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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 MAY 1, 1998 COMMISSION FILE NUMBER: 0-26968
----------------
ETEC SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 94-3094580
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
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
22,062,960 shares of Common Stock were outstanding as of May 29, 1998.
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<PAGE>
Part 1. Financial Information
Item 1. Consolidated Financial Statements
ETEC SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
April 30, July 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $40,874 $55,975
Marketable securities.............................. 56,317 34,262
Accounts receivable, less allowance for
doubtful accounts of $1,189 and $1,136............ 86,940 54,879
Inventory.......................................... 84,410 67,202
Deferred tax assets................................ 22,822 22,822
Other current assets............................... 6,384 3,322
------------ ------------
Total current assets.............................. 297,747 238,462
Property, plant and equipment, net................. 45,252 42,013
Other assets....................................... 4,222 4,068
------------ ------------
$347,221 $284,543
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $21,417 $20,830
Accrued and other liabilities...................... 75,299 53,028
Taxes payable...................................... 14,438 8,301
------------ ------------
Total current liabilities......................... 111,154 82,159
Deferred gain on sale of asset..................... 2,670 2,871
Other liabilities.................................. 1,587 1,872
------------ ------------
Total liabilities................................. 115,411 86,902
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $0.01 per share;
10,000,000 shares authorized; none outstanding.... -- --
Common Stock, par value $0.01 per share; 60,000,000
and 40,000,000 shares authorized; 22,057,598 and
21,679,636 issued and outstanding................. 221 217
Warrants........................................... 600 631
Additional paid-in capital......................... 204,990 198,557
Cumulative translation adjustments................. (1,518) (719)
Net unrealized gain on investments................. 9 --
Retained earnings (accumulated deficit)............ 27,508 (1,045)
------------ ------------
Total stockholders' equity........................ 231,810 197,641
------------ ------------
$347,221 $284,543
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ETEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
------------------- -------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Products........................... $60,969 $61,717 $173,101 $143,428
Services........................... 9,059 7,984 27,460 24,840
--------- --------- --------- ---------
70,028 69,701 200,561 168,268
--------- --------- --------- ---------
Cost of revenue:
Products........................... 27,145 28,827 76,750 68,102
Services........................... 7,133 6,149 20,850 19,343
--------- --------- --------- ---------
34,278 34,976 97,600 87,445
--------- --------- --------- ---------
Gross profit......................... 35,750 34,725 102,961 80,823
--------- --------- --------- ---------
Operating expenses:
Research, development and
engineering....................... 13,056 9,470 37,388 24,066
Selling, general and
administrative.................... 7,362 8,287 24,735 20,472
Write-off of in-process
technology acquired............... -- 3,874 -- 3,874
--------- --------- --------- ---------
20,418 21,631 62,123 48,412
--------- --------- --------- ---------
Income from operations............... 15,332 13,094 40,838 32,411
Interest expense..................... (257) (287) (617) (797)
Other income, net.................... 1,222 981 3,371 2,802
--------- --------- --------- ---------
Income before income tax provision... 16,297 13,788 43,592 34,416
Income tax provision................. 5,623 6,182 15,039 12,240
--------- --------- --------- ---------
Net income........................... $10,674 $7,606 $28,553 $22,176
========= ========= ========= =========
Basic earnings per share............. $0.49 $0.36 $1.30 $1.08
========= ========= ========= =========
Weighted-average common shares....... 22,004 21,334 21,881 20,538
========= ========= ========= =========
Diluted earnings per share........... $0.47 $0.34 $1.25 $1.02
========= ========= ========= =========
Dilutive potential common shares..... 22,916 22,498 22,827 21,807
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ETEC SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $28,553 $22,176
Adjustments to reconcile net income to net cash
used in operating activities:
Write-off of in-process technology acquired............ -- 3,874
Depreciation and amortization.......................... 5,459 2,996
Deferred taxes......................................... -- (1,162)
Changes in assets and liabilities:
Accounts receivable.................................... (38,319) (12,021)
Factoring of accounts receivable....................... 6,200 --
Inventory.............................................. (18,021) (21,986)
Other current assets................................. (14,115) --
Other assets........................................... (456) (207)
Accounts payable....................................... 646 2,683
Accrued and other liabilities.......................... 19,722 18,628
---------- ----------
Net cash provided by (used in) operating activities.. (10,331) 14,981
---------- ----------
Cash flows from investing activities:
Purchases of marketable securities, net................ (22,055) (21,946)
Capital expenditures for property and equipment, net... (8,781) (18,219)
Payment for purchase of Ebetech, net of cash acquired.. -- (4,682)
New building construction costs........................ -- (4,500)
Proceeds from sale of facilities....................... 11,000 5,000
---------- ----------
Net cash used in investing activities................ (19,836) (44,347)
---------- ----------
Cash flows from financing activities:
Repayment of debt and capital leases................... (93) (2,742)
Financing from (repayment to) intermediary............. 12,115 (13,842)
Repurchase of warrants................................. -- (2,633)
Collection of (issuance of) notes receivable
from (to) stockholders............................... 201 (201)
Proceeds from issuance of Common Stock................. 4,128 40,522
---------- ----------
Net cash provided by financing activities............ 16,351 21,104
---------- ----------
Effect of exchange rate changes on cash.................. (1,285) (1,509)
---------- ----------
Net change in cash and cash equivalents.................. (15,101) (9,771)
Cash and cash equivalents at the beginning
of the period.......................................... 55,975 44,472
---------- ----------
Cash and cash equivalents at the end of the period....... $40,874 $34,701
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest................. $531 $727
========== ==========
Cash paid during the period for income taxes............. $6,734 $7,831
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Tax benefits from stock option transactions.............. $2,077 $2,830
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ETEC SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the management of Etec Systems, Inc. ("Etec" or
the "Company"), the unaudited consolidated interim financial statements
included herein have been prepared on the same basis as the July 31,
1997 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
for 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, 1997 included in the
Company's Annual Report on Form 10-K (File No. 0-26968). The July 31,
1997 balance sheet included herein was derived from audited consolidated
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
For purposes of presentation, the Company has indicated its
interim fiscal periods as ending April 30, 1998 and April 30, 1997. As
the Company's fiscal period is accounted for on a 52-53 week year, the
interim period consolidated financial statements included herein
represent results for each of the three- and nine-month periods ended
May 1, 1998 and May 2, 1997.
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 disclosures 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.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 130 establishes standards for
reporting and display of comprehensive income and requires the Company
to report additional information on comprehensive income to supplement
the reporting of income. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Comparative financial statements
must be provided for all periods presented and require reclassification
adjustments. The Company will adopt SFAS 130 in fiscal 1999 and does not
expect its provisions to have a material effect on the Company's
presentation of its consolidated financial statements.
SFAS 131 establishes standards for reporting information about
operating segments in annual and interim financial statements and also
establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS 131 is effective
for fiscal years beginning after December 15, 1997. The Company will
adopt SFAS 131 in fiscal 1999 and is currently studying its provisions.
NOTE 2 - CASH EQUIVALENTS AND MARKETABLE SECURITIES
At April 30, 1998, the Company's investments were classified as
available-for-sale. The difference between the cost and fair value of
those investments is shown as a separate component of stockholders'
equity. At April 30, 1998, these available-for-sale securities totaling
approximately $29.7 million were included in cash and cash equivalents
or marketable securities on the balance sheet. The investment portfolio
at April 30, 1998 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
April 30, July 31,
1998 1997
----------- -----------
(in thousands)
Purchased parts....................... $29,079 $20,325
Work-in-process....................... 39,435 35,972
Spares................................ 15,896 10,905
----------- -----------
$84,410 $67,202
=========== ===========
NOTE 4 - INCOME TAXES
The Company recorded provisions for income taxes for the nine
months ended April 30, 1998 and 1997 of $15.0 million and $12.2 million,
respectively. The Company's provision for income taxes for the nine
months ended April 30, 1998 reflects the utilization of research and
development tax credits and tax benefits from the use of a foreign sales
corporation, partially offset by foreign earnings taxed at higher rates.
During the second quarter of fiscal 1998, the Company reduced its fiscal
1998 effective tax rate from the 35.5% used in the first quarter to
34.5% in order to reflect revised estimates of certain tax credits. The
provision for the nine months ended April 30, 1997 includes a $1.2
million benefit which reflects the fiscal 1997 first quarter release of
valuation allowances previously recorded against the Company's 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 presumed ability to increase manufacturing
capacity. Management will continue to evaluate the recoverability of
the deferred tax assets in future periods.
NOTE 5 - LEASES
In November 1997, the Company completed the purchase of
approximately 15.2 acres of land in Hillsboro, Oregon at a cost of
approximately $2.4 million. The Company is having a new facility
constructed on this site to meet development and manufacturing
requirements for its laser mask pattern generation products and to back
up its electron-beam manufacturing capabilities in Hayward, California.
In December 1997, the Company entered into an agreement to lease
the facility to be constructed on the land described above. The lessor
of the buildings has committed to spend up to $60.0 million for the
construction and the Company will act as construction agent for the
lessor. The lease term begins upon completion of construction (which is
expected in the middle of calendar year 1999) and ends in November,
2004. With the approval of the lessor, the Company may extend the lease
term for up to three one-year periods. The Company has the option to
purchase the facility at any time during the lease term at the lessor's
capitalized cost. If the Company does not elect to purchase the
property at the end of the lease term, the Company is required to
guarantee the minimum residual value which shall not exceed $49.8
million.
In February 1998, the Company entered into an agreement to amend
the existing lease on its Hayward facilities to accommodate a $50.0
million planned expansion of production and research and development
facilities and renovation of existing production facilities via
construction lease allowances. The lease amendment also included the
leaseback of $11.0 million of building improvements on existing
facilities sold to the lessor via the lease amendment. The initial term
of the lease expires in May, 2014, and, if not cancelled by the Company,
will be automatically extended for three five-year renewal periods and
one additional eight-month renewal period.
NOTE 6-REVOLVING LINE OF CREDIT
In April 1998, the Company extended the term of its existing $50.0
million revolving line of credit from May 1999 to November 1999. As of
May 1, 1998, no amounts have been drawn under this line of credit.
During the quarter, the covenants were revised to be substantially the
same as those under the Hillsboro, Oregon lease agreement. In addition,
the Company amended the interest rate from the London Interbank Offered
Rate plus 1.25% to the London Interbank Offered Rate plus 0.95%.
NOTE 7 - NET INCOME PER SHARE
The Company calculates earnings per share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share
(SFAS 128). Basic EPS is computed by dividing net income available to
common stockholders (numerator) by the weighted-average common shares
(denominator) during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period including
stock options and warrants, using the treasury stock method. In
computing diluted EPS, the average stock price for the period is used in
determining the number of shares assumed to be purchased from the
exercise of stock options and warrants.
Following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations under SFAS 128:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
------------------------ --------------------
1998 1997 1998 1997
----------- ----------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
BASIC EPS COMPUTATION
Net income................................. $10,674 $7,606 $28,553 $22,176
=========== =========== ========= =========
Weighted-average common shares............. 22,004 21,334 21,881 20,538
=========== =========== ========= =========
Basic earnings per share................... $0.49 $0.36 $1.30 $1.08
=========== =========== ========= =========
DILUTED EPS COMPUTATION
Net income................................. $10,674 $7,606 $28,553 $22,176
=========== =========== ========= =========
Weighted-average common shares............. 22,004 21,334 21,881 20,538
Plus shares from assumed conversion:
Effect of dilutive options and warrants.. 912 1,164 946 1,269
----------- ----------- --------- ---------
Dilutive potential common shares........... 22,916 22,498 22,827 21,807
=========== =========== ========= =========
Diluted earnings per share................. $0.47 $0.34 $1.25 $1.02
=========== =========== ========= =========
ANTIDILUTIVE SECURITIES*
Options outstanding at end of period....... 184 209 187 245
=========== =========== ========= =========
Weighted-average exercise price............ $59.22 $36.87 $59.20 $36.46
=========== =========== ========= =========
</TABLE>
- ------------
*Antidilutive securities consist of options excluded from the computation
of diluted earnings per share because the exercise price of each of these
options was greater than the average market price of the Company's Common
Stock during the period.
ETEC SYSTEMS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
A. Results of Operations
Quarters Ended April 30, 1998 and April 30, 1997
Revenue. Revenues are primarily comprised of sales of ALTA, MEBES,
and CORE systems, accessories and upgrades, and the provision 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. As such, 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 period.
Product revenue of $61.0 million for the quarter ended April 30,
1998 was 1% less than the $61.7 million for the corresponding quarter of
1997. Eight systems were sold in the quarter ended April 30, 1998
compared to nine systems in the quarter ended April 30, 1997. One
system scheduled for shipment during the quarter ended April 30, 1998
was not accepted by the customer because it failed to meet a "stripe
butting" specification. After the close of the quarter the
specification was revised, the customer accepted the system, and the
Company will recognize the associated revenue during the quarter ending
July 31, 1998. Sales of accessories and upgrades in the quarter ended
April 30, 1998 were double those for the quarter ended April 30, 1997.
Service revenue increased 13% to $9.1 million from $8.0 million
for the quarters ended April 30, 1998 and 1997, respectively, due
primarily to 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 3% to $33.8 million from $32.9 million for the quarters ended
April 30, 1998 and 1997, respectively. The increase is primarily
attributable to changes in product mix to newer generation products with
higher average selling prices and corresponding margins. Gross profit
as a percentage of revenue decreased on a sequential basis to 55.5% for
the quarter ended April 30, 1998 from 58.9% for the prior quarter,
principally because of an unusually rich mix of new products in the
earlier quarter, but was higher than the 53.3% margin achieved in the
quarter ended April 30, 1997. There can be no assurance that the
Company will be able to maintain or increase gross margin on product
revenue in future periods.
The Company's gross profit on service revenue increased 5% to $1.9
million from $1.8 million for the quarters ended April 30, 1998 and
1997, respectively. Gross margin on service revenue was 21% and 23% for
the quarters ended April 30, 1998 and 1997, respectively, reflecting
increased headcount on flat revenue. There can be no assurance that the
Company will be able to maintain or increase gross margins on service
revenue in future periods.
Research, Development and Engineering. The Company's research,
development and engineering expenses continue to reflect its commitment
to increased levels of product development. These expenses, net of
third-party funding under cooperative development agreements, increased
to $13.1 million, representing 19% of revenue, from $9.5 million,
representing 14% of revenue, for the quarters ended April 30, 1998 and
1997, respectively. The increase is primarily due to expenses incurred
for development of MEBES products, together with costs associated with
preparing the initial "beta" versions of the Company's new DigiRite 2000
laser direct imaging system for shipment from the Company's Tucson
facility. These additional costs were partially offset by $1.5 million
of reimbursements under cooperative development agreements received
during the quarter ended April 30, 1998. No such amounts were received
during the quarter ended April 30, 1997.
Selling, General and Administrative. Selling, general and
administrative expenses decreased 11% to $7.4 million, representing 11%
of revenue, from $8.3 million, representing 12% of revenue, for the
quarters ended April 30, 1998 and 1997, respectively. The decrease
results principally from lower commission costs due to completion in the
second quarter of 1998 of the Company's market development fee
obligations in Asia, offset by an increase in headcount.
Income Tax Provision. The Company recorded provisions for income
taxes for the quarters ended April 30, 1998 and 1997 of $5.6 million and
$6.2 million, respectively. The Company's provision for income taxes for
the quarter ended April 30, 1998 reflects the utilization of research
and development tax credits and tax benefits from the use of a foreign
sales corporation, partially offset by foreign earnings taxed at higher
rates. Beginning with the second quarter of 1998, the Company reduced
its fiscal 1998 effective tax rate from the 35.5% used in the first
quarter to 34.5% in order to reflect revised estimates of certain tax
credits. 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 presumed ability to increase manufacturing capacity.
Management will continue to evaluate the recoverability of the deferred
tax assets in future periods.
Nine Months Ended April 30, 1998 and April 30, 1997
Revenue. Product revenue increased 21% to $173.1 million from
$143.4 million for the nine months ended April 30, 1998 and 1997,
respectively. The increase in fiscal 1998 is primarily due to the sale
of three more systems and higher average selling prices than for the
corresponding 1997 period, offset in part by a reduction of sales of
accessories and upgrades in 1998.
Service revenue increased 11% to $27.5 million from $24.8 million
for the nine months ended April 30, 1998 and 1997, respectively, due
primarily to 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 28% to $96.4 million from $75.3 million for the nine months
ended April 30, 1998 and 1997, respectively. The increase results from
an increase in product revenue and the higher gross margin on product
revenue, which increased to 56% for the nine months ended April 30, 1998
from 53% for the nine months ended April 30, 1997. The increase in
product gross margin is primarily attributable to changes in product mix
and generally higher average selling prices for the Company's newer
products. There can be no assurance that the Company will be able to
maintain or increase the present level of gross margin on product
revenue in future periods.
The Company's gross profit on service revenue increased 20% to
$6.6 million from $5.5 million for the nine months ended April 30, 1998
and 1997, respectively. Gross margin on service revenue was 24% and 22%
for the nine months ended April 30, 1998 and 1997, respectively. The
increases in gross profit and gross margin reflect increased revenues
from an increase in the number of systems under service contracts and
increased productivity. There can be no assurance that the Company will
be able to maintain or increase the present level of gross margin on
service revenue in future periods.
Research, Development and Engineering. The Company's research,
development and engineering expenses continue to reflect its commitment
to increased levels of product development. These expenses, net of
third-party funding under cooperative development agreements, increased
to $37.4 million, representing 19% of revenue, from $24.1 million,
representing 14% of revenue, for the nine months ended April 30, 1998
and 1997, respectively. The Company expects future increases in net
spending due to its commitment to product development. Funding
received under cooperative development contracts was $ 5.1 million and
$0.5 million, respectively, during the first nine months of fiscal 1998
and fiscal 1997. The increase is attributable to the achievement of
milestones under a multimillion dollar cost reimbursement and
development agreement with a private consortium.
Selling, General and Administrative. Selling, general and
administrative expenses increased 21% to $24.7 million, representing 12%
of revenue, from $20.5 million, representing 12% of revenue, for the
nine months ended April 30, 1998 and 1997, respectively. Selling,
general and administrative expenses increased primarily due to increased
headcount, market development fees and sales commissions associated with
increased product sales.
Income Tax Provision. The Company recorded provisions for income
taxes for the nine months ended April 30, 1998 and 1997 of $15.0 million
and $12.2 million, respectively. The Company's provision for income
taxes for the nine months ended April 30, 1998 reflects the utilization
of research and development tax credits and tax benefits from the use of
a foreign sales corporation, partially offset by foreign earnings taxed
at higher rates. Beginning with the second quarter of 1998, the Company
reduced its fiscal 1998 effective tax rate from 35.5% used in the first
quarter to 34.5% in order to reflect estimates of certain tax credits.
The Company's provision for income taxes for the nine months ended April
30, 1997 includes a $1.2 million benefit which reflects the first
quarter release of valuation allowances previously recorded against the
Company's 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 presumed ability to
increase manufacturing capacity. Management will continue to evaluate
the recoverability of the deferred tax assets in future periods.
B. Liquidity and Capital Resources
In addition to its operational cash flows, in fiscal 1997 and
fiscal 1996, the Company raised approximately $108.0 million from its
initial public offering, two additional public offerings, and a private
placement. In fiscal 1997, the Company received $5.0 million from the
sale and leaseback of its headquarters campus. In fiscal 1998, the
Company received commitments of up to $121.0 million for the
construction of additional manufacturing facilities during fiscal 1998
and fiscal 1999 under operating lease arrangements. The Company
believes that approximately $53.0 million of the $121.0 million total
will be used in fiscal 1998 and approximately $68.0 million will be used
in fiscal 1999 under these commitments.
The Company's capital budget for fiscal 1998 of $80.0 million
included the $53.0 million in facility construction which was
subsequently converted to a construction allowance under an operating
lease. The remaining $27.0 million is planned for other capital
expenditures. The Company spent approximately $8.8 million for net
capital expenditures in the first nine months of fiscal 1998 primarily
to purchase testing and process equipment.
In October 1997, the Company purchased approximately 4.2 acres of
land in Hayward, California for $0.9 million. This site provides the
Company flexibility for future expansion of its Hayward-based
operations. In addition, in November 1997, the Company completed the
purchase of approximately 15.2 acres of land in Hillsboro, Oregon for
approximately $2.4 million. The Company is having a new facility
constructed on this site to meet development and manufacturing
requirements for its laser mask pattern generation products and to back
up its electron-beam manufacturing capabilities in Hayward, California.
The new facilities in Hayward and Hillsboro are expected to be completed
in the middle of calendar year 1999.
As of April 30, 1998, the Company had cash and cash equivalents
and marketable securities of $97.2 million. The Company believes that
existing cash balances (including cash equivalents and marketable
securities), together with existing sources of liquidity, including
cash flows from operating activities and amounts available under the
existing $50.0 million revolving line of credit, will provide adequate
cash to fund its operations for at least the next twelve months. The
Company also believes that success in its industry requires substantial
capital in order to maintain the flexibility to take advantage of
opportunities as they arise. As such, the Company may effect additional
equity or debt financings in the future to fund such activities.
Operating Activities
Net cash used in operating activities for the nine months ended
April 30, 1998 was $10.3 million. Net cash provided by operating
activities for the nine months ended April 30, 1997 was $15.0 million.
Cash flows from operating activities for the nine months ended
April 30, 1998 primarily reflected net income of $28.6 million;
increases in depreciation and amortization of $5.5 million; increases in
accounts receivable of $38.3 million; factoring of accounts receivable
of $6.2 million; increases in inventory of $18.0 million; increases in
other current assets of $14.1 million (including $11.0 million in
respect of the sale and leaseback of building improvements); and
increases in accrued and other liabilities of $19.7 million (primarily
due to increases in advances from customers of approximately $11.5
million).
Cash flows from operating activities for the nine months ended
April 30, 1997 primarily reflected net income of $22.2 million;
increases in noncash items of $5.7 million (which include depreciation
and amortization of $3.0 million, partly offset by $1.2 million of
deferred taxes); and increases in accounts receivable of $12.0 million,
inventory of $22.0 million, accounts payable of $2.7 million, and
accrued and other liabilities of $18.6 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 revenue recognition, the increase in unit
shipments, the factoring of accounts receivable and the timing of
payments to vendors. The increase in accounts receivable is due to a
higher sales volume in comparison to the prior period, a higher ratio of
sales in Asia, which usually take longer to settle than domestic sales,
and shipments of newer technology machines which often extend customer
acceptance. The increase in inventory is due to the purchase of raw
materials in anticipation of a higher order level than was actually
achieved and to an increased level of service parts. Prior to the
shipment of a system, the Company receives payment for a portion of the
system sales price. Such payments are generally received when the
Company accepts an order and at various points when the system is being
installed and thereafter. Therefore, the amount of customer advances at
each reporting period fluctuates based on the number of systems that are
on order, the timing of when orders are accepted, and each system's
status within the manufacturing cycle. Advances from customers
increased to $23.0 million at April 30, 1998 from $11.5 million at July
31, 1997.
Investing Activities
Net cash used in investing activities for the nine months ended
April 30, 1998 was $19.8 million compared to $44.3 million for the nine
months ended April 30, 1997. Cash flows from investing activities for
the nine months ended April 30, 1998 reflected net purchases of
marketable securities of $22.0 million and net capital expenditures of
$8.8 million, less the sale of $11.0 million of building improvements
which were leased back. Cash flows from investing activities for the
nine months ended April 30, 1997 primarily reflected net purchases of
marketable securities of $21.9 million and net capital expenditures of
$18.2 million.
Financing Activities
Net cash provided by financing activities for the nine months
ended April 30, 1998 was $16.4 million compared to the nine months ended
April 30, 1997 of $21.1 million. Cash flows from financing activities
for the nine months ended April 30, 1998 primarily reflected receipts of
$12.1 million from a third-party financing intermediary. Cash flows
from financing activities for the nine months ended April 30, 1997
primarily reflected proceeds from issuance of Common Stock of $40.5
million. The decrease in net cash provided by financing activities is
primarily attributable to the fact that there was no public offering of
the Company's Common Stock during the first nine months of fiscal 1998
as there was during the first nine months of fiscal 1997.
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, but are not limited to,
the following: reduced orders or backlog due to changes in capital
spending decisions of customers or potential customers; the timely
development, market acceptance and successful production of new products
and enhancements in an environment of rapid technological change;
limitations on the Company's ability to carry out a rapid expansion of
its manufacturing capabilities; significant variations in quarterly or
annual results due to factors affecting even a small number of systems,
such as a delay in completion of manufacturing or testing of a single
system to a future fiscal period; and risks associated with foreign
operations, such as foreign exchange risk, general market conditions,
import-export controls, and political risks.
Year 2000 Issue
The Company has formed a project team to review its existing
products, services, processes, systems, facilities and key business
partners to ensure they are able to adequately address the issues
expected to arise in connection with the upcoming change in the century.
The Company's project to achieve this is based on the Government
Accounting Office model. Using this model, the Company is developing an
action plan to implement the system and programming changes necessary to
address, on an enterprise-wide basis, year 2000 issues, and is in the
process of assessing the schedule for and cost of implementing this
plan.
The Company believes that its Year 2000 project will be completed
on a timely basis; however, there can be no assurance that unexpected
delays or increased costs associated with implementation will not have
an adverse effect on the Company's operations.
In addition, the Company has not yet fully determined the extent
to which its business may be impacted by third parties whose products
and services may not be ready for the year 2000. There can be no
assurance that the systems of other companies which the Company deals
with, or on which the Company's systems rely, will be able to adequately
address the year 2000 issue, or that the failure to do so will not have
an adverse effect on the Company's operations.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith:
Exhibit
No. Description
- ------- ---------------------------------------------------------
10.1 Second Amended and Restated Lease Agreement by and between ET LLC,
a Delaware limited liability company d/b/a ET QRS LLC as Landlord
and Etec Systems, Inc., a Nevada corporation, as Tenant of the
Hayward, California premises dated February 2, 1998
10.2 1995 Omnibus Incentive Plan of Etec Systems, Inc. (As Amended and
Restated Effective December 2, 1997)
10.3 First Amendment to Second Amended and Restated Lease Agreement by
and between ET LLC, a Delaware limited liability company d/b/a ET
QRS LLC as Landlord and Etec Systems, Inc., a Nevada corporation,
as Tenant of the Hayward, California premises dated March 31, 1998
10.4 Second Amendment to Second Amended and Restated Lease Agreement by
and between ET LLC, a Delaware limited liability company d/b/a ET
QRS LLC as Landlord and Etec Systems, Inc., a Nevada corporation,
as Tenant of the Hayward, California premises dated May 8, 1998
10.5 Second Amendment to Credit Agreement between Etec Systems, Inc.,
each of the financial institutions currently a party to the Credit
Agreement, and ABN Amro Bank N.V.
27 Financial Data Schedule.
See Exhibit Index on page 18.
(b) Reports on Form 8-K.
None.
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 June 12, 1998.
ETEC SYSTEMS, INC.
(Registrant)
By /s/ William D. Snyder
William D. Snyder
Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
<PAGE>
ETEC SYSTEMS, INC.
INDEX OF EXHIBITS
Exhibit
No. Description
- ------- ---------------------------------------------------------
10.1 Second Amended and Restated Lease Agreement by and between ET LLC,
a Delaware limited liability company d/b/a ET QRS LLC as Landlord
and Etec Systems, Inc., a Nevada corporation, as Tenant of the
Hayward, California premises dated February 2, 1998
10.2 1995 Omnibus Incentive Plan of Etec Systems, Inc. (As Amended and
Restated Effective December 2, 1997)
10.3 First Amendment to Second Amended and Restated Lease Agreement by
and between ET LLC, a Delaware limited liability company d/b/a ET
QRS LLC as Landlord and Etec Systems, Inc., a Nevada corporation,
as Tenant of the Hayward, California premises dated March 31, 1998
10.4 Second Amendment to Second Amended and Restated Lease Agreement by
and between ET LLC, a Delaware limited liability company d/b/a ET
QRS LLC as Landlord and Etec Systems, Inc., a Nevada corporation,
as Tenant of the Hayward, California premises dated May 8, 1998
10.5 Second Amendment to Credit Agreement between Etec Systems, Inc.,
each of the financial institutions currently a party to the Credit
Agreement, and ABN Amro Bank N.V.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 10.1
SECOND AMENDED AND RESTATED LEASE AGREEMENT
by and between
ET LLC,
a Delaware limited liability company
d/b/a
ET QRS LLC
as LANDLORD
and
ETEC SYSTEMS, INC.,
a Nevada corporation,
as TENANT
Premises: Hayward, California
Dated as of: February 2, 1998
TABLE OF CONTENTS
Page
1. Demise of Premises 1
2. Certain Definitions 2
3. Title and Condition 13
4. Use of Leased Premises; Quiet Enjoyment 16
5. Term 16
6. Basic Rent 17
7. Additional Rent 18
8. Net Lease; Non-Terminability 19
9. Payment of Impositions 20
10. Compliance with Laws and Easement Agreements; Environmental
Matters 22
11. Liens; Recording 24
12. Maintenance and Repair 25
13. Alterations and Improvements 26
14. Permitted Contests 27
15. Indemnification 28
16. Insurance 29
17. Casualty and Condemnation 34
18. Termination Events 35
19. Restoration; Reduction of Rent 37
20. Procedures Upon Purchase 39
21. Assignment and Subletting; Prohibition against Leasehold
Financing 40
22. Events of Default 45
23. Remedies and Damages Upon Default 48
24. Notices 52
25. Estoppel Certificate 52
26. Surrender 53
27. No Merger of Title 53
28. Books and Records 53
29. Determination of Value 55
30. Non-Recourse as to Landlord 59
31. Financing 59
32. Subordination 60
33. Financial Covenants; Covenant Breach Offer 60
34. Tax Treatment; Reporting 61
35. Right of First Refusal 62
36. Financing Major Alterations 64
37. Security Deposit 65
38. Right to Vacate; Rejectable Offer Upon Vacation 66
39. Miscellaneous 67
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 2 and Building 3
Schedule 3 - Project I Improvements
SECOND AMENDED AND RESTATED LEASE AGREEMENT, made as of this 2nd
day of February, 1998, between ET LLC, a Delaware limited liability
company d/b/a ET QRS LLC ("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. ESI (CA) QRS 12-6, Inc., as landlord ("Original 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 and amended and restated by an Amended and Restated
Lease Agreement, dated as of January 31, 1997 (said Lease Agreement, as
amended and amended and restated, the "Original Lease").
B. By Articles of Merger filed with the Secretary of State of
Delaware on January 29, 1998 Original Landlord merged with ET-ESI, INC.
and by Articles of Merger filed with the Secretary of State of Delaware
on January 29, 1998 ET-ESI, Inc. merged with ET LLC and by Limited
Liability Company Application for Registration filed with the Secretary
of State of the State said ET LLC qualified to do business in the State
in the name of ET QRS LLC.
C. Landlord desires to demise to Tenant and Tenant desires to
lease from Landlord the Project I Improvements and the Project II
Improvements (as such terms are hereinafter defined) 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 1," "Building 2" and
"Building 3" and containing approximately 60,000 square feet, 47,000
square feet and 106,000 square feet, respectively; (c) the Project I
Improvements described in Schedule 3 hereto; (d) the Project II
Improvements, and all other buildings, structures and other improvements
now or hereafter constructed on the Land (collectively, together with the
Project I Improvements, the "Improvements"); and (e) the fixtures,
machinery, equipment and other property described in Exhibit "B" hereto
(collectively, the "Equipment").
2. Certain Definitions.
"Acquisition Cost" shall mean the sum of (a) $14,321,137, (b)
Project I Costs and (c) Project II Costs.
"Additional Rent" shall mean Additional Rent as defined in
Paragraph 7(a).
"Adjoining Property" shall mean all sidewalks, driveways, curbs,
gores and vault spaces adjoining any of the Leased Premises.
"Alterations" shall mean all changes, additions, modifications,
improvements or repairs to, all alterations, reconstructions, remodeling,
renovations, 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.
"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.
"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.
"Basic Rent" shall mean Basic Rent as defined in Paragraph 6.
"Basic Rent Payment Dates" shall mean the Basic Rent Payment Dates
as defined in Paragraph 6.
"Building 4" shall mean the building to contain not less than
129,000 square feet, to be constructed on the easterly portion of the
Land, in accordance with the Project II Plans and the Project II Budget
and to be known as "Building 4".
"Buildings 2 and 3 Renovations" shall mean Buildings 2 and 3
Renovations as defined in the Construction Agency Agreement.
"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.
"Commencement Date" shall mean Commencement Date as defined in
Paragraph 5(a).
"Completion Agreement" shall mean the Completion Agreement of even
date between Landlord and Tenant pursuant to which Tenant has agreed to
complete the Project I Improvements.
"Condemnation" shall mean a Taking and/or a Requisition.
"Condemnation Notice" shall mean notice or knowledge of the
institution of or intention to institute any proceeding for Condemnation.
"Construction Agency Agreement" shall mean the Construction Agency
Agreement of even date between Landlord, as owner, and Tenant, as agent
for Landlord pursuant to which Tenant, as such agent will cause the
Project II Improvements to be constructed.
"Costs" of a Person or associated with a specified transaction
shall mean all costs and expenses incurred by such Person or associated
with such transaction, including without limitation, reasonable
attorneys' fees and expenses, court costs, escrow fees, title insurance
premiums, mortgage points, recording fees and transfer taxes, as the
circumstances require.
"Covenant Breach" shall mean Covenant Breach as defined in
Paragraph 33(b).
"Covenants" shall mean Covenants as defined in Paragraph 33(a).
"CPI" shall mean CPI as defined in Paragraph 2 of Exhibit "D".
"Default Termination Amount" shall mean the Default Termination
Amount as defined in Paragraph 23(a)(iii).
"Default Rate" shall mean the Default Rate as defined in Paragraph
7(a)(iv).
"Deposit Amount" shall mean Deposit Amount as defined in
Paragraph 21(d).
"Easement Agreement" shall mean any conditions, covenants,
reservations, restrictions, easements, declarations, licenses and other
agreements listed as Permitted Encumbrances, including the Parking
Easement of even date from Tenant to Landlord or as may hereafter affect
the Leased Premises.
"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
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Superfund Amendments and Reauthorization Act, the
federal Water Pollution Control Act, the Clean Air Act, the Clean Water
Act, the Resources Conservation and Recovery Act of 1976 (including the
Hazardous and Solid Waste Amendments to RCRA), the Solid Waste Disposal
Act, the Toxic Substance Control Act, the Insecticide, Fungicide and
Rodenticide Act, the Occupational Safety and Health Act of 1970, the
National Environmental Policy Act and the Hazardous Materials
Transportation Act, each as amended and as now or hereafter in effect and
any similar foreign, state or local Law.
"Environmental Violation" shall mean (a) any direct or indirect
discharge, disposal, spillage, emission, escape, pumping, pouring,
injection, leaching, release, seepage, filtration, migration 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 other 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.
"Equipment" shall mean the Equipment as defined in Paragraph 1.
"Event of Default" shall mean an Event of Default as defined in
Paragraph 22(a).
"Existing Improvements" shall mean Building 1, Building 2 and
Building 3 as described in Paragraph 1 hereof together with the existing
Equipment installed therein.
"Expiration Date" shall mean Expiration Date as defined in
Paragraph 5(a).
"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.
"Fair Market Rental Value Date" shall mean any date on which Fair
Market Rental Value is finally determined in accordance with
Paragraph 29.
"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.
"Fair Market Value Date" shall mean the date when the Fair Market
Value is finally determined in accordance with Paragraph 29.
"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.
"Federal Funds Effective Rate" shall mean for any day, the rate set
forth in the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Board (including
any such successor, "H.15(519)") for such day opposite the caption
"Federal Funds (Effective)". If on any relevant day such rate is not yet
published in H.15(519), the rate for such day will be the rate set forth
in the daily statistical release designated as the Composite 3:30 p.m.
Quotations for U.S. Government Securities, or any successor publication,
published by the Federal Reserve Bank of New York (including any such
successor, the "Composite 3:30 p.m. Quotations") for such day under the
caption "Federal Funds Effective Rate." If on any relevant day the
appropriate rate for such day is not yet published in either H.15(519) or
the Composite 3:30 p.m. Quotations, the rate for such day will be the
arithmetic mean of the rates for the last transaction in overnight
Federal Funds arranged prior to 9:00 a.m., New York time, on that day by
each of three leading brokers of federal funds transactions in New York
City, selected by the Landlord.
"Final Completion Date" shall mean, individually, the Project I
Final Completion Date or the Project II Final Completion Date, as the
context may require, and collectively, the Project I Final Completion
Date and the Project II Final Completion Date.
"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 any Hazardous Substance into the environment (including,
without limitation, the air, surface water, groundwater, 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.
"Hazardous Condition" means any condition which would support or be
reasonably likely to result in any claim or liability under any
Environmental Law, including the presence of underground storage tanks.
"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.
"Impositions" shall mean the Impositions as defined in
Paragraph 9(a).
"Improvements" shall mean the Improvements as defined in
Paragraph 1.
"Indemnitee" shall mean an Indemnitee as defined in Paragraph 15.
"Initial Lender" shall mean Creditanstalt-Bankverein, its
successors and assigns.
"Initial Loan" shall mean the $8,221,345 loan from Initial Lender
evidenced by a Note dated January 31, 1997.
"Initial Term" shall mean Initial Term as defined in
Paragraph 5(a).
"Insurance Requirements" shall mean the requirements of all
insurance policies required to be maintained in accordance with this
Lease.
"Intended Assignment Offer" shall mean Intended Assignment Offer as
defined in Paragraph 21(d).
"Intended Assignment Purchase Date" shall mean Intended Assignment
Purchase Date as defined in Paragraph 21(d).
"Intended Transaction" shall mean Intended Transaction as defined
in Paragraph 33(b).
"Land" shall mean the Land as defined in Paragraph 1.
"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.
"Lease" shall mean this Second Amended and Restated Lease
Agreement.
"Lease Year" shall mean any 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.
"Leased Premises" shall mean the Leased Premises as defined in
Paragraph 1.
"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.
"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.
"LIBOR" means the rate of interest designated by Tenant
corresponding to the rate for one-month, two-month, three-month,
six-month or one-year periods for LIBOR as published in The Wall Street
Journal on the business day (the "Rate Determination Date") prior to the
first day of the applicable period (the first such designation to be made
as of the date hereof) which rate (a) shall remain fixed during the
period to which the rate corresponds, (b) shall, as to each such period,
be designated by notice to Landlord and (c) shall, as to such period, not
extend beyond May 31, 1999 as to the Project II Improvements and (d)
shall be the one-month rate if Tenant fails to make any required
designation.
If no such LIBOR rate appears in The Wall Street Journal as
described in the foregoing paragraph, LIBOR shall be the Federal Funds
Effective Rate on the Rate Determination Date.
All percentages resulting from any calculations referred to in this
definition will be rounded upwards, if necessary, to the nearest multiple
of 1/100 of 1% and all U.S. dollar amounts used in or resulting from such
calculations will be rounded to the nearest dollar (with fifty cents or
more being rounded upward).
"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.
"Major Alterations" shall mean Major Alterations as defined in
Paragraph 36(a).
"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.
"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.
"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.
"Non-Preapproved Assignee" shall mean Non-Preapproved Assignee as
defined in Paragraph 21(b).
"Non-Preapproved Assignment" shall mean Non-Preapproved Assignment
as defined in Paragraph 21(b).
"Note" shall mean any promissory note evidencing Landlord's
obligation to repay a Loan, as the same may be amended, supplemented or
modified.
"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 in prepaying any Loan with the proceeds of the Offer Amount and
(ii) after the expiration of the Initial Term, the Fair Market Value of
the Leased Premises as of the Relevant Date.
"Original Landlord" shall mean Original Landlord as described in
the BACKGROUND.
"Partial Casualty" shall mean any Casualty which does not
constitute a Termination Event.
"Partial Condemnation" shall mean any Condemnation which does not
constitute a Termination Event.
"Permitted Encumbrances" shall mean those covenants, restrictions,
reservations, liens, conditions, easements, declarations, licenses 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).
"Person" shall mean an individual, partnership, association,
corporation or other entity.
"Preapproved Assignee" shall mean Preapproved Assignee as defined
in Paragraph 21(a).
"Preapproved Assignment" shall mean Preapproved Assignment as
defined in Paragraph 21(a).
"Preapproved Sublet" shall mean Preapproved Sublet as defined in
Paragraph 21(h).
"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 prepayment
premium amount that would be payable if the outstanding principal amount
of the Loan being prepaid were the original principal amount of the
Replacement Loan (calculated on the basis of the full funding of the
Replacement Loan).
"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.
"Project I Acquisition Fee" shall mean $518,324.
"Project I Costs" shall mean with respect to the Project I
Improvements, the sum of $11,000,000 and the Project I Acquisition Fee.
"Project I Final Completion Date" shall mean March 31, 1998.
"Project I Improvements" shall mean the Improvements to Buildings 2
and 3 as generally described in Schedule 3 to this Lease and more
particularly described in the Project I Plans.
"Project I Plans" shall mean Project I Plans delivered to Landlord
on the date hereof.
"Project II Acquisition Fee" shall mean an amount equal to the
difference between (x) Project II Costs (exclusive of the Project II
Acquisition Fee), divided by .955, minus (y) Project II Costs (exclusive
of the Project II Acquisition Fee).
"Project II Budget" shall mean the Project II Budget attached as
Exhibit "B" to the Construction Agency Agreement as the same may be
amended from time to time in accordance with the applicable provisions of
the Construction Agency Agreement.
"Project II Costs" shall mean (i) with respect to the Project II
Improvements the lesser of (A) the sum of $50,000,000 and the Project II
Acquisition Fee and (B) the sum of Project II Direct Costs, Project II
Indirect Costs and the Project II Acquisition Fee.
"Project II Direct Costs" shall mean Direct Costs as defined in
Section 1.1 of the Construction Agency Agreement.
"Project II Final Completion Date" shall mean the date on which all
"punch list" items are completed with respect to the Project II
Improvements which shall occur not later than July 31, 1999 with respect
to Building 4 and October 31, 1999 with respect to the Building 2 and 3
Renovations.
"Project II Substantial Completion Date" shall mean the date on
which a permanent certificate of occupancy is issued for Building 4, but
in no event later than May 31, 1999.
"Project II Improvements" shall mean, collectively, Building 4 and
the Buildings 2 and 3 Renovations.
"Project II Indirect Costs" shall mean Indirect Costs as defined in
Section 1.01 of the Construction Agency Agreement.
"Project II Plans" shall mean Plans as defined in Section 1.01 of
the Construction Agency Agreement.
"Project" shall mean, the Project I Improvements or Project II
Improvements, as applicable.
"Relevant Amount" shall mean the Termination Amount, Offer Amount
or the Default Termination Amount, as the case may be.
"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
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
Paragraph 35(c), (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 or, with respect to any determination of Fair
Market Rental Value, the first day of the Renewal Term for which a
determination of Fair Market Rental Value is being made.
"Remaining Sum" shall mean Remaining Sum as defined in
Paragraph 19(c).
"Renewal Term" shall mean Renewal Term as defined in
Paragraph 5(b).
"Rent" shall mean, collectively, Basic Rent and Additional Rent.
"Replacement Loan" shall mean the Loan that refinances the Initial
Loan.
"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.
"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.
"Security Deposit" shall mean Security Deposit as defined in
Paragraph 37(a).
"Significant Subsidiary" shall mean at any time any Subsidiary that
would at such time constitute a "significant subsidiary" (as such term is
defined in Regulation S-X of the Securities and Exchange Commission as in
effect on the date hereof) of the Tenant.
"Site Assessment" shall mean a Site Assessment as defined in
Paragraph 10(c).
"State" shall mean the State of California.
"Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture, association or other business entity of
which the Tenant now or hereafter owns directly or indirectly, securities
or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other governing body thereof.
"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.
"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 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.
"Term" shall mean the Term as defined in Paragraph 5(a).
"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.
"Termination Date" shall mean Termination Date as defined in
Paragraph 18(b).
"Termination Event" shall mean a Termination Event as defined in
Paragraph 18(a).
"Termination Notice" shall mean Termination Notice as defined in
Paragraph 18(a).
"Third Party Purchaser" shall mean Third Party Purchaser as defined
in Paragraph 21(o).
"Vacation Offer" shall mean Vacation Offer as defined in
Paragraph 38.
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 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 Existing Improvements 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 (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
EXISTING IMPROVEMENTS HAVE 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 represents and warrants 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) the
Existing Improvements conform and on the applicable Final Completion Date
the applicable Project shall conform to all material Legal Requirements
and all Insurance Requirements, (iii) to Tenant's knowledge all permits,
licenses, approvals, consents and 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
Existing Improvements 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) the
Existing Improvements have been fully completed, and on the applicable
Final Completion Date the applicable Project shall be completed in all
material respects in a workmanlike manner of first class quality, and
(vi) 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, and on the Project I Final Completion Date and
Project II Final Completion Date, as applicable, all Equipment necessary
or appropriate for the use and operation of the applicable Project shall
have been installed and shall be fully operative in all material
respects.
(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.
(e) As of the date hereof, Landlord has acquired a portion of the
Project I Improvements. Tenant covenants and agrees to cause the
Project I Improvements to be completed in a good and workmanlike manner
no later than the Project I Final Completion Date in accordance with the
terms of the Completion Agreement and shall pay in full all Project I
Costs no later than April 1, 1998, subject, however, to Tenant's right to
contest under Paragraph 14 hereof. All acknowledgments of Tenant
regarding the Leased Premises contained in Paragraph 3(b) shall be deemed
to have been made with respect to Project I as of the Project I Final
Completion Date.
(f) Pursuant to the Construction Agency Agreement, Tenant will
cause the Project II Improvements to be constructed with funds more
particularly described in the Construction Agency Agreement. The
Project II Improvements will be owned by Landlord and included within the
Leased Premises. Tenant acknowledges that the Project II Improvements
have not yet been constructed and that, pursuant to the Construction
Agency Agreement entered into by Landlord and Tenant, Tenant has the
responsibility for causing the Project II Improvements to be completed in
accordance with the terms of the Construction Agency Agreement. Landlord
will not make any representations or warranties with respect to the
Project II Improvements. Tenant further acknowledges that, upon
occurrence of an Event of Default, Landlord may terminate the
Construction Agency Agreement, and in addition to all other remedies of
Landlord under this Lease, Landlord shall have the right but not the
obligation to complete construction of the Project II Improvements in
accordance with the Project II Plans. If Landlord so completes
construction of the Project II Improvements, Tenant will not be excused
from paying all Rent due pursuant to the terms of this Lease, and
Landlord shall have the right to exercise any or all of its remedies
hereunder following an Event of Default. All acknowledgments of Tenant
regarding the Leased Premises contained in Paragraph 3(b) shall be deemed
to have been made with respect to the Project II Improvements as of the
Project II Final Completion Date.
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 prior
written 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, Legal Requirement or Easement Agreement, (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) make void or voidable,
or cancel or cause to be cancelled or released any warranty, guaranty or
indemnity, (iv) cause structural injury to any of the Improvements or
(v) 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 not less than 48
hours' notice to Tenant, enter upon and examine any of the Leased
Premises at such reasonable times as Landlord may elect (except that no
notice shall be required if an Event of Default exists and remains
uncured), 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 May 31,
2014 (the "Expiration Date"). If all Rent and all other sums due
hereunder shall not have been 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) (i) no Event of Default
exists and remains uncured, and (ii) 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, each 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 for eight (8) months, such anniversary also being a "Renewal Date",
the Term shall be deemed to have been automatically extended (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 January 31, 1998. Tenant shall pay to Landlord, as
annual rent for the Leased Premises during the portion of the Term
remaining from and after February 1, 1998, the amounts determined in
accordance with Exhibit "D" hereto ("Basic Rent"). Payments shall be
made on March 1, 1998 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
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 and Lender's counsel incurred in connection with the
preparation, negotiation and execution of this Lease, Costs of Landlord's and
Lender'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, (K) out-of-pocket costs incurred by Lender in
connection with an Event of Default, (L) costs and expenses of any trustee
under any Mortgage and (M) 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(f) 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;
(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 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 or Tenant, (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 or (xv) 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 Federal 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 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 any of the 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 (A) 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 (B) 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 (x) any
sale or transfer of the Leased Premises or, (y) any sale or transfer of
ownership interests by any member of Landlord, 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.
(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 sole 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 or undertake any other appropriate response
action to correct 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 other occupier of the Leased Premises, 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 Easement Agreement shall
automatically be a Permitted Encumbrance.
(c) In connection with the refinancing of the Initial Loan or as
reasonably requested by a Lender and in any other case not more
frequently than once every three (3) years or at any other time that, in
the opinion of Landlord or Lender, a reasonable basis exists to believe
that an 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, or
other response action with respect to, 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 or Lender's request therefor, adequate financial
assurances that Tenant will effect such remediation or other response
action 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 or other
response action in accordance with applicable Environmental Laws or
(ii) the date specified in a written notice from Landlord to Tenant
terminating this Lease.
(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 and/or Lender shall have the right (but no obligation) to take
any and all actions as Landlord and/or Lender 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 thereof 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 Leased 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.
(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, at Tenant's sole cost and
expense, the Existing Premises and the Adjoining Property in
substantially as good repair and appearance as they are in on the date
hereof and shall at all times maintain the Project I Improvements and
Project II Improvements in substantially as good repair and appearance as
they are on the Project I Final Completion Date and Project II Final
Completion Date, 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, at Tenant's sole cost and expense, promptly
after receiving a notice thereof, correct such condition from the party
entitled to make such demand, and 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.
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 any "clean room" test area in Buildings 2,
3 or 4 and any "process laboratory" in Buildings 2, 3 and 4, $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 any "clean room" test
area in Buildings 2, 3 and 4 and any "process laboratory" in Buildings 2,
3 and 4 $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 pursuant to clauses (i) through (iv)
no Event of Default exists and the value and utility of the Leased
Premises is not diminished thereby and no such Alterations shall be
permitted under this Paragraph 13 with respect to the Project II
Improvements until the Project II Final Completion Date. 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 any "clean room" test area in Buildings 2, 3 or
4 and any "process laboratory" in Buildings 2, 3 or 4, $2,500,000, the
prior written approval of Lender shall be required, such approval not to
be unreasonably withheld, delayed or conditioned, but may be withheld if
an Event of Default exists and remains uncured. 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 or Lender'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 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 or Lender to the risk of any civil or
criminal liability.
15. Indemnification.
(a) Tenant shall pay, protect, indemnify, save and hold harmless
Landlord, Lender, its officers, directors, shareholders, employees and
trustees and all other Persons described in Paragraph 30 (each an
"Indemnitee") from and against any and all liabilities, obligations,
fines, 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.
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. Tenant shall maintain earthquake insurance for
the Improvements and Equipment in an amount equal to the product of full
replacement cost of the Improvements multiplied by the Probable Maximum Loss
of the Improvements determined every four (4) years by a seismic engineer
mutually acceptable to Landlord and Tenant with a deductible of not more
than 25% of the product of the full replacement cost of the Improvements
multiplied by the Probable Maximum Loss, 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 Workers' 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 as found in a standard
Comprehensive Boiler and 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 construction of the Project I Improvements and
the Project II Improvements and 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, Workers' 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 of Lender, Tenant shall immediately obtain new or additional
insurance reasonably satisfactory to Landlord and Lender.
(c) Each policy required by any provision of Paragraph 16(a),
except clause (iii) thereof, shall provide that it may not be canceled,
substantially modified or allowed to lapse on any renewal date 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 sufficient 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 and Lender, from the insurer thereunder. The
original or a certified copy of each such "blanket" or umbrella policy
shall promptly be delivered to Landlord and Lender.
(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.
(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 and Lender of
such separate insurance and shall deliver to Landlord and Lender copies
of the policies therefor.
(h) All policies shall contain effective waivers by the carrier
against all claims for insurance premiums against Landlord and Lender and
shall contain full waivers of subrogation against the Landlord and
Lender.
(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, so long as no Event of Default exists and
remains uncured, proceeds of less than $1,000,000, all proceeds of insurance
required under clauses (ii), (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 $1,000,000, 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.
(C) In the event of a Casualty that is not a
Termination Event where the proceeds are equal to or less than $1,000,000
and provided no Event of Default exists and is continuing, and no fact or
condition exists which with the lapse of time or giving of notice, or both,
would in Landlord's or Lender'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. If an Event of
Default exists and is continuing or a fact or condition exists which with
the lapse of time or giving of notice, or both, would in Landlord's or
Lender's judgment constitute an Event of Default, all proceeds shall be
payable to Landlord or Lender.
(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.
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 One Hundred
Thousand Dollars ($100,000), Tenant shall give Landlord and Lender
immediate notice thereof. So long as no Event of Default exists, and
subject to the provisions of Paragraph 16(i)(ii), 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 Landlord and Lender all
necessary proofs of loss, receipts, vouchers and releases required by the
insurers and Landlord and Lender shall have the right to join with Tenant
therein. Any adjustment, settlement or compromise of any such claim in
excess of $1,000,000 shall be subject to the prior written approval of
Landlord and Lender, which shall not be unreasonably withheld,
conditioned or delayed and Landlord and Lender 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
claim or to participate with Landlord or Lender 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 or Lender,
all proofs of loss, receipts, vouchers and releases. Each insurer is
hereby authorized and directed to make payment under said policies in
excess of $1,000,000 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 or Landlord and Tenant
jointly, and Tenant hereby appoints each of Landlord and Lender as
Tenant's attorneys-in-fact to endorse any draft therefor.
(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 and Lender shall have the right to join
with Tenant therein. No agreement with any condemnor in settlement or
under threat of any Condemnation shall be made by Tenant without the
written consent of Landlord and Lender which shall not be unreasonably
withheld, conditioned or delayed. If an Event of Default exists,
Landlord and Lender shall be authorized to collect, settle and compromise
the amount of any Net Award and Tenant shall not be entitled to
participate with Landlord and Lender in any Condemnation proceeding or
negotiations under threat thereof or to contest the Condemnation or the
amount of the Net Award therefor. Subject to the provisions of this
Paragraph 17(b), Tenant hereby irrevocably assigns to Landlord and Lender
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 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.
(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 of the Term
(calculated on the basis of the Basic Rent in effect as of the date of
the Requisition) 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.
18. Termination Events.
(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 and Lender 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 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, or fact or condition which
with the lapse of time or giving of notice or both would, in the judgment
of Landlord or Lender, constitute an Event of Default, exists, any Net
Award up to and including $1,000,000 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 $1,000,000 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 and Lender, 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,
or fact or condition which with the giving of notice or lapse of time or
both would, in the judgment of Landlord or Lender, constitute an Event of
Default shall exist and any mechanics' or materialmen's liens filed against
any of the Leased Premises shall have been insured over or covered by a bond;
(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) 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 or Lender 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, by 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 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 calculated on the basis of the Basic Rent then in effect and taking
into account any applicable adjustments under Paragraphs 1(c)(i) and
1(c)(ii) of Exhibit "D" 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 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 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 no Event of Default
has 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 published
criteria necessary to obtain a publicly traded unsecured senior debt
rating of "A2" or better from Moody's Investors Services, Inc. or a
rating of "A" or better from Standard & Poor's Ratings Service, 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 for any or no
reason if such grant or disapproval is based on any of the
above-described information. 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 no Event of
Default has 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 the sum of (x) Fifty-three Million Dollars ($53,000,000) plus (y) an
amount equal to 60% of Tenant's Consolidated Net Income on a cumulative
basis for each fiscal quarter in which such Consolidated Net Income is
positive, but with no adjustment for each fiscal quarter in which
Consolidated Net Income is negative (calculated at the end of each fiscal
quarter), commencing with the fiscal quarter of Tenant that commenced on
August 1, 1996 and continuing for each quarter to and including the end
of the fiscal quarter prior to the fiscal quarter in which the
Non-Preapproved Assignment occurs.
(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
Non-Preapproved 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.
(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 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 estimated Prepayment
Premium. On the Intended Assignment Purchase Date, Tenant shall increase
the Deposit Amount by the amount by which the actual Prepayment Premium
exceeds the estimated Prepayment Premium. The Deposit Amount shall be
held by and invested by Lender 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 to comply with the requirements of this Paragraph 21(e) 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(b) or 21(c), 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".
(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 or Lender 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: (1) 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 Paragraph 21(b) 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 and Lender such information as Landlord
and Lender reasonably request regarding the identity and credit of the
proposed subtenant. Landlord and Lender 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, including the obligation to comply with Exhibit "E", 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 or under any document executed
by Tenant in favor of or for the benefit of Lender, 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 and to Lender legal opinions and
other information reasonably required by Landlord and Lender 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 and
Lender , deliver a duplicate original copy thereof to Landlord and Lender
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 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 no right or power to grant a mortgage on,
or to pledge its leasehold interest in, or otherwise encumber its
interest under this Lease or any sublease of the Leased Premises, and any
such mortgage, pledge or encumbrance made in violation of this
Paragraph 21 shall be void. Tenant shall not permit any subtenant to
mortgage, pledge or otherwise encumber its subleasehold interest in the
Leased Premises.
(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 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 or any Subsidiary of 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 or any Subsidiary of 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, 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 any
Subsidiary 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 or
any Subsidiary 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(d) through (f) or
Paragraph 33, as applicable;
(viii) Tenant or any Significant Subsidiary of 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 or any Significant Subsidiary of
Tenant, a receiver or trustee for it or for any of the Leased Premises or
approving a petition filed against Tenant or any Significant Subsidiary
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 or any Significant Subsidiary of Tenant shall
be liquidated or dissolved or shall begin proceedings towards its
liquidation or dissolution;
(xii) the estate or interest of Tenant or any Significant
Subsidiary of Tenant in any of the Leased Premises shall be levied upon or
attached in any proceeding and such estate or interest is about 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 misrepresentation
gives rise to a default beyond any applicable cure period with respect to
any Loan;
(xiv) a failure by Tenant to maintain in effect any
occupancy permit for the Leased Premises or permit required under any
Environmental Law;
(xv) an Event of Default shall have occurred and be
continuing under the Construction Agency Agreement or the Completion
Agreement; or
(xvi) Tenant shall have failed to occupy Building 4 by
August 1, 1999.
(b) No notice or cure period shall be required in any one or more
of the following events: (A) except as otherwise set forth below, the
occurrence of an Event of Default under clause (i), (iv), (v), (vi),
(vii), (viii), (ix), (x), (xi), (xii), (xiii), (xv) or (xvi) of
Paragraph 22(a); (B) the default consists of 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 except that if the
failure is the failure to pay Basic Rent no notice shall be required and
only the five (5) day cure period shall be applicable, but in any event
Landlord shall not be obligated to allow any cure period for or, if
required, give notice of, 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 failure to pay at maturity 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 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).
(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 Acquisition Cost and the 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,
and 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
(which rejection shall have been consented to in writing by Lender) 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:
(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, including out of pocket costs
incurred by Lender, 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 Paragraph 23(c), 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
Paragraph 23(c), 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 other Monetary Obligations then due and owing 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 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.
(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, addressed to the other party at its address
stated on page 1 of this Lease. 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 any of 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 or Tenant's ability to perform its obligations under this Lease.
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 purchaser 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 or she has made such examination or investigation as
is necessary to enable him or her to express an informed opinion as to
the subject matter of such 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 not less than 48 hours notice to
Tenant (except that if an Event of Default exists no notice shall be
required), 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 and its independent accountants,
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 and its consolidated Subsidiaries 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 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
(as defined in Exhibit "E" hereto) 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 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. 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 Paragraph 28(c) shall not
prevent disclosure by Landlord of 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 United States Securities and Exchange
Commission (whether or not such request or demand has the
force of law);
(iii) That has been publicly disclosed by Tenant in a
press release or other public announcement of general
circulation or filed with the United States Securities and
Exchange Commission or that has become public through no
breach by the recipient of these confidentiality obligations;
(iv) To counsel or accountants or other agents for
Landlord or counsel or accountants or other agents for such
other Person who has agreed to abide by the provisions of
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 Paragraph 28(c);
(ix) From Landlord to Lender or to any prospective
purchaser of the Leased Premises or to the National
Association of Insurance Commissioners; 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 Paragraph 23(a)(iii), (D)
Tenant provides Landlord with an Intended Assignment Offer under Paragraph
21(d), (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 Paragraph 35(c) and (G) the date on which
Landlord accepts Tenant's offer pursuant to Paragraph 38(d). 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 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 methodology for determining Fair Market Value set
forth in Paragraph 29(c) or the methodology for determining Fair Market
Rental Value as set forth in Paragraph 29(d), 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 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 may be leased as a whole or substantially as
a whole to a single user or leased to multiple users; (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, California 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 director, officer, general partner, shareholder,
member, 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) Tenant covenants and agrees that it shall pay all reasonable
costs and expenses incurred by Landlord in refinancing the Initial Loan,
including the cost of any mortgage broker's fees, "points" or commitment
fees payable to the Lender, survey, title and environmental costs and
costs of Landlord's and Lender's counsel. Payment of such costs shall be
made within ten (10) days following receipt of a written request from
Landlord accompanied by invoices for the amounts requested.
(b) 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.
(c) Except as provided in Paragraph 31(a) above, 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 Paragraph 31(a).
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 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 Paragraph 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 later than
ninety (90) days prior to the Intended Transaction or the date on which
Tenant obtains knowledge of any such action, 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.
(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 Premises 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 this
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 provisions of
Paragraph 20.
(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 Tenant as the lessee of such Leased Premises 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, (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.
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 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 Paragraph 35(a), the
purchase price in any contract to purchase the Leased Premises which is
received by Landlord between June 1, 2007 and May 31, 2008 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) the sum of (1) 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) and (2)
the Prepayment Premium 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 not later
than sixty (60) days following May 31, 2008.
(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 May 31, 2008; provided, that if, following compliance
with the procedure described in this Paragraph 35, 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 May 31, 2008, 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, Corporate Property
Associates 12 Incorporated ("CPA 12") or Corporate Property Associates 14
Incorporated ("CPA 14") 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 Person to whom CPA 12 or CPA 14
sell all or substantially all of their 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 interests in
Landlord between its members or to any affiliates of Landlord, CPA 12 or
CPA 14.
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
(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(e), 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 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 at any time after June 1, 2004 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(h) or (i) hereof, as the case
may be, 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 Date") 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.
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 and any documents which were executed by Tenant at
the request of Landlord on or about the date of the Original Lease and
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 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.
(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:
ET LLC, a Delaware limited
liability company, d/b/a ET QRS LLC
By: Corporate Property Associates
12 Incorporated, Member
By: /s/ Gordon J. Whiting
Title: First Vice President
By: Corporate Property Associates
14 Incorporated, Member
By: /s/ Gordon J. Whiting
Title: First Vice President
TENANT:
ETEC SYSTEMS, INC.,
a Nevada corporation
By: Saul E. Arnold
Title: Director, Legal &
Corporate Services and Assistant
Secretary
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 330 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 580 22' 09" East, 611.160
feet, North 800 11' 21" East 201.924 feet and South 650 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 410 29'
51" East, 562.970 feet and South 580 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.
TOGETHER WITH:
Easement granted pursuant to Agreement including Grant of Easement
dated February 2, 1998 affecting the Real Property in the City of
Hayward, County of Alameda, State of California, described as follows:
Lots 19 and 20, Tract 2898, filed June 30, 1967, in Book 55
of Maps, Pages 25 to 29, inclusive, in the Office of the
County Recorder of Alameda County.
Assessor's Parcel No. 461-0001-021-01
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 described in Schedule 2 and Schedule 3
attached hereto and all other 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 described in clause (b) above) that are not necessary to the
operation, as buildings, of the buildings that constitute part of the
Leased Premises.
EXHIBIT C
PERMITTED ENCUMBRANCES
1. Real Estate Taxes for the current year.
2. The Lien of supplemental taxes, if any, assessed pursuant to
Chapter 3.5 commencing with Section 75 of the California Revenue and
Taxation Code.
3. EASEMENT for the purposes stated herein
(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
4. EASEMENT for the purposes stated herein
(a) Purpose: Utilities
(b) Granted to: Pacific Gas and Electric Company, a California
corporation
(c) Recorded: August 19, 1954, Book 7403, Page 177, Official
(d) Records
(e) Affects: The Southerly 65 feet of the Northerly 24 feet
(f) of the Land
5. EASEMENT as shown on the filed map of Tract 2898
(a) Purpose: Public Utilities
(b) Affects: The Westerly 10 feet of the Land
6. LIMITATIONS, covenants, conditions, restrictions,
reservations, exceptions or terms in the instrument recorded June 30,
1967, Reel 1991, Image 793, Official Records.
7. 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.
8. 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, 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 constructed disclosed by
Surveyor as Courtyard Area).
9. Easement granted pursuant to Agreement including Grant of
Easement dated February 2, 1998 affecting the Real Property in the City
of Hayward, County of Alameda, State of California, described as follows:
Lots 19 and 20, Tract 2898, filed June 30, 1967, in Book 55
of Maps, Pages 25 to 29, inclusive, in the Office of the
County Recorder of Alameda County.
Assessor's Parcel No. 461-0001-021-01
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, 1998 shall be the
sum of the following amounts:
(a) with respect to the Existing Improvements, One Million Six
Hundred Four Thousand Eight Hundred Eighty Dollars ($1,604,880) per
annum, payable monthly in arrears commencing on March 1, 1998 and on each
Basic Rent Payment Date thereafter, in equal installments of $133,740.00
each, plus
(b) on March 1, 1998, Basic Rent for the Project I Improvements
in the amount of $99,867 for the period from February 3, 1998 to and
including February 28, 1998 and commencing on April 1, 1998 and
continuing on the first day of each calendar month thereafter (each such
date also a "Basic Rent Payment Date") until the expiration of the
Initial Term, annual Basic Rent payable with respect to the Project I
Improvements shall be $1,290,588 per annum, payable in equal installments
of $107,549 each, plus
(c) (i) with respect to the Project II Improvements, commencing
on the first day of the first calendar month following the calendar month
in which the first advance of Project II Costs is made and continuing on
the first day of each calendar month thereafter to and including June 1,
1999 (each such date also a "Basic Rent Payment Date"), Basic Rent with
respect to the Leased Premises shall be payable monthly in arrears on
each Basic Rent Payment Date in an amount equal to the product of (x) the
LIBOR then in effect stated on an annual basis divided by 12 plus 150
basis points multiplied by (y) the weighted average of the amount
outstanding during the prior calendar month for Project II Costs
(exclusive of the Project II Acquisition Fee) for the Project II
Improvements based on the number of days each advance is outstanding
prior to such Basic Rent Payment Date. The amount set forth in the
foregoing sentence shall, absent manifest error, be conclusively
determined from the books and records of Landlord. Tenant shall have the
right, upon reasonable prior notice, to inspect Landlord's books and
records to verify the accuracy of Landlord's calculation of such Basic
Rent.
(ii) commencing on July 1, 1999 and continuing on the first day of
each calendar month thereafter (each such date also a "Basic Rent Payment
Date") until the expiration of the Initial Term, monthly installments of
Basic Rent payable with respect to the Project II Improvements shall be
an amount equal to the equal monthly amortization payment required to pay
the Project II Costs (exclusive of the Project II Acquisition Fee) in
full over the remainder of the Initial Term assuming an interest rate of
7.98% per annum (which shall be increased to 8.13% per annum effective
June 1, 1999, if this Lease is not given a rating of 1 by the National
Association of Insurance Commissioners in connection with Landlord's
refinancing of the Initial Loan). Promptly following the Project II
Final Completion Date Landlord and Tenant shall execute an addendum to
this Lease setting forth the numerical amount of the initial annual and
monthly installments of Basic Rent with respect to the Project II
Improvements.
(d) For so long as an Event of Default has not occurred and is
not continuing, on each Basic Rent Payment Date that occurs on or prior
to, but not after June 1, 1999 and relates to any period occurring prior
to June 1, 1999, Landlord shall approve as a portion of each advance of
Project II Costs, the monthly installments of Basic Rent payable by
Tenant under Paragraph 1(c)(i) and will credit each such advance against
the installment of Basic Rent then due and owning, provided, however,
that (i) from and after June 1, 1999, Landlord's obligation to make any
further advance for future installments of Basic Rent shall terminate and
all such future payments of Basic Rent shall be made by Tenant and (ii)
during the continuation of an Event of Default Landlord shall have no
obligation to make any further advances for installments of Basic Rent
payable under Paragraph 1(c)(i), and Tenant shall make all further
payments of Basic Rent from its own funds unless and until any such Event
of Default is cured.
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 immediately preceding such adjustment. No
CPI adjustments shall be made during any Renewal Term.
3. Arbitration of Disputes. NOTICE: BY INITIALING IN THE SPACE
BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS
INCLUDED IN PARAGRAPH 2 ABOVE DECIDED BY NEUTRAL ARBITRATION AS PROVIDED
BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO
HAVE THE DISPUTE LITIGATED IN A COURT OF LAW. BY INITIALING IN THE SPACE
BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL
UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN PARAGRAPH 2 ABOVE. IF
YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU
May BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE
OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS
VOLUNTARY. WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN PARAGRAPH 2 ABOVE TO
NEUTRAL ARBITRATION.
__________ __________
Landlord Tenant
4. Effective Dates of CPI Adjustments. (a) Basic Rent shall be
adjusted on March 1, 1998 (the "First Basic Rent Adjustment Date") and on
March 1, 2001 (the "Second 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. On the Second Basic Rent Adjustment Date that
portion of the Basic Rent described in Paragraph 1(a) and Paragraph 1(b)
shall be adjusted to reflect changes in the CPI during the three year
period preceding March 1, 2001 and that portion of the Basic Rent
described in Paragraph 1(c)(ii) shall be adjusted to reflect changes in
the CPI for the period from June 1, 1999 to and including March 1, 2001.
(b) After the Second Basic Rent Adjustment Date all Basic Rent
shall be adjusted on March 1, 2004, March 1, 2007, March 1, 2010 and
March 1, 2013 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, the
Second Basic Rent Adjustment Date and each date referred to in this
Subparagraph 3(b) being hereinafter referred to as the "Basic Rent
Adjustment Date").
5. 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 (or portion thereof to be adjusted
as specified in Paragraph 4) 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 (or portion thereof to be adjusted as specified in Paragraph
4) 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 (or portion thereof to be adjusted
as specified in Paragraph 4) 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 (1) 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 and (2) with respect to the adjustment on March 1, 2001 of that
portion of Basic Rent described in Paragraph 1(c)(ii) of this Exhibit "D"
the "Beginning CPI" shall mean the average CPI for the three (3) calendar
months occurring prior to June 1, 1999. 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.
6. 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 first Basic Rent Payment Date
following the determination of Fair Market Rental Value.
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.
(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 the sum of (A) Fifty-three Million Dollars ($53,000,000)
and (B) an amount equal to sixty percent (60%) of the Consolidated Net
Income of Tenant for each fiscal quarter in which Consolidated Net Income
is positive, but with no adjustment for each fiscal quarter in which
Consolidated Net Income is negative, on a cumulative basis (calculated at
the end of each fiscal quarter), commencing with the fiscal quarter of
Tenant that commenced August 1, 1996 and continuing for each quarter to
and including the end of the fiscal quarter immediately prior to the
fiscal quarter in which such merger or consolidation occurs, (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 substantially change 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:
(i) 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
(ii) 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 for the most recent four (4) fiscal quarters ending
immediately prior to such date of determination on a proforma basis,
reduced by the amount of Funded Debt outstanding under clause (iv) 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 having lower scheduled payments 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 for the most recent four (4) fiscal
quarters ending immediately prior to such date of determination on a
proforma basis, reduced by the amount of Contingent Obligations
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 sum of
(a) $53,000,000 and (b) 60% of Consolidated Net Income for each fiscal
quarter in which Consolidated Net Income is positive, with no adjustment
for each fiscal quarter in which Consolidated Net Income is negative, on
a cumulative basis (calculated at the end of each fiscal quarter
commencing with the fiscal quarter of Tenant that commenced August 1,
1996).
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 of Tenant shall be computed as equity.
(b) "Affiliate" shall mean as to any Person, any other Person
controlled by, under common control with, or controlling, such Person.
(c) "Closing Date" shall mean February 2, 1998.
(d) "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.
(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 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 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 Qualified Subordinated Debt (including any interest 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.
SCHEDULE 1
TERMINATION VALUES
Lease Year Termination Value
1 $12,000,000
2 $12,000,000
3 $15,329,860
4 $26,494,861 + 101.50% of PIIC
5 $24,994,861 + 101.50% of PIIC
6 $24,536,746 + 101.50% of PIIC
7 $24,536,746 + 101.25% of PIIC
8 $23,536,746 + 101.25% of PIIC
9 $23,536,746 + 88.75% of PIIC
10 $23,099,363 + 88.75% of PIIC
11 $23,099,363 + 88.75% of PIIC
12 $22,039,363 + 88.75% of PIIC
13 $22,039,363 + 70.50% of PIIC
14 $21,960,829 + 70.50% of PIIC
15 $21,960,829 + 70.50% of PIIC
16 $21,960,829 + 70.50% of PIIC
17 $21,960,829 + 69.00% of PIIC
18 $21,960,829 + 69.00% of PIIC
19 and thereafter $21,960,829 + 69.00% of PIIC
"PIIC" means Project II Costs. At any time following the Project II
Completion Date Landlord, Tenant or Lender may request that this Schedule
1 be amended to reflect the final dollar amount of Project II Costs.
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
SCHEDULE 3
Project I IMPROVEMENTS
1. Buildings 2 and 3 Fire Alarm System Replacement
2. Building 3 Roof Replacement
3. Building 3 Maintenance Unisex Restroom
4. Building 2 Advances Tech/Micro Column Lab
5. Door Replacements Building 2/3 Breezeway
6. South Guard Station
7. Parking Lot Lighting Additions
8. CCTV Surveillance
9. B3-HVAC Replacements (AHU #5 & 7)
10. B2-HVAC Replacements (8 units)
11. Chemical Shed w/Foundation (Code Requirement)
12. Phone Equipment UPS
13. B2-Acid Waste Neutralization System
14. Chemical Hoods (Class A) Code Upgrades
15. Disaster Plan Modifications
AMENDMENT TO THE
1995 OMNIBUS INCENTIVE PLAN
OF ETEC SYSTEMS, INC.
On December 2, 1997, ETEC Systems, Inc. adopted certain
resolutions amending the 1995 Omnibus Incentive Plan of ETEC Systems,
Inc. (the "Plan") to terminate the ability to grant stock appreciation
rights ("SARs") under the Plan and to limit the number of shares
available for awards as Restricted Shares. Effective as of December 2,
1997 the Plan is amended as follows in items 1-9 and 11-13 to delete all
references to SARs and in items 6 and 10 to restrict the award of
Restricted Shares:
1. The term last sentence of the second paragraph of Article 1 is
amended to read as follows:
"The Plan provides for Awards in the form of Restricted Shares,
Stock Units, or Options (which may constitute incentive stock
options or nonstatutory stock options)."
2. Section 2.2 is amended to read as follows:
"2.2 "Award" means any award of an Option, a Restricted Share or a
Stock Unit under the plan. Awards may be made in any combination
of NSO, Restricted Shares, or Stock Units."
3. The last sentence of Section 2.9 is deleted so that the Section 2.9
now reads, in its entirety, as follows:
"2.9 "Exercise Price," in the case of an Option, means the
amount for which one Share may be purchased upon exercise of such Option, as
specified in the applicable Stock Option Agreement."
4. The original Section 2.21 is deleted in its entirety.
5. The original Section 2.22 is deleted in its entirety.
6. Section 4.1 is amended to read as follows:
"4.1 Basic Limitation. Shares issued pursuant to the Plan shall
be authorized but unissued Shares and Shares acquired in the open market.
The aggregate number of Shares reserved for award as Restricted Shares, Stock
Units, and Options shall be 1,975,000 Shares, provided that no more than 10%
of the preceding amount may be awarded as Restricted Shares. Any Shares that
have been reserved, but not awarded as Restricted Shares, Stock Units, and
Options during any calendar year shall remain available for award in any
subsequent calendar year. The limitations of this Section 4.1 shall be
subject to adjustment pursuant to Article 11."
7. Section 4.2 is amended to read as follows:
"4.2 Additional Shares. If Stock Units or Options are
forfeited or if Options terminate for any other reason before being
exercised, then such Stock Units or Options shall again become available for
Awards under the Plan. If Restricted Shares are forfeited before any
dividends have been paid with respect to such Restricted Shares, the such
Restricted Shares shall again become available for Awards under the Plan. In
addition, any shares previously issued under the Plan and repurchased by the
Company shall again become available for Awards under the Plan."
8. Section 4.3 is amended to read as follows:
"4.3 Dividend Equivalents. Any dividend equivalents distributed
under the Plan shall not be applied against the number of Restricted Shares,
Stock Units, or Options available for Awards, whether or not such dividend
equivalents are converted into Stock Units."
9. The original Article 8 is deleted in its entirety.
10. A second sentence is added to Section 8.1 so that Section 8.1 now
reads, in its entirety, as follows:
"8.1 Time, Amount and Form of Awards. Awards under the Plan may
be granted in the form of Restricted Shares, in the form of Stock Units, or
in any combination of both. The amount of the Restricted Shares granted is
limited to 10% of the Shares available for awards under Section 4.1."
11. Section 10.1 is amended to read as follows:
"10.1 Adjustments. In the event of a subdivision of the
outstanding Shares, a declaration of a dividend payable in Shares, a
declaration of a dividend payable in a form other than Shares in an amount
that has a material effect on the price of Shares, a combination or
consolidation of the outstanding Shares (by reclassification or otherwise)
into a lesser number of Shares, a recapitalization, a spinoff or a similar
occurrence, the Committee shall make such adjustments as it, in its sole
discretion, deems appropriate in one or more of (a) the number of Options,
Restricted Shares and Stock Units available for future Awards under Article
4, (b) the number of Stock Units included in any prior Award which has not
yet been settled, (c) the number of Shares covered by each outstanding Option
or (d) the Exercise Price under each outstanding Option. Except as provided
in this Article 11, a Participant shall have no rights by reason of any issue
by the Company of stock of any class or securities convertible into stock of
any class, any subdivision or consolidation of shares of stock of any class,
the payment of any stock dividend, or any other increase or decrease in the
number of shares of stock of any class."
12. The first sentence of Section 10.2 is amended to read as follows:
"In the event that the Company is a party to a merger or other
reorganization, outstanding Options, Restricted Shares an Stock Units shall
be subject to the agreement of merger or reorganization."
13. The second sentence of Section 14.1 is amended to read as follows:
"An Option may be exercised during the lifetime of the Optionee only
by him or her or by his or her guardian or legal representative."
To record the adoption of this Amendment to read as set forth
herein, effective as of December 2, 1997, the Company has caused its
authorized officer to execute the same.
ETEC SYSTEMS, INC.
Name:
Title:
Date:
FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED LEASE AGREEMENT
BY AND BETWEEN
ET LLC,
a Delaware limited liability company
d/b/a
ET QRS LLC
as LANDLORD
and
ETEC SYSTEMS, INC.
a Nevada corporation
as TENANT
Premises: Hayward, California
Dated as of March 31, 1998
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LEASE
AGREEMENT made as of March 31, 1998 by and between ET LLC, a Delaware
limited liability company d/b/a ET QRS LLC ("Landlord") and ETEC SYSTEMS
INC., a Nevada corporation ("Tenant").
W I T N E S S E T H
WHEREAS Landlord and Tenant entered into a certain Second
Amended and Restated Lease Agreement, dated as of February 2, 1998 (the
"Original Lease"); and
WHEREAS Landlord and Tenant desire to amend the Original
Lease as hereinafter set forth;
NOW THEREFORE for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Landlord and
Tenant covenant and agree as follows:
1. Subparagraphs (c)(i) and (c)(ii) of Paragraph 1 Basic
Rent of Exhibit D to the Original Lease is hereby deleted in its
entirety and the following is inserted in lieu thereof:
"(i) with respect to the Project II Improvements, commencing
on the first day of the first calendar month following the
calendar month in which the first advance of Project II
Costs is made and continuing on the first day of each
calendar month thereafter to and including June 1, 1999
(each such date also a "Basic Rent Payment Date"), Basic
Rent with respect to the Leased Premises shall be payable
monthly in arrears on each Basic Rent Payment Date in an
amount equal to the product of (x) the LIBOR then in effect
stated on an annual basis plus 150 basis points divided by
12 multiplied by (y) the weighted average of the amount
outstanding during the prior calendar month for Project II
Costs (exclusive of the Project II Acquisition Fee) for the
Project II Improvements based on the number of days each
advance is outstanding prior to such Basic Rent Payment
Date. The amount set forth in the foregoing sentence shall,
absent manifest error, be conclusively determined from the
books and records of Landlord. Tenant shall have the right,
upon reasonable prior notice, to inspect Landlord's books
and records to verify the accuracy of Landlord's calculation
of such Basic Rent.
(ii) commencing on July 1, 1999 and continuing on the first
day of each calendar month thereafter (each such date also a
"Basic Rent Payment Date") until the expiration of the
Initial Term, monthly installments of Basic Rent payable
with respect to the Project II Improvements should be an
amount equal to the equal monthly amortization payment
required to pay the Project II Costs (exclusive of the
Project II Acquisition Fee) in full over the remainder of
the Initial Term assuming an interest rate of 8.13% per
annum. Promptly following the Project II Final Completion
Date Landlord and Tenant shall execute an addendum to this
Lease setting forth the numerical amount of the initial
annual and monthly installments of Basic Rent with respect
to the Project II Improvements."
2. Except as specifically amended hereby, the terms and
conditions of the Original Lease shall remain in full force and effect
from and after the date hereof the term "Lease" shall refer to the
Original Lease as amended by this First Amendment to Second Amended and
Restated Lease Agreement.
3. This First Amendment shall be binding upon the parties
thereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed
and delivered this First Amendment to Second Amended and Restated Lease
Agreement as of the date first above written.
LANDLORD:
ET LLC, a Delaware limited
liability company, d/b/a ET QRS
LLC
By: Corporate Property
Associates
12 Incorporated, Member
By:
Title: First Vice President
By: Corporate Property
Associates
14 Incorporated, Member
By:
Title: First Vice President
TENANT:
ETEC SYSTEMS, INC.,
a Nevada corporation
By:
Title:
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED LEASE AGREEMENT
BY AND BETWEEN
ET LLC,
a Delaware limited liability company
d/b/a
ET QRS LLC
as LANDLORD
and
ETEC SYSTEMS, INC.
a Nevada corporation
as TENANT
Premises: Hayward, California
Dated as of May 8, 1998
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LEASE
AGREEMENT made as of May 8, 1998 by and between ET LLC, a Delaware
limited liability company d/b/a ET QRS LLC ("Landlord") and ETEC SYSTEMS
INC., a Nevada corporation ("Tenant").
W I T N E S S E T H
WHEREAS Landlord and Tenant entered into a certain Second Amended
and Restated Lease Agreement, dated as of February 2, 1998, as amended
by a First Amendment to Second Amended and Restated Lease Agreement,
dated as of March 31, 1998 (said "Lease Agreement," as amended by said
First Amendment, the "Original Lease"); and
WHEREAS Landlord and Tenant now desire to amend the Original Lease
as hereinafter set forth.
IN CONSIDERATION OF the rents and provisions herein stipulated to
be paid and performed, Landlord and Tenant hereby covenant and agree as
follows:
1. Paragraph 2. Certain Definitions is hereby amended (a)
by adding the phrase "as amended from time to time" to the definitions
of Completion Agreement and Construction Agency Agreement and (b) by
deleting the definitions of "Project I Final Completion Date," "Project
II Final Completion Date" and "Project II Substantial Completion Date"
in their entirety and inserting the following in lieu thereof:
(a) "Project I Final Completion Date" shall mean
the Final Completion Date as defined in the Completion
Agreement.
(b) "Project II Final Completion Date" shall mean
Building 4 Final Completion Date as defined in the
Construction Agency Agreement.
(c) "Project II Substantial Completion Date"
shall mean Building 4 Substantial Completion Date as
defined in the Construction Agency Agreement.
1. Paragraph 5 Term subsection (a) is hereby amended by
deleting the date "May 31, 2014" and inserting in lieu thereof the date
"September 1, 2014."
2. The following is hereby added as subparagraph (e) to
Paragraph 20. Procedures Upon Purchase of the Lease:
"(e) Any offer by Tenant under paragraph 18(b), 21(d),
23(a)(iii), 33(c) or 38(b) shall include an
acknowledgment by Tenant of the methodology to be
applied for purposes of determining the Prepayment
Premium.
3. The following is hereby added to the last sentence of
subparagraph (a) of Paragraph 31 ", and shall include all such costs and
expenses incurred by Landlord in connection with the issuance of
Landlord's Series B 7.11% Senior Secured Notes Due September 1, 2014."
4. Exhibit E Financial Covenants is hereby deleted in its
entirety and Exhibit E attached hereto is inserted in lieu thereof.
5. Except as is specifically amended hereby, the terms and
conditions of the Original Lease shall remain in full force and effect
and from and after the date hereof the term "Lease" shall refer to the
Original Lease as amended by the Second Amendment to Second Amended and
Restated Lease Agreement.
6. Without limiting in any way the obligations of Tenant to
Landlord under the Lease, the Construction Agency Agreement and the
Completion Agreement or to Lender under the Tenant's Certificate and
Agreement (under and as defined in the Note Purchase Agreement dated as
of May 8, 1998 ("Note Purchase Agreement") by and between Landlord and
Teachers Insurance and Annuity Association of America), Landlord
acknowledges that Tenant is not obligated to cause the occurrence of the
conditions to the Second Closing (as defined in the Note Purchase
Agreement) and that, provided that Tenant is not in default under the
Lease, the Construction Agency Agreement, the Completion Agreement or
the Tenant's Certificate and Agreement, Landlord shall have no claims
against Tenant if the Second Closing does not occur.
7. This Second Amendment shall be binding upon the parties
thereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Second Amendment to Second Amended and Restated Lease
Agreement as of the date first above written.
LANDLORD:
ET LLC, a Delaware limited
liability company, d/b/a ET QRS
LLC
By: Corporate Property
Associates
12 Incorporated, Member
By:
Title: Senior Vice
President
By: Corporate Property
Associates
14 Incorporated, Member
By:
Title: Senior Vice
President
TENANT:
ETEC SYSTEMS, INC.,
a Nevada corporation
By:
Title: Treasurer
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 each 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 Interests.
(c) Tenant shall not consolidate with or merge with any other
Person, or make any Investment, unless an Event of Default does not then
exist and, immediately following such consolidation, merger, or
Investment (i) the surviving corporation with respect to a merger or
consolidation or Tenant with respect to an Investment shall have, on a
proforma basis, an Adjusted Consolidated Net Worth of not less than the
sum of (A) Fifty-three Million Dollars ($53,000,000) and (B) an amount
equal to sixty percent (60%) of the Consolidated Net Income of Tenant
for each fiscal quarter in which Consolidated Net Income is positive,
but with no adjustment for each fiscal quarter in which Consolidated Net
Income is negative, on a cumulative basis (calculated at the end of each
fiscal quarter), commencing with the fiscal quarter of Tenant that
commenced August 1, 1996 and continuing for each quarter to and
including the end of the fiscal quarter immediately prior to the fiscal
quarter in which such merger, consolidation or Investment occurs, (ii)
the Board of Directors of Tenant immediately prior to such merger,
consolidation or Investment remains in control following such merger,
consolidation or Investment, (iii) the senior management of the
surviving corporation with respect to a merger or consolidation or of
Tenant with respect to an Investment does not substantially change
immediately following such merger, consolidation or Investment and
(iv) after giving effect to such merger, consolidation or Investment, an
Event of Default does not then exist. This Section 1(c) shall not apply
(x) 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, or (y) to any Investment in a
Subsidiary that is consolidated with Tenant for financial reporting
purposes, provided that, immediately following the Investment and having
given effect thereto, Tenant is otherwise in compliance with all
provisions of this Exhibit E.
(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:
(i) 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
(ii) 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), other than Contingent
Obligations which meet any one of the following criteria:
(i) a Contingent Obligation which, when added to
other Contingent Obligations then outstanding, does not
exceed Fifteen Million Dollars ($15,000,000), less the
amount of Funded Debt outstanding at such time under clause
(iii) of paragraph (c) below, or
(ii) a Contingent Obligation which, when added to the
aggregate amount of all other Contingent Obligations then
outstanding, does not exceed an amount equal to (A) three
(3) times Consolidated EBIDTA for the most recent four (4)
fiscal quarters ending immediately prior to the date of
creation of such new Contingent Obligation, minus (B) the
amount of Funded Debt outstanding under clause (iv) of
paragraph (c) below as of the same date.
(c) Tenant will not, and will not permit any Subsidiary directly
or indirectly to, incur, create, assume any Indebtedness other than
Indebtedness which meets any one of the following criteria
(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 having lower
scheduled payments than, the amortization schedule for the Funded
Debt outstanding on the Closing Date,
(iii) Funded Debt up to a maximum principal amount of
Fifteen Million Dollars ($15,000,000) at any time outstanding,
less the amount of Contingent Obligations outstanding at such time
under clause (i) of paragraph (b) above,
(iv) Funded Debt (not including for this purpose Funded
Debt permitted under clause (iii) above or Qualified Subordinated
Debt) up to three (3) times Consolidated EBIDTA for the most
recent four (4) fiscal quarters ending immediately prior to such
date of determination on a proforma basis, reduced by the amount
of Contingent Obligations outstanding at such time under clause
(ii) of paragraph (b) above, or
(v) Qualified Subordinated Debt.
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 sum of
(a) $53,000,000 and (b) 60% of Consolidated Net Income for each fiscal
quarter in which Consolidated Net Income is positive, with no adjustment
for each fiscal quarter in which Consolidated Net Income is negative, on
a cumulative basis (calculated at the end of each fiscal quarter
commencing with the fiscal quarter of Tenant that commenced August 1,
1996).
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 of Tenant shall be computed as equity.
(b) "Affiliate" shall mean as to any Person, any other Person
controlled by, under common control with, or controlling, such Person.
(c) "Closing Date" shall mean February 2, 1998.
(d) "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.
(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 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 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). Indebtedness shall not include money
borrowed for working capital purposes so long as 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. 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) "Investment" shall mean the acquisition of any equity
security issued by another Person or the making of any loan or advance
to another Person, other than in connection with the management of cash
or liquid assets.
(l) "Person" shall mean an individual, partnership, association,
corporation, limited liability company or other entity.
(m) "Qualified Subordinated Debt" means Indebtedness which
satisfies the criteria set forth on the attached Schedule 1.
(n) "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 Qualified Subordinated Debt (including any interest
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.
(o) "Subsidiary" of any Person (the "Parent") means another
Person a majority of the Voting Interest in which is owned, or the
management of which is otherwise controlled, directly or indirectly,
through one or intermediaries, or both, by the Parent.
(p) "Voting Interests" means shares of stock of a corporation or
other interests in other types of Person having ordinary voting power to
elect the board of directors of such corporation or similarly direct or
control the management of such other Person.
Schedule 1
PROVISIONS APPLICABLE TO
QUALIFIED SUBORDINATED DEBT
(a) Qualified Subordinated Debt shall at all times be
wholly subordinate and junior in right of payment to indebtedness of
Tenant which in all events must include payments of Rent under the Lease
(herein called "Superior Indebtedness"), upon substantially the
following terms and conditions or such other terms and conditions as may
be reasonably approved by Landlord and Lender (and Landlord in all
events must be defined to be a "holder" of Superior Indebtedness):
(1) In the event of any liquidation,
dissolution or winding up of Tenant, or of any execution,
sale, receivership, insolvency, bankruptcy, liquidation,
readjustment, reorganization or other similar proceeding
relative to Tenant or its property, all principal and
interest owing on, or payments of rent in respect of, all
Superior Indebtedness shall first be irrevocably paid in
full before any payment is made upon the indebtedness
evidenced by the subordinated notes; and in any such event
any payment or distribution of any kind or character,
whether in cash, property or securities (other than in
securities, including equity securities, or other evidences
of indebtedness, the payment of which is subordinated to the
payment of all Superior Indebtedness which may at the time
be outstanding) which shall be made upon or in respect of
the subordinated notes shall be paid over to the holders of
such Superior Indebtedness, pro rata, for application in
payment thereof unless and until such Superior Indebtedness
shall have been paid or satisfied in full;
(2) In the event that either (A) the maturity
of any Superior Indebtedness is accelerated or Landlord has
given notice to Tenant of its intention to terminate the
Lease or require Tenant to make an irrevocable offer to
terminate the Lease followng an Event of Default thereunder
or (B) the subordinated notes are declared or become due and
payable because of the occurrence of any event of default
thereunder (or under the agreement or indenture, as
appropriate) or otherwise than at the option of Tenant, in
either case, under circumstances when the foregoing
clause (1) shall not be applicable, the holders of the
subordinated notes shall be entitled to payments only after
there shall first have been paid in full all Superior
Indebtedness outstanding at the time of the occurrence of
the events specified in subclauses (A) or (B) above, or
payment shall have been provided for in a manner
satisfactory to the holders of such Superior Indebtedness;
and
(3) During the continuance of (A) any default with
respect to any Superior Indebtedness, or (B) any Event of
Default under the Lease, which would permit the holders
thereof to accelerate the maturity of such Superior
Indebtedness, no payment of principal, premium or interest
shall be made on the subordinated notes, if written notice
of such default (a "Default Notice") has been given to
Tenant by any holder or holders of any Superior
Indebtedness, for a period of not less than one hundred
eighty (180) days following receipt of any Default Notice.
Upon receipt of any Default Notice from the holders of
Superior Indebtedness pursuant to this clause (3), Tenant
shall forthwith send a copy thereof to each holder of the
subordinated notes at the time outstanding. Any payment or
distribution of any kind or character, whether in cash,
property or securities made with respect to any subordinated
note after receipt by Tenant of a Default Notice shall be
held by the holder of such subordinated note in trust for
the benefit of, and shall be paid over to, the holders of
such Superior Indebtedness for application on a pro rata
basis to the payment of such Superior Indebtedness unless
and until such Superior Indebtedness shall have been paid or
satisfied in full.
(b) No right of any holder of any Superior
Indebtedness to enforce subordination as herein provided
shall at any time or in any way be affected or impaired by
any failure to act on the part of Tenant or the holders of
Superior Indebtedness, or by any noncompliance by Tenant
with any of the terms, provisions and covenants of the
subordinated notes or the agreement under which they are
issued, regardless of any knowledge thereof that any such
holder of Superior Indebtedness may have or be otherwise
charged with.
(c) Tenant agrees, for the benefit of the holders of Superior
Indebtedness, that in the event that any subordinated note is declared
due and payable before its expressed maturity because of the occurrence
of a default hereunder, Tenant will give prompt notice in writing of
such happening to the holders of Superior Indebtedness.
(d) The foregoing provisions are solely for the purpose of
defining the relative rights of the holders of Superior Indebtedness on
the one hand, and the holders of the subordinated notes on the other
hand, and nothing herein shall impair, as between Tenant and the holders
of the subordinated notes, the obligation of Tenant which is
unconditional and absolute, to pay the principal, premium, if any, and
interest on the subordinated notes in accordance with their terms, nor
shall anything herein prevent the holders of the subordinated notes from
exercising all remedies otherwise permitted by applicable law or
hereunder upon default hereunder, subject to the rights of the holders
of Superior Indebtedness as herein provided for.
EXECUTION VERSION
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"),
dated as of April 29, 1998, is entered into by and among:
(1) ETEC SYSTEMS, INC., a Nevada corporation ("Borrower");
(2) Each of the financial institutions currently a party
to the Credit Agreement referred to in Recital A below
(collectively, the "Lenders"); and
(3) ABN AMRO BANK N.V., a public company with limited
liability organized under the laws of The Netherlands, as agent
for the Lenders (in such capacity, "Agent").
RECITALS
A. Borrower, the Lenders and Agent are parties to a Credit
Agreement dated as of May 24, 1996, as amended by that certain First
Amendment to Credit Agreement dated as of April 23, 1997 (as amended,
the "Credit Agreement").
B. Borrower has requested the Lenders and Agent to amend the
Credit Agreement in certain respects.
C. The Lenders and Agent are willing so to amend the Credit
Agreement upon the terms and subject to the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for
other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Borrower, the Lenders and Agent hereby agree as
follows:
1. Definitions, Interpretation. All capitalized terms defined
above and elsewhere in this Amendment shall be used herein as so
defined. Unless otherwise defined herein, all other capitalized terms
used herein shall have the respective meanings given to those terms in
the Credit Agreement, as amended by this Amendment. The rules of
construction set forth in Section I of the Credit Agreement shall, to
the extent not inconsistent with the terms of this Amendment, apply to
this Amendment and are hereby incorporated by reference.
2. Amendments to Credit Agreement. Subject to the satisfaction
of the conditions set forth in paragraph 4 below, the Credit Agreement
is hereby amended as follows:
(a) Paragraph 1.01 is amended by adding thereto, in the
appropriate alphabetical order, the following definitions to read in
their entirety as follows:
"Hayward Lease" shall mean that certain Second Amended
and Restated Lease Agreement dated as of February 2, 1998
between the Hayward Lessor, as landlord, and Borrower, as
tenant.
"Hayward Lessor" shall mean ET LLC, a Delaware limited
liability company, d.b.a. ET QRS LLC.
"Lessee Obligations" shall have the meaning given to
that term in the Participation Agreement.
"Lessor Parties" shall have the meaning given to that
term in the Participation Agreement.
"Operative Documents" shall have the meaning given to
that term in the Participation Agreement.
"Participation Agreement" shall mean that certain
Participation Agreement, dated as of December 5, 1997 (as
amended, restated or otherwise modified from time to time)
among Borrower, as lessee, Lease Plan North America, Inc.,
as lessor, each of the financial institutions from time to
time listed in Schedule I thereto (as amended from time to
time) and ABN AMRO Bank, N.V., acting through its San
Francisco International Branch, as agent.
"Permitted Property Liens" shall have the meaning
given to that term in the Participation Agreement.
"Property" shall have the meaning given to that term
in the Participation Agreement.
"Super Required Participants" shall mean (a) at any
time Revolving Loans or Term Loans are outstanding, Lenders
holding seventy-five percent (75%) or more of the aggregate
principal amount of such Loans and (b) at any time no
Revolving Loans or Term Loans are outstanding, Lenders whose
Proportionate Shares equal or exceed seventy-five percent
(75%).
(b) Paragraph 1.01 is further amended by changing the
definitions of "Adjusted Net Income", "Affiliate", "Applicable Margin",
Capital Expenditures", "Cash Balance", "Cash Equivalents", "Change of
Control", "Debt Service Coverage Ratio", "Quick Ratio" and Revolving
Loan Maturity Date to read in their entirety as follows:
"Adjusted Net Income" shall mean, with respect to
Borrower and its Subsidiaries for any period, the sum of the
following, determined on a consolidated basis in accordance
with GAAP where applicable:
(a) The net income or net loss of Borrower
and its Subsidiaries for such period after provision
for income taxes;
plus
(b) To the extent deducted in calculating such
net income or net loss, all non-recurring charges
incurred by Borrower and its Subsidiaries during such
period for the acquisition of in-process technology;
provided, however, that the sum of all such charges so
added to net income or net loss in calculating the
Adjusted Net Income of Borrower and its Subsidiaries
during the period December 5, 1997 through the
Revolving Loan Maturity Date shall not exceed
$15,000,000.
"Affiliate" shall mean, with respect to any Person,
(a) each Person that, directly or indirectly, owns or
controls, whether beneficially or as a trustee, guardian or
other fiduciary, twenty percent (20%) or more of any class
of Equity Securities of such Person, (b) each Person that
controls, is controlled by or is under common control with
such Person or any Affiliate of such Person or (c) each of
such Person's officers, directors, joint venturers and
partners; provided, however, that in no case shall Agent or
any Lender be deemed to be an Affiliate of Borrower or any
of its Subsidiaries for purposes of this Agreement. For the
purpose of this definition, "control" of a Person shall mean
the possession, directly or indirectly, of the power to
direct or cause the direction of its management or policies,
whether through the ownership of voting securities, by
contract or otherwise.
"Applicable Margin" shall mean:
(a) With respect to Revolving Base Rate Loans,
zero percent (0%);
(b) With respect to Revolving LIBOR Loans,
nineteen-twentieths of one percent (.95%); and
(c) With respect to Term Loans, one and one
quarter percent (1.25%).
"Capital Expenditures" shall mean, with respect to
Borrower and its Subsidiaries for any period, the sum,
determined on a consolidated basis in accordance with GAAP,
of all amounts expended and indebtedness incurred or assumed
by Borrower and its Subsidiaries during such period for the
acquisition of Capital Assets (including all amounts
expended and indebtedness incurred or assumed in connection
with Capital Leases), other than amounts expended by
Borrower and its Subsidiaries to repurchase used Borrower
systems previously sold to customers by Borrower and its
Subsidiaries. (For clarification and without limiting the
generality of this definition, amounts paid by Borrower
under the Hayward Lease shall not constitute "Capital
Expenditures" if the Hayward Lease is an operating lease
under GAAP.)
"Cash Balances" shall mean, with respect to Borrower
and its Subsidiaries at any time, the remainder, determined
on a consolidated basis in accordance with GAAP, of:
(a) The sum of (i) the cash of Borrower and
its Subsidiaries at such time and (ii) the market
value of the Cash Equivalents of Borrower and its
Subsidiaries at such time;
minus
(b) If the Outstanding Revolver Credit at such
time exceeds $5,000,000, the amount of such excess.
"Cash Equivalents" shall mean, on any date:
(a) Any debt investments which are permitted
by the investment policy of Borrower set forth in
Schedule 5.02(e), so long as such investments are
"marked to market" by Borrower on a monthly basis; or
(b) If the investment policy of Borrower is
changed after the date of this Agreement, any debt
investments if (i) such investments are permitted by
the most recent investment policy of Borrower, so long
as such investments are "marked to market" by Borrower
on a monthly basis; and (ii) such investment policy
has been approved by Borrower's Board of Directors and
by Agent and Required Lenders.
"Change of Control" shall mean (a) with respect to
Borrower, the occurrence of any of the following events:
(i) any person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, as
amended) shall (A) acquire beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of
1934, as amended) of twenty-five percent (25%) or more of
the outstanding Equity Securities of Borrower entitled to
vote for members of the board of directors, or (B) acquire
all or substantially all of the assets of Borrower and its
Subsidiaries taken as a whole, or (ii) during any period of
twelve (12) consecutive calendar months, individuals who are
directors of Borrower on the first day of such period
("Initial Directors") and any directors of Borrower who are
specifically approved by two-thirds of the Initial Directors
and previously-approved Directors ("Approved Directors")
shall cease to constitute a majority of the Board of
Directors of Borrower before the end of such period; and
(b) with respect to Borrower's Japanese Subsidiary, Borrower
shall cease to own fifty-one percent (51%) of the Equity
Securities of such Subsidiary except for nominal amounts of
director stock necessary to do business in Japan.
"Debt Service Coverage Ratio" shall mean, with respect
to Borrower and its Subsidiaries for any period, the ratio,
determined on a consolidated basis in accordance with GAAP
where applicable, of;
(a) The remainder of (i) EBITDA of Borrower
and its Subsidiaries for such period minus (ii) all
Capital Expenditures of Borrower and its Subsidiaries
for such period;
to
(b) The sum of (i) all Interest Expenses of
Borrower and its Subsidiaries for such period and (ii)
all principal payments on long-term Indebtedness for
borrowed money of Borrower and its Subsidiaries
scheduled for payment during the immediately
succeeding comparable period (excluding any payments
of the Outstanding Lease Amount payable on the
Expiration Date of the Lease Agreement (as each such
term is defined in the Participation Agreement)).
"Quick Ratio" shall mean, with respect to Borrower and
its Subsidiaries at any time, the ratio, determined on a
consolidated basis in accordance with GAAP, of:
(a) The sum at such time of (i) all cash of
Borrower and its Subsidiaries; (ii) the market value
of all Cash Equivalents of Borrower and its
Subsidiaries; and (iii) all accounts receivable of
Borrower and its Subsidiaries, less all reserves
therefor; provided, however, that in computing the
foregoing sum, there shall be excluded therefrom any
cash, Cash Equivalent or accounts receivable subject
to a security interest in favor of any Person;
to
(b) The sum at such time of (i) the current
liabilities of Borrower and its Subsidiaries; and (ii)
to the extent not included in such current
liabilities, the Outstanding Revolver Credit at such
time.
"Revolving Loan Maturity Date" shall mean November 30,
1999.
(c) Paragraph 2.01 is amended by adding a new Subparagraph
2.01(h) immediately after Subparagraph 2.01(g) to read in its entirety
as follows:
(h) Revolving Loan Maturity Date Extensions.
On or before the last Business Day of each November
beginning on November 30, 1998, Borrower may request the
Lenders to extend the Revolving Loan Maturity Date for an
additional one-year period. Borrower shall request each
such extension by appropriately completing, executing and
delivering to Agent a written request in the form of
Exhibit I (a "Revolving Loan Maturity Date Extension
Request"). Borrower understands that this Subparagraph
2.01(h) is included in this Agreement for Borrower's
convenience in requesting extensions and acknowledges that
neither Agent nor any Lender has promised (either expressly
or by implication), and neither Agent nor any Lender has any
obligation or commitment, to extend the Revolving Loan
Maturity Date at any time. Agent shall promptly deliver to
each Lender three (3) copies of each Revolving Loan Maturity
Date Extension Request received by Agent. If a Lender, in
its sole and absolute discretion, consents to any Revolving
Loan Maturity Date Extension Request, such Lender shall
evidence such consent by executing and returning two (2)
copies of the Revolving Loan Maturity Date Extension Request
to Agent not later than the last Business Day which is
thirty (30) days after the date Borrower delivered to Agent
the Revolving Loan Maturity Date Extension Request. Any
failure by any Lender to execute and return a Revolving Loan
Maturity Date Extension Request shall be deemed a denial
thereof. If Borrower shall deliver a Revolving Loan
Maturity Date Extension Request to Agent pursuant to the
first sentence of this Subparagraph 2.01(h), then not later
than the last Business Day which is thirty-five (35) days
after the date Borrower delivered to Agent the Revolving
Loan Maturity Date Extension Request, Agent shall notify
Borrower in writing whether (i) Agent has received a copy of
the Revolving Loan Maturity Date Extension Request executed
by each Lender, in which case the definition of "Revolving
Loan Maturity Date" set forth in Paragraph 1.01 shall be
deemed amended as provided in the Revolving Loan Maturity
Date Extension Request as of the date of such written notice
from Agent to Borrower, or (ii) Agent has not received a
copy of the Revolving Loan Maturity Date Extension Request
executed by each Lender, in which case such Revolving Loan
Maturity Date Extension Request shall be deemed denied.
Agent shall deliver to Borrower, with each written notice
under clause (i) of the preceding sentence which notifies
Borrower that Agent has received a Revolving Loan Maturity
Date Extension Request executed by each Lender, a copy of
the Revolving Loan Maturity Date Extension Request so
executed by each Lender.
(d) Subparagraph 2.04(b) is amended by adding to read in
its entirety as follows:
(b) Commitment Fees. Borrower shall pay to
Agent, for the ratable benefit of the Revolving Lenders as
provided in clause (iii) of Subparagraph 2.09(a), commitment
fees (the "Commitment Fees") of 0.275% per annum on the
daily average Unused Commitment for the period beginning on
the date of this Agreement and ending on the Revolving Loan
Maturity Date. Borrower shall pay the Commitment Fees in
arrears on the last Business Day in each February, May,
August and November (commencing August 30, 1996) and on the
Revolving Loan Maturity Date (or if the Total Commitment is
cancelled on a date prior to the Revolving Loan Maturity
Date, on such prior date).
(e) Clause (iv) of Subparagraph 5.01(a) is amended by
deleting the reference to "$3,500,000" set forth therein and replacing
it with"$10,000,000".
(f) Subparagraph 5.02(a) is amended by changing clause (i)
thereof to read in its entirety as follows:
(i) (A) The Obligations of Borrower under
the Credit Documents and (B) the Obligations of Borrower as
lessee to the Lessor Parties under the Operative Documents;
(g) Subparagraph 5.02(a) is further amended by changing
clause (vi) thereof to read in its entirety as follows:
(vi) Indebtedness of Borrower and its
Subsidiaries under purchase money loans and Capital Leases
incurred by Borrower or any of its Subsidiaries to finance
the acquisition by such Person of real property, fixtures or
equipment provided that in each case, (A) such Indebtedness
is incurred by such Person at the time of, or not later than
ninety (90) days after, the first functional use by such
Person of the property so financed and (B) such Indebtedness
does not exceed the purchase price of the property so
financed;
(h) Subparagraph 5.02(a) is further amended by changing
clause (viii) thereof to read in its entirety as follows:
(viii) Indebtedness of Borrower and its
Subsidiaries under initial or successive refinancings of any
Indebtedness permitted by subclause (B) of clause (i) or
clause (ii) above or under replacements of lines of credit
or other credit commitments permitted by subclause (B) of
clause (i) or clause (ii) above, provided that (A) the
principal amount of any such refinancing or replacement does
not exceed the principal amount of the Indebtedness being
refinanced or commitment being replaced and (B) the material
terms and provisions of any such refinancing or replacement
(including redemption, prepayment, default and subordination
provisions) are not substantially less favorable than the
comparable terms of the Indebtedness being refinanced or
commitment being replaced, except that the maturity of the
new Indebtedness or commitment may be longer;
(i) Subparagraph 5.02(a) is further amended by changing
clause (ix) thereof to read in its entirety as follows:
(ix) Indebtedness of Borrower and its
Subsidiaries with respect to Surety Instruments incurred in
the ordinary course of business (including surety bonds
issued to secure obligations of Borrower and its
Subsidiaries in respect of equipment ordered from Borrower
and its Subsidiaries);
(j) Subparagraph 5.02(a) is further amended by changing
clause (xii) thereof to read in its entirety as follows, and by adding a
new clause (xiii) thereto to read in its entirety as follows:
(xii) Indebtedness of Borrower's Japanese
Subsidiary with respect to the sale, transfer or assignment
of accounts receivable of such Subsidiary and certain rights
and property related to the collection of or constituting
proceeds of such accounts receivable, provided that:
(A) Such sale, assignment or transfer is
(1) in the ordinary course of business, (2) for
cash, (3) with recourse to such Subsidiary in an
amount not to exceed the aggregate face amount
of the accounts receivable sold and certain
additional interest charges with respect to such
Indebtedness and (4) otherwise permitted under
Subparagraph 5.02(c)(vii); and
(B) Both immediately before and after
giving effect to such sale, assignment or
transfer, no Default shall have occurred and be
continuing; and
(xiii) Other Indebtedness of Borrower and
its Subsidiaries, provided that the aggregate amount of such
other Indebtedness outstanding at any time does not exceed
ten percent (10%) of Borrower's Tangible Net Worth on the
last day of the immediately preceding fiscal year.
(k) Subparagraph 5.02(b) is amended by changing clause (i)
thereof to read in its entirety as follows:
(i) (A) Liens in favor of Agent or any
Lender securing the Obligations or (B) any Liens in favor of
any Lessor Party securing the Lessee Obligations;
(l) Subparagraph 5.02(b) is further amended by changing
clause (viii) thereof to read in its entirety as follows:
(viii) Liens on any property or assets
acquired, or on the property or assets of any Persons
acquired, by Borrower or any of its Subsidiaries after the
date of this Agreement pursuant to Subparagraph 5.02(d),
provided that (A) such Liens exist at the time such property
or assets or such Persons are so acquired and (B) such Liens
were not created in contemplation of such acquisitions;
(m) Subparagraph 5.02(b) is further amended by changing
clause (ix) thereof to read in its entirety as follows:
(ix) Judgement Liens, provided that such Liens
do not have a value in excess of $10,000,000 or such Liens
are released, stayed, vacated or otherwise dismissed within
thirty (30) days after issue or levy and, if so stayed, such
stay is not hereafter removed;
(n) Subparagraph 5.02(b) is further amended by changing
clause (xiii) thereof to read in its entirety as follows:
(xiii) Liens securing Indebtedness which
constitutes Permitted Indebtedness under clause (xii) of
Subparagraph 5.02(a) provided that, in each case, such Lien
(A) secures only such Permitted Indebtedness, and (B) such
Liens do not extend to any assets or property other than the
assets or property sold (other than cash pledged under
certain circumstances to secure such Permitted Indebtedness
in an amount not to exceed $15,000,000 in the aggregate
during the term of this Agreement, provided that both
immediately before and after giving effect to any such cash
collateralization, Borrower shall be in compliance with the
financial covenants set forth in Paragraph 5.03 and no other
Default or Event of Default shall have occurred and be
continuing);
(o) Subparagraph 5.02(b) is further amended by changing
clause (xv) thereof to read in its entirety as follows:
(xv) Liens incurred in connection with the
extension, renewal or refinancing of the Indebtedness
secured by the Liens described in subclause (B) of clause
(i), clause (ii) or clause (xii) above, provided that any
extension, renewal or replacement Lien (A) is limited to the
property covered by the existing Lien and (B) secures
Indebtedness which is no greater in amount and has material
terms no less favorable to the Lenders than the Indebtedness
secured by the existing Lien;
(p) Subparagraph 5.02(b) is further amended by changing
clause (xvii) thereof to read in its entirety as follows, and by adding
a new clause (xviii) and a new clause (xix) thereto to read in their
entirety as follows:
(xvii) Liens in inventory of Borrower and
its Subsidiaries in favor of (A) customers of Borrower and
its Subsidiaries to secure the obligations of Borrower and
its Subsidiaries in respect of equipment ordered from
Borrower and its Subsidiaries by such customers or (B)
sureties that have issued surety bonds to such customers to
secure such obligations, provided that each such Lien (1)
covers only (y) the equipment ordered by a customer pursuant
to a purchase order which has been delivered to Borrower or
one of its Subsidiaries and (z) the parts and other
inventory of Borrower and its Subsidiaries which will be
used to build such equipment, (2) secures only the
obligations of Borrower and its Subsidiaries in respect of
such equipment and (3) terminates upon the delivery of such
equipment to such customer or the ultimate purchaser thereof
or the return to such customer of such deposit;
(xviii) Permitted Property Liens in the
Property; and
(xix) Other Liens, provided that the aggregate
amount of the Indebtedness outstanding at any time and
secured by such other Liens does not exceed five percent
(5%) of Borrower's Tangible Net Worth on the last day of the
immediately preceding fiscal year.
(q) Subparagraph 5.02(c) is amended by changing clause
(ii) thereof to read in its entirety as follows:
(ii) Sales or other dispositions of surplus,
damaged, worn or obsolete equipment or inventory;
(r) Subparagraph 5.02(c) is further amended by changing
clause (viii) thereof to read in its entirety as follows, and by adding
a new clause (ix) and a new clause (x) thereto to read in their entirety
as follows:
(viii) Sales, for cash, in the ordinary
course of business of accounts receivable of Lessee and
certain rights and property of Borrower related to the
collection of or constituting proceeds of such accounts
receivable, with or without recourse, at a discount rate not
to exceed ten percent (10%), provided that the aggregate
amount of accounts receivable so sold by Borrower in any
fiscal quarter does not exceed Twelve Million Dollars
($12,000,000);
(ix) The sale by Borrower to the Hayward Lessor
of the improvements that have been made by Borrower to the
property located at 26460 Corporate Avenue, Hayward,
California and that are being leased back to Borrower
pursuant to the Hayward Lease; and
(x) Other sales, leases, transfers and
disposals of assets and property, provided that the
aggregate value of all such assets and property (based upon
the greater of the fair market or book value of such assets
and property) so sold, leased, transferred or otherwise
disposed of in any fiscal year does not exceed five percent
(5%) of Borrower's Tangible Net Worth on the last day of the
immediately preceding fiscal year.
(s) Subparagraph 5.02(d) is amended to read in its
entirety as follows:
(d) Mergers, Acquisitions, Etc. Neither
Borrower nor any of its Subsidiaries shall acquire any other
Person (whether through merger with such Person, acquisition
of such Person as a Subsidiary or otherwise) or all or
substantially all of the assets of any other Person, except
that Borrower and its Subsidiaries may make any such
acquisitions if (i) the aggregate consideration paid by
Borrower and its Subsidiaries in cash for all such
acquisitions after the date of this Agreement does not
exceed $25,000,000; (ii) the aggregate consideration paid by
Borrower and its Subsidiaries in stock for all such
acquisitions after the date of this Agreement does not
exceed $50,000,000 (such stock to be valued at the market
value thereof at the time paid as consideration); (iii) in
any merger involving Borrower, Borrower is the surviving
corporation; and (iv) both immediately before and after
giving effect to any such acquisition, no Default or Event
of Default shall have occurred and be continuing.
(t) Subparagraph 5.02(e) is amended by changing clause
(vi) thereof to read in its entirety as follows, and by adding a new
clause (vii) thereto to read in its entirety as follows:
(vi) Investments permitted by Subparagraph
5.02(d); and
(vii) Other Investments, provided that the
amount of any such Investment, when added to the aggregate
amount of all other Investments made pursuant to this clause
(vii) since December 5, 1997 (net of any returns previously
received on account of such Investments), does not exceed
ten percent (10%) of Borrower's Tangible Net Worth on the
last day of the immediately preceding fiscal year.
(u) Subparagraph 5.02(f) is amended by changing clause
(iii) thereof to read in its entirety as follows:
(iii) Borrower may repurchase its Equity
Securities, provided that the cost of any such repurchase,
when added to the aggregate cost of all other repurchases
made pursuant to this clause (iii) since December 5, 1997,
does not exceed ten percent (10%) of Borrower's Tangible Net
Worth on the last day of the immediately preceding fiscal
year.
(v) Subparagraph 5.02(g) is amended to read in their
entirety as follows:
(g) Change in Business. Neither Borrower nor
any of its Subsidiaries shall engage, either directly or
indirectly through Affiliates, in any business that is
substantially different from the semi-conductor market
(including semi-conductor capital equipment, test and
inspection equipment, flat panel displays and laser direct
imaging equipment), the pattern generation market and any
strategic component parts in relation thereto.
(w) Subparagraph 5.03(a) is amended to read in its
entirety as follows:
(a) Leverage Ratio. Borrower shall not permit
the Leverage Ratio of Borrower and its Subsidiaries on the
last day of any fiscal quarter set forth below to be greater
than the ratio set forth opposite such quarter below:
Quarters ending on January 31, 1998
April 30, 1998 and July 31, 1998 0.250
to 1.00;
Quarters ending on October 31, 1998,
January 31, 1999, April 30, 1999
and July 31, 1999 0.275 to
1.00;
Each quarter thereafter 0.250 to 1.00.
(x) Subparagraph 5.03(e) is amended to read in its
entirety as follows:
(e) Debt Service Coverage Ratio. Borrower
shall not permit the Debt Service Coverage Ratio of Borrower
and its Subsidiaries for any consecutive four-quarter period
to be less than the ratio set forth opposite such quarter
below:
Quarters ending on January 31, 1998
and April 30, 1998 5.00 to
1.00;
Quarters ending on July 31, 1998
and October 31, 1998 3.00 to
1.00;
Quarters ending on January 31, 1999
and April 30, 1999 4.00 to
1.00;
Each quarter thereafter 5.00 to 1.00.
(y) Subparagraph 5.03(f) is amended to read in its
entirety as follows:
(f) Profitability. Borrower shall not permit:
(i) The Adjusted Net Income of Borrower and
its Subsidiaries to be a loss in more than two
quarters in any consecutive four-quarter period or the
aggregate amount of any such two quarterly losses to
exceed $10,000,000 in total for the two quarters
combined;
(ii) The Operating Income of Borrower and its
Subsidiaries to be a loss in more than two quarters in
any consecutive four-quarter period or the aggregate
amount of any such two quarterly losses to exceed
$10,000,000 in total for the two quarters combined; or
(iii) The cumulative Adjusted Net Income of
Borrower and its Subsidiaries for any consecutive
four-quarter period to be less than $1.00.
(z) Paragraph 8.04 is amended to read in its entirety as
follows:
8.04 Waivers; Amendments. Any term, covenant,
agreement or condition of this Agreement or any other Credit
Document may be amended or waived, and any consent under
this Agreement or any other Credit Document may be given, if
such amendment, waiver or consent is in writing and is
signed by Borrower and the Required Lenders (or Agent on
behalf of the Required Lenders with the written approval of
the Required Lenders); provided, however that:
(a) Any amendment, waiver or consent which
would (i) increase the Total Revolving Loan Commitment
or Total Term Loan Commitment, (ii) extend the
Revolving Loan Maturity Date or the Term Loan Maturity
Date, (iii) reduce the principal of or interest on any
Loan or any fees or other amounts payable for the
account of the Lenders hereunder, (iv) extend any
scheduled principal, interest or fee payment date,
(v) amend this Paragraph 8.04, or (vi) amend the
definition of Required Lenders, must be in writing and
signed or approved in writing by all Lenders;
(b) Any amendment, waiver or consent which
increases or decreases the Proportionate Share of any
Lender must be in writing and signed by such Lender;
(c) Any amendment, waiver or consent which
amends or waives the financial covenants contained in
Subparagraph 5.03(a) or Subparagraph 5.03(f) must be
in writing and signed by the Super Required Lenders;
and
(d) Any amendment, waiver or consent which
affects the rights or obligations of Agent must be in
writing and signed by Agent.
No failure or delay by Agent or any Lender in exercising any
right under this Agreement or any other Credit Document
shall operate as a waiver thereof or of any other right
hereunder or thereunder nor shall any single or partial
exercise of any such right preclude any other further
exercise thereof or of any other right hereunder or
thereunder. Unless otherwise specified in such waiver or
consent, a waiver or consent given hereunder shall be
effective only in the specific instance and for the specific
purpose for which given.
(aa) A new Exhibit I (Revolving Loan Maturity Date
Extension Request) is hereby added to the Credit Agreement to read in
its entirety as set forth on Attachment A.
3. Representations and Warranties. Borrower hereby represents
and warrants to Agent and the Lenders that the following are true and
correct on the date of this Amendment and that, after giving effect to
the amendments set forth in paragraph 2 above, the following will be
true and correct on the Effective Date (as defined below):
(a) The representations and warranties of Borrower
and its Subsidiaries set forth in Paragraph 4.01 of the Credit
Agreement and in the other Credit Documents are true and correct
in all material respects (except for representations and
warranties expressly made as of a specified date, which shall be
true as of such date);
(b) No Default or Event of Default has occurred and
is continuing; and
(c) All of the Credit Documents are in full force
and effect.
(Without limiting the scope of the term "Credit Documents,"
Borrower expressly acknowledges in making the representations and
warranties set forth in this paragraph 3 that, on and after the
date hereof, such term includes this Amendment.)
4. Effective Date. The amendments effected by paragraph 2
above shall become effective on April 29, 1998 (the "Effective Date"),
subject to receipt by Agent and the Lenders on or prior to the Effective
Date of the following, each in form and substance satisfactory to Agent,
the Lenders and their respective counsel:
(a) This Amendment duly executed by Borrower, each
Lender and Agent;
(b) A certificate of the Secretary or an Assistant
Secretary of Borrower, dated the Effective Date, certifying the
incumbency, signatures and authority of the officers of Borrower
authorized to execute, deliver and perform this Amendment;
(c) An amendment fee of $25,000 for the benefit of
the Lenders to be shared among the Lenders pro rata in accordance
with such Lender's respective Proportionate Share;
(d) A favorable written opinion of Pillsbury,
Madison & Sutro, counsel to Borrower, addressed to Agent and dated
the Effective Date, as to the matters set forth in Attachment B
and such other matters as Agent may reasonably request; and
(e) Such other evidence as Agent or any Lender may
reasonably request to establish the accuracy and completeness of
the representations and warranties and the compliance with the
terms and conditions contained in this Amendment and the other
Credit Documents.
5. Effect of this Amendment. On and after the Effective Date,
each reference in the Credit Agreement and the other Credit Documents to
the Credit Agreement shall mean the Credit Agreement as amended hereby.
Except as specifically amended above, (a) the Credit Agreement and the
other Credit Documents shall remain in full force and effect and are
hereby ratified and confirmed and (b) the execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power, or remedy of the
Lenders or Agent, nor constitute a waiver of any provision of the Credit
Agreement or any other Credit Document.
6. Miscellaneous.
(a) Counterparts. This Amendment may be executed in
any number of identical counterparts, any set of which signed by
all the parties hereto shall be deemed to constitute a complete,
executed original for all purposes.
(b) Headings. Headings in this Amendment are for
convenience of reference only and are not part of the substance
hereof.
(c) Governing Law. This Amendment shall be governed
by and construed in accordance with the laws of the State of
California without reference to conflicts of law rules.
[The signature pages follow.]
IN WITNESS WHEREOF, Borrower, the Agent and the Lenders have
caused this Amendment to be executed as of the day and year first above
written.
BORROWER: ETEC SYSTEMS, INC.
By:
Name:
Title:
AGENT: ABN AMRO BANK N.V.
By:
Name
Title:
By:
Name:
Title:
LENDERS: ABN AMRO BANK N.V.
By:
Name:
Title:
By:
Name:
Title:
COMERICA BANK-CALIFORNIA
By:
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LTD.
By:
Name:
Title:
ATTACHMENT A
REVOLVING LOAN MATURITY DATE EXTENSION REQUEST
[Date]
ABN AMRO Bank, N.V.,
as Agent
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Robin Yim
Pursuant to Subparagraph 2.01(h) of the Credit Agreement
dated as of May 24, 1996 (the "Credit Agreement"), among Etec Systems,
Inc. ("Borrower"), the financial institutions listed in Schedule I to
the Credit Agreement (the "Lenders"), and ABN AMRO Bank, N.V., as Agent
for the Lenders, Borrower hereby requests the Lenders to extend the
Revolving Loan Maturity Date (as defined in the Credit Agreement) for an
additional one-year period. If a Lender, in its sole and absolute
discretion, consents to such request, such Lender shall evidence such
consent by executing this letter in the space provided and returning to
Agent two copies of this letter.
Upon the execution of a copy of this letter by each Lender,
the return thereof to Agent and the written notification thereof by
Agent to Borrower and Lenders, the Revolving Loan Maturity Date, as
defined in Paragraph 1.01 of the Credit Agreement, shall be amended by
changing the date "November 30, ____" to November 30, 20__."
Except as specifically amended hereby, all terms, covenants
and conditions of the Credit Agreement shall remain in full force and
effect.
Very truly yours,
ETEC SYSTEMS, INC.
By:
Name:
Title:
ATTACHMENT B
MATTERS TO BE COVERED BY OPINION OF COUNSEL
(1) The execution, delivery and performance by Borrower of the
Amendment and the consummation of the transactions contemplated thereby
(a) are within the power of Borrower and (b) have been duly authorized
by all necessary actions on the part of Borrower.
(2) The Amendment has been duly executed and delivered by
Borrower and constitutes a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms,
except as limited by bankruptcy, insolvency or other laws of general
application relating to or affecting the enforcement of creditors'
rights generally and general principles of equity.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> 40,874
<SECURITIES> 56,317
<RECEIVABLES> 88,129
<ALLOWANCES> 1,189
<INVENTORY> 84,410
<CURRENT-ASSETS> 297,747
<PP&E> 45,252
<DEPRECIATION> 0
<TOTAL-ASSETS> 347,221
<CURRENT-LIABILITIES> 111,154
<BONDS> 0
0
0
<COMMON> 221
<OTHER-SE> 231,589
<TOTAL-LIABILITY-AND-EQUITY> 347,221
<SALES> 173,101
<TOTAL-REVENUES> 200,561
<CGS> 76,750
<TOTAL-COSTS> 97,600
<OTHER-EXPENSES> 37,388 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 617
<INCOME-PRETAX> 43,592
<INCOME-TAX> 15,039
<INCOME-CONTINUING> 15,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,039
<EPS-PRIMARY> $1.30
<EPS-DILUTED> $1.25
<FN>
<F1> EXCLUDES SG&A AS SG&A IS PART OF 5-03(b)(4).
</FN>
</TABLE>
