds received by it from a substantially concurrent issue of
new shares of its capital stock.
(g) Change in Business. Neither Borrower nor any of its
Subsidiaries shall engage, either directly or indirectly through
Affiliates, in any material line of business other than the
semiconductor capital equipment business and other businesses
incidental or reasonably related thereto.
(h) ERISA. Neither Borrower nor any ERISA Affiliate shall (i) adopt
or institute any Employee Benefit Plan that is an employee pension
benefit plan within the meaning of Section 3(2) of ERISA, (ii) take any
action which will result in the partial or complete withdrawal, within
the meanings of sections 4203 and 4205 of ERISA, from a Multiemployer
Plan, (iii) engage or permit any Person to engage in any transaction
prohibited by section 406 of ERISA or section 4975 of the IRC involving
any Employee Benefit Plan or multiemployer Plan which would subject
either Borrower or any ERISA Affiliate to any tax, penalty or other
liability including a liability to indemnity, (iv) incur or allow to
exist any accumulated funding deficiency (within the meaning of section
412 of the IRC or section 302 of ERISA), (v) fail to make full payment
when due of all amounts due as contributions to any Employee Benefit
Plan or Multiemployer Plan, (vi) fail to comply with the requirements
of section 4980B of the IRC or Part 6 of Title I(B) of ERISA, or (vii)
adopt any amendment to any Employee Benefit Plan which would require
the posting of security pursuant to section 401(a)(29) of the IRC,
where singly or cumulatively, the above would have a Material Adverse
Effect.
(i) Transactions With Affiliates. Neither Borrower nor any of its
Subsidiaries shall enter into any Contractual Obligation with any
Affiliate or engage in any other transaction with any Affiliate except
upon terms at least as
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<PAGE> 57
favorable to Borrower or such Subsidiary as an arms-length transaction
with unaffiliated Persons.
(j) Accounting Changes. Neither Borrower nor any of its
Subsidiaries shall change (i) its fiscal year (currently January 1
through December 31) or (ii) its accounting practices except as
permitted by GAAP.
5.03. Financial Covenants. Until the termination of this Agreement and
the satisfaction in full by Borrower of all obligations, Borrower will comply,
and will cause compliance, with the following financial Covenants, unless
Required Lenders shall otherwise consent in writing:
(a) Funded Indebtedness/Capital-Ratio. Borrower shall not permit
its Funded Indebtedness/Capital Ratio on any day set forth below to be
greater than the ratio set forth opposite such day below:
<TABLE>
<S> <C>
June 30, 1997;
September 30, 1997........................... 0.55 to 1.00;
December 31, 1997;
March 31, 1998;
June 30, 1998................................ 0.50 to 1.00;
September 30, 1998;
December 31, 1998
March 31, 1999
June 30, 1999................................ 0.45 to 1.00;
The last day of each
fiscal quarter thereafter.................... 0.40 to 1.00.
</TABLE>
(b) Quick Ratio. Borrower shall not permit its Quick Ratio to be
less than 1.50 to 1.00 on the last day of any fiscal quarter.
(c) Debt Service Coverage Ratio. Borrower shall not permit its Debt
Service Coverage Ratio for any fiscal quarter ending on any day set
forth below to be less than the ratio set forth opposite such day
below:
<TABLE>
<S> <C>
June 30, 1997;
September 30, 1997;
December 31, 1997;
March 31, 1998;
June 30, 1998;
September 30, 1998........................... 2.50 to 1.00;
December 31, 1998;
March 31, 1999............................... 3.50 to 1.00;
</TABLE>
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<PAGE> 58
<TABLE>
<S> <C>
The last day of each
fiscal quarter thereafter..................... 4.50 to 1.00.
</TABLE>
(d) Tangible Net Worth. Borrower shall not permit its Tangible Net
Worth on the last day of any fiscal quarter (such date to be referred
to herein as a "determination date") which occurs after June 30, 1997
(such date to be referred to herein as the "base date") to be less than
the sum on such determination date of the following:
(i) Ninety percent (90%) of the Tangible Net worth of Borrower
and its Subsidiaries on the base date;
plus
(ii) Seventy-five percent (75%) of the sum of Borrower's
consolidated quarterly net income (ignoring any quarterly losses)
for each fiscal quarter after the base date through and including
the fiscal quarter ending on the determination date;
plus
(iii) One hundred percent (100%) of the Net Proceeds of all
Equity Securities issued by Borrower and its Subsidiaries (to
Persons other than Borrower or its Subsidiaries) during the period
commencing on the base date and ending on the determination date;
plus
(iv) One hundred percent (100%) of the principal amount of all
debt securities of Borrower and its Subsidiaries converted into
Equity Securities of Borrower and its Subsidiaries during the
period commencing on the base date and ending on the determination
date;
minus
(v) The lesser of (A) the sum of all non-recurring, non-cash
charges taken by Borrower and its Subsidiaries during the period
commencing on the base date and ending on the earlier of the
determination date and December 31, 1997 and (B) $40,000,000.
SECTION VI. DEFAULT.
6.01. Events of Default. The occurrence or existence of any one or more
of the following shall constitute an "Event of Default" hereunder:
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<PAGE> 59
(a) Non-Payment. Borrower shall (i) fail to pay when due any
principal of any Loan, (ii) fail to pay at the maturity of the Loans
any interest, fees or other amount then due under the terms of this
Agreement or any of the other Credit Documents, or (iii) fail to pay
within five (5) days after the same becomes due any other interest,
fees or other amounts required under the terms of this Agreement or any
of the other Credit Documents; or
(b) Specific Defaults. Borrower or any of its Subsidiary shall fail
to observe or perform any covenant, obligation, condition or agreement
set forth in Paragraph 5.02 or Paragraph 5.03; or
(c) Other Defaults. Borrower or any of its Subsidiaries shall fail
to observe or perform any other covenant, obligation, condition or
agreement contained in this Agreement or the other Credit Documents and
such failure shall continue for thirty (30) days; or
(d) Representations and Warranties. Any representation, warranty,
certificate, information or other statement (financial or otherwise)
made or furnished by or on behalf of Borrower or any of its
Subsidiaries to Agent or any Lender in or in connection with this
Agreement or any of the other Credit Documents, or as an inducement to
Agent or any Lender to enter into this Agreement, shall be false,
incorrect, incomplete or misleading in any material respect when made
or furnished; or
(e) Cross-Default. (i) Borrower or any of its Subsidiaries shall
fail to make any payment when due on account of any Indebtedness of
such Person (other than the Obligations) and such failure shall
continue beyond any period of grace provided with respect thereto, if
the amount of such Indebtedness exceeds $2,500,000 or the effect of
such failure is to cause, or permit the holder or holders thereof to
cause, Indebtedness of Borrower and its Subsidiaries (other than the
Obligations) in an aggregate amount exceeding $2,500,000 to become due
or (ii) Borrower or any of its Subsidiaries shall otherwise fail to
observe or perform any agreement, term or condition contained in any
agreement or instrument relating to any Indebtedness of such Person
(other than the Obligations), or any other event shall occur or
condition shall exist, if the effect of such failure, event or
condition is to cause, or permit the holder or holders thereof to
cause, Indebtedness of Borrower and its Subsidiaries (other than the
Obligations) in an aggregate amount exceeding $2,500,000 to become due
(and/or to be secured by cash collateral); or
(f) Insolvency, Voluntary Proceedings. Borrower or any of its
Material Subsidiaries shall (i) apply for or consent to the appointment
of a receiver, trustee,
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<PAGE> 60
liquidator or custodian of itself or of all or a substantial part of
its property, (ii) be unable, or admit in writing its inability, to pay
its debts generally as they mature, (iii) make a general assignment for
the benefit of its or any of its creditors, (iv) be dissolved or
liquidated in full or in part, (v) become insolvent (as such term may
be defined or interpreted under any applicable statute), (vi) commence
a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter
in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in an involuntary
case or other proceeding commenced against it, or (vi) take any action
for the purpose of effecting any of the foregoing; or
(g) Involuntary Proceedings. Proceedings for the appointment of a
receiver, trustee, liquidator or custodian of Borrower or any of its
Material Subsidiaries or of all or a substantial part of the property
thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to Borrower
or any of its Material Subsidiaries or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect
shall be commenced and an order for relief entered or such proceeding
shall not be dismissed or discharged within thirty (30) days of
commencement; or
(h) Judgements. (i) One or more judgments, orders, decrees or
arbitration awards requiring Borrower and/or its Subsidiaries to pay an
aggregate amount of $2,500,000 or more (exclusive of amounts covered by
insurance issued by an insurer not an Affiliate of Borrower and
otherwise satisfying the requirements set forth in Subparaqraph 5.01(d)
shall be rendered against Borrower and/or any of its Subsidiaries in
connection with any single or related series of transactions, incidents
or circumstances and the same shall not be vacated or stayed for a
period of twenty (20) consecutive days; (ii) any judgment, writ,
assessment, warrant of attachment, tax lien or execution or similar
process shall be issued or levied against a substantial part of the
property of Borrower or any of its Subsidiaries and the same shall not
be released, stayed, vacated or otherwise dismissed within twenty (20)
days after issue or levy; or (iii) any other judgments, orders,
decrees, arbitration awards, writs, assessments, warrants of
attachment, tax liens or executions or similar processes which, alone
or in the aggregate, are reasonably likely to have a Material Adverse
Effect are rendered, issued or levied; or
(i) Credit Documents. Any Credit Document or any material term
thereof shall cease to be, or be asserted by Borrower or any of its
Subsidiaries not to be, a legal,
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<PAGE> 61
valid and binding obligation of Borrower or any of its Subsidiaries
enforceable in accordance with its terms; or
(j) ERISA. Any Reportable Event which constitutes grounds for the
termination of any Employee Benefit Plan by the PBGC or for the
appointment of a trustee by the PBGC to administer any Employee Benefit
Plan shall occur, or any Employee Benefit Plan shall be terminated
within the meaning of Title IV of ERISA or a trustee shall be appointed
by the PBGC to administer any Employee Benefit Plan; or
(k) Change of Control. Any Change of Control shall occur; or
(1) Material Adverse Effect. Any event(s) or conditions which
is(are) reasonably likely to have a Material Adverse Effect shall occur
and be continuing or exist.
6.02. Remedies. At any time after the occurrence and during the
continuance of any Event of Default (other than an Event of Default referred to
in Subparagraph 6.01(f) or 6.01(g) Agent may, with the consent of the Required
Leaders, or shall, upon instructions from the Required Lenders, by written
notice to Borrower, (a) terminate the Commitments and the obligations of the
Lenders to make Loans, and/or (b) declare all outstanding Obligations payable by
Borrower to be immediately due and payable without presentment, demand, protest
or any other notice of any kind, all of which are hereby expressly waived,
anything contained herein or in the Notes to the contrary notwithstanding. Upon
the occurrence or existence of any Event of Default described in Subparagragh
6.01(f) or 6.01(g), immediately and without notice, (1) the Commitments and the
obligations of the Lenders to make Loans shall automatically terminate and (2)
all outstanding obligations payable by Borrower hereunder shall automatically
become immediately due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the Notes to the contrary notwithstanding. In addition to
the foregoing remedies, upon the occurrence or existence of any Event of
Default, Agent may exercise any other right, power or remedy available to it
under any of the Credit Documents or otherwise by law, either by suit in equity
or by action at law, or both.
SECTION VII. THE AGENT AND RELATIONS AMONG LENDERS.
7.01. Appointment, Powers and Immunities. Each Lender hereby appoints
and authorizes Agent to act as its agent hereunder and under the other Credit
Documents with such powers as are expressly delegated to Agent by the terms of
this Agreement and the other Credit Documents, together with such other powers
as are reasonably incidental thereto. Agent shall
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<PAGE> 62
not have any duties or responsibilities except those expressly set forth in this
Agreement or in any other Credit Document, be a trustee for any Lender or have
any fiduciary duty to any Lender. Notwithstanding anything to the contrary
contained herein Agent shall not be required to take any action which is
contrary to this Agreement or any other Credit Document or any applicable
Governmental Rule. Neither Agent nor any Lender shall be responsible to any
other Lender for any recitals, statements, representations or warranties made by
Borrower or any of its Subsidiaries contained in this Agreement or in any other
Credit Document, for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Credit Document or
for any failure by Borrower or any of its Subsidiaries to perform their
respective obligations hereunder or thereunder. Agent may employ agents and
attorneys-in-fact and shall not be responsible to any Lender for the negligence
or misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. Neither Agent nor any of its directors, officers, employees,
agents or advisors shall be responsible to any Lender for any action taken or
omitted to be taken by it or them hereunder or under any other Credit Document
or in connection herewith or therewith, except for its or their own gross
negligence or willful misconduct. Except as otherwise provided under this
Agreement, Agent shall take such action with respect to the Credit Documents as
shall be directed by the Required Lenders.
7.02. Reliance by Agent. Agent shall be entitled to rely upon any
certificate, notice or other document (including any cable, telegram, facsimile
or telex) believed by it in good faith to be genuine and correct and to have
been signed or sent by or on behalf of the proper Person or Persons, and upon
advise and statements of legal counsel, independent accountants and other
experts selected by Agent with reasonable care. As to any other matters not
expressly provided for by this Agreement, Agent shall not be required to take
any action or exercise any discretion, but shall be required to act or to
refrain from acting upon instructions of the Required Lenders and shall in all
cases be fully protected by the Lenders in acting, or in refraining from acting,
hereunder or under any other Credit Document in accordance with the instructions
of the Required Lenders, and such instructions of the Required Lenders and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders.
7.03. Defaults. Agent shall not be deemed to have knowledge or notice
of the occurrence of any Default unless Agent has received a written notice from
a Lender or Borrower, referring to this Agreement, describing such Default and
stating that such notice is a "Notice of Default". If Agent receives such a
notice of the occurrence of a Default, Agent shall give prompt notice thereof to
the Lenders. Agent shall take such action with respect to such Default as shall
be reasonably directed by the Required Lenders; provided, however, that until
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<PAGE> 63
Agent shall have received such directions, Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Default as it shall deem advisable in the best interest of the Lenders.
7.04. Indemnification. Without limiting the Obligations of Borrower
hereunder, each Lender agrees to indemnify Agent, ratably in accordance with
their Proportionate Shares, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may at any time be imposed on, incurred
by or asserted against Agent in any way relating to or arising out of this
Agreement or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or the enforcement of any of the
terms hereof or thereof; provided, however, that no Lender shall be liable for
any of the foregoing to the extent they arise from Agent's gross negligence or
willful misconduct. Agent shall be fully justified in refusing to take or in
continuing to take any action hereunder unless it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
The obligations of each Lender under this Paragraph 7.04 shall survive
the payment and performance of the Obligations, the termination of this
Agreement and any Lender ceasing to be a party to this Agreement (with respect
to events which occurred prior to the time such Lender ceased to be a Lender
hereunder).
7.05. Non-Reliance. Each Lender represents that it has, independently
and without reliance on Agent, or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own appraisal of the
business, prospects, management, financial condition and affairs of Borrower and
the Subsidiaries and its own decision to enter into this Agreement and agrees
that it will, independently and without reliance upon Agent or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own appraisals and decisions in taking or not taking
action under this Agreement. Neither Agent nor any of its affiliates nor any of
their respective directors, officers, employees, agents or advisors shall (a) be
required to keep any Lender informed as to the performance or observance by
Borrower or any of its Subsidiaries of the obligations under this Agreement or
any other document referred to or provided for herein or to make inquiry of, or
to inspect the properties or books of Borrower or any of its Subsidiaries; (b)
have any duty or responsibility to provide any Lender with any credit or other
information concerning Borrower or any of its Subsidiaries which may come into
the possession of Agent, except for notices, reports and other documents and
information expressly required to be furnished to the Lenders by Agent
hereunder; or (c) be responsible to any Lender for (i) any recital, statement,
representation or warranty made by Borrower or any officer, employee or agent of
Borrower in this Agreement or in any of the
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other Credit Documents, (ii) the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any Credit Document, (iii)
the value or sufficiency of any collateral or the validity or perfection of any
of the liens or security interests intended to be created by the Credit
Documents, or (iv) any failure by Borrower to perform its obligations under
this Agreement or any other Credit Document.
7.06. Resignation or Removal of Agent. Agent may resign at any time by
giving thirty (30) days prior written notice thereof to Borrower and the
Lenders, and Agent may be removed at any time with or without cause by the
Required Lenders. Upon any such resignation or removal, the Required Lenders
shall have the right to appoint a successor Agent, which Agent, if not a Lender,
shall be reasonably acceptable to Borrower; provided, however, that Borrower
shall have no right to approve a successor Agent if a Default has occurred and
is continuing. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from the duties and obligations
thereafter arising hereunder. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Section VII shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as Agent.
7.07. Authorization. Agent is hereby authorized by the Lenders to
execute, deliver and perform, each of the Credit Documents to which Agent is or
is intended to be a party and each Lender agrees to be bound by all of the
agreements of Agent contained in the Credit Documents.
7.08. Agent in its Individual Capacity. Agent and its affiliates may
make loans to, accept deposits from and generally engage in any kind of banking
or other business with Borrower and its Subsidiaries and affiliates as though
Agent were not Agent hereunder. With respect to Loans, if any, made by Agent in
its capacity as a Lender, Agent in its capacity as a Lender shall have the same
rights and powers under this Agreement and the other Credit Documents as any
other Lender and may exercise the same as though it were not Agent, and the
terms "Lender" or "Lenders" shall include Agent in its capacity as a Lender.
SECTION VIII. MISCELLANEOUS.
8.01. Notices. Except as otherwise provided herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Borrower, any Lender or Agent under this Agreement or the other Credit Documents
shall be in writing and faxed, mailed or delivered, if to Borrower or Agent, at
its respective facsimile number or address set forth below or, if to any Lender,
at the address or facsimile number specified beneath
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the heading "Address for Notices" under the name of such Lender in Schedule I
(or to such other facsimile number or address for any party as indicated in any
notice given by that party to the other parties). All such notices and
communications shall be effective (a) when sent by Federal Express or other
overnight service of recognized standing, on the Business Day following the
deposit with such service; (b) when mailed, first class postage prepaid and
addressed as aforesaid through the United States Postal Service, upon receipt;
(c) when delivered by hand, upon delivery; and (d) when faxed, upon confirmation
of receipt; provided, however, that any notice delivered to Agent under Section
II shall not be effective until received by Agent.
Agent: ABN AMRO Bank N.V
ABN AMRO Bank North America, Inc.
Capital, Markets-Syndications Group
1325 Avenue of the Americas, 9th Floor
New York, NY 10019
Attn: Linda Boardman
Telephone: (212) 314-1724
Fax: (212) 314-1709
With a copy to:
ABN AMRO Bank N. V.
ABN AMRO Bank North America, Inc.
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Robin Yim
Telephone: (415) 984-3712
Fax: (415) 362-3524
Borrower: Novellus Systems, Inc.
3970 North First Street
San Jose, CA 95134
Attn: Chief Financial Officer
Telephone: (408) 943-3460
Fax No: (408) 943-3422
Each Notice of Borrowing and Notice of Interest Period Selection shall be given
by Borrower to Agent's office located at the address referred to above during
Agent's normal business hours; provided, however, that any such notice received
by Agent after 10:00 a.m. on any Business Day shall be deemed received by Agent
on the next Business Day. In any case where this Agreement authorizes notices,
requests, demands or other communications by Borrower to Agent or any Lender to
be made by telephone or facsimile, Agent or any Lender may conclusively presume
that anyone purporting to be a person designated in any incumbency certificate
or other similar document received by Agent or a Lender is such a person.
8.02. Expenses. Borrower shall pay on demand, whether or not any Loan
is made hereunder, (a) all reasonable fees and
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expenses, including reasonable attorneys' fees and expenses incurred by Agent in
connection with the preparation, negotiation, execution and delivery of, and the
exercise of its duties under, this Agreement and the other Credit Documents, and
the preparation, negotiation, execution and delivery of amendments and waivers
thereunder and thereunder and (b) all reasonable fees and expenses, including
reasonable attorneys' fees and expenses, incurred by Agent and the Lenders in
the enforcement or attempted enforcement of any of the Obligations or in
preserving any of Agent's or the Lenders' rights and remedies (including,
without limitation all such fees and expenses incurred in connection with any
"workout" or restructuring affecting the Credit Documents or the Obligations or
any bankruptcy or similar proceeding involving Borrower or any of its
Subsidiaries). As used herein, the term "reasonable attorneys, fees and
expenses" shall include, without limitation, allocable costs and expenses of
Agent's and Lenders' in-house legal counsel and staff. The obligations of
Borrower under this Paragraph 8.02 shall survive the payment and performance of
the Obligations and the termination of this Agreement.
8.03. Indemnification. To the fullest extent permitted by law, Borrower
agrees to protect, indemnity, defend and hold harmless Agent, the Lenders and
their Affiliates and their respective directors, officers, employees, agents and
advisors ("Indemnities") from and against any and all liabilities, losses,
damages or expenses of any kind or nature and from any suits, claims or demands
(including in respect of or for reasonable attorney's fees and other expenses)
arising on account of or in connection with any matter or thing or action or
failure to act by Indemnitees, or any of them, arising out of or relating to the
Credit Documents or any transaction contemplated thereby, including without
limitation any use by Borrower of any proceeds of the Loans, except to the
extent such liability arises from the willful misconduct or gross negligence of
such Indemnitee. Upon receiving knowledge of any suit, claim or demand asserted
by a third party that Agent or any Lender believes is covered by this indemnity,
Agent or such Lender shall give Borrower notice of the matter and an opportunity
to defend it, at Borrower's sole cost and expense, with legal counsel
satisfactory to Agent or such Lender, as the case may be. Agent or such Lender
may also require Borrower to defend the matter. Any failure or delay of Agent or
any Lender to notify Borrower of any such suit, claim or demand shall not
relieve Borrower of its obligations under this Paragraph 8.03 but shall reduce
such obligations to the extent of any increase in those obligations caused
solely by any such failure or delay which is unreasonable. The obligations of
Borrower under this Paragraph 8.03 shall survive the payment and performance of
the Obligations and the termination of this Agreement.
8.04. Waivers; Amendments. Any term, covenant, agreement or condition
of this Agreement or any other Credit Document may be amended or waived, and any
consent under this
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Agreement or any other Credit Document may be given, it such amendment, waiver
or consent is in writing and is signed by Borrower and the Required Lenders (or
Agent on behalf of the Required Lenders with the written approval of the
Required Lenders); provided, however that:
(a) Any amendment, waiver or consent which would (i) increase the
Total Commitment, (ii) extend the Maturity Date, (iii) reduce the
principal of or interest on any Loan or any fees or other amounts
payable for the account of the Lenders hereunder, (iv) extend any
scheduled principal, interest or fee payment date, (v) amend this
Paragraph 8.04, or (vi) amend the definition of Required Lenders, must
be in writing and signed or approved in writing by all Lenders;
(b) Any amendment, waiver or consent which increases or decreases
the Proportionate Share of any Lender must be in writing and signed by
such Lender; and
(c) Any amendment, waiver or consent which affects the rights or
obligations of Agent must be in writing and signed by Agent.
No failure or delay by Agent or any Lender in exercising any right under this
Agreement or any other Credit Document shall operate as a waiver thereof or of
any other right hereunder or thereunder nor shall any single or partial exercise
of any such right preclude any other further exercise thereof or of any other
right hereunder or thereunder. Unless otherwise specified in such waiver or
consent, a waiver or consent given hereunder shall be effective only in the
specific instance and for the specific purpose for which given.
8.05. Successors and Assigns.
(a) Binding Effect. This Agreement and the other Credit Documents
shall be binding upon and inure to the benefit of Borrower, the
Lenders, Agent, all future holders of the Notes and their respective
successors and permitted assigns, except that Borrower may not assign
or transfer any of its rights or obligations under any Credit
Document without the prior written consent of Agent and each Lender.
All references in this Agreement to any Person shall be deemed to
include all successors and assigns of such Person.
(b) Participations. Any Lender may at any time sell to one or more
banks or other financial institutions ("Participants") participating
interests in any Loan owing to such Lender, any Note held by such
Lender, any Commitment of such Lender or any other interest of such
Lender under this Agreement and the other Credit Documents. In the
event of any such sale by a Lender of participating interests, such
Lender's obligations under this Agreement shall remain unchanged, such
Lender shall remain solely responsible for
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<PAGE> 68
the performance thereof, such Lender shall remain the holder of its
Notes for all purposes under this Agreement and Borrower and Agent
shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement. Any agreement pursuant to which any such sale is effected
may require the selling Lender to obtain the consent of the Participant
in order for such Lender to agree in writing to any amendment, waiver
or consent of a type specified in clause (i), (ii), (iii) or (iv) of
Subparagraph 8.04(a) but may not otherwise require the Selling Lender
to obtain the consent of such Participant to any other amendment,
waiver or consent hereunder. Borrower agrees that if amounts
outstanding under this Agreement and the other Credit Documents are not
paid when due (whether upon acceleration or otherwise), each
Participant shall, to the fullest extent permitted by law be deemed to
have the right of setoff in respect of its participating interest in
amounts owing under this Agreement and any other Credit Documents to
the same extent as if the amount of its participating interest were
owing directly to it as a Lender under this Agreement or any other
Credit Documents; provided, however, that no Participant shall
exercise any rights under this sentence without the consent of Agent,
(ii) no Participant shall have any rights under this sentence which are
greater than those of the selling Lender and (iii) such rights of
setoff shall be subject to the obligation of such Participant to share
the payment so obtained with all of the Lenders as provided in
Subparagraph 2.13(b). Borrower also agrees that any Lender which has
transferred any participating interest in its Commitment or Loans
shall, notwithstanding any such transfer, be entitled to the full
benefits accorded such Lender under Paragraph 2.14, Paragraph 2.15, and
Paragraph 2.16, as if such Lender had not made such transfer.
(c) Assignments. Any Lender may, at any time, sell and assign to
any other Lender or to any eligible Assignee (individually, an
"Assignee Lender") all or a portion of its rights and obligations under
this Agreement and the other Credit Documents (such a sale and
assignment to be referred to herein as an "Assignment") pursuant to an
assignment agreement in the form of Exhibit D (an "Assignment
Agreement"), executed by each Assignee Lender and such assignor Lender
(an "Assignor Lender") and delivered to Agent for its acceptance and
recording in the Register; Provided, however, that:
(i) Without the written consent of Agent and, if no Default has
occurred and is continuing, Borrower (which consent of Agent and
Borrower shall not be unreasonably withheld), no Lender way make
any Assignment to any Assignee Lender which is not, immediately
prior to such Assignment, a Lender hereunder or an Affiliate
thereof; or
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<PAGE> 69
(ii) Without the written consent of Agent and, if no Default
has occurred and is continuing, Borrower (which consent of Agent
and Borrower shall not be unreasonably withheld), no Lender may
make any Assignment to any Assignee Lender if, after giving effect
to such Assignment, the Commitment of such Lender or such Assignee
Lender would be less than Ten Million Dollars ($10,000,000) (except
that a Lender may make an Assignment which reduces its Commitment
to zero without the written consent of Borrower and Agent); or
(iii) Without the written consent of Agent and, if no Default
has occurred and is continuing, Borrower (which consent of Agent
and Borrower shall not be unreasonably withheld), no Lender may
make any Assignment which does not assign and delegate an equal pro
rata interest in such Lenders Loans, Commitments and all other
rights, duties and obligations of such Lender under this Agreement
and the other Credit Documents and under the Related Lease
Documents.
Upon such execution, delivery, acceptance and recording of each
Assignment Agreement, from and after the Assignment Effective Date
determined pursuant to such Assignment Agreement, (A) each Assignee
Lender thereunder shall be a Lender hereunder with a Proportionate
Share as set forth on Attachment I to such Assignment Agreement (under
the caption "Proportionate Share After Assignment") and shall have the
rights, duties and obligations of such a Lender under this Agreement
and the other Credit Documents, and (B) the Assignor Lender thereunder
shall be a Lender with a Proportionate Share as set forth on Attachment
I to such Assignment Agreement (under the caption "Proportionate Share
After Assignment"), or, if the Proportionate Share of the Assignor
Lender has been reduced to 0%, the Assignor Lender shall cease to be a
Lender and to have any obligation to make any Loan; provided, however,
that any such Assignor Lender which ceases to be a Lender shall
continue to be entitled to the benefits of any provision of this
Agreement which by its terms survives the termination of this
Agreement. Each Assignment Agreement shall be deemed to amend Schedule
I to the extent, and only to the extent, necessary to reflect the
addition of each Assignee Lender, the deletion of each Assignor Lender
which reduces its Proportionate Share to 0% and the resulting
adjustment of Proportionate Shares arising from the purchase by each
Assignee Lender of all or a portion of the rights and obligations of an
Assignor Lender under this Agreement and the other Credit Documents. On
or prior to the Assignment Effective Date determined pursuant to each
Assignment Agreement, Borrower, at its own expense, shall execute and
deliver to Agent, in exchange for the surrendered Note of the Assignor
Lender thereunder, a new Note to the order of each Assignee Lender
thereunder (with each new Note to be in
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an amount equal to the commitment assumed by such Assignee Lender) and,
if the Assignor Lender is continuing as a Lender hereunder, a new Note
to the order of the Assignor Lender (with the new Note to be in an
amount equal to the Commitment retained by it). Each such new Note
shall be dated the Closing Date, and each such new Note shall otherwise
be in the form of the Note replaced thereby. The Notes surrendered by
the Assignor Lender shall be returned by Agent to Borrower marked
"replaced". Each Assignee Lender which was not previously a Lender
hereunder and which is not incorporated under the laws of the United
States of America or a state thereof shall, within three (3) Business
Days of becoming a Lender, deliver to Borrower and Agent two duly
completed copies of United States Internal Revenue Service Form 1001 or
4224 (or successor applicable form), as the case may be, certifying in
each case that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal
income taxes. (Without limiting the generality of any of the preceding
provisions of this Subparagraph 8.05(c), no Lender may, if Borrower
shall object in writing, make any Assignment to any Assignee Lender
that, at the time of such Assignment, (1) has a basis for demanding any
payment under Subparagraph 2.14 (c) or Subparagraph 2.14 (d) in excess
of the pro rata amount that then could be demanded thereunder by the
Lender proposing to make such Assignment or (2) would require Borrower
to make any payment under Subparagraph 2.15(a) on account of payments
to such Assignee Lender in excess of the pro rata amount that Borrower
was then required to make thereunder on account of payments to the
Lender proposing to make such Assignment.)
(d) Register. Agent shall maintain at its address referred to in
Paragraph 8.01 a copy of each Assignment Agreement delivered to it and
a register (the "Register") for the recordation of the names and
addresses of the Lenders and the Proportionate shares of each Lender
from time to time. The entries in the Register shall be conclusive in
the absence of manifest error, and Borrower, Agent and the Lenders may
treat each Person whose name is recorded in the Register as the owner
of the Loans recorded therein for all purposes of this Agreement. The
Register shall be available for inspection by Borrower or any Lender at
any reasonable time and from time to time upon reasonable prior notice.
(e) Registration. Upon its receipt of an Assignment Agreement
executed by an Assignor Lender and an Assignee Lender (and, to the
extent required by Subparagraph 8.05(c), by Borrower and Agent)
together with payment to Agent by Assignor Lender of a registration and
processing fee of $2,500, Agent shall (i) promptly accept such
Assignment Agreement and (ii) on the Effective Date determined pursuant
thereto record the information contained therein in the
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Register and give notice of such acceptance and recordation to the
Lenders and Borrower. Agent may, from time to time at its election,
prepare and deliver to the Lenders and Borrower a revised Schedule I
reflecting the names, addresses and respective Proportionate Shares of
all Lenders then parties hereto.
(f) Confidentiality. Subject to Subparagraph 8.11(g), Agent and the
Lenders may disclose the Credit Documents and any financial or other
information relating to Borrower or any Subsidiary to each other or to
any potential Participant or Assignee Lender.
8.06. Setoff. In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, with the prior consent of
Agent but without prior notice to or consent of Borrower, any such notice and
consent being expressly waived by Borrower to the extent permitted by applicable
law, upon the occurrence and during the continuance of an Event of Default, to
set-off and apply against the Obligations any amount owing from such Lender to
Borrower. The aforesaid right of set-off may be exercised by such Lender against
Borrower or against any trustee in bankruptcy, debtor in possession, assignee
for the benefit of creditors, receiver or execution, judgment or attachment
creditor of Borrower or against anyone else claiming through or against Borrower
or such trustee in bankruptcy, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off may not have been exercised
by such Lender at any prior time. Each Lender agrees promptly to notify Borrower
after any such set-off and application made by such Lender, provided that the
failure to give such notice shall not affect the validity of such set-off and
application.
8.07. No Third Party-Rights. Nothing expressed in or to be implied from
this Agreement is intended to give, or shall be construed to give, any Person,
other than the parties hereto and their permitted successors and assigns
hereunder, any benefit or legal or equitable right, remedy or claim under or by
virtue of this Agreement or under or by virtue of any provision herein.
8.08. Partial Invalidity. If at any time any provision of this
Agreement is or becomes illegal, invalid or unenforceable in any respect under
the law or any jurisdiction, neither the legality, validity or enforceability
of the remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
8.09. Jury Trial. EACH OF BORROWER, THE LENDERS AND AGENT, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT.
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8.10. Counterparts. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
8.11. Confidentiality. Neither Agent nor any Lender shall disclose to
any Person any information with respect to Borrower or any of its Subsidiaries
which is furnished pursuant to this Agreement, except that Agent or any Lender
may disclose any such information (a) to its own directors, officers, employees,
auditors, counsel and other advisors and to its Affiliates; (b) to any other
Lender or Agent; (c) which is otherwise available to the public; (d) if required
or appropriate in any report, statement or testimony submitted to any
Governmental Authority having or claiming to have jurisdiction over such Lender
or Agent; (e) if required or appropriate in response to any summons or subpoena
or in connection with any litigation; (f) to comply with any Requirement of Law
applicable to such Lender or Agent; (g) to any Participant or Assignee Lender or
any prospective Participant or Assignee Lender, provided that such Participant
or Assignee Lender or prospective Participant or Assignee Lender agrees to be
bound by this Paragraph 8.11; or (h) otherwise with the prior consent of
Borrower; provided, however, that any disclosure made in violation of this
Agreement shall not affect the obligations of Borrower and its Subsidiaries
under this Agreement and the other Credit Documents.
[The first signature page follows.]
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IN WITNESS WHEREOF, Borrower, the Lenders and Agent have caused this
Agreement to be executed as of the day and year first above written.
BORROWER: NOVELLUS SYSTEMS, INC.
By: /s/ JOHN CHENAULT
----------------------------------
Name: John Chenault
-----------------------------
Title: Executive V.P., Operations
----------------------------
AGENT: ABN AMRO BANK N.V.
By: /s/ ROBIN S. YIM
----------------------------------
Name: Robin S. Yim
-----------------------------
Title: Group Vice President
----------------------------
By: /s/ ROBERT N. HARTINGER
----------------------------------
Name: Robert N. Hartinger
-----------------------------
Title: Senior Vice President
----------------------------
LENDERS: ABN AMRO BANK N.V.
By: /s/ ROBIN S. YIM
----------------------------------
Name: Robin S. Yim
-----------------------------
Title: Group Vice President
----------------------------
By: /s/ ROBERT N. HARTINGER
----------------------------------
Name: Robert N. Hartinger
-----------------------------
Title: Senior Vice President
----------------------------
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The following exhibits / schedules to the Credit Agreement have been omitted.
Such exhibits / schedules will be submitted to the Securities and Exchange
Commission upon request:
Schedules
I Lenders
1.01 Pricing Grid
3.01 Initial Conditions Precedent
4.01(g) Litigation
4.01(q) Subsidiaries
5.02(a) Existing Indebtedness
5.02(b) Existing Liens
5.02(e) Existing Investments
Exhibits
A Notice of Borrowing (2.02)
B Notice of Interest Period Selection (2.04(b))
C Note (2.11(a))
D Assignment Agreement (8.05(c))
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<PAGE> 1
Escrow No. 513032
Recording requested by and
when recorded return to: Exhibit 10.3
Thomas Y. Coleman, Esq. Doc# 13735219
Orrick, Herrington & Sutcliffe 6/10/1997 2:45pm
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California 94111
----------------------------------------------------------------------------
FACILITY 1 LEASE AGREEMENT
DEED OF TRUST WITH ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
BETWEEN
NOVELLUS SYSTEMS, INC.
AND
LEASE PLAN NORTH AMERICA, INC.
JUNE 9, 1997
----------------------------------------------------------------------------
<PAGE> 2
LEASE AGREEMENT
TABLE OF CONTENTS
SECTION I. INTERPRETATION
1.01. DEFINITIONS______________________________________________________2
1.02. RULES OF CONSTRUCTION____________________________________________2
SECTION II. BASIC PROVISIONS
2.01. LEASE OF THE FACILITY 1 PROPERTY_________________________________2
2.02. TERM_____________________________________________________________2
2.03. RENT_____________________________________________________________3
2.04. USE______________________________________________________________5
2.05. "AS IS" LEASE____________________________________________________5
2.06. NATURE OF TRANSACTION____________________________________________5
2.07. SECURITY, ETC____________________________________________________6
SECTION III. OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS
3.01. MAINTENANCE, REPAIR, ETC_________________________________________8
3.02. RISK OF LOSS_____________________________________________________8
3.03. INSURANCE________________________________________________________8
3.04. CASUALTY AND CONDEMNATION_______________________________________11
3.05. TAXES___________________________________________________________14
3.06. ENVIRONMENTAL MATTERS___________________________________________14
3.07. LIENS, EASEMENTS, ETC___________________________________________16
3.08. SUBLETTING______________________________________________________17
3.09. UTILITY CHARGES_________________________________________________17
3.10. REMOVAL OF FACILITY 1 PROPERTY__________________________________17
3.11. COMPLIANCE WITH GOVERNMENTAL RULES AND INSURANCE REQUIREMENTS___17
3.12. PERMITTED CONTESTS______________________________________________17
3.13. LESSOR OBLIGATIONS; RIGHT TO PERFORM LESSEE OBLIGATIONS_________18
3.14. INSPECTION RIGHTS_______________________________________________18
i
<PAGE> 3
SECTION IV. EXPIRATION DATE
4.01. TERMINATION BY LESSEE PRIOR TO SCHEDULED EXPIRATION DATE________19
4.02. SURRENDER OF FACILITY 1 PROPERTY________________________________19
4.03. HOLDING OVER____________________________________________________19
SECTION V. DEFAULT
5.01. EVENTS OF DEFAULT_______________________________________________19
5.02. GENERAL REMEDIES________________________________________________22
5.03. LEASE REMEDIES__________________________________________________22
5.04. LOAN REMEDIES___________________________________________________23
5.05. REMEDIES CUMULATIVE_____________________________________________26
5.06. NO CURE OR WAIVER_______________________________________________26
5.07. EXERCISE OF RIGHTS AND REMEDIES_________________________________27
SECTION VI.
MISCELLANEOUS
6.01. NOTICES_________________________________________________________28
6.02. WAIVERS; AMENDMENTS_____________________________________________28
6.03. SUCCESSORS AND ASSIGNS__________________________________________28
6.04. NO THIRD PARTY RIGHTS___________________________________________28
6.05. PARTIAL INVALIDITY______________________________________________28
6.06. GOVERNING LAW___________________________________________________28
6.07. COUNTERPARTS____________________________________________________28
6.08. NATURE OF LESSEE'S OBLIGATIONS__________________________________28
ii
<PAGE> 4
EXHIBITS
A Facility 1 Land (2.01(a))
SCHEDULES
1 Hazardous Materials used on the Facility 1 Land
iii
<PAGE> 5
FACILITY 1 LEASE AGREEMENT
DEED OF TRUST WITH ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS FACILITY 1 LEASE AGREEMENT, CONSTRUCTION DEED OF TRUST WITH
ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this "Agreement"
herein), dated as of June 9, 1997 is entered into by and between:
(1) Novellus Systems, Inc., a California corporation
("Lessee"); and
(2) LEASE PLAN NORTH AMERICA, INC., an Illinois corporation
("Lessor").
RECITALS
A. Lessee has requested Lessor and the financial institutions which are
"Participants" under the Participation Agreement referred to in Recital B below
(such financial institutions to be referred to collectively as the
"Participants") to provide to Lessee a certain lease facility pursuant to which:
(1) Lessor would (a) purchase certain parcels of real property
designated by Lessee, (b) lease such real property to Lessee as and
when acquired by Lessor, (c) make advances to finance certain related
expenses, and (d) grant to Lessee the right to purchase such parcels of
real property; and
(2) The Participants would participate in such lease facility
by (a) funding the purchase prices and other advances to be made by
Lessor and (b) acquiring participation interests in the rental and
certain other payments to be made by Lessee.
B. Pursuant to a Participation Agreement dated of even date herewith
(the "Participation Agreement") among Lessee, Lessor, the Participants and ABN
AMRO Bank N.V., as agent for the Participants (in such capacity, "Agent"),
Lessor and the Participants have agreed to provide such lease facility upon the
terms and subject to the conditions set forth therein, including without
limitation the execution and delivery of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1
<PAGE> 6
SECTION I. INTERPRETATION.
1.01. Definitions. Unless otherwise indicated in this Agreement or any
other Operative Document, each term set forth in Schedule 1.01 to the
Participation Agreement, when used in this Agreement or any other Operative
Document, shall have the respective meaning given to that term in such Schedule
1.01 or in the provision of this Agreement or other document, instrument or
agreement referenced in such Schedule 1.01.
1.02. Rules of Construction. Unless otherwise indicated in this
Agreement or any other Operative Document, the rules of construction set forth
in Schedule 1.02 to the Participation Agreement shall apply to this Agreement
and the other Operative Documents.
SECTION II. BASIC PROVISIONS.
2.01. Lease of the Facility 1 Property. Subject to the acquisition
thereof by Lessor pursuant to the Participation Agreement and applicable
Acquisition Agreements either as of the date hereof or during the term hereof,
Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor the
following property (the "Facility 1 Property") to the extent of Lessor's estate,
right, title and interest therein, thereto or thereunder:
(a) All lots, pieces, tracts and parcels of land
described in Exhibit A together with such additional parcels of real
property as may be added to Exhibit A from time to time during the term
hereof (the "Facility 1 Land");
(b) All Appurtenant Rights;
(c) All Related Permits and Related Agreements; and
(d) All accessions and accretions to and replacements and
substitutions for the foregoing.
2.02. Term.
(a) Original Term. The original term of this Agreement
shall commence on the Closing Date (the "Commencement Date")
and shall end on the first Business Day of June, 2002 (such date as it
may be extended pursuant to Subparagraph 2.02(b) to be referred to as
the "Scheduled Expiration Date").
(b) Extensions. Lessee may request Lessor to extend the
Scheduled Expiration Date in effect at any time for an additional
period of three (3) years, as provided in Subparagraph 2.09(b) of the
Participation Agreement. If Lessor and each Participant consents to
such a request in accordance with such provision, the definition of
"Scheduled Expiration Date" set forth in Subparagraph 2.02(a) shall be
deemed extended to the date
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<PAGE> 7
which is the first business day of June, 2005. Lessee acknowledges
that neither Lessor nor any Participant has any obligation or
commitment (either express or implied) to extend, or consent to the
extension of, the Scheduled Expiration Date at any time.
2.03. Rent.
(a) Base Rent.
(i) Lessee shall pay as base rent hereunder ("Base Rent")
for each Rental Period (or portion thereof) an amount equal to
the sum of the following:
(A) The product of (1) the Rental Rate for
such Rental Period, times (2) the Outstanding Lease
Amount under Facility 1 on the first day of such
Rental Period (which shall include any Advance under
Facility 1 made on the first day of such Rental
Period), times (3) a fraction, the numerator of which
is the number of days in such Rental Period and the
denominator of which is 360; and
(B) If Lessor makes an Advance under
Facility 1 (other than any Advance on the Closing
Date) during such Rental Period on any day other than
the first day of such Rental Period, the product of
(1) the LIBOR Rental Rate for the Stub Period if the
Stub Period is greater than seven (7) days or the
Alternate Rental Period for the Stub Period if the
Stub Period is Seven (7) days or less, times (2) the
amount of such Advance, times (3) a fraction, the
numerator of which is the number of days in such Stub
Period and the denominator of which is 360.
If the Rental Rate shall change during any Rental Period, the
Rental Rate for such Rental Period shall be the weighted
average of the Rental Rates in effect from time to time during
such Rental Period.
(ii) The Term shall consist of the following rental
periods (individually, a "Rental Period"):
(A) The period which begins on the
Commencement Date and ends on the first Business Day
in the first calendar month immediately following the
month in which the Commencement Date occurs;
(B) Each successive period
thereafter which begins on the last day of the
immediately preceding Rental Period and ends one (1)
month thereafter on the first Business Day of a
calendar month through and including the Commitment
Termination Date; and
(C) Each successive period
thereafter which begins on the last day of the
immediately preceding Rental Period and ends one (1),
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two (2), three (3) or six (6) months thereafter, as
determined in accordance with this clause (ii), on
the first Business Day of a calendar month through
and including the Scheduled Expiration Date.
Lessee may select a Rental Period of one (1), two (2), three
(3) or six (6) months for the Rental Period which begins on
the Commitment Termination Date or for any Rental Period
thereafter by delivering to Lessor, at least three (3)
Business Days prior to the first day of such Rental Period, a
written notice of such selection (a "Notice of Rental Period
Selection"); provided, however, that (1) each Rental Period
shall begin and end on the first Business Day of a calendar
month, (2) no Rental Period shall end after the Scheduled
Expiration Date, (3) no Rental Period shall be longer than one
(1) month if a Default has occurred and is continuing on the
date three (3) Business Days prior to the first day of such
Rental Period and (4) each Rental Period for which Lessee
fails to make a selection in accordance with this clause (ii)
shall be one (1) month. Each Notice of Rental Period Selection
shall be delivered by first-class mail or facsimile as
required by Subparagraph 2.02(a) and Paragraph 7.01 of the
Participation Agreement; provided, however, that Lessee shall
promptly deliver the original of any Notice of Rental Period
Selection initially delivered by facsimile.
(iii) The rental rate for each Rental Period ("Rental
Rate") shall be the LIBOR Rental Rate for such Rental Period,
except as follows:
(A) If the Commencement Date is not the
first Business Day of a month, the Rental Rate for
the first Rental Period (which begins on the
Commencement Date) shall be the LIBOR Rental Rate for
the Stub Period for the Acquisition Advance made on
the Commencement Date if such Stub Period is greater
than seven (7) days or the Alternate Rental Rate for
such Stub Period if such Stub Period is seven (7)
days or less;
(B) The Rental Rate applicable during any
Stub Period to that portion of the Outstanding Lease
Amount under Facility 1 equal to the Acquisition
Advance made on the first day of such Stub Period
shall be the LIBOR Rental Rate for such Stub Period
if such Stub Period is greater than seven (7) days or
the Alternate Rental Rate for such Stub Period if
such Stub Period is seven (7) days or less: and
(C) The Rental Rate for any Rental Period
(or portion thereof) during which the LIBOR Rental
Rate is unavailable pursuant to Subparagraph 2.12(a)
or Subparagraph 2.12(b) of the Participation
Agreement shall be the Alternate Rental Rate.
(iv) Lessee shall pay Base Rent in arrears on (A) the last
day of each Rental Period and, in the case of any Rental
Period which exceeds three (3) months, each day occurring
every three (3) months after the first day of such Rental
Period (individually, a "Scheduled Rent Payment Date") and (B)
the Expiration Date.
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(b) Supplemental Rent. Lessee shall pay as supplemental rent
hereunder ("Supplemental Rent") all amounts (other than Base Rent, the
purchase price payable by Lessee for any purchase of the Facility 1
Property by Lessee pursuant to the Facility 1 Purchase Agreement and
the Residual Value Guaranty Amount payable under the Facility 1
Purchase Agreement) payable by Lessee under this Agreement and the
other Operative Documents. Lessee shall pay all Supplemental Rent
amounts on the dates specified in this Agreement and the other
Operative Documents for the payment of such amounts or, if no date is
specified for the payment of any such amount, upon the demand of Lessor
or any other Person to whom such amount is payable.
2.04. Use. Lessee may use the Facility 1 Property for office,
research and development, warehouse and manufacturing purposes, and for any
other purpose which is in compliance with applicable zoning laws and ordinances
for the Facility 1 Property.
2.05. "As Is" Lease. Lessee has conducted, or will conduct from time to
time with regard to property that may be added hereto after the date hereof, all
due diligence which it deems appropriate regarding the Facility 1 Property and
agrees that no Lessor Party has any obligation to conduct any such due
diligence. Lessee is leasing the Facility 1 Property "as is, with all faults"
without any representation, warranty, indemnity or undertaking by any Lessor
Party regarding any aspect of the Facility 1 Property, including (a) the
condition of the Facility 1 Property; (b) title to the Facility 1 Property
(including possession of the Facility 1 Property by any Person or the existence
of any Lien or any other right, title or interest in or to any of the Facility 1
Property in favor of any Person); (c) the value, habitability, usability,
design, operation or fitness for use of the Facility 1 Property; (d) the
availability or adequacy of utilities and other services to the Facility 1
Property; (e) any latent, hidden or patent defect in the Facility 1 Property;
(f) the zoning or status of the Facility 1 Property or any other restrictions on
the use of the Facility 1 Property; (g) the economics of the Facility 1
Property; (h) any Casualty or Condemnation; or (i) the compliance of the
Facility 1 Property with any applicable Governmental Rule or Insurance
Requirement; provided, however, that Lessor shall be obligated to remove Lessor
Liens to the extent required in Subparagraph 5.04(b) of the Participation
Agreement. Without limiting the generality of the foregoing, Lessee specifically
waives any covenant of quiet enjoyment except as otherwise provided in
Subparagraph 5.04(b) of the Participation Agreement.
2.06. Nature of Transaction. As more fully provided in Paragraph 2.10
of the Participation Agreement, Lessee and the Lessor Parties intend that the
transaction evidenced by this Agreement and the other Operative Documents
constitute an operating lease for accounting purposes and a loan secured by the
Facility 1 Property for all other purposes, including federal, state and local
income tax purposes and commercial, real estate and bankruptcy law purposes.
2.07. Security, Etc. In order to secure the Lessee Obligations and
otherwise to assure the Lessor Parties the benefits hereof in the event that the
transaction evidenced by this Agreement and the other Operative Documents is,
pursuant to the intent of Lessee and the Lessor Parties, treated as a loan for
certain purposes, Lessee hereby makes the following grants and agrees as
follows:
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(a) Real Property Security. As security for the Lessee
Obligations, Lessee hereby irrevocably and unconditionally grants,
conveys, transfers and assigns to Lessor, in trust for the benefit of
the Lessor Parties, with power of sale and right of entry and
possession, all estate, right, title and interest of Lessee in the
following property, whether now owned or hereafter acquired,
(collectively, the "Real Property Collateral"):
(i) The Facility 1 Land and all Appurtenant Rights;
(ii) All Subleases and Issues and Profits to the extent
such property constitutes real property;
(iii) All Related Agreements and Related Permits to the
extent such property constitutes real property;
(iv) All other Facility 1 Property to the extent such
property constitutes real property; and
(v) All proceeds of the foregoing, including Casualty and
Condemnation Proceeds.
(b) Personal Property Security. As security for the Lessee
Obligations, Lessee hereby irrevocably and unconditionally assigns and
grants to Lessor, for the benefit of the Lessor Parties, a security
interest in all estate, right, title and interest of Lessee in the
following property, whether now owned or hereafter acquired,
(collectively, the "Personal Property Collateral"):
(i) All Subleases and Issues and Profits to the extent
such property constitutes personal property;
(ii) All Related Agreements and Related Permits to the
extent such property constitutes personal property;
(iii) All deposit accounts, instruments, investment
property and monies held by any Lessor Party in connection
with this Agreement or any other Operative Document (including
any Repair and Restoration Account but excluding Cash
Collateral held by any Lessor Party pursuant to the Cash
Collateral Agreement);
(iv) All other Facility 1 Property to the extent such
property constitutes personal property;
(v) All proceeds of the foregoing, including Casualty and
Condemnation Proceeds.
(Cash Collateral held by Lessor Parties pursuant to the Cash Collateral
Agreement secures only the Lessee Obligations under the Purchase
Agreement.)
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(c) Absolute Assignment of Subleases, Issues and Profits.
Lessee hereby irrevocably assigns to Lessor, for the benefit of the
Lessor Parties, all of Lessee's estate, right, title and interest in,
to and under the Subleases and the Issues and Profits, whether now
owned or hereafter acquired. This is a present and absolute assignment,
not an assignment for security purposes only, and Lessor's right to the
Subleases and Issues and Profits is not contingent upon, and may be
exercised without possession of, the Facility 1 Property.
(i) Until the occurrence of an Event of Default, Lessee
shall have a revocable license to collect and retain the
Issues and Profits as they become due. Upon the occurrence of
an Event of Default, such license shall automatically
terminate, and Lessor may collect and apply the Issues and
Profits pursuant to Subparagraph 5.02(d) without further
notice to Lessee or any other party and without taking
possession of the Facility 1 Property. All Issues and Profits
thereafter collected by Lessee shall be held by Lessee as
trustee in a constructive trust for the benefit of Lessor.
Lessee hereby irrevocably authorizes and directs the
sublessees under the Subleases, without any need on their part
to inquire as to whether an Event of Default has actually
occurred or is then existing, to rely upon and comply with any
notice or demand by Lessor for the payment to Lessor of any
rental or other sums which may become due under the Subleases
or for the performance of any of the sublessees' undertakings
under the Subleases. Collection of any Issues and Profits by
Lessor shall not cure or waive any default or notice of
default hereunder or invalidate any acts done pursuant to such
notice.
(ii) The foregoing irrevocable assignment shall not cause
any Lessor Party to be (A) a mortgagee in possession; (B)
responsible or liable for (1) the control, care, management or
repair of the Facility 1 Property or for performing any of
Lessee's obligations or duties under the Subleases, (2) any
waste committed on the Facility 1 Property by the sublessees
under any of the Subleases or by any other Persons, (3) any
dangerous or defective condition of the Facility 1 Property,
or (4) any negligence in the management, upkeep, repair or
control of the Facility 1 Property resulting in loss or injury
or death to any sublessee, licensee, employee, invitee or
other Person; or (C) responsible for or impose upon any Lessor
Party any duty to produce rents or profits. No Lessor Party,
in the absence of gross negligence or willful disregard on its
part, shall be liable to Lessee as a consequence of (y) the
exercise or failure to exercise any of the rights, remedies or
powers granted to Lessor hereunder or (z) the failure or
refusal of Lessor to perform or discharge any obligation, duty
or liability of Lessee arising under the Subleases.
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SECTION III. OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS.
3.01. Maintenance, Repair, Etc.
(a) General. Lessee shall not permit any waste of the Facility
1 Property, except for ordinary wear and tear, and shall, at its sole
cost and expense, maintain the Facility 1 Property in accordance with
all applicable Governmental Rules and Insurance Requirements and on a
basis consistent with the operation and maintenance of commercial
properties comparable in type and location to the Facility 1 Property
and in compliance with prudent industry practice.
(b) Abandonment. Lessee shall not abandon the Facility 1
Property or any material portion thereof for any period in excess of
thirty (30) consecutive days during the term hereof, except as a part
of any New Improvements or Modifications as permitted herein.
(c) Maintenance. Lessee shall maintain the Facility 1 Property
and each material portion thereof in a manner consistent with other
similar properties in the San Jose area, except as a part of any New
Improvements undertaken pursuant to the Facility 2 Lease.
3.02. Risk of Loss. Lessee assumes all risks of loss arising from any
Casualty or Condemnation which arises or occurs prior to the Expiration Date or
while Lessee is in possession of the Facility 1 Property and all liability for
all personal injuries and deaths and damages to property suffered by any Person
on or in connection with the Facility 1 Property which arises or occurs prior to
the Expiration Date or while Lessee is in possession of the Facility 1 Property,
except in each case to the extent any such loss or liability is primarily caused
by the gross negligence or willful misconduct of a Lessor Party. Lessee hereby
waives the provisions of California Civil Code Sections 1932(1), 1932(2) and
1933(4), and any and all other applicable existing or future Governmental Rules
permitting the termination of this Agreement as a result of any Casualty or
Condemnation, and Lessor shall in no event be answerable or accountable for any
risk of loss of or decrease in the enjoyment and beneficial use of the Facility
1 Property as a result of any such event.
3.03. Insurance.
(a) Coverage. Lessee, at its sole cost and expense, shall
carry and maintain the following insurance coverage:
(i) At all times during the Term, commercial liability
insurance covering claims for injuries or death sustained by
persons or damage to property while on the Facility 1
Property, and workers' compensation insurance; and
(ii) At all times during the Term as appropriate, such
other insurance of the types customarily carried by a
reasonably prudent Person owning or operating
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properties similar to the Facility 1 Property in the same
geographic area as the Facility 1 Property.
Except as otherwise specifically required above, such insurance shall
be in amounts, in a form and with deductibles approved by Lessor, which
approval shall not be unreasonably withheld.
(b) Carriers. Any insurance carried and maintained by Lessee
pursuant to this Paragraph 3.03 shall be underwritten by an insurance
company which (i) has, at the time such insurance is placed and at the
time of each renewal thereof, a general policyholder rating of "A" and
a financial rating of at least 8 from A.M. Best and Company or any
successor thereto (or if there is none, an organization having a
similar national reputation) or (ii) is otherwise approved by Lessor
and Required Participants.
(c) Terms. Each insurance policy maintained by Lessee pursuant
to this Paragraph 3.03 shall provide as follows, whether through
endorsements or otherwise:
(i) Lessor and the Agent shall be named as additional
insured, in the case of each policy of liability insurance, or
additional loss payee, in the case of each policy of property
insurance.
(ii) In respect of the interests of Lessor in the policy,
the insurance shall not be invalidated by any action or by
inaction of Lessee or by any Person having temporary
possession of the Facility 1 Property while under contract
with Lessee to perform maintenance, repair, alteration or
similar work on the Facility 1 Property, and shall insure the
interests of Lessor regardless of any breach or violation of
any warranty, declaration or condition contained in the
insurance policy by Lessee, Lessor or any other additional
insured (other than by such additional insured, as to such
additional insured); provided, however, that the foregoing
shall not be deemed to (A) cause such insurance policies to
cover matters otherwise excluded from coverage by the terms of
such policies or (B) require any insurance to remain in force
notwithstanding non-payment of premiums except as provided in
clause (iii) below.
(iii) If the insurance policy is canceled for any reason
whatsoever, or substantial change is made in the coverage that
affects the interests of Lessor, or if the insurance coverage
is allowed to lapse for non-payment of premium, such
cancellation, change or lapse shall not be effective as to
Lessor for thirty (30) days after receipt by Lessor of written
notice from the insurers of such cancellation, change or
lapse.
(iv) No Lessor Party shall have any obligation or
liability for premiums, commissions, assessments, or calls in
connection with the insurance.
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<PAGE> 14
(v) The insurer shall waive any rights of set-off or
counterclaim or any other deduction, whether by attachment or
otherwise, that it may have against any Lessor Party.
(vi) The insurance shall be primary without right of
contribution from any other insurance that may be carried by
any Lessor Party with respect to its interest in the Facility
1 Property.
(vii) The insurer shall waive any right of subrogation
against any Lessor Party.
(viii) All provisions of the insurance, except the
limits of liability, shall operate in the same manner as if
there were a separate policy covering each insured party.
(ix) The insurance shall not be invalidated should Lessee
or any Lessor Party waive, in writing, prior to a loss, any or
all rights of recovery against any Person for losses covered
by such policy, nor shall the insurance in favor of any Lessor
Party or Lessee, as the case may be, or their respective
rights under and interests in said policies be invalidated or
reduced by any act or omission or negligence of any Lessee
Party or Lessor, as the case may be, or any other Person
having any interest in the Facility 1 Property.
(x) All insurance proceeds in respect of any loss or
occurrence with a value of less than two million five hundred
thousand dollars ($2,500,000) shall be paid to and adjusted
solely by Lessee. All other losses shall be adjusted jointly
by Lessor and Lessee with all proceeds for losses in excess of
two million five hundred thousand dollars ($2,500,000) paid to
Lessor, subject to the applicable provisions of the Operative
Documents, except from and after the date on which the insurer
receives written notice from Lessor that an Event of Default
exists (and unless and until such insurer receives written
notice from Lessor that all Events of Default have been
cured), all losses shall be adjusted solely by, and all
insurance proceeds shall be paid solely to, Lessor.
(xi) Each policy shall contain a standard form mortgage
endorsement in favor of Lessor.
(d) Evidence of Insurance. Lessee, at its sole cost and
expense, shall furnish to Lessor from time to time upon the request of
Lessor such certificates or other documents as Lessor may reasonably
request to evidence Lessee's compliance with the insurance requirements
set forth in this Paragraph 3.03.
(e) Release of Lessor Parties. Lessee hereby waives, releases
and discharges each Lessor Party and its directors, officers,
employees, agents and advisors from all claims whatsoever arising out
of any loss, claim, expense or damage to or destruction covered or
coverable by insurance required under this Paragraph 3.03
notwithstanding that such loss, claim, expense or damage may have been
caused by any such Person, and,
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as among Lessee and such Persons, Lessee agrees to look to the
insurance coverage only in the event of such loss.
3.04. Casualty and Condemnation.
(a) Notice. Lessee shall give Lessor prompt written notice of
the occurrence of any Casualty affecting, or the institution of any
proceedings for the Condemnation of, the Facility 1 Property or any
portion thereof.
(b) Repair or Purchase Option. After the occurrence of any
Casualty or Condemnation affecting the Facility 1 Property or any
portion thereof, Lessee shall either (i) repair and restore the
Facility 1 Property as required by Subparagraph 3.04(c) or (ii)
exercise the Term Purchase Option and purchase the Facility 1 Property
pursuant to the Purchase Agreement; provided, however, that Lessee may
not elect to repair and restore the Facility 1 Property if an Event of
Default has occurred and is continuing unless Lessor and the Required
Participants shall consent in writing. Not later than one (1) month
after the occurrence of any Casualty or Condemnation, Lessee shall
deliver to Lessor a written notice indicating whether it elects to
repair and restore or purchase the Facility 1 Property
(c) Repair and Restoration. If Lessee elects to repair and
restore the Facility 1 Property following any Casualty or Condemnation,
Lessee shall diligently proceed to repair and restore the Facility 1
Property to the condition in which it existed immediately prior to such
Casualty or Condemnation and shall complete all such repairs and
restoration not later than the earlier of (y) one (1) year after the
occurrence of the Casualty or Condemnation, and (z) six (6) months
prior to the Scheduled Expiration Date. Lessee shall use its own funds
to make such repairs and restoration, except to the extent any Casualty
and Condemnation Proceeds are available and are released to Lessee for
such purpose pursuant to Subparagraph 3.04(f). Lessee's exercise of the
repair and restoration option shall, if Lessor or Required Participants
direct, be subject to the following conditions:
(i) Deposit in a deposit account acceptable to and
controlled by Lessor (a "Repair and Restoration Account") of
funds (including any Casualty and Condemnation Proceeds which
are available and are released to Lessee pursuant to
Subparagraph 3.04(f)) in the amount which Lessor determines is
needed to complete and fully pay all costs of the repair or
restoration (including taxes, financing charges, insurance and
rent during the repair period);
(ii) The establishment of an arrangement for lien releases
and disbursement of funds acceptable to Lessor and in a manner
and upon such terms and conditions as would be required by a
prudent interim construction lender; and
(iii) The delivery to Lessor of the following, each in form
and substance acceptable to Lessor within ninety (90) days of
the occurrence of such Casualty of Condemnation;:
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(A) Evidence that the Facility 1 Property
can, in Lessor's reasonable judgment, with diligent
restoration or repair, be returned to a condition at
least equal to the condition thereof that existed
prior to the Casualty or partial Condemnation causing
the loss or damage within the earlier to occur of (A)
one (1) year after the Casualty and Condemnation, and
(B) six (6) months prior to the Scheduled Expiration
Date;
(B) Evidence that all necessary governmental
approvals can be timely obtained to allow the
rebuilding and reoccupancy of the Facility 1
Property;
(C) Copies of all plans and specifications
for the work;
(D) Copies of all contracts for the work,
signed by a contractor reasonably acceptable to
Lessor;
(E) A cost breakdown for the work;
(F) A payment and performance bond for the
work or other security satisfactory to Lender;
(G) Evidence that, upon completion of the
work, the size, capacity and total value of the
Facility 1 Property will be at least as great as it
was before the Casualty or Condemnation occurred; and
(H) Evidence of satisfaction of any
additional conditions that Lessor or Required
Participants may reasonably establish to protect
their rights under this Agreement and the other
Operative Documents.
All plans and specifications for the work must be reasonably
acceptable to Lessor, except that Lessor's approval shall not
be required if the restoration work is based on the same plans
and specifications as were originally used to construct the
Facility 1 Property. To the extent that the funds in a Repair
and Restoration Account include both Casualty and Condemnation
Proceeds and other funds deposited by Lessee, the other funds
deposited by Lessee shall be used first. Lessee acknowledges
that the specific conditions described above are reasonable.
(d) Prosecution of Claims for Casualty and Condemnation
Proceeds. Lessee shall proceed promptly and diligently to prosecute in
good faith the settlement or compromise of any and all claims for
Casualty and Condemnation Proceeds; provided, however, that any
settlement or compromise of any such claim shall, except as otherwise
provided in Section 3.03(c)(x), be subject to the written consent of
Lessor and Required Participants, which consents shall not be
unreasonably withheld. Lessor may participate in any proceedings
relating to such claims, and, after the occurrence and during the
continuance of any Event of Default, Lessor is hereby authorized, in
its own name or in Lessee's name, to adjust any loss covered by
insurance or any Casualty or Condemnation
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claim or cause of action, and to settle or compromise any claim or
cause of action in connection therewith, and Lessee shall from time to
time deliver to Lessor any and all further assignments and other
instruments required to permit such participation.
(e) Assignment of Casualty and Condemnation Proceeds. Lessee
hereby absolutely and irrevocably assigns to Lessor all Casualty and
Condemnation Proceeds and all claims relating thereto and agrees that
all Casualty and Condemnation Proceeds are to be paid to Lessor, except
as otherwise provided in Section 3.03(c)(x). Except as otherwise
provided in Section 3.03(c)(x), Lessee hereby authorizes and directs
any insurer, Governmental Authority or other Person responsible for
paying any Casualty and Condemnation Proceeds to make payment thereof
directly to Lessor alone, and not to Lessor and Lessee jointly. If
Lessee receives any Casualty and Condemnation Proceeds, Lessee shall
promptly pay over such Casualty and Condemnation Proceeds to Lessor.
Lessee hereby covenants that until such Casualty and Condemnation
Proceeds are so paid over to Lessor, Lessee shall hold such Casualty
and Condemnation Proceeds in trust for the benefit of Lessor and shall
not commingle such Casualty and Condemnation Proceeds with any other
funds or assets of Lessee or any other Person. Lessor may commence,
appear in, defend or prosecute any assigned right, claim or action, and
may adjust, compromise, settle and collect all rights, claims and
actions assigned to Lessor, but shall not be responsible for any
failure to collect any such right, claim or action, regardless of the
cause of the failure.
(f) Use of Casualty and Condemnation Proceeds.
(i) If (A) no Event of Default has occurred and is
continuing, (B) Lessee exercises the repair and restoration
option pursuant to Subparagraphs 3.04(b) and 3.04(c) and (C)
Lessee complies with any conditions imposed pursuant to
Subparagraph 3.04(c); then Lessor shall release any Casualty
and Condemnation Proceeds to Lessee for repair or restoration
of the Facility 1 Property, but may condition such release and
use of the Casualty and Condemnation Proceeds upon deposit of
the Casualty and Condemnation Proceeds in a Repair and
Restoration Account. Lessor shall have the option, upon the
completion of such restoration of the Facility 1 Property, to
apply any surplus Casualty and Condemnation Proceeds remaining
after the completion of such restoration to the payment of
Rent and/or the reduction of the Outstanding Lease Amount,
notwithstanding that such amounts are not then due and payable
or that such amounts are otherwise adequately secured.
(ii) If (A) an Event of Default has occurred and is
continuing, (B) Lessee fails to or is unable to comply with
any conditions imposed pursuant to Subparagraph 3.04(c) or (C)
Lessee elects to exercise the Term Purchase Option and
purchase the Facility 1 Property pursuant to the Purchase
Agreement; then, at the absolute discretion of Lessor and the
Required Participants, regardless of any impairment of
security or lack of impairment of security, but subject to
applicable Governmental Rules governing use of Casualty and
Condemnation Proceeds, if any, Lessor may (1) apply all or any
of the Casualty and Condemnation Proceeds it receives to the
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<PAGE> 18
expenses of Lessor Parties in obtaining such proceeds; (2)
apply the balance to the payment of Rent and/or the reduction
of the Outstanding Lease Amount, notwithstanding that such
amounts are not then due and payable or that such amounts are
otherwise adequately secured and/or (3) release all or any
part of such proceeds to Lessee upon any conditions Lessor and
the Required Participants may elect.
(iii) Lessor shall apply any Casualty and Condemnation
Proceeds which are to be used to reduce the Outstanding Lease
Amount only on the last day of a Rental Period unless a
Default has occurred and is continuing.
(iv) Application of all or any portion of the Casualty and
Condemnation Proceeds, or the release thereof to Lessee, shall
not cure or waive any Default or notice of default or
invalidate any acts done pursuant to such notice.
3.05. Taxes. Subject to Paragraph 3.12 relating to permitted contests,
Lessee shall promptly pay when due all Indemnified Taxes imposed on or payable
by Lessee or any Lessor Party in connection with the Facility 1 Property, this
Agreement or any of the other Operative Documents, or any of the transactions
contemplated hereby or thereby. Whenever any such taxes or other Governmental
Charges are payable by Lessee pursuant to the immediately preceding sentence, as
promptly as possible thereafter, Lessee shall send to Lessor for the account of
the applicable Lessor Party a certified copy of an original official receipt
received by Lessee showing payment thereof. If Lessee fails to pay any such
Indemnified Taxes when due to the appropriate taxing authority or fails to remit
to Lessor the required receipts or other required documentary evidence, Lessee
shall indemnify the Lessor Parties for any incremental taxes, interest or
penalties that may become payable by the Lessor Parties as a result of any such
failure. The obligations of Lessee under this Paragraph 3.05 shall survive the
payment and performance of the Lessee Obligations and the termination of this
Agreement.
3.06. Environmental Matters.
(a) Lessee's Covenants. Lessee shall not cause or permit the
Facility 1 Property to be used as a site for the use, generation,
manufacture, storage, treatment, release, discharge, disposal,
transportation or presence of any Hazardous Materials; provided that
Lessee has disclosed to Lessor that Lessee shall use on the Facility 1
Property from time to time the Hazardous Materials described in
Schedule 1 attached hereto. Notwithstanding the disclosure provided in
Schedule 1, Lessee shall comply and cause the Facility 1 Property to
comply with all Environmental Laws. Lessee shall immediately notify
Lessor in writing of (i) the discovery of any Hazardous Materials on,
under or about the Facility 1 Property (except for those described in
Schedule 1, which are used, stored, maintained and disposed of in
accordance with all Environmental Laws); (ii) any knowledge by Lessee
that the Facility 1 Property does not comply with any Environmental
Laws; (iii) any claims against Lessee or the Facility 1 Property
relating to Hazardous Materials or pursuant to Environmental Laws; and
(iv) the discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Facility 1 Property that could
cause the Facility 1 Property or any part thereof to be designated as
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"border zone property" under the provisions of California Health and
Safety Code Sections 25220 et seq. or any regulation adopted in
accordance therewith. In response to the presence of any Hazardous
Materials on, under or about the Facility 1 Property, Lessee shall
immediately take, at Lessee's sole expense, all remedial action
required by any Environmental Laws or any judgment, consent decree,
settlement or compromise in respect to any claim based thereon.
(b) Inspection By Lessor. Upon reasonable prior notice to
Lessee, Lessor, its employees and agents, may from time to time
(whether before or after the commencement of a nonjudicial or judicial
foreclosure proceeding), enter and inspect the Facility 1 Property for
the purpose of determining the existence, location, nature and
magnitude of any past or present release or threatened release of any
Hazardous Materials into, onto, beneath or from the Facility 1
Property.
(c) Indemnity. Without in any way limiting any other indemnity
contained in this Agreement or any other Operative Document, Lessee
agrees to defend, indemnify and hold harmless the Lessor Parties and
the other Indemnitees from and against any claim, loss, damage, cost,
expense or liability directly or indirectly arising out of (i) the use,
generation, manufacture, storage, treatment, release, threatened
release, discharge, disposal, transportation or presence of any
Hazardous Materials which are found in, on, under or about the Facility
1 Property or (ii) the breach of any covenant, representation or
warranty of Lessee relating to Hazardous Materials or Environmental
Laws contained in this Agreement or any Operative Document. This
indemnity shall include (A) the costs, whether foreseeable or
unforeseeable, of any investigation, repair, cleanup or detoxification
of the Facility 1 Property which is required by any Governmental
Authority or is otherwise necessary to render the Facility 1 Property
in compliance with all Environmental Laws; (B) all other direct or
indirect consequential damages (including any third party claims,
claims by any Governmental Authority, or any fines or penalties against
the Indemnitees; and (C) all court costs and attorneys' fees (including
expert witness fees and the cost of any consultants) paid or incurred
by the Indemnitees. Lessee shall pay immediately upon Lessor's demand
any amounts owing under this indemnity. Lessee shall use legal counsel
reasonably acceptable to Lessor in any action or proceeding arising
under this indemnity. The obligations of Lessee under this Subparagraph
3.06(c) shall survive the payment and performance of the Lessee
Obligations and the termination of this Agreement.
(d) Legal Effect of Section. Lessee and Lessor agree that (i)
this Paragraph 3.06 and clause (i) of Subparagraph 4.01(t) of the
Participation Agreement is intended as Lessor's written request for
information (and Lessee's response) concerning the environmental
condition of the real property security as required by California Code
of Civil Procedure Section 726.5 and (ii) each representation and
warranty and covenant herein and therein (together with any indemnity
applicable to a breach of any such representation and warranty) with
respect to the environmental condition of the Facility 1 Property is
intended by Lessor and Lessee to be an "environmental provision" for
purposes of California Code of Civil Procedure Section 736.
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3.07. Liens, Easements, Etc.
(a) Lessee's Covenants. Subject to Paragraph 3.12 relating to
permitted contests, Lessee shall not create, incur, assume or permit to
exist any Lien or easement on or with respect to any of the Facility 1
Property of any character, whether now owned or hereafter acquired,
except for the following ("Permitted Property Liens"):
(i) Liens in favor of a Lessor Party securing the Lessee
Obligations;
(ii) Liens and easements in existence on the Commencement
Date to the extent reflected in the title insurance policy
delivered to Agent pursuant to Paragraph 3.02 of and Schedule
3.02 to the Participation Agreement and approved by Lessor;
(iii) Liens and easements approved by Lessor and reflected
in the title insurance policy or policies or binders to be
delivered in connection with any Facility 1 Land added hereto
after the date hereof;
(iv) Liens for taxes or other Governmental Charges not at
the time delinquent or thereafter payable without penalty;
(v) Liens of carriers, warehousemen, mechanics,
materialmen and vendors and other similar Liens imposed by law
incurred in the ordinary course of business for sums not
overdue; and
(vi) Lessor Liens or any other Liens approved by Lessor.
Subject to Paragraph 3.12 relating to permitted contests, Lessee shall
promptly (A) pay all Indebtedness and other obligations prior to the
time the non-payment thereof would give rise to a Lien on the Facility
1 Property and (B) discharge, at its sole cost and expense, any Lien on
the Facility 1 Property which is not a Permitted Facility 1 Property
Lien.
(b) No Consents. Nothing contained in this Agreement shall be
construed as constituting the consent or request of any Lessor Party,
express 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 Facility 1
Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NO LESSOR
PARTY 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 ANY LESSOR PARTY IN AND TO
THE PROPERTY.
3.08. Subletting. Lessee may, in the ordinary course of business,
sublease the Facility 1 Property or any portion thereof to any Person, provided,
that (a) Lessee remains directly and
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primarily liable for performing its obligations under this Agreement and all
other Lessee Obligations; (b) each sublease is subject to and subordinated to
this Agreement; (c) each sublease expressly provides for the surrender of the
Facility 1 Property (or portion thereof) by the sublessee on the Expiration
Date; (d) each sublease has a term which expires on or prior to the Scheduled
Expiration Date (or, if longer, includes a provision that the sublease
terminates on the Expiration Date if such Expiration Date occurs prior to the
Scheduled Expiration Date unless Lessee purchases the Facility 1 Property on the
Expiration Date pursuant to the Purchase Agreement); (e) each sublease prohibits
the sublessee from engaging in any activities on the Facility 1 Property other
than those permitted by Paragraph 2.04; and (f) no sublease has a Material
Adverse Effect. Any sublease which does not satisfy each of the requirements of
the immediately preceding sentence shall be null and void as to the Lessor
Parties and their successor and assigns. Except for such permitted subleases,
Lessee shall not assign any of its rights or interests under this Agreement to
any other Person.
3.09. Utility Charges. Lessee shall pay all charges for electricity,
power, gas, oil, water, telephone, sanitary sewer service and all other
utilities and services to, on or in connection with the Facility 1 Property
during the Term.
3.10. Removal of Facility 1 Property. Lessee shall not remove any
Improvements from the Facility 1 Land or any other Facility 1 Property from the
Facility 1 Land or Improvements, except that, during the Term, Lessee may remove
any Modification or any trade fixture, machinery, equipment, inventory or other
personal property if such Modification or property (a) was not financed by an
Advance, (b) is not required by any applicable Governmental Rule or Insurance
Requirement and (c) is readily removable without impairing the value, utility or
remaining useful life of the Facility 1 Property.
3.11. Compliance with Governmental Rules and Insurance Requirements.
Lessee, at its sole cost and expense, shall, unless its failure is not
reasonably likely to have a Material Adverse Effect, (a) comply, and cause its
agents, sublessees, assignees, employees, invitees, licensees, contractors and
tenants, and the Facility 1 Property to comply, with all Governmental Rules and
Insurance Requirements relating to the Facility 1 Property (including the
construction, use, 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
Facility 1 Property), and (b) procure, maintain and comply with all licenses,
permits, orders, approvals, consents and other authorizations required for the
construction, use, maintenance and operation of the Facility 1 Property and for
the use, operation, maintenance, repair and restoration of the Improvements.
3.12. Permitted Contests. Lessee, at its sole cost and expense, may
contest any alleged Lien or easement on any of the Facility 1 Property or any
alleged Governmental Charge, Indebtedness or other obligation which is payable
by Lessee hereunder to Persons other than the Lessor Parties or which, if
unpaid, would give rise to a Lien on any of the Facility 1 Property, provided
that (a) each such contest is diligently pursued in good faith by appropriate
proceedings; (b) the commencement and continuation of such proceedings suspends
the enforcement of such Lien or easement or the collection of such Governmental
Charge, Indebtedness or obligation; (c) Lessee has established adequate reserves
for the discharge of such Lien or easement or the
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payment of such Governmental Charge, Indebtedness or obligation in accordance
with GAAP and, if the failure to discharge such Lien or easement or the failure
to pay such Governmental Charge, Indebtedness or obligation might result in any
civil liability for any Lessor Party, Lessee has provided to such Lessor Party a
bond or other security satisfactory to such Lessor Party; (d) the failure to
discharge such Lien or easement or the failure to pay such Governmental Charge,
Indebtedness or obligation could not result in any criminal liability for any
Lessor Party; (e) the failure to discharge such Lien or easement or the failure
to pay such Governmental Charge, Indebtedness or obligation is not otherwise
reasonably likely to have a Material Adverse Effect; and (f) any such contest is
completed and such Lien or easement is discharged (either pursuant to such
proceedings or otherwise) or such Governmental Charge, Indebtedness or
obligation is declared invalid, paid or otherwise satisfied not later than six
(6) months prior to the Scheduled Expiration Date; provided, however, in the
event that Lessee shall have exercised either the Term Purchase Option or the
Expiration Purchase Option the foregoing six (6) month limitation shall not be
applicable.
3.13. Lessor Obligations; Right to Perform Lessee Obligations. No
Lessor Party shall have any obligation to (a) maintain, repair or make any
improvements to the Facility 1 Property, (b) maintain any insurance on the
Facility 1 Property, (c) perform any other obligation of Lessee under this
Agreement or any other Lessee Obligation, (d) make any expenditure on account of
the Facility 1 Property (except to make Advances as required by the
Participation Agreement) or (e) take any other action in connection with the
Facility 1 Property, this Agreement or any other Operative Document, except as
expressly provided herein or in another Operative Document; provided however,
that Lessor may, in its sole discretion and without any obligation to do so,
after written notice to Lessee, perform any Lessee Obligation not performed by
Lessee when required. Lessor may enter the Facility 1 Property or exercise any
other right of Lessee under this Agreement or any other Operative Document to
the extent Lessor determines in good faith that such entry or exercise is
reasonably necessary for Lessor to perform any such Lessee Obligation not
performed by Lessee when required. Lessee shall reimburse Lessor and the other
Lessor Parties, within five (5) business days after demand, for all fees, costs
and expenses incurred by them in performing any such obligation or curing any
Default.
3.14. Inspection Rights. During the Term, Lessee shall permit any
Person designated by Lessor, upon reasonable notice and during normal business
hours, to visit and inspect any of the Facility 1 Property.
SECTION IV. EXPIRATION DATE.
4.01. Termination by Lessee Prior to Scheduled Expiration Date. Subject
to the terms and conditions of the Purchase Agreement, Lessee may, at any time
prior to the Scheduled Expiration Date, terminate this Agreement and purchase
the Facility 1 Property pursuant to Section II of the Purchase Agreement. Lessee
shall notify Lessor of Lessee's election so to terminate this Agreement and
purchase the Facility 1 Property by delivering to Agent a Notice of Term
Purchase Option Exercise pursuant to and in accordance with the provisions of
Paragraph 2.02 of the Purchase Agreement.
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4.02. Surrender of Facility 1 Property. Unless Lessee purchases the
Facility 1 Property on the Expiration Date pursuant to the Purchase Agreement,
Lessee shall vacate and surrender the Facility 1 Property to Lessor on the
Expiration Date in its then-current condition, subject to compliance by Lessee
on or prior to such date of its obligations under this Agreement and the other
Operative Documents (including, without limitation, the completion of all
permitted contests and the removal of all Liens which are not Permitted Property
Liens).
4.03. Holding Over. If Lessee does not purchase the Facility 1 Property
on the Expiration Date pursuant to the Purchase Agreement but continues in
possession of any portion of the Facility 1 Property after the Expiration Date,
Lessee shall pay rent for each day it so continues in possession, payable upon
demand of Lessor, at a per annum rate equal to the Alternate Rental Rate plus
two percent (2%) and shall pay and perform all of its other Lessee Obligations
under this Agreement and the other Operative Documents in the same manner as
though the Term had not ended; provided, however, that this Paragraph 4.03 shall
not be interpreted to permit such holding over or to limit any right or remedy
of Lessor for such holding over.
SECTION V. DEFAULT.
5.01. Events of Default. The occurrence or existence of any one or more
of the following shall constitute an "Event of Default" hereunder:
(a) Non-Payment. Lessee shall (i) fail to pay on the
Expiration Date any amount payable by Lessee under this Agreement or
any other Operative Document on such date, (ii) fail to pay within five
(5) business days after any Scheduled Rent Payment Date any Base Rent
payable on such Scheduled Rent Payment Date (other than the Base Rent
payable on the Expiration Date) or (iii) fail to pay within five (5)
business days after the same becomes due, any Supplemental Rent or
other amount required under the terms of this Agreement or any other
Operative Document (other than any such amount payable on the
Expiration Date or Base Rent); or
(b) Specific Defaults. Lessee or any of its Subsidiaries shall
fail to observe or perform any covenant, obligation, condition or
agreement set forth in Subparagraph 3.01(b), Paragraph 3.03 or
Subparagraph 3.07(a) hereof or in Paragraph 5.02 or Paragraph 5.03 of
the Participation Agreement ; or
(c) Other Defaults. Lessee or any of its Subsidiaries shall
fail to observe or perform any other covenant, obligation, condition or
agreement contained in this Agreement or any other Operative Document
(except for those covenants described in Paragraph 5.01(d) below) and
such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor, provided, however, that in the
event that such failure cannot reasonably be cured within such thirty
(30) day period, such failure shall not constitute an Event of Default
hereunder so long as Lessee shall have commenced to cure such failure
within such thirty (30) day period and shall thereafter diligently
pursue such cure to completion, provided further that such failure
shall in all events be cured by the
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earlier of (i) the Expiration Date, if Lessee is exercising the
Purchase Option, (provided that if the Purchase Option is consummated
in accordance with the terms of the Purchase Agreement all outstanding
Defaults shall be deemed waived), or (ii) one hundred and eighty days
(180) days after Lessor's notice thereof; or
(d) Representations and Warranties. Any representation,
warranty, certificate, information or other statement (financial or
otherwise) made or furnished by or on behalf of Lessee or any of its
Subsidiaries to any Lessor Party in or in connection with this
Agreement or any other Operative Document, or as an inducement to any
Lessor Party to enter into this Agreement or any other Operative
Document, shall be false, incorrect, incomplete or misleading in any
material respect when made or furnished and Lessee shall not have cured
the facts or circumstances causing such representation, warranty,
certificate or other statement to be false, incorrect, incomplete or
misleading within thirty (30) days of notice thereof from Lessor; or
(e) Cross-Default. (i) Lessee or any of its Subsidiaries shall
fail to make any payment when due on account of any Indebtedness of
such Person (other than the Lessee Obligations) and such failure shall
continue beyond any period of grace provided with respect thereto, if
the amount of such Indebtedness exceeds $2,500,000 or the effect of
such failure is to cause, or permit the holder or holders thereof to
cause, Indebtedness of Lessee and its Subsidiaries (other than the
Lessee Obligations) in an aggregate amount exceeding $2,500,000 to
become due or (ii) Lessee or any of its Subsidiaries shall otherwise
fail to observe or perform any agreement, term or condition contained
in any agreement or instrument relating to any Indebtedness of such
Person (other than the Lessee Obligations), or any other event shall
occur or condition shall exist, if the effect of such failure, event or
condition is to cause, or permit the holder or holders thereof to
cause, Indebtedness of Lessee and its Subsidiaries (other than the
Lessee Obligations) in an aggregate amount exceeding $2,500,000 to
become due (and/or to be secured by cash collateral); or
(f) Insolvency, Voluntary Proceedings. Lessee or any of its
Material Subsidiaries shall (i) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian of itself or of all or
a substantial part of its property, (ii) be unable, or admit in writing
its inability, to pay its debts generally as they mature, (iii) make a
general assignment for the benefit of its or any of its creditors, (iv)
be dissolved or liquidated in full or in part, (v) become insolvent (as
such term may be defined or interpreted under any applicable statute),
(vi) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter
in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in an involuntary
case or other proceeding commenced against it, or (vi) take any action
for the purpose of effecting any of the foregoing; or
(g) Involuntary Proceedings. Proceedings for the appointment
of a receiver, trustee, liquidator or custodian of Lessee or any of its
Material Subsidiaries or of all or a substantial part of the property
thereof, or an involuntary case or other proceedings
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seeking liquidation, reorganization or other relief with respect to
Lessee or any of its Material Subsidiaries or the debts thereof under
any bankruptcy, insolvency or other similar law now or hereafter in
effect shall be commenced and an order for relief entered or such
proceeding shall not be dismissed or discharged within thirty (30) days
of commencement; or
(h) Judgments. (i) One or more judgments, orders, decrees or
arbitration awards requiring Lessee and/or its Subsidiaries to pay an
aggregate amount of $2,500,000 or more (exclusive of amounts covered by
insurance issued by an insurer not an Affiliate of Lessee and otherwise
satisfying the requirements set forth in Subparagraph 3.03(b)) shall be
rendered against Lessee and/or any of its Subsidiaries in connection
with any single or related series of transactions, incidents or
circumstances and the same shall not be satisfied, vacated or stayed
for a period of thirty (30) consecutive days after the issue or levy;
(ii) any judgment, writ, assessment, warrant of attachment, tax lien or
execution or similar process shall be issued or levied against a
substantial part of the property of Lessee or any of its Subsidiaries
and the same shall not be released, stayed, vacated or otherwise
dismissed within thirty (30) days after issue or levy; or (iii) any
other judgments, orders, decrees, arbitration awards, writs,
assessments, warrants of attachment, tax liens or executions or similar
processes which, alone or in the aggregate, are reasonably likely to
have a Material Adverse Effect are rendered, issued or levied; or
(i) Operative Documents. Any Operative Document or any
material term thereof shall cease to be, or be asserted by Lessee or
any of its Subsidiaries not to be, a legal, valid and binding
obligation of Lessee or any of its Subsidiaries enforceable in
accordance with its terms; or
(j) ERISA. Any Reportable Event which constitutes grounds for
the termination of any Employee Benefit Plan by the PBGC or for the
appointment of a trustee by the PBGC to administer any Employee Benefit
Plan shall occur, or any Employee Benefit Plan shall be terminated
within the meaning of Title IV of ERISA or a trustee shall be appointed
by the PBGC to administer any Employee Benefit Plan; or
(k) Change of Control. Any Change of Control shall occur; or
(l) Material Adverse Effect. Any event(s) or condition(s)
which is(are) reasonably likely to have a Material Adverse Effect shall
occur and be continuing or exist.
5.02. General Remedies. In all cases, upon the occurrence or existence
of any Event of Default and at any time thereafter unless such Event of Default
is waived, Lessor may, with the consent of the Required Participants, or shall,
upon instructions from the Required Participants, exercise any one or more of
the following rights and remedies (except that the remedy set forth in the first
sentence of Subparagraph 5.02(a) shall be automatic):
(a) Termination of Commitments. If such Event of Default is an
Event of Default of the type described in Subparagraph 5.01(f) or
Subparagraph 5.01(g) affecting Lessee, immediately and without notice
the obligation of Lessor to make Advances and
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the obligations of the Participants to fund Advances shall
automatically terminate. If such Event of Default is any other Event of
Default, Lessor may by written notice to Lessee, terminate the
obligation of Lessor to make Advances and the obligations of the
Participants to fund Advances.
(b) Appointment of a Receiver. Lessor may apply to any court
of competent jurisdiction for, and obtain appointment of, a receiver
for the Facility 1 Property.
(c) Specific Performance. Lessor may bring an action in any
court of competent jurisdiction to obtain specific enforcement of any
of the covenants or agreements of Lessee in this Agreement or any of
the other Operative Documents.
(d) Collection of Issues and Profits. Lessor may collect
Issues and Profits as provided in Subparagraph 2.07(c) and apply the
proceeds to pay Lessee Obligations.
(e) Protection of Facility 1 Property. Lessor may enter, take
possession of, manage and operate all or any part of the Facility 1
Property or take any other actions which it reasonably determines are
necessary to protect the Facility 1 Property and the rights and
remedies of the Lessor Parties under this Agreement and the other
Operative Documents, including (i) taking and possessing all of
Lessee's books and records relating to the Facility 1 Property; (ii)
entering into, enforcing, modifying, or canceling subleases on such
terms and conditions as Lessor may consider proper; (iii) obtaining and
evicting tenants; (iv) fixing or modifying sublease rents; (v)
collecting and receiving any payment of money owing to Lessee; (vi)
completing any unfinished Improvements; and/or (vii) contracting for
and making repairs and alterations.
(f) Other Rights and Remedies. In addition to the specific
rights and remedies set forth above in this Paragraph 5.02 and in
Paragraph 5.03 and Paragraph 5.04, Lessor may exercise any other right,
power or remedy permitted to it by any applicable Governmental Rule,
either by suit in equity or by action at law, or both.
5.03. Lease Remedies. If the transaction evidenced by this Agreement
and the other Operative Documents is treated as a lease, upon the occurrence or
existence of any Event of Default and at any time thereafter unless such Event
of Default is waived, Lessor may, with the consent of the Required Participants,
or shall, upon instructions from the Required Participants, exercise any one or
more of the following rights and remedies in addition to those rights and
remedies set forth in Paragraph 5.02 provided that prior to exercising any
remedies provided by this Section 5.03, Lessor shall give Lessee not less than
three (3) business days notice during which time Lessee may exercise the
Purchase Option, and provided the Purchase Option is thereafter consummated in
accordance with the terms of the Purchase Agreement, Lessor shall not exercise
any of the remedies under this Section 5.03:
(a) Termination of Lease. Lessor may, by written notice to
Lessee, terminate this Agreement on a Termination Date which is prior
to the Scheduled Expiration Date, subject to Subparagraph 3.02(1) of
the Purchase Agreement. Such Termination Date shall be the last day of
a Rental Period unless Required Participants shall otherwise direct. On
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such Termination Date (which shall then be the Expiration Date), Lessee
shall pay all unpaid Base Rent accrued through such date, all
Supplemental Rent due and payable on or prior to such date and all
other amounts payable by Lessee on the Expiration Date pursuant to this
Agreement and the other Operative Documents. Lessee also shall pay to
Lessor, in addition to all accrued Base Rent, the worth at the time of
such payment of the amount by which the unpaid Base Rent through the
Scheduled Expiration Date exceeds the amount of such rental loss for
the same period that Lessee proves could reasonably be avoided.
(b) Continuation of Lease. Lessor may exercise the rights and
remedies provided by California Civil Code Section 1951.4, including
the right to continue this Agreement in effect after Lessee's breach
and abandonment and recover Rent as it becomes due. Acts of maintenance
or preservation, efforts to relet the Facility 1 Property, the
appointment of a receiver upon Lessor's initiative to protect its
interest under this Agreement or withholding consent to or terminating
a sublease shall not of themselves constitute a termination of Lessee's
right to possession.
(c) Removal and Storage of Facility 1 Property. Lessor may
enter the Facility 1 Property and remove therefrom all Persons and
property, store such property in a public warehouse or elsewhere at the
cost of and for the account of Lessee and sell such property and apply
the proceeds therefrom pursuant to applicable California law.
5.04. Loan Remedies. If the transaction evidenced by this Agreement and
the other Operative Documents is treated as a loan, upon the occurrence or
existence of any Event of Default and at any time thereafter unless such Event
of Default is waived, Lessor may, with the consent of the Required Participants,
or shall, upon instructions from the Required Participants, exercise any one or
more of the following rights and remedies in addition to those rights and
remedies set forth in Paragraph 5.02:
(a) Acceleration of Lessee Obligations. Lessor may, by written
notice to Lessee, terminate this Agreement on a Termination Date which
is prior to the Scheduled Expiration Date, subject to Subparagraph
3.02(1) of the Purchase Agreement, and declare all unpaid Lessee
Obligations due and payable on such Termination Date. Such Termination
Date shall be the last day of a Rental Period unless Required
Participants shall otherwise direct. On such Termination Date (which
shall then be the Expiration Date), Lessee shall pay all unpaid Base
Rent accrued through such date, all Supplemental Rent due and payable
on or prior to such date and all other amounts payable by Lessee on the
Expiration Date pursuant to this Agreement and the other Operative
Documents.
(b) Uniform Commercial Code Remedies. Lessor may exercise any
or all of the remedies granted to a secured party under the California
Uniform Commercial Code.
(c) Judicial Foreclosure. Lessor may bring an action in any
court of competent jurisdiction to foreclose the security interest in
the Facility 1 Property granted to Lessor by this Agreement or any of
the other Operative Documents.
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(d) Power of Sale. Lessor may cause some or all of the
Facility 1 Property, including any Personal Property Collateral, to be
sold or otherwise disposed of in any combination and in any manner
permitted by applicable Governmental Rules.
(i) Sales of Personal Property. Lessor may dispose of any
Personal Property Collateral separately from the sale of Real
Property Collateral, in any manner permitted by Division 9 of
the California Uniform Commercial Code, including any public
or private sale, or in any manner permitted by any other
applicable Governmental Rule. Any proceeds of any such
disposition shall not cure any Event of Default or reinstate
any Lessee Obligation for purposes of Section 2924c of the
California Civil Code. In connection with any such sale or
other disposition, Lessee agrees that the following procedures
constitute a commercially reasonable sale:
(A) Lessor shall mail written notice of the
sale to Lessee not later than thirty (30) days prior
to such sale.
(B) Once per week during the three weeks
immediately preceding such sale, Lessor will publish
notice of the sale in a local daily newspaper of
general circulation.
(C) Upon receipt of any written request,
Lessor will make the Facility 1 Property available to
any bona fide prospective purchaser for inspection
during reasonable business hours.
(D) Notwithstanding, Lessor shall be under
no obligation to consummate a sale if, in its
judgment, none of the offers received by it equals
the fair value of the Facility 1 Property offered for
sale.
(E) If Lessor so requests, Lessee shall
assemble all of the Personal Property Collateral and
make it available to Lessor at the site of the
Facility 1 Land. Regardless of any provision of this
Agreement or any other Operative Document, Lessor
shall not be considered to have accepted any property
other than cash or immediately available funds in
satisfaction of any Lessee Obligation, unless Lessor
has given express written notice of its election of
that remedy in accordance with California Uniform
Commercial Code Section 9505.
The foregoing procedures do not constitute the only procedures
that may be commercially reasonable.
(ii) Lessor's Sales of Real Property or Mixed Collateral.
Lessor may choose to dispose of some or all of the Facility 1
Property which consists solely of Real Property Collateral in
any manner then permitted by applicable Governmental Rules,
including without limitation a nonjudicial trustee's sale
pursuant to
24
<PAGE> 29
California Civil Code Section 2924 et seq. In its discretion,
Lessor may also or alternatively choose to dispose of some or
all of the Facility 1 Property, in any combination consisting
of both Real Property Collateral and Personal Property
Collateral, together in one sale to be held in accordance with
the law and procedures applicable to real property, as
permitted by Section 9501(4) of the California Uniform
Commercial Code. Lessee agrees that such a sale of Personal
Property Collateral together with Real Property Collateral
constitutes a commercially reasonable sale of the Personal
Property Collateral. (For purposes of this power of sale,
either a sale of Real Property Collateral alone, or a sale of
both Real Property Collateral and Personal Property Collateral
together in accordance with California Uniform Commercial Code
Section 9501(4), will sometimes be referred to as a "Lessor's
Sale.")
(A) Before any Lessor's Sale, Lessor shall
give such notice of default and election to sell as
may then be required by applicable Governmental
Rules.
(B) When all time periods then legally
mandated have expired, and after such notice of sale
as may then be legally required has been given,
Lessor shall sell the property being sold at a public
auction to be held at the time and place specified in
the notice of sale.
(C) Neither Lessor nor Agent shall have any
obligation to make demand on Lessee before any
Lessor's Sale.
(D) From time to time in accordance with
then applicable law, Lessor may postpone any Lessor's
Sale by public announcement at the time and place
noticed for that sale.
(E) At any Lessor's Sale, Lessor shall sell
to the highest bidder at public auction for cash in
lawful money of the United States.
(F) Lessor shall execute and deliver to the
purchaser(s) a deed or deeds conveying the Facility 1
Property being sold without any covenant or warranty
whatsoever, express or implied. The recitals in any
such deed of any matters or facts, including any
facts bearing upon the regularity or validity of any
Lessor's Sale, shall be conclusive proof of their
truthfulness. Any such deed shall be conclusive
against all Persons as to the facts recited in it.
(e) Foreclosure Sales.
(i) Single or Multiple. If the Facility 1 Property
consists of more than one lot, parcel or item of property,
Lessor may:
25
<PAGE> 30
(A) Designate the order in which the lots,
parcels and/or items shall be sold or disposed of or
offered for sale or disposition; and
(B) Elect to dispose of the lots, parcels
and/or items through a single consolidated sale or
disposition to be held or made under the power of
sale granted in Subparagraph 5.04(d), or in
connection with judicial proceedings, or by virtue of
a judgment and decree of foreclosure and sale; or
through two or more such sales or dispositions; or in
any other manner Lessor may deem to be in its best
interests (any such sale or disposition, a
"Foreclosure Sale;" any two or more, "Foreclosure
Sales").
If Lessor chooses to have more than one Foreclosure Sale,
Lessor at its option may cause the Foreclosure Sales to be
held simultaneously or successively, on the same day, or on
such different days and at such different times and in such
order as it may deem to be in its best interests. No
Foreclosure Sale shall terminate or affect the security
interests granted to Lessor in the Facility 1 Property by this
Agreement on any part of the Facility 1 Property which has not
been sold, until all of the Lessee Obligations have been paid
in full.
(ii) Credit Bids. At any Foreclosure Sale, any Person or
any Lessor Party, may bid for and acquire the Facility 1
Property or any part of it to the extent permitted by then
applicable Governmental Rules. Instead of paying cash for that
property, Lessor may settle for the purchase price by
crediting the sales price of the Facility 1 Property against
the Lessee Obligations in any order and proportions as Lessor
in its sole discretion may choose.
5.05. Remedies Cumulative. The rights and remedies of Lessor under this
Agreement and the other Operative Documents are cumulative and may be exercised
singularly, successively, or together.
5.06. No Cure or Waiver. Neither the performance by Lessor of any of
Lessee's obligations pursuant to Paragraph 3.13 nor the exercise by Lessor of
any of its other rights and remedies under this Agreement or any other Operative
Document (including the collection of Issues and Profits and the application
thereof to the Lessee Obligations) shall constitute a cure or waiver of any
Default or nullify the effect of any notice of default or sale, unless and until
all Lessee Obligations are paid in full.
5.07. Exercise of Rights and Remedies. The rights and remedies provided
to Lessor under this Agreement may be exercised by Lessor itself, by Agent
pursuant to Subparagraph 2.02(c) of the Participation Agreement, by a
court-appointed receiver or by any other Person appointed by any of the
foregoing to act on its behalf. All of the benefits afforded to Lessor under
this Agreement and the other Operative Documents shall accrue to the benefit of
Agent to the extent provided in Subparagraph 2.02(c) of the Participation
Agreement.
26
<PAGE> 31
SECTION VI. MISCELLANEOUS.
6.01. Notices. Except as otherwise specified herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Lessee or Lessor under this Agreement shall be given as provided in Subparagraph
2.02(c) and Paragraph 7.01 of the Participation Agreement.
6.02. Waivers; Amendments. Any term, covenant, agreement or condition
of this Agreement may be amended or waived only as provided in the Participation
Agreement. No failure or delay by any Lessor Party in exercising any right
hereunder shall operate as a waiver thereof or of any other right nor shall any
single or partial exercise of any such right preclude any other further exercise
thereof or of any other right. Unless otherwise specified in any such waiver or
consent, a waiver or consent given hereunder shall be effective only in the
specific instance and for the specific purpose for which given.
6.03. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Lessor Parties and Lessee and their permitted
successors and assigns; provided, however, that the Lessor Parties and Lessee
shall not sell, assign or delegate their respective rights and obligations
hereunder except as provided in the Participation Agreement.
6.04. No Third Party Rights. Nothing expressed in or to be implied from
this Agreement is intended to give, or shall be construed to give, any Person,
other than the Lessor Parties and Lessee and their permitted successors and
assigns, any benefit or legal or equitable right, remedy or claim under or by
virtue of this Agreement or under or by virtue of any provision herein.
6.05. Partial Invalidity. If at any time any provision of this
Agreement is or becomes illegal, invalid or unenforceable in any respect under
the law or any jurisdiction, neither the legality, validity or enforceability of
the remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
6.06. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without reference to
conflicts of law rules.
6.07. Counterparts. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
6.08. Nature of Lessee's Obligations.
(a) Independent Obligation. The obligation of Lessee to pay
the amounts payable by Lessee under this Agreement and the other
Operative Documents and to perform the other Lessee Obligation are
absolute, unconditional and irrevocable obligations which are separate
and independent of the obligations of the Lessor Parties
27
<PAGE> 32
under this Agreement and the other Operative Documents and all other
events and circumstances, including the events and circumstances set
forth in Subparagraph 6.08(c).
(b) No Termination or Abatement. This Agreement and the other
Operative Documents and Lessee's obligation to pay Rent and to pay and
perform all other Lessee Obligations shall continue in full force and
effect without abatement notwithstanding the occurrence or existence of
any event or circumstance, including any event or circumstance set
forth in Subparagraph 6.08(c).
(c) Full Payment and Performance. Lessee shall make all
payments under this Agreement and the other Operative Documents in the
full amounts and at the times required by the terms of this Agreement
and the other Operative Documents without setoff, deduction or
reduction of any kind and shall perform all other Lessee Obligations as
and when required, without regard to any event or circumstances
whatsoever, including (i) the condition of the Facility 1 Property
(including any Improvements to the Facility 1 Property made prior to
the Commencement Date or during the Term); (ii) title to the Facility 1
Property (including possession of the Facility 1 Property by any Person
or the existence of any Lien or any other right, title or interest in
or to any of the Facility 1 Property in favor of any Person); (iii) the
value, habitability, usability, design, operation or fitness for use of
the Facility 1 Property; (iv) the availability or adequacy of utilities
and other services to the Facility 1 Property; (v) any latent, hidden
or patent defect in the Facility 1 Property; (vi) the zoning or status
of the Facility 1 Property or any other restrictions on the use of the
Facility 1 Property; (g) the economics of the Facility 1 Property;
(vii) any Casualty or Condemnation; (viii) the compliance of the
Facility 1 Property with any applicable Governmental Rule or Insurance
Requirement; (ix) any failure by any Lessor Party to perform any of its
obligations under this Agreement or any other Operative Document; or
(x) the exercise by any Lessor Party of any of its remedies under this
Agreement or any other Operative Document; provided, however, that this
Paragraph 7.08 shall not abrogate any right which Lessee may have to
recover damages from any Lessor Party for any material breach by such
Lessor Party of its obligations under this Agreement or any other
Operative Document to the extent permitted hereunder or thereunder.
[The signature page follows.]
28
<PAGE> 33
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be
executed as of the day and year first above written.
LESSEE: NOVELLUS SYSTEMS, INC.
By: /s/ JOHN CHENAULT
---------------------------------
Name: John Chenault
Title: Executive V.P. Operations
LESSOR: LEASE PLAN NORTH AMERICA, INC.
By: /s/ ROBIN S. YIN
---------------------------------
Name: Robin S. Yin
Title: Group Vice President
29
<PAGE> 34
STATE OF CALIFORNIA )
) ss
COUNTY OF Santa Clara )
On 6/9, 1997, before me, Ciska Perry a Notary Public in and
for the State of California, personally appeared John Chenault, personally known
to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.
Witness my hand and official seal.
/s/ Ciska Perry
-------------------
[SEAL]
<PAGE> 35
STATE OF CALIFORNIA )
) ss
COUNTY OF Santa Clara )
On 6/9, 1997, before me, Ciska Perry a Notary Public in and
for the State of California, personally appeared , Robin S. Yim, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.
Witness my hand and official seal.
/s/ Ciska Perry
-------------------
[SEAL]
<PAGE> 36
EXHIBIT A
FACILITY 1 LAND
PARCEL TWO:
PCL. 2 as shown on that certain Parcel Map filed in the office of the Recorder
of the County of Santa Clara, State of California on August 18, 1983 in Book 516
of Maps, page(s) 34 and 35, Santa Clara County Records.
EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.
PARCEL TWO-A:
A non-exclusive easement for ingress and egress over PCL. 1, as said parcel is
shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35, Santa
Clara County Records, as granted in an instrument recorded May 23, 1985 in Book
J353, page 1565 and being more particularly described as follows:
Strip 1
A strip of land 26.00 feet wide extending entirely across said PCL. 1 and Lying
13.00 feet on each side of a line as follows:
Beginning at the Southerly corner of said PCL. 1, said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
N. 52(degrees) 27' 12" W., 34.00 feet to the true point of beginning of said
strip of land; thence N. 37(degrees) 32' 59" E., 540.00 feet to the
Northeasterly line of said PCL. 1.
Strip 2
A strip of land 40.00 feet wide extending entirely across said PCL. 1 and Lying
contiguous to and Southeasterly of a line described as follows:
Beginning at the most Southerly corner of said PCL. 1, said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
N. 52(degrees) 27' 12" W., 429.25 feet to the true point of beginning of said
strip of land; thence N. 37(degrees) 32' 48" E., 600.00 feet to the
Northeasterly line of said PCL. 1; the Northerly terminus of said 40 foot wide
strip of land being the Northeasterly line of said PCL. 1.
(LEGAL DESCRIPTION CONTINUED NEXT PAGE)
<PAGE> 37
LEGAL DESCRIPTION: (Continued)
PARCEL TWO-A: (Continued)
Strip 3
A strip of land 26.00 feet wide, extending Northeasterly from the Southwesterly
line of said PCL. 1 to the Northwesterly line of the above described and
designated Strip 2 and Lying 13.00 feet on each side of a line described as
follows:
Beginning at the Westerly corner of said PCL. 1, said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
S. 52(degrees) 27' 12" E., 34.00 feet to the true point of beginning of said
strip of land; thence N. 37(degrees) 32' 48" E. 566.00 feet; thence S.
52(degrees) 27' 12" E., 355.25 feet to said Northwesterly line of said Strip 2.
Strip 4
A strip of land 13.00 feet wide Lying contiguous to and Northwesterly of the
Northwesterly line of the above described and designated Strip 2 and extending
Southwesterly from the Northeasterly line of said PCL. 1 approximately 21.00
feet to the Northeasterly line of the above described and designated Strip 3.
EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.
PARCEL TWO-B:
The right from time to time to construct, install, maintain, replace, remove,
and use storm drain sewers, together with a right of way therefor, over a
portion of PCL. 1 as said parcel is shown on the Parcel Map recorded in Book 516
of Maps, at pages 34 and 35, Santa Clara County Records, as granted in an
instrument recorded May 23, 1985 in Book J353, page 1565 and being more
particularly described as follows:
(LEGAL DESCRIPTION CONTINUED NEXT PAGE)
<PAGE> 38
LEGAL DESCRIPTION: (Continued)
PARCEL TWO-B: (Continued)
Strip 1
A strip of land 10.00 feet wide extending entirely across said PCL. 1 and Lying
5.00 feet on each side of a line described as follows:
Beginning at the most Westerly corner of said PCL. 1 said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
S. 52(degrees) 27' 12" E., 402.75 feet to the true point of beginning of said
strip of land; thence along the centerline of a existing storm drain line the
following courses: thence N. 37(degrees) 32' 48" E., 28.00 feet to a point
herein designated Point A; thence N. 52(degrees) 27' 12" W., 278.00 feet; thence
N. 00(degrees) 51' 00" E., 198.30 feet; thence N. 37(degrees) 32' 33" E., 279.75
feet; thence S. 51(degrees) 19' 51" E., 89.02 feet; thence N. 50(degrees) 06'
47" E., 133.18 feet; thence N. 37(degrees) 32' 48" E., 5.00 feet to the
Northeasterly line of said PCL 1.
Strip 2
A strip of land 10 feet wide extending Northeasterly from the Northeasterly line
of the above described and designated Strip 1 and Lying 5.00 feet on each side
of a line which begins at said Point A; thence along the centerline of an
existing storm drain line the following courses: thence N. 26(degrees) 55' 37"
E., 154.65 feet; thence N. 32(degrees) 55' 53" E., 96.31 feet; thence N.
43(degrees) 21' 28" E., 113.58 feet; thence N. 54(degrees) 44' 21" E., 105.72
feet to a point herein designated as Point B; thence S. 41(degrees) 57' 14" E.,
65.85 feet; thence N. 37(degrees) 32' 48" E., 62.00 feet to the Northeasterly
line of said PCL 2.
Strip 3
A strip of land 5.00 feet wide Lying contiguous to and Southwesterly of the
Northeasterly line of said PCL. 1 and extending Southeasterly from the
Southeasterly line of the above described and designated Strip 2 approximately
225 feet.
(LEGAL DESCRIPTION CONTINUED NEXT PAGE)
<PAGE> 39
LEGAL DESCRIPTION: (Continued)
PARCEL TWO-B: (Continued)
Strip 4
A strip of land 10.00 feet wide extending Northeasterly from the Northeasterly
line of the above described and designated Strip 2 to the Northeasterly line of
said PCL. 1 and Lying 5.00 feet on each side of a line that begins at said Point
B; thence along the centerline of an existing storm drain line N. 37(degrees)
32' 48" E., 50.00 feet to the Northeasterly line of said PCL. 1.
EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.
PARCEL TWO-C:
The right from time to time to construct, install, inspect, maintain, replace,
remove and use any and all Public Service Facilities necessary or useful,
together with a right of way therefor, over a portion of PCL. 1 as said parcel
is shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35,
Santa Clara County Records, as granted in an instrument recorded May 23, 1985 in
Book J353, page 1565 and being more particularly described as follows:
Strip 5
A strip of land 15.00 feet wide extending entirely across said PCL. 1 and Lying
7.50 feet on each side of a line described as follows:
Beginning at the most Southerly corner of said PCL. 1, said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
N. 52(degrees) 27' 12" W., 60.50 feet to the true point of beginning of said
strip of land; thence N. 37(degrees) 32' 59" E., 394.80 feet to a point herein
designated Point C; thence N. 37(degrees) 32' 59" E., 105.20 feet; thence N.
7(degrees) 27' 01" W., 56.57 feet to the Northeasterly line of said PCL. 1.
Strip 6
A strip of land 15.00 feet wide extending Northerly from the Northerly line of
the above described and designated Strip 5 to the Northeasterly line of said
PCL. 1 and Lying 7.5 feet on each side of a line that begins at said Point C;
thence N. 30(degrees) 01' 00" E., 59.5 feet; thence N. 8(degrees) 41' 00" E.,
98.44 feet to the Northeasterly line of said PCL. 1.
(LEGAL DESCRIPTION CONTINUED NEXT PAGE)
<PAGE> 40
LEGAL DESCRIPTION: (Continued)
PARCEL TWO-C: (Continued)
Strip 7
A strip of land 15.00 feet wide extending entirely across said PCL. 1 and Lying
7.5 feet and each side of a line described as follows:
Beginning at the most Westerly corner of said PCL. 1 said corner being on the
Northeasterly line of North First Street; thence along said Northeasterly line
S. 52(degrees) 27' 12" E., 30.00 feet to the true point of beginning of said
strip of land; thence N. 37(degrees) 32' 33" E., 600.00 feet to the
Northeasterly line of said PCL. 1.
Strip 8
That area located within those portions of PCL.1, of the Parcel Map mentioned
hereinabove, Lying within the easements designated as "P.S.E.", as shown on said
Parcel Map.
PARCEL TWO-D:
A non-exclusive easement for Landscaping, Lighting and Irrigation Facilities
over PCL. 1, as said parcel is shown on the Parcel Map recorded in Book 516 of
Maps, at pages 34 and 35, Santa Clara County Records, as granted in an
instrument recorded May 23, 1985 in Book J353, page 1565 and being more
particularly described as follows:
A strip of land 10.00 feet wide extending Southeasterly from the Northwesterly
line of said PCL. 1 and PCL. 2 and Lying 5.00 feet on each side of a line that
begins at the most Northerly corner of said PCL. 1 and runs thence along the
Northeasterly line of said PCL. 1, S. 52(degrees) 27' 12" E. 375.00 feet.
Excepting Therefrom that portion lying within the bounds of Parcel Two mentioned
hereinabove.
APN: 097-03-047, 048, 051
ARB: 097-3-04, 04.01, 14
EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.
(LEGAL DESCRIPTION CONTINUED NEXT PAGE)
<PAGE> 41
LEGAL DESCRIPTION: (Continued)
PARCEL THREE:
All of Parcel 4, as shown upon that Parcel Map which was filed for record in the
Office of the Recorder of the County of Santa Clara, State of California on July
13, 1984 in Book 531 of Maps, at pages 41 and 42.
APN: 097-0-049, 056
ARB: 097-03-005.03 & 015.01
EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.
PARCEL FOUR:
All of Lot 43, as shown on that certain Map entitled Tract No. 7526, which Map
was filed for record in the office of the Recorder of the County of Santa Clara,
State of California on October 27, 1983, in Book 520 of Maps page(s) 28, 29
and 30.
APN: 097-52-013
EXCEPTING THEREFROM ANY IMPROVEMENTS SITUATED ON THE ABOVE-DESCRIBED PROPERTY,
WHICH IMPROVEMENTS ARE, AND SHALL REMAIN, REAL PROPERTY.
<PAGE> 42
SCHEDULE 1
HAZARDOUS MATERIALS USED ON THE FACILITY 1 LAND
As set forth in that certain Hazardous Materials Business
Plan (HMBP) for Novellus Systems, Inc. dated 4/1/97 prepared by Environmental
Quality Solutions.
<PAGE> 1
Escrow No. 513032 Conformed Copy
Recording requested by and
when recorded return to: Exhibit 10.4
Thomas Y. Coleman, Esq. Doc# 13735220
Orrick, Herrington & Sutcliffe 6/10/1997 2:45pm
Old Federal Reserve Bank Building
400 Sansome Street
San Francisco, California 94111
- ----------------------------------------------------------------------------
FACILITY 2 LEASE AGREEMENT
CONSTRUCTION DEED OF TRUST WITH ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
BETWEEN
NOVELLUS SYSTEMS, INC.
AND
LEASE PLAN NORTH AMERICA, INC.
JUNE 9, 1997
- ----------------------------------------------------------------------------
<PAGE> 2
LEASE AGREEMENT
TABLE OF CONTENTS
SECTION I. INTERPRETATION
1.01. DEFINITIONS_________________________________________________________2
1.02. RULES OF CONSTRUCTION_______________________________________________2
SECTION II. BASIC PROVISIONS
2.01. LEASE OF THE FACILITY 2 PROPERTY____________________________________2
2.02. TERM________________________________________________________________2
2.03. RENT________________________________________________________________3
2.04. USE_________________________________________________________________5
2.05. "AS IS" LEASE_______________________________________________________5
2.06. NATURE OF TRANSACTION_______________________________________________5
2.07. SECURITY, ETC_______________________________________________________6
SECTION III. OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS
3.01. MAINTENANCE, REPAIR, ETC____________________________________________8
3.02. RISK OF LOSS________________________________________________________9
3.03. INSURANCE___________________________________________________________9
3.04. CASUALTY AND CONDEMNATION__________________________________________12
3.05. TAXES______________________________________________________________15
3.06. ENVIRONMENTAL MATTERS______________________________________________16
3.07. LIENS, EASEMENTS, ETC______________________________________________17
3.08. SUBLETTING_________________________________________________________18
3.09. UTILITY CHARGES____________________________________________________18
3.10. REMOVAL OF FACILITY 2 PROPERTY_____________________________________18
3.11. COMPLIANCE WITH GOVERNMENTAL RULES AND INSURANCE REQUIREMENTS______19
3.12. PERMITTED CONTESTS_________________________________________________19
3.13. LESSOR OBLIGATIONS; RIGHT TO PERFORM LESSEE OBLIGATIONS____________19
3.14. INSPECTION RIGHTS__________________________________________________20
SECTION IV. EXPIRATION DATE
4.01. TERMINATION BY LESSEE PRIOR TO SCHEDULED EXPIRATION DATE___________20
4.02. SURRENDER OF FACILITY 2 PROPERTY___________________________________20
4.03. HOLDING OVER_______________________________________________________20
i
<PAGE> 3
SECTION V. DEFAULT
5.01. EVENTS OF DEFAULT__________________________________________________20
5.02. GENERAL REMEDIES___________________________________________________23
5.03. LEASE REMEDIES_____________________________________________________24
5.04. LOAN REMEDIES______________________________________________________25
5.05. REMEDIES CUMULATIVE________________________________________________28
5.06. NO CURE OR WAIVER__________________________________________________28
5.07. EXERCISE OF RIGHTS AND REMEDIES____________________________________28
SECTION VI.
MISCELLANEOUS
6.01. NOTICES____________________________________________________________28
6.02. WAIVERS; AMENDMENTS________________________________________________28
6.03. SUCCESSORS AND ASSIGNS_____________________________________________29
6.04. NO THIRD PARTY RIGHTS______________________________________________29
6.05. PARTIAL INVALIDITY_________________________________________________29
6.06. GOVERNING LAW______________________________________________________29
6.07. COUNTERPARTS_______________________________________________________29
6.08. NATURE OF LESSEE'S OBLIGATIONS_____________________________________29
ii
<PAGE> 4
EXHIBITS
A(1) Facility 2 Land (2.01(a))
A(2) Facility 1 Land (2.01(b))
B Related Goods (2.01(c))
B1 Supplement to Exhibit B To Lease Agreement
Attachment 1to Supplement to Exhibit B
SCHEDULES
1 Hazardous Materials used on the Facility 2 Property
iii
<PAGE> 5
FACILITY 2 LEASE AGREEMENT
CONSTRUCTION DEED OF TRUST WITH ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS LEASE AGREEMENT, CONSTRUCTION DEED OF TRUST WITH ASSIGNMENT OF
RENTS, SECURITY AGREEMENT AND FIXTURE FILING (this "Agreement" herein), dated as
of June 9, 1997 is entered into by and between:
(1) Novellus Systems, Inc., a California corporation
("Lessee"); and
(2) LEASE PLAN NORTH AMERICA, INC., an Illinois corporation
("Lessor").
RECITALS
A. Lessee has requested Lessor and the financial institutions which are
"Participants" under the Participation Agreement referred to in Recital B below
(such financial institutions to be referred to collectively as the
"Participants") to provide to Lessee a certain lease facility pursuant to which:
(1) Lessor would (a) purchase certain parcels of real property
and certain improvements and personal property designated by Lessee
located on such real property and on other real property, (b) lease
such real and personal property to Lessee as and when acquired by
Lessor, (c) appoint Lessee as Lessor's agent to make certain
improvements on certain of the parcels of real property, (d) make
advances to finance such improvements and to pay certain related
expenses and (e) grant to Lessee the right to purchase such parcels of
real property; and
(2) The Participants would participate in such lease facility
by (a) funding the purchase prices and other advances to be made by
Lessor and (b) acquiring participation interests in the rental and
certain other payments to be made by Lessee.
B. Pursuant to a Participation Agreement dated of even date herewith
(the "Participation Agreement") among Lessee, Lessor, the Participants and ABN
AMRO Bank N.V., as agent for the Participants (in such capacity, "Agent"),
Lessor and the Participants have agreed to provide such lease facility upon the
terms and subject to the conditions set forth therein, including without
limitation the execution and delivery of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
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SECTION I. INTERPRETATION.
1.01. Definitions. Unless otherwise indicated in this Agreement or any
other Operative Document, each term set forth in Schedule 1.01 to the
Participation Agreement, when used in this Agreement or any other Operative
Document, shall have the respective meaning given to that term in such Schedule
1.01 or in the provision of this Agreement or other document, instrument or
agreement referenced in such Schedule 1.01.
1.02. Rules of Construction. Unless otherwise indicated in this
Agreement or any other Operative Document, the rules of construction set forth
in Schedule 1.02 to the Participation Agreement shall apply to this Agreement
and the other Operative Documents.
SECTION II. BASIC PROVISIONS.
2.01. Lease of the Facility 2 Property. Subject to the acquisition
thereof by Lessor pursuant to the Participation Agreement and applicable
Acquisition Agreements either as of the date hereof or during the term hereof,
Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor the
following property (the "Facility 2 Property") to the extent of Lessor's estate,
right, title and interest therein, thereto or thereunder:
(a) All lots, pieces, tracts and parcels of land described in
Exhibit A(1) together with such additional parcels of real property as
may be added to Exhibit A(1) from time to time during the term hereof
(the "Facility 2 Land");
(b) All Improvements located on the Facility 2 Land and on the
lots, pieces and parcels of land described in Exhibit A(2), together
with such additional parcels of real property as may be added to
Exhibit A(2) from time to time during the term hereof (the "Facility 1
Land") and all Appurtenant Rights;
(c) All Related Goods (including those described in Exhibit B
and in each Exhibit B Supplement), Related Permits and Related
Agreements; and
(d) All accessions and accretions to and replacements and
substitutions for the foregoing.
2.02. Term.
(a) Original Term. The original term of this Agreement shall
commence on the Closing Date (the "Commencement Date") and shall end on
the first Business Day of June, 2002 (such date as it may be extended
pursuant to Subparagraph 2.02(b) to be referred to as the "Scheduled
Expiration Date").
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(b) Extensions. Lessee may request Lessor to extend the
Scheduled Expiration Date in effect at any time for an additional
period of three (3) years, as provided in Subparagraph 2.09(b) of the
Participation Agreement. If Lessor and each Participant consents to
such a request in accordance with such provision, the definition of
"Scheduled Expiration Date" set forth in Subparagraph 2.02(a) shall be
deemed extended to the date which is the first business day of June,
2005. Lessee acknowledges that neither Lessor nor any Participant has
any obligation or commitment (either express or implied) to extend, or
consent to the extension of, the Scheduled Expiration Date at any time.
2.03. Rent.
(a) Base Rent.
(i) Lessee shall pay as base rent hereunder ("Base Rent")
for each Rental Period (or portion thereof) an amount equal to
the sum of the following:
(A) The product of (1) the Rental Rate for
such Rental Period, times (2) the Outstanding Lease
Amount under Facility 2 on the first day of such
Rental Period (which shall include any Advance under
Facility 2 made on the first day of such Rental
Period), times (3) a fraction, the numerator of which
is the number of days in such Rental Period and the
denominator of which is 360; and
(B) If Lessor makes an Advance under
Facility 2 (other than any Advance on the Closing
Date) during such Rental Period on any day other than
the first day of such Rental Period, the product of
(1) the LIBOR Rental Rate for the Stub Period if the
Stub Period is greater than seven (7) days or the
Alternate Rental Period for the Stub Period if the
Stub Period is Seven (7) days or less, times (2) the
amount of such Advance, times (3) a fraction, the
numerator of which is the number of days in such Stub
Period and the denominator of which is 360.
If the Rental Rate shall change during any Rental Period, the
Rental Rate for such Rental Period shall be the weighted
average of the Rental Rates in effect from time to time during
such Rental Period.
(ii) The Term shall consist of the following rental
periods (individually, a "Rental Period"):
(A) The period which begins on the
Commencement Date and ends on the first Business Day
in the first calendar month immediately following the
month in which the Commencement Date occurs;
(B) Each successive period
thereafter which begins on the last day of the
immediately preceding Rental Period and ends one (1)
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month thereafter on the first Business Day of a
calendar month through and including the Commitment
Termination Date; and
(C) Each successive period
thereafter which begins on the last day of the
immediately preceding Rental Period and ends one
(1), two (2), three (3) or six (6) months thereafter,
as determined in accordance with this clause (ii), on
the first Business Day of a calendar month through
and including the Scheduled Expiration Date.
Lessee may select a Rental Period of one (1), two (2), three
(3) or six (6) months for the Rental Period which begins on
the Commitment Termination Date or for any Rental Period
thereafter by delivering to Lessor, at least three (3)
Business Days prior to the first day of such Rental Period, a
written notice of such selection (a "Notice of Rental Period
Selection"); provided, however, that (1) each Rental Period
shall begin and end on the first Business Day of a calendar
month, (2) no Rental Period shall end after the Scheduled
Expiration Date, (3) no Rental Period shall be longer than one
(1) month if a Default has occurred and is continuing on the
date three (3) Business Days prior to the first day of such
Rental Period and (4) each Rental Period for which Lessee
fails to make a selection in accordance with this clause (ii)
shall be one (1) month. Each Notice of Rental Period Selection
shall be delivered by first-class mail or facsimile as
required by Subparagraph 2.02(a) and Paragraph 7.01 of the
Participation Agreement; provided, however, that Lessee shall
promptly deliver the original of any Notice of Rental Period
Selection initially delivered by facsimile.
(iii) The rental rate for each Rental Period ("Rental
Rate") shall be the LIBOR Rental Rate for such Rental Period,
except as follows:
(A) If the Commencement Date is not the
first Business Day of a month, the Rental Rate for
the first Rental Period (which begins on the
Commencement Date) shall be the LIBOR Rental Rate for
the Stub Period for the Acquisition Advance made on
the Commencement Date if such Stub Period is greater
than seven (7) days or the Alternate Rental Rate for
such Stub Period if such Stub Period is seven (7)
days or less;
(B) The Rental Rate applicable during any
Stub Period to that portion of the Outstanding Lease
Amount under Facility 2 equal to the Acquisition
Advance made on the first day of such Stub Period
shall be the LIBOR Rental Rate for such Stub Period
if such Stub Period is greater than seven (7) days or
the Alternate Rental Rate for such Stub Period if
such Stub Period is seven (7) days or less: and
(C) The Rental Rate for any Rental Period
(or portion thereof) during which the LIBOR Rental
Rate is unavailable pursuant to Subparagraph 2.12(a)
or Subparagraph 2.12(b) of the Participation
Agreement shall be the Alternate Rental Rate.
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(iv) Lessee shall pay Base Rent in arrears on (A) the last
day of each Rental Period and, in the case of any Rental
Period which exceeds three (3) months, each day occurring
every three (3) months after the first day of such Rental
Period (individually, a "Scheduled Rent Payment Date") and (B)
the Expiration Date.
(b) Supplemental Rent. Lessee shall pay as supplemental rent
hereunder ("Supplemental Rent") all amounts (other than Base Rent, the
purchase price payable by Lessee for any purchase of the Facility 2
Property by Lessee pursuant to the Facility 2 Purchase Agreement and
the Residual Value Guaranty Amount and Indemnity Amount payable under
the Facility 2 Purchase Agreement) payable by Lessee under this
Agreement and the other Operative Documents. Lessee shall pay all
Supplemental Rent amounts on the dates specified in this Agreement and
the other Operative Documents for the payment of such amounts or, if no
date is specified for the payment of any such amount, upon the demand
of Lessor or any other Person to whom such amount is payable.
2.04. Use. Lessee may use the Facility 2 Property for office,
research and development, warehouse and manufacturing purposes, and for any
other purpose which is in compliance with applicable zoning laws and ordinances
for the Facility 2 Property.
2.05. "As Is" Lease. Lessee has conducted, or will conduct from time to
time with regard to Facility 2 Property that may be added hereto after the date
hereof, all due diligence which it deems appropriate regarding the Facility 2
Property and agrees that no Lessor Party has any obligation to conduct any such
due diligence. Lessee is leasing the Facility 2 Property "as is, with all
faults" without any representation, warranty, indemnity or undertaking by any
Lessor Party regarding any aspect of the Facility 2 Property, including (a) the
condition of the Facility 2 Property (including any Improvements to the Facility
2 Property made prior to the Commencement Date or during the Term); (b) title to
the Facility 2 Property (including possession of the Facility 2 Property by any
Person or the existence of any Lien or any other right, title or interest in or
to any of the Facility 2 Property in favor of any Person); (c) the value,
habitability, usability, design, operation or fitness for use of the Facility 2
Property; (d) the availability or adequacy of utilities and other services to
the Facility 2 Property; (e) any latent, hidden or patent defect in the Facility
2 Property; (f) the zoning or status of the Facility 2 Property or any other
restrictions on the use of the Facility 2 Property; (g) the economics of the
Facility 2 Property; (h) any Casualty or Condemnation; or (i) the compliance of
the Facility 2 Property with any applicable Governmental Rule or Insurance
Requirement; provided, however, that Lessor shall be obligated to remove Lessor
Liens to the extent required in Subparagraph 5.04(b) of the Participation
Agreement. Without limiting the generality of the foregoing, Lessee specifically
waives any covenant of quiet enjoyment except as otherwise provided in
Subparagraph 5.04(b) of the Participation Agreement.
2.06. Nature of Transaction. As more fully provided in Paragraph 2.10
of the Participation Agreement, Lessee and the Lessor Parties intend that the
transaction evidenced by this Agreement and the other Operative Documents
constitute an operating lease for accounting purposes and a loan secured by the
Facility 2 Property for all other purposes, including federal, state and local
income tax purposes and commercial, real estate and bankruptcy law purposes.
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2.07. Security, Etc. In order to secure the Lessee Obligations and
otherwise to assure the Lessor Parties the benefits hereof in the event that the
transaction evidenced by this Agreement and the other Operative Documents is,
pursuant to the intent of Lessee and the Lessor Parties, treated as a loan for
certain purposes, Lessee hereby makes the following grants and agrees as
follows:
(a) Real Property Security. As security for the Lessee
Obligations, Lessee hereby irrevocably and unconditionally grants,
conveys, transfers and assigns to Lessor, in trust for the benefit of
the Lessor Parties, with power of sale and right of entry and
possession, all estate, right, title and interest of Lessee in the
following Facility 2 Property, whether now owned or hereafter acquired,
(collectively, the "Real Property Collateral"):
(i) The Facility 2 Land, all Improvements to the
Facility 2 Land and the Facility 1 Land and all Appurtenant
Rights;
(ii) All Subleases and Issues and Profits to the extent
that such Subleases and Issues and Profits constitute real
property;
(iii) All Related Goods, Related Agreements and Related
Permits to the extent that such Related Goods, Related
Agreements and Related Permits constitute real property;
(iv) All other Facility 2 Property to the extent such
property constitutes real Property; and
(v) All proceeds of the foregoing, including Casualty
and Condemnation Proceeds.
(b) Personal Property Security. As security for the
Lessee Obligations, Lessee hereby irrevocably and unconditionally
assigns and grants to Lessor, for the benefit of the Lessor Parties, a
security interest in all estate, right, title and interest of Lessee in
the following Property, whether now owned or hereafter acquired,
(collectively, the "Personal Property Collateral"):
(i) All Subleases and Issues and Profits to the extent
such Subleases and Issues and Profits constitute personal
property;
(ii) All Related Goods, Related Agreements and Related
Permits to the extent such Related Goods, Related Agreements
and Related Permits constitutes personal property;
(iii) All deposit accounts, instruments, investment
Facility 2 Property and monies held by any Lessor Party in
connection with this Agreement or any other Operative Document
(including any Repair and Restoration Account but excluding
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Cash Collateral held by any Lessor Party pursuant to the Cash
Collateral Agreement);
(iv) All other Facility 2 Property to the extent such
Facility 2 Property constitutes personal property;
(v) All proceeds of the foregoing, including Casualty
and Condemnation Proceeds. (Cash Collateral held by Lessor
Parties pursuant to the Cash Collateral Agreement secures
only the Lessee Obligations under the Purchase Agreement.)
This Agreement constitutes a fixture filing for purposes of
the California Commercial Code with respect to the Related
Goods which are or are to become fixtures on the Facility 2
Land or Improvements.
(c) Absolute Assignment of Subleases, Issues and Profits.
Lessee hereby irrevocably assigns to Lessor, for the benefit of the
Lessor Parties, all of Lessee's estate, right, title and interest in,
to and under the Subleases and the Issues and Profits, whether now
owned or hereafter acquired. This is a present and absolute assignment,
not an assignment for security purposes only, and Lessor's right to the
Subleases and Issues and Profits is not contingent upon, and may be
exercised without possession of, the Facility 2 Property.
(i) Until the occurrence of an Event of Default, Lessee
shall have a revocable license to collect and retain the
Issues and Profits as they become due. Upon the occurrence of
an Event of Default, such license shall automatically
terminate, and Lessor may collect and apply the Issues and
Profits pursuant to Subparagraph 5.02(d) without further
notice to Lessee or any other party and without taking
possession of the Facility 2 Property. All Issues and Profits
thereafter collected by Lessee shall be held by Lessee as
trustee in a constructive trust for the benefit of Lessor.
Lessee hereby irrevocably authorizes and directs the
sublessees under the Subleases, without any need on their part
to inquire as to whether an Event of Default has actually
occurred or is then existing, to rely upon and comply with any
notice or demand by Lessor for the payment to Lessor of any
rental or other sums which may become due under the Subleases
or for the performance of any of the sublessees' undertakings
under the Subleases. Collection of any Issues and Profits by
Lessor shall not cure or waive any default or notice of
default hereunder or invalidate any acts done pursuant to such
notice.
(ii) The foregoing irrevocable assignment shall not cause
any Lessor Party to be (A) a mortgagee in possession; (B)
responsible or liable for (1) the control, care, management or
repair of the Facility 2 Property or for performing any of
Lessee's obligations or duties under the Subleases, (2) any
waste committed on the Facility 2 Property by the sublessees
under any of the Subleases or by any other Persons, (3) any
dangerous or defective condition of the Facility 2 Property,
or (4) any negligence in the management, upkeep, repair or
control of the Facility 2 Property resulting in loss or injury
or death to any sublessee, licensee, employee,
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invitee or other Person; or (C) responsible for or impose upon
any Lessor Party any duty to produce rents or profits. No
Lessor Party, in the absence of gross negligence or willful
disregard on its part, shall be liable to Lessee as a
consequence of (y) the exercise or failure to exercise any of
the rights, remedies or powers granted to Lessor hereunder or
(z) the failure or refusal of Lessor to perform or discharge
any obligation, duty or liability of Lessee arising under the
subleases.
SECTION III. OTHER LESSEE AND LESSOR RIGHTS AND OBLIGATIONS.
3.01. Maintenance, Repair, Etc.
(a) General. Lessee shall not permit any waste of the Facility
2 Property, except for ordinary wear and tear, and shall, at its sole
cost and expense, maintain the Facility 2 Property in good working
order, mechanical condition and repair 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 applicable
Governmental Rules and Insurance Requirements and on a basis consistent
with the operation and maintenance of commercial properties comparable
in type and location to the Facility 2 Property and in compliance with
prudent industry practice.
(b) New Improvements. Lessee shall make or cause to be made
all of the New Improvements authorized and required by the Construction
Agency Agreement in accordance with the Construction Agency Agreement.
(c) Other Modifications. Lessee, at its sole cost and expense,
may from time to time make alterations, renovations, improvements and
additions to the Facility 2 Property and substitutions and replacements
therefor (collectively, "Modifications") in addition to the New
Improvements; provided that:
(i) No Modification impairs the value, utility or useful
life of the Facility 2 Property or any part thereof from that
which existed immediately prior to such Modification;
(ii) All Modifications are made expeditiously and, in all
cases, completed not later than six (6) months prior to the
Scheduled Expiration Date; provided, however, in the event
that Lessee shall have exercised either the Term Purchase
Option or the Expiration Purchase Option the foregoing six (6)
month limitation shall not be applicable;
(iii) All Modifications are made in a good and workmanlike
manner and in compliance with all applicable Governmental
Rules and Insurance Requirements;
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(iv) Subject to Paragraph 3.12 relating to permitted
contests, Lessee pays all costs and expenses and discharges
(or cause to be insured or bonded over) any Liens arising in
connection with any Modification not later than the earlier of
(A) sixty (60) days after the same shall be filed (or
otherwise becomes effective) and (B) six (6) months prior to
the Scheduled Expiration Date; provided, however, in the event
that Lessee shall have exercised either the Term Purchase
Option or the Expiration Purchase Option the foregoing six (6)
month limitation shall not be applicable;
(v) At least one (1) month prior to the commencement of
(y) any Modifications which are anticipated to cost $1,000,000
or more in the aggregate, or (z) any Modifications which cause
the total of all Modifications undertaken during the previous
twelve month period to exceed an aggregate cost of $2,500,000,
Lessee shall deliver to Lessor, with sufficient copies for
Agent and each Participant, a brief written description of
such Modifications; and
(vi) All Modifications otherwise comply with this
Agreement and the other Operative Documents.
(d) Abandonment. Lessee shall not abandon the Facility 2
Property or any material portion thereof for any period in excess of
thirty (30) consecutive days during the term hereof, except as a part
of any New Improvements or Modifications as permitted herein.
(e) Maintenance. Lessee shall maintain the Facility 2 Property
and each material portion thereof in a manner consistent with other
similar properties in the San Jose area, except as a part of any New
Improvements or Modifications as permitted herein
3.02. Risk of Loss. Lessee assumes all risks of loss arising from any
Casualty or Condemnation which arises or occurs prior to the Expiration Date or
while Lessee is in possession of the Facility 2 Property and all liability for
all personal injuries and deaths and damages to Facility 2 Property suffered by
any Person on or in connection with the Facility 2 Property which arises or
occurs prior to the Expiration Date or while Lessee is in possession of the
Facility 2 Property, except in each case to the extent any such loss or
liability is primarily caused by the gross negligence or willful misconduct of a
Lessor Party. Lessee hereby waives the provisions of California Civil Code
Sections 1932(1), 1932(2) and 1933(4), and any and all other applicable existing
or future Governmental Rules permitting the termination of this Agreement as a
result of any Casualty or Condemnation, and Lessor shall in no event be
answerable or accountable for any risk of loss of or decrease in the enjoyment
and beneficial use of the Facility 2 Property as a result of any such event.
3.03. Insurance.
(a) Coverage. Lessee, at its sole cost and expense, shall
carry and maintain the following insurance coverage:
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(i) At all times during the Term, commercial liability
insurance covering claims for injuries or death sustained by
persons or damage to Facility 2 Property while on the Facility
2 Property, and workers' compensation insurance;
(ii) At all times during the Term, property insurance
covering loss or damage by fire, flood, earthquake and other
risks in an amount not less than the then current replacement
cost of the Improvements on the Facility 2 Property, provided
that any property insurance for fire, flood and other risks
shall not be required to cover the cost of foundations and
underground improvements but any earthquake policy or coverage
shall cover foundations and underground improvements.
Earthquake insurance shall be required only if it is
commercially reasonably available, as reasonably determined by
Lessor and Required Participants. The amount of earthquake
insurance coverage shall be the lesser of $35,000,000 or 37.5%
of the value of the Improvements. Lessee shall obtain and
provide to Lessor and the Agent evidence of such earthquake
insurance within thirty (30) days after the Closing Date.
(iii) During the construction of any Improvements,
builders' risk insurance covering fire, flood, earthquake and
other normal insured risks; and
(iv) At all times during the Term as appropriate, such
other insurance of the types customarily carried by a
reasonably prudent Person owning or operating properties
similar to the Facility 2 Property in the same geographic area
as the Facility 2 Property.
Except as otherwise specifically required above, such insurance shall
be in amounts, in a form and with deductibles approved by Lessor, which
approval shall not be unreasonably withheld.
(b) Carriers. Any insurance carried and maintained by Lessee
pursuant to this Paragraph 3.03 shall be underwritten by an insurance
company which (i) has, at the time such insurance is placed and at the
time of each renewal thereof, a general policyholder rating of "A" and
a financial rating of at least 8 from A.M. Best and Company or any
successor thereto (or if there is none, an organization having a
similar national reputation) or (ii) is otherwise approved by Lessor
and Required Participants.
(c) Terms. Each insurance policy maintained by Lessee pursuant
to this Paragraph 3.03 shall provide as follows, whether through
endorsements or otherwise:
(i) Lessor and the Agent shall be named as additional
insured, in the case of each policy of liability insurance, or
additional loss payee, in the case of each policy of Facility
2 Property insurance.
(ii) In respect of the interests of Lessor in the policy,
the insurance shall not be invalidated by any action or by
inaction of Lessee or by any Person having
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temporary possession of the Facility 2 Property while under
contract with Lessee to perform maintenance, repair,
alteration or similar work on the Facility 2 Property, and
shall insure the interests of Lessor regardless of any breach
or violation of any warranty, declaration or condition
contained in the insurance policy by Lessee, Lessor or any
other additional insured (other than by such additional
insured, as to such additional insured); provided, however,
that the foregoing shall not be deemed to (A) cause such
insurance policies to cover matters otherwise excluded from
coverage by the terms of such policies or (B) require any
insurance to remain in force notwithstanding non-payment of
premiums except as provided in clause (iii) below.
(iii) If the insurance policy is canceled for any reason
whatsoever, or substantial change is made in the coverage that
affects the interests of Lessor, or if the insurance coverage
is allowed to lapse for non-payment of premium, such
cancellation, change or lapse shall not be effective as to
Lessor for thirty (30) days after receipt by Lessor of written
notice from the insurers of such cancellation, change or
lapse.
(iv) No Lessor Party shall have any obligation or
liability for premiums, commissions, assessments, or calls in
connection with the insurance.
(v) The insurer shall waive any rights of set-off or
counterclaim or any other deduction, whether by attachment or
otherwise, that it may have against any Lessor Party.
(vi) The insurance shall be primary without right of
contribution from any other insurance that may be carried by
any Lessor Party with respect to its interest in the Facility
2 Property.
(vii) The insurer shall waive any right of subrogation
against any Lessor Party.
(viii) All provisions of the insurance, except the limits
of liability, shall operate in the same manner as if there
were a separate policy covering each insured party.
(ix) The insurance shall not be invalidated should Lessee
or any Lessor Party waive, in writing, prior to a loss, any or
all rights of recovery against any Person for losses covered
by such policy, nor shall the insurance in favor of any Lessor
Party or Lessee, as the case may be, or their respective
rights under and interests in said policies be invalidated or
reduced by any act or omission or negligence of any Lessee
Party or Lessor, as the case may be, or any other Person
having any interest in the Facility 2 Property.
(x) All insurance proceeds in respect of any loss or
occurrence with a value of less than two million five hundred
thousand dollars ($2,500,000) shall be paid to and adjusted
solely by Lessee. All other losses shall be adjusted jointly
by Lessor and Lessee with all proceeds for losses in excess of
two million five hundred
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thousand dollars ($2,500,000) paid to Lessor, subject to the
applicable provisions of the Operative Documents, except from
and after the date on which the insurer receives written
notice from Lessor that an Event of Default exists (and unless
and until such insurer receives written notice from Lessor
that all Events of Default have been cured), all losses shall
be adjusted solely by, and all insurance proceeds shall be
paid solely to, Lessor.
(xi) Each policy shall contain a standard form mortgage
endorsement in favor of Lessor.
(d) Evidence of Insurance. Lessee, at its sole cost and
expense, shall furnish to Lessor from time to time upon the request of
Lessor such certificates or other documents as Lessor may reasonably
request to evidence Lessee's compliance with the insurance requirements
set forth in this Paragraph 3.03.
(e) Release of Lessor Parties. Lessee hereby waives, releases
and discharges each Lessor Party and its directors, officers,
employees, agents and advisors from all claims whatsoever arising out
of any loss, claim, expense or damage to or destruction covered or
coverable by insurance required under this Paragraph 3.03
notwithstanding that such loss, claim, expense or damage may have been
caused by any such Person, and, as among Lessee and such Persons,
Lessee agrees to look to the insurance coverage only in the event of
such loss.
3.04. Casualty and Condemnation.
(a) Notice. Lessee shall give Lessor prompt written notice of
the occurrence of any Casualty affecting, or the institution of any
proceedings for the Condemnation of, the Facility 2 Property or any
portion thereof.
(b) Repair or Purchase Option. After the occurrence of any
Casualty or Condemnation affecting the Facility 2 Property or any
portion thereof, Lessee shall either (i) repair and restore the
Facility 2 Property as required by Subparagraph 3.04(c) or (ii)
exercise the Term Purchase Option and purchase the Facility 2 Property
pursuant to the Purchase Agreement; provided, however, that Lessee may
not elect to repair and restore the Facility 2 Property if an Event of
Default has occurred and is continuing unless Lessor and the Required
Participants shall consent in writing. Not later than one (1) month
after the occurrence of any Casualty or Condemnation, Lessee shall
deliver to Lessor a written notice indicating whether it elects to
repair and restore or purchase the Facility 2 Property
(c) Repair and Restoration. If Lessee elects to repair and
restore the Facility 2 Property following any Casualty or Condemnation,
Lessee shall diligently proceed to repair and restore the Facility 2
Property to the condition in which it existed immediately prior to such
Casualty or Condemnation and shall complete all such repairs and
restoration not later than the earlier of (y) one (1) year after the
occurrence of the Casualty or Condemnation, and (z) six (6) months
prior to the Scheduled Expiration Date. Lessee shall use its own funds
to make such repairs and restoration, except to the extent any
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Casualty and Condemnation Proceeds are available and are released to
Lessee for such purpose pursuant to Subparagraph 3.04(f). Lessee's
exercise of the repair and restoration option shall, if Lessor or
Required Participants direct, be subject to the following conditions:
(i) Deposit in a deposit account acceptable to and
controlled by Lessor (a "Repair and Restoration Account") of
funds (including any Casualty and Condemnation Proceeds which
are available and are released to Lessee pursuant to
Subparagraph 3.04(f)) in the amount which Lessor determines is
needed to complete and fully pay all costs of the repair or
restoration (including taxes, financing charges, insurance and
rent during the repair period);
(ii) The establishment of an arrangement for lien releases
and disbursement of funds acceptable to Lessor and in a manner
and upon such terms and conditions as would be required by a
prudent interim construction lender; and
(iii) The delivery to Lessor of the following within ninety
(90) days after the occurrence of such Casualty or
Condemnation, each in form and substance acceptable to Lessor:
(A) Evidence that the Facility 2 Property
can, in Lessor's reasonable judgment, with diligent
restoration or repair, be returned to a condition at
least equal to the condition thereof that existed
prior to the Casualty or partial Condemnation causing
the loss or damage within the earlier to occur of (A)
one (1) year after the Casualty and Condemnation, and
(B) six (6) months prior to the Scheduled Expiration
Date;
(B) Evidence that all necessary governmental
approvals can be timely obtained to allow the
rebuilding and reoccupancy of the Facility 2
Property;
(C) Copies of all plans and specifications
for the work;
(D) Copies of all contracts for the work,
signed by a contractor reasonably acceptable to
Lessor;
(E) A cost breakdown for the work;
(F) A payment and performance bond for the
work or other security satisfactory to Lender;
(G) Evidence that, upon completion of the
work, the size, capacity and total value of the
Facility 2 Property will be at least as great as it
was before the Casualty or Condemnation occurred; and
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(H) Evidence of satisfaction of any
additional conditions that Lessor or Required
Participants may reasonably establish to protect
their rights under this Agreement and the other
Operative Documents.
All plans and specifications for the work must be reasonably
acceptable to Lessor, except that Lessor's approval shall not
be required if the restoration work is based on the same plans
and specifications as were originally used to construct the
Facility 2 Property. To the extent that the funds in a Repair
and Restoration Account include both Casualty and Condemnation
Proceeds and other funds deposited by Lessee, the other funds
deposited by Lessee shall be used first. Lessee acknowledges
that the specific conditions described above are reasonable.
(d) Prosecution of Claims for Casualty and Condemnation
Proceeds. Lessee shall proceed promptly and diligently to prosecute in
good faith the settlement or compromise of any and all claims for
Casualty and Condemnation Proceeds; provided, however, that any
settlement or compromise of any such claim shall, except as otherwise
provided in Section 3.03(c)(x), be subject to the written consent of
Lessor and Required Participants, which consents shall not be
unreasonably withheld. Lessor may participate in any proceedings
relating to such claims, and, after the occurrence and during the
continuance of any Event of Default, Lessor is hereby authorized, in
its own name or in Lessee's name, to adjust any loss covered by
insurance or any Casualty or Condemnation claim or cause of action, and
to settle or compromise any claim or cause of action in connection
therewith, and Lessee shall from time to time deliver to Lessor any and
all further assignments and other instruments required to permit such
participation.
(e) Assignment of Casualty and Condemnation Proceeds. Lessee
hereby absolutely and irrevocably assigns to Lessor all Casualty and
Condemnation Proceeds and all claims relating thereto and agrees that
all Casualty and Condemnation Proceeds are to be paid to Lessor, except
as otherwise provided in Section 3.03(c)(x). Except as otherwise
provided in Section 3.03(c)(x), Lessee hereby authorizes and directs
any insurer, Governmental Authority or other Person responsible for
paying any Casualty and Condemnation Proceeds to make payment thereof
directly to Lessor alone, and not to Lessor and Lessee jointly. If
Lessee receives any Casualty and Condemnation Proceeds, Lessee shall
promptly pay over such Casualty and Condemnation Proceeds to Lessor.
Lessee hereby covenants that until such Casualty and Condemnation
Proceeds are so paid over to Lessor, Lessee shall hold such Casualty
and Condemnation Proceeds in trust for the benefit of Lessor and shall
not commingle such Casualty and Condemnation Proceeds with any other
funds or assets of Lessee or any other Person. Lessor may commence,
appear in, defend or prosecute any assigned right, claim or action, and
may adjust, compromise, settle and collect all rights, claims and
actions assigned to Lessor, but shall not be responsible for any
failure to collect any such right, claim or action, regardless of the
cause of the failure.
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(f) Use of Casualty and Condemnation Proceeds.
(i) If (A) no Event of Default has occurred and is
continuing, (B) Lessee exercises the repair and restoration
option pursuant to Subparagraphs 3.04(b) and 3.04(c) and (C)
Lessee complies with any conditions imposed pursuant to
Subparagraph 3.04(c); then Lessor shall release any Casualty
and Condemnation Proceeds to Lessee for repair or restoration
of the Facility 2 Property, but may condition such release and
use of the Casualty and Condemnation Proceeds upon deposit of
the Casualty and Condemnation Proceeds in a Repair and
Restoration Account. Lessor shall have the option, upon the
completion of such restoration of the Facility 2 Property, to
apply any surplus Casualty and Condemnation Proceeds remaining
after the completion of such restoration to the payment of
Rent and/or the reduction of the Outstanding Lease Amount,
notwithstanding that such amounts are not then due and payable
or that such amounts are otherwise adequately secured.
(ii) If (A) an Event of Default has occurred and is
continuing, (B) Lessee fails to or is unable to comply with
any conditions imposed pursuant to Subparagraph 3.04(c) or (C)
Lessee elects to exercise the Term Purchase Option and
purchase the Facility 2 Property pursuant to the Purchase
Agreement; then, at the absolute discretion of Lessor and the
Required Participants, regardless of any impairment of
security or lack of impairment of security, but subject to
applicable Governmental Rules governing use of Casualty and
Condemnation Proceeds, if any, Lessor may (1) apply all or any
of the Casualty and Condemnation Proceeds it receives to the
expenses of Lessor Parties in obtaining such proceeds; (2)
apply the balance to the payment of Rent and/or the reduction
of the Outstanding Lease Amount, notwithstanding that such
amounts are not then due and payable or that such amounts are
otherwise adequately secured and/or (3) release all or any
part of such proceeds to Lessee upon any conditions Lessor and
the Required Participants may elect.
(iii) Lessor shall apply any Casualty and Condemnation
Proceeds which are to be used to reduce the Outstanding Lease
Amount only on the last day of a Rental Period unless a
Default has occurred and is continuing.
(iv) Application of all or any portion of the Casualty and
Condemnation Proceeds, or the release thereof to Lessee, shall
not cure or waive any Default or notice of default or
invalidate any acts done pursuant to such notice.
3.05. Taxes. Subject to Paragraph 3.12 relating to permitted contests,
Lessee shall promptly pay when due all Indemnified Taxes imposed on or payable
by Lessee or any Lessor Party in connection with the Facility 2 Property, this
Agreement or any of the other Operative Documents, or any of the transactions
contemplated hereby or thereby. Whenever any such taxes or other Governmental
Charges are payable by Lessee pursuant to the immediately preceding sentence, as
promptly as possible thereafter, Lessee shall send to Lessor for the account of
the applicable Lessor Party a certified copy of an original official receipt
received by Lessee showing
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payment thereof. If Lessee fails to pay any such Indemnified Taxes when due to
the appropriate taxing authority or fails to remit to Lessor the required
receipts or other required documentary evidence, Lessee shall indemnify the
Lessor Parties for any incremental taxes, interest or penalties that may become
payable by the Lessor Parties as a result of any such failure. The obligations
of Lessee under this Paragraph 3.05 shall survive the payment and performance of
the Lessee Obligations and the termination of this Agreement.
3.06. Environmental Matters.
(a) Lessee's Covenants. Lessee shall not cause or permit the
Facility 2 Property to be used as a site for the use, generation,
manufacture, storage, treatment, release, discharge, disposal,
transportation or presence of any Hazardous Materials; provided that
Lessee has disclosed to Lessor that Lessee shall use on the Facility 2
Property from time to time the Hazardous Materials described in
Schedule 1 attached hereto. Notwithstanding the disclosure provided in
Schedule 1, Lessee shall comply and cause the Facility 2 Property to
comply with all Environmental Laws. Lessee shall immediately notify
Lessor in writing of (i) the discovery of any Hazardous Materials on,
under or about the Facility 2 Property (except for those described in
Schedule 1, which are used, stored, maintained and disposed of in
accordance with all Environmental Laws); (ii) any knowledge by Lessee
that the Facility 2 Property does not comply with any Environmental
Laws; (iii) any claims against Lessee or the Facility 2 Property
relating to Hazardous Materials or pursuant to Environmental Laws; and
(iv) the discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Facility 2 Property that could
cause the Facility 2 Property or any part thereof to be designated as
"border zone Facility 2 Property" under the provisions of California
Health and Safety Code Sections 25220 et seq. or any regulation adopted
in accordance therewith. In response to the presence of any Hazardous
Materials on, under or about the Facility 2 Property, Lessee shall
immediately take, at Lessee's sole expense, all remedial action
required by any Environmental Laws or any judgment, consent decree,
settlement or compromise in respect to any claim based thereon.
(b) Inspection By Lessor. Upon reasonable prior notice to
Lessee, Lessor, its employees and agents, may from time to time
(whether before or after the commencement of a nonjudicial or judicial
foreclosure proceeding), enter and inspect the Facility 2 Property for
the purpose of determining the existence, location, nature and
magnitude of any past or present release or threatened release of any
Hazardous Materials into, onto, beneath or from the Facility 2
Property.
(c) Indemnity. Without in any way limiting any other indemnity
contained in this Agreement or any other Operative Document, Lessee
agrees to defend, indemnify and hold harmless the Lessor Parties and
the other Indemnitees from and against any claim, loss, damage, cost,
expense or liability directly or indirectly arising out of (i) the use,
generation, manufacture, storage, treatment, release, threatened
release, discharge, disposal, transportation or presence of any
Hazardous Materials which are found in, on, under or about the Facility
2 Property or (ii) the breach of any covenant, representation or
warranty of Lessee relating to Hazardous Materials or Environmental
Laws contained in
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this Agreement or any Operative Document. This indemnity shall
include (A) the costs, whether foreseeable or unforeseeable, of any
investigation, repair, cleanup or detoxification of the Facility 2
Property which is required by any Governmental Authority or is
otherwise necessary to render the Facility 2 Property in compliance
with all Environmental Laws; (B) all other direct or indirect
consequential damages (including any third party claims, claims by any
Governmental Authority, or any fines or penalties against the
Indemnitees; and (C) all court costs and attorneys' fees (including
expert witness fees and the cost of any consultants) paid or incurred
by the Indemnitees. Lessee shall pay immediately upon Lessor's demand
any amounts owing under this indemnity. Lessee shall use legal counsel
reasonably acceptable to Lessor in any action or proceeding arising
under this indemnity. The obligations of Lessee under this Subparagraph
3.06(c) shall survive the payment and performance of the Lessee
Obligations and the termination of this Agreement.
(d) Legal Effect of Section. Lessee and Lessor agree that (i)
this Paragraph 3.06 and clause (i) of Subparagraph 4.01(t) of the
Participation Agreement is intended as Lessor's written request for
information (and Lessee's response) concerning the environmental
condition of the real Facility 2 Property security as required by
California Code of Civil Procedure Section 726.5 and (ii) each
representation and warranty and covenant herein and therein (together
with any indemnity applicable to a breach of any such representation
and warranty) with respect to the environmental condition of the
Facility 2 Property is intended by Lessor and Lessee to be an
"environmental provision" for purposes of California Code of Civil
Procedure Section 736.
3.07. Liens, Easements, Etc.
(a) Lessee's Covenants. Subject to Paragraph 3.12 relating to
permitted contests, Lessee shall not create, incur, assume or permit to
exist any Lien or easement on or with respect to any of the Facility 2
Property of any character, whether now owned or hereafter acquired,
except for the following ("Permitted Property Liens"):
(i) Liens in favor of a Lessor Party securing the Lessee
Obligations;
(ii) Liens and easements in existence on the Commencement
Date to the extent reflected in the title insurance policy
delivered to Agent pursuant to Paragraph 3.02 of and Schedule
3.02 to the Participation Agreement and approved by Lessor;
(iii) Liens and easements approved by Lessor and reflected
in the title insurance policy or policies or binders to be
delivered in connection with any Facility 2 Land added hereto
after the date hereof;
(iv) Liens for taxes or other Governmental Charges not at
the time delinquent or thereafter payable without penalty;
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<PAGE> 22
(v) Liens of carriers, warehousemen, mechanics,
materialmen and vendors and other similar Liens imposed by law
incurred in the ordinary course of business for sums not
overdue; and
(vi) Lessor Liens or any other Liens approved by Lessor.
Subject to Paragraph 3.12 relating to permitted contests, Lessee shall
promptly (A) pay all Indebtedness and other obligations prior to the
time the non-payment thereof would give rise to a Lien on the Facility
2 Property and (B) discharge, at its sole cost and expense, any Lien on
the Facility 2 Property which is not a Permitted Property Lien.
(b) No Consents. Nothing contained in this Agreement shall be
construed as constituting the consent or request of any Lessor Party,
express 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 Facility 2
Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NO LESSOR
PARTY IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS
FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING THE
FACILITY 2 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 ANY LESSOR PARTY IN
AND TO THE FACILITY 2 PROPERTY.
3.08. Subletting. Lessee may, in the ordinary course of business,
sublease the Facility 2 Property or any portion thereof to any Person, provided,
that (a) Lessee remains directly and primarily liable for performing its
obligations under this Agreement and all other Lessee Obligations; (b) each
sublease is subject to and subordinated to this Agreement; (c) each sublease
expressly provides for the surrender of the Facility 2 Property (or portion
thereof) by the sublessee on the Expiration Date; (d) each sublease has a term
which expires on or prior to the Scheduled Expiration Date (or, if longer,
includes a provision that the sublease terminates on the Expiration Date if such
Expiration Date occurs prior to the Scheduled Expiration Date unless Lessee
purchases the Facility 2 Property on the Expiration Date pursuant to the
Purchase Agreement); (e) each sublease prohibits the sublessee from engaging in
any activities on the Facility 2 Property other than those permitted by
Paragraph 2.04; and (f) no sublease has a Material Adverse Effect. Any sublease
which does not satisfy each of the requirements of the immediately preceding
sentence shall be null and void as to the Lessor Parties and their successor and
assigns. Except for such permitted subleases, Lessee shall not assign any of its
rights or interests under this Agreement to any other Person.
3.09. Utility Charges. Lessee shall pay all charges for electricity,
power, gas, oil, water, telephone, sanitary sewer service and all other
utilities and services to, on or in connection with the Facility 2 Property
during the Term.
3.10. Removal of Facility 2 Property. Lessee shall not remove any
Improvements from the Facility 2 Land or any other Facility 2 Property from the
Facility 2 Land or Improvements,
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except that, during the Term, Lessee may remove any Modification or any trade
fixture, machinery, equipment, inventory or other personal Facility 2 Property
if such Modification or Facility 2 Property (a) was not financed by an Advance,
(b) is not required by any applicable Governmental Rule or Insurance Requirement
and (c) is readily removable without impairing the value, utility or remaining
useful life of the Facility 2 Property.
3.11. Compliance with Governmental Rules and Insurance Requirements.
Lessee, at its sole cost and expense, shall, unless its failure is not
reasonably likely to have a Material Adverse Effect, (a) comply, and cause its
agents, sublessees, assignees, employees, invitees, licensees, contractors and
tenants, and the Facility 2 Property to comply, with all Governmental Rules and
Insurance Requirements relating to the Facility 2 Property (including the
construction, use, 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
Facility 2 Property), and (b) procure, maintain and comply with all licenses,
permits, orders, approvals, consents and other authorizations required for the
construction, use, maintenance and operation of the Facility 2 Property and for
the use, operation, maintenance, repair and restoration of the Improvements.
3.12. Permitted Contests. Lessee, at its sole cost and expense, may
contest any alleged Lien or easement on any of the Facility 2 Property or any
alleged Governmental Charge, Indebtedness or other obligation which is payable
by Lessee hereunder to Persons other than the Lessor Parties or which, if
unpaid, would give rise to a Lien on any of the Facility 2 Property, provided
that (a) each such contest is diligently pursued in good faith by appropriate
proceedings; (b) the commencement and continuation of such proceedings suspends
the enforcement of such Lien or easement or the collection of such Governmental
Charge, Indebtedness or obligation; (c) Lessee has established adequate reserves
for the discharge of such Lien or easement or the payment of such Governmental
Charge, Indebtedness or obligation in accordance with GAAP and, if the failure
to discharge such Lien or easement or the failure to pay such Governmental
Charge, Indebtedness or obligation might result in any civil liability for any
Lessor Party, Lessee has provided to such Lessor Party a bond or other security
satisfactory to such Lessor Party; (d) the failure to discharge such Lien or
easement or the failure to pay such Governmental Charge, Indebtedness or
obligation could not result in any criminal liability for any Lessor Party; (e)
the failure to discharge such Lien or easement or the failure to pay such
Governmental Charge, Indebtedness or obligation is not otherwise reasonably
likely to have a Material Adverse Effect; and (f) any such contest is completed
and such Lien or easement is discharged (either pursuant to such proceedings or
otherwise) or such Governmental Charge, Indebtedness or obligation is declared
invalid, paid or otherwise satisfied not later than six (6) months prior to the
Scheduled Expiration Date; provided, however, in the event that Lessee shall
have exercised either the Term Purchase Option or the Expiration Purchase Option
the foregoing six (6) month limitation shall not be applicable.
3.13. Lessor Obligations; Right to Perform Lessee Obligations. No
Lessor Party shall have any obligation to (a) maintain, repair or make any
improvements to the Facility 2 Property, (b) maintain any insurance on the
Facility 2 Property, (c) perform any other obligation of Lessee under this
Agreement or any other Lessee Obligation, (d) make any expenditure on account of
the Facility 2 Property (except to make Advances as required by the
Participation Agreement) or (e)
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take any other action in connection with the Facility 2 Property, this Agreement
or any other Operative Document, except as expressly provided herein or in
another Operative Document; provided however, that Lessor may, in its sole
discretion and without any obligation to do so, after written notice to Lessee,
perform any Lessee Obligation not performed by Lessee when required. Lessor may
enter the Facility 2 Property or exercise any other right of Lessee under this
Agreement or any other Operative Document to the extent Lessor determines in
good faith that such entry or exercise is reasonably necessary for Lessor to
perform any such Lessee Obligation not performed by Lessee when required. Lessee
shall reimburse Lessor and the other Lessor Parties, within five (5) business
days after demand, for all fees, costs and expenses incurred by them in
performing any such obligation or curing any Default.
3.14. Inspection Rights. During the Term, Lessee shall permit any
Person designated by Lessor, upon reasonable notice and during normal business
hours, to visit and inspect any of the Facility 2 Property.
SECTION IV. EXPIRATION DATE.
4.01. Termination by Lessee Prior to Scheduled Expiration Date. Subject
to the terms and conditions of the Purchase Agreement, Lessee may, at any time
prior to the Scheduled Expiration Date, terminate this Agreement and purchase
the Facility 2 Property pursuant to Section II of the Purchase Agreement. Lessee
shall notify Lessor of Lessee's election so to terminate this Agreement and
purchase the Facility 2 Property by delivering to Agent a Notice of Term
Purchase Option Exercise pursuant to and in accordance with the provisions of
Paragraph 2.02 of the Purchase Agreement.
4.02. Surrender of Facility 2 Property. Unless Lessee purchases the
Facility 2 Property on the Expiration Date pursuant to the Purchase Agreement,
Lessee shall vacate and surrender the Facility 2 Property to Lessor on the
Expiration Date in its then-current condition, subject to compliance by Lessee
on or prior to such date of its obligations under this Agreement and the other
Operative Documents (including the completion of the New Improvements and all
Modifications, the completion of all permitted contests and the removal of all
Liens which are not Permitted Facility 2 Property Liens).
4.03. Holding Over. If Lessee does not purchase the Facility 2 Property
on the Expiration Date pursuant to the Purchase Agreement but continues in
possession of any portion of the Facility 2 Property after the Expiration Date,
Lessee shall pay rent for each day it so continues in possession, payable upon
demand of Lessor, at a per annum rate equal to the Alternate Rental Rate plus
two percent (2%) and shall pay and perform all of its other Lessee Obligations
under this Agreement and the other Operative Documents in the same manner as
though the Term had not ended; provided, however, that this Paragraph 4.03 shall
not be interpreted to permit such holding over or to limit any right or remedy
of Lessor for such holding over.
SECTION V. DEFAULT.
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5.01. Events of Default. The occurrence or existence of any one or more
of the following shall constitute an "Event of Default" hereunder:
(a) Non-Payment. Lessee shall (i) fail to pay on the
Expiration Date any amount payable by Lessee under this Agreement or
any other Operative Document on such date, (ii) fail to pay within five
(5) business days after any Scheduled Rent Payment Date any Base Rent
payable on such Scheduled Rent Payment Date (other than the Base Rent
payable on the Expiration Date) or (iii) fail to pay within five (5)
business days after the same becomes due, any Supplemental Rent or
other amount required under the terms of this Agreement or any other
Operative Document (other than any such amount payable on the
Expiration Date or Base Rent); or
(b) Specific Defaults. Lessee or any of its Subsidiaries shall
fail to observe or perform any covenant, obligation, condition or
agreement set forth in Subparagraph 3.01(d), Paragraph 3.03 or
Subparagraph 3.07(a) hereof or in Paragraph 5.02 or Paragraph 5.03 of
the Participation Agreement; or
(c) Other Defaults. Lessee or any of its Subsidiaries shall
fail to observe or perform any other covenant, obligation, condition or
agreement contained in this Agreement or any other Operative Document
(except for those covenants described in Paragraph 5.01(d) below) and
such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor, provided, however, that in the
event that such failure cannot reasonably be cured within such thirty
(30) day period, such failure shall not constitute an Event of Default
hereunder so long as Lessee shall have commenced to cure such failure
within such thirty (30) day period and shall thereafter diligently
pursue such cure to completion, provided further that such failure
shall in all events be cured by the earlier of (i) the Expiration Date,
if Lessee is exercising the Purchase Option, (provided that if the
Purchase Option is consummated in accordance with the terms of the
Purchase Agreement all outstanding Defaults shall be deemed waived), or
(ii) one hundred and eighty days (180) days after Lessor's notice
thereof; or
(d) Representations and Warranties. Any representation,
warranty, certificate, information or other statement (financial or
otherwise) made or furnished by or on behalf of Lessee or any of its
Subsidiaries to any Lessor Party in or in connection with this
Agreement or any other Operative Document, or as an inducement to any
Lessor Party to enter into this Agreement or any other Operative
Document, shall be false, incorrect, incomplete or misleading in any
material respect when made or furnished and Lessee shall not have cured
the facts or circumstances causing such representation, warranty,
certificate or other statement to be false, incorrect, incomplete or
misleading within thirty (30) days of notice thereof from Lessor; or
(e) Cross-Default. (i) Lessee or any of its Subsidiaries shall
fail to make any payment when due on account of any Indebtedness of
such Person (other than the Lessee Obligations) and such failure shall
continue beyond any period of grace provided with respect thereto, if
the amount of such Indebtedness exceeds $2,500,000 or the effect of
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<PAGE> 26
such failure is to cause, or permit the holder or holders thereof to
cause, Indebtedness of Lessee and its Subsidiaries (other than the
Lessee Obligations) in an aggregate amount exceeding $2,500,000 to
become due or (ii) Lessee or any of its Subsidiaries shall otherwise
fail to observe or perform any agreement, term or condition contained
in any agreement or instrument relating to any Indebtedness of such
Person (other than the Lessee Obligations), or any other event shall
occur or condition shall exist, if the effect of such failure, event or
condition is to cause, or permit the holder or holders thereof to
cause, Indebtedness of Lessee and its Subsidiaries (other than the
Lessee Obligations) in an aggregate amount exceeding $2,500,000 to
become due (and/or to be secured by cash collateral); or
(f) Insolvency, Voluntary Proceedings. Lessee or any of its
Material Subsidiaries shall (i) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian of itself or of all or
a substantial part of its Facility 2 Property, (ii) be unable, or admit
in writing its inability, to pay its debts generally as they mature,
(iii) make a general assignment for the benefit of its or any of its
creditors, (iv) be dissolved or liquidated in full or in part, (v)
become insolvent (as such term may be defined or interpreted under any
applicable statute), (vi) commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its Facility 2 Property by any
official in an involuntary case or other proceeding commenced against
it, or (vi) take any action for the purpose of effecting any of the
foregoing; or
(g) Involuntary Proceedings. Proceedings for the appointment
of a receiver, trustee, liquidator or custodian of Lessee or any of its
Material Subsidiaries or of all or a substantial part of the Facility 2
Property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to Lessee or
any of its Material Subsidiaries or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect
shall be commenced and an order for relief entered or such proceeding
shall not be dismissed or discharged within thirty (30) days of
commencement; or
(h) Judgments. (i) One or more judgments, orders, decrees or
arbitration awards requiring Lessee and/or its Subsidiaries to pay an
aggregate amount of $2,500,000 or more (exclusive of amounts covered by
insurance issued by an insurer not an Affiliate of Lessee and otherwise
satisfying the requirements set forth in Subparagraph 3.03(b)) shall be
rendered against Lessee and/or any of its Subsidiaries in connection
with any single or related series of transactions, incidents or
circumstances and the same shall not be satisfied, vacated or stayed
for a period of thirty (30) consecutive days after the issue or levy;
(ii) any judgment, writ, assessment, warrant of attachment, tax lien or
execution or similar process shall be issued or levied against a
substantial part of the Facility 2 Property of Lessee or any of its
Subsidiaries and the same shall not be released, stayed, vacated or
otherwise dismissed within thirty (30) days after issue or levy; or
(iii) any other judgments, orders, decrees, arbitration awards, writs,
assessments, warrants of
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attachment, tax liens or executions or similar processes which, alone
or in the aggregate, are reasonably likely to have a Material Adverse
Effect are rendered, issued or levied; or
(i) Operative Documents. Any Operative Document or any
material term thereof shall cease to be, or be asserted by Lessee or
any of its Subsidiaries not to be, a legal, valid and binding
obligation of Lessee or any of its Subsidiaries enforceable in
accordance with its terms; or
(j) ERISA. Any Reportable Event which constitutes grounds for
the termination of any Employee Benefit Plan by the PBGC or for the
appointment of a trustee by the PBGC to administer any Employee Benefit
Plan shall occur, or any Employee Benefit Plan shall be terminated
within the meaning of Title IV of ERISA or a trustee shall be appointed
by the PBGC to administer any Employee Benefit Plan; or
(k) Change of Control. Any Change of Control shall occur; or
(l) Material Adverse Effect. Any event(s) or condition(s)
which is(are) reasonably likely to have a Material Adverse Effect shall
occur and be continuing or exist.
5.02. General Remedies. In all cases, upon the occurrence or existence
of any Event of Default and at any time thereafter unless such Event of Default
is waived, Lessor may, with the consent of the Required Participants, or shall,
upon instructions from the Required Participants, exercise any one or more of
the following rights and remedies (except that the remedy set forth in the first
sentence of Subparagraph 5.02(a) shall be automatic):
(a) Termination of Commitments. If such Event of Default is an
Event of Default of the type described in Subparagraph 5.01(f) or
Subparagraph 5.01(g) affecting Lessee, immediately and without notice
the obligation of Lessor to make Advances and the obligations of the
Participants to fund Advances shall automatically terminate. If such
Event of Default is any other Event of Default, Lessor may by written
notice to Lessee, terminate the obligation of Lessor to make Advances
and the obligations of the Participants to fund Advances.
(b) Appointment of a Receiver. Lessor may apply to any court
of competent jurisdiction for, and obtain appointment of, a receiver
for the Facility 2 Property.
(c) Specific Performance. Lessor may bring an action in any
court of competent jurisdiction to obtain specific enforcement of any
of the covenants or agreements of Lessee in this Agreement or any of
the other Operative Documents.
23
<PAGE> 28
(d) Collection of Issues and Profits. Lessor may collect
Issues and Profits as provided in Subparagraph 2.07(c) and apply the
proceeds to pay Lessee Obligations.
(e) Protection of Facility 2 Property. Lessor may enter, take
possession of, manage and operate all or any part of the Facility 2
Property or take any other actions which it reasonably determines are
necessary to protect the Facility 2 Property and the rights and
remedies of the Lessor Parties under this Agreement and the other
Operative Documents, including (i) taking and possessing all of
Lessee's books and records relating to the Facility 2 Property; (ii)
entering into, enforcing, modifying, or canceling subleases on such
terms and conditions as Lessor may consider proper; (iii) obtaining and
evicting tenants; (iv) fixing or modifying sublease rents; (v)
collecting and receiving any payment of money owing to Lessee; (vi)
completing any unfinished Improvements; and/or (vii) contracting for
and making repairs and alterations.
(f) Other Rights and Remedies. In addition to the specific
rights and remedies set forth above in this Paragraph 5.02 and in
Paragraph 5.03 and Paragraph 5.04, Lessor may exercise any other right,
power or remedy permitted to it by any applicable Governmental Rule,
either by suit in equity or by action at law, or both.
5.03. Lease Remedies. If the transaction evidenced by this Agreement
and the other Operative Documents is treated as a lease, upon the occurrence or
existence of any Event of Default and at any time thereafter unless such Event
of Default is waived, Lessor may, with the consent of the Required Participants,
or shall, upon instructions from the Required Participants, exercise any one or
more of the following rights and remedies in addition to those rights and
remedies set forth in Paragraph 5.02, provided that prior to exercising any
remedies provided by this Section 5.03, Lessor shall give Lessee not less than
three (3) business days notice during which time Lessee may exercise the
Purchase Option and provided the Purchase Option is consummated in accordance
with the terms of the Purchase Agreement, Lessor shall not exercise any of the
remedies under this Section 5.03:
(a) Termination of Lease. Lessor may, by written notice to
Lessee, terminate this Agreement on a Termination Date which is prior
to the Scheduled Expiration Date, subject to Subparagraph 3.02(1) of
the Purchase Agreement. Such Termination Date shall be the last day of
a Rental Period unless Required Participants shall otherwise direct. On
such Termination Date (which shall then be the Expiration Date), Lessee
shall pay all unpaid Base Rent accrued through such date, all
Supplemental Rent due and payable on or prior to such date and all
other amounts payable by Lessee on the Expiration Date pursuant to this
Agreement and the other Operative Documents. Lessee also shall pay to
Lessor, in addition to all accrued Base Rent, the worth at the time of
such payment of the amount by which the unpaid Base Rent through the
Scheduled Expiration Date exceeds the amount of such rental loss for
the same period that Lessee proves could reasonably be avoided.
(b) Continuation of Lease. Lessor may exercise the rights and
remedies provided by California Civil Code Section 1951.4, including
the right to continue this
24
<PAGE> 29
Agreement in effect after Lessee's breach and abandonment and recover
Rent as it becomes due. Acts of maintenance or preservation, efforts to
relet the Facility 2 Property, the appointment of a receiver upon
Lessor's initiative to protect its interest under this Agreement or
withholding consent to or terminating a sublease shall not of
themselves constitute a termination of Lessee's right to possession.
(c) Removal and Storage of Facility 2 Property. Lessor may
enter the Facility 2 Property and remove therefrom all Persons and
Facility 2 Property, store such Facility 2 Property in a public
warehouse or elsewhere at the cost of and for the account of Lessee and
sell such Facility 2 Property and apply the proceeds therefrom pursuant
to applicable California law.
5.04. Loan Remedies. If the transaction evidenced by this Agreement and
the other Operative Documents is treated as a loan, upon the occurrence or
existence of any Event of Default and at any time thereafter unless such Event
of Default is waived, Lessor may, with the consent of the Required Participants,
or shall, upon instructions from the Required Participants, exercise any one or
more of the following rights and remedies in addition to those rights and
remedies set forth in Paragraph 5.02:
(a) Acceleration of Lessee Obligations. Lessor may, by written
notice to Lessee, terminate this Agreement on a Termination Date which
is prior to the Scheduled Expiration Date, subject to Subparagraph
3.02(1) of the Purchase Agreement, and declare all unpaid Lessee
Obligations due and payable on such Termination Date. Such Termination
Date shall be the last day of a Rental Period unless Required
Participants shall otherwise direct. On such Termination Date (which
shall then be the Expiration Date), Lessee shall pay all unpaid Base
Rent accrued through such date, all Supplemental Rent due and payable
on or prior to such date and all other amounts payable by Lessee on the
Expiration Date pursuant to this Agreement and the other Operative
Documents.
(b) Uniform Commercial Code Remedies. Lessor may exercise any
or all of the remedies granted to a secured party under the California
Uniform Commercial Code.
(c) Judicial Foreclosure. Lessor may bring an action in any
court of competent jurisdiction to foreclose the security interest in
the Facility 2 Property granted to Lessor by this Agreement or any of
the other Operative Documents.
(d) Power of Sale. Lessor may cause some or all of the
Facility 2 Property, including any Personal Property Collateral, to be
sold or otherwise disposed of in any combination and in any manner
permitted by applicable Governmental Rules.
(i) Sales of Personal Property. Lessor may dispose of any
Personal Property Collateral separately from the sale of Real
Property Collateral, in any manner permitted by Division 9 of
the California Uniform Commercial Code, including any public
or private sale, or in any manner permitted by any other
applicable Governmental Rule. Any proceeds of any such
disposition shall not cure any Event of Default or reinstate
any Lessee Obligation for purposes of Section 2924c of the
25
<PAGE> 30
California Civil Code. In connection with any such sale or
other disposition, Lessee agrees that the following procedures
constitute a commercially reasonable sale:
(A) Lessor shall mail written notice of the
sale to Lessee not later than thirty (30) days prior
to such sale.
(B) Once per week during the three weeks
immediately preceding such sale, Lessor will publish
notice of the sale in a local daily newspaper of
general circulation.
(C) Upon receipt of any written request,
Lessor will make the Facility 2 Property available to
any bona fide prospective purchaser for inspection
during reasonable business hours.
(D) Notwithstanding, Lessor shall be under
no obligation to consummate a sale if, in its
judgment, none of the offers received by it equals
the fair value of the Facility 2 Property offered for
sale.
(E) If Lessor so requests, Lessee shall
assemble all of the Personal Property Collateral and
make it available to Lessor at the site of the
Facility 2 Land. Regardless of any provision of this
Agreement or any other Operative Document, Lessor
shall not be considered to have accepted any Facility
2 Property other than cash or immediately available
funds in satisfaction of any Lessee Obligation,
unless Lessor has given express written notice of its
election of that remedy in accordance with California
Uniform Commercial Code Section 9505.
The foregoing procedures do not constitute the only procedures
that may be commercially reasonable.
(ii) Lessor's Sales of Real Property or Mixed Collateral.
Lessor may choose to dispose of some or all of the Facility 2
Property which consists solely of Real Property Collateral in
any manner then permitted by applicable Governmental Rules,
including without limitation a nonjudicial trustee's sale
pursuant to California Civil Code SectionSection 2924 et seq.
In its discretion, Lessor may also or alternatively choose to
dispose of some or all of the Facility 2 Property, in any
combination consisting of both Real Property Collateral and
Personal Property Collateral, together in one sale to be held
in accordance with the law and procedures applicable to real
Facility 2 Property, as permitted by Section 9501(4) of the
California Uniform Commercial Code. Lessee agrees that such a
sale of Personal Property Collateral together with Real
Property Collateral constitutes a commercially reasonable sale
of the Personal Property Collateral. (For purposes of this
power of sale, either a sale of Real Property Collateral
alone, or a sale of both Real Property Collateral and Personal
Property Collateral together in accordance
26
<PAGE> 31
with California Uniform Commercial Code Section 9501(4), will
sometimes be referred to as a "Lessor's Sale.")
(A) Before any Lessor's Sale, Lessor shall
give such notice of default and election to sell as
may then be required by applicable Governmental
Rules.
(B) When all time periods then legally
mandated have expired, and after such notice of sale
as may then be legally required has been given,
Lessor shall sell the Facility 2 Property being sold
at a public auction to be held at the time and place
specified in the notice of sale.
(C) Neither Lessor nor Agent shall have any
obligation to make demand on Lessee before any
Lessor's Sale.
(D) From time to time in accordance with
then applicable law, Lessor may postpone any Lessor's
Sale by public announcement at the time and place
noticed for that sale.
(E) At any Lessor's Sale, Lessor shall sell
to the highest bidder at public auction for cash in
lawful money of the United States.
(F) Lessor shall execute and deliver to the
purchaser(s) a deed or deeds conveying the Facility 2
Property being sold without any covenant or warranty
whatsoever, express or implied. The recitals in any
such deed of any matters or facts, including any
facts bearing upon the regularity or validity of any
Lessor's Sale, shall be conclusive proof of their
truthfulness. Any such deed shall be conclusive
against all Persons as to the facts recited in it.
(e) Foreclosure Sales.
(i) Single or Multiple. If the Facility 2 Property
consists of more than one lot, parcel or item of Facility 2
Property, Lessor may:
(A) Designate the order in which the lots,
parcels and/or items shall be sold or disposed of or
offered for sale or disposition; and
(B) Elect to dispose of the lots, parcels
and/or items through a single consolidated sale or
disposition to be held or made under the power of
sale granted in Subparagraph 5.04(d), or in
connection with judicial proceedings, or by virtue of
a judgment and decree of foreclosure and sale; or
through two or more such sales or dispositions; or in
any other manner Lessor may deem to be in its best
interests (any such sale or disposition, a
"Foreclosure Sale;" any two or more, "Foreclosure
Sales").
27
<PAGE> 32
If Lessor chooses to have more than one Foreclosure Sale,
Lessor at its option may cause the Foreclosure Sales to be
held simultaneously or successively, on the same day, or on
such different days and at such different times and in such
order as it may deem to be in its best interests. No
Foreclosure Sale shall terminate or affect the security
interests granted to Lessor in the Facility 2 Property by this
Agreement on any part of the Facility 2 Property which has not
been sold, until all of the Lessee Obligations have been paid
in full.
(ii) Credit Bids. At any Foreclosure Sale, any Person or
any Lessor Party, may bid for and acquire the Facility 2
Property or any part of it to the extent permitted by then
applicable Governmental Rules. Instead of paying cash for that
Facility 2 Property, Lessor may settle for the purchase price
by crediting the sales price of the Facility 2 Property
against the Lessee Obligations in any order and proportions as
Lessor in its sole discretion may choose.
5.05. Remedies Cumulative. The rights and remedies of Lessor under this
Agreement and the other Operative Documents are cumulative and may be exercised
singularly, successively, or together.
5.06. No Cure or Waiver. Neither the performance by Lessor of any of
Lessee's obligations pursuant to Paragraph 3.13 nor the exercise by Lessor of
any of its other rights and remedies under this Agreement or any other Operative
Document (including the collection of Issues and Profits and the application
thereof to the Lessee Obligations) shall constitute a cure or waiver of any
Default or nullify the effect of any notice of default or sale, unless and until
all Lessee Obligations are paid in full.
5.07. Exercise of Rights and Remedies. The rights and remedies provided
to Lessor under this Agreement may be exercised by Lessor itself, by Agent
pursuant to Subparagraph 2.02(c) of the Participation Agreement, by a
court-appointed receiver or by any other Person appointed by any of the
foregoing to act on its behalf. All of the benefits afforded to Lessor under
this Agreement and the other Operative Documents shall accrue to the benefit of
Agent to the extent provided in Subparagraph 2.02(c) of the Participation
Agreement.
SECTION VI. MISCELLANEOUS.
6.01. Notices. Except as otherwise specified herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Lessee or Lessor under this Agreement shall be given as provided in Subparagraph
2.02(c) and Paragraph 7.01 of the Participation Agreement.
6.02. Waivers; Amendments. Any term, covenant, agreement or condition
of this Agreement may be amended or waived only as provided in the Participation
Agreement. No failure or delay by any Lessor Party in exercising any right
hereunder shall operate as a waiver thereof or of any other right nor shall any
single or partial exercise of any such right preclude any other further exercise
thereof or of any other right. Unless otherwise specified in any such waiver
28
<PAGE> 33
or consent, a waiver or consent given hereunder shall be effective only in the
specific instance and for the specific purpose for which given.
6.03. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Lessor Parties and Lessee and their permitted
successors and assigns; provided, however, that the Lessor Parties and Lessee
shall not sell, assign or delegate their respective rights and obligations
hereunder except as provided in the Participation Agreement.
6.04. No Third Party Rights. Nothing expressed in or to be implied from
this Agreement is intended to give, or shall be construed to give, any Person,
other than the Lessor Parties and Lessee and their permitted successors and
assigns, any benefit or legal or equitable right, remedy or claim under or by
virtue of this Agreement or under or by virtue of any provision herein.
6.05. Partial Invalidity. If at any time any provision of this
Agreement is or becomes illegal, invalid or unenforceable in any respect under
the law or any jurisdiction, neither the legality, validity or enforceability of
the remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
6.06. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without reference to
conflicts of law rules.
6.07. Counterparts. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
6.08. Nature of Lessee's Obligations.
(a) Independent Obligation. The obligation of Lessee to pay
the amounts payable by Lessee under this Agreement and the other
Operative Documents and to perform the other Lessee Obligation are
absolute, unconditional and irrevocable obligations which are separate
and independent of the obligations of the Lessor Parties under this
Agreement and the other Operative Documents and all other events and
circumstances, including the events and circumstances set forth in
Subparagraph 6.08(c).
(b) No Termination or Abatement. This Agreement and the other
Operative Documents and Lessee's obligation to pay Rent and to pay and
perform all other Lessee Obligations shall continue in full force and
effect without abatement notwithstanding the occurrence or existence of
any event or circumstance, including any event or circumstance set
forth in Subparagraph 6.08(c).
(c) Full Payment and Performance. Lessee shall make all
payments under this Agreement and the other Operative Documents in the
full amounts and at the times required by the terms of this Agreement
and the other Operative Documents without setoff, deduction or
reduction of any kind and shall perform all other Lessee Obligations
29
<PAGE> 34
as and when required, without regard to any event or circumstances
whatsoever, including (i) the condition of the Facility 2 Property
(including any Improvements to the Facility 2 Property made prior to
the Commencement Date or during the Term); (ii) title to the Facility 2
Property (including possession of the Facility 2 Property by any Person
or the existence of any Lien or any other right, title or interest in
or to any of the Facility 2 Property in favor of any Person); (iii) the
value, habitability, usability, design, operation or fitness for use of
the Facility 2 Property; (iv) the availability or adequacy of utilities
and other services to the Facility 2 Property; (v) any latent, hidden
or patent defect in the Facility 2 Property; (vi) the zoning or status
of the Facility 2 Property or any other restrictions on the use of the
Facility 2 Property; (g) the economics of the Facility 2 Property;
(vii) any Casualty or Condemnation; (viii) the compliance of the
Facility 2 Property with any applicable Governmental Rule or Insurance
Requirement; (ix) any failure by any Lessor Party to perform any of its
obligations under this Agreement or any other Operative Document; or
(x) the exercise by any Lessor Party of any of its remedies under this
Agreement or any other Operative Document; provided, however, that this
Paragraph 7.08 shall not abrogate any right which Lessee may have to
recover damages from any Lessor Party for any material breach by such
Lessor Party of its obligations under this Agreement or any other
Operative Document to the extent permitted hereunder or thereunder.
[The signature page follows.]
30
<PAGE> 35
IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be
executed as of the day and year first above written.
LESSEE: NOVELLUS SYSTEMS, INC.
By:[SIG]
---------------------------------
John Chenault
Name: ----------------------------
Executive V.P. Operations
Title:----------------------------
LESSOR: LEASE PLAN NORTH AMERICA, INC.
By: [SIG]
---------------------------------
Robin S. Yin
Name:-----------------------------
Group Vice President
Title:----------------------------
31
<PAGE> 36
STATE OF CALIFORNIA )
) ss
COUNTY OF Santa Clara )
-----------
On 6/9 , 1997, before me, Ciska Perry a
------------- -------------------
Notary Public in and for the State of California, personally appeared
John Chenault, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s) or the entity on behalf of which
the person(s) acted, executed the instrument.
Witness my hand and official seal.
/s/ Ciska Perry
-------------------
[SEAL]
<PAGE> 37
STATE OF CALIFORNIA )
) ss
COUNTY OF Santa Clara )
-----------
On 6/9 , 1997, before me, Ciska Perry a
------------- -------------------
Notary Public in and for the State of California, personally appeared
Robin S. Yim, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s) or the entity on behalf of which
the person(s) acted, executed the instrument.
Witness my hand and official seal.
/s/ Ciska Perry
-------------------
[SEAL]
<PAGE> 38
EXHIBIT A(1)
FACILITY 2 LAND
REAL PROPERTY in the City of San Jose, County of Santa Clara, State of
California, described as follows:
PARCEL ONE:
PCL. 1 as shown on that certain Parcel Map filed in the office of the Recorder
of the County of Santa Clara, State of California on August 18, 1983 in Book 516
of Maps, page(s) 34 and 35, Santa Clara County Records.
PARCEL ONE-A:
A non-exclusive easement for ingress and egress over PCL.2, as said parcel is
shown on the Parcel Map recorded in Book 516 of Maps, at pages 34 and 35, Santa
Clara County Records, as granted in an instrument recorded May 23, 1985 in Book
J353, page 1565 and being more particularly described as follows:
Strip 1
A strip of land 26.00 feet wide extending entirely across said PCL.2 and lying
13.00 feet on each side of a line described as follows:
Beginning at the most Easterly corner of said PCL.2, said corner being on the
Southwesterly line of Rose Orchard way; thence along said Southwesterly line N.
59( 57' 13" W., 38.00 feet to the true point of beginning of said strip of land;
thence S. 30( 02' 47" W., 28.14 feet; thence S. 37( 32' 59" W., 423.45 feet to
the Southwesterly line of said PCL.2.
Strip 2
A strip of land 26.00 feet wide extending entirely across said PCL.2 and lying
13.00 feet on each side of a line described as follows:
Beginning at the most Northerly corner of said PCL.2, said corner being on the
Southwesterly line of Rose Orchard Way; thence along said Southwesterly line S.
59( 57' 13" E., 388.93 feet to the true point of beginning of said strip of
land; thence S. 30( 02' 47" W., 33.86 feet; thence S. 37( 32' 48" W., 335.99
feet to the Southwesterly line of said PCL.2
(LEGAL DESCRIPTION CONTINUED NEXT PAGE)
<PAGE> 39
LEGAL DESCRIPTION: (Continued)
PARCEL ONE-A: (Continued)
Strip 3
A strip of land 26.00 feet wide extending Southwesterly from the Southwesterly
line of said Rose Orchard Way to the Northwesterly line of the above described
and designated Strip 2 and lying 13.00 feet on each side of a line described a
follows:
Beginning at the most Northerly corner of said PCL.2, said corner being on the
Southwesterly line of Rose Orchard Way; thence along said Southwesterly line S.
59( 57' 13" E., 30.78 feet to the true point of beginning of said strip of land;
thence S. 30( 02' 47", 26.86 feet; thence S. 37( 32' 48" W., 262.18 feet; thence
S. 52( 27' 12" E. 343.00 feet to the Northwesterly line of the above described
and designated Strip 2.
PARCEL ONE-B:
A non-exclusive easement for Landscaping, Lighting and Irrigation Facilities
over PCL.2, as said parcel is shown in Book 516 of Maps, at pages 34 and 35,
Santa Clara County Records, as granted in an instrument recorded May 23, 1985 in
Book J353, page 1565 and being more particularly described as follows:
A strip of land 10.00 feet wide extending Southeasterly from the Northwesterly
line of said PCL. 1 and PCL. 2 and lying 5.00 feet on each side of a line that
begins at the most Northerly corner of said PCL. 1 and runs thence along the
Northeasterly line of said PCL. 1, S. 52( 27' 12" E. 375.00 feet.
Excepting Therefrom that portion lying within the bounds of Parcel One mentioned
hereinabove.
<PAGE> 40
EXHIBIT A(2)
FACILITY 1 LAND
PARCEL TWO:
PCL.2 as shown on that certain Parcel Map filed in the office of the Recorder of
the County of Santa Clara, State of California on August 18, 1983 in Book 516 of
Maps, page(s) 34 and 35, Santa Clara County Records.
PARCEL THREE:
All of Parcel 4, as shown upon that Parcel Map which was filed for record in the
Office of the Recorder of the County of Santa Clara, State of California on July
13, 1984 in Book 531 of Maps, at pages 41 and 42.
APN: 097-03-049, 056
ARB: 097-03-005.03 & 015.01
PARCEL FOUR:
All of Lot 43, as shown on that certain Map entitled Tract No. 7526, which Map
was filed for record in the office of the Recorder of the County of Santa Clara,
State of California on October 27, 1983, in Book 520 of Maps page(s) 28, 29 and
30.
<PAGE> 41
EXHIBIT B
RELATED GOODS
NONE
<PAGE> 42
EXHIBIT B(1)
SUPPLEMENT TO EXHIBIT B TO LEASE AGREEMENT
[Date]
Lease Plan North America, Inc.
c/o ABN AMRO Bank N.V.
as Agent
Capital Markets-Syndication Group
1325 Avenue of the Americas, 9th Floor
New York, NY 10019
Attn: Linda Boardman
1. Reference is made to that certain Lease Agreement, dated as of June
9, 1997 (the "Lease Agreement"), between Novellus Systems, Inc. ("Lessee") and
Lease Plan North America, Inc. ("Lessor").
2. Lessee hereby agrees that the description of "Related Goods" set
forth in Exhibit B to the Lease Agreement shall be supplemented by adding
thereto the Related Goods described in Attachment 1 hereto. Lessee hereby
accepts all such Related Goods and agrees that such Related Goods constitute
part of the Facility 2 Property subject to the Lease Agreement.
IN WITNESS WHEREOF, Lessee has executed this Supplement to Exhibit B on
the date set forth above.
LESSEE: NOVELLUS SYSTEMS, INC.
By:_________________________________
Name:_____________________________
Title:______________________________
LESSOR: LEASE PLAN NORTH AMERICA, INC.
By:_________________________________
Name:_____________________________
Title:______________________________
<PAGE> 43
ATTACHMENT 1
TO
SUPPLEMENT TO EXHIBIT B
<PAGE> 44
SCHEDULE 1
HAZARDOUS MATERIALS USED ON THE FACILITY 2 PROPERTY
As set forth in that certain Hazardous Materials Business Plan
(HMBP) for Novellus Systems, Inc. dated 4/1/97 prepared by Environmental Quality
Solutions.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-28-1997
<CASH> 34,116
<SECURITIES> 15,557
<RECEIVABLES> 137,202
<ALLOWANCES> 3,045
<INVENTORY> 92,989
<CURRENT-ASSETS> 325,269
<PP&E> 131,015
<DEPRECIATION> 43,031
<TOTAL-ASSETS> 463,303
<CURRENT-LIABILITIES> 149,705
<BONDS> 65,000
0
0
<COMMON> 142,406
<OTHER-SE> 106,192
<TOTAL-LIABILITY-AND-EQUITY> 463,303
<SALES> 216,094
<TOTAL-REVENUES> 216,094
<CGS> 97,242
<TOTAL-COSTS> 97,242
<OTHER-EXPENSES> 307,833
<LOSS-PROVISION> 141
<INTEREST-EXPENSE> 265
<INCOME-PRETAX> (185,478)
<INCOME-TAX> (47,352)
<INCOME-CONTINUING> (138,126)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (138,126)
<EPS-PRIMARY> (8.40)
<EPS-DILUTED> (8.40)
</TABLE>
