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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 31, 1997 COMMISSION FILE NUMBER: 0-26968
----------------
ETEC SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 94-3094580
(I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
26460 CORPORATE AVENUE, HAYWARD, CALIFORNIA 94545
(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510)783-9210
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
21,318,230 shares of Common Stock were outstanding as of February 28, 1997.
This report, including exhibits, consists of 175 pages. The Index of Exhibits
is found on page 16.
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1
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PART I--FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements
Consolidated Balance Sheets at January 31, 1997 and July 31, 1996..... 3
Consolidated Statements of Income for the three months and six months
ended January 31, 1997 and 1996...................................... 4
Consolidated Statements of Cash Flows for the six months ended January
31, 1997 and 1996.................................................... 5
Notes to Consolidated Financial Statements............................ 6
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 8
PART II--OTHER INFORMATION
Item 1.Legal Proceedings.................................................. N/A
Item 2.Changes in Securities.............................................. 12
Item 3.Defaults Upon Senior Securities.................................... N/A
Item 4.Submission of Matters to a Vote of Security Holders................ 13
Item 5.Other Information.................................................. N/A
Item 6.Exhibits and Reports on Form 8-K................................... 14
Signature................................................................. 15
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ETEC SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1997 1996
----------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 56,803 $ 44,472
Marketable securities.................................. 34,673 24,153
Accounts receivable, less allowance for doubtful
accounts of $1,077 and $1,102......................... 62,890 37,316
Inventory.............................................. 69,937 52,135
Other current assets................................... 2,107 3,042
Deferred tax assets.................................... 25,670 24,508
-------- --------
Total current assets................................. 252,080 185,626
Property, plant and equipment, net....................... 27,401 19,381
Other assets............................................. 3,911 3,864
-------- --------
$283,392 $208,871
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current maturities of long-term debt................... $ 3,333 $ 3,333
Accounts payable....................................... 17,264 14,184
Accrued and other liabilities.......................... 71,753 51,084
Taxes payable.......................................... 6,316 5,826
-------- --------
Total current liabilities............................ 98,666 74,427
Long-term debt, less current portion..................... 5,000 6,667
Deferred gain on sale of asset........................... 3,005 5,571
Other liabilities........................................ 6,147 6,329
-------- --------
Total liabilities.................................... 112,818 92,994
-------- --------
Commitments and Contingencies
Stockholders' equity:
Preferred Stock, par value $0.01 per share; 10,000,000
shares authorized; none issued and outstanding........ -- --
Common Stock, par value $0.01 per share; 40,000,000 and
30,000,000 shares authorized; 21,284,136 and
19,610,964 issued and outstanding..................... 213 196
Warrants............................................... 631 1,096
Additional paid-in capital............................. 191,423 149,858
Cumulative translation adjustments..................... (779) 211
Accumulated deficit.................................... (20,914) (35,484)
-------- --------
Total stockholders' equity........................... 170,574 115,877
-------- --------
$283,392 $208,871
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ETEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Products........................... $ 45,309 $ 23,522 $ 81,711 $ 40,625
Services........................... 8,371 8,083 16,856 15,688
--------- --------- -------- --------
53,680 31,605 98,567 56,313
--------- --------- -------- --------
Cost of revenue:
Products........................... 21,723 12,826 39,275 21,207
Services........................... 6,642 5,548 13,194 10,919
--------- --------- -------- --------
28,365 18,374 52,469 32,126
--------- --------- -------- --------
Gross profit......................... 25,315 13,231 46,098 24,187
--------- --------- -------- --------
Operating expenses:
Research, development and
engineering....................... 8,115 3,568 14,596 6,839
Selling, general and
administrative.................... 6,290 4,771 12,185 9,224
--------- --------- -------- --------
14,405 8,339 26,781 16,063
--------- --------- -------- --------
Income from operations............... 10,910 4,892 19,317 8,124
Interest expense..................... (266) (512) (510) (1,124)
Other income, net.................... 1,027 671 1,821 1,600
--------- --------- -------- --------
Income before income tax provision
and extraordinary item.............. 11,671 5,051 20,628 8,600
Income tax provision................. 4,085 1,263 6,058 2,150
--------- --------- -------- --------
Income before extraordinary item..... 7,586 3,788 14,570 6,450
Extraordinary loss on early
extinguishment of debt............... -- (300) -- (300)
--------- --------- -------- --------
Net income........................... 7,586 3,488 14,570 6,150
Accretion of mandatorily redeemable
convertible preferred stock......... -- -- -- 1,078
--------- --------- -------- --------
Net income attributable to Common
Stockholders......................... $ 7,586 $ 3,488 $ 14,570 $ 5,072
========= ========= ======== ========
Per share data:
Income before extraordinary item... $ 0.35 $ 0.20 $ 0.68 $ 0.38
Extraordinary loss................. -- (0.02) -- (0.02)
--------- --------- -------- --------
Net income......................... $ 0.35 $ 0.18 $ 0.68 $ 0.36
========= ========= ======== ========
Number of weighted average common
equivalent shares used in per share
calculation......................... 21,806 18,869 21,462 16,859
========= ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ETEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JANUARY 31,
----------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $14,570 $ 6,150
Adjustments to reconcile net income to net cash used in
operating activities:
Extraordinary loss on early extinguishment of debt....... -- 300
Depreciation, amortization, and other noncash charges.... 1,855 1,178
Deferred taxes........................................... (1,162) --
Changes in assets and liabilities:
Accounts receivable.................................... (28,850) (10,842)
Inventory.............................................. (18,600) (8,850)
Other assets........................................... 478 960
Accounts payable....................................... 3,272 2,450
Accrued and other liabilities.......................... 23,279 (143)
------- -------
Net cash used in operating activities................ (5,158) (8,797)
------- -------
Cash flows from investing activities:
Purchases of marketable securities, net.................... (10,520) (3,102)
Capital expenditures for property and equipment, net....... (9,659) (3,010)
Loan to Polyscan, Inc...................................... -- (1,807)
New building construction costs............................ (5,000) --
Proceeds from sale of plant................................ 5,000 --
------- -------
Net cash used in investing activities................ (20,179) (7,919)
------- -------
Cash flows from financing activities:
Repayment of debt and capital leases....................... (1,813) (12,829)
Financing from (repayment to) intermediary................. 1,202 5,086
Repurchase of warrants in connection with building
financing................................................. (2,633) --
Proceeds from issuance of Common Stock..................... 40,336 40,628
------- -------
Net cash provided by financing activities............ 37,092 32,885
------- -------
Effect of exchange rate changes on cash...................... 576 (737)
------- -------
Net change in cash and cash equivalents...................... 12,331 15,432
Cash and cash equivalents at the beginning of the period..... 44,472 23,638
------- -------
Cash and cash equivalents at the end of the period........... $56,803 $39,070
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest..................... $ 448 $ 1,530
======= =======
Cash paid during the period for income taxes................. $ 6,124 $ 1,657
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of mandatorily redeemable convertible preferred
stock to Common Stock........................................ -- $77,475
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
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ETEC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
In the opinion of the management of Etec Systems, Inc. (the "Company"), the
unaudited consolidated interim financial statements included herein have been
prepared on the same basis as the July 31, 1996 audited consolidated financial
statements and include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the interim period results.
The results of operations for current interim periods are not necessarily
indicative of results to be expected for the current year or any other period.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the fiscal
year ended July 31, 1996 included in the Company's Annual Report on Form 10-K
(File No. 0-26968). The July 31, 1996 balance sheet included herein was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
For the purposes of presentation, the Company has indicated its interim
fiscal periods as ending January 31, 1997 and 1996. As the Company's annual
fiscal period is accounted for on a 52-53 week year, the interim period
financial statements included herein represent results for the three- and six-
month periods ended January 31, 1997 and January 26, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Capitalization of Cost of Internal Use Software
The Company capitalizes certain costs related to the purchase of software
for internal use and its implementation which include purchased software,
consulting fees, and use of certain specified Company resources. As of January
31, 1997, approximately $6.4 million of costs associated with internal use
software had been capitalized and is included in construction in process.
NOTE 2--CASH EQUIVALENTS AND MARKETABLE SECURITIES
At January 31, 1997, the fair value of the Company's investments
approximated cost. At January 31, 1997, $49.8 million of investments are
included in cash and cash equivalents on the balance sheet. The investment
portfolio at January 31, 1997 is comprised of money market funds, corporate
debentures, asset-backed obligations, U.S. Government agency securities,
certificates of deposit, commercial paper, auction-rate preferreds, and
municipal obligations.
NOTE 3--INVENTORY
Inventory consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31, 1997 JULY 31, 1996
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<S> <C> <C>
Purchased parts............................ $ 21,947 $16,861
Work-in-process............................ 37,493 25,380
Spares..................................... 10,497 9,894
-------- -------
$ 69,937 $52,135
======== =======
</TABLE>
6
<PAGE>
ETEC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
JANUARY 31, 1997 JULY 31, 1996
---------------- -------------
<S> <C> <C>
Accounts receivable........................ $37,354 $32,638
Financed receivables*...................... 25,536 4,678
------- -------
$62,890 $37,316
======= =======
</TABLE>
- --------
* Included in accrued and other current liabilities are the amounts $25,536
and $4,678, respectively, which are due to a trading partner as a result of
third party financing arrangements.
NOTE 5--STOCKHOLDERS' EQUITY
In December, 1996, the Company completed a public offering of 5,029,916
shares of Common Stock, of which 500,000 shares were issued and sold by the
Company and 4,529,916 shares were sold by stockholders. In December 1996, the
underwriters of the public offering exercised their option to purchase an
additional 754,487 shares of Common Stock from the Company at $33.25 per share
before deducting underwriting discounts and commissions. Net proceeds to the
Company from the offering totaled approximately $39.4 million after deducting
underwriting discounts and estimated offering expenses. Concurrent with the
public offering, Grumman exercised 150,000 warrants for $255,000.
The Company's Articles of Incorporation were amended on January 30, 1997 to
provide for the issuance of 50,000,000 shares of stock. 40,000,000 shares are
Common Stock with a par value of $0.01 per share and 10,000,000 shares are
Preferred Stock with a par value of $0.01 per share.
On January 15, 1997, the Board of Directors adopted a shareholder rights
plan. Under the plan, the Board of Directors has established a Series A
Participating Preferred Stock. The number of shares constituting such series
shall be the number of shares of authorized Common Stock divided by 100. The
holders of the Series A Participating Preferred Stock have 100 votes for each
share held by them. Holders of the Series A Participating Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of the
Registrant, commencing after the close of business on January 31, 1997, a
dividend of $1,600 per share.
NOTE 6--LEASE COMMITMENT
In January 1997, the company completed construction of and moved into a new
administrative building having approximately 60,000 square feet of office
space. The cost of the building, which the company paid, was approximately
$5.0 million through January 31, 1997. On January 31, 1997, the Company sold
the building to its existing landlord and entered into a 15-year lease that is
subject to rental adjustments every three years pursuant to an adjustment in
the Consumer Price Index. In addition, the Company has also obtained a
commitment from its landlord to provide financing of up to $4.0 million for
leasehold improvements to its existing office and manufacturing facilities
located adjacent to the new building.
NOTE 7--NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding for the three month and six month
periods ended January 31, 1997 and 1996. Common equivalent shares consist of
stock options and warrants using the treasury stock method except when
antidilutive.
7
<PAGE>
ETEC SYSTEMS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1997 AND JANUARY 31, 1996
Revenue. Revenues are primarily comprised of sales of MEBES, CORE and ALTA
systems, accessories and upgrades, and sales of technical support, maintenance
and other services. The Company derives most of its revenues from the sale of
a small number of systems and upgrades and any delay in the recognition of
revenue for a single system or upgrade can have a material adverse effect on
the Company's consolidated results of operations in a particular quarter. For
example, one system, originally scheduled to be shipped in the first quarter
of fiscal 1997, was delayed due to additional calibration and testing and was
shipped in the second quarter of fiscal 1997.
Product revenue increased 101% to $81.7 million from $40.6 million for the
six months ended January 31, 1997 and 1996, respectively. This increase
reflects the sale of six additional systems, higher average selling prices,
changes in product mix, and an increase in the sales of upgrades and
accessories of approximately $5.7 million.
Service revenue increased 7% to $16.9 million from $15.7 million for the six
months ended January 31, 1997 and 1996, respectively. This increase primarily
reflects generally higher service activity caused by an increase in the number
of systems under service contract.
Gross Profit. The Company's gross profit on product revenue increased 119%
to $42.4 million from $19.4 million for the six months ended January 31, 1997
and 1996, respectively. The increase in gross profit on product revenue was
due to an increase in product revenue and a higher gross margin on product
revenue, which increased to 52% from 48% for the six months ended January 31,
1997 compared to the six months ended January 31, 1996. The increase in
product gross margin is primarily attributable to generally higher selling
prices for the Company's products and an increase in the level of sales of
accessories (which tend to have higher gross margins).
The Company's gross profit on service revenue decreased 23% to $3.7 million
from $4.8 million for the six months ended January 31, 1997 and 1996,
respectively. Gross margin on service revenue was 22% and 30% for the six
months ended January 31, 1997 and 1996, respectively. The decreases in gross
profit and gross margin reflect an investment in service personnel and
training to support the number of systems serviced. The Company expects that
such costs will continue to increase with the result being a further decline
in service margins.
Research, Development and Engineering. Research, development and engineering
expenses, net of third-party funding under cooperative development agreements,
increased 113% to $14.6 million, representing 15% of revenue, from $6.8
million, representing 12% of revenue, for the six months ended January 31,
1997 and 1996, respectively. This increase primarily reflects the Company's
increased commitment to product development. Due to the Company's commitment
to product development, net research, development and engineering expenses are
expected to increase in future periods.
Selling, General and Administrative. Selling, general and administrative
expenses increased 32% to $12.2 million, representing 12% of revenue, from
$9.2 million, representing 16% of revenue, for the six months ended January
31, 1997 and 1996, respectively. Selling, general and administrative expenses
increased due to increased expenses for market development fees for the
increased laser beam system sales in Asia, increased profit-sharing, the
addition of selling, general and administrative expenses from the acquired
Polyscan Inc., the costs of legal and accounting fees associated with a public
company, and costs associated with an increase in hiring.
Income Tax Provision. The Company recorded provisions for income taxes for
the six months ended January 31, 1997 and 1996 of $6.1 million and $2.2
million, respectively. Reflected in the provision for the six months ended
January 31, 1997 is a $1.1 million income tax benefit recorded as a result of
releasing a portion of
8
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ETEC SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--(CONTINUED)
the valuation allowance previously recorded against its deferred tax assets.
Management's evaluation of the recoverability of the Company's deferred tax
assets is based in part upon the current product backlog and the Company's
proven ability to increase manufacturing capacity. Management has fully
reserved deferred tax assets that would be realized, if at all, more than one
year in the future. Because of the uncertainty of realization, management will
continue to evaluate the recoverability of the Company's deferred tax assets.
The provision for the quarter ended January 31, 1996 primarily reflects taxes
payable by the Company's foreign subsidiaries.
Extraordinary Loss on Early Extinguishment of Debt. During the six months
ended January 31, 1996, the Company paid $5.0 million of its 10.65% senior
secured notes before their due dates. As a result of this repayment, the
Company recorded an extraordinary loss of approximately $300,000 related to
unamortized debt issuance costs.
QUARTERS ENDED JANUARY 31, 1997 AND JANUARY 31, 1996
Revenue. Revenues are primarily comprised of sales of MEBES, CORE and ALTA
systems, accessories and upgrades, and sales of technical support, maintenance
and other services. The Company derives most of its revenues from the sale of
a small number of systems and upgrades and any delay in the recognition of
revenue for a single system or upgrade can have a material adverse effect on
the Company's consolidated results of operations in a particular quarter. For
example, one system, originally scheduled to be shipped in the first quarter
of fiscal 1997, was delayed due to additional calibration and testing and was
shipped in the second quarter of fiscal 1997.
Product revenue increased 93% to $45.3 million from $23.5 million for the
quarters ended January 31, 1997 and 1996, respectively. This increase
primarily reflects the sale of three additional systems, higher average
selling prices and changes in the product mix.
Service revenue increased 4% to $8.4 million from $8.1 million for the
quarters ended January 31, 1997 and 1996, respectively. This increase
primarily reflects generally higher service activity caused by an increase in
the number of systems under service contracts.
Gross Profit. The Company's gross profit on product revenue increased 121%
to $23.6 million from $10.7 million for the quarters ended January 31, 1997
and 1996, respectively. The increase in gross profit on product revenue was
due to an increase in product revenue and a higher gross margin on product
revenue, which increased to 52% from 45% for the quarter ended January 31,
1997 compared to the quarter ended January 31, 1996. The increase in product
gross margin is primarily attributable to generally higher selling prices for
the Company's products and an increase in the level of sales of accessories
(which tend to have higher gross margins).
The Company's gross profit on service revenue decreased 32% to $1.7 million
from $2.5 million for the quarters ended January 31, 1997 and 1996,
respectively. Gross margin on service revenue was 21% and 31% for the quarters
ended January 31, 1997 and 1996, respectively. The decreases in gross profit
and gross margin reflect an investment in service personnel and training to
support the number of systems serviced. The Company expects that such costs
will continue to increase with the result being a further decline in service
margins.
Research, Development and Engineering. Research, development and engineering
expenses, net of third-party funding under cooperative development agreements,
increased 127% to $8.1 million, representing 15% of revenue, from $3.6
million, representing 11% of revenue, for the quarters ended January 31, 1997
and 1996, respectively. This increase primarily reflects the Company's
increased commitment to product development. Due to the Company's commitment
to product development, net research, development and engineering expenses are
expected to increase in absolute dollars in future periods.
9
<PAGE>
ETEC SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--(CONTINUED)
Selling, General and Administrative. Selling, general and administrative
expenses increased 32% to $6.3 million, representing 12% of revenue, from $4.8
million, representing 15% of revenue, for the quarters ended January 31, 1997
and 1996, respectively. Selling, general and administrative expenses increased
due to increased expenses for market development fees for the increased laser
beam system sales in Asia, increased profit-sharing, the addition of selling,
general and administrative expenses from the acquired Polyscan Inc., the costs
of legal and accounting fees associated with a public company, and costs
associated with an increase in hiring.
Income Tax Provision. The Company recorded provisions for income taxes for
the quarters ended January 31, 1997 and 1996 of $4.1 million and $1.3 million,
respectively.
Extraordinary Loss on Early Extinguishment of Debt. During the quarter ended
January 31, 1996, the Company paid $5.0 million of its 10.65% senior secured
notes before their due dates. As a result of this repayment, the Company
recorded an extraordinary loss of approximately $300,000 related to
unamortized debt issuance costs.
B. LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its cash needs primarily with cash from operations,
approximately $11.0 in net receipts from the sale and leaseback of the
Company's Hayward, California campus in fiscal 1995, and $98.1 million from
the Company's IPO and additional offerings in fiscal 1996 and fiscal 1997,
$10.0 million from a private placement with Intel Corporation in fiscal 1996.
The Company has spent approximately $9.7 million for net capital
expenditures in the first six months of fiscal 1997 primarily to purchase
testing and other equipment, upgrade manufacturing facilities, and implement
an enterprise-wide business software system.
The Company has budgeted a total of approximately $34.0 million for capital
expenditures in fiscal 1997, approximately $10.0 million of which the Company
intends to finance through operating leases.
In April 1996, the Company commenced construction of a 60,000 square foot
administrative building in Hayward, California. As of January 31, 1997, the
Company had expended $5.0 million related to the new facility. The Company
sold the new building in the second quarter of fiscal 1997 to the landlord of
its current facility and entered into a leasing arrangement for a period of 15
years.
As of January 31, 1997, the Company had cash and cash equivalents and
marketable securities, totaling $91.5 million. The Company believes that its
existing cash balances (including cash equivalents and marketable securities),
together with existing sources of liquidity, including cash from operations
and the existing credit agreement, will provide adequate cash to fund its
operations for at least the next twelve months.
Cash Flows from Operations
Net cash used in operating activities for the six months ended January 31,
1997 was $5.2 million compared to $8.8 million for the corresponding period in
1996.
Cash flows from operating activities for the six months ended January 31,
1997 primarily reflected net income of $14.6 million; increases in noncash
items (which included $1.9 million of depreciation and amortization, partially
offset by $1.2 million of deferred taxes) and increases in accounts receivable
of $28.9 million, inventory of $18.6 million, accounts payable of $3.3
million, and accrued and other liabilities of $23.3 million.
10
<PAGE>
ETEC SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--(CONTINUED)
Cash flows used for operating activities for the six months ended January
31, 1996 primarily reflected net income of $6.2 million; increases in noncash
items (which include depreciation and amortization of $1.2 million); and
increases in accounts receivable of $10.8 million, inventory of $8.9 million,
and accounts payable of $2.5 million.
Fluctuations in accounts receivable, inventory, and current liabilities for
the above periods were caused primarily by the timing of system orders, the
timing of shipments, customer requested delivery dates, and the timing of
payments to vendors. The significant increase in inventory during the quarter
ended January 31, 1997 compared to July 31, 1996 was due primarily to
increases in material purchases and work-in-process to meet scheduled
production.
Prior to the shipment of a system, the Company receives payment for a
significant portion of the system sales price. Such payments are generally
received when the Company receives an order and at various agreed-upon times
when the system is being manufactured. As a result, the amount of customer
advances fluctuates based on the number of systems that are on order and each
system's status within the manufacturing cycle. Advances from customers
decreased slightly to $23.0 million at January 31, 1997 from $24.1 million at
July 31, 1996; the decreases are included in accrued and other liabilities on
the Company's balance sheet.
Financing and Investing Activities
Net cash used in investing activities for the six months ended January 31,
1997 was $20.2 million compared to $7.9 million for the six months ended
January 31, 1996. Cash flows from investing activities for the six months
ended January 31, 1997 reflected net purchases of investments of $10.5
million, and increases in net capital expenditures of $9.7 million.
Net cash provided by financing activities for the six months ended January
31, 1997 was $37.1 million compared to the six months ended January 31, 1996
of $32.9 million. The increase in net cash provided by financing activities is
primarily attributable to the reduction in the amount of debt payments.
C. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in this report which are prefaced with words such as "expects,"
"anticipates," "believes" and similar words and other statements of similar
sense, are forward-looking statements. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances which may or may not be within the Company's control and as to
which there can be no firm assurances given. These forward-looking statements,
like any other forward-looking statements, involve risks and uncertainties
that could cause actual results to differ materially from those projected or
anticipated.
In addition to other risks and uncertainties that may be described elsewhere
in this document, certain risks and uncertainties that could affect the
Company's financial results include: potential delays in shipments or other
delays in recognition of revenue from sales of product or services; cyclicity
of the maskmaking and semiconductor equipment industries; potential customers'
capital spending decisions of customers and prospective customers; the
development, market acceptance and successful production of new products and
enhancements; competitors' product introductions and enhancements; risks
associated with international sales and operations; risks associated with any
future acquisitions, including the Company's ability to successfully integrate
acquired businesses, products, or technologies and to develop products which
gain commercial acceptance; risks associated with stock market volatility;
risks associated with changes in governmental laws and regulations; risks
associated with a reduction in cooperative development funding; and risks
associated with foreign operations, such as foreign exchange risk, import-
export controls, and political risks.
11
<PAGE>
ETEC SYSTEMS, INC.
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Registrant's Articles of Incorporation were amended on January 30, 1997 to
provide for the issuance of 50,000,000 shares of stock. Of said shares,
40,000,000 shares are Common Stock with a par value of $0.01 per share and
10,000,000 shares are Preferred Stock with a par value of $0.01 per share. The
Board of Directors has the authority, without any action by the shareholders,
to fix the number of shares to be included in any series of Preferred Stock.
On January 15, 1997, the Board of Directors of the Registrant adopted a
shareholder rights plan designed to ensure fair and equal treatment for
shareholders in the event of a proposed acquisition of the Registrant, by
enhancing the ability of the Board of Directors to negotiate more effectively
with a prospective acquiring party. Under the plan [see Exhibit 10.2],
shareholder rights will be triggered if a hostile party acquires 15% of the
Registrant's stock without approval of the Board of Directors.
Under the plan, the Board of Directors has established a series of Preferred
Stock designated as "Series A Participating Preferred Stock." The number of
shares constituting such series shall be the number of shares of authorized
Common Stock divided by 100. The holders of the Series A Participating
Preferred Stock have 100 votes for each share held by them. Holders of the
Series A Participating Preferred Stock are entitled to receive, when and as
declared by the Board of Directors of the Registrant, commencing after the
close of business on January 31, 1997, a dividend of $1,600 per share.
12
<PAGE>
ETEC SYSTEMS, INC.
PART II--(CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on December 17, 1996.
Matters voted upon at the meeting included:
1)Election of directors (listed below)
The following directors were elected to hold office until the next
Annual Meeting of Stockholders of the Company:
<TABLE>
<CAPTION>
DIRECTOR AFFIRMATIVE NEGATIVE WITHHELD
-------- ----------- -------- --------
<S> <C> <C> <C>
Stephen E. Cooper.......................... 15,953,472 0 13,184
Edward L. Gelbach.......................... 15,953,889 0 12,767
Catherine P. Lego.......................... 15,953,939 0 12,717
Jack H. King............................... 15,954,139 0 12,517
John McBennett............................. 15,947,439 0 19,217
John Suzuki................................ 15,954,139 0 12,517
Thomas Michael Trent....................... 15,947,139 0 19,517
Robert L. Wehrli........................... 15,953,289 0 13,367
</TABLE>
2) Adoption of Corporation's Eighth Amended and Restated Articles of
Incorporation to increase the authorized number of shares of Common
Stock from 30,000,000 to 40,000,000 shares
Votes in the
affirmative: 15,728,226
Votes in the negative: 191,560
Votes withheld: 46,870
3) Approval of increase in number of Common Stock shares available for
issuance under the 1995 Omnibus Incentive Plan from 1,000,000 to
1,975,000 shares
Votes in the affirmative:
12,103,935
Votes in the negative:
3,787,371
Votes withheld: 48,997
Broker non-votes: 26,353
4) Ratification of the appointment of Price Waterhouse LLP as independent
public accountants for the Company for the fiscal year ended July 31,
1997
Votes in the affirmative:
15,908,540
Votes in the negative: 29,962
Votes withheld: 28,154
13
<PAGE>
ETEC SYSTEMS, INC.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a)The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2 Eighth Amended and Restated Articles of Incorporation
10.1 Amended and Restated Lease Agreement, dated January 31, 1997, by
and between Registrant and ESI (CA) QRS 12-6, Inc.
10.2 Rights Agreement, dated as of January 15, 1997, by and between
Registrant and Bank of Boston, Rights Agent.
Statements of computation of earnings per common share and
11 equivalents.
27 Financial Data Schedule.
</TABLE>
See Exhibit Index on page 16.
(b)Reports on Form 8-K.
The Company filed a current report on Form 8-K during the quarter ended
January 31, 1997 reporting the adoption of a shareholder rights plan.
14
<PAGE>
ETEC SYSTEMS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 17, 1997.
ETEC SYSTEMS, INC.
(Registrant)
By __________________________________
/s/ Philip J. Koen, Jr.
PHILIP J. KOEN, JR.
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER
15
<PAGE>
ETEC SYSTEMS, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
2 Eighth Amended and Restated Articles of Incorporation 19
10.1 Amended and Restated Lease Agreement, dated January 31, 22
1997, by and between Registrant and ESI (CA) QRS 12-6,
Inc.
10.2 Rights Agreement, dated as of January 15, 1997, by and 106
between Registrant and Bank of Boston, Rights Agent.
Statements of computation of earnings per common share and
11 equivalents. 174
27 Financial Data Schedule. 175
</TABLE>
16
<PAGE>
EXHIBIT 2
EIGHTH AMENDED AND RESTATED
---------------------------
ARTICLES OF INCORPORATION
-------------------------
OF
--
ETEC SYSTEMS, INC.
------------------
FIRST: The name of the corporation (hereinafter called the
-----
"Corporation") is Etec Systems, Inc.
SECOND: The registered office of the Corporation within the State of
------
Nevada is to be located at c/o The Prentice-Hall Corporation System, Nevada,
Inc., 502 East John Street, Carson City 89706.
THIRD: The purpose of this Corporation is to engage in any lawful act
-----
or activity for which a Corporation may engage under the General Corporation Law
of the State of Nevada.
FOURTH: The total number of shares of stock which the Corporation
------
shall have authority to issue is fifty million (50,000,000) shares. Of said
shares, forty million (40,000,000) shares shall be common stock ("Common Stock")
with a par value of $.01 per share and ten million (10,000,000) shares shall be
preferred stock ("Preferred Stock") with a par value of $.01 per share.
The Board of Directors of the Corporation is hereby granted the
authority to fix by resolution or resolutions from time to time before issuance
the number of shares to be included in any series of Preferred Stock, and the
designation, power, preferences and relative, participating, optional or other
rights and the qualifications, limitations or restrictions of all shares of such
series.
FIFTH: No holder of any of the shares of any class of the Corporation
-----
shall be entitled as of right, except as such rights are expressly provided for
by contract, to subscribe for, purchase or otherwise acquire any shares of any
class of the Corporation which the Corporation proposes to issue or any rights
or options which the Corporation proposes to grant for the purchase of shares of
any class of the Corporation or for the purchase of any shares, bonds,
securities or obligations of the Corporation which are convertible into or
exchangeable for, or which carry any rights to subscribe for, purchase or other
wise, acquire shares of any class of the Corporation; and any and all of such
shares, bonds, securities or obligations of the Corporation, whether now or
hereafter authorized or created, may be issued, or may be reissued or
transferred if the same have been reacquired and have treasury status, and any
and all of such rights and options may be granted by the Board of Directors
<PAGE>
to such persons, firms, Corporations and associations, and for such lawful
consideration, and on such terms, as the Board of Directors in its discretion
may determine, without first offering the same, or any thereof, to any said
holder.
SIXTH: The governing board of the Corporation shall be styled as a
-----
"Board of Directors," and any member of said Board shall be styled as a
"Director."
The name and mailing address of the initial Director is:
Michael J. Halloran
235 Montgomery Street, 16th Floor
San Francisco, CA 94104
The number of Directors of the Corporation may be increased or
decreased in the manner provided in the By-Laws, as the same may be amended from
time to time, of the Corporation; provided, that the number of Directors shall
never be less than one. In the interim between elections of Directors by
stockholders entitled to vote, all vacancies, including vacancies caused by an
increase in the number of Directors and including vacancies resulting from the
removal of Directors by the stockholders entitled to vote which are not filled
by said stockholders, may be filled by the remaining Directors, though less than
a quorum.
SEVENTH: No shares of capital stock of the Corpora tion shall, after
-------
the amount of the subscription price has been paid or after the par value of any
shares of stock has been paid, be subject to assessment to pay the debts of the
Corpora tion. Any paid-up shares of stock of the Corporation and any shares of
stock of the Corporation issued as fully paid up, shall not be assessable or
assessed in any manner and for any cause.
EIGHTH: The Corporation shall have perpetual existence.
------
NINTH: The holders of a majority of the outstanding shares of stock
-----
which have voting power shall constitute a quorum at a meeting of stockholders
for the transaction of any business unless the action to be taken at the meeting
shall require a greater proportion.
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to fix the amount to be
reserved as working capital over and above its paid-in capital stock and to
authorize and cause to be executed, mortgages and liens upon the real and
personal property of the Corporation.
TENTH: No Director or, to the extent specified from time to time by
-----
the Board of Directors, officer will be liable
-2-
<PAGE>
to the Corporation or its stockholders for damages for breach of fiduciary duty
as a Director or officer, excepting only (a) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or (b) the unlawful
payment of dividends. No amendment or repeal of this Article TENTH applies to
or has any effect upon the liability or alleged liability of any Director or
officer of this Corporation for or with respect to any acts or omissions of the
Director or officer occurring prior to the amendment or repeal, except as
required by law.
ELEVENTH: The Corporation shall, to the fullest extent permitted by
--------
the General Corporation Law of the State of Nevada, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said Law from and against any and all of the expenses, liabili-
ties or other matters referred to in or covered by said Law, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Laws, agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
-3-
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
LEASE AGREEMENT
by and between
ESI (CA) QRS 12-6, INC.,
a California corporation
as LANDLORD
and
ETEC SYSTEMS, INC.,
a Nevada corporation,
as TENANT
Premises: Hayward, California
Dated as of: January 31, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Demise of Premises..................................................... 2
2. Certain Definitions.................................................... 2
3. Title and Condition.................................................... 11
4. Use of Leased Premises; Quiet Enjoyment................................ 13
5. Term................................................................... 13
6. Basic Rent............................................................. 14
7. Additional Rent........................................................ 15
8. Net Lease; Non-Terminability........................................... 16
9. Payment of Impositions................................................. 17
10. Compliance with Laws and Easement Agreements;
Environmental Matters.................................................. 19
11. Liens; Recording....................................................... 21
12. Maintenance and Repair................................................. 22
13. Alterations and Improvements........................................... 23
14. Permitted Contests..................................................... 24
15. Indemnification........................................................ 25
16. Insurance.............................................................. 26
17. Casualty and Condemnation.............................................. 31
18. Termination Events..................................................... 33
19. Restoration; Reduction of Rent......................................... 34
20. Procedures Upon Purchase............................................... 36
21. Assignment and Subletting; Prohibition against
Leasehold Financing.................................................... 37
22. Events of Default...................................................... 42
23. Remedies and Damages Upon Default...................................... 45
24. Notices................................................................ 49
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
25. Estoppel Certificate................................................... 49
26. Surrender.............................................................. 50
27. No Merger of Title..................................................... 50
28. Books and Records...................................................... 50
29. Determination of Value................................................. 52
30. Non-Recourse as to Landlord............................................ 55
31. Financing.............................................................. 56
32. Subordination.......................................................... 56
33. Financial Covenants; Covenant Breach Offer............................. 57
34. Tax Treatment; Reporting............................................... 58
35. Right of First Refusal................................................. 59
36. Financing Major Alterations............................................ 61
37. Security Deposit....................................................... 62
38. Right to Vacate; Rejectable Offer Upon Vacation........................ 63
39. Miscellaneous.......................................................... 64
</TABLE>
Exhibit A - Premises
Exhibit B - Machinery and Equipment
Exhibit C - Permitted Encumbrances
Exhibit D - Basic Rent Payments
Exhibit E - Financial Covenants
Schedule 1 - Termination Values
Schedule 2 - Approved Alterations to Building Two
and Building Three
-ii-
<PAGE>
AMENDED AND RESTATED LEASE AGREEMENT, made as of this 31st day of January,
1997, between ESI (CA) QRS 12-6, INC., a California corporation ("Landlord"),
with an address c/o W. P. Carey & Co., Inc., 50 Rockefeller Plaza, Second Floor,
New York, New York 10020, and ETEC SYSTEMS, INC., a Nevada corporation
("Tenant"), with an address at 26460 Corporate Avenue, Hayward, California
94545.
BACKGROUND
----------
A. Landlord and Tenant entered into a Lease Agreement dated as of
February 1, 1995, as amended by the terms of Exhibit 1 to that certain letter
agreement dated August 7, 1996 (said Lease Agreement, as amended, the "Original
Lease").
B. As of the date hereof, Landlord has purchased from Tenant an office
building containing approximately 60,000 square feet ("Building One") located on
the Land (as defined in the Original Lease).
C. Landlord desires to demise to Tenant and Tenant desires to lease from
Landlord the Building One and in connection therewith to amend and restate the
Original Lease in its entirety.
In consideration of the rents and provisions herein stipulated to be paid
and performed, Landlord and Tenant hereby covenant and agree as follows:
1. Demise of Premises. Landlord hereby demises and lets to Tenant, and
------------------
Tenant hereby takes and leases from Landlord, for the term and upon the
provisions hereinafter specified, the following described property
(collectively, the "Leased Premises"): (a) the premises described in Exhibit
"A" hereto, together with the Appurtenances (collectively, the "Land"); (b) the
three office/manufacturing facilities constructed on the Land, known as
"Building One," "Building Two" and "Building Three" and containing approximately
60,000 square feet, 47,000 square feet and 106,000 square feet, respectively,
and all other buildings, structures and other improvements now or hereafter
constructed on the Land (collectively, the "Improvements"); and (c) the
fixtures, machinery, equipment and other property described in Exhibit "B"
hereto (collectively, the "Equipment").
2. Certain Definitions.
-------------------
(a) "ACQUISITION COST" shall mean $14,321,137.
(b) "ADDITIONAL RENT" shall mean Additional Rent as defined in Paragraph 7.
(c) "ADJOINING PROPERTY" shall mean all sidewalks, driveways, curbs, gores
and vault spaces adjoining any of the Leased Premises.
-2-
<PAGE>
(d) "ALTERATIONS" shall mean all changes, additions, improvements or
repairs to, all alterations, reconstructions, renewals, replacements or removals
of and all substitutions or replacements for any of the Improvements or
Equipment, both interior and exterior, structural and non-structural, and
ordinary and extraordinary.
(e) "APPURTENANCES" shall mean all tenements, hereditaments, easements,
rights-of-way, rights, privileges in and to the Land, including (a) easements
over other lands granted by any Easement Agreement and (b) any streets, ways,
alleys, vaults, gores or strips of land adjoining the Land.
(f) "ASSIGNMENT" shall mean any assignment of rents and leases from
Landlord to a Lender which (a) encumbers any of the Leased Premises and (b)
secures Landlord's obligation to repay a Loan, as the same may be amended,
supplemented or modified from time to time.
(g) "BASIC RENT" shall mean Basic Rent as defined in Paragraph 6.
(h) "BASIC RENT PAYMENT DATES" shall mean the Basic Rent Payment Dates as
defined in Paragraph 6.
(i) "CASUALTY" shall mean any injury to or death of any person or any loss
of or damage to any property (including the Leased Premises) included within or
related to the Leased Premises or arising from the Adjoining Property.
(j) "COMMENCEMENT DATE" shall mean Commencement Date as defined in
Paragraph 5.
(k) "CONDEMNATION" shall mean a Taking and/or a Requisition.
(l) "CONDEMNATION NOTICE" shall mean notice or knowledge of the institution
of or intention to institute any proceeding for Condemnation.
(m) "COSTS" of a Person or associated with a specified transaction shall
mean all reasonable costs and expenses incurred by such Person or associated
with such transaction, including without limitation, attorneys' fees and
expenses, court costs, brokerage fees, escrow fees, title insurance premiums,
mortgage commitment fees, mortgage points, recording fees and transfer taxes, as
the circumstances require.
(n) "COVENANT BREACH" shall mean Covenant Breach as defined in Paragraph
33.
(o) "COVENANTS" shall mean Covenants as defined in Paragraph 33.
-3-
<PAGE>
(p) "CPI" shall mean CPI as defined in Exhibit "D".
(q) "DEFAULT TERMINATION AMOUNT" shall mean the Default Termination Amount
as defined in Paragraph 23(a)(iii).
(r) "DEFAULT RATE" shall mean the Default Rate as defined in Paragraph
7(a)(iv).
(s) "DEPOSIT AMOUNT" shall mean Deposit Amount as defined in Paragraph 21.
(t) "EASEMENT AGREEMENT" shall mean any conditions, covenants,
restrictions, easements, declarations, licenses and other agreements listed as
Permitted Encumbrances or as may hereafter affect the Leased Premises.
(u) "ENVIRONMENTAL LAW" shall mean (i) whenever enacted or promulgated, any
applicable federal, state, foreign and local law, statute, ordinance, rule,
regulation, license, permit, authorization, approval, consent, court order,
judgment, decree, injunction, code, requirement or agreement with any
governmental entity, (x) relating to pollution (or the cleanup thereof), or the
protection of air, water vapor, surface water, groundwater, drinking water
supply, land (including land surface or subsurface), plant, aquatic and animal
life from injury caused by a Hazardous Substance or (y) concerning exposure to,
or the use, containment, storage, recycling, reclamation, reuse, treatment,
generation, discharge, transportation, processing, handling, labeling,
production, disposal or remediation of Hazardous Substances, Hazardous
Conditions or Hazardous Activities, in each case as amended and as now or
hereafter in effect, and (ii) any common law or equitable doctrine (including,
without limitation, injunctive relief and tort doctrines such as negligence,
nuisance, trespass and strict liability) that may impose liability or
obligations or injuries or damages due to or threatened as a result of the
presence of, exposure to, or ingestion of, any Hazardous Substance. The term
Environmental Law includes, without limitation, the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the federal Water Pollution Control Act, the
federal Clean Air Act, the federal Clean Water Act, the federal Resources
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments to RCRA), the federal Solid Waste Disposal Act, the federal Toxic
Substance Control Act, the federal Insecticide, Fungicide and Rodenticide Act,
the federal Occupational Safety and Health Act of 1970, the federal National
Environmental Policy Act and the federal Hazardous Materials Transportation Act,
each as amended and as now or hereafter in effect and any similar state or local
Law.
(v) "ENVIRONMENTAL VIOLATION" shall mean (a) any direct or indirect
discharge, disposal, spillage, emission, escape, pumping, pouring, injection,
leaching, release, seepage,
-4-
<PAGE>
filtration or transporting of any Hazardous Substance at, upon, under, onto or
within the Leased Premises, or from the Leased Premises to the environment, in
violation of any Environmental Law or which could be reasonably expected to
result in any liability to Landlord, Tenant or Lender, any Federal, state or
local government or any other Person for the costs of any removal or remedial
action or natural resources damage or for bodily injury or property damage, (b)
any deposit, storage, dumping, placement or use of any Hazardous Substance at,
upon, under or within the Leased Premises or which extends to any Adjoining
Property in violation of any Environmental Law or which could reasonably be
expected to result in any liability to any Federal, state or local government
or to any other Person for the costs of any removal or remedial action or
natural resources damage or for bodily injury or property damage, (c) the
abandonment or discarding of any barrels, containers or other receptacles
containing any Hazardous Substances in violation of any Environmental Laws, (d)
any activity, occurrence or condition which could be reasonably expected to
result in any liability, cost or expense to Landlord or Lender or any other
owner or occupier of the Leased Premises, or which could be reasonably expected
to result in a creation of a lien on the Leased Premises under any Environmental
Law, or (e) any violation of or noncompliance with any Environmental Law.
(w) "EQUIPMENT" shall mean the Equipment as defined in Paragraph 1.
(x) "EVENT OF DEFAULT" shall mean an Event of Default as defined in
Paragraph 22(a).
(y) "FAIR MARKET RENTAL VALUE" shall mean the fair market rental value of
the Leased Premises for the relevant Renewal Term determined in accordance with
the procedure specified in Paragraph 29.
(z) "FAIR MARKET VALUE" shall mean the fair market value of the Leased
Premises as of the Relevant Date. For all purposes of this Lease, Fair Market
Value shall be determined in accordance with the procedure specified in
Paragraph 29.
(aa) "FAIR MARKET VALUE DATE" shall mean the date when the Fair Market
Value is determined in accordance with Paragraph 29.
(ab) "FEDERAL FUNDS" shall mean federal or other immediately available
funds which at the time of payment are legal tender for the payment of public
and private debts in the United States of America.
(ac) "HAZARDOUS ACTIVITY" means any activity, process, procedure or
undertaking which directly or indirectly (i) procures, generates or creates any
Hazardous Substance; (ii) causes or results in (or threatens to cause or result
in) the release, seepage, spill, leak, flow, discharge or emission of
-5-
<PAGE>
any Hazardous Substance into the environment (including the air, ground water,
watercourses or water systems), (iii) involves the containment or storage of any
Hazardous Substance; or (iv) would cause the Leased Premises or any portion
thereof to become a hazardous waste treatment, recycling, reclamation,
processing, storage or disposal facility within the meaning of any Environmental
Law.
(ad) "HAZARDOUS CONDITION" means any condition which would support any
claim or liability under any Environmental Law, including the presence of
underground storage tanks.
(ae) "HAZARDOUS SUBSTANCE" means (i) any substance, material, product,
(including, without limitation, petroleum products), derivative (including,
without limitation, petroleum products), compound, mixture, mineral (including,
without limitation, asbestos), chemical, gas, waste, contaminant or pollutant,
in each case whether naturally occurring, man-made or the by-product of any
process, that is toxic, harmful or hazardous or acutely hazardous to public
health or safety or the environment or (ii) any substance supporting a claim
under any Environmental Law, whether or not such substance is defined as
hazardous or toxic as such under any Environmental Law. By way of example, and
not of limitation, Hazardous Substances include, but are not limited to, any
toxic substance, hazardous substance, hazardous waste, hazardous constituent,
pollutant, contaminant, industrial waste, medical waste, petroleum product,
petroleum derivative, petroleum waste, radon, radioactive material, asbestos,
asbestos containing materials, urea formaldehyde, foam insulation, lead or
polychlorinated biphenyl.
(af) "HOLDER" means Landlord or the Initial Lender as a holder of Warrants
or Stock.
(ag) "IMPOSITIONS" shall mean the Impositions as defined in Paragraph 9(a).
(ah) "IMPROVEMENTS" shall mean the Improvements as defined in Paragraph 1.
(ai) "INDEMNITEE" shall mean an Indemnitee as defined in Paragraph 15.
(aj) "INITIAL LENDER" shall mean Creditanstalt-Bankverein, its successors
and assigns.
(ak) "INITIAL LOAN" shall mean the $8,221,345 loan from Lender evidenced by
a Note of even date herewith.
(al) "INITIAL TERM" shall mean Initial Term as defined in Paragraph 5.
-6-
<PAGE>
(am) "INSURANCE REQUIREMENTS" shall mean the requirements of all insurance
policies required to be maintained in accordance with this Lease.
(an) "INTENDED ASSIGNMENT OFFER" shall mean Intended Assignment Offer as
defined in Paragraph 21(a)(iv).
(ao) "INTENDED TRANSACTION" shall mean Intended Transaction as defined in
Paragraph 33(b).
(ap) "LAND" shall mean the Land as defined in Paragraph 1.
(aq) "LAW" shall mean any constitution, statute, rule of law, code,
ordinance, order, judgment, decree, injunction, rule, regulation, policy,
requirement or administrative or judicial determination, even if unforeseen or
extraordinary, of every duly constituted governmental authority, court or
agency, now or hereafter enacted or in effect.
(ar) "LEASE" shall mean this Amended and Restated Lease Agreement.
(as) "LEASE YEAR" shall mean twelve (12) consecutive month period during
the Term except that the first Lease Year commenced on February 16, 1995 and
terminated on February 29, 1996 and the last Lease Year shall end on the last
day of the Term.
(at) "LEASED PREMISES" shall mean the Leased Premises as defined in
Paragraph 1.
(au) "LEGAL REQUIREMENTS" shall mean all present and future Laws (including
but not limited to Environmental Laws and Laws relating to accessibility to,
usability by, and discrimination against, disabled individuals) and all
covenants, restrictions and conditions now or hereafter of record which may be
applicable to Tenant or to any of the Leased Premises, or to the use, manner of
use, occupancy, possession, operation, maintenance, alteration, repair or
restoration of any of the Leased Premises, even if compliance therewith
necessitates structural changes or improvements or results in interference with
the use or enjoyment of any of the Leased Premises.
(av) "LENDER" shall mean (a) Initial Lender, and (b) any person or entity
(and their respective successors and assigns) which may, after the date hereof,
make a Loan to Landlord or is the holder of any Note.
(aw) "LOAN" shall mean any loan made by one or more Lenders to Landlord,
which loan is secured by a Mortgage and an Assignment and evidenced by a Note.
(ax) "MAJOR ALTERATIONS" shall mean Major Alterations as defined in
Paragraph 36(a).
-7-
<PAGE>
(ay) "MONETARY OBLIGATIONS" shall mean Rent and all other sums payable by
Tenant under this Lease to Landlord, to any third party on behalf of Landlord or
to any Indemnitee.
(az) "MORTGAGE" shall mean any mortgage or deed of trust from Landlord to a
Lender which (a) encumbers any of the Leased Premises and (b) secures Landlord's
obligation to repay a Loan, as the same may be amended, supplemented or
modified.
(ba) "NET AWARD" shall mean (a) the entire award payable to Landlord or
Lender by reason of a Condemnation whether pursuant to a judgment or by
agreement or otherwise, or (b) the entire proceeds of any insurance required
under clauses (i), (ii) (to the extent payable to Landlord or Lender), (iv), (v)
or (vi) of Paragraph 16(a), as the case may be, less any expenses incurred by
Landlord and Lender in collecting such award or proceeds.
(bb) "NON-PREAPPROVED ASSIGNEE" shall mean Non-Preapproved Assignee as
defined in Paragraph 21(a)(ii).
(bc) "NON-PREAPPROVED ASSIGNMENT" shall mean Non-Preapproved Assignment as
defined in Paragraph 21(a)(ii).
(bd) "NOTE" shall mean any promissory note evidencing Landlord's obligation
to repay a Loan, as the same may be amended, supplemented or modified.
(be) "OFFER AMOUNT" shall mean (i) prior to the expiration of the Initial
Term, the greater of (a) the Fair Market Value of the Leased Premises as of the
Relevant Date and (b) the sum of the Acquisition Cost and the applicable
Prepayment Premium which Landlord will be required to pay, and (ii) after the
expiration of the Initial Term, the Fair Market Value of the Leased Premises as
of the Relevant Date.
(bf) "PARTIAL CASUALTY" shall mean any Casualty which does not constitute a
Termination Event.
(bg) "PARTIAL CONDEMNATION" shall mean any Condemnation which does not
constitute a Termination Event.
(bh) "PERMITTED ENCUMBRANCES" shall mean those covenants, restrictions,
reservations, liens, conditions and easements and other encumbrances, other than
any Mortgage or Assignment, listed on Exhibit "C" hereto (but such listing shall
not be deemed to revive any such encumbrances that have expired or terminated or
are otherwise invalid or unenforceable).
(bi) "PERSON" shall mean an individual, partnership, association,
corporation or other entity.
(bj) "PREAPPROVED ASSIGNEE" shall mean Preapproved Assignee as defined in
Paragraph 21(a)(i).
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(bk) "PREAPPROVED ASSIGNMENT" shall mean Preapproved Assignment as defined
in Paragraph 21(a)(i).
(bl) "PREAPPROVED SUBLET" shall mean Preapproved Sublet as defined in
Paragraph 21(b).
(bm) "PREPAYMENT PREMIUM" shall mean any payment (other than a payment of
principal and/or interest which Landlord is required to make under a Note or a
Mortgage) by reason of any prepayment by Landlord of any principal due under a
Note or Mortgage, and which may be (in lieu of such prepayment premium or
prepayment penalty) a "make whole" clause requiring a prepayment premium in an
amount sufficient to compensate the Lender for the loss of the benefit of the
Loan due to a prepayment or a "breakage fee" or "funding losses" as a result of
any prepayment; provided, however, that the Prepayment Premium shall not exceed
the amount thereof that would be payable if the outstanding principal amount of
the Loan being prepaid were $8,221,345.
(bn) "PRIME RATE" shall mean the annual interest rate as published, from
time to time, in the Wall Street Journal as the "Prime Rate" in its column
entitled "Money Rate". The Prime Rate may not be the lowest rate of interest
charged by any "large U.S. money center commercial banks" and Landlord makes no
representations or warranties to that effect. In the event the Wall Street
Journal ceases publication or ceases to publish the "Prime Rate" as described
above, the Prime Rate shall be the average per annum discount rate (the
"Discount Rate") on ninety-one (91) day bills ("Treasury Bills") issued from
time to time by the United States Treasury at its most recent auction, plus
three hundred (300) basis points. If no such 91-day Treasury Bills are then
being issued, the Discount Rate shall be the discount rate on Treasury Bills
then being issued for the period of time closest to ninety-one (91) days.
(bo) "RELEVANT AMOUNT" shall mean the Termination Amount, Offer Amount or
the Default Termination Amount, as the case may be.
(bp) "RELEVANT DATE" shall mean (a) the date immediately prior to the date
on which the applicable Condemnation Notice is received, in the event of a
Termination Notice under Paragraph 18 which is occasioned by a Taking, (b) the
date immediately prior to the date on which the applicable Casualty occurs, in
the event of a Termination Notice under Paragraph 18 which is occasioned by a
Casualty, (c) the date when Fair Market Value is redetermined, in the event of a
redetermination of Fair Market Value pursuant to Paragraph 20(c), (d) the date
immediately prior to the date on which Landlord makes an Intended Assignment
Offer, (e) the date immediately prior to the Event of Default giving rise to the
need to determine Fair Market Value in the event Landlord provides Tenant with
notice of its intention to require Tenant to make a termination offer
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under Paragraph 23(a)(iii), (f) the Fair Market Value Date, in the event
Landlord receives an offer to purchase the Leased Premises pursuant to the third
paragraph of Paragraph 35(a), (g) with respect to a Covenant Breach or an
Intended Transaction, the date that is the earlier of (i) the date immediately
prior to the date on which Tenant notifies Landlord that an Intended Transaction
or Covenant Breach will occur or makes a public announcement to such effect, or
(ii) the date immediately prior to the date on which the Covenant Breach or the
Intended Transaction occurs or, but for the acceptance by Landlord of the
rejectable offer under Paragraph 33, would occur, and (h) the date immediately
prior to the date on which Tenant vacates the Leased Premises in the event
Tenant makes a Vacation Offer pursuant to Paragraph 38.
(bq) "REMAINING SUM" shall mean Remaining Sum as defined in Paragraph
19(c).
(br) "RENEWAL TERM" shall mean Renewal Term as defined in Paragraph 5.
(bs) "RENT" shall mean, collectively, Basic Rent and Additional Rent.
(bt) "REQUISITION" shall mean any temporary requisition or confiscation of
the use or occupancy of any of the Leased Premises by any governmental
authority, civil or military, whether pursuant to an agreement with such
governmental authority in settlement of or under threat of any such requisition
or confiscation, or otherwise.
(bu) "RETENTION DATE" shall mean the later of the date on which the amount
of the Remaining Sum is finally determined or the date on which Landlord's right
to the Remaining Sum is finally determined.
(bv) "SECURITY DEPOSIT" shall mean Security Deposit as defined in Paragraph
37.
(bw) "SITE ASSESSMENT" shall mean a Site Assessment as defined in Paragraph
10(c).
(bx) "STATE" shall mean the State of California.
(by) "SURVIVING OBLIGATIONS" shall mean any obligations of Tenant under
this Lease, actual or contingent, which arise on or prior to the expiration or
prior termination of this Lease or which survive such expiration or termination
by their own terms.
(bz) "TAKING" shall mean (a) any taking or damaging of all or a portion of
any of the Leased Premises (i) in or by condemnation or other eminent domain
proceedings pursuant to any Law, general or special, or (ii) by reason of any
agreement with any condemnor in settlement of or under threat of any such
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condemnation or other eminent domain proceeding, or (iii) by any other means, or
(b) any de facto condemnation. The Taking shall be considered to have taken
place as of the later of the date actual physical possession is taken by the
condemnor, or the date on which the right to compensation and damages accrues
under the law applicable to the Leased Premises.
(ca) "TERM" shall mean the Term as defined in Paragraph 5.
(cb) "TERMINATION AMOUNT" shall mean (i) prior to the expiration of the
Initial Term, the greater of (a) the sum of the applicable Termination Value
specified on Schedule 1 hereto and any Prepayment Premium which Landlord will be
required to pay in prepaying any Loan with proceeds of the Termination Amount or
(b) the Fair Market Value of the Leased Premises as of the Relevant Date and
(ii) after the expiration of the Initial Term, the Fair Market Value of the
Leased Premises as of the Relevant Date.
(cc) "TERMINATION DATE" shall mean Termination Date as defined in Paragraph
18(b).
(cd) "TERMINATION EVENT" shall mean a Termination Event as defined in
Paragraph 18(a).
(ce) "TERMINATION NOTICE" shall mean Termination Notice as defined in
Paragraph 18(a).
(cf) "THIRD PARTY PURCHASER" shall mean Third Party Purchaser as defined in
Paragraph 35.
(cg) "VACATION OFFER" shall mean Vacation Offer as defined in Paragraph 38.
(ch) "WARRANT AGREEMENT" shall mean the Warrant Agreement, of even date,
between Landlord and Tenant.
3. Title and Condition.
-------------------
(a) The Leased Premises are demised and let subject to (i) the Mortgage and
Assignment presently in effect, (ii) the rights of any Persons in possession of
the Leased Premises, (iii) the existing state of title of any of the Leased
Premises, including any Permitted Encumbrances, (iv) any state of facts which an
accurate survey or physical inspection of the Leased Premises might show, (v)
all Legal Requirements, including any existing violation of any thereof, and
(vi) the condition of the Leased Premises as of the commencement of the Term,
without representation or warranty by Landlord.
(b) Tenant acknowledges that the Leased Premises are in acceptable
condition and repair at the inception of this Lease. LANDLORD LEASES AND WILL
LEASE AND TENANT TAKES AND WILL TAKE THE LEASED PREMISES AS IS. TENANT
ACKNOWLEDGES THAT LANDLORD
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(WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND
WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES,
INCLUDING ANY WARRANTY OR REPRESENTATION AS TO (i) ITS FITNESS, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE, (ii) THE QUALITY OF THE MATERIAL OR
WORKMANSHIP THEREIN, (iii) THE EXISTENCE OF ANY DEFECT, LATENT OR PATENT, (iv)
LANDLORD'S TITLE THERETO, (v) VALUE, (vi) COMPLIANCE WITH SPECIFICATIONS, (vii)
LOCATION, (viii) USE, (ix) CONDITION, (x) MERCHANTABILITY, (xi) QUALITY, (xii)
DESCRIPTION, (xiii) DURABILITY (xiv) OPERATION (xv) THE EXISTENCE OF ANY
HAZARDOUS SUBSTANCE, HAZARDOUS CONDITION OR HAZARDOUS ACTIVITY OR (xvi)
COMPLIANCE OF THE LEASED PREMISES WITH ANY LAW OR LEGAL REQUIREMENT; AND ALL
RISKS INCIDENT THERETO ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE
LEASED PREMISES IS OF ITS SELECTION AND TO ITS SPECIFICATIONS AND THAT THE
LEASED PREMISES HAS BEEN INSPECTED BY TENANT AND IS SATISFACTORY TO IT. IN THE
EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE LEASED PREMISES OF ANY NATURE,
WHETHER LATENT OR PATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR
LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES
(INCLUDING STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS PARAGRAPH 3(b)
HAVE BEEN NEGOTIATED, AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION
OF ANY WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE
LEASED PREMISES, ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR ANY OTHER
LAW NOW OR HEREAFTER IN EFFECT OR ARISING OTHERWISE.
(c) Tenant represents to Landlord that Tenant has examined the title to the
Leased Premises prior to the execution and delivery of this Lease and has found
the same to be satisfactory for the purposes contemplated hereby. Tenant
acknowledges that (i) Tenant has conveyed fee simple title (both legal and
equitable) in the Leased Premises to Landlord and that Tenant has only the
leasehold right of possession and use of the Leased Premises as provided herein,
(ii) to Tenant's knowledge the Improvements conform to all material Legal
Requirements and all Insurance Requirements, (iii) to Tenant's knowledge all
easements necessary or appropriate for the use or operation of the Leased
Premises have been obtained, (iv) all contractors engaged by Tenant and to
Tenant's knowledge, all subcontractors who have performed work on or supplied
materials to the Leased Premises have been fully paid or Tenant is holding
retainage sufficient to pay such contractors in full, and all materials and
supplies have been fully paid for or Tenant is holding retainage sufficient to
pay for such materials and supplies in full, (v) to Tenant's knowledge the
Improvements have been fully completed in all material respects in a workmanlike
manner of first class quality, and (vi) to Tenant's knowledge all Equipment
necessary or appropriate for the use or operation of the Leased Premises has
been installed and is presently fully operative in all material respects.
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(d) Landlord hereby assigns to Tenant, without recourse or warranty
whatsoever, all warranties, guaranties, indemnities and similar rights which
Landlord may have against any manufacturer, seller, engineer, contractor or
builder in respect of any of the Leased Premises. Such assignment shall remain
in effect until an Event of Default occurs or until the expiration or earlier
termination of this Lease, whereupon such assignment shall cease and all of said
warranties, guaranties, indemnities and other rights shall automatically revert
to Landlord.
4. Use of Leased Premises; Quiet Enjoyment.
---------------------------------------
(a) Tenant may occupy and use the Leased Premises for offices,
manufacturing, warehouse, distribution and research and development and uses
ancillary thereto and for no other purpose without Landlord's consent, which
shall not be unreasonably withheld, delayed or conditioned. Tenant shall not
use or occupy or permit any of the Leased Premises to be used or occupied, nor
do or permit anything to be done in or on any of the Leased Premises, in a
manner which would or might (i) violate any Law or Legal Requirement, (ii) make
void or voidable or cause any insurer to cancel any insurance required by this
Lease, or make it difficult or impossible to obtain any such insurance at
commercially reasonable rates, (iii) cause structural injury to any of the
Improvements or (iv) constitute a public or private nuisance or waste.
(b) Subject to the provisions hereof, so long as no Event of Default has
occurred and is continuing, Tenant shall quietly hold, occupy and enjoy the
Leased Premises throughout the Term, without any hindrance, ejection or
molestation by Landlord with respect to matters that arise after the date
hereof, provided that Landlord may, upon reasonable prior notice to Tenant,
enter upon and examine any of the Leased Premises at such reasonable times as
Landlord may select and as may be approved by Tenant, for the purpose of
inspecting the Leased Premises, verifying compliance or non-compliance by Tenant
with its obligations hereunder and the existence or non-existence of an Event of
Default or event which with the passage of time and/or notice would constitute
an Event of Default, showing the Leased Premises to prospective Lenders and
purchasers and taking such other action with respect to the Leased Premises as
is permitted by any provision hereof.
5. Term.
----
(a) Subject to the provisions hereof, Tenant shall have and hold the Leased
Premises for an initial term (herein, the "Initial Term", and the Initial Term,
as extended or renewed in accordance with the provisions hereof, being called
the "Term") that commenced on February 16, 1995 (the "Commencement Date") and
that expires on February 29, 2012 (the "Expiration Date"). If all Rent and all
other sums due hereunder shall not have been
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fully paid by the end of the Term, Landlord may, at its option, extend the Term
until all said sums shall have been fully paid.
(b) Provided that if, on or prior to the Expiration Date or any other
Renewal Date (as hereinafter defined) this Lease shall not have been terminated
pursuant to any provision hereof, then on the Expiration Date and on the fifth
(5th) and tenth (10th) anniversaries of the Expiration Date, such anniversary
being a "Renewal Date", the Term shall be deemed to have been automatically
extended for an additional period of five (5) years, and on the fifteenth (15th)
anniversary of the Expiration Date such anniversary being a "Renewal Date", the
Term shall be deemed to have been automatically extended for two (2) years and
eleven (11) months (each such extension period, a "Renewal Term"), unless in any
case Tenant shall notify Landlord in writing at least one (1) year prior to the
next Renewal Date that Tenant is terminating this Lease as of the next Renewal
Date. If Tenant elects not to extend the Term of this Lease then, prior to the
expiration date, Tenant shall, at the request of Landlord, provide to Landlord a
Termination of Lease in recordable form. Any such extension of the Term shall
be subject to all of the provisions of this Lease, as the same may be amended,
supplemented or modified.
(c) If Tenant exercises its option not to extend or further extend the
Term, or if an Event of Default exists, then Landlord shall have the right
during the remainder of the Term then in effect and, in any event, Landlord
shall have the right during the last year of the Term, to (i) advertise the
availability of the Leased Premises for sale or reletting and to erect upon the
Leased Premises signs indicating such availability and (ii) upon reasonable
prior notice to Tenant show the Leased Premises to prospective purchasers or
tenants or their agents at such reasonable times as Landlord may select and as
may be approved by Tenant, such approval not to be unreasonably withheld or
delayed (except that no approval shall be required if an Event of Default
exists) and remains uncured.
6. Basic Rent. Landlord acknowledges that all Basic Rent has been paid
----------
through December 31, 1996. Tenant shall pay to Landlord on February 1, 1997
Basic Rent in the amount of [$86,196] for the period from January 1, 1997
through January 31, 1997. Tenant shall pay to Landlord, as annual rent for the
Leased Premises during the portion of the Term remaining after February 1, 1997,
the amounts determined in accordance with Exhibit "D" hereto ("Basic Rent").
Payments shall be made on March 1, 1997 and on the first day of each month
during the remainder of the Term (each such day being a "Basic Rent Payment
Date"). Each such rental payment shall be made, (a) at Landlord's sole
discretion, to Landlord at its address set forth above and/or to such one or
more other Persons, at such addresses and in such proportions as Landlord may
direct by fifteen (15) days' prior written notice to Tenant (in which event
Tenant shall give Landlord notice of each such payment
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concurrent with the making thereof), and (b) in funds available to Landlord on
the applicable Basic Rent Payment Date.
7. Additional Rent.
---------------
(a) Tenant shall pay and discharge, as additional rent (collectively,
"Additional Rent"):
(i) except as otherwise specifically provided herein, all costs and
expenses of Tenant and all reasonable costs and expenses of, Landlord and
any other Persons specifically referenced herein which are incurred in
connection or associated with (A) the use, non-use, occupancy, possession,
operation, condition, design, construction, maintenance, alteration, repair
or restoration of any of the Leased Premises, (B) the performance of any of
Tenant's obligations under this Lease, (C) any sale or other transfer of
any of the Leased Premises to Tenant under this Lease, (D) any Condemnation
proceedings, (E) the adjustment, settlement or compromise of any insurance
claims involving or arising from any of the Leased Premises, (F) the
prosecution, defense or settlement of any litigation involving or arising
from any of the Leased Premises, this Lease, or the sale of the Leased
Premises to Landlord, (G) the enforcement by Landlord, its successors and
assigns, of any of its rights under this Lease, (H) any amendment to or
modification or termination of this Lease made at the request of Tenant,
(I) Costs of Landlord's counsel incurred in connection with the
preparation, negotiation and execution of this Lease, Costs of Landlord's
counsel incurred in connection with the review and/or negotiation of
documents requested by Tenant and Costs of third party consultants retained
by Landlord in connection with any act undertaken by Landlord at the
request of Tenant, or incurred in connection with any act of Landlord
performed on behalf of Tenant that Landlord has the right to perform under
the terms of this Lease, (J) the reasonable cost of a consultant retained
by Lender to review plans, specifications, and contracts in connection with
any Alteration for which the approval of Lender is required or permitted
under the terms of the Mortgage and the reasonable costs of Lender in
connection with any inspection of the Leased Premises, and (K) any other
items specifically required to be paid by Tenant under this Lease, which
costs and expenses shall include, without limitation, all Costs, judgments,
settlement amounts, Impositions, insurance premiums, appraisal fees, the
cost of performing and reporting any Site Assessment if an Environmental
Violation is found, the cost of monitoring compliance with the provisions
of Paragraph 10(j) hereof, including the reasonable cost of consultants
retained by Landlord and Lender, the cost of curing any Environmental
Violation, and the cost of complying with all Legal Requirements, fines,
penalties and interest;
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(ii) after the date all or any portion of any installment of Basic
Rent is due and not paid, an amount ("Late Charge") equal to three percent
(3%) of the amount of such unpaid installment or portion thereof; provided,
however, that with respect to the first two late payments of all or any
portion of any installment of Basic Rent in any consecutive twelve (12)
month period the Late Charge shall not be due and payable unless the Basic
Rent has not been paid within three (3) business days following receipt by
Tenant of written notice that such installment has not been received;
(iii) a sum equal to any additional sums (including any late charge,
default penalties, interest and fees of Lender's counsel) which are payable
by Landlord to any Lender under any Note by reason of Tenant's late payment
or non-payment of Basic Rent or by reason of an Event of Default; and
(iv) interest at the rate per annum (the "Default Rate") equal to the
default interest rate per annum in the Note on the following sums until
paid in full: (A) all overdue installments of Basic Rent from the
respective due dates thereof, (B) all overdue amounts of Additional Rent
relating to obligations which Landlord shall have paid on behalf of Tenant,
from the date Tenant receives notice of payment thereof by Landlord, and
(C) all other overdue amounts of Additional Rent, from the date that Tenant
receives notice any such amount has become overdue.
(b) Tenant shall pay and discharge (i) any Additional Rent referred to in
Paragraph 7(a)(i) when the same shall become due, provided that amounts which
are billed to Landlord or any third party, but not to Tenant, shall be paid
within five (5) days after Landlord's demand for payment thereof, and (ii) any
other Additional Rent, immediately upon Landlord's demand for payment thereof.
(c) In no event shall amounts payable under Paragraph 7(a)(ii), (iii) and
(iv) exceed the maximum amount permitted by applicable Law.
8. NET LEASE; NON-TERMINABILITY.
----------------------------
(a) This is a net lease and all Monetary Obligations shall be paid without
notice or demand and without set-off, counterclaim, recoupment, abatement,
suspension, deferment, diminution, deduction, reduction or defense, except as
specifically provided herein to the contrary (collectively, a "Set-Off").
(b) Except as otherwise expressly provided herein, this Lease and the
rights of Landlord and the obligations of Tenant
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hereunder shall not be affected by any event or for any reason, including the
following: (i) any damage to or theft, loss or destruction of any of the Leased
Premises, (ii) any Condemnation, (iii) the prohibition, limitation or
restriction of Tenant's use of any of the Leased Premises, (iv) any eviction by
paramount title or otherwise, (v) Tenant's acquisition of ownership of any of
the Leased Premises other than pursuant to an express provision of this Lease,
(vi) any default on the part of Landlord hereunder or under any Note, Mortgage,
Assignment or any other agreement, (vii) any latent or other defect in any of
the Leased Premises, (viii) the breach of any warranty of any seller or
manufacturer of any of the Equipment, (ix) any violation of Paragraph 4(b) or
any other provision of this Lease by Landlord, (x) the bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution or winding-
up of, or other proceeding affecting Landlord, (xi) the exercise of any remedy,
including foreclosure, under any Mortgage or Assignment, (xii) any action with
respect to this Lease (including the disaffirmance hereof) which may be taken by
Landlord, any trustee, receiver or liquidator of Landlord or any court under the
Federal Bankruptcy Code or otherwise, (xiii) any interference with Tenant's use
of the Leased Premises, (xiv) market or economic changes, (xv) the failure of
Landlord to fund the Second Disbursement and/or the Third Disbursement (as
defined in the letter agreement dated August 7, 1996 between Landlord and
Tenant) or (xvi) any other cause, whether similar or dissimilar to the
foregoing, any present or future Law to the contrary notwithstanding.
(c) The obligations of Tenant hereunder shall be separate and independent
covenants and agreements, all Monetary Obligations shall continue to be payable
in all events (or, in lieu thereof, Tenant shall pay amounts equal thereto), and
the obligations of Tenant hereunder shall continue unaffected unless the
requirement to pay or perform the same shall have been terminated pursuant to an
express provision of this Lease. All Rent payable by Tenant hereunder shall
constitute "rent" for all purposes (including Section 502(b)(6) of the
Bankruptcy Code).
(d) Except as otherwise expressly provided herein, Tenant shall have no
right and hereby waives all rights which it may have under any Law (i) to quit,
terminate or surrender this Lease or any of the Leased Premises, or (ii) to any
Set-Off of any Monetary Obligations.
9. Payment of Impositions.
----------------------
(a) Tenant shall, not later than the due date thereof, or at least five (5)
days prior to the day before any fine, interest, penalty or cost may be added
thereto or imposed, or at least five (5) days prior to the day any lien may be
filed for the non-payment thereof (if such day is used to determine the due date
of the respective item), pay and discharge all taxes (including real and
personal property, franchise, sales and rent
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taxes), all charges for any easement or agreement maintained for the benefit of
any of the Leased Premises, all assessments and levies, all permit, inspection
and license fees, all rents and charges for water, sewer, utility and
communication services relating to the any of Leased Premises, all ground rents
and all other public charges whether of a like or different nature, even if
unforeseen or extraordinary, imposed upon or assessed against (i) Tenant, (ii)
any of the Leased Premises, including any increases in real estate taxes from a
reassessment of the Leased Premises by the applicable taxing authority as a
result of any transfer of the Leased Premises to any affiliate of Landlord or
Landlord's parent of which Landlord's parent directly or indirectly owns
beneficially more than fifty percent (50%) or to Landlord's parent so long as in
any such case Tenant has an opportunity to review and comment upon the structure
of such transfer prior to the occurrence thereof, (iii) Landlord as a result of
or arising in respect of the acquisition, ownership, occupancy, leasing, use,
possession or sale of any of the Leased Premises, any activity conducted on any
of the Leased Premises, or the Rent, or (iv) any Lender by reason of any Note,
Mortgage, Assignment or other document evidencing or securing a Loan and which
(as to this clause (iv)) Landlord has agreed to pay (collectively, the
"Impositions"); provided, that nothing herein shall obligate Tenant to pay (A)
income, excess profits or other taxes of Landlord (or Lender) which are
determined on the basis of Landlord's (or Lender's) net income or net worth
(unless such taxes are a substitute for any then existing tax, assessment or
other charge upon or with respect to the Leased Premises which, if it were in
effect, would be payable by Tenant under the provisions hereof or by the terms
of such tax, assessment or other charge), (B) any estate, inheritance,
succession, gift or similar tax imposed on Landlord or Lender, (C) any capital
gains tax imposed on Landlord in connection with the sale of the Leased Premises
to any Person or (D) any increases in real estate taxes from a reassessment of
the Leased Premises by the applicable taxing authority as a result of any sale
or transfer of the Leased Premises except as provided in (ii) above. If any
Imposition may be paid in installments without interest or penalty, Tenant shall
have the option to pay such Imposition in installments; in such event, Tenant
shall be liable only for those installments which accrue or become due and
payable during the Term. Tenant shall prepare and file all tax reports required
by governmental authorities which relate to the Impositions. Tenant shall
deliver to Landlord (1) copies of all settlements and notices pertaining to the
Impositions which may be issued by any governmental authority within ten (10)
days after Tenant's receipt thereof, (2) receipts for payment of all taxes
required to be paid by Tenant hereunder within thirty (30) days after the due
date thereof and (3) receipts for payment of all other Impositions within ten
(10) days after Landlord's request therefor. Any refunds of Impositions
attributable to any period during the Term shall be payable to, and shall be the
property of, Tenant.
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(b) Landlord shall have the right at any time following the occurrence and
during the continuation of an Event of Default to require Tenant to pay to
Landlord (or Lender if Landlord is so required pursuant to the terms of the
Mortgage) an additional monthly sum (the "Escrow Payments") sufficient to pay
the Escrow Charges (as hereinafter defined) as they become due. As used herein,
"Escrow Charges" shall mean real estate taxes on the Leased Premises or payments
in lieu thereof and premiums on any insurance required by this Lease. Landlord
shall determine the amount of the Escrow Charges and of each Escrow Payment. As
long as the Escrow Payments are being held by Landlord and not Lender, or if
Lender shall hold the Escrow Payments and shall so agree, the Escrow Payments
shall not be commingled with other funds of Landlord or other Persons and
interest shall accrue thereon for the benefit of Tenant, from the date such
monies are received by or on behalf of Landlord to the date such monies are
disbursed to pay Escrow Charges. Landlord or Lender, as the case may be, shall
apply the Escrow Payments to the payment of the Escrow Charges in such order or
priority as Landlord shall determine or as required by law. If at any time the
Escrow Payments theretofore paid to Landlord or Lender, as the case may be,
shall be insufficient for the payment of the Escrow Charges, Tenant, within ten
(10) days after Landlord's demand therefor, which shall include written
verification of such deficiency, shall pay the amount of the deficiency to
Landlord.
10. Compliance with Laws and Easement Agreements; Environmental Matters.
-------------------------------------------------------------------
(a) Tenant shall, at its expense, be in material compliance with and
conform to, and cause any other Person occupying any part of the Leased Premises
to be in material compliance with and conform to, all Insurance Requirements and
Legal Requirements (except that Tenant and the Leased Premises shall be in
absolute compliance with all applicable Environmental Laws). Tenant shall not
at any time (i) cause, permit or suffer to occur any material Environmental
Violation or (ii) permit any sublessee, assignee or other Person occupying the
Leased Premises under or through Tenant to cause, permit or suffer to occur any
material Environmental Violation and, at the request of Landlord or Lender,
Tenant shall promptly remediate any existing Environmental Violation, however
immaterial.
(b) Tenant, at its sole cost and expense, will at all times promptly and
faithfully abide by, discharge and perform all of the covenants, conditions and
agreements contained in any Easement Agreement on the part of Landlord or the
occupier to be kept and performed thereunder. Tenant will not alter, modify,
amend or terminate any Easement Agreement, give any consent or approval
thereunder, or enter into any new Easement Agreement without, in each case, the
prior written consent of Landlord, which consent shall not be unreasonably
withheld. Any such new
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Easement Agreement shall automatically be a Permitted Encumbrance.
(c) Not more frequently than once every three (3) years and at any other
time that, in the opinion of Landlord or Lender, a reasonable basis exists to
believe that an Environmental Violation of an Environmental Law or any other
material Environmental Violation exists or a condition that could be reasonably
expected to result in an Environmental Violation exists, upon prior written
notice from Landlord or Lender, Tenant shall permit such persons as Landlord or
Lender may designate ("Site Reviewers") to visit the Leased Premises at
reasonable times agreed to by Tenant and perform, as agents of Tenant,
environmental site investigations and assessments ("Site Assessments") on the
Leased Premises for the purpose of investigating the Leased Premises. In
addition to the permitted Site Assessments, the Site Reviewers shall have the
right to obtain from Tenant information reasonably necessary to update any Site
Assessment. Such Site Assessments may include both above and below the ground
testing for Environmental Violations and such other tests as may be reasonably
necessary, in the opinion of the Site Reviewers, to conduct the Site
Assessments. Tenant shall supply to the Site Reviewers such historical and
operational information regarding the Leased Premises as may be reasonably
requested by the Site Reviewers to facilitate the Site Assessments, and shall
make available for meetings with the Site Reviewers appropriate personnel having
knowledge of such matters. Landlord shall pay the cost of any such Site
Assessment unless an Environmental Violation is found, in which event the cost
shall be paid by Tenant.
(d) If an Environmental Violation occurs or is found to exist and, in
Landlord's reasonable judgment, the cost of remediation of the same is likely to
exceed $250,000, or, if an Event of Default under Paragraph 22(a)(i) hereof has
occurred during the immediately preceding twelve (12) month period, $50,000,
Tenant shall provide to Landlord, and Lender within ten (10) days after
Landlord's request therefor, adequate financial assurances that Tenant will
effect such remediation in accordance with applicable Environmental Laws.
(e) Notwithstanding any other provision of this Lease, if an Environmental
Violation occurs or is found to exist that would render the Leased Premises
untenantable or unmarketable and the Term would otherwise terminate or expire,
then, at the option of Landlord, the Term shall be automatically extended beyond
the date of termination or expiration and this Lease shall remain in full force
and effect beyond such date until the earlier to occur of (i) the completion of
all remedial action in accordance with applicable Environmental Laws or (ii) the
date specified in a written notice from Landlord to Tenant terminating this
Lease.
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(f) If Tenant fails to comply with (or promptly commence to comply with and
diligently pursue to completion) any requirement of any Environmental Law in
connection with any Environmental Violation which occurs or is found to exist,
then after ten (10) days prior notice to Tenant (except that no notice shall be
required if any emergency exists) Landlord shall have the right (but no
obligation) to take any and all actions as Landlord shall deem necessary or
advisable in order to cure such Environmental Violation.
(g) Tenant shall notify Landlord and Lender immediately after becoming
aware of any Environmental Violation (or alleged Environmental Violation) or
noncompliance with any of the covenants contained in this Paragraph 10 and shall
forward to Landlord and Lender immediately upon receipt thereof copies of all
orders, claims, reports, notices, permits, applications or other communications
relating to any such violation or noncompliance.
(h) All future leases, subleases or concession agreements relating to the
Leased Premises entered into by Tenant shall contain covenants of the other
party thereto which are comparable to the covenants contained in this Paragraph
10.
(i) Tenant shall not release The Perkin-Elmer Corporation ("PE") from any
of its obligations under the Asset Purchase Agreement, dated March 16, 1990,
between Tenant and PE that relate to clause (f) of Section 6.2 or otherwise
amend said clause (f) or any other applicable provision without having obtained
the prior written approval of Landlord and Lender. Tenant represents and
warrants to Landlord that the indemnity under clause (f) of Section 6.2 includes
1, 1-dichloroethene on the Lease Premises.
11. Liens; Recording.
----------------
(a) Tenant shall not, directly or indirectly, create or permit to be
created or to remain and shall promptly discharge or remove any lien, levy or
encumbrance on any of the Leased Premises or on any Rent or any other sums
payable by Tenant under this Lease, other than any Mortgage or Assignment, the
Permitted Encumbrances and any mortgage, lien, encumbrance or other charge
created by or resulting solely from any act or omission of Landlord. NOTICE IS
HEREBY GIVEN THAT LANDLORD SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR
MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT OR TO ANYONE HOLDING OR
OCCUPYING ANY OF THE LEASED PREMISES THROUGH OR UNDER TENANT, AND THAT NO
MECHANICS' OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH
TO OR AFFECT THE INTEREST OF LANDLORD IN AND TO ANY OF THE LEASED PREMISES.
LANDLORD MAY AT ANY TIME, AND AT LANDLORD'S REQUEST TENANT SHALL PROMPTLY, POST
ANY NOTICES ON THE LEASED PREMISES REGARDING SUCH NON-LIABILITY OF LANDLORD.
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(b) Tenant shall execute, deliver and record, file or register
(collectively, "record") all such instruments as may be required or permitted by
any present or future Law in order to evidence the respective interests of
Landlord and Tenant in the Leased Premises, and shall cause a memorandum of this
Lease (or, if such a memorandum cannot be recorded, this Lease), and any
supplement hereto or thereto, to be recorded in such manner and in such places
as may be required or permitted by any present or future Law in order to protect
the validity and priority of this Lease.
12. Maintenance and Repair.
----------------------
(a) Tenant shall at all times maintain the Leased Premises and the
Adjoining Property in substantially as good repair and appearance as they are in
on the date hereof, ordinary wear and tear excepted, and fit to be used for
their intended use in accordance with the practices generally recognized as then
acceptable by other companies in its industry, and, in the case of the
Equipment, in as good mechanical condition as it was on the later of the date
hereof or the date of its installation, except for ordinary wear and tear.
Tenant shall take every other reasonable action necessary or appropriate for the
preservation and safety of the Leased Premises. Tenant shall promptly make all
Alterations of every kind and nature, whether foreseen or unforeseen, which may
be required to comply with the foregoing requirements of this Paragraph 12(a).
Landlord shall not be required to make any Alteration, whether foreseen or
unforeseen, or to maintain any of the Leased Premises or Adjoining Property in
any way, and Tenant hereby expressly waives any right which may be provided for
in any Law now or hereafter in effect to make Alterations at the expense of
Landlord or to require Landlord to make Alterations. Any Alteration made by
Tenant pursuant to this Paragraph 12 shall be made in conformity with the
provisions of Paragraph 13.
(b) If any Improvement, now or hereafter constructed, shall (i) encroach
upon any setback or any property, street or right-of-way adjoining the Leased
Premises, (ii) violate the provisions of any restrictive covenant affecting the
Leased Premises, (iii) hinder or obstruct any easement or right-of-way to which
any of the Leased Premises is subject or (iv) impair the rights of others in, to
or under any of the foregoing, Tenant shall, promptly after receiving a notice
thereof, correct such condition from the party entitled to make such demand,
either (A) obtain from all necessary parties waivers or settlements of all
claims, liabilities and damages resulting from each such encroachment,
violation, hindrance, obstruction or impairment, whether the same shall affect
Landlord, Tenant or both, or (B) take such action as shall be necessary to
remove all such encroachments, hindrances or obstructions and to end all such
violations or impairments, including, if necessary, making Alterations.
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13. Alterations and Improvements.
----------------------------
(a) Tenant shall have the right, without having obtained the prior written
consent of Landlord and Lender, to make (i) non-structural Alterations to the
Leased Premises, (ii) structural Alterations or a series of related structural
Alterations that, as to any such Alterations or series of related Alterations,
do not cost in excess of $1,000,000 or, with respect to Alterations to the
"clean room" test area in Building Three and "process laboratory" in Building
Two, $2,500,000, (iii) to install Equipment in the Improvements or accessions to
the Equipment that, as to such Equipment or accessions, do not cost in excess of
$1,000,000 or, with respect to Alterations to the "clean room" test area in
Building Three and "process laboratory" in Building Two, $2,500,000, and (iv)
the Alterations identified in Schedule 2 attached hereto so long as at the time
of construction or installation of any such Equipment or Alterations no Event of
Default exists and the value and utility of the Leased Premises is not
diminished thereby. If the cost of any structural Alterations, series of
related structural Alterations, Equipment or accessions thereto is in excess of
$1,000,000 or, with respect to Alterations to the "clean room" test area in
Building Three and "process laboratory" in Building Two, $2,500,000, the prior
written approval of Lender shall be required, such approval not to be
unreasonably withheld, delayed or conditioned. Tenant shall not construct upon
the Land any additional buildings without having first obtained the prior
written consent of Landlord and Lender.
(b) If Tenant makes any Alterations pursuant to this Paragraph 13 or
Paragraph 36 or as required by Paragraph 12 or 17 (such Alterations and actions
being hereinafter collectively referred to as "Work"), whether or not
Landlord's consent is required, then (i) the market value of the Leased Premises
shall not be lessened by any such Work or its usefulness impaired, (ii) all such
Work shall be performed by Tenant in a good and workmanlike manner, (iii) all
such Work shall be expeditiously completed in compliance with all Legal
Requirements, (iv) all such Work shall comply with the Insurance Requirements,
(v) if any such Work involves the replacement of Equipment or parts thereto, all
replacement Equipment or parts shall have a value and useful life so as not to
diminish the value of the Improvements, (vi) Tenant shall promptly discharge or
remove all liens filed against any of the Leased Premises arising out of such
Work, (vii) Tenant shall procure and pay for all permits and licenses required
in connection with any such Work, (viii) all such Work that constitutes part of
the Leased Premises shall be the property of Landlord and shall be subject to
this Lease, and Tenant shall execute and deliver to Landlord any document
requested by Landlord evidencing the assignment to Landlord of all estate,
right, title and interest (other than the leasehold estate created hereby) of
Tenant or any other Person thereto or therein, and (ix) Tenant shall comply, to
the extent requested by Landlord or required by this Lease, with the
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provisions of Paragraph 19(a), whether or not such Work involves restoration of
the Leased Premises.
14. Permitted Contests. Notwithstanding any other provision of this
------------------
Lease, Tenant shall not be required to (a) pay any Imposition, (b) comply with
any Legal Requirement, (c) discharge or remove any lien referred to in Paragraph
11 or 13 or (d) take any action with respect to any encroachment, violation,
hindrance, obstruction or impairment referred to in Paragraph 12(b) (such non-
compliance with the terms hereof being hereinafter referred to collectively as
"Permitted Violations"), so long as at the time of such contest no Event of
Default exists and so long as Tenant shall contest, in good faith, the
existence, amount or validity thereof, the amount of the damages caused thereby,
or the extent of its or Landlord's liability therefor by appropriate proceedings
which shall operate during the pendency thereof to prevent or stay (i) the
collection of, or other realization upon, the Permitted Violation so contested,
(ii) the sale, forfeiture or loss of any of the Leased Premises or any Rent to
satisfy or to pay any damages caused by any Permitted Violation, (iii) any
material interference with the use or occupancy of any of the Leased Premises,
(iv) any interference with the payment of any Rent, (v) the cancellation or
increase in the rate of any insurance policy or a statement by the carrier that
coverage will be denied or (vi) the enforcement or execution of any injunction,
order or Legal Requirement with respect to the Permitted Violation. Tenant
shall provide Landlord security which is satisfactory, in Landlord's reasonable
judgment, to assure that such Permitted Violation is corrected, including all
Costs, interest and penalties that may be incurred or become due in connection
therewith. While any proceedings which comply with the requirements of this
Paragraph 14 are pending and the required security (if any) is held by Landlord,
Landlord shall not have the right to correct any Permitted Violation thereby
being contested unless Landlord is required by law to correct such Permitted
Violation and Tenant's contest does not prevent or stay such requirement as to
Landlord. Each such contest shall be promptly and diligently prosecuted by
Tenant to a final conclusion, except that Tenant, so long as the conditions of
this Paragraph 14 are at all times complied with, has the right to attempt to
settle or compromise such contest through negotiations. Tenant shall pay any
and all losses, judgments, decrees and Costs in connection with any such contest
and shall, promptly after the final determination of such contest, fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed or be
determined to be payable therein or in connection therewith, together with all
penalties, fines, interest and Costs thereof or in connection therewith, and
perform all acts the performance of which shall be ordered or decreed as a
result thereof. No such contest shall subject Landlord to the risk of any civil
or criminal liability.
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15. Indemnification.
---------------
(a) Tenant shall pay, protect, indemnify, save and hold harmless Landlord,
Lender and all other Persons described in Paragraph 30 (each an "Indemnitee")
from and against any and all liabilities, losses, damages (including punitive
damages), penalties, Costs, causes of action, suits, claims, demands or
judgments of any nature whatsoever, howsoever caused, without regard to the form
of action and whether based on strict liability, gross negligence, negligence or
any other theory of recovery at law or in equity, arising from (i) any matter
pertaining to the acquisition (or the negotiations leading thereto), ownership,
use, non-use, occupancy, operation, condition, design, construction,
maintenance, repair or restoration of the Leased Premises or Adjoining Property,
(ii) any casualty in any manner arising from the Leased Premises or Adjoining
Property, whether or not Landlord has or should have knowledge or notice of any
defect or condition causing or contributing to said casualty, (iii) any
violation by Tenant of any provision of this Lease, any contract or agreement to
which Tenant is a party, any Legal Requirement or any Permitted Encumbrance or
(iv) any alleged, threatened or actual Environmental Violation, however
immaterial, including (A) liability for response costs and for costs of removal
and remedial action incurred by the United States Government, any state or local
governmental unit or any other Person, or damages from injury to or destruction
or loss of natural resources, including the reasonable costs of assessing such
injury, destruction or loss, incurred pursuant to Section 107 of CERCLA, or any
successor section or act or provision of any similar state or local Law, (B)
liability for costs and expenses of abatement, correction or clean-up, fines,
damages, response costs or penalties which arise from the provisions of any of
the other Environmental Laws and (C) liability for personal injury or property
damage arising under any statutory or common-law tort theory, including damages
assessed for the maintenance of a public or private nuisance or for carrying on
of a dangerous activity, but excluding in all cases any and all liabilities,
losses, damages (including punitive damages), penalties, costs, causes of
action, suits, claims, demands or judgments caused by the gross negligence or
willful misconduct of any Indemnitee.
(b) In case any action or proceeding is brought against any Indemnitee by
reason of any such claim, such Indemnitee may either (i) retain its own counsel
and defend such action (it being understood that Tenant may employ counsel of
its choice to monitor the defense of any such action) or (ii) notify Tenant to
resist or defend such action or proceeding by retaining counsel reasonably
satisfactory to such Indemnitee, and such Indemnitee will cooperate and assist
in the defense of such action or proceeding if reasonably requested so to do by
Tenant.
(c) The obligations of Tenant under this Paragraph 15 shall survive any
termination or expiration of this Lease.
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16. Insurance.
---------
(a) Tenant shall maintain the following insurance on or in connection with
the Leased Premises:
(i) Insurance against physical loss or damage to the Improvements and
Equipment as provided under a standard "All Risk" property policy including
but not limited to flood (if the Leased Premises is in a flood zone) in
amounts not less than the actual replacement cost of the Improvements and
Equipment. Such policies shall contain replacement cost and agreed amount
endorsements and shall contain deductibles not more than $50,000.00 per
occurrence. (B) Tenant shall maintain earthquake insurance for the
Improvements and Equipment in the amount of not less than $7,000,000 with a
deductible of not more than 10%, provided, however, that in the event of a
substantial change in the availability or cost of earthquake coverage
Landlord and Tenant shall in good faith negotiate a different amount or a
different deductible or other different terms of such insurance (subject to
the consent of Lender), taking into account the cost and availability of
such insurance and the objective of reasonably protecting the interests of
Landlord and Lender.
(ii) Commercial General Liability Insurance against claims for
personal and bodily injury, death or property damage occurring on, in or as
a result of the use of the Leased Premises, in an amount not less than
$15,000,000 per occurrence/annual aggregate including but not limited to
Incidental Medical Malpractice, Garagekeepers Liability, Host Liquor
Liability, Non-Owned and Hired Automobile Liability and all other coverage
extensions that are usual and customary for properties of this size and
type provided, however, that the Landlord shall have the right to require
such higher limits as may be reasonable and customary for properties of
this size and type.
(iii) Workers' Compensation Insurance covering all persons employed
by Tenant in connection with any work done on or about any of the Leased
Premises for which claims for death, disease or bodily injury may be
asserted against Landlord, Tenant or any of the Leased Premises or, in lieu
of such Worker's Compensation Insurance, a program of self-insurance
complying with the rules, regulations and requirements of the appropriate
agency of the State.
(iv) Comprehensive Boiler and Machinery Insurance on any of the
Equipment or any other equipment on or in the Leased Premises including but
not limited to Service Interruption, Expediting Expenses, Ammonia
Contamination, Hazardous Clean-Up and Comprehensive Object Definition, in
an amount not less than $1,000,000 for damage to property, bodily injury or
death resulting from such covered perils
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as found in a standard Comprehensive Boiler & Machinery Policy. Such
policies may contain a deductible not in excess of $50,000.
(v) Business Income/Interruption Insurance to include Loss of Rents
on an Actual Loss Sustained basis with a period of indemnity not less than
one year from the time of loss. Such insurance shall name Landlord and
Lender as "loss payee" solely with respect to Rent payable to or for the
benefit of Landlord under this Lease.
(vi) During any period in which substantial Alterations at the Leased
Premises are being undertaken, Builder's Risk insurance covering the total
completed value including any "soft costs" with respect to the Improvements
being altered or repaired (on a completed value, non-reporting basis),
replacement cost of work performed and equipment, supplies and materials
furnished in connection with such construction or repair of Improvements or
Equipment, together with such "soft cost" endorsements and such other
endorsements as Landlord may reasonably require and General Liability,
Worker's Compensation and Automobile Liability Insurance with respect to
the Improvements being constructed, altered or repaired.
(vii) Such other insurance (or other terms with respect to any
insurance required pursuant to this Paragraph 16, including without
limitation amounts of coverage, deductibles, form of mortgagee clause) on
or in connection with any of the Leased Premises as Landlord or Lender may
reasonably require, which at the time is usual and commonly obtained in
connection with properties similar in type of building size and use to the
Leased Premises.
(b) The insurance required by Paragraph 16(a) shall be written by companies
which have a Best's rating of A:X or above and are admitted in, and approved to
write insurance policies by, the State Insurance Department for the State. The
insurance policies (i) shall be for such terms as Landlord may reasonably
approve, (ii) shall be in amounts sufficient at all times to satisfy any
coinsurance requirements thereof and (iii) shall (except for the worker's
compensation insurance referred to in Paragraph 16(a)(iii) hereof) name
Landlord, Tenant and Lender as additional insureds or loss payees, as their
respective interests may appear. If said insurance or any part thereof shall
expire, be withdrawn, become void, voidable, unreliable or unsafe for any
reason, including a breach of any condition thereof by Tenant or the failure or
impairment of the capital of any insurer, or if for any other reason whatsoever
said insurance shall become reasonably unsatisfactory to Landlord, Tenant shall
immediately obtain new or additional insurance reasonably satisfactory to
Landlord.
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(c) Each policy required by any provision of Paragraph 16(a), except clause
(iii) thereof, shall provide that it may not be canceled except after sixty (60)
days' prior notice to Landlord and Lender. Each such policy shall also provide
that any loss otherwise payable thereunder shall be payable notwithstanding (i)
any act or omission of Landlord or Tenant which might, absent such provision,
result in a forfeiture of all or a part of such insurance payment, (ii) the
occupation or use of any of the Leased Premises for purposes more hazardous than
those permitted by the provisions of such policy, (iii) any foreclosure or other
action or proceeding taken by Lender pursuant to any provision of the Mortgage,
Note, Assignment or other document evidencing or securing the Loan upon the
happening of an event of default therein or (iv) any change in title to or
ownership of any of the Leased Premises.
(d) Tenant shall pay as they become due all premiums for the insurance
required by Paragraph 16(a), shall renew or replace each policy and deliver to
Landlord evidence of the payment of the full premium therefor or installment
then due prior to the expiration date of such policy, and shall promptly deliver
to Landlord each original policy or a duplicate thereof.
(e) Anything in this Paragraph 16 to the contrary notwithstanding, any
insurance which Tenant is required to obtain pursuant to Paragraph 16(a) may be
carried under a "blanket" or umbrella policy or policies covering other
properties or liabilities of Tenant, provided that such "blanket" or umbrella
policy or policies otherwise comply with the provisions of this Paragraph 16 and
provided further that such policies shall provide for a reserved amount
thereunder with respect to the Leased Premises so as to assure that the amount
of insurance required by this Paragraph 16 will be available notwithstanding any
losses with respect to other property covered by such blanket policies. The
amount of the total insurance allocated to the Leased Premises, which amount
shall be not less than the amounts required pursuant to this Paragraph 16, shall
be specified either (i) in each such "blanket" or umbrella policy or (ii) in a
written statement, which Tenant shall deliver to Landlord, from the insurer
thereunder. The original or a certified copy of each such "blanket" or umbrella
policy shall promptly be delivered to Landlord.
(f) Tenant shall promptly comply with and conform to (i) all provisions of
each insurance policy required by this Paragraph 16 and (ii) all requirements of
the insurers thereunder applicable to Landlord, Tenant or any of the Leased
Premises or to the use, manner of use, occupancy, possession, operation,
maintenance, alteration or repair of any of the Leased Premises, even if such
compliance necessitates Alterations or results in interference with the use or
enjoyment of any of the Leased Premises.
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(g) Tenant shall not carry separate insurance concurrent in form or
contributing in the event of a Casualty with that required in this Paragraph 16
unless (i) Landlord and Lender are included therein as loss payee or additional
insureds, with loss payable as provided herein, and (ii) such separate insurance
complies with the other provisions of this Paragraph 16. Tenant shall
immediately notify Landlord of such separate insurance and shall deliver to
Landlord copies of the policies therefor.
(h) All policies shall contain effective waivers by the carrier against all
claims for insurance premiums against Landlord and shall contain full waivers of
subrogation against the Landlord.
(i) All proceeds of any insurance required under Paragraph 16(a) shall be
payable as follows:
(i) Except for proceeds payable to a Person other than Landlord,
Tenant or Lender and proceeds of less than $500,000, all proceeds of
insurance required under clauses (ii), (iii), (iv) and (vii) of Paragraph
16(a) and proceeds attributable to the general liability coverage
provisions of Builder's Risk insurance under clause (vi) of Paragraph 16(a)
shall be payable to Landlord or, if required by the Mortgage or requested
by Lender pursuant to the Mortgage, to Lender. All proceeds of insurance
required under clause (v) of Paragraph 16(a) shall be payable to Landlord
or, if required by the Mortgage, to Lender.
(ii) Proceeds of insurance required under clause (i) of Paragraph
16(a) and proceeds attributable to Builder's Risk insurance (other than its
general liability coverage provisions) under clause (vi) of Paragraph 16(a)
shall be payable as follows:
(A) In the event of a Casualty that is a Termination Event for
which a Termination Notice has been given under Paragraph 18(a), the
proceeds shall be payable to Landlord or, if required by the Mortgage
or requested by Lender pursuant to the Mortgage, to Lender. Landlord
shall retain or apply the Net Award in accordance with the provisions
of Paragraphs 18 and 20.
(B) In the event of a Casualty that is not a Termination Event
where the proceeds exceed $500,000, the proceeds shall be payable to
Landlord or, if required by the Mortgage or requested by Lender
pursuant to the Mortgage, to Lender. Landlord shall apply the Net
Award in accordance with the provisions of Paragraph 19.
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(C) In the event of a Casualty that is not a Termination Event
where the proceeds are equal to or less than $500,000 and unless an
Event of Default exists and is continuing, or if a fact or condition
exists which with the lapse of time or giving of notice, of both,
would in Landlord's judgment constitute an Event of Default, at the
time such proceeds are paid, the Net Award shall be payable to Tenant.
Tenant shall apply the Net Award to restoration of the Leased Premises
in accordance with the applicable provisions of this Lease.
(iii) In the event that Tenant is listed as a payee on a check from
an insurance carrier for insurance proceeds which subparagraphs (i) and
(ii) provide are to be payable to Landlord, Lender or another party or
parties, Tenant shall cooperate by promptly endorsing said check over to
the party to whom the proceeds are to be payable under subparagraphs (i) or
(ii). Tenant hereby appoints each of Landlord or Lender as Tenant's
attorneys-in-fact to endorse any such check.
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17. Casualty and Condemnation.
-------------------------
(a) If any Casualty occurs the insurance proceeds for which is reasonably
estimated by Tenant to be equal to or in excess of Fifty Thousand Dollars
($50,000), Tenant shall give Landlord and Lender immediate notice thereof. So
long as no Event of Default exists Tenant is hereby authorized to adjust,
collect and compromise all claims under any of the insurance policies required
by Paragraph 16(a) (except public liability insurance claims payable to a Person
other than Tenant, Landlord or Lender) and to execute and deliver on behalf of
Tenant all necessary proofs of loss, receipts, vouchers and releases required by
the insurers and Landlord shall have the right to join with Tenant therein. Any
adjustment, settlement or compromise of any such claim in excess of $500,000
shall be subject to the prior written approval of Landlord, which shall not be
unreasonably withheld, conditioned or delayed and Landlord shall have the right
to prosecute or contest, or to require Tenant to prosecute or contest, any such
claim, adjustment, settlement or compromise. If an Event of Default exists,
Tenant shall not be entitled to adjust, collect or compromise any such claim or
to participate with Landlord in any adjustment, collection and compromise of the
Net Award payable in connection with a Casualty. Tenant agrees to sign, upon
the request of Landlord, all such proofs of loss, receipts, vouchers and
releases. Each insurer is hereby authorized and directed to make payment under
said policies in excess of $500,000 and return of unearned premiums, directly to
Landlord or, if required by the Mortgage or requested by Lender pursuant to the
Mortgage, to Lender instead of to Landlord and Tenant jointly, and Tenant hereby
appoints each of Landlord and Lender as Tenant's attorneys-in-fact to endorse
any draft therefor. The rights of Landlord under this Paragraph 17(a) shall be
extended to Lender if and to the extent that any Mortgage so provides.
(b) Tenant, immediately upon receiving a Condemnation Notice, shall notify
Landlord and Lender thereof. So long as no Event of Default exists, Tenant is
authorized to collect, settle and compromise the amount of any Net Award and
Landlord shall have the right to join with Tenant herein. If an Event of
Default exists, Landlord shall be authorized to collect, settle and compromise
the amount of any Net Award and Tenant shall not be entitled to participate with
Landlord in any Condemnation proceeding or negotiations under threat thereof or
to contest the Condemnation or the amount of the Net Award therefor. No
agreement with any condemnor in settlement or under threat of any Condemnation
shall be made by Tenant without the written consent of Landlord which shall not
be unreasonably withheld, conditioned or delayed. Subject to the provisions of
this Paragraph 17(b), Tenant hereby irrevocably assigns to Landlord any award or
payment to which Tenant is or may be entitled by reason of any Condemnation,
whether the same shall be paid or payable for Tenant's leasehold interest
hereunder or otherwise; but nothing in this Lease shall impair Tenant's right to
any
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award or payment on account of Tenant's trade fixtures, equipment or other
tangible property which is not part of the Equipment, moving expenses or loss of
business, if available, to the extent that and so long as (i) Tenant shall have
the right to make, and does make, a separate claim therefor against the
condemnor and (ii) such claim does not in any way reduce either the amount of
the award otherwise payable to Landlord for the Condemnation of Landlord's fee
interest in the Leased Premises or the amount of the award (if any) otherwise
payable for the Condemnation of Tenant's leasehold interest hereunder. The
rights of Landlord under this Paragraph 17(b) shall also be extended to Lender
if and to the extent that any Mortgage so provides.
(c) If any Partial Casualty (whether or not insured against) or Partial
Condemnation shall occur, this Lease shall continue, notwithstanding such event,
and there shall be no abatement or reduction of any Monetary Obligations, except
as provided in Paragraph 17(d) and 19(c). Promptly after such Partial Casualty
or Partial Condemnation, Tenant, as required in Paragraph 12(a), shall commence
and diligently continue to restore the Leased Premises as nearly as practicable
to their value, condition and character immediately prior to such event. Upon
the receipt by Landlord of the entire Net Award of such Partial Casualty or
Partial Condemnation, Landlord shall make such Net Award available to Tenant for
restoration in accordance with and subject to the provisions of Paragraph 19(a).
If any Casualty or Condemnation which is not a Partial Casualty or Partial
Condemnation shall occur, Tenant shall comply with the terms and conditions of
Paragraph 18.
(d) In the event of a Requisition of any of the Leased Premises, if any Net
Award payable by reason of such Requisition is retained by Landlord or Lender,
each installment of Basic Rent payable on or after the date on which the Net
Award is paid to Landlord shall be reduced by a fraction, the denominator of
which shall be the total amount of all Basic Rent due from such date to and
including the last day such Requisition remains in effect and the numerator of
which shall be the amount of such Net Award retained by Landlord. Upon the
expiration of the Term, any portion of such Net Award which shall not have been
previously credited to Tenant shall be retained by Landlord.
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18. Termination Events.
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(a) If (i) the Leased Premises shall be taken by a Taking or (ii) any
substantial portion of the Leased Premises shall be taken by a Taking or all or
any substantial portion of the Leased Premises shall be damaged or destroyed by
a Casualty and, in such case, Tenant certifies to Landlord that it will forever
abandon operations at the Leased Premises (each of the events described in the
above clauses (i) and (ii) shall hereinafter be referred to as a "Termination
Event"), then (x) in the case of (i) above, Tenant shall be obligated, within
thirty (30) days after Tenant receives a Condemnation Notice and (y) in the case
of (ii) above, Tenant shall have the option, within thirty (30) days after
Tenant receives a Condemnation Notice or thirty (30) days after the Casualty, as
the case may be, to give to Landlord written notice of the Tenant's option to
terminate this Lease (a "Termination Notice") in the form described in Paragraph
18(b).
(b) A Termination Notice shall contain (i) notice of Tenant's intention to
terminate this Lease on the first Basic Rent Payment Date which occurs at least
ninety (90) days after the Fair Market Value Date (the "Termination Date"), (ii)
a binding and irrevocable offer of Tenant to purchase the Leased Premises for an
amount equal to the Termination Amount and (iii) if the Termination Event is an
event described in Paragraph 18(a)(ii), the certification described therein and
a certified resolution of the Board of Directors of Tenant authorizing the same.
Promptly upon the delivery to Landlord of a Termination Notice, Landlord and
Tenant shall commence to determine the Fair Market Value of the Leased Premises.
(c) If Landlord shall reject such offer to purchase the Leased Premises by
written notice to Tenant (a "Rejection"), which Rejection shall contain the
written consent of Lender, not later than thirty (30) days following the Fair
Market Value Date, then this Lease shall terminate on the Termination Date;
provided that, if Tenant has not satisfied all Monetary Obligations and all
other obligations and liabilities under this Lease which have arisen on or prior
to the Termination Date (collectively, "Remaining Obligations") on the
Termination Date, then Landlord may, at its option, extend the date on which
this Lease may terminate to a date which is no later than the first Basic Rent
Payment Date after the Termination Date on which Tenant has satisfied all
Remaining Obligations. Upon such termination (i) all obligations of Tenant
hereunder shall terminate except for any Surviving Obligations, (ii) Tenant
shall promptly vacate and shall have no further right, title or interest in or
to any of the Leased Premises and (iii) the Net Award shall be retained by
Landlord. Notwithstanding anything to the contrary hereinabove contained, if
Tenant shall have received a Rejection and, on the date when this Lease would
otherwise terminate as provided above, Landlord shall not have received the full
amount of the Net Award payable by reason of the applicable Termination Event,
then on the Termination Date
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Tenant shall assign to Landlord all of its right, title and interest, if any, in
and to the Net Award.
(d) Unless Tenant shall have received a Rejection not later than the
thirtieth (30th) day following the Fair Market Value Date, Landlord shall be
conclusively presumed to have accepted such offer. If such offer is accepted by
Landlord then, on the Termination Date, Tenant shall pay to Landlord (or Lender
if the Mortgage requires or permits Lender to so require) the Termination Amount
and all Remaining Obligations and, if requested by Tenant, Landlord shall (i)
convey to Tenant the Leased Premises or the remaining portion thereof, if any,
and (ii) pay to or assign to Tenant its entire interest in and to the Net Award,
all in accordance with Paragraph 20.
19. Restoration; Reduction of Rent.
------------------------------
(a) So long as no Event of Default exists, any Net Award up to and
including $500,000 shall be paid directly to Tenant and Tenant shall restore the
Leased Premises in accordance with the requirements of Paragraph 13(b) of this
Lease. Any Net Award in excess of $500,000 shall be made available by Landlord
to Tenant for the restoration of any of the Leased Premises, and Landlord (or
Lender if required by any Mortgage or if the Mortgage permits Lender to so
require) shall hold such Net Award in a fund (the "Restoration Fund") and
disburse amounts from the Restoration Fund only in accordance with the following
conditions:
(i) prior to commencement of restoration, (A) the architects,
contracts, contractors, plans and specifications for the restoration shall
have been approved by Landlord, such approval not to be unreasonably
withheld, conditioned or delayed and (B) Landlord and Lender shall, upon
reasonable request and based upon a review of the contractor's and prime
subcontractors' credit, be provided with acceptable performance bonds which
insure satisfactory completion of the restoration, are in an amount and
form and have a surety acceptable to Landlord, and name Landlord and Lender
as additional dual obligees;
(ii) at the time of any disbursement, no Event of Default shall exist
and no mechanics' or materialmen's liens shall have been filed against any
of the Leased Premises and remain undischarged;
(iii) disbursements shall be made from time to time in an amount not
exceeding the cost of the work completed since the last disbursement, upon
receipt of (A) satisfactory evidence, including architects' certificates,
of the stage of completion, the estimated total cost of completion and
performance of the work to date in a good and workmanlike manner in
accordance with the contracts, plans and specifications, (B) waivers of
liens, (C)
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contractors' and subcontractors' sworn statements as to completed work and
the cost thereof for which payment is requested, (D) a satisfactory
bringdown of title insurance and (E) other evidence of cost and payment so
that Landlord and Lender can verify that the amounts disbursed from time to
time are represented by work that is completed, in place and free and clear
of mechanics' and materialmen's lien claims;
(iv) each request for disbursement shall be accompanied by a
certificate of Tenant, signed by the president or a vice president or the
chief financial officer of Tenant, describing the work for which payment is
requested, stating the cost incurred in connection therewith, stating that
Tenant has not previously received payment for such work and, upon
completion of the work, also stating that the work has been fully completed
and complies with the applicable requirements of this Lease;
(v) Landlord may retain ten percent (10%) of the restoration fund
until the restoration is fully completed;
(vi) if the Restoration Fund is held by Lender it may be commingled
with Lender's other funds and shall bear interest unless otherwise required
by Lender; if it is held by Landlord it shall be commingled with Landlord's
other funds and shall bear interest at the best available interest rate;
and
(vii) such other reasonable conditions to insure timely, lien free
completion of the restoration as Landlord or Lender may impose.
(b) Prior to commencement of restoration and at any time during
restoration, if the estimated cost of completing the restoration work free and
clear of all liens, as determined by Landlord or if required by a Mortgage or by
Lender pursuant to the terms of a Mortgage, to Lender, exceeds the amount of the
Net Award available for such restoration, the amount of such excess shall, upon
demand by Landlord, be paid by Tenant to Landlord or if required by a Mortgage
or by Lender pursuant to the terms of a Mortgage, to Lender to be added to the
Restoration Fund. Any sum so added by Tenant which remains in the Restoration
Fund upon completion of restoration shall be refunded to Tenant. For purposes
of determining the source of funds with respect to the disposition of funds
remaining after the completion of restoration, the Net Award shall be deemed to
be disbursed prior to any amount added by Tenant.
(c) If any sum remains in the Restoration Fund after completion of the
restoration and any refund to Tenant pursuant to Paragraph 19(b), such sum (the
"Remaining Sum") shall be retained by Landlord or, if required by a Note or
Mortgage or by Lender pursuant to the terms of a Note or Mortgage, paid by
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Landlord to a Lender. If the Remaining Sum is (i) retained by Landlord, each
installment of Basic Rent payable on or after the Retention Date shall be
reduced by a fraction, the denominator of which shall be the total amount of all
Basic Rent due from such date to and including the last Basic Rent Payment Date
for the then existing Term and the numerator of which shall be the Remaining
Sum, or (ii) paid to Lender, then each installment of Basic Rent thereafter
payable shall be reduced in the same amount as payments are reduced under any
Note as if the Loan were reamortized to reflect such payment, in each case until
such Remaining Sum has been applied in full or until the Term has expired,
whichever occurs first. Landlord agrees that if the terms of a Note or Mortgage
permit partial prepayment of the principal balance of the Loan without premium
or penalty and, in such event, require the Lender to thereupon reamortize the
Loan, Landlord shall pay any Remaining Sum to Lender as a partial prepayment of
the Loan and clause (ii) of this Paragraph 19(c) shall apply. Upon the
expiration of the Term, any portion of the Remaining Sum which has not been so
applied shall be retained by Landlord.
20. Procedures Upon Purchase.
------------------------
(a) If the Leased Premises is purchased by Tenant pursuant to any provision
of this Lease, Landlord need not convey any better title thereto than that which
was conveyed to Landlord, and Tenant shall accept such title, subject, however,
to the Permitted Encumbrances and to all other liens, exceptions and
restrictions on, against or relating to any of the Leased Premises and to all
applicable Laws, but free of the lien of and security interest created by any
Mortgage or Assignment and liens, exceptions and restrictions on, against or
relating to the Leased Premises which have been created by or resulted solely
from acts of Landlord after the date of this Lease, unless the same are
Permitted Encumbrances or customary utility easements benefiting the Leased
Premises or were created with the concurrence of Tenant or as a result of a
default by Tenant under this Lease.
(b) Upon the date fixed for any such purchase of the Leased Premises
pursuant to any provision of this Lease (any such date the "Purchase Date"),
through an appropriate escrow, Tenant shall pay to Landlord, or to any Person to
whom Landlord directs payment, the Relevant Amount therefor specified herein, in
Federal Funds, less any credit of the Net Award received and retained by
Landlord or a Lender allowed against the Relevant Amount, and Landlord shall
deliver to Tenant (i) a special warranty deed which describes the premises being
conveyed and conveys the title thereto as provided in Paragraph 20(a), (ii) such
other instruments as shall be necessary to transfer to Tenant or its designee
any other property (or rights to any Net Award not yet received by Landlord or a
Lender) then required to be sold by Landlord to Tenant pursuant to this Lease
and (iii) any Net Award received by Landlord, not credited to Tenant
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against the Relevant Amount and required to be delivered by Landlord to Tenant
pursuant to this Lease; provided, that if any Monetary Obligations remain
outstanding on such date, then Landlord may deduct from the Net Award the amount
of such Monetary Obligations; and further provided, that if any event has
occurred which, in Landlord's reasonable judgment, is likely to subject any
Indemnitee to any liability which Tenant is required to indemnify against
pursuant to Paragraph 15, then an amount shall be deducted from the Net Award
which, in Landlord's reasonable judgment, is sufficient to satisfy such
liability, which amount shall be deposited in an escrow account with a financial
institution reasonably satisfactory to Landlord and Tenant on terms reasonably
satisfactory to Landlord and Tenant pending resolution of such matter. If on
the Purchase Date any Monetary Obligations remain outstanding and no Net Award
is payable to Tenant by Landlord or the amount of such Net Award is less than
the amount of the Monetary Obligations, then Tenant shall pay to Landlord on
the Purchase Date the amount of such Monetary Obligations. Upon the completion
of such purchase, this Lease and all obligations and liabilities of Tenant
hereunder shall terminate, except any Surviving Obligations.
(c) If the Tenant shall cause completion of such purchase to be delayed
after (i) the Termination Date, in the event of a purchase pursuant to Paragraph
18 or, (ii) the date scheduled for such purchase, in the event of a purchase
under any other provision of this Lease then (x) Rent shall continue to be due
and payable until completion of such purchase and (y) at Landlord's sole option,
Fair Market Value shall be redetermined and the Relevant Amount payable by
Tenant pursuant to the applicable provision of this Lease shall be adjusted to
reflect such redetermination. Landlord shall not be deemed to have caused
completion of such purchase to be delayed if it in good faith disputes the
process or methodology for determining Fair Market Value.
(d) Any prepaid Monetary Obligations paid to Landlord shall be prorated as
of the Purchase Date, and the prorated unapplied balance shall be deducted from
the Relevant Amount due to Landlord.
21. Assignment and Subletting; Prohibition against Leasehold Financing.
------------------------------------------------------------------
(a) Tenant shall have the right so long as an Event of Default has not
occurred and is continuing, upon thirty (30) days prior written notice to
Landlord and Lender, with no consent of Landlord or Lender being required or
necessary ("Preapproved Assignment") to assign this Lease to any Person
("Preapproved Assignee") that is a Subsidiary of Tenant on the date hereof or
that, after the date hereof, is a wholly-owned Subsidiary of Tenant or which,
whether or not in connection with the transfer or sale of all or substantially
all of Tenant's business, immediately following such assignment satisfies all
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published criteria necessary to obtain a publicly traded unsecured senior debt
rating of "A" or better from Moody's Investors Services, Inc. or a rating of "A"
or better from Standard & Poor's Corporation, and in the event all of such
rating agencies cease to furnish such ratings, then a comparable rating by any
rating agency reasonably acceptable to Landlord and Lender.
(b) During the Initial Term, if Tenant desires to assign this Lease to a
Person ("Non-Preapproved Assignee") who would not be a Preapproved Assignee
("Non-Preapproved Assignment") then Tenant shall, not less than ninety (90) days
prior to the date on which it desires to make a Non-Preapproved Assignment
submit to Landlord and Lender information regarding the following with respect
to the Non-Preapproved Assignee: (A) credit, (B) capital structure, (C)
management, (D) operating history, (E) proposed use of the Leased Premises and
(F) risk factors associated with the proposed use of the Leased Premises by the
Non-Preapproved Assignee, taking into account factors such as environmental
concerns, product liability and the like. Landlord and Lender shall review such
information and shall approve or disapprove the Non-Preapproved Assignee no
later than the thirtieth (30th) day following receipt of all such information,
and Landlord and Lender shall be deemed to have acted reasonably in granting or
withholding consent if such grant or disapproval is based on their review of the
above-described criteria. Notwithstanding anything to the contrary contained
herein, if the request for consent to a Non-Preapproved Assignment is in
connection with the sale by Tenant of all or substantially all of its assets,
Landlord and Lender shall be deemed to have consented to the Non-Preapproved
Assignment so long as an Event of Default has not occurred and is continuing and
if, immediately after the assignment, the Non-Preapproved Assignee has, on a pro
forma basis, an Adjusted Consolidated Net Worth (as defined in Exhibit "E") of
not less than Fifty-three Million Dollars ($53,000,000).
(c) After the Initial Term, if Tenant desires to carry out a Non-
Preapproved Assignment, then Tenant shall, not less than fifteen (15) days prior
to the date on which it desires to make such Non-Preapproved Assignment, submit
to Landlord (and Lender, if Lender's consent to the Pre-Approved Assignment is
required), reasonable information regarding the identity and credit of the Non-
Preapproved Assignee. Landlord (and Lender, if applicable) shall review such
information and shall, no later than the fifteenth (15th) day following receipt
of such information, approve or disapprove the Non-Preapproved Assignee. Such
approval shall be deemed given if the net worth of the Non-Preapproved Assignee
is greater than or equal to the net worth of the Tenant as shown on its then
most recently prepared financial statements, and otherwise such approval shall
not be unreasonably withheld, conditioned or delayed.
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(d) If Landlord and Lender withhold consent to the Non-Preapproved
Assignment and Tenant desires to complete the Non-Preapproved Assignment, Tenant
shall make a rejectable offer (the "Intended Assignment Offer") to purchase the
Leased Premises for a purchase price equal to the Offer Amount and to consummate
the purchase on the first Basic Rent Payment Date occurring thirty (30) days
after the determination of Fair Market Value (the "Intended Assignment Purchase
Date"). Notwithstanding the foregoing, if the Intended Assignment Offer is
accepted by Landlord and the Non-Preapproved Assignment occurs on a date (the
"Assignment Date") that is prior to the Intended Assignment Purchase Date, then
no later than the Assignment Date, then on the Assignment Date Tenant shall
deposit in escrow with Lender an amount (the "Deposit Amount") equal to one
hundred percent (100%) of the sum of the Acquisition Cost and any Prepayment
Premium. The Deposit Amount shall be held by and invested by Landlord and the
Deposit Amount, together with any interest earned thereon, shall be applied on
the Intended Assignment Purchase Date to payment of the Offer Amount.
(e) If Landlord shall reject the Intended Assignment Offer by notice to
Tenant, such notice to contain the written consent of Lender to such rejection,
no later than the thirtieth (30th) day following receipt of the Intended
Assignment Offer by Landlord, then this Lease shall remain in full force and
effect and Landlord and Lender shall be deemed to have consented to the Non-
Preapproved Assignment. Nothing provided herein shall constitute a waiver by
Landlord of the obligation of Tenant re comply with the requirements of this
Paragraph 21(a)(iii) if a subsequent Non-Preapproved Assignment arises. No
rejection of the Intended Assignment Offer shall be effective for any purpose
unless consented to in writing by Lender.
(f) Unless Landlord shall have rejected the Intended Assignment Offer by
the foregoing notice to Tenant not later than the thirtieth (30th) day following
receipt of information described in the foregoing Paragraph 21(a)(ii), Landlord
shall be conclusively presumed to have accepted the Intended Assignment Offer.
If the Intended Assignment Offer is accepted by Landlord, Tenant shall pay to
Landlord the Offer Amount (less the Deposit Amount and interest thereon paid to
Landlord) on the Intended Assignment Purchase Date and, provided that no Rent or
any other charge is due and unpaid under this Lease as of the Intended
Assignment Purchase Date and Tenant is otherwise in compliance with the terms of
this Lease, Landlord shall convey to Tenant the Leased Premises in accordance
with the provisions of Paragraph 20 of this Lease.
(g) Any assignment of Tenant's interest in this Lease by operation of law
as a result of any merger or consolidation by Tenant shall be governed by the
provisions of Paragraph 1(c) of Exhibit "E".
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(h) Tenant shall have the right, upon thirty (30) days prior written notice
to Landlord and Lender, to enter into one or more subleases that demise, in the
aggregate, up to but not in excess of thirty-one percent (31%) of the gross
space in the Improvements with no consent or approval of Landlord being required
or necessary ("Preapproved Sublet"). Other than pursuant to a Preapproved
Sublet, during the Initial Term, no portion of the Leased Premises shall be
subleased during the Term to any other Person without the prior written consent
of Landlord and Lender, which consent shall not be unreasonably withheld or
delayed, and which consent shall be granted or withheld based on a review of the
following criteria as they relate to the proposed sublessee: (i) credit, (2)
capital structure, (3) management, (4) operating history and (5) the proposed
use of the sublet portion of the Improvements, taking into account factors
related to the proposed subtenant's use of the Leased Premises such as
environmental concerns. Landlord and Lender shall be deemed to have acted
reasonably in granting or withholding consent if such grant or disapproval is
based on their reasonable review of the above-described criteria.
(i) After the Initial Term, if Tenant desires to sublet any portion of the
Leased Premises other than as permitted by the first sentence of subparagraph
(i) above, then Tenant shall, not less than fifteen (15) days prior to the date
on which it desires to enter into such sublease, submit to Landlord regarding
the identity and credit of the proposed subtenant. Landlord shall review such
information and shall, no later than the fifteenth (15th) day following receipt
of such information, approve or disapprove the proposed sublease. Such approval
shall be deemed given if the net worth of the proposed subtenant is greater than
or equal to the net worth of the Tenant as shown on its then most recently
prepared financial statements, and otherwise such approval shall not be
unreasonably withheld, conditioned or delayed.
(j) If Tenant assigns all its rights and interest under this Lease, the
assignee under such assignment shall expressly assume all the obligations of
Tenant hereunder, actual or contingent, including obligations of Tenant which
may have arisen on or prior to the date of such assignment, by a written
instrument delivered to Landlord at the time of such assignment. Each sublease
of any of the Leased Premises shall be subject and subordinate to the provisions
of this Lease. No assignment or sublease made as permitted by this Paragraph 21
shall affect or reduce any of the obligations of Tenant hereunder, and all such
obligations shall continue in full force and effect as obligations of a
principal and not as obligations of a guarantor, as if no assignment or sublease
had been made. No assignment or sublease shall impose any additional
obligations on Landlord under this Lease.
(k) With respect to any Preapproved Assignment or Preapproved Sublet,
Tenant shall provide to Landlord information
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reasonably required by Landlord to establish that any proposed Preapproved
Assignment or Preapproved Sublet satisfies the criteria set forth above.
(l) Tenant shall, within ten (10) days after the execution and delivery of
any assignment or sublease consented to by Landlord, deliver a duplicate
original copy thereof to Landlord which, in the event of an assignment, shall be
in recordable form.
(m) As security for performance of its obligations under this Lease, Tenant
hereby grants, conveys and assigns to Landlord all right, title and interest of
Tenant in and to all subleases now in existence or hereinafter entered into for
any or all of the Leased Premises, any and all extensions, modifications and
renewals thereof and all rents, issues and profits therefrom. Landlord hereby
grants to Tenant a license to collect and enjoy all rents and other sums of
money payable under any sublease of any of the Leased Premises, provided,
however, that Landlord shall have the absolute right at any time during the
existence of an Event of Default, upon notice to Tenant and any subtenants, to
revoke said license and to collect such rents and sums of money and to retain
the same. Tenant shall not consent to, cause or allow any modification or
alteration of any of the terms, conditions or covenants of any of the subleases
or the termination thereof, without the prior written approval of Landlord,
which consent shall not be unreasonably withheld, nor shall Tenant do nor permit
anything to be done, the doing of which, nor omit or refrain from doing
anything, the omission of which, will or could be a breach of or default in the
terms of any of the subleases.
(n) Tenant shall have the right to grant a first lien leasehold mortgage
on, or to pledge its leasehold interest in, the Leased Premises to its senior
lender, but shall not have the power to otherwise mortgage, pledge or otherwise
encumber its interest under this Lease or any sublease of the Leased Premises,
and any other such mortgage, pledge or encumbrance made in violation of this
Paragraph 21 shall be void. Landlord and Lender shall execute such documents as
may be reasonably requested by Tenant's senior lender and are customarily
acceptable to Landlord and Lender in order to afford to such senior lender
rights of notice and an opportunity to cure an Event of Default and the benefits
of any non-disturbance and attornment agreement in favor of Tenant, provided,
however, that any entity that becomes a successor tenant under this Paragraph
21(g) shall be required to be in compliance with all of the terms of this Lease,
including, during the Initial Term, the Covenants.
(o) Subject to Tenant's rights under Paragraph 35, Landlord may sell or
transfer the Leased Premises at any time without Tenant's consent to any third
party (each a "Third Party Purchaser"), provided, that so long as no Event of
Default
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exists either at the time Landlord enters into an Agreement of Sale for the
purchase of the Leased Premises or on the date of conveyance to a Third Party
Purchaser, Landlord shall not sell the Leased Premises to any Person whose
primary business is the manufacturing of equipment that makes masks for the
semi-conductor industry. In the event of any such transfer, Tenant shall attorn
to any Third Party Purchaser as Landlord so long as such Third Party Purchaser
and Landlord notify Tenant in writing of such transfer and such Third Party
Purchaser assumes in writing the obligations of Landlord under this Lease. At
the request of Landlord, Tenant will execute such documents confirming the
agreement referred to above and such other agreements as Landlord may reasonably
request, provided that such agreements do not increase the liabilities and
obligations of Tenant hereunder.
22. Events of Default.
-----------------
(a) The occurrence of any one or more of the following (after expiration of
any applicable cure period as provided in Paragraph 22(b)) shall, at the sole
option of Landlord, constitute an "Event of Default" under this Lease:
(i) a failure by Tenant to make any payment of any Monetary
Obligation, regardless of the reason for such failure;
(ii) a failure by Tenant duly to perform and observe, or a violation
or breach of, any other provision hereof not otherwise specifically
mentioned in this Paragraph 22(a);
(iii) any representation or warranty made by Tenant herein or in any
certificate, demand or request made pursuant hereto proves to be incorrect,
now or hereafter, in any material respect;
(iv) a default beyond any applicable cure period or at maturity by
Tenant in any payment of principal or interest on any obligations for
borrowed money having an outstanding principal balance of $10,000,000 or
more in the aggregate, or in the performance of any other provision
contained in any instrument under which any such obligation is created or
secured (including the breach of any covenant thereunder), (x) if such
payment is a payment at maturity or a final payment, or (y) if a result of
such default is to cause such obligation to be accelerated prior to its
stated maturity;
(v) a default by Tenant beyond any applicable cure period in the
payment of rent under, or in the performance of any other material
provision of, any other lease or leases that have, in the aggregate,
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rental obligations over the terms thereof of $10,000,000 or more in the
aggregate if the landlord under any such lease or leases commences to
terminate such lease or leases, dispossess Tenant or accelerate the rent
payable thereunder;
(vi) a final, non-appealable judgment or judgments for the payment of
money in excess of $10,000,000 (less any amounts payable from the proceeds
of insurance) in the aggregate shall be rendered against Tenant and the
same shall not be payable from the proceeds of insurance and shall remain
undischarged, unbonded or unsatisfied for a period of sixty (60)
consecutive days;
(vii) Tenant shall breach any Covenant or an Intended Transaction or
a Non-Preapproved Assignment shall occur and Tenant shall have failed to
comply with the provisions of Paragraph 21(a)(iv) through (vi) or Paragraph
33, as applicable;
(viii) Tenant shall (A) voluntarily be adjudicated a bankrupt or
insolvent, (B) seek or consent to the appointment of a receiver or trustee
for itself or for the Leased Premises, (C) file a petition seeking relief
under the bankruptcy or other similar laws of the United States, any state
or any jurisdiction, (D) make a general assignment for the benefit of
creditors, or (E) be unable to pay its debts as they mature;
(ix) a court shall enter an order, judgment or decree appointing,
without the consent of Tenant, a receiver or trustee for it or for any of
the Leased Premises or approving a petition filed against Tenant which
seeks relief under the bankruptcy or other similar laws of the United
States, any state or any jurisdiction, and such order, judgment or decree
shall remain undischarged or unstayed ninety (90) days after it is entered;
(x) the Leased Premises shall have been vacated (i.e., ceased to be
operated on a consistent basis) except as permitted under, and subject to
the terms and conditions of, Paragraph 38 hereof or the Leased Premises
shall have been abandoned;
(xi) Tenant shall be liquidated or dissolved or shall begin
proceedings towards its liquidation or dissolution;
(xii) the estate or interest of Tenant in any of the Leased Premises
shall be levied upon or attached in any proceeding and such estate or
interest is about
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to be sold or transferred or such process shall not be vacated or
discharged within sixty (60) days after it is made;
(xiii) a failure by Tenant, following any notice and an opportunity
to cure, to perform or observe, or a violation or breach of, or a
misrepresentation by Tenant under any provision of any Assignment or any
other document between Tenant and Lender that, as to such Assignment or
other document, (A) recites that a breach, violation or misrepresentation
by Tenant thereunder will cause a default under the Loan and (B) provides
that Lender will give to Tenant any notice of such default that it is
required to give to Landlord, if such failure, violation, breach or
misrepresen tation gives rise to a default beyond any applicable cure
period with respect to any Loan; or
(xiv) a failure by Tenant to maintain in effect any occupancy permit
for the Leased Premises or permit required under any Environmental Law.
(b) No notice or cure period shall be required in any one or more of the
following events: (A) the occurrence of an Event of Default under clause (i)
(except as otherwise set forth below), (v), (vi), (vii), (viii), (ix), (x)
(except as otherwise set forth below), (xi), (xii) or (xiii) of Paragraph 22(a);
(B) the default consists of a failure to pay Basic Rent, a failure to provide
any insurance required by Paragraph 16 or an assignment or sublease entered into
in violation of Paragraph 21; or (C) the default is such that any delay in the
exercise of a remedy by Landlord could reasonably be expected to cause
irreparable non-monetary harm to Landlord. If the default consists of the
failure to pay any Monetary Obligation under clause (i) of Paragraph 22(a), the
applicable cure period shall be five (5) days from the date on which notice is
given, but Landlord shall not be obligated to give notice of, or allow any cure
period for, any such default more than twice within any Lease Year. If the
default consists of a default under clauses (iv), (v) or (x) the applicable cure
period shall be ten (10) days from the date on which notice is given provided
that (X) with respect to a default under clause (iv) or (v) Tenant immediately
gives to Landlord notice of acceleration or the exercise of remedies by a
landlord or (Y) with respect to a default under clause (x) Tenant immediately
give to Landlord notice that it has vacated the Leased Premises. If the default
consists of a default under clauses (ii), (iii) or (xiv) of Paragraph 22(a),
other than the events specified in clauses (B) and (C) of the first sentence of
this Paragraph 22(b), the applicable cure period shall be twenty (20) days from
the date on which notice is given or, if the default cannot be cured within such
twenty (20) day period, the cure period shall be extended for the period
required to cure the default (but such cure period, including any extension,
shall not in the aggregate
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exceed one hundred eighty (180) days), provided that Tenant shall commence to
cure the default within the said twenty-day period and shall actively,
diligently and in good faith proceed with and continue the curing of the default
until it shall be fully cured.
23. Remedies and Damages Upon Default.
---------------------------------
(a) If an Event of Default shall have occurred and is continuing, Landlord
shall have the right, at its sole option, then or at any time thereafter, to the
extent permitted by applicable law, to exercise its remedies and to collect
damages from Tenant in accordance with this Paragraph 23, without demand upon or
notice to Tenant except as otherwise provided in Paragraph 22(b) and this
Paragraph 23.
(i) Landlord may give Tenant notice of Landlord's intention to
terminate this Lease on a date specified in such notice. Upon such date,
this Lease, the estate hereby granted and all rights of Tenant hereunder
shall expire and terminate. Upon such termination, Tenant shall
immediately surrender and deliver possession of the Leased Premises to
Landlord in accordance with Paragraph 26. If Tenant does not so surrender
and deliver possession of the Leased Premises, Landlord may re-enter and
repossess the Leased Premises, with or without legal process, by peaceably
entering the Leased Premises and changing locks or by summary proceedings,
ejectment or any other lawful means or procedure. Upon or at any time
after taking possession of the Leased Premises, Landlord may, by peaceable
means or legal process, remove any Persons or property therefrom. Landlord
shall be under no liability for or by reason of any such entry,
repossession or removal. Notwithstanding such entry or repossession,
Landlord may (A) exercise the remedy set forth in and collect the damages
permitted by Paragraph 23(a)(iii) or (B) collect the damages set forth in
Paragraph 23(c).
(ii) After repossession of the Leased Premises pursuant to clause (i)
above, Landlord shall have the right to relet any of the Leased Premises to
such tenant or tenants, for such term or terms, for such rent, on such
conditions and for such uses as Landlord in its sole discretion may
determine, and collect and receive any rents payable by reason of such
reletting. Landlord may make such Alterations in connection with such
reletting as it may deem advisable in its sole discretion. Notwithstanding
any such reletting, Landlord may collect the damages set forth in Paragraph
23(c).
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(iii) To the extent permitted by applicable law, Landlord may, upon
notice to Tenant, require Tenant to make an irrevocable offer to terminate
this Lease upon payment to Landlord of an amount (the "Default Termination
Amount") specified in the next sentence. The "Default Termination Amount"
shall be the greater of (A) the Fair Market Value of the Leased Premises,
or (B) the sum of the Acquisition Cost and Prepayment Premium which
Landlord will be required to pay in prepaying any Loan with proceeds of the
Default Termination Amount. Upon such notice to Tenant, Tenant shall be
deemed to have made such offer and shall, if requested by Landlord, within
ten (10) days following such request deposit with Landlord as payment
against the Default Termination Amount the amount described in (B) above,
Landlord and Tenant shall promptly commence to determine Fair Market Value.
Within thirty (30) days after the Fair Market Value Date, Landlord shall
accept or reject such offer. If Landlord accepts such offer then, on the
tenth (10th) business day after such acceptance, Tenant shall pay to
Landlord the Default Termination Amount and, at the request of Tenant,
Landlord will convey the Leased Premises to Tenant or its designee in
accordance with Paragraph 20. Any rejection by Landlord of such offer
shall have no effect on any other remedy Landlord may have under this
Lease.
(b) In addition to its other rights under this Lease, Landlord has the
remedy described in California Civil Code Section 1951.4 which provides
substantially as follows: Landlord may continue the Lease in effect after
Tenant's breach and abandonment and recover the Rent as it becomes due. In
accordance with California Civil Code Section 1951.4 (or any successor statute),
Tenant acknowledges that in the event Tenant breaches this Lease and abandons
the Leased Premises, this Lease shall continue in effect for so long as Landlord
does not terminate Tenant's right to possession, and Landlord may enforce all of
its rights and remedies under this Lease, including the right to recover the
Rent as it becomes due under this Lease. Tenant acknowledges that the
limitations on subletting and assignment set forth in Paragraph 21 are
reasonable. Acts of maintenance or preservation or efforts to relet the Leased
Premises or the appointment of a receiver upon initiative of Landlord to protect
Landlord's interest under this Lease shall not constitute a termination of
Tenant's right to possession.
(c) If Landlord elects to terminate this Lease upon the occurrence of an
Event of Default, Landlord may collect from Tenant damages computed in
accordance with the following provisions in addition to Landlord's other
remedies under this Lease:
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(i) the worth at the time of award of any unpaid Rent which has been
earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which any unpaid
Rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided,
plus
(iv) any other reasonable Cost necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom including, without limitation,
brokerage commissions, the cost of repairing and reletting the Leased
Premises and reasonable attorneys' fees; plus
(v) at Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by applicable
state law. Damages shall be due and payable from the date of termination.
(d) For purposes of clauses (i) and (ii) of this Paragraph, the "worth at
the time of award" shall be computed by adding interest at the Default Rate to
the past due Rent. For the purposes of clause (iii) of this Paragraph 23(d),
the "worth at the time of award" shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
the award, plus one percent (1%).
(e) Landlord shall be entitled to apply the Security Deposit to any amounts
due under Paragraph 23(c) if this Lease shall be terminated, or, if this Lease
shall remain in full force and effect, to any amounts due under Paragraph 23(b)
or in the following order (i) to past due Basic Rent, (ii) to cure any other
monetary Event of Default and (iii) to installments of Basic Rent in inverse
order of maturity commencing with the last installment of the Term.
(f) Notwithstanding anything to the contrary herein contained, in lieu of
or in addition to any of the foregoing remedies and damages, Landlord may
exercise any remedies and collect any damages available to it at law or in
equity. If Landlord is unable to obtain full satisfaction pursuant to the
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exercise of any remedy, it may pursue any other remedy which it has hereunder or
at law or in equity.
(g) Landlord shall not be required to mitigate any of its damages hereunder
unless required to by applicable Law. If any Law shall validly limit the amount
of any damages provided for herein to an amount which is less than the amount
agreed to herein, Landlord shall be entitled to the maximum amount available
under such Law.
(h) No termination of this Lease, repossession or reletting of the Leased
Premises, exercise of any remedy or collection of any damages pursuant to this
Paragraph 23 shall relieve Tenant of any Surviving Obligations.
(i) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF LANDLORD HEREUNDER, TENANT
WAIVES ANY RIGHT TO A TRIAL BY JURY. Tenant agrees that this Lease constitutes
a written consent to waiver of trial by jury pursuant to the provisions of
California Code of Civil Procedure Section 631 and Tenant does hereby appoint
Landlord its true and lawful attorney-in-fact, which appointment is coupled with
an interest, and Tenant does hereby authorize and empower Landlord, in the name,
place and stead of Tenant, to file this Lease with the clerk or judge of any
court of competent jurisdiction as statutory written consent to waiver of trial
by jury.
(j) During the existence of any Event of Default, Landlord shall have the
right (but no obligation) to perform any act required of Tenant hereunder and,
if performance of such act requires that Landlord enter the Leased Premises,
Landlord may enter the Leased Premises for such purpose.
(k) No failure of Landlord (i) to insist at any time upon the strict
performance of any provision of this Lease or (ii) to exercise any option,
right, power or remedy contained in this Lease shall be construed as a waiver,
modification or relinquishment thereof. A receipt by Landlord of any sum in
satisfaction of any Monetary Obligation with knowledge of the breach of any
provision hereof shall not be deemed a waiver of such breach, and no waiver by
Landlord of any provision hereof shall be deemed to have been made unless
expressed in a writing signed by Landlord.
(l) Tenant hereby waives and surrenders, for itself and all those claiming
under it, including creditors of all kinds, (i) any right and privilege which it
or any of them may have under any present or future Law to redeem any of the
Leased Premises or to have a continuance of this Lease after termination of this
Lease or of Tenant's right of occupancy or possession pursuant to any court
order or any provision hereof, and (ii) the benefits of any present or future
Law which exempts property from liability for debt or for distress for rent.
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(m) Except as otherwise provided herein, all remedies are cumulative and
concurrent and no remedy is exclusive of any other remedy. Each remedy may be
exercised at any time an Event of Default has occurred and is continuing and may
be exercised from time to time. No remedy shall be exhausted by any exercise
thereof.
24. Notices. All notices, demands, requests, consents, approvals, offers,
-------
statements and other instruments or communications required or permitted to be
given pursuant to the provisions of this Lease shall be in writing and shall be
deemed to have been given for all purposes when delivered in person or by
Federal Express or other reliable 24-hour delivery service or five (5) business
days after being deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, addressed to the other party at
its address stated above. A copy of any notice given by Tenant to Landlord
shall simultaneously be given by Tenant to Reed Smith Shaw & McClay, 2500 One
Liberty Place, Philadelphia, PA 19103, Attention: Chairman, Real Estate
Department. For the purposes of this Paragraph, any party may substitute
another address stated above (or substituted by a previous notice) for its
address by giving fifteen (15) days' notice of the new address to the other
party, in the manner provided above.
25. Estoppel Certificate. At any time upon not less than ten (10) days'
--------------------
prior written request by either Landlord, Tenant or Lender (the "Requesting
Party") to Landlord or Tenant, as applicable, (the "Responding Party"), the
Responding Party shall deliver to the Requesting Party a statement in writing,
executed by an authorized officer of the Responding Party, certifying (a) that,
except as otherwise specified, this Lease is unmodified and in full force and
effect, (b) the dates to which Basic Rent, Additional Rent and all other
Monetary Obligations have been paid, (c) that, to the knowledge of the signer of
such certificate and except as otherwise specified, no default by either
Landlord or Tenant exists hereunder, (d) such other matters as the Requesting
Party may reasonably request, and (e) if Tenant is the Responding Party that,
except as otherwise specified, there are no proceedings pending or, to the
knowledge of the signer, threatened, against Tenant before or by any court or
administrative agency which, if adversely decided, would materially and
adversely affect the financial condition and operations of Tenant. Any such
statements by the Responding Party may be relied upon by the Requesting Party,
any Person whom the Requesting Party notifies the Responding Party in its
request for the Certificate is an intended recipient or beneficiary of the
Certificate, any Lender or their assignees and by any prospective purchase or
mortgagee of any of the Leased Premises. Any certificate required under this
Paragraph 25 and delivered by Tenant shall state that, in the opinion of each
person signing the same, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to the subject matter
of such
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certificate, and shall briefly state the nature of such examination or
investigation.
26. Surrender. Upon the expiration or earlier termination of this Lease,
---------
Tenant shall peaceably leave and surrender the Leased Premises to Landlord in
the same condition in which the Leased Premises was at the commencement of this
Lease, except as repaired, rebuilt, restored, altered, replaced or added to as
permitted or required by any provision of this Lease, and except for ordinary
wear and tear. Upon such surrender, Tenant shall (a) remove from the Leased
Premises all property which is owned by Tenant or third parties other than
Landlord and (b) repair any damage caused by such removal. Property not so
removed shall become the property of Landlord, and Landlord may thereafter cause
such property to be removed from the Leased Premises. The cost of removing and
disposing of such property and repairing any damage to any of the Leased
Premises caused by such removal shall be paid by Tenant to Landlord upon demand.
Landlord shall not in any manner or to any extent be obligated to reimburse
Tenant for any such property which becomes the property of Landlord pursuant to
this Paragraph 26.
27. No Merger of Title. There shall be no merger of the leasehold estate
------------------
created by this Lease with the fee estate in any of the Leased Premises by
reason of the fact that the same Person may acquire or hold or own, directly or
indirectly, (a) the leasehold estate created hereby or any part thereof or
interest therein and (b) the fee estate in any of the Leased Premises or any
part thereof or interest therein, unless and until all Persons having any
interest in the interests described in (a) and (b) above which are sought to be
merged shall join in a written instrument effecting such merger and shall duly
record the same.
28. Books and Records.
-----------------
(a) Tenant shall permit Landlord and Lender by their respective agents,
accountants and attorneys, upon reasonable notice to Tenant, to visit and
inspect the Leased Premises and examine (and make copies of) the records and
books of account and to discuss the finances and business with the officers of
Tenant, at such reasonable times as may be requested by Landlord. Upon the
request of Lender (either telephonically or in writing), Tenant shall provide to
Lender (with a copy to Landlord) such other information as Lender shall
reasonably request.
(b) Tenant shall deliver to Landlord and to Lender within ninety (90) days
of the close of each fiscal year, annual audited financial statements of Tenant
prepared by nationally recognized independent certified public accountants.
Tenant shall also furnish to Landlord and Lender within forty-five (45) days of
the close of each of the remaining three (3) fiscal quarters unaudited financial
statements of Tenant, certified by
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Tenant's chief financial officer, and all other quarterly reports of Tenant, and
all filings, if any, of Form 10-K, Form 10-Q and other required filings with
the Securities and Exchange Commission pursuant to the provisions of the
Securities Exchange Act of 1934, as amended, or any other Law. All financial
statements of Tenant shall be prepared in accordance with GAAP consistently
applied. All annual financial statements shall be accompanied (x) by an opinion
of said accountants stating that (1) there are no qualifications as to the scope
of the audit and (2) the audit was performed in accordance with GAAP and (y) by
the affidavit of the president or a vice president of Tenant, dated within five
(5) days of the delivery of such statement, stating that (i) the affiant knows
of no Event of Default, or event which, upon notice or the passage of time or
both, would become an Event of Default which has occurred and is continuing
hereunder or, if any such event has occurred and is continuing, specifying the
nature and period of existence thereof and what action Tenant has taken or
proposes to take with respect thereto and (ii) except as otherwise specified in
such affidavit, that Tenant has fulfilled all of its obligations under this
Lease which are required to be fulfilled on or prior to the date of such
affidavit.
(c) Landlord and its agents, accountants and attorneys, shall consider and
treat on a strictly confidential basis (i) any information contained in the
books and records of Tenant, (ii) any copies of any books and records of Tenant,
and any financial statements of Tenant pursuant to Paragraph 28(b) which are
delivered to or received by them. Landlord and its agents, accountants and
attorneys, shall conspicuously mark all copies of such documents as
"Confidential." Neither Landlord nor its agents, accountants and attorneys,
shall disclose any information contained in Tenant's books and records nor
distribute copies of any of such books and records nor Tenant's financial
statements to any other Persons without the prior written consent of the chief
operating officer of Tenant.
(d) The restrictions contained in this Paragraph 28(c) shall not prevent
disclosure by Landlord any information in any of the following circumstances:
(i) Upon the order of any court or administrative agency to the
extent required by such order and not effectively stayed or by appeal or
otherwise;
(ii) Upon the request, demand or requirement of any regulatory agency
or authority having jurisdiction over such party, including the Securities
and Exchange Commission (whether or not such request or demand has the
force of law);
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(iii) That has been publicly disclosed by Tenant in a press release
or other public announcement of general circulation;
(iv) To counsel or accountants for Landlord or counsel or accountants
for such other Person who has agreed to abide by the provisions of this
Paragraph 28(c);
(v) While an Event of Default exists, in connection with the exercise
of any right or remedy under this Lease or any other related document;
(vi) Independently developed by Landlord to the extent that
confidential information provided by Tenant is not used to develop such
information;
(vii) With respect to financial information and information that
Landlord or its attorneys deem to be material in any reporting to the
shareholders of Landlord or the shareholders or prospective shareholders
(whether through a registered public offering or otherwise) of Landlord's
parent company;
(viii) In connection with any sale or financing of the Leased
Premises, provided that any recipient of such information who is a
prospective purchaser of the Leased Premises (except for a purchaser that
purchases all or substantially all of the assets of Landlord's parent
company) shall agree to be bound by the terms of this Paragraph 28(c);
(ix) From Landlord to Lender; or
(x) As otherwise required by Law.
29. Determination of Value.
----------------------
(a) Whenever a determination of Fair Market Value or Fair Market Rental
Value is required pursuant to any provision of this Lease, such Fair Market
Value or Fair Market Rental Value shall be determined in accordance with the
following procedure:
(i) Landlord and Tenant shall endeavor to agree upon such Fair Market
Value within thirty (30) days after the date (the "Applicable Initial
Date") on which (A) Tenant provides Landlord with notice of its intention
to terminate this Lease and purchase the Leased Premises pursuant to
Paragraph 18, (B) Landlord provides Tenant with notice of its intention to
redetermine Fair Market Value pursuant to Paragraph 20(c), (C) Landlord
provides Tenant with notice of Landlord's intention to require Tenant to
make an offer to terminate this Lease pursuant to
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Paragraph 23(a)(iii), (D) Tenant provides Landlord with an Intended
Transaction Offer under Paragraph 21(a)(iii), (E) the date on which
Landlord accepts Tenant's offer pursuant to Paragraph 33(c), (F) the date
on which Landlord accepts the Third Party Purchaser's offer pursuant to the
third paragraph of Paragraph 35(a) and (G) the date on which Landlord
accepts Tenant's offer pursuant to Paragraph 38(c). Landlord and Tenant
shall endeavor to agree on Fair Market Rental Value on the date (also, an
"Applicable Initial Date") which is six (6) calendar months prior to the
expiration of the then current Term unless Tenant has previously exercised
its option pursuant to Paragraph 5(b) not to have the Term automatically
extended. Upon reaching such agreement, the parties shall execute an
agreement setting forth the amount of such Fair Market Value or Fair Market
Rental Value, as the case may be.
(ii) If the parties shall not have signed such agreement within
thirty (30) days after the Applicable Initial Date, Tenant shall within
fifty (50) days after the Applicable Initial Date select an appraiser and
notify Landlord in writing of the name, address and qualifications of such
appraiser. Within twenty (20) days thereafter, Landlord shall select an
appraiser and notify Tenant of the name, address and qualifications of such
appraiser. Such two appraisers shall endeavor to agree upon Fair Market
Value or Fair Market Rental Value, as the case may be, based on an
appraisal made by each of them as of the Relevant Date. If such two
appraisers shall agree upon a Fair Market Value or Fair Market Rental
Value, as the case may be, the amount of such Fair Market Value or Fair
Market Rental Value, as the case may be, as so agreed shall be binding and
conclusive.
(iii) If such two appraisers shall be unable to agree upon a Fair
Market Value or Fair Market Rental Value, as the case may be, within twenty
(20) days after the selection of an appraiser by Landlord, then such
appraisers shall advise Landlord and Tenant of their respective
determination of Fair Market Value or Fair Market Rental Value, as the case
may be, and shall select a third appraiser to make the determination of
Fair Market Value or Fair Market Rental Value, as the case may be, which
determination as to the selection of the third appraiser shall be binding
and conclusive upon Landlord and Tenant.
(iv) If such two appraisers shall be unable to agree upon the
designation of a third appraiser within ten (10) days after the expiration
of the twenty (20) day period referred to in clause (iii) above, or if
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such third appraiser does not make a determination of Fair Market Value or
Fair Market Rental Value, as the case may be, within twenty (20) days after
his selection, then such third appraiser or a substituted third appraiser,
as applicable, shall, at the request of either party hereto (with notice to
the other party), be appointed by the President or Chairman of the American
Arbitration Association in San Francisco, California. The determination of
Fair Market Value or Fair Market Rental Value, as the case may be, made by
the third appraiser appointed pursuant hereto shall be made within twenty
(20) days after such appointment.
(v) Fair Market Value or Fair Market Rental Value, as the case may
be, shall be the average of the determination of Fair Market Value or Fair
Market Rental Value, as the case may be, made by the third appraiser and
the determination of Fair Market Value or Fair Market Rental Value, as the
case may be, made by the appraiser (pursuant to Paragraph 29(a)(iii)
hereof) whose determination of Fair Market Value or Fair Market Rental
Value, as the case may be, is nearest to that of the third appraiser. Such
average shall be binding and conclusive upon Landlord and Tenant.
(vi) All appraisers selected or appointed pursuant to this Paragraph
29(a) shall (A) be independent qualified MAI appraisers (B) have no right,
power or authority to alter or modify the provisions of this Lease, (C)
utilize the definition of Fair Market Value set forth in Paragraph 2 or the
definition of Fair Market Rental Value as set forth below, and (D) be
registered in the State if the State provides for or requires such
registration. The Cost of the procedure described in this Paragraph 29(a)
above shall be borne equally by Landlord and Tenant, except that the Cost
with respect to the appraisals performed under Paragraphs 21, 23, 33 or 38
shall be paid by Tenant and the Cost with respect to the appraisals
performed under Paragraph 35 shall be paid by the Third Party Purchaser.
(b) If, by virtue of any delay, Fair Market Value is not determined by the
expiration or termination of the then current Term, then the date on which the
Term would otherwise expire or terminate shall be extended to the date specified
for termination in the particular provision of this Lease pursuant to which the
determination of Fair Market Value is being made. If, by virtue of any delay,
Fair Market Rental Value is not determined by the expiration or termination of
the then current Term, then until Fair Market Rental Value is determined, Tenant
shall continue to pay Basic Rent during the succeeding Renewal Term in the same
amount which it was obligated under this Lease
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to pay prior to the commencement of the Renewal Term. When Fair Market Rental
Value is determined, the appropriate Basic Rent shall be calculated retroactive
to the commencement of the Renewal Term and Tenant shall either receive a refund
from Landlord (in the case of an overpayment) or shall pay any deficiency to
Landlord (in the case of an underpayment).
(c) Fair Market Value shall be determined as follows: The appraisers shall
add (i) the present value of the Rent for the remaining Term, (with assumed
increases in the CPI to be determined by the appraisers) using a discount rate
(which may be determined by an investment banker) based on the creditworthiness
of Tenant and (ii) the present value of the Fair Market Value of the Leased
Premises as of the end of the then current Term (without necessarily making any
assumption as to whether the Tenant will or will not exercise any remaining
options), using a yield rate required by investors for property having similar
characteristics, without consideration given to Tenant's credit rating or
creditworthiness. In determining the value under (ii), the appraisers shall,
insofar as possible, consider properties having similar characteristics and in
reasonable proximity to the Leased Premises, but the appraisers shall not be
precluded from considering properties that do not have "clean" rooms, properties
that are (or are not) located in Hayward, California or properties having a
different use than the Leased Premises. The appraisers shall further assume
that no default then exists under the Lease, that Tenant has complied (and will
comply) with all provisions of the Lease, and that Tenant has not violated (and
will not violate) any of the Covenants.
(d) In determining Fair Market Rental Value, the appraisers shall determine
the amount that a willing tenant would pay, and a willing landlord of a building
having similar characteristics and in reasonable proximity to the Leased
Premises would accept, at arm's length, taking into account: (a) the age,
quality, and condition of the Improvements; (b) that the Leased Premises will be
leased as a whole or substantially as a whole to a single user; (c) a lease term
of five (5) years; (d) an absolute triple net lease; and (e) such other items
that professional real estate appraisers customarily consider. In determining
Fair Market Rental Value, the appraisers shall, insofar as possible, consider
properties having similar characteristics and in reasonable proximity to the
Leased Premises, but the appraisers shall not be precluded from considering
properties that do not have "clean" rooms, properties that are (or are not)
located in Hayward, or properties having a different use than the Leased
Premises.
30. Non-Recourse as to Landlord. Anything contained herein to the
---------------------------
contrary notwithstanding, any claim based on or in respect of any liability of
Landlord under this Lease shall be enforced only against the Leased Premises and
not against any other assets, properties or funds of (a) Landlord, (b) any
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director, officer, general partner, shareholder, limited partner, advisor,
employee or agent of Landlord or any general partner of Landlord or any of its
general partners (or any legal representative, heir, estate, successor or assign
of any thereof), (c) any predecessor or successor partnership or corporation (or
other entity) of Landlord or any of its general partners, shareholders,
officers, directors, advisors, employees or agents, either directly or through
Landlord or its general partners, shareholders, officers, directors, advisors,
employees or agents or any predecessor or successor partnership or corporation
(or other entity), or (d) any other Person (including W.P. Carey Incorporated)
affiliated with any of the foregoing, or any director, officer, advisor,
employee or agent of any thereof).
31. Financing.
---------
(a) If Landlord desires to obtain or refinance any Loan, Tenant shall
negotiate in good faith with Landlord concerning any request made by any Lender
or proposed Lender for changes or modifications in this Lease. In particular,
Tenant shall agree, upon request of Landlord, to supply any such Lender with
such notices and information as Tenant is required to give to Landlord hereunder
and to extend the rights of Landlord hereunder to any such Lender and to consent
to such financing if such consent is requested by such Lender. Tenant shall
provide any other consent or statement and shall execute any and all other
documents that such Lender requires in connection with such financing, including
any environmental indemnity agreement and subordination, non-disturbance and
attornment agreement, so long as the same do not materially adversely affect any
right, benefit or privilege of Tenant under this Lease or materially increase
Tenant's obligations under this Lease.
(b) Tenant shall not be responsible for any fees or expenses associated
with any of the transactions contemplated by this Paragraph 31. Landlord shall
reimburse Tenant for all reasonable costs and expenses incurred by Tenant in
carrying out its obligations under this Paragraph 31 other than as provided in
the foregoing sentence.
32. Subordination. This Lease and Tenant's interest hereunder shall be
-------------
subordinate to any Mortgage or other security instrument hereafter placed upon
the Leased Premises by Landlord, and to any and all advances made or to be made
thereunder, to the interest thereon, and all renewals, replacements and
extensions thereof, provided that any such Mortgage or other security instrument
(or a separate instrument in recordable form duly executed by the holder of any
such Mortgage or other security instrument and delivered to Tenant) shall
provide for the recognition of this Lease and all Tenant's rights hereunder
unless and until an Event of Default exists or Landlord shall have the right to
terminate this Lease pursuant to any applicable provision hereof all as set
forth in a
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Subordination, Non-Disturbance and Attornment Agreement in form and substance
reasonably satisfactory to Tenant.
33. Financial Covenants; Covenant Breach Offer.
------------------------------------------
(a) Until the expiration of the Initial Term, Tenant hereby covenants and
agrees to comply with all the covenants and agreements (the "Covenants")
described in Paragraphs 1 through 3 in Exhibit "E" hereto.
(b) If (i) Tenant intends to take any action or, with respect to Paragraph
1(b) of Exhibit "E", has knowledge that such action is intended to be taken by
another Person, or such action occurs (such action, an "Intended Transaction")
that would result in a breach of any Covenant set forth in Paragraphs 1 or 2 of
Exhibit "E" attached hereto or (ii) Tenant becomes aware that the Covenant set
forth in Paragraph 3 of Exhibit "E" will be or has been breached (a "Covenant
Breach"), then, not less than ninety (90) days prior to the Intended
Transaction, in the case of (i) above, or immediately upon becoming aware that a
Covenant Breach will occur or has occurred, in the case of (ii) above, Tenant
shall submit to Landlord and Lender a description thereof specifying the
Intended Transaction or the Covenant Breach, as the case may be, together with a
rejectable offer of Tenant to purchase the Leased Premises (as required by, and
in accordance with, the provisions of this Paragraph 33) and, if such offer is
accepted by Landlord, Tenant shall purchase the Leased Premises within the time
prescribed for such purchase (as provided in this Paragraph 33) and otherwise in
accordance with the provisions of Paragraph 20 of this Lease.
(c) Tenant shall make an offer to purchase the Leased Premises no later
than the date (the "Intended Transaction Closing Date") on which the Intended
Transaction will occur (or, in the case of a Covenant Breach, no later than the
earlier of ninety (90) days from the date Tenant becomes aware that a Covenant
Breach has occurred or will occur) for a purchase price equal to the Offer
Amount.
(d) If Landlord shall reject such offer by notice to Tenant, such notice to
contain the written consent of Lender to such rejection, not later than the
thirtieth (30th) day following receipt of such offer by Landlord, then the Lease
shall remain in full force and effect and the Intended Transaction or Covenant
Breach, as the case may be, shall be deemed waived or acceptable by Landlord and
Lender, respectively, and the waiver or acceptance shall remain in effect for
the balance of the Term with respect to the specific Intended Transaction or
specific set of facts giving rise to the Covenant Breach only. No rejection of
an offer under this Paragraph 33 shall be effective for any purpose unless
consented to in writing by Lender.
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(e) Unless Landlord shall have rejected such offer by the foregoing notice
to Tenant not later than the thirtieth (30th) day following receipt of Tenant's
offer by Landlord, Landlord shall be conclusively presumed to have accepted such
offer. If such offer is accepted by Landlord, Tenant shall pay to Landlord the
Offer Amount on the Intended Transaction Closing Date (except that if the Fair
Market Value of the Leased Premise shall not yet have been determined, Tenant
shall pay to Landlord an amount equal to the Deposit Amount on the Intended
Transaction Closing Date and any excess of the Fair Market Value of the Leased
Premises over such sum shall be paid by Tenant to Landlord within ten (10) days
of the determination of such Fair Market Value) and, provided that no Rent or
any other charge is due and unpaid under the Lease as of the Intended
Transaction Closing Date, and Tenant is otherwise in compliance with the terms
of this Lease, Landlord shall convey to Tenant the Leased Premises in accordance
with the provision of Paragraph 20 of the Lease.
(f) Notwithstanding the foregoing, and only with respect to offers made
solely in anticipation of an Intended Transaction or a Covenant Breach which
Tenant anticipates will occur, if Tenant determines that the Intended
Transaction or Covenant Breach will not occur, Tenant shall have the right to
revoke its offer to purchase the Leased Premises by notice to Landlord received
not later than fifteen (15) days prior to the anticipated Intended Transaction
Closing Date (TIME BEING OF THE ESSENCE), provided that Tenant shall be
obligated to pay all Costs of Landlord and Lender reasonably incurred as a
result of the offer made by Tenant pursuant to this Paragraph 33. Nothing
provided herein shall constitute a waiver by Landlord of the obligation of
Tenant to comply with the requirements of this Paragraph 33 if a subsequent
Covenant Breach or subsequent Intended Transaction will occur or occurs.
34. Tax Treatment; Reporting. Landlord and Tenant each acknowledge that
------------------------
each shall treat this transaction as a true lease for state law purposes and
shall report this transaction as a Lease for Federal income tax purposes. For
Federal income tax purposes each shall treat this Lease as a true lease with
Landlord as the owner of the Leased Premises and Equipment and Tenant as the
lessee of such Leased Premises and Equipment including: (1) treating Landlord
as the owner of the property eligible to claim depreciation deductions under
Section 167 or 168 of the Internal Revenue Code of 1986 (the "Code") with
respect to the Leased Premises and Equipment, (2) Tenant reporting its Rent
payments as a business expense under Section 162 of the Code, and (3) Landlord
reporting the Rent payments as rental income.
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35. Right of First Refusal.
----------------------
(a) Except as otherwise provided in clause (e) of this Paragraph 35, and
provided an Event of Default does not then exist, prior to selling the Leased
Premises to any Third Party Purchaser, if Landlord shall enter into a contract
for the sale of the Leased Premises with a Third Party Purchaser, (i) such
contract shall be conditioned upon Tenant's failure to exercise its right under
this Paragraph 35(a) and (ii) Landlord shall give written notice to Tenant of
the contract for sale, together with a copy of the executed offer or contract
and the name and business address of the Third Party Purchaser.
(b) For a period of thirty (30) days following receipt of such notice,
Tenant shall have the right and option, exercisable by written notice to
Landlord given within said thirty (30) day period, to elect to purchase the
Leased Premises at the purchase price and upon all the terms and conditions set
forth in such contract for sale except that no contingencies contained in such
contract for sale as to environmental assessments, engineering studies,
inspection of the Leased Premises, sale of other property, state of the title to
or encumbrances on the Leased Premises which pertains to any exception of title
created by, or suffered to exist by, Tenant, or any other condition or
contingency to the Third Party Purchaser's obligation to purchase the Leased
Premises which pertains to the condition of the Leased Premises, shall apply to
Tenant's obligation to purchase the Leased Premises under this Paragraph 35, and
Tenant shall be obligated to purchase the Leased Premises without any such
condition or contingency.
(c) If at the expiration of the aforesaid thirty (30) day period Tenant
shall have failed to exercise the aforesaid option, Landlord may sell the Leased
Premises to such Third Party Purchaser upon the terms set forth in such
contract. For the purposes of this Paragraph 35(a), the purchase price in any
contract to purchase the Leased Premises which is received by Landlord between
the first day of the last six (6) calendar months of the ninth (9th) Lease Year
or the first six (6) calendar months of the tenth (10th) Lease Year shall be
deemed to be "acceptable to Landlord" if such offer (i) is for an amount equal
to or greater than the greater of (A) Fair Market Value (which shall be
determined in accordance with the procedure set forth in Paragraph 29 of this
Lease, except that references to Tenant in Paragraphs 29(a) and (b) hereof shall
mean Third Party Purchaser) or (B) the sum of (1) the Acquisition Cost reduced
by the principal payments made on the Note to the date of purchase and (2) the
Prepayment Premium, (ii) provides that the purchaser pays all costs in
connection with such purchase, (iii) provides that such purchase price is
payable in cash at the closing of the sale of the Leased Premises and (iv) the
closing date for such purchase will occur within sixty (60) days prior to the
last day of the tenth (10th) Lease Year.
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(d) Except as otherwise specifically provided in the foregoing Paragraph
35(a), the closing date for any purchase of the Leased Premises by Tenant
pursuant to this Paragraph 35 shall be on a date designated by Tenant, but not
later than (i) ninety (90) days after the date of Tenant's notice to Landlord of
its intention to purchase the Leased Premises upon the terms of the contract for
sale with a Third Party Purchaser or (ii) the closing date provided in such
contract for sale. At such closing Landlord shall convey the Leased Premises to
Tenant in accordance with, and Tenant shall pay to Landlord the purchase price
and other consideration set forth in, the applicable offer or contract.
(e) Tenant shall have the right during the Term to exercise the foregoing
right of first refusal upon each proposed sale of the Leased Premises prior to
the last day of the tenth (10th) Lease Year; provided, that if, following
compliance with the procedure described in Paragraph 35(a), a Third Party
Purchaser does not purchase the Leased Premises, such event shall not count as
an exercise of Tenant's right of first refusal. Notwithstanding anything to the
contrary, if Tenant fails to exercise the right of first refusal by the last day
of the tenth (10th) Lease Year, and the sale to a Third Party Purchaser is
consummated or if this Lease terminates or the Term expires, such right shall
terminate and be null and void and of no further force and effect.
(f) If Tenant does not exercise its right of first refusal to purchase the
Leased Premises and the Leased Premises are transferred to a Third Party
Purchaser, Tenant will attorn to any Third Party Purchaser as Landlord so long
as such Third Party Purchaser and Landlord notify Tenant in writing of such
transfer. At the request of Landlord, Tenant will execute such documents
confirming the agreement referred to above and such other agreements as Landlord
may reasonably request, provided that such agreements do not increase the
liabilities and obligations of Tenant hereunder.
(g) The provisions of Paragraph 35(a) shall not apply to or prohibit (i)
any mortgaging, subjection to deed of trust or other hypothecation of Landlord's
interest in the Leased Premises, (ii) any sale of the Leased Premises pursuant
to a private power of sale under or judicial foreclosure of any Mortgage or
other security instrument or device to which Landlord's interest in the Leased
Premises is now or hereafter subject, (iii) any transfer of Landlord's interest
in the Leased Premises to a Lender, beneficiary under deed of trust or other
holder of a security interest therein by deed in lieu of foreclosure, (iv) any
transfer of the Leased Premises to any governmental or quasi-governmental agency
with power of condemnation, (v) any transfer of the Leased Premises to any
affiliate of Landlord or to any entity for whom W.P. Carey & Co., Inc., W.P.
Carey Incorporated or any of their affiliates provides material management or
investment advice, (vi) any
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Person to whom Landlord sells all or substantially all of its assets, (vii) any
transfer of the Leased Premises to any of the successors or assigns of any of
the Persons referred to in the foregoing clauses (i) through (vi) or (viii) any
transfer, sale or conveyance of any part or all of the stock of Landlord to one
of its affiliates.
36. Financing Major Alterations.
---------------------------
(a) Should Tenant, during the Term of this Lease, desire to make
Alterations to any of the Leased Premises which are not readily removable
without causing material damage to the Leased Premises which cannot be repaired
and which will cost in excess of Five Hundred Thousand Dollars ($500,000)
("Major Alterations"), Tenant may, prior to the commencement of construction of
such Major Alterations, request Landlord (with a copy of such request to Lender)
to reimburse the costs thereof to Landlord (the "Alteration Cost") to Tenant, to
wit: cost of labor and materials, financing fees, legal fees, survey, title
insurance and other normal and customary loan or construction costs.
(b) Should Landlord agree to reimburse such costs, Landlord and Tenant
shall enter into good faith negotiations regarding the execution and delivery of
a written agreement of modification of this Lease, which agreement shall provide
for the following:
(i) payment by Landlord to Tenant of the Alteration Cost within one
hundred twenty (120) days of the date of Landlord's agreement to pay the
Alteration Cost, or in installment payments as agreed, or on the date of
completion of the Major Alterations, whichever shall be the later;
(ii) an increase in the annual Basic Rent payable during the
Amortization Period (as hereinafter defined) to an amount sufficient to
amortize the Alteration Cost ("Total Financing") over a period (the
"Amortization Period") which shall be the remainder of the then current
Term and, if Tenant so elects, any additional extension periods provided
for herein (so long as Tenant shall confirm any such extension periods
included in the Amortization Period by a written waiver of its right to
give notice of its intention not to renew this Lease prior to the
expiration of such extension periods), at such rate of interest and upon
such other terms as shall be agreed upon between Landlord and Tenant, but
which shall be no less favorable than the prevailing interest rate and
terms for unsecured loans in a principal amount equal to the Total
Financings for borrowers with credit ratings equivalent to the lesser of
Landlord's or Tenant's credit rating at that time; and
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(iii) such other changes and amendments to this Lease as may be
necessary and appropriate in view of such payment of the Alteration Cost by
Landlord to Tenant.
(c) Tenant shall pay all Costs incurred by Landlord in connection with any
such modification to this Lease and such financing, including closing costs,
brokerage fees, taxes, recording charges and legal fees and expenses.
(d) If Landlord and Tenant do not reach agreement on Tenant's request to
have Landlord finance the Alteration Costs, Tenant shall, subject to the
provisions of Paragraph 13 of this Lease, have the right to construct the Major
Alterations at Tenant's sole cost and expense. In any event, the construction
of the Major Alterations shall be performed in accordance with the provisions of
Paragraph 13 hereof and the Major Alterations shall be the property of Landlord
and part of the Leased Premises subject to this Lease.
(e) Nothing contained in this Paragraph 36 shall be construed to modify
Paragraph 13 hereof, and the provisions of Paragraph 12 and subparagraphs (i)
and (ii) of Paragraph 13(a) shall apply to all Major Alterations made or
constructed hereunder, including the requirement for Landlord's consent to
Alterations.
37. Security Deposit.
----------------
(a) Tenant has delivered to Landlord a security deposit (the "Security
Deposit") in the amount of Three Hundred Forty-two Thousand Five Hundred Eighty-
one and 25/100 ($342,581.25). If not sooner applied as provided in Paragraph
23(d), the Security Deposit shall be applied (i) to monthly payments of the
Basic Rent in reverse order, commencing with the last month of the Initial Term,
commencing with the last payment due or (ii) if Tenant purchases the Leased
Premises, against Tenant's obligation to pay the Default Termination Amount,
Offer Amount or Termination Amount, as the case may be. The Security Deposit
shall be security for the payment by Tenant of the Rent and all other charges or
payments to be paid hereunder and the performance of the covenants and
obligations contained herein. Landlord shall have the right to commingle the
Security Deposit with other funds of Landlord. Anything herein contained to the
contrary notwithstanding, the Security Deposit shall be credited against Rent or
other obligations of Tenant hereunder.
(b) Landlord shall have the right to assign to Lender or any other holder
of a Mortgage the Security Deposit during the term of the applicable Loan, and
the Lender or such other holder of a Mortgage shall have all of the rights of,
and shall be subject to the terms of, this Paragraph 37. Tenant covenants and
agrees to execute such agreements, consents and
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acknowledgments as may be reasonably requested by Landlord and Lender from time
to time to acknowledge the assignment of the Security Deposit.
38. Right to Vacate; Rejectable Offer Upon Vacation.
-----------------------------------------------
(a) Tenant shall have the right to vacate the Leased Premises; provided
that (i) Tenant shall notify Landlord and Lender within ten (10) days after
vacation of the Leased Premises by Tenant, (ii) Tenant shall make reasonable
good faith efforts to sublet the Leased Premises, which sublease or subleases
which shall be subject to the provisions of Paragraph 21(b) hereof and (iii)
Tenant shall continue to perform all of its obligations under this Lease,
including its obligation to maintain the Leased Premises and to pay all Rent as
and when due hereunder.
(b) If, at any time during the Term, the Leased Premises shall be vacant
for twelve (12) consecutive months, Tenant shall, on the first day of the
thirteenth (13th) month that Leased Premises are vacant, make an offer (the
"Vacation Offer") to purchase the Leased Premises on the first Basic Rent
Payment Date occurring thirty (30) days after the determination of Fair Market
Value (the "Vacation Purchase") for a purchase price equal to the Offer Amount.
Promptly upon the delivery to Landlord of the Vacation Offer, Landlord and
Tenant shall commence to determine the Fair Market Value of the Leased Premises.
(c) No rejection of the Vacation Offer shall be effective for any purpose
unless consented to in writing by Lender. If Landlord shall reject the Vacation
Offer by notice to Tenant, containing the written consent of Lender to such
rejection, no later than the thirtieth (30th) day following receipt of the
Vacation Offer by Landlord, then this Lease shall remain in full force and
effect and Landlord and Lender shall be deemed to have waived the Event of
Default described in Paragraph 22(a)(x) with respect to a vacation of the Leased
Premises.
(d) Unless Landlord shall have rejected the Vacation Offer by the foregoing
notice to Tenant not later than the thirtieth (30th) day following receipt of
the Vacation Offer by Landlord, Landlord shall be conclusively presumed to have
accepted the Vacation Offer. If the Vacation Offer is accepted by Landlord,
then, through an appropriate escrow, (i) Tenant shall pay to Landlord the Offer
Amount on the Vacation Purchase Date and, (ii) provided that no Rent or any
other charge is due and unpaid under this Lease as of the Vacation Purchase Date
and Tenant is otherwise in compliance with the terms hereof, Landlord shall
convey to Tenant the Leased Premises in accordance with the provisions of
Paragraph 20.
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39. Miscellaneous.
-------------
(a) The paragraph headings in this Lease are used only for convenience in
finding the subject matters and are not part of this Lease or to be used in
determining the intent of the parties or otherwise interpreting this Lease.
(b) As used in this Lease, the singular shall include the plural and any
gender shall include all genders as the context requires and the following words
and phrases shall have the following meanings: (i) "including" shall mean
"including without limitation"; (ii) "provisions" shall mean "provisions, terms,
agreements, covenants and/or conditions"; (iii) "lien" shall mean "lien, charge,
encumbrance, title retention agreement, pledge, security interest, mortgage
and/or deed of trust"; (iv) "obligation" shall mean "obligation, duty,
agreement, liability, covenant and/or condition"; (v) "any of the Leased
Premises" shall mean "the Leased Premises or any part thereof or interest
therein"; (vi) "any of the Land" shall mean "the Land or any part thereof or
interest therein"; (vii) "any of the Improvements" shall mean "the Improvements
or any part thereof or interest therein"; (viii) "any of the Equipment" shall
mean "the Equipment or any part thereof or interest therein"; and (ix) "any of
the Adjoining Property" shall mean "the Adjoining Property or any part thereof
or interest therein".
(c) Any act which Landlord is permitted to perform under this Lease may be
performed at any time and from time to time by Landlord or any person or entity
designated by Landlord. Each appointment of Landlord as attorney-in-fact for
Tenant hereunder is irrevocable and coupled with an interest. Except as
otherwise specifically provided herein, Landlord shall have the right, at its
sole option, to withhold or delay its consent whenever such consent is required
under this Lease for any reason or no reason. Time is of the essence with
respect to the performance by Tenant of its obligations under this Lease.
(d) Landlord shall in no event be construed for any purpose to be a
partner, joint venturer or associate of Tenant or of any subtenant, operator,
concessionaire or licensee of Tenant with respect to any of the Leased Premises
or otherwise in the conduct of their respective businesses.
(e) This Lease, the August 7, 1996 letter agreement between Landlord and
Tenant with respect to the Second Disbursement and Third Disbursement (as such
terms are defined therein) and any documents which may be executed by Tenant on
or about the effective date hereof at Landlord's request constitute the entire
agreement between the parties and supersede all prior understandings and
agreements, whether written or oral, between the parties hereto relating to the
Leased Premises and the transactions provided for herein. Landlord and Tenant
are business entities having substantial experience with the subject
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matter of this Lease and have each fully participated in the negotiation and
drafting of this Lease. Accordingly, this Lease shall be construed without
regard to the rule that ambiguities in a document are to be construed against
the drafter.
(f) This Lease may be modified, amended, discharged or waived only by an
agreement in writing signed by the party against whom enforcement of any such
modification, amendment, discharge or waiver is sought.
(g) The covenants of this Lease shall run with the land and bind Tenant,
its successors and assigns and all present and subsequent encumbrances and
subtenants of any of the Leased Premises, and shall inure to the benefit of
Landlord, its successors and assigns. If there is more than one Tenant, the
obligations of each shall be joint and several.
(h) If any one or more of the provisions contained in this Lease shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Lease, but this Lease shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
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(i) This Lease shall be governed by and construed and enforced in
accordance with the Laws of the State.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly
executed under seal as of the day and year first above written.
LANDLORD:
ATTEST: ESI (CA) QRS 12-6, INC.,
a California corporation
By: /s/ Ruth S. Perfido By: /s/ Barclay G. Jones
Title: Assistant Secretary Title: Executive Vice President
[Corporate Seal]
TENANT:
ATTEST: ETEC SYSTEMS, INC.
a Nevada corporation
By: /s/ Saul E. Arnold By: /s/ Melanie J. Mock
Title: Assistant Secretary Title: Treasurer
[Corporate Seal]
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EXHIBIT A
---------
PREMISES
REAL PROPERTY in the City of Hayward, County of Alameda, State of
California, described as follows:
Beginning on the Northeast line of Corporate Avenue at the common line of
Parcels 1 and 2, Parcel Map No. 461, filed April 10, 1969, Book 58, of Parcel
Maps, Page 96, Alameda County Records; thence from said point of beginning,
North 33 degrees 20' 15" West, along said Northeast line of Corporate Avenue as
shown on said Parcel Map, 564.987 feet and Northwesterly, along the arc of a
tangent curve to the right with a radius of 1166 feet, an arc distance of
235.490 feet to the common line of Parcels 1 and 2 of Parcel Map No. 1500, filed
February 25, 1975, Book 87 of Parcel Maps, Page 23, Alameda County Records;
thence along said last mentioned common line, as follows: North 58 degrees 22'
09" East, 611.160 feet, North 80 degrees 11' 21" East 201.924 feet and South 65
degrees 00' 00" East, 203.000 feet to the most Easterly corner of Parcel 2 of
said Parcel Map No. 1500 (87 PM 23), being also the most Northerly corner of
Parcels 1 and 2 of the aforesaid Parcel Map No. 461 (58 PM 96); thence along the
exterior line of said Parcel 2 of said Parcel Map No. 461, South 41 degrees 29'
51" East, 562.970 feet and South 58 degrees 22' 09" West, 1006.638 feet to the
point of beginning.
Being also known as Parcel 2 of Parcel Map 461, filed April 10, 1969 in
Book 58 of Parcel Maps, at Page 96; and Parcel 2 of Parcel Map 1500, filed
February 25, 1975 in Book 87 of Parcel Maps, at Page 23, Official Records of
said County.
<PAGE>
EXHIBIT B
---------
MACHINERY AND EQUIPMENT
(a) All fixtures, now or hereafter affixed or attached to or installed in
any of the Leased Premises (except as hereafter provided) including all
electrical, anti-pollution, heating, lighting (including hanging fluorescent
lighting), incinerating, air cooling, air conditioning, humidification,
sprinkling, power, plumbing, lifting, cleaning, fire prevention, fire
extinguishing and ventilating systems, devices and machinery and all engines,
pipes, pumps, tanks (including exchange tanks and fuel storage tanks), motors,
conduits, ducts, steam circulation coils, blowers, steam lines, compressors, oil
burners, boilers, doors, windows, loading platforms, lavatory facilities,
stairwells, fencing (including cyclone fencing), passenger and freight
elevators, overhead cranes and garage units;
(b) All personal property now or hereafter affixed or attached to or
installed in the "clean room" and the process laboratory that is integral to the
suitability of such room as a "clean room" and the process laboratory (including
electrical, anti-pollution, heating, lighting, air-conditioning, plumbing and
ventilation systems) and cable, wiring and networking equipment for computer
interface, together with all additions thereto, substitutions therefor and
replacements thereof required or permitted by this Lease,
but excluding all personal property and all trade fixtures and all
machinery, office, manufacturing and warehouse equipment whether or not attached
to or built-in as part of the buildings (except for personal property in the
"clean room" and the process laboratory and described in clause (b) above) that
are not necessary to the operation, as buildings, of the buildings that
constitute part of the Leased Premises.
<PAGE>
EXHIBIT C
---------
PERMITTED ENCUMBRANCES
1. Second Installment of TAXES for the fiscal year 1996-1997.
2. TAXES for the fiscal year 1997-1998, a lien not yet due or payable.
3. The Lien of supplemental taxes, if any, assessed pursuant to Chapter
3.5 commencing with Section 75 of the California Revenue and Taxation Code.
4. EASEMENT for the purposes stated herein
(a) Purpose: Utilities
(b) Granted to: Pacific Gas and Electric Company
(c) Recorded: June 28, 1951, Book 6474, Page 395, Official
(d) Records
(e) Affects: The Northerly 175 feet of the Land
5. EASEMENT for the purposes stated herein
(a) Purpose: Utilities
(b) Granted to: Pacific Gas and Electric Company, a California
(c) corporation
(d) Recorded: August 19, 1954, Book 7403, Page 177, Official
(e) Records
(f) Affects: The Southerly 65 feet of the Northerly 24 feet
(g) of the Land
6. EASEMENT as shown on the filed map of Tract 2898
(a) Purpose: Public Utilities
(b) Affects: The Westerly 10 feet of the Land
7. LIMITATIONS, covenants, conditions, restrictions, reservations,
exceptions or terms in the instrument recorded June 30, 1967, Reel 1991, Image
793, Official Records.
8. POSSIBLE EASEMENT for Communication Facilities, as disclosed by the
Grant of Easement from Crow-Spieker #18 to The Pacific Telephone & Telegraph
Company, recorded July 24, 1974, Reel 3736, Image 788, Official Records.
9. Any rights, interests or claims which may exist or arise by reason of
the following facts shown on a survey plat entitled "ETEC, 26460 Corporate
Avenue, Hayward, California,
-1-
<PAGE>
Alameda County" prepared by Lea & Sung Engineering, Inc. dated January 29,
1997, Job No. 96433ALT.
(a) The fact that a chainlink fence is located within the boundaries
of said land in varying distances of up to 2.20 feet from said
boundaries.
(b) The fact that walkways, curbs and storm drain lines are located
within the easements described in documents recorded June 8,
1951, Book 6474, Page 395 and August 19, 1954, Book 7403, Page
177, Official Records.
(c) A Water Backflow Preventer located partly on a Southwesterly
portion of said land and partly outside the boundary of said
land.
(d) The fact that a PG&E Vault is located within the area identified
on said Survey as "... under construction as of 1/9/97" (said
improvements being constructioned disclosed by Surveyor as
Courtyard Area).
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<PAGE>
EXHIBIT D
---------
BASIC RENT PAYMENTS
1. Basic Rent. Subject to the adjustments provided for in Paragraphs 2,
----------
3, 4 and 5 below, Basic Rent payable in respect of the portion of the Initial
Term remaining after January 31, 1997 shall be $1,604,880 per annum, payable
monthly in arrears commencing on March 1, 1997 and on each Basic Rent Payment
Date thereafter, in equal installments of $133,740.00 each.
2. CPI Adjustments to Basic Rent. The Basic Rent shall be subject to
-----------------------------
adjustment, in the manner hereinafter set forth, for increases in the index
known as United States Department of Labor, Bureau of Labor Statistics, Consumer
Price Index, All Urban Consumers, United States City Average, All Items, (1982-
84=100) ("CPI") or the successor index that most closely approximates the CPI.
If the CPI shall be discontinued with no successor or comparable successor
index, Landlord and Tenant shall attempt to agree upon a substitute index or
formula, but if they are unable to so agree, then the matter shall be determined
by arbitration in accordance with the rules of the American Arbitration
Association then prevailing in New York City. Any decision or award resulting
from such arbitration shall be final and binding upon Landlord and Tenant and
judgment thereon may be entered in any court of competent jurisdiction. In no
event will the Basic Rent as adjusted by the CPI adjustment be less than the
Basic Rent in effect for the three (3) year period immediately preceding such
adjustment. No CPI adjustments shall be made during any Renewal Term.
3. Effective Dates of CPI Adjustments. (a) Basic Rent shall be adjusted
----------------------------------
on March 1, 1998 (the "First Basic Rent Adjustment Date") to reflect changes in
the CPI. On the First Basic Rent Adjustment Date $1,030,452 of Basic Rent shall
be adjusted to reflect increases in the CPI during the three year period
preceding March 1, 1998 and $574,428 of Basic Rent shall be adjusted to reflect
increases in the CPI for the one year period preceding March 1, 1998.
(b) Basic Rent shall also be adjusted on March 1, 2001, March 1, 2004,
March 1, 2007 and March 1, 2010 to reflect increases in the CPI during the most
recent three (3) year period immediately preceding each of the foregoing dates
in this subparagraph 3(b) (the First Basic Rent Adjustment Date and each date
referred to in this Subparagraph 3(b) being hereinafter referred to as the
"Basic Rent Adjustment Date").
-1-
<PAGE>
4. Method of Adjustment for CPI Adjustment.
---------------------------------------
(a) As of each Basic Rent Adjustment Date when the average CPI determined
in clause (i) below exceeds the Beginning CPI (as defined in this Paragraph
4(a)), the Basic Rent in effect immediately prior to the applicable Basic Rent
Adjustment Date shall be multiplied by a fraction, the numerator of which shall
be the difference between (i) the average CPI for the three (3) most recent
calendar months (the "Prior Months") ending prior to such Basic Rent Adjustment
Date for which the CPI has been published on or before the forty-fifth (45th)
day preceding such Basic Rent Adjustment Date and (ii) the Beginning CPI, and
the denominator of which shall be the Beginning CPI. An amount equal to the
lesser of (A) the product of such multiplication or (B) $145,960 with respect to
the first Basic Rent Adjustment Date and the product of the Basic Rent in effect
immediately prior to such Basic Rent Adjustment Date multiplied by 12% with
respect to each succeeding Basic Rent Adjustment Date, shall be added to the
Basic Rent in effect immediately prior to such Basic Rent Adjustment Date. As
used herein, "Beginning CPI" shall mean the average CPI for the three (3)
calendar months corresponding to the Prior Months, but occurring three (3) years
earlier with respect to each adjustment of Basic Rent, except that with respect
to the $574,428 of Basic Rent to be adjusted on the First Basic Rent Adjustment
Date, "Beginning CPI" shall mean the average CPI for the three (3) calendar
months corresponding to the Prior Months but occurring one (1) year earlier. If
the average CPI determined in clause (i) is the same or less than the Beginning
CPI, the Basic Rent will remain the same for the ensuing three (3) year period.
(b) Effective as of a given Basic Rent Adjustment Date occurring during the
Initial Term, Basic Rent payable under this Lease until the next succeeding
Basic Rent Adjustment Date shall be the Basic Rent in effect after the
adjustment provided for as of such Basic Rent Adjustment Date.
(c) Notice of the new annual Basic Rent shall be delivered to Tenant on or
before the tenth (10th) day preceding each Basic Rent Adjustment Date.
5. Basic Rent During Each Renewal Term. During each Renewal Term, annual
-----------------------------------
Basic Rent for the Renewal Term shall be Fair Market Rental Value as of the
first day of such Renewal Term, as determined in accordance with Paragraph 29 of
the Lease. Basic Rent during each Renewal Term shall be payable monthly in
arrears in installments equal to 1/12 of the annual Basic Rent for such Renewal
Term. If the Fair Market Rental Value of the Leased Premises has not been
determined as of the first day of any Renewal Term, Tenant shall pay as monthly
installments of Basic Rent an amount equal to the Basic Rent in effect
immediately prior to such Renewal Date, and shall receive a credit or make an
additional payment, as applicable, on the
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<PAGE>
first Basic Rent Payment Date following the determination of Fair Market Rental
Value.
-3-
<PAGE>
EXHIBIT E
---------
FINANCIAL COVENANTS
1. Corporate Existence; Control; Mergers, Etc.
------------------------------------------
(a) Tenant shall maintain its corporate existence, rights and franchises in
full force and effect in its jurisdiction of incorporation. Tenant shall, and
shall cause of its Subsidiaries to, qualify and remain qualified as a foreign
corporation in each jurisdiction in which failure to receive or retain such
qualification would have an adverse effect on the business, operations or
financial condition of the enterprise comprised of the Tenant and its
Subsidiaries taken as a whole.
(b) At no time during the Term shall any Person acquire directly or
indirectly more than 50% of any class of Tenant's Voting Stock (other than a
Person owning an equity interest in Tenant as of the commencement of the Term).
(c) The Tenant shall not consolidate with or merge into any other Person
unless an Event of Default does not then exist and, immediately following such
consolidation or merger, (i) the surviving corporation shall have, on a proforma
basis, an Adjusted Consolidated Net Worth of not less than Fifty-three Million
Dollars ($53,000,000), (ii) the Board of Directors of Tenant immediately prior
to such merger or consolidation remains in control following such merger or
consolidation, (iii) the senior management does not change in any material
respect immediately following such merger or consolidation and (iv) after giving
effect thereto, an Event of Default does not then exist. This Section 1(c)
shall not apply to a merger with a Person that is a Subsidiary of Tenant as of
December 31, 1994 nor a wholly-owned Subsidiary of Tenant if, in each case,
Tenant is the surviving entity.
(d) The Tenant shall not, except as specifically permitted under, and in
accordance with the terms of Paragraph 21 of this Lease, in a single transaction
or series of related transactions, sell or convey, transfer, abandon or lease
all or substantially all of its assets to any Person.
(e) The Tenant shall not make any substantial change in the nature of its
business.
2. Debt and Restricted Payments.
----------------------------
(a) Tenant will not, directly or indirectly make, or cause or permit any
Subsidiary of the Tenant to make, any Restricted Payment, unless at the time
thereof, and after giving effect thereto:
-1-
<PAGE>
(i) no Event of Default shall have occurred and be continuing; and
(ii) the Tenant's Adjusted Consolidated Net Worth equals or exceeds
$53,000,000 as of the end of the month preceding the date of such
Restricted Payment; and
(iii) such Restricted Payment, together with all other Restricted
Payments made from the commencement date of the Term to the date of such
Restricted Payment does not exceed the sum of 40% of the Tenant's
Consolidated Net Income on a cumulative basis beginning with and including
the fiscal year in which the Term commenced to the month immediately
preceding the date of such Restricted Payment.
(b) The Tenant will not become or be a guarantor or surety of, or otherwise
incur any Contingent Obligation or become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or services, or
otherwise) with respect to, any undertaking of any other Person (except as to
any Subsidiary), or make or permit to exist any loans or advances to, or
investments in, any other Person (except as to any Subsidiary) other than (i)
for an amount outstanding at any time not to exceed Fifteen Million Dollars
($15,000,000) less the amount of Funded Debt outstanding at such time under
clause (iii) of paragraph (c) below and (ii) additional Contingent Obligations
up to three (3) times Consolidated EBIDTA on a proforma basis, reduced by the
amount of Funded Debt outstanding under clause (iii) of paragraph (c) below.
(c) Tenant will not, and will not permit any Subsidiary directly or
indirectly to, incur, create, assume any Indebtedness other than (i) Funded Debt
outstanding on the Closing Date and reflected in the audited financial
statements described in Paragraph 28(b), (ii) Funded Debt that replaces or
refinances the Funded Debt described in (i) above and is repayable on the basis
of an amortization schedule substantially similar to, or better than, the
amortization schedule for the Funded Debt outstanding on the Closing Date, (iii)
not more than the amount at any time of Fifteen Million Dollars ($15,000,000) in
Funded Debt in addition to the Funded Debt described in (i) and (ii) above less
the amount of Contingent Obligation outstanding at such time under clause (i) of
paragraph (b) above and (iv) additional Funded Debt up to three (3) times
Consolidated EBIDTA on a proforma basis, reduced by the amount of Contingent
Obligation outstanding at such time under clause (ii) of paragraph (b) above.
3. Consolidated Net Worth. Consolidated Net Worth shall not as of the
----------------------
end of each fiscal quarter of Tenant that ends on and after January 31, 1997 be
less than an amount equal to the
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<PAGE>
sum of (a) $53,000,000 plus (b) commencing with the fiscal quarter of Tenant
that commences August 1, 1996 and continuing for each fiscal quarter thereafter
60% of Consolidated Net Income on a cumulative basis, calculated at the end of
each fiscal quarter.
4. Definitions. For the purpose of this Exhibit "E" the following terms
-----------
shall have the following meanings:
(a) "Adjusted Consolidated Net Worth" shall mean, at any date, the net
worth of Tenant and its consolidated Subsidiaries on a consolidated basis,
determined in accordance with GAAP, except that any Qualified Subordinated Debt
shall be computed as equity.
(b) "Closing Date" shall mean January 31, 1997.
(c) "Consolidated EBIDTA" for any period, with respect to Tenant and its
consolidated Subsidiaries, shall mean earnings from continuing operations,
exclusive of extraordinary items, if any, before interest expense, depreciation,
taxes, amortization expense (including amortization of debt issuance costs) and
less capital expenditures.
(d) "Consolidated Fixed Charges" for any period, with respect to Tenant and
its consolidated Subsidiaries, shall mean the sum of the total interest expense
for such period and rent or lease payments for such period, determined on a
consolidated basis in accordance with GAAP, but excluding interest paid in
respect of Qualified Subordinated Debt.
(e) "Consolidated Net Income" shall mean, for any period, the aggregate net
income (or loss) of Tenant, and its Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP.
(f) "Consolidated Net Worth" shall mean, at any date, the net worth of
Tenant and its consolidated Subsidiaries on a consolidated basis, determined in
accordance with GAAP.
(g) "Contingent Obligation" as to any Person shall mean the undrawn face
amount of any letters of credit issued for the account of such Person and shall
also mean any obligation of such Person guaranteeing or in effect guaranteeing
any Indebtedness, leases, dividends, letters of credit or other obligations
("primary obligations") of any other Person other than a Subsidiary (the
"primary obligor") in any manner, whether directly or indirectly including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain
-3-
<PAGE>
the financial condition or solvency of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the
obligee under 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 obligee under such primary obligation against loss in respect
thereof; provided, however, that the term Contingent Obligation shall not
include (x) endorsements of instruments for deposit or collection in the
ordinary course of business or (y) usual and customary representations and
warranties contained in loan and other financing agreements. The amount of any
contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation or, where such Contingent
Obligation is specifically limited to a portion of any such primary obligation,
that portion to which it is limited.
(h) "Funded Debt" of any Person shall mean all Indebtedness of such Person
which in accordance with GAAP would be classified on a balance sheet as long
term debt, and shall in any event include (without duplication) all
Indebtedness, whether secured or unsecured, having a final maturity (or which,
pursuant to the terms of a revolving credit agreement or otherwise is renewable
or extendible at the option of the obligor for a period ending) more than one
year after the date of the creation thereof (including, without limitation, any
portion of such Funded Debt maturing in less than one year) and money borrowed
for working capital purposes unless for a period of not less than sixty (60)
consecutive days in any period of twelve (12) consecutive months such
obligations are reduced to zero.
(i) "GAAP" shall mean generally accepted accounting principles as in effect
from time to time in the United States of America, applied on a consistent
basis.
(j) "Indebtedness" of any Person shall mean, as of any date, all
obligations which would in accordance with GAAP be classified as debt, and shall
include (a) all obligations of such Person for borrowed money, (b) all
obligations of such person in respect of letters of credit, surety bonds or
similar obligations issued for the account of such Person, (c) all obligations
of such Person as lessee, user or obligor under any lease of real or personal
property which, in accordance with GAAP, are or should be capitalized on the
books of the lessee, user or obligor (excluding, in the case of Tenant, any
lease classified in accordance with GAAP as an operating lease), (d) all
obligations of such Person in respect of the deferred purchase price for goods,
property or services acquired by such Person, (e) all obligations of such Person
to purchase goods, property or services where payment therefor is required
regardless of whether delivery of such goods or property or the performance of
such services is ever made or tendered, (f) all obligations of such Person in
respect of any interest rate or
-4-
<PAGE>
currency swap, rate cap or other similar transaction (valued in an amount equal
to the highest termination payment, if any, that would be payable by such Person
upon termination for any reason on the date of determination), and (g) all
obligations of others similar in character to those described in clauses (a)
through (f) of this definition to the extent such person is liable, contingently
or otherwise, as obligor, guarantor or in any other capacity, or in respect of
which obligations such Person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including,
without limitation, all obligations of such Person to advance funds to, or to
purchase property or services from, any other Person in order to maintain the
financial condition of such other Person and, in the case of Tenant, all
Indebtedness which is non-recourse to the credit of Tenant but which is secured
by the assets or property of Tenant (but excluding any such non-recourse
Indebtedness of Subsidiaries of Tenant in which Tenant has no liability). Any
Indebtedness which is extended or renewed (other than by an option created with
the original creation of such Indebtedness) will be deemed to have been created
when extended or renewed.
(k) "Person" shall mean an individual, partnership, association,
corporation or other entity.
(l) "Qualified Subordinated Debt" means subordinated debt pursuant to which
the borrower's obligation to pay interest on a current basis is contingent upon
the borrower meeting certain financial tests satisfactory to Landlord and
Lender.
(m) "Restricted Payment" shall mean and include (a) any direct or indirect
purchase, redemption or other acquisition or retirement for value of any equity
security of Tenant or any option, warrant or right to acquire any such equity
security, or any security convertible into or exchangeable for any such equity
security, (b) any dividend, distribution, loan advance, guarantee, extension of
credit or other payment of transfer, whether in cash or property and whether
direct or indirect, to or for the benefit any Person holding an equity interest
in the Tenant, whether or not such interest is evidenced by a security, or any
Affiliate of any such Person, and (c) any direct or indirect purchase,
redemption, prepayment or other acquisition or retirement for value, prior to
its stated maturity, scheduled repayment or scheduled sinking fund payment of
any Qualified Subordinated Debt of the Tenant or any Subsidiary held by any
Person described in clause (b) above; provided, however, that so long as an
Event of Default shall not exist, the term Restricted Payment shall not include
(i) the repurchase by Tenant of stock in Tenant for an amount not to exceed on a
cumulative basis the sum of $2,500,000 and the cash purchase price received by
Tenant from the sale of stock in Tenant to employees, consultants or directors
or prospective employees, consultants or directors, or (ii) the repayment of
Subordinated Debt (including any interest
-5-
<PAGE>
thereof, whether current, "blocked" or accrued) from (A) the proceeds of an
initial public offering or (B) from cash balances of Tenant so long as following
such payment Tenant will have cash balances, on a proforma basis, of not less
than $10,000,000 and is otherwise in compliance with the Covenants.
(n) "Subsidiary" of any Person means a corporation a majority of the Voting
Stock of which is at the time owned, or the management of which is otherwise
controlled, directly or indirectly, through one or intermediaries, or both, by
such Person.
(o) "Voting Stock" means shares of stock of a corporation having ordinary
voting power to elect the board of directors or other managers of such
corporation.
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<PAGE>
SCHEDULE 1
----------
TERMINATION VALUES
<TABLE>
<CAPTION>
Lease Year Termination Value
---------- -----------------
<S> <C>
1 $12,000,000
2 $12,000,000
3 $15,329,861
4 $13,829,861
5 $13,371,746
6 $13,371,746
7 $12,371,746
8 $12,371,746
9 $11,874,363
10 $11,874,363
11 $10,874,363
12 $10,874,363
13 $10,795,829
14 $10,795,829
15 $10,795,829
16 $10,795,829
17 $10,795,829
</TABLE>
<PAGE>
SCHEDULE 2
----------
APPROVED ALTERATIONS TO
BUILDING TWO AND BUILDING THREE
1. Integrated Facility Management System: Fault Tolerant, Upgradable,
Electronic Direct Digital Control System
2. Water-Cooled Chiller with Cooling Towers and Pumps (Three to replace
existing systems)
3. Main Air Conditioning system and DX to AHU Conversion
4. AHU (Air Handling Unit) and Backup Systems
5. Toxic Gas Control System and HVAC Isolation System
6. Electrical Main replacements
7. Hi-Voltage Monitor
8. Boiler Auto Blowdown Control
9. House Vacuum System and Control
10. Engineering Computer Room--Air Conditioning Backup, Controls and
Monitoring
11. Process Exhaust Monitoring
12. New Cage for Inspection Equipment and Kits
13. Test Cell Enclosures
14. Backup Generator
15. Process Lab Test Cells
16. Process Lab Production Upgrades
17. Patio Area Adjoining Building One
<PAGE>
EXHIBIT 10.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ETEC SYSTEMS, INC.
and
BANK OF BOSTON
Rights Agent
____________
Rights Agreement
Dated as of January 15, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. Certain Definitions.................................................... 1
2. Appointment of Rights Agent............................................ 4
3. Issue of Rights Certificates........................................... 4
4. Form of Rights Certificates............................................ 6
5. Countersignature and Registration...................................... 7
6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates............... 8
7. Exercise of Rights; Purchase Price; Expiration Date of Rights.......... 8
8. Cancellation and Destruction of Rights Certificates.................... 10
9. Reservation and Availability of Preferred Stock........................ 11
10. Preferred Stock Record Date............................................ 12
11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights....................................................... 12
12. Certificate of Adjusted Purchase Price or Number of Shares............. 22
13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.......................................................... 22
14. Additional Covenants................................................... 25
15. Fractional Rights and Fractional Shares................................ 25
16. Rights of Action....................................................... 27
17. Agreement of Rights Holders............................................ 27
18. Rights Certificate Holder Not Deemed a Stockholder..................... 28
19. Concerning the Rights Agent............................................ 28
20. Merger or Consolidation or Change of Name of Rights
Agent.................................................................. 29
21. Duties of Rights Agent................................................. 29
22. Change of Rights Agent................................................. 32
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
23. Issuance of New Rights Certificates.................................... 33
24. Redemption, Termination and Exchange................................... 34
25. Notice of Certain Events............................................... 37
26. Notices................................................................ 38
27. Supplements and Amendments............................................. 38
28. Determination and Actions by the Board of Directors,
etc.................................................................... 39
29. Successors............................................................. 39
30. Benefits of This Agreement............................................. 39
31. Severability........................................................... 40
32. Governing Law.......................................................... 40
33. Counterparts........................................................... 40
34. Descriptive Headings................................................... 40
</TABLE>
<TABLE>
<S> <C> <C>
Exhibit A -- Certificate of Designation,
Preferences and Rights of Series A
Participating Preferred Stock....................... A-1
Exhibit B -- Form of Rights Certificate.......................... B-1
Exhibit C -- Form of Summary of Rights........................... C-1
</TABLE>
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<PAGE>
RIGHTS AGREEMENT
----------------
THIS AGREEMENT is dated as of January 15, 1997 between ETEC SYSTEMS, INC.,
------------------
a Nevada corporation (the "Company"), and BANK OF BOSTON (the "Rights Agent").
--------------
W I T N E S S E T H:
WHEREAS, on January 15, 1997, the Board of Directors of the Company
authorized and declared a dividend distribution of one Right (as hereinafter
defined) for each share of Common Stock, $.01 par value per share, of the
Company (the "Common Stock") outstanding as of the close of business on January
31, 1997 (the "Record Date"), and contemplates the issuance of one Right
(subject to adjustment as provided herein) for each share of Common Stock of the
Company issued between the Record Date and the earlier of the Distribution Date
and the Expiration Date, as such terms are hereinafter defined (with Rights also
to be issued in connection with certain issuances of Common Stock after the
Distribution Date, as provided more fully herein), each Right representing the
right to purchase one one-hundredth of a share of Series A Participating
Preferred Stock of the Company having the rights, powers and preferences set
forth in the form of Certificate of Designation, Preferences and Rights attached
hereto as Exhibit A, upon the terms and subject to the conditions hereinafter
set forth (the "Rights"):
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto hereby agree as follows:
1. Certain Definitions. For purposes of this Agreement, the following
-------------------
terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates (as such
term is hereinafter defined) and Associates (as such term is hereinafter
defined) of such Person, shall be the Beneficial Owner (as such term is
hereinafter defined) of securities representing 15% or more of the shares
of Common Stock then outstanding or who was such a Beneficial Owner at any
time after the date hereof, whether or not such Person continues to be the
Beneficial Owner of securities representing 15% or more of the outstanding
shares of Common Stock. Notwithstanding the foregoing, (i) in no event
shall a Person who or which, together with all Affiliates and Associates of
such Person, is the Beneficial Owner of less than 15% of the Company's
outstanding shares of Common Stock become an Acquiring Person solely as a
result of a reduction of the number of shares of outstanding Common Stock,
including repurchases of outstanding
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<PAGE>
shares of Common Stock by the Company, which reduction increases the
percentage of outstanding shares of Common Stock beneficially owned by such
Person (provided that any subsequent increase in the amount of Common Stock
beneficially owned by such Person, together with all Affiliates and
Associates of such Person, without the prior approval of the Company shall
cause such Person to be an Acquiring Person); (ii) the term Acquiring
Person shall not mean (A) the Company, (B) any subsidiary of the Company
(as such term is hereinafter defined), (C) any employee benefit plan of the
Company or any of its subsidiaries, or (D) any entity holding securities of
the Company organized, appointed or established by the Company or any of
its subsidiaries for or pursuant to the terms of any such plan; and (iii)
no Person shall be deemed to be an Acquiring Person if (A) within five
business days after such Person would otherwise have become an Acquiring
Person (but for the operation of this clause (iii)), such Person notifies
the Board of Directors that such Person did so inadvertently and within two
business days after such notification, such Person is the Beneficial Owner
of less than 15% of the outstanding shares of Common Stock or (B) by reason
of such Person's Beneficial Ownership of 15% or more of the outstanding
shares of Common Stock on the date hereof if prior to the Record Date, such
Person notifies the Board of Directors that such Person is no longer the
Beneficial Owner of 15% or more of the then outstanding shares of Common
Stock.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right or obligation to acquire (whether such
right or obligation is exercisable or effective immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights,
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<PAGE>
rights (other than the Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," securities tendered pursuant to a
tender or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for payment or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding (whether or not in writing);
provided, however, that a Person shall not be deemed the "Beneficial
Owner" of, or to "beneficially own," any security under this clause
(B) if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy given in response to
a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations of the Exchange
Act and (2) is not also then reportable by such Person on Schedule 13D
under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which
such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing)
(other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities), or with which such Person or any of such Person's
Affiliates have otherwise formed a group, for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy as
described in clause (B) of subparagraph (ii) of this paragraph (c)) or
disposing of any securities of the Company.
(d) "Business Day" shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the State of California are
authorized or obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5 P.M., San
Francisco time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5 P.M., San Francisco time, on the next
succeeding Business Day.
(f) "Common Stock" shall mean the Common Stock, $.01 par value, of the
Company, except that "Common Stock" when used with reference to stock
issued by any
-3-
<PAGE>
Person other than the Company shall mean the capital stock with the
greatest voting power, or the equity securities or other equity interest
having power to control or direct the management, of such Person or, if
such Person is a subsidiary of another Person, of the Person which
ultimately controls such first-mentioned Person and which has issued and
outstanding such capital stock, equity securities or equity interests.
(g) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, joint venture, association, trust
or other entity.
(h) "Preferred Stock" shall mean the Series A Participating Preferred
Stock, $.01 par value, of the Company.
(i) "Stock Acquisition Date" shall mean the first date of public
announcement by the Company or an Acquiring Person that an Acquiring Person
has become such.
(j) A "subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity
securities or voting interests is owned, directly or indirectly, by such
Person, or which is otherwise controlled by such Person.
(k) "Voting power" shall mean the voting power of all securities of
the Company then outstanding and generally entitled to vote for the
election of directors of the Company.
2. Appointment of Rights Agent. The Company hereby appoints the Rights
---------------------------
Agent to act as agent for the Company and the holders of the Rights (who, in
accordance with Section 3 hereof, shall prior to the Distribution Date also be
the holders of the Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such Co-Rights Agents as it may deem necessary or
desirable. In the event the Company appoints one or more Co-Rights Agents, the
respective duties of the Rights Agents and any Co-Rights Agents shall be as the
Company shall determine.
3. Issue of Rights Certificates.
----------------------------
(a) Until the earlier of (i) the Stock Acquisition Date or (ii) the tenth
day (or such later date as may be determined by action of the Board of
Directors) after the date of the commencement of, or first public announcement
of the intent of any Person (other than the Company, any subsidiary of the
Company,
-4-
<PAGE>
or any employee benefit plan of the Company or any of its subsidiaries) to
commence (which intention to commence remains in effect for five Business Days
after such announcement), a tender or exchange offer which would result in such
Person becoming an Acquiring Person (including any such date which is on or
after the date of this Agreement and prior to the issuance of the Rights) (the
earlier of such dates being herein referred to as the "Distribution Date"), (x)
the Rights shall be evidenced (subject to the provisions of paragraph (b) of
this Section 3) by the certificates for Common Stock registered in the names of
the holders of the Common Stock (which certificates for Common Stock shall be
deemed also to be certificates for Rights) and not by separate certificates, and
(y) the Rights (and the right to receive certificates therefor) shall be
transferable only in connection with the transfer of the underlying shares of
Common Stock. As soon as practicable after the Distribution Date, the Rights
Agent shall send by first-class, insured, postage prepaid mail, to each record
holder of the Common Stock as of the close of business on the Distribution Date,
at the address of such holder shown on the records of the Company, a certificate
for Rights, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing one Right for each share of Common Stock so held. As
of and after the Distribution Date, the Rights shall be evidenced solely by such
Rights Certificates.
As soon as practicable following the Record Date, the Company shall send a
copy of a Summary of Rights, in substantially the form attached hereto as
Exhibit C (the "Summary of Rights"), by first-class, postage prepaid mail, to
each record holder of the Common Stock as of the close of business on the Record
Date, at the address of such holder shown on the records of the Company. With
respect to certificates for the Common Stock outstanding as of the Record Date,
until the Distribution Date (or earlier redemption, expiration or termination of
the Rights), the Rights shall be evidenced by such certificates for the Common
Stock together with the Summary of Rights and the registered holders of the
Common Stock shall also be the registered holders of the associated Rights.
Until the Distribution Date (or earlier redemption, expiration or termination
of the Rights), the surrender for transfer of any of the certificates for the
Common Stock outstanding on the Record Date, even without a copy of the Summary
of Rights attached thereto, shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate.
(b) Certificates issued for Common Stock (including, without limitation,
certificates issued upon transfer or exchange of Common Stock) after the Record
Date, but prior to the earlier of the Distribution Date or the Expiration Date
(as such term is hereinafter defined), shall be deemed also to be certificates
for Rights, and shall have impressed, printed, stamped, written or otherwise
affixed onto them the following legend:
-5-
<PAGE>
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between ETEC SYSTEMS,
INC. (the "Company") and BANK OF BOSTON (the "Rights Agent") dated as of
January 15, 1997 (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the
principal offices of the Company. Under certain circumstances, as set forth
in the Rights Agreement, such Rights may be redeemed, may expire, or may be
evidenced by separate Certificates and will no longer be evidenced by this
Certificate. The Company will mail to the holder of this certificate a copy
of the Rights Agreement without charge within five days after receipt of a
written request therefor. Under certain circumstances, Rights issued to
Acquiring Persons (as defined in the Rights Agreement) or certain related
Persons and any subsequent holder of such Rights may become null and void .
With respect to such certificates containing the foregoing legend, until the
Distribution Date (or earlier redemption, expiration or termination of the
Rights), the Rights associated with the Common Stock represented by such
certificates shall be evidenced by such certificates alone, and the surrender
for transfer of any of such certificates shall also constitute the transfer of
the Rights associated with the Common Stock represented by such certificate.
4. Form of Rights Certificates.
---------------------------
(a) The Rights Certificates (and the forms of election to purchase shares
and of assignment and certificates to be printed on the reverse thereof) shall
each be substantially in the form set forth in Exhibit B hereto and may have
such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 23 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date, and on their face
shall entitle the holders thereof to purchase such number of one one-hundredths
of a share of Preferred Stock as shall be set forth therein at the price per one
one-hundredth of a share set forth therein (the "Purchase Price"), but the
number of such shares and the Purchase Price shall be subject to adjustment as
provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) hereof that
represents Rights beneficially owned by an Acquiring Person or any Associate or
Affiliate thereof and any Rights
-6-
<PAGE>
Certificate issued at any time upon the transfer of any Rights to such an
Acquiring Person or any Associate or Affiliate thereof or to any nominee of such
Acquiring Person, Associate or Affiliate, and any Rights Certificate issued
pursuant to Section 6 or Section 11 upon transfer, exchange, replacement or
adjustment of any other Rights Certificate referred to in this sentence, shall
contain the following legend:
The Rights represented by this Rights Certificate were issued to a Person
who was an Acquiring Person or an Affiliate or an Associate of an Acquiring
Person, as such terms are defined in the Rights Agreement. This Rights
Certificate and the Rights represented hereby may become void under the
circumstances specified in Section 7(e) of the Rights Agreement.
The provisions of Section 7(e) of this Rights Agreement shall be operative
whether or not the foregoing legend is contained on any such Rights Certificate.
5. Countersignature and Registration. The Rights Certificates shall be
---------------------------------
executed on behalf of the Company by its Chairman of the Board, any Vice
Chairman of the Board, its President or any Vice President, either manually or
by facsimile signature, and shall have affixed thereto the Company's seal or a
facsimile thereof which shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Rights
Certificates shall be countersigned by the Rights Agent, either manually or by
facsimile signature, and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights
Agent, and issued and delivered by the Company with the same force and effect as
though the Person who signed such Rights Certificates had not ceased to be such
officer of the Company; and any Rights Certificates may be signed on behalf of
the Company by any Person who, at the actual date of the execution of such
Rights Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such Person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its office designated for such purpose, books for registration and
transfer of the Rights Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Rights Certificates, the
number of Rights evidenced on its face by each of the Rights Certificates and
the date of each of the Rights Certificates.
-7-
<PAGE>
6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
--------------------------------------------------------------------
Mutilated, Destroyed, Lost or Stolen Rights Certificates. Subject to the
- --------------------------------------------------------
provisions of Section 15 hereof, at any time after the close of business on the
Distribution Date, and at or prior to the close of business on the Expiration
Date, any Rights Certificate or Certificates may be transferred, split up,
combined or exchanged for another Rights Certificate or Rights Certificates,
entitling the registered holder to purchase a like number of shares of Preferred
Stock as the Rights Certificate or Rights Certificates surrendered then entitled
such holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Rights Certificate shall make such request in writing
delivered to the Rights Agent, and shall surrender the Rights Certificate or
Rights Certificates to be transferred, split up, combined or exchanged at the
principal office of the Rights Agent. Thereupon the Rights Agent shall
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Rights
Certificate and such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to the
Company and the Rights Agent of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Rights Certificate if
mutilated, the Company shall execute and deliver a new Rights Certificate of
like tenor to the Rights Agent for countersignature and delivery to the
registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or
mutilated.
7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
-------------------------------------------------------------
(a) The registered holder of any Rights Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date upon presentation of the Rights
Certificate, with the appropriate form of election to purchase on the reverse
side thereof duly executed, to the Rights Agent at the principal office of the
Rights Agent, together with payment of the Purchase Price for each one one-
hundredth of a share of Preferred Stock (or such other number of shares or other
securities) as to which the Rights are exercised, at or prior to the earliest
of (i) the close of business on ten years after Record Date (the "Final
Expiration Date"), (ii) the time at which the
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<PAGE>
Rights are redeemed as provided in Section 24 hereof, (iii) the consummation of
a transaction contemplated by Section 13(d) hereof or (iv) the time at which the
Rights are exchanged as provided in Section 24(c) hereof (such earliest time
being herein referred to as the "Expiration Date"). Notwithstanding any other
provision of this Agreement, any Person who prior to the Distribution Date
becomes a record holder of shares of Common Stock may exercise all of the rights
of a registered holder of a Rights Certificate with respect to the Rights
associated with such shares of Common Stock in accordance with and subject to
the provisions of this Agreement, including the provisions of Section 7(e)
hereof, as of the date such Person becomes a record holder of shares of Common
Stock.
(b) The Purchase Price for each one one-hundredth share of Preferred Stock
pursuant to the exercise of a Right shall initially be $200, shall be subject to
adjustment from time to time as provided in Sections 11 and 13 hereof and shall
be payable in lawful money of the United States of America in accordance with
paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable Rights,
with the appropriate form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares (or other securities or property)
to be purchased and an amount equal to any applicable transfer tax (as
determined by the Rights Agent) in cash, or by certified check or bank draft
payable to the order of the Company, the Rights Agent shall, subject to Section
21(k), thereupon promptly (i)(A) requisition from any transfer agent of the
shares of Preferred Stock (or make available, if the Rights Agent is the
transfer agent) certificates for the number of shares of Preferred Stock to be
purchased, and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) if the Company, in its sole discretion,
shall have elected to deposit the shares of Preferred Stock issuable upon
exercise of the Rights hereunder into a depositary, requisition from the
depositary agent depositary receipts representing such number of one one-
hundredths of a share of Preferred Stock as are to be purchased (in which case
certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depositary agent) and the
Company shall direct the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash, if any, to be paid
in lieu of issuance of fractional shares in accordance with Section 15, (iii)
promptly after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder and (iv) when appropriate, after receipt promptly deliver such cash
to or upon the order of the registered holder of such Rights Certificate. In
the event that the Company is obligated to issue other securities of the
Company, and/or distribute other
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<PAGE>
property pursuant to Section 11(a), the Company shall make all arrangements
necessary so that such other securities and/or property are available for
distribution by the Rights Agent, if and when appropriate. In addition, in the
case of an exercise of the Rights by a holder pursuant to Section 11(a)(ii), the
Rights Agent shall return such Rights Certificate to the registered holder
thereof after imprinting, stamping or otherwise indicating thereon that the
rights represented by such Rights Certificate no longer include the rights
provided by Section 11(a)(ii) of the Rights Agreement and if less than all the
Rights represented by such Rights Certificate were so exercised, the Rights
Agent shall indicate on the Rights Certificate the number of Rights represented
thereby which continue to include the rights provided by Section 11(a)(ii).
(d) In case the registered holder of any Rights Certificate shall exercise
(except pursuant to Section 11(a)(ii)) less than all the Rights evidenced
thereby, a new Rights Certificate evidencing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent and delivered to the
registered holder of such Rights Certificate or to his duly authorized
assigns, subject to the provisions of Section 15 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, if there
occurs any of the events set forth in Section 11(a)(ii) or Section 13(a) then
any Rights that are or were on or after the Distribution Date beneficially owned
by an Acquiring Person or any Associate or Affiliate of an Acquiring Person
shall become null and void, without any further action, and any holder of such
Rights shall thereafter have no rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise.
(f) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless the certificate contained in the appropriate
form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise shall have been properly completed and
duly executed by the registered holder thereof and the Company shall have been
provided with such additional evidence of the identity of the Beneficial Owner
(or former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request.
8. Cancellation and Destruction of Rights Certificates. All Rights
---------------------------------------------------
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights
-10-
<PAGE>
Agreement. The Company shall deliver to the Rights Agent for cancellation and
retirement, and the Rights Agent shall so cancel and retire, any other Rights
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all canceled Rights
Certificates to the Company, or shall, at the written request of the Company,
destroy such canceled Rights Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
9. Reservation and Availability of Preferred Stock. The Company
-----------------------------------------------
covenants and agrees that it shall cause to be reserved and kept available out
of its authorized and unissued shares of Preferred Stock, or any authorized and
issued shares of Preferred Stock held in its treasury, the number of shares of
Preferred Stock that will be sufficient to permit the exercise in full of all
outstanding Rights and, after the occurrence of an event specified in Sections
11 and 13, shall so reserve and keep available a sufficient number of shares of
Common Stock (and/or other securities) which may be required to permit the
exercise in full of the Rights pursuant to this Agreement.
So long as the shares of Preferred Stock (and, after the occurrence of an
event specified in Section 11 and 13, any other securities) issuable upon the
exercise of the Rights may be listed on any national securities exchange or
national quotation system, the Company shall use its best efforts to cause, from
and after such time as the Rights become exercisable, all shares (or other
securities) reserved for such issuance to be listed on such exchange or system
upon official notice of issuance upon such exercise.
The Company covenants and agrees that it shall take all such action as may
be necessary to ensure that all shares of Preferred Stock and/or other
securities delivered upon exercise of Rights shall, at the time of delivery of
the certificates for such shares or other securities (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable shares or securities.
The Company further covenants and agrees that it shall pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Rights Certificates or of
any certificates for shares of Preferred Stock and/or other securities upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or in respect of the issuance or
delivery of the shares of Preferred Stock and/or other securities in a name
other than that of, the registered holder of the Rights Certificates evidencing
Rights surrendered for exercise or to issue or deliver any certificates for
shares of Preferred Stock, and/or other securities in a name other than
-11-
<PAGE>
that of the registered holder upon the exercise of any Rights until such tax
shall have been paid (any such tax being payable by the holder of such Rights
Certificate at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
The Company shall use its best efforts to (i) file, if required by law, as
soon as practicable following the Distribution Date, a registration statement
under the Securities Act of 1933, as amended (the "Act"), with respect to the
securities purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as practicable
after such filing, and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the Act
and the rules and regulations thereunder) until the Expiration Date (unless and
until the Company shall have received an opinion of counsel to the effect that
the maintenance of such registration statement in effect is no longer
necessary). The Company will also take such action as may be appropriate under
the blue sky laws of the various states.
10. Preferred Stock Record Date. Each Person in whose name any
---------------------------
certificate for shares of Preferred Stock (or other securities) is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the shares of Preferred Stock (or other securities)
represented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly presented and payment of
the Purchase Price (and any applicable transfer taxes) was made; provided,
however, that if the date of such presentation and payment is a date upon which
the Preferred Stock (or other securities) transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock (or other securities) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of
a Rights Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company with respect to shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to receive
dividends or other distributions or to exercise any preemptive rights, and shall
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.
11. Adjustment of Purchase Price, Number and Kind of Shares or Number of
--------------------------------------------------------------------
Rights. The Purchase Price, the number of shares covered by each Right and the
- ------
number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a
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<PAGE>
dividend on the Preferred Stock payable in shares of Preferred Stock, (B)
subdivide the outstanding Preferred Stock, (C) combine the outstanding
Preferred Stock into a smaller number of shares or (D) issue any shares of
its capital stock in a reclassification of the Preferred Stock (including
any such reclassification in connection with a consolidation or merger in
which the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a) and in Section 7(e), the Purchase
Price in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification, and
the number and kind of shares of capital stock issuable on such date, shall
be proportionately adjusted so that the holder of any Right exercised after
such time shall be entitled to receive the aggregate number and kind of
shares of capital stock and other securities which, if such Right had been
exercised immediately prior to such date and at a time when the Preferred
Stock transfer books of the Company were open, he would have owned upon
such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. If an event occurs which
would require an adjustment under both Section 11(a)(i) and Section
11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant
to Section 11(a)(ii).
(ii) Subject to Section 24(c) of this Agreement, in the event any
Person, alone or together with its Affiliates and Associates, shall become
an Acquiring Person (except pursuant to a tender or exchange offer for all
outstanding shares of Common Stock at a price and on terms determined by at
least a majority of the members of the Board of Directors who are not
officers of the Company and are not Acquiring Persons or Affiliates or
Associates thereof to be in the best interests of the Company and its
stockholders (other than the Person or an Affiliate or Associate thereof on
whose behalf the offer is being made) (a "Permitted Offer")), then,
promptly following the first occurrence of an event described in this
Section 11(a)(ii), proper provision shall be made so that each holder of a
Right, except as provided in Section 7(e) hereof, shall, for a period of 60
days after the later of the occurrence of any such event and the effective
date of an appropriate registration statement pursuant to Section 9, have a
right to receive, upon exercise thereof at the then current Purchase Price
in accordance with the terms of this Agreement, in lieu of shares of
Preferred Stock, such number of shares of Common Stock of the Company as
shall equal the result
-13-
<PAGE>
obtained by (x) multiplying the then current Purchase Price by the then
number of one one-hundredths of a share of Preferred Stock for which a
Right is then exercisable and (y) dividing that product by 50% of the
current market price per one share of Common Stock (determined pursuant to
Section 11(d)) on the date of the occurrence of the event set forth in this
subparagraph (ii) (such number of shares being referred to as the "number
of Adjustment Shares"); provided, however, that if the transaction that
would otherwise give rise to the foregoing adjustment is also subject to
the provisions of Section 13 hereof, then only the provisions of Section 13
hereof shall apply and no adjustment shall be made pursuant to this Section
11(a)(ii); and provided, further, that such 60-day period shall not be
deemed to run during any period in which the exercise of the Rights or the
fulfillment by the Company or the Rights Agent of its or their obligations
under their Agreement shall be enjoined or otherwise prohibited in full or
in part by any court or other governmental agency or body.
(iii) In lieu of issuing shares of Common Stock in accordance with
Section 11(a)(ii) hereof, the Company may, if a majority of the Board of
Directors then in office determines that such action is necessary or
appropriate and not contrary to the interests of holders of Rights, elect
to (and, in the event that the Board of Directors has not exercised the
exchange right contained in Section 24(c) hereof and there are not
sufficient treasury shares and authorized but unissued shares of Common
Stock to permit the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii), the Company shall) take all such action as may
be necessary to authorize, issue or pay, upon the exercise of the Rights,
cash (including by way of a reduction of the Purchase Price), property,
shares of Common Stock, other securities or any combination thereof having
an aggregate value equal to the value of the shares of Common Stock which
otherwise would have been issuable pursuant to Section 11(a)(ii), which
aggregate value shall be determined by a nationally recognized investment
banking firm selected by a majority of the Board of Directors. For
purposes of the preceding sentence, the value of the Common Stock shall be
determined pursuant to Section 11(d) hereof and the value of any preferred
stock or preference stock which a majority of the Board of Directors
determines to be a "common stock equivalent" shall be deemed to have the
same value as the Common Stock. Any such election by the Board of
Directors must be made and publicly announced within 60 days following the
date on which the event described in Section 11(a)(ii) shall have occurred.
Following the
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<PAGE>
occurrence of the event described in Section 11(a)(ii) hereof, a majority
of the Board of Directors then in office may suspend the exercisability of
the Rights for a period of up to 60 days following the date on which the
event described in Section 11(a)(ii) shall have occurred to the extent that
such directors have not determined whether to exercise their rights of
election under this Section 11(a)(iii). In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended.
(b) If the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Stock entitling them (for a
period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Stock (or shares having the same or
more favorable rights, privileges and preferences as the Preferred Stock
("equivalent preferred stock")) or securities convertible into Preferred
Stock or equivalent preferred stock at a price per share of Preferred Stock
or per share of equivalent preferred stock (or having a conversion price
per share, if a security convertible into Preferred Stock or equivalent
preferred stock) less than the current market price (as defined in Section
11(d)) per share of Preferred Stock on such record date, the Purchase Price
to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares of
Preferred Stock which the aggregate offering price of the total number of
shares of Preferred Stock and/or equivalent preferred stock to be offered
(and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price
and the denominator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of additional shares
of Preferred Stock and/or equivalent preferred stock to be offered for
subscription or purchase (or into which the convertible securities so to
be offered are initially convertible). In case such subscription price may
be paid in a consideration part or all of which shall be in a form other
than cash, the value of such consideration shall be determined reasonably
and with good faith to the holders of Rights by the Board of Directors of
the Company, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent and
conclusive for all purposes. Shares of Preferred Stock
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<PAGE>
owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall
be made successively whenever such a record date is fixed; and in the
event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if
such record date had not been fixed.
(c) If the Company shall fix a record date for the making of a
distribution to all holders of Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidences of indebtedness, cash
(other than a regular quarterly cash dividend out of the earnings or
retained earnings of the Company), assets (other than a dividend payable in
Preferred Stock, but including any dividend payable in stock other than
Preferred Stock) or subscription rights or warrants (excluding those
referred to in Section 11(b)), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator
of which shall be the current market price (as defined in Section 11(d))
per share of Preferred Stock on such record date, less the fair market
value (as determined reasonably and with good faith to the holders of
Rights by the Board of Directors of the Company, whose determination shall
be described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent and conclusive for all purposes) of the portion
of the cash, assets or evidences of indebtedness so to be distributed or of
such subscription rights or warrants distributable in respect of one share
of Preferred Stock and the denominator of which shall be the current market
price (as defined in Section 11(d)) per share of the Preferred Stock. Such
adjustments shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would be in
effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, other than in
Section 11(a)(iii), the "current market price" per share of Common Stock on
any date shall be deemed to be the average of the daily closing prices per
share of such Common Stock for the 30 consecutive Trading Days (as such
term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the current per share market price of the
Common Stock is deter-
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<PAGE>
mined during a period following the announcement by the issuer of such
Common Stock of (A) a dividend or distribution on such Common Stock payable
in shares of such Common Stock or securities convertible into shares of
such Common Stock or (B) any subdivision, combination or reclassification
of such Common Stock, and prior to the expiration of 30 Trading Days after
the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in each
such case, the "current market price" shall be properly adjusted to take
into account ex-dividend trading. The closing price for each day shall be
the last sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New
York Stock Exchange or, if the shares of Common Stock are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the shares of Common Stock are listed or admitted to trading or, if the
shares of Common Stock are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter
market, as reported by the Nasdaq National Market or such other system then
in use, or, if on any such date the shares of Common Stock are not quoted
by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Common
Stock selected by the Board of Directors of the Company. If on any such
date no market maker is making a market in the Common Stock, the fair value
of such shares on such date as determined reasonably and with good faith
by the Board of Directors of the Company shall be used and shall be binding
on the Rights Agent. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading is open for the transaction of business
or, if the shares of Common Stock are not listed or admitted to trading on
any national securities exchange, a Business Day. If the Common Stock is
not publicly held or not so listed or traded, "current market price" per
share shall mean the fair value per share determined reasonably and with
good faith to the holders of Rights by the Board of Directors of the
Company, whose determination shall
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<PAGE>
be described in a statement filed with the Rights Agent and shall be
binding on the Rights Agent.
(ii) For the purpose of any computation hereunder, the "current
market price" per share (or one one-hundredth of a share) of Preferred
Stock shall be determined in the same manner as set forth above for the
Common Stock in Section 11(d) (other than the last sentence thereof). If
the current market price per share (or one one-hundredth of a share) of
Preferred Stock cannot be determined in the manner provided above or if the
Preferred Stock is not publicly held or listed or traded in a manner
described in Section 11(d)(i), the "current market price" per share of
Preferred Stock shall be conclusively deemed to be an amount equal to 100
(as such number may be appropriately adjusted for such events as stock
splits, stock dividends and recapitalization with respect to the Common
Stock occurring after the date of this Agreement) multiplied by the
current market price per share of the Common Stock and the "current market
price" per one one-hundredth of a share of Preferred Stock shall be equal
to the current market price per share of the Common Stock (as appropriately
adjusted). If neither the Common Stock nor the Preferred Stock is publicly
held or so listed or traded, "current market price" per share shall mean
the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all
purposes.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require
an increase or decrease of at least 1% in the Purchase Price; provided,
however, that any adjustments which by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be
made to the nearest cent or to the nearest thousandth of a share of Common
Stock or other share or one-hundred thousandth of a share of Preferred
Stock, as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three years from the date of the transaction
which mandates such adjustment or (ii) the Expiration Date.
(f) If as a result of any provision of Section 11(a), the holder of
any Right thereafter exercised shall become entitled to receive any shares
of capital stock of the Company other than Preferred Stock,
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<PAGE>
thereafter the number of such other shares so receivable upon exercise of
any Right shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect
to the shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10, 13 and 15 hereof with respect to the
Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of shares of Preferred
Stock purchasable from time to time hereunder upon exercise of the Rights,
all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of
the calculations made in Section 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number
of one one-hundredths of a share of Preferred Stock (calculated to the
nearest one-hundred thousandth) obtained by (i) multiplying (x) the number
of one one-hundredths of a share of Preferred Stock covered by a Right
immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii)
dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of shares of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment
in the number of Rights shall be exercisable for the number of one one-
hundredths of a share of Preferred Stock for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to
such adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one hundred-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase
Price by the Purchase Price in effect immediately after adjustment of the
Purchase Price. The Company shall make a public announcement of its
election to adjust the number of Rights, indicating
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<PAGE>
the record date for the adjustment, and, if known at the time, the amount
of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten days later than the
date of the public announcement. If Rights Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 15 hereof, the
additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for
the Rights Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new
Rights Certificates evidencing all the Rights to which such holders shall
be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the
adjusted Purchase Price) and shall be registered in the names of the
holders of record of Rights Certificates on the record date specified in
the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of shares of Preferred Stock issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may
continue to express the Purchase Price per share and the number of shares
which were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the shares of
Preferred Stock, Common Stock or other securities issuable upon exercise
of the Rights, the Company shall take any corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of Preferred
Stock, Common Stock or other securities at such adjusted Purchase Price.
If upon any exercise of the Rights, a holder is to receive a combination of
Common Stock and common stock equivalents, a portion of the consideration
paid upon such exercise, equal to at least the then par value of a share of
Common Stock of the Company, shall be
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<PAGE>
allocated as the payment for each share of Common Stock of the Company so
received.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such
record date the shares of Preferred Stock and other capital stock or
securities of the Company, if any, issuable upon such exercise over and
above the shares of Preferred Stock and other capital stock or securities
of the Company, if any, issuable upon such exercise on the basis of the
Purchase Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
upon the occurrence of the event requiring such adjustment.
(m) Anything to the contrary in this Section 11 notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and
to the extent that it in its sole discretion shall determine to be
advisable in order that any consolidation or subdivision of the Preferred
Stock, issuance wholly for cash of any shares of Preferred Stock at less
than the current market price, issuance wholly for cash of shares of
Preferred Stock or securities which by their terms are convertible into or
exchangeable for shares of Preferred Stock, stock dividends or issuance of
rights, options or warrants referred to hereinabove in this Section 11,
hereafter made by the Company to holders of its Preferred Stock shall not
be taxable to such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in the
event that the Company shall at any time after the date of this Agreement
and prior to the Distribution Date (i) declare a dividend on the
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, (iii) combine the outstanding
Common Stock into a smaller number of shares, or (iv) issue any shares of
its capital stock in a reclassification of the outstanding Common Stock,
the number of Rights associated with each share of Common Stock then
outstanding, or issued or delivered thereafter but prior to the
Distribution Date, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any
such event shall equal the result obtained by multiplying
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the number of Rights associated with each share of Common Stock immediately
prior to such event by a fraction the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total
number of shares of Common Stock outstanding immediately following the
occurrence of such event.
(o) The exercise of Rights under Section 11(a)(ii) shall only result
in the loss of rights under Section 11(a)(ii) to the extent so exercised
and shall not otherwise affect the rights represented by the Rights under
this Rights Agreement, including the rights represented by Section 13.
12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever
----------------------------------------------------------
an adjustment is made as provided in Sections 11 and 13 hereof, the Company
shall (a) promptly prepare a certificate setting forth such adjustment and a
brief statement of the facts accounting for such adjustment, (b) promptly file
with the Rights Agent and with each transfer agent for the Preferred Stock and
the Common Stock a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Rights Certificate in accordance with Section 26 hereof.
The Rights Agent shall be fully protected in relying on any such certificate and
on any adjustment therein contained and shall not be deemed to have knowledge of
any adjustment unless and until it shall have received such certificate.
13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.
--------------------------------------------------------------------
(a) In the event that, following the Stock Acquisition Date, directly or
indirectly, (x) the Company shall consolidate with, or merge with and into, any
other Person, (y) any Person shall consolidate with the Company, or merge with
and into the Company and the Company shall be the continuing or surviving
corporation of such merger (other than, in the case of either transaction
described in (x) or (y), a merger or consolidation which would result in all of
the voting power represented by the securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into securities of the surviving entity) all
of the voting power represented by the securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation and
the holders of such securities not having changed as a result of such merger or
consolidation), or (z) the Company shall sell, mortgage or otherwise transfer
(or one or more of its subsidiaries shall sell, mortgage or otherwise transfer),
in one or more transactions, assets or earning power aggregating more than 50%
of the assets or earning power of the Company and its subsidiaries (taken as a
whole) to any other Person, then, and in each such case, proper provision shall
be
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<PAGE>
made so that (i) following the Distribution Date, each holder of a Right (other
than as provided in Section 7(e) hereof) shall have the right to receive, upon
the exercise thereof at the then current Purchase Price in accordance with the
terms of this Agreement, such number of shares of freely tradable Common Stock
of the Principal Party (as hereinafter defined), free and clear of liens, rights
of call or first refusal, encumbrances or other adverse claims, as shall be
equal to the result obtained by (x) multiplying the then current Purchase Price
by the number of one one-hundredths of a share of Preferred Stock for which a
Right is then exercisable (without taking into account any adjustment previously
made pursuant to Section 11(a)(ii) hereof) and (y) dividing that product by 50%
of the current market price per share of the Common Stock of such Principal
Party (determined pursuant to Section 11(d) hereof) on the date of consummation
of such consolidation, merger, sale or transfer; (ii) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply to such Principal Party; and (iv)
such Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock in accordance
with Section 9 hereof) in connection with such consummation as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to its shares of Common Stock thereafter
deliverable upon the exercise of the Rights.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in (x) or (y) of the
first sentence of this Section 13, the Person that is the issuer of any
securities into which shares of Common Stock of the Company are converted
in such merger or consolidation, and if no securities are so issued, the
Person that is the other party to the merger or consolidation (including,
if applicable, the Company, if it is the surviving corporation); and
(ii) in the case of any transaction described in (z) of the first
sentence in this Section 13, the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such
Person is not at such time and has not been continuously over the preceding
12-month period registered under Section 12 of the Exchange Act, and such
Person is a direct or indirect
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<PAGE>
subsidiary or Affiliate of another Person, "Principal Party" shall refer to
such other Person; (2) in case such Person is a subsidiary, directly or
indirectly, or Affiliate of more than one Person, the Common Stock of two
or more of which are and have been so registered, "Principal Party" shall
refer to whichever of such Persons is the issuer of the Common Stock having
the greatest aggregate market value; and (3) in case such Person is owned,
directly or indirectly, by a joint venture formed by two or more Persons
that are not owned, directly or indirectly, by the same Person, the rules
set forth in (1) and (2) above shall apply to each of the chains of
ownership having an interest in such joint venture as if such party were a
"Subsidiary" of both or all of such joint venturers and the Principal
Parties in each such chain shall bear the obligations set forth in this
Section 13 in the same ratio as their direct or indirect interests in such
Person bear to the total of such interests.
(c) The Company shall not consummate any such consolidation, merger, sale
or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock that have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and each Principal Party and
each other Person who may become a Principal Party as a result of such
consolidation, merger, sale or transfer shall have executed and delivered to the
Rights Agent a supplemental agreement providing for the terms set forth in
paragraphs (a) and (b) of this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger, sale or transfer of
assets mentioned in paragraph (a) of this Section 13, the Principal Party at
its own expense shall:
(i) prepare and file a registration statement under the Act with
respect to the Rights and the securities purchasable upon exercise of the
Rights on an appropriate form, will use its best efforts to cause such
registration statement to become effective as soon as practicable after
such filing and will use its best efforts to cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Expiration Date;
(ii) use its best efforts to qualify or register the Rights and the
securities purchasable upon exercise of the Rights under the blue sky laws
of such jurisdictions as may be necessary or appropriate; and
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party and
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<PAGE>
each of its Affiliates which comply in all material respects with the
requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. The rights under this Section 13
shall be in addition to the rights to exercise Rights and adjustments under
Section 11(a)(ii) and shall survive any exercise thereunder.
(d) Notwithstanding anything in this Agreement to the contrary, Section 13
shall not be applicable to a transaction described in subparagraphs (x) and (y)
of Section 13(a) if (i) such transaction is consummated with a Person or Persons
who acquired shares of Common Stock pursuant to a Permitted Offer (or a wholly
owned subsidiary of any such Person or Persons), (ii) the price per share of
Common Stock offered in such transaction is not less than the price per share
of Common Stock paid to all holders of Common Stock whose shares were purchased
pursuant to such Permitted Offer and (iii) the form of consideration being
offered to the remaining holders of Common Stock pursuant to such transaction is
the same as the form of consideration paid pursuant to such Permitted Offer.
Upon consummation of any such transaction contemplated by this subsection (d),
all Rights hereunder shall expire.
14. Additional Covenants.
--------------------
(a) The Company covenants and agrees that after the Stock Acquisition Date
it shall not (i) consolidate with, (ii) merge with or into, or (iii) sell or
transfer to any other Person, in one or more transactions, assets or earning
power aggregating more than 50% of the assets or earning power of the Company
and its subsidiaries taken as a whole, if at the time of or after such
consolidation, merger or sale there are any charter or by-law provisions or any
rights, warrants or other instruments outstanding or any other action taken
which would diminish or otherwise eliminate the benefits intended to be afforded
by the Rights. The Company shall not consummate any such consolidation, merger
or sale unless prior thereto the Company and such other Person shall have
executed and delivered to the Rights Agent a supplemental agreement evidencing
compliance with this subsection.
(b) The Company covenants and agrees that, after the Stock Acquisition
Date, it will not, except as permitted by Section 24 hereof, take any action the
purpose or effect of which is to diminish or otherwise eliminate the benefits
intended to be afforded by the Rights.
15. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights, except
prior to the Distribution Date as provided in
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<PAGE>
Section 11(n), or to distribute Rights Certificates which evidence fractional
Rights. In lieu of such fractional Rights, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to the
same fraction of the current market value of a whole Right. For the purposes of
this Section 15(a), the current market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the date on
which such fractional Rights would have been otherwise issuable. The closing
price of the Rights for any day shall be the last sale price, the last quoted
price or, if not so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by the Nasdaq National Market or such
other system then in use or, if on any such date the Rights are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights selected
by the Board of Directors of the Company. If on any such date no such market
maker is making a market in the Rights the fair value of the Rights on such date
as determined reasonably and with good faith to the holders of Rights by the
Board of Directors of the Company shall be used and shall be binding on the
Rights Agent.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one one-
hundredth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock). Fractions of shares of Preferred Stock in integral
multiples of one one-hundredth of a share of Preferred Stock may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the shares of Preferred Stock represented by
such depositary receipts. In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-hundredth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 15(b), the current market value
of one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of one of the transactions or events specified
in Section 11 or Section 13 giving rise to the
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right to receive common stock equivalents (other than Preferred Stock) or other
securities upon the exercise of a Right, the Company shall not be required to
issue fractions of shares or units of such common stock equivalents or other
securities upon exercise of the Rights or to distribute certificates which
evidence fractional shares of such common stock equivalents or other securities.
In lieu of fractional shares or units of such common stock equivalents or other
securities, the Company may pay to the registered holders of Rights Certificates
at the time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of a share or unit of such
common stock equivalent or other securities. For purposes of this Section
15(c), the current market value shall be determined in the manner set forth in
Section 11(d) hereof for the Trading Day immediately prior to the date of such
exercise and, if such common stock equivalent is not traded, each such common
stock equivalent shall have the value of one one-hundredth of a share of
Preferred Stock.
(d) Except as otherwise expressly provided herein, the holder of a Right by
the acceptance of the Rights expressly waives his right to receive any
fractional Rights or any fractional shares (other than, in the case of Preferred
Stock, fractions which are integral multiples of one one-hundredth of a share of
Preferred Stock) upon exercise of a Right.
16. Rights of Action. All rights of action in respect of this Agreement,
----------------
except those rights of action vested in the Rights Agent pursuant to Section 21,
are vested in the respective registered holders of the Rights Certificates
(and, prior to the Distribution Date, the registered holders of the Common
Stock); and any registered holder of any Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), without the consent of the Rights Agent
or of the holder of any other Rights Certificate (or, prior to the Distribution
Date, of the Common Stock), may, in his own behalf and for his own benefit,
enforce, and may institute and maintain any suit, action or proceeding against
the Company to enforce, or otherwise act in respect of, his right to exercise
the Rights evidenced by such Rights Certificate in the manner provided in such
Rights Certificate and in this Agreement. Without limiting the foregoing or
any remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Holders of Rights shall be entitled to recover the reasonable costs and
expenses, including attorneys' fees, incurred by them in any action to enforce
the provisions of this Agreement.
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<PAGE>
17. Agreement of Rights Holders. Every holder of a Right by accepting the
---------------------------
same consents and agrees with the Company and the Rights Agent and with every
other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the principal office of the Rights Agent, duly endorsed or accompanied
by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name a Rights Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations
of ownership or writing on the Rights Certificates or the associated Common
Stock certificate made by anyone other than the Company or the Rights
Agent) for all purposes whatsoever, and neither the Company nor the Rights
Agent shall be affected by any notice to the contrary.
18. Rights Certificate Holder Not Deemed a Stockholder. No holder, as
--------------------------------------------------
such, of any Rights Certificate shall be entitled to vote, receive dividends or
be deemed for any purpose the holder of the shares of Preferred Stock, Common
Stock or any other securities of the Company which may at any time be issuable
upon exercise of the Rights represented thereby, nor shall anything contained
herein or in any Rights Certificate be construed to confer upon the holder of
any Rights Certificate, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in Section 25 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by such Rights Certificate shall have been exercised in accordance
with the provisions thereof.
19. Concerning the Rights Agent. The Company agrees to pay to the Rights
---------------------------
Agent reasonable compensation for all services rendered by it hereunder and,
from time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and disbursements and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify the Rights Agent
for, and to hold it harmless against, any loss, liability, or expense, incurred
without negligence, bad faith or willful misconduct on the part of the Rights
Agent,
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<PAGE>
for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability arising therefrom, directly
or indirectly.
The Rights Agent shall be protected and shall incur no liability for or in
respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any Rights Certificate or
certificate for Common Stock or for other securities of the Company, instrument
of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement or other paper or document
believed by it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper Person or Persons.
20. Merger or Consolidation or Change of Name of Rights Agent. Any
---------------------------------------------------------
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the corporate trust or
stockholder services business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 22 hereof. In case
at the time such successor Rights Agent shall succeed to the agency created by
this Agreement, any of the Rights Certificates shall have been countersigned but
not delivered, any such successor Rights Agent may adopt the countersignature of
the predecessor Rights Agent and deliver such Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates shall not
have been countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates in this Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, the Rights Agent
may countersign such Rights Certificates either in its prior name or in its
Changed name; and in all such cases such Rights Certificates shall have the full
force provided in the Rights Certificates and in this Agreement.
21. Duties of Rights Agent. The Rights Agent undertakes the duties and
----------------------
obligations imposed by this Agreement upon the
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<PAGE>
following terms and conditions, by all of which the Company and the holders of
Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel selected by it
(who may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent
as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and
the determination of "current market price") be proved or established by
the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, any Vice Chairman of the
Board, the President, any Vice President, the Treasurer, any Assistant
Treasurer, the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except as to the fact that it has countersigned the
Rights Certificates) or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the
Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in
any Rights Certificate; nor shall it be responsible for any adjustment
required under the provisions of Section 11 or 13 hereof or responsible
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<PAGE>
for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such
adjustment (except with respect to the exercise of Rights evidenced by
Rights Certificates after receipt of certificate pursuant to Section 12
describing any such adjustment); nor shall it be responsible for any
determination by the Board of Directors of the Company of the current
market value of the Rights or Preferred Stock or Common Stock pursuant to
the provisions of Section 15 hereof; nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any shares of Preferred Stock or other securities to be
issued pursuant to this Agreement or any Rights Certificate or as to
whether any shares of Preferred Stock or other securities will, when so
issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder and
certificates delivered pursuant to any provision hereof from the Chairman
of the Board, any Vice Chairman of the Board, the President, any Vice
President, the Secretary, any Assistant Secretary, the Treasurer or any
Assistant Treasurer of the Company, and is authorized to apply to such
officers for advice or instructions in connection with its duties, and it
shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer. Any
application by the Rights Agent for written instructions from the Company
may, at the option of the Rights Agent, set forth in writing any action
proposed to be taken or omitted by the Rights Agent with respect to its
duties or obligations under this Rights Agreement and the date on and/or
after which such action shall be taken or omitted and the Rights Agent
shall not be liable for any action taken or omitted in accordance with a
proposal included in any such application on or after the date specified
therein (which date shall not be less than three Business Days after the
date any such officer actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior
to taking or omitting any such action,
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<PAGE>
the Rights Agent has received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though
it were not Rights Agent under this Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity for the Company
or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, omission, default, neglect or
misconduct of any such attorneys or agents or for any loss to the Company
or to the holders of the Rights resulting from any such act, omission,
default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnification against such risk or liability is
not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the Certificate attached to the form
of assignment or form of election to purchase, as the case may be, has
either not been completed or indicates an affirmative response to clause l
and/or 2 thereof, the Rights Agent shall not take any further action with
respect to such requested exercise of transfer without first consulting
with the Company.
22. Change of Rights Agent. The Rights Agent or any successor Rights
----------------------
Agent may resign and be discharged from its duties under this Agreement upon 30
days' notice in writing mailed to the Company and to each transfer agent of the
Common Stock and Preferred Stock by registered or certified mail, and to holders
of the Rights Certificates by first-class mail. The Company may remove the
Rights Agent or any successor Rights
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<PAGE>
Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Rights Certificate
(who shall, with such notice, submit his Rights Certificate for inspection by
the Company), then the registered holder of any Rights Certificate may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Company or by such a court,
shall be (a) a corporation organized and doing business under the laws of the
United States or of the State of New York or the State of California (or of any
other state of the United States so long as such corporation is authorized to do
business as a banking institution in the State of New York or the State of
California), in good standing, having a principal office in the State of New
York or the State of California, which is authorized under such laws to exercise
corporate trust or stockholder services powers and is subject to supervision or
examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an affiliate of a corporation described in clause (a) of this
sentence. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall mail notice
thereof in writing to the predecessor Rights Agent and each transfer agent of
the Common Stock and Preferred Stock, and mail a notice thereof in writing to
the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 22, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
23. Issuance of New Rights Certificates. Notwithstanding any of the
-----------------------------------
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Rights Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price per share and the number or kind or class of shares or other
securities or property purchasable under the
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<PAGE>
Rights Certificates made in accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or otherwise under any
employee plan or arrangement, which plan or arrangement is existing as of the
Distribution Date, or upon the exercise, conversion or exchange of any other
securities issued by the Company on or prior to the Distribution Date, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Rights Certificates representing the
appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificates shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax conse quences to the
Company or the Person to whom such Rights Certificates would be issued, and (ii)
no such Rights Certificates shall be issued if, and to the extent that appro-
priate adjustment shall otherwise have been made in lieu of the issuance
thereof.
24. Redemption, Termination and Exchange.
------------------------------------
(a) (i) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (x) the Stock Acquisition Date or (y) 5 P.M., San
Francisco time, on the Final Expiration Date, redeem all but not less than all
of the then outstanding Rights at a redemption price of $.01 per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price").
(ii) In addition, and notwithstanding the provisions of Section 24(a)(i),
the Board of Directors of the Company may redeem all but not less than all of
the then outstanding Rights at the Redemption Price following the Stock
Acquisition Date but prior to any event described in Section 13(a) either (x) in
connection with any event specified in Section 13(a) in which all holders of
Common Stock are treated alike and not involving (other than as a holder of
Common Stock being treated like all other such holders) an Acquiring Person or
an Affiliate or Associate thereof or any other Person in which such Acquiring
Person or Affiliate or Associate thereof has any interest, or any other Person
acting directly or indirectly on behalf of or in association with any such
Acquiring Person or Affiliate or Associate thereof, or (y) following the
occurrence of an event set forth in, and the expiration of any period during
which the holder of Rights may exercise the rights under, Section 11(a)(ii) if
and for as long as any Acquiring Person having triggered such event is not
thereafter the Beneficial Owner of securities representing 15% or more of the
outstanding shares,
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<PAGE>
and at the time of redemption there are no other Persons who are Acquiring
Persons.
(b) In the case of a redemption permitted under Section 24(a)(i),
immediately upon the action of the Board of Directors of the Company ordering
the redemption of the Rights, evidence of which shall have been filed with the
Rights Agent and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. In the case of a redemption
permitted only under Section 24(a)(ii), evidence of which shall have been filed
with the Rights Agent, the right to exercise the Rights will terminate and
represent only the right to receive the Redemption Price only after ten Business
Days following the giving of notice of such redemption to the holders of such
Rights if no event set forth in Section 11(a)(ii) shall have occurred, and, if
such event shall have occurred, upon the later of ten Business Days following
the giving of such notice or the expiration of any period during which the
rights under Section 11(a)(ii) may be exercised. Within ten days after the
action of the Board of Directors ordering any such redemption of the Rights, the
Company shall give notice of such redemption to the Rights Agent and the holders
of the then outstanding Rights by mailing such notice to the Rights Agent and to
all such holders at their last addresses as they appear upon the registry books
of the Rights Agent or, prior to the Distribution Date, on the registry books of
the Transfer Agent for the Common Stock. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made.
In the case of a redemption permitted under Section 24(a)(i) or (ii), the
Company may, at its option, discharge all of its obligations with respect to the
Rights by (i) issuing a press release announcing the manner of redemption of the
Rights and (ii) mailing payment of the Redemption Price to the registered
holders of the Rights at their last addresses as they appear on the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the Transfer Agent of the Common Stock, and upon such action, all
outstanding Rights Certificates shall be null and void without any further
action by the Company.
(c) (i) Subject to the limitations of applicable law, the Board of
Directors of the Company may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 7(e) hereof) for (A) shares of Common
Stock at an exchange ratio of one share of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof
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<PAGE>
(the "Exchange Shares") or (B) Substitute Consideration (as that term is defined
below). The Board of Directors may determine, in its sole discretion, whether
to deliver Exchange Shares or Substitute Consideration. Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such exchange
at any time after any Person (other than the Company, any subsidiary of the
Company, any employee benefit plan of the Company or any such subsidiary, or any
entity holding Common Stock for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Stock then outstanding.
(ii) In the event the Board of Directors shall determine to deliver
Substitute Consideration in exchange for Rights, the Company shall (1) determine
the value of the Exchange Shares (the "Exchange Value"), and (2) with respect to
each Right to be exchanged, make adequate provision to substitute for Exchange
Shares the following (the "Substitute Consideration"): (v) cash, (w) Common
Stock or common stock equivalents (as that term is defined in Section 11(a)(iii)
hereof) or Preferred Stock or equivalent preferred stock (as that term is
defined in Section 11(b) hereof), (x) debt securities of the Company, (y) other
assets, or (z) any combination of the foregoing, having an aggregate value equal
to the Exchange Value, where such aggregate value has been determined by the
Board of Directors of the Company based upon the advice of a nationally
recognized investment banking firm selected by the Board of Directors of the
Company. For purposes of this Section 24(c), the value of a share of Common
Stock shall be the current market price (as determined pursuant to Section 11(d)
hereof) per share of Common Stock on the day that is the later of (x) the first
occurrence of an event described in Section 11(a)(ii) hereof and (y) the date on
which the Company's right of redemption pursuant to Section 24(a) expires; and
the value of any common stock equivalent shall be deemed to have the same value
as the Common Stock on such date.
(iii) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to this Section 24(c), and without
any further action and without any notice, the right to exercise such Rights
shall terminate and the only right thereafter of a holder of such Rights shall
be to receive Exchange Shares or Substitute Consideration for each Right
exchanged by such holder. The Company shall promptly give public notice of any
such exchange; provided, however, that the failure to give, or any defect in,
such notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange
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<PAGE>
of Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section 7(e) hereof) held
by each holder of Rights.
(iv) In the event that there shall not be sufficient shares of Common
Stock or Preferred Stock issued but not outstanding or authorized but unissued
to permit any exchange of Rights as contemplated in accordance with this Section
24(c), the Company shall take all such action as may be necessary to authorize
additional shares of Common Stock or Preferred Stock for issuance upon exchange
of the Rights.
(v) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of such fractional shares of Common Stock, the Company
shall pay to the registered holders of the Rights Certificates with regard to
which such fractional shares of Common Stock would otherwise be issuable an
amount in cash equal to the same fraction of the current market value of a whole
share of Common Stock. For the purposes of this Section 24(c)(v), the current
market value of a whole share of Common Stock shall be the closing price of a
share of Common Stock (as determined pursuant to Section 11(d) hereof) for the
Trading Day immediately prior to the date of exchange pursuant to this Section
24(c).
25. Notice of Certain Events. In case the Company shall propose (a) to
------------------------
pay any dividend payable in stock of any class to the holders of Preferred Stock
or to make any other distribution to the holders of Preferred Stock (other than
a regular quarterly cash dividend out of earnings or retained earnings of the
Company) or (b) to offer to the holders of Preferred Stock rights or warrants to
subscribe for or to purchase any additional shares of Preferred Stock or shares
of stock of any class or any other securities, rights or options, or (c) to
effect any reclassification of its Preferred Stock (other than a reclassi-
fication involving only the subdivision of outstanding shares of Preferred
Stock), or (d) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its subsidiaries to
effect any sale or other transfer), in one or more transactions, of more than
50% of the assets or earning power of the Company and its subsidiaries (taken
as a whole) to, any other Person, or (e) to effect the liquidation, dissolution
or winding up of the Company, then, in each such case, the Company shall give to
each holder of a Rights Certificate, in accordance with Section 26 hereof, a
notice of such proposed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or warrants, or the date
on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation
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<PAGE>
therein by the holders of the shares of Preferred Stock, if any such date is to
be fixed, and such notice shall be so given in the case of any action covered by
clause (a) or (b) above at least 20 days prior to the record date for
determining holders of the shares of Preferred Stock for purposes of such
action, and in the case of any such other action, at least 20 days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the shares of Preferred Stock whichever shall be the earlier.
In case any of the events set forth in Section 11(a)(ii) or 13(a) of this
Agreement shall occur, then, in any such case, the Company or the Principal
Party, as the case may be, shall as soon as practicable thereafter give to each
holder of a Rights Certificate, in accordance with Section 26 hereof, a notice
of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) or 13(a)
hereof, as the case may be.
26. Notices. Notices or demands authorized by this Agreement to be given
-------
or made by the Rights Agent or by the holder of any Rights Certificate to or on
the Company shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing with the
Rights Agent) as follows:
ETEC SYSTEMS, INC.
26460 Corporate Avenue
Hayward, California 94545
Attention: Ms. Lori Rognstad
Subject to the provisions of Section 22, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
BANK OF BOSTON
150 Royall Street
Canton, MA 02021
Attention: Ms. Jocelyn Turner
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
27. Supplements and Amendments. The Company and the Rights Agent may from
--------------------------
time to time supplement or amend this Agreement without approval of any holders
of Rights or Rights Certificates in order (i) to cure any ambiguity, (ii) to
correct
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<PAGE>
or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) prior to the Distribution
Date, to change or supplement any provision hereunder in any manner which the
Company may deem necessary or desirable or (iv) on or following the Distribution
Date, to change or supplement any provision hereunder in any manner which the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Rights Certificates. Upon the delivery of a
certificate from an appropriate officer of the Company which states that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment unless the
Rights Agent shall have determined in good faith that such supplement or
amendment would adversely affect its interests under this Agreement. Prior to
the Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock.
28. Determination and Actions by the Board of Directors, etc. For all
--------------------------------------------------------
purposes of this Agreement, any calculation of the number of shares of Common
Stock outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding shares of Common Stock or any
other securities of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act as in effect on the date of this
Agreement. Except as otherwise provided herein, the Board of Directors of the
Company shall have the exclusive power and authority to adminis ter this
Agreement and to exercise all rights and powers specifically granted to the
Board, or the Company, or as may be necessary or advisable in the administration
of this Agreement, including, without limitation, the right and power to (i)
interpret the provisions of this Agreement, and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement
(including a determination to redeem or not redeem the Rights or to amend the
Agreement). All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights Certificates and all other parties, and (y) not subject the Board to
any liability to the holders of the Rights Certificates.
29. Successors. All the covenants and provisions of this Agreement by or
----------
for the benefit of the Company or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
30. Benefits of This Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Rights
-39-
<PAGE>
Certificates (and, prior to the Distribution Date, the Common Stock) any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Common Stock).
31. Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
32. Governing Law. This Agreement, each Right and each Rights Certificate
-------------
issued hereunder shall be deemed to be a contract made under the laws of the
State of Nevada and for all purposes shall be governed by and construed in
accordance with the laws of such state applicable to contracts to be made and to
be performed entirely within such state.
33. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
34. Descriptive Headings. Descriptive headings of the several Sections of
--------------------
this Agreement are inserted for convenience
-40-
<PAGE>
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: ETEC SYSTEMS, INC., a Nevada corporation
/s/ Saul E. Arnold By /s/ Stephen E. Cooper
- ---------------------------- ----------------------------
Title Assistant Secretary Title President and CEO
----------------------- -------------------------
Attest: BANK OF BOSTON
/s/ Jocelyn J. Turner By /s/ Colleen H. Shea
- ---------------------------- ----------------------------
Title Account Manager Title Administration Manager
----------------------- -------------------------
-41-
<PAGE>
EXHIBIT A
---------
CERTIFICATE OF DESIGNATION,
--------------------------
PREFERENCES AND RIGHTS
----------------------
OF SERIES A PARTICIPATING PREFERRED STOCK
-----------------------------------------
OF
--
ETEC SYSTEMS, INC.
------------------
We, Stephen E. Cooper, Chairman of the Board, Chief Executive Officer and
President, and Saul Arnold, Assistant Secretary, of ETEC SYSTEMS, INC., a
corporation organized and existing under the General Corporation Law of the
State of Nevada, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Seventh Amended and Restated Articles of Incorporation of the Corporation, the
said Board of Directors on January 15, 1997, adopted the following resolution
creating a series of shares of Preferred Stock designated as Series A
Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of its Articles of
Incorporation, a series of Preferred Stock of the Corporation be and it hereby
is created, and that the designation and amount thereof and the powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereof are as follows:
1. Designation and Amount. The shares of such series shall be designated
----------------------
as "Series A Participating Preferred Stock," $.01 par value per share, and the
number of shares constituting such series shall be the number of shares of
authorized Common Stock divided by 100. Such number of shares may be increased
or decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Participating Preferred Stock to a
number less than that of the shares then outstanding plus the number of shares
issuable upon exercise of outstanding rights, options or warrants or upon
conversion of outstanding securities issued by the Corporation.
2. Dividends and Distributions.
---------------------------
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Participating Preferred Stock with respect to dividends, the holders of
shares of Series A Participating Preferred Stock in preference to the
A-1
<PAGE>
holders of shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation and any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the first day
of October, January, April and July in each fiscal year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Participating Preferred Stock in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1600, or (b)
subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Participating Preferred Stock. In the event the Corporation
shall at any time after the close of business on January 31, 1997 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, by reclassification
or otherwise, then in each such case the amount to which holders of shares of
Series A Participating Preferred Stock were entitled immediately prior to such
event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Participating Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1600 per share on the Series A
Participating Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Participating Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares of Series A Participating
Preferred Stock unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in
A-2
<PAGE>
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Participating Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date
for the determination of holders of shares of Series A Participating Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 30 days prior to the date fixed
for the payment thereof.
3. Voting Rights. The holders of shares of Series A Participating
-------------
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock into a greater number of shares, or (iii) combine the
outstanding Common Stock into a smaller number of shares, by
reclassification or otherwise, then in each such case the number of votes
per share to which holders of shares of Series A Participating Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Participating Preferred Stock and the holders of shares
of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
A-3
<PAGE>
(C) (i) If at any time dividends on any Series A Participating
Preferred Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous
quarterly dividend periods and for the current quarterly dividend period on
all shares of Series A Participating Preferred Stock then outstanding shall
have been declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the Series A
Participating Preferred Stock) with dividends in arrears in an amount equal
to six quarterly dividends thereon, voting as a class, irrespective of
series, shall have the right to elect two Directors.
(ii) During any default period, such voting right of the holders of
Series A Participating Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (iii) of this Section 3(C)
or at any annual meeting of stockholders, and thereafter at annual meetings
of stockholders, provided that neither such voting right nor the right of
the holders of any other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be exercised unless
the holders of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by the
holders of Preferred Stock of such voting right. At any meeting at which
the holders of Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the right, voting as a
class, to elect Directors to fill such vacancies, if any, in the Board of
Directors as may then exist up to two Directors or, if such right is
exercised at an annual meeting, to elect two Directors. If the number
which may be so elected at any special meeting does not amount to the
required number, the holders of the Preferred Stock shall have the right to
make such increase in the number of Directors as shall be necessary to
permit the election by them of the required number. After the holders of
the Preferred Stock shall have exercised their right to elect Directors in
any default period and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote of the holders
of Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Series A
Participating Preferred Stock.
A-4
<PAGE>
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect Directors,
the Board of Directors may order, or any stockholder or stockholders owning
in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request,
the calling of a special meeting of the holders of Preferred Stock, which
meeting shall thereupon be called by the President, a Vice President or
the Secretary of the Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Stock are entitled to vote pursuant
to this paragraph (C)(iii) shall be given to each holder of record of
Preferred Stock by mailing a copy of such notice to him at his last address
as the same appears on the books of the Corporation. Such meeting shall be
called for a time not earlier than ten days and not later than 60 days
after such order or request or in default of the calling of such meeting
within 60 days after such order or request, such meeting may be called on
similar notice by any stockholder or stockholders owning in the aggregate
not less than ten percent (10%) of the total number of shares of Preferred
Stock outstanding. Notwithstanding the provisions of this paragraph
(C)(iii), no such special meeting shall be called during the period within
60 days immediately preceding the date fixed for the next annual meeting of
the stockholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation, if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders of
Preferred Stock shall have exercised their right to elect two Directors
voting as a class, after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall continue in office until
their successors shall have been elected by such holders or until the
expiration of the default period, and (y) any vacancy in the Board of
Directors may (except as provided in paragraph (C)(ii) of this Section 3)
be filled by vote of a majority of the remaining Directors theretofore
elected by the holders of the class of stock which elected the Director
whose office shall have become vacant. References in this paragraph (C) to
Directors elected by the holders of a particular class of stock shall
include Directors elected by such Directors to fill vacancies as provided
in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right
of the holders of Preferred
A-5
<PAGE>
Stock as a class to elect Directors shall cease, (y) the term of any
Directors elected by the holders of Preferred Stock as a class shall
terminate, and (z) the number of Directors shall be such number as may be
provided for in, or pursuant to, the Articles of Incorporation or By-Laws
irrespective of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the Articles of
Incorporation or By-Laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding sentence
may be filled by a majority of the remaining Directors, even though less
than a quorum.
(D) Except as set forth herein, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate
action.
4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Participating
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock except dividends paid ratably on the Series A Participating
Preferred Stock and all such parity stock on which dividends are payable or
in arrears in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation,
A-6
<PAGE>
dissolution or winding up) with the Series A Participating Preferred Stock
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Participating Preferred Stock or any shares of stock ranking on a
parity with the Series A Participating Preferred Stock except in accordance
with a purchase offer made in writing or by publication (as determined by
the Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series A Participating Preferred
-----------------
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Participating Preferred Stock unless, prior thereto,
the holders of shares of Series A Participating Preferred Stock shall have
received per share, the greater of 100 times $200 or 100 times the payment made
per share of Common Stock, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment
(the "Series A Liquidation Preference"). Following the payment of the full
amount of the Series A Liquidation Preference, no additional distributions shall
be made to the
A-7
<PAGE>
holders of shares of Series A Participating Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalization with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Participating Preferred Stock and
Common Stock, respectively, holders of Series A Participating Preferred Stock
and holders of shares of Common Stock shall receive their ratable and propor-
tionate share of the remaining assets to be distributed in the ratio of the
Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on
a per share basis, respectively.
(B) In the event there are not sufficient assets available to permit
payment in full of the Series A Liquidation Preference and the liquidation
preferences of all other series of Preferred Stock, if any, which rank on a
parity with the Series A Participating Preferred Stock then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event there are
not sufficient assets available to permit payment in full of the Common
Adjustment, then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, by reclassification
or otherwise, then in each such case the Adjustment Number in effect immediately
prior to such event shall be adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
7. Consolidation, Merger, etc. In case the Corporation shall enter into
--------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series A
Participating Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into
A-8
<PAGE>
which or for which each share of Common Stock is changed or exchanged. In the
event the Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of shares
of Series A Participating Preferred Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that are outstanding immediately prior to
such event.
8. Redemption. The shares of Series A Participating Preferred Stock
----------
shall not be redeemable.
9. Ranking. The Series A Participating Preferred Stock shall rank junior
-------
to all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
10. Amendment. The Articles of Incorporation and the By-Laws of the
---------
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least 66-2/3% of the outstanding shares of
Series A Participating Preferred Stock voting separately as a class.
11. Fractional Shares. Series A Participating Preferred Stock may be
-----------------
issued in fractions of a share which shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this ___ day of
January, 1997.
__________________________________
President
Attest:
__________________________________
Assistant Secretary
A-9
<PAGE>
EXHIBIT B
---------
[Form of Rights Certificate]
Certificate No. R-______________ _____________ Rights
NOT EXERCISABLE AFTER TEN YEARS AFTER RECORD DATE OR EARLIER IF NOTICE OF
REDEMPTION IS GIVEN. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION
OF THE COMPANY, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE WERE ISSUED
TO A Person WHO WAS AN ACQUIRING Person OR AN AFFILIATE OR AN ASSOCIATE OF
AN ACQUIRING Person, AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT.
THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID
UNDER THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS
AGREEMENT.]/*/
Rights Certificate
ETEC SYSTEMS, INC.
This certifies that ____________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement dated as of January 15, 1997 (the "Rights Agreement") between ETEC
SYSTEMS, INC., a Delaware corporation (the "Company"), and BANK OF BOSTON (the
"Rights Agent"), to purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior to 5 P.M. (San
Francisco time) on January 31, 2007, at the office of the Rights Agent
designated for such purpose, one one-hundredth of a fully paid, nonassessable
share of Series A Participating Preferred Stock (the "Preferred Stock") of the
Company, at a purchase price of $200 per one one-hundredth of a share (the
"Purchase Price"), upon presentation and surrender of this Rights Certificate
with the appropriate Form of Election to purchase and certificate duly executed.
The number of Rights evidenced by this Rights Certificate (and the number of
shares which may be purchased upon exercise thereof) set forth above, and the
Purchase Price set forth above, are the number and Purchase Price as of the
close of business on January 31, 1997, based on the Preferred Stock as
constituted at such date.
- -----------------------
/*/ The portion of the legend in brackets shall be inserted only if applicable.
B-1
<PAGE>
As provided in the Rights Agreement, the Purchase Price and the number of
shares of Preferred Stock or other securities which may be purchased upon the
exercise of the Rights evidenced by this Rights Certificate are subject to
modification and adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal office of the Company and are
also available upon written request to the Company.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Rights Certificate or Rights Certificates of like tenor
and date evidencing Rights entitling the holder to purchase a like aggregate
number of shares of Preferred Stock as the Rights evidenced by the Rights
Certificate or Rights Certificates surrendered shall have entitled such holder
to purchase. If this Rights Certificate shall be exercised (other than pursuant
to Section 11(a)(ii) of the Rights Agreement) in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised. If this Rights
Certificate shall be exercised in whole or in part pursuant to Section 11(a)(ii)
of the Rights Agreement, the holder shall be entitled to receive this Rights
Certificate duly marked to indicate that such exercise has occurred as set
forth in the Rights Agreement.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at its option at a redemption
price of $.01 per Right. Subject to the provisions of the Rights Agreement, the
Company, at its option, may elect to mail payment of the redemption price to the
registered holder of the Right at the time of redemption, in which event this
certificate may become void without any further action by the Company.
No fractional shares of Preferred Stock will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any
B-2
<PAGE>
purpose the holder of shares of Preferred Stock or of any other securities of
the Company which may at any time be issuable on the exercise hereof, nor shall
anything contained in the Rights Agreement or herein be construed to confer upon
the holder hereof, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Dated: ____________, 19__.
Attest: ETEC SYSTEMS, INC.
____________________________ By _______________________________
Title ______________________ Title ____________________________
Countersigned:
BANK OF BOSTON
By _________________________
B-3
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED, _______________________________ hereby sells, assigns
and transfers unto ___________________________________________________________
_______________________________________________________________
(please print name and address of transferee)
_______________________________________________________________ this Rights
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _______________ Attorney, to transfer
the within Rights Certificate on the books of the within-named Company, with
full power of substitution.
Dated: ____________, 19___.
__________________________________
Signature
Signature Guaranteed:
B-4
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being sold, assigned and transferred by or on behalf of a Person who is or was
an Acquiring Person or an Affiliate or Associate of any such Acquiring Person
(as such terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate
or Associate of an Acquiring Person.
Dated: ____________, 19__.
__________________________________
Signature
NOTICE
------
The signature to the foregoing Assignment must correspond to the name
as written upon the face of this Rights Certificate in every particular, without
alteration or enlargement or any change whatsoever.
B-5
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise the Rights Certificate pursuant to
Section 11(a)(ii) of the Rights Agreement.)
To ETEC SYSTEMS, INC.:
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the shares of Common Stock
(or such other securities of the Company) issuable upon the exercise of the
Rights and requests that certificates for such shares be issued in the name of:
________________________________________________________________________________
(Please insert social security or other identifying number)
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
The Rights Certificate indicating the balance, if any, of such Rights which
may still be exercised pursuant to Section 11(a)(ii) of the Rights Agreement
shall be returned to the undersigned unless such Person requests that the Rights
Certificate be registered in the name of and delivered to:
________________________________________________________________________________
Please insert social security or other identifying number (complete only if
Rights Certificate is to be registered in a name other than the undersigned)
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ____________, 19__.
__________________________________
Signature
Signature Guaranteed:
B-6
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement);
(3) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate
or Associate of an Acquiring Person.
Dated: ____________, 19__.
__________________________________
Signature
NOTICE
------
The signature to the foregoing Election to Purchase must correspond to
the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
B-7
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise
the Rights Certificate other than pursuant to
Section 11(a)(ii) of the Rights Agreement.)
To ETEC SYSTEMS, INC.:
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
(or such other securities of the Company or any other Person) issuable upon the
exercise of the Rights and requests that certificates for such shares be issued
in the name of:
________________________________________________________________________________
(Please insert social security or other identifying number)
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
The Rights Certificate indicating the balance, if any, of such Rights which
may still be exercised pursuant to Section 11(a)(ii) of the Rights Agreement
shall be returned to the undersigned unless such Person requests that the Rights
Certificate be registered in the name of and delivered to:
________________________________________________________________________________
Please insert social security or other identifying number
(complete only if Rights Certificate is to be registered in
a name other than the undersigned)
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ____________, 19__.
__________________________________
Signature
Signature Guaranteed:
B-8
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being sold, assigned and transferred by or on behalf of a Person who is or was
an Acquiring Person or an Affiliate or Associate of any such Acquiring Person
(as such terms are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate
or Associate of an Acquiring Person.
Dated: ____________, 19__.
__________________________________
Signature
NOTICE
------
The signature to the foregoing Election to Purchase must correspond to the
name as written upon the fact of this Rights Certificate in every particular,
without alteration or enlargement or any change whatsoever.
B-9
<PAGE>
EXHIBIT C
---------
SUMMARY OF RIGHTS
-----------------
On January 15, 1997 the Board of Directors of ETEC SYSTEMS, INC. (the
"Company") declared a dividend distribution of one Right for each outstanding
share of common stock, $.01 par value (the "Common Stock"), of the Company to
stockholders of record at the close of business on January 31, 1997 (the "Record
Date"). Except as set forth below, each Right, when exercisable, entitles the
registered holder to purchase from the Company one one-hundredth share of a new
series of preferred stock, designated as Series A Participating Preferred Stock,
$.01 par value (the "Preferred Stock"), at a price of $200 per share (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement (the "Rights Agreement") between the
Company and Bank of Boston, as Rights Agent.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights certificates will
be distributed. The Rights will separate from the Common Stock and a
Distribution Date will occur upon the earliest of (i) a public announcement that
a Person or group of affiliated or associated Persons (an "Acquiring Person")
has acquired, or obtained the right to acquire beneficial ownership of
securities having 15% or more of the voting power of all outstanding voting
securities of the Company or (ii) ten days (unless such date is extended by the
Board of Directors) following the commencement of (or a public announcement of
an intention to make) a tender offer or exchange offer which would result in any
Person or group and related Persons becoming an Acquiring Person.
Until the Distribution Date the Rights will be evidenced, with respect to
any of the Common Stock certificates outstanding as of the Record Date, by such
Common Stock certificate together with this Summary of Rights. The Rights
Agreement provides that, until the Distribution Date, the Rights will be trans-
ferred with and only with Common Stock certificates. From as soon as
practicable after the Record Date and until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Stock certificates issued
after the Record Date upon transfer or new issuance of the Common Stock will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Stock outstanding as of
the Record Date (with or without this Summary of Rights attached) will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights
C-1
<PAGE>
("Rights Certificates") will be mailed to holders of record of the Common Stock
as of the close of business on the Distribution Date, and the separate Rights
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on the earliest of (i) January 31, 2007, (ii) consummation of a
merger transaction with a Person or group who acquired Common Stock pursuant to
a Permitted Offer (as defined below), and is offering in the merger the same
price per share and form of consideration paid in the Permitted Offer, or (iii)
redemption or exchange of the Rights by the Company as described below.
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of the Preferred
Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights
or warrants to subscribe for Preferred Stock, certain convertible securities or
securities having the same or more favorable rights, privileges and preferences
as the Preferred Stock at less than the current market price of the Preferred
Stock, or (iii) upon the distribution to holders of the Preferred Stock of
evidences of indebtedness or assets (excluding regular quarterly cash dividends
out of earnings or retained earnings) or of subscription rights or warrants
(other than those referred to above).
In the event that, after the first date of public announcement by the
Company or an Acquiring Person that an Acquiring Person has become such, the
Company is involved in a merger or other business combination transaction
(whether or not the Company is the surviving corporation) or 50% or more of the
Company's assets or earning power are sold (in one transaction or a series of
transactions), proper provision shall be made so that each holder of a Right
(other than an Acquiring Person) shall thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of either the Company, in the event that it is
the surviving corporation of a merger or consolidation, or the acquiring company
(or, in the event there is more than one acquiring company, the acquiring
company receiving the greatest portion of the assets or earning power
transferred) which at the time of such transaction would have a market value of
two times the exercise price of the Right (such right being called the "Merger
Right"). In the event that a Person becomes the beneficial owner of securities
having 15% or more of the voting power of all then outstanding voting securities
of the Company (unless pursuant to a tender offer or exchange offer for all
outstanding shares of Common Stock at a price and on terms determined prior to
the date of the first
C-2
<PAGE>
acceptance of payment for any of such shares by at least a majority of the
members of the Board of Directors who are not officers of the Company and are
not Acquiring Persons or Affiliates or Associates thereof to be both adequate
and otherwise in the best interests of the Company and its stockholders (a
"Permitted Offer")), then proper provision shall be made so that each holder of
a Right will for a 60-day period (subject to extension under certain
circumstances) thereafter have the right to receive upon exercise that number of
shares of Common Stock having a market value of two times the exercise price of
the Right, to the extent available, and then (after all authorized and
unreserved shares of Common Stock have been issued) a common stock equivalent
(such as Preferred Stock or another equity security with at least the same
economic value as the Common Stock) having a market value of two times the
exercise price of the Right, with Common Stock to the extent available being
issued first (such right being called the "Subscription Right"). The holder of
a Right will continue to have the Merger Right whether or not such holder
exercises the Subscription Right. Notwithstanding the foregoing, upon the
occurrence of any of the events giving rise to the exercisability of the Merger
Right or the Subscription Right, any Rights that are or were at any time after
the Distribution Date owned by an Acquiring Person shall immediately become null
and void.
With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractions of shares will be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Common Stock on the last trading date prior to the date of exercise.
At any time prior to the earlier to occur of (i) a Person becoming an
Acquiring Person or (ii) the expiration of the Rights, the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"), which redemption shall be effective upon the action of the
Board of Directors. Additionally, the Company may thereafter redeem the then
outstanding Rights in whole, but not in part, at the Redemption Price (i) if
such redemption is incidental to a merger or other business combination
transaction or series of transactions involving the Company but not involving an
Acquiring Person or certain related Persons or (ii) following an event giving
rise to, and the expiration of the exercise period for, the Subscription Right
if and for as long as an Acquiring Person beneficially owns securities
representing less than 15% of the voting power of the Company's voting
securities. The redemption of Rights described in the preceding sentence shall
be effective only as of such time when the Subscription Right is not
exercisable, and in any event, only after ten Business Days' prior notice. Upon
the effective date of the redemption of the Rights, the right to exercise the
Rights will terminate and the
C-3
<PAGE>
only right of the holders of Rights will be to receive the Redemption Price.
Subject to applicable law, the Board of Directors, at its option, may at
any time after a Person becomes an Acquiring Person (but not after the
acquisition by such Person of 50% or more of the outstanding Common Stock),
exchange all or part of the then outstanding and exercisable rights (except for
Rights which have become void) for shares of Common Stock equivalent to one
share of Common Stock per Right or, alternatively, for substitute consideration
consisting of cash, securities of the Company or other assets (or any
combination thereof).
The Preferred Stock purchasable upon exercise of the Rights will be
nonredeemable and junior to any other series of preferred stock the Company may
issue (unless otherwise provided in the terms of such stock). Each share of
Preferred Stock will have a preferential quarterly dividend in an amount equal
to 100 times the dividend declared on each share of Common Stock, but in no
event less than $1600. In the event of liquidation, the holders of Preferred
Stock will receive a preferred liquidation payment equal to the greater of 100
times $200 or 100 times the payment made per each share of Common Stock. Each
share of Preferred Stock will have 100 votes, voting together with the shares of
Common Stock. In the event of any merger, consolidation or other transaction
in which shares of Common Stock are exchanged, each share of Preferred Stock
will be entitled to receive 100 times the amount and type of consideration
received per share of Common Stock. The rights of the Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions. Fractional
shares of Preferred Stock will be issuable; however, the Company may elect to
distribute depositary receipts in lieu of such fractional shares. In lieu of
fractional shares other than fractions that are multiples of one one-hundredth
of a share, an adjustment in cash will be made based on the market price of the
Preferred Stock on the last trading date prior to the date of exercise.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registra tion Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company. This
summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
C-4
<PAGE>
EXHIBIT 11
ETEC SYSTEMS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE AND EQUIVALENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------- -----------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding............................. 20,560 17,047 20, 140 14,980
Weighted average common stock equivalents
calculated by the treasury stock method
applied to options and warrants issued.. 1,246 1,822 1,322 1,879
--------- --------- -------- --------
Weighted average common shares and
equivalents............................. 21,806 18,869 21,462 16,859
========= ========= ======== ========
Net income............................... $ 7,586 $ 3,488 $ 14,570 $ 6,150
========= ========= ======== ========
Net income per share..................... $ 0.35 $ 0.18 $ 0.68 $ 0.36
========= ========= ======== ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 56,803
<SECURITIES> 34,673
<RECEIVABLES> 63,967
<ALLOWANCES> 1,077
<INVENTORY> 69,937
<CURRENT-ASSETS> 252,080
<PP&E> 39,313
<DEPRECIATION> (11,912)
<TOTAL-ASSETS> 283,392
<CURRENT-LIABILITIES> 98,666
<BONDS> 5,000
0
0
<COMMON> 213
<OTHER-SE> 170,361
<TOTAL-LIABILITY-AND-EQUITY> 283,392
<SALES> 81,711
<TOTAL-REVENUES> 98,567
<CGS> 39,275
<TOTAL-COSTS> 52,469
<OTHER-EXPENSES> 14,596<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 510
<INCOME-PRETAX> 20,628
<INCOME-TAX> 1,973
<INCOME-CONTINUING> 14,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,570
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
<FN>
<F1>EXCLUDES SG&A AS SG&A IS PART OF 5-03(b)(4).
</FN>
</TABLE>
