<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to____________
Commission file number: 0-28734
ADVANCED FIBRE COMMUNICATIONS, INC.
A Delaware I.R.S. Employer
Corporation Identification No.
68-0277743
One Willow Brook Court
Petaluma, California 94954
Telephone: (707) 794-7700
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of October 29, 1999, 77,813,371 shares of common stock were outstanding.
<PAGE> 2
ADVANCED FIBRE COMMUNICATIONS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998...............................................2
Condensed Consolidated Statements of Income
Three and nine months ended September 30, 1999 and 1998................................3
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998..........................................4
Notes to Condensed Consolidated Financial Statements.......................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......8
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.........................................................................21
Item 2. Changes in Securities and Use of Proceeds.................................................21
Item 3. Defaults Upon Senior Securities...........................................................21
Item 4. Submission of Matters to a Vote of Security Holders.......................................21
Item 5. Other Information.........................................................................21
Item 6. Exhibits and Reports on Form 8-K..........................................................21
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED FIBRE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 54,488 $ 20,669
Marketable securities 111,989 90,084
Accounts receivable, net 57,004 74,967
Inventories, net 38,477 53,060
Other current assets 7,770 8,257
--------- ---------
Total current assets 269,728 247,037
Property and equipment, net 55,766 49,315
Other assets 11,089 11,531
--------- ---------
TOTAL ASSETS $ 336,583 $ 307,883
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,314 $ 12,573
Accrued liabilities 27,993 25,140
--------- ---------
Total current liabilities 42,307 37,713
Long-term liabilities 2,500 1,870
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized in
1999 and 1998; no shares issued and outstanding -- --
Common stock, $0.01 par value; 200,000,000 shares authorized
in 1999 and 1998; 77,444,493 and 75,716,153 shares
issued and outstanding in 1999 and 1998, respectively 774 757
Additional paid-in capital 220,961 210,420
Notes receivable from stockholders (282) (730)
Accumulated other comprehensive income (147) --
Retained earnings 70,470 57,853
--------- ---------
Total stockholders' equity 291,776 268,300
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 336,583 $ 307,883
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE> 4
ADVANCED FIBRE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues $ 75,900 $ 66,513 $209,698 $237,602
Cost of revenues 39,086 36,388 111,500 128,659
-------- -------- -------- --------
Gross profit 36,814 30,125 98,198 108,943
-------- -------- -------- --------
Operating expenses:
Research and development 11,529 11,422 35,077 30,163
Selling, general, and administrative 17,394 16,297 48,980 49,126
-------- -------- -------- --------
Total operating expenses 28,923 27,719 84,057 79,289
-------- -------- -------- --------
Operating income 7,891 2,406 14,141 29,654
Other income, net 1,809 896 4,690 3,021
-------- -------- -------- --------
Income before income taxes 9,700 3,302 18,831 32,675
Income taxes 3,201 1,153 6,214 11,433
-------- -------- -------- --------
Net income $ 6,499 $ 2,149 $ 12,617 $ 21,242
======== ======== ======== ========
Basic net income per share $ 0.08 $ 0.03 $ 0.16 $ 0.28
======== ======== ======== ========
Shares used in basic per share computations 77,239 75,322 76,895 74,756
======== ======== ======== ========
Diluted net income per share $ 0.08 $ 0.03 $ 0.16 $ 0.27
======== ======== ======== ========
Shares used in diluted per share computations 81,555 78,719 80,527 79,472
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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ADVANCED FIBRE COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,617 $ 21,242
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 9,579 4,734
Tax benefit from option exercises 3,911 8,956
Deferred income taxes 925 (686)
Changes in operating assets and liabilities:
Accounts receivable 17,963 110
Inventories 14,583 (4,369)
Other assets and liabilities 3,418 (10,065)
Accounts payable 1,741 (2,561)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 64,737 17,361
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of marketable securities (22,056) 6,548
Property and equipment additions (15,507) (24,872)
Other long-term investments (450) (645)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (38,013) (18,969)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options and warrants 7,095 6,006
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,095 6,006
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 33,819 4,398
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,669 9,053
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 54,488 $ 13,451
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 6
ADVANCED FIBRE COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. While these financial statements reflect all
adjustments of a normal and recurring nature which are, in the opinion of
management, necessary to present fairly the results of the interim period, they
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. These financial
statements and notes should be read in conjunction with the financial statements
and notes thereto contained in our Annual Report on Form 10-K, for the year
ended December 31, 1998.
The unaudited condensed consolidated financial statements include Advanced Fibre
Communications, Inc., and its subsidiaries ("AFC" or the "Company"). Significant
intercompany transactions and accounts have been eliminated. Certain prior
period amounts have been reclassified to conform with the current period
presentation.
AFC operates on 13-week fiscal quarters ending on the last Saturday of each
fiscal period. For presentation purposes only, the fiscal periods are shown as
ending on the last day of the month of the respective fiscal period. The results
of operations for the three and nine month periods ended September 30, 1999 are
not necessarily indicative of the operating results for the full year.
NOTE 2 INVENTORIES
Inventories are valued at the lower of first-in, first-out cost or market and
consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Raw materials $ 9,621 $ 16,135
Work-in-progress 442 566
Finished goods 28,414 36,359
-------- --------
Inventories, net $ 38,477 $ 53,060
======== ========
</TABLE>
NOTE 3 BANK BORROWINGS
AFC has renewed a $50.0 million unsecured bank line with two banks, which
expires in July 2000. The bank line carries interest of LIBOR plus 1.50%. Under
the bank line, the banks may issue letters of credit up to $10.0 million on our
behalf. As of September 30, 1999, $4.3 million in letters of credit were
outstanding, of which $1.0 million was for a short-term deposit on one of our
leased facilities and of which another $1.0 million was for a five-year deposit
on the same building. The bank line requires us to comply with certain financial
covenants. As of September 30, 1999, no borrowings were outstanding under the
bank line, and we were in compliance with the covenants.
NOTE 4 COMMITMENTS AND CONTINGENCIES
MARCONI/RELTEC CORPORATION In 1997, AFC filed a lawsuit against RELTEC
Corporation, now Marconi Communications, Inc., alleging trade secret
misappropriation, tortious interference with a contract, and related claims. For
purposes of this footnote, reference is made only to RELTEC. The case involves
RELTEC's acquisition of AFC's technology through the Company's Taiwan-based
licensee, Vidar-SMS Co., Ltd. The trial is set to commence on January 11, 2000.
5
<PAGE> 7
STOCKHOLDER LITIGATION AFC and various of its current and former officers and
directors are parties to a consolidated lawsuit which purports to be a class
action filed on behalf of certain of our stockholders (excluding the defendants
and parties related to them). The lawsuit alleges that the defendants violated
certain federal securities laws. The plaintiffs filed a consolidated Amended
Complaint on or about January 27, 1999. Defendants' motion to dismiss the
complaint is currently pending before the court. Limited discovery has occurred,
and only limited discovery is expected to occur pending ruling on the motion to
dismiss.
This action is in the early stages of proceedings. Based on current information,
we believe the suit to be without merit and intend to defend the Company and its
officers and directors vigorously. Although it is reasonably possible we may
incur a loss upon the conclusion of this claim, an estimate of any loss or range
of loss cannot be made. No provision for any liability that may result upon
adjudication has been made in the consolidated financial statements. In the
opinion of management, resolution of this matter is not expected to have a
material adverse effect on our financial position. However, depending on the
amount and timing, an unfavorable resolution of this matter could materially
affect our future results of operations or cash flows in a particular period. In
connection with these legal proceedings, we expect to incur substantial legal
and other expenses. Stockholder suits of this kind are highly complex and can
extend for a protracted period of time, which can substantially increase the
cost of such litigation and divert the attention of management from the
operations of AFC.
NOTE 5 COMPREHENSIVE INCOME
We have adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income. SFAS No. 130 requires that
changes in the amounts of certain items, including unrealized gains and losses
on available-for-sale securities and foreign currency translation adjustments,
be shown as components of accumulated other comprehensive income. Accumulated
other comprehensive income is composed of unrealized gains and losses on
marketable securities.
NOTE 6 SEGMENT REPORTING
We derive substantially all of our revenues from sales of one product, the
Universal Modular Carrier 1000TM (the "UMC1000"), and our company is not
organized by multiple operating segments for the purpose of making operating
decisions or assessing performance. Accordingly, we operate in one operating
segment and report only certain enterprise-wide disclosures.
For the third quarter of 1999, revenues from sales to external customers were
$75,629,000, compared with $66,331,000 in the same period of 1998. Revenues from
sales to external customers for the nine months ended September 30, 1999 were
$209,296,000, compared with $232,094,000 in the comparable period of 1998. We
operate in one operating segment; thus, there is no difference between
reportable income and consolidated income. Long-lived assets located in the U.S.
increased to $65,820,000 as of September 30, 1999 from $59,368,000 as of
December 31, 1998. Long-lived assets located in foreign countries decreased to
$1,035,000 as of September 30, 1999 from $1,393,000 as of December 31, 1998.
NOTE 7 NET INCOME PER SHARE
Basic earnings per share were calculated by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share were calculated by dividing net income by the sum of the weighted
average number of common shares outstanding, plus all additional common shares
that would have been outstanding if potentially dilutive common shares had been
issued.
6
<PAGE> 8
The following table sets forth the computations of shares and net income used in
the calculation of basic and diluted net income per share for the three and nine
month periods ended September 30, 1999 and 1998 (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 6,499 $ 2,149 $12,617 $21,242
======= ======= ======= =======
Shares used in basic per share calculations,
actual weighted average common shares
outstanding for the period 77,239 75,322 76,895 74,756
Weighted average number of shares upon
exercise of dilutive options and warrants 4,316 3,397 3,632 4,716
------- ------- ------- -------
Shares used in diluted per share calculations 81,555 78,719 80,527 79,472
======= ======= ======= =======
Basic net income per share $ 0.08 $ 0.03 $ 0.16 $ 0.28
======= ======= ======= =======
Diluted net income per share $ 0.08 $ 0.03 $ 0.16 $ 0.27
======= ======= ======= =======
</TABLE>
NOTE 8 SUBSEQUENT EVENT
As of September 30, 1999, we held an approximate 5% equity interest in Cerent
Corporation ("Cerent"), a privately-held company, and accounted for the
investment using the cost method. In August 1999, Cisco Systems, Inc. ("Cisco"),
a publicly-traded company, announced its intentions to acquire Cerent. On
November 1, 1999, in connection with the acquisition, we exchanged our Cerent
stock for approximately 5.3 million shares of Cisco common stock. We recorded a
gain of approximately $379 million on the exchange as a result of the step-up in
basis to the market value of Cisco stock received. This gain will be reflected
in our results of operations for the fourth quarter of 1999 as non-operating
income. The Cisco stock is classified as available-for-sale. We anticipate that
contractual transfer restrictions on the sale of the stock will expire in the
first quarter of calendar year 2000. At the end of each quarter, we will record
a net unrealized gain or loss on the stock held in the stockholders' equity
section of our balance sheet, to the extent the market value differs from the
carrying value of the stock. Upon sale of a portion or all of the stock, we will
recognize a gain or loss in our results of operations as non-operating income or
loss.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical financial information contained herein, the following
discussion and analysis may contain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements include
declarations regarding our intent, belief, estimates, or current expectations.
Current and prospective investors are cautioned that any of these
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties. Actual results could differ materially from
those indicated by these forward-looking statements.
Among the important factors that could cause actual results to differ materially
from those indicated by our forward-looking statements, as set forth below under
"Certain Factors That Might Affect Future Operating Results," are:
o Potential Fluctuations in Future Operating Results and Seasonality
o Customer Concentration
o Delays and Defects in Product Development and Product Feature Releases
o Risks Associated with International Markets
o Competition
o Risk of Failure to Manage Expanding Operations
o Concentrated Product Line, Uncertainties Associated with New Product
Features and Rapid Technological Change
o Limited Protection of Proprietary Technology; Risk of Third-Party Claims of
Infringement
o Dependence on the Telecommunications Industry and Small to Mid-Line Size
Market
o Dependence on Sole Source and Limited Number of Third-Party Manufacturers
and Support Organizations
o Dependence on Key Personnel
o Risks Associated with Pending Litigation
o Year 2000 Readiness
o Compliance with Regulations and Industry Standards
o Other risks identified from time to time in the Company's Reports and
Registration Statements filed with the Securities and Exchange Commission
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto, on pages 2 through 7 of this Form 10-Q.
OVERVIEW
AFC designs, develops, manufactures, markets and supports the Universal Modular
Carrier 1000(TM) ("UMC1000"), a cost-effective, multi-service digital loop
carrier system developed to serve small to mid-line size markets. We have
designed the UMC1000 to enable telecommunications companies and other service
providers to connect subscribers to the central office switch for voice and data
communications over copper, fiber and analog radio networks. The Third
Generation Digital Loop Carrier(TM) ("3GDLC") is an enhanced version of the
UMC1000 designed to accommodate the bandwidth and connectivity requirements of
current and future local loop applications, including high bandwidth service
offerings such as Asymmetric Digital Subscriber Line ("ADSL").
RESULTS OF OPERATIONS
REVENUES. In the third quarter ended September 30, 1999, our revenues increased
$9.4 million, or 14.1%, to $75.9 million as compared with $66.5 million for the
same period of 1998. Revenues for the nine months ended September 30, 1999 were
$209.7 million, a decrease of $27.9 million, or 11.7%, as compared with $237.6
million recorded in the nine months ended September 30, 1998.
The increase in revenues in the third quarter was due to higher domestic
revenues. Domestic revenues in the third quarter of 1999 were $68.1 million
compared with $52.0 million in the third quarter of 1998, an increase
8
<PAGE> 10
of 31.0%. The increase in domestic revenues for the period was mainly due to
increased sales to Competitive Local Exchange Carrier ("CLEC"), National Local
Exchange Carrier ("NLEC"), and Regional Bell Operating Company ("RBOC")
customers.
International revenues totaled $7.8 million in the third quarter of 1999,
compared with $14.5 million for the comparable period in 1998, and represented
10.3% and 21.8% of total consolidated revenues, respectively. The decline in
international revenues was primarily due to lower sales to customers in South
Africa, China, and Brazil.
Domestic revenues for the nine months ended September 30, 1999 were $185.1
million as compared with $166.3 million in the corresponding period of 1998. The
increase in domestic revenues for the period was primarily due to higher sales
to CLEC and RBOC customers.
International revenues were $24.6 million in the nine months ended September 30,
1999, compared with $71.3 million in the comparable period of 1998, and
represented 11.7% and 30.0% of total consolidated revenues, respectively.
Revenues from sales to customers in South Africa, France, China, Brazil, and
Venezuela, which accounted for an aggregate of 23.2% of total consolidated
revenues in the first nine months of 1998, declined in the comparable period of
1999 to an aggregate of 5.1% of total consolidated revenues. We also experienced
lower international royalty income levels in the year-to-date period ended
September 30, 1999 compared with the corresponding period of 1998.
In the third quarter of 1999, WinStar Communications, Inc. ("WinStar") accounted
for 23.5% of total revenues. For the quarter ended September 30, 1998, WinStar
accounted for 11.4% of total revenues. For the nine months ended September 30,
1999, WinStar accounted for 14.5% of total revenues, and North Supply Company, a
subsidiary of Sprint, accounted for 12.4%. Integrators of System Technology
(Pty) Ltd. in South Africa accounted for 11.6% of total revenues in the
comparable period of 1998. No other customer accounted for 10% or more of total
revenues in any of these periods. Although our largest customers have varied
from period to period, we anticipate that results of operations in any given
period will continue to depend to a significant extent upon sales to a small
number of customers. There can be no assurance that our significant customers
will continue to purchase product from us at current levels, if at all. None of
our customers have entered into agreements requiring them to purchase a minimum
amount of product from us. The loss of one or more significant customers may
result in lower revenues and decreased net income.
GROSS PROFIT. In the third quarter of 1999, gross profit as a percentage of
revenues grew to 48.5% from 45.3% in the same period in 1998. In the first nine
months of 1999 and 1998, gross profit was 46.8% and 45.9%, respectively.
The increase in gross profit in the third quarter and first nine months of 1999
as compared with 1998 was primarily due to customer mix and product mix.
WinStar, which accounted for 23.5% and 14.5% of total revenues in the third
quarter and first nine months of 1999, respectively, typically does not purchase
outdoor cabinets, which have a lower gross profit. The significant amount of
sales to WinStar in 1999 had a favorable impact on 1999 gross profit. The lower
level of international revenue in the 1999 periods also had a favorable impact
on 1999 gross profit.
In the future, gross profit may fluctuate due to a wide variety of factors,
including: the mix between domestic and international sales, the customer mix,
the product feature component mix, the timing and size of orders which are
received and can be shipped in a quarter, the availability of adequate supplies
of key components and assemblies, our ability to introduce new products and
technologies on a timely basis, the timing of new product feature introductions
or announcements by us or our competitors, price competition, unit volume,
royalty revenues, excess or obsolete inventory, and changes in warranty
coverage.
RESEARCH AND DEVELOPMENT. In the third quarter of 1999, research and development
expenses increased $0.1 million to $11.5 million compared with $11.4 million for
the same period in 1998 and represented 15.2% and 17.2% of total revenues,
respectively. In the first nine months of 1999, research and development
expenses increased $4.9 million to $35.1 million compared with $30.2 million in
1998 and represented 16.7% and 12.7% of total revenues, respectively.
9
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The increase in research and development expenses for the first nine months of
1999, as compared with the same period in 1998, reflects our continuing research
and development efforts in areas such as the recently announced Curbside Network
Access System and Equipment Maximization System. We have also been working on
projects such as asymmetric digital subscriber line, digital subscriber line
services, switch interfaces, and asynchronous transfer mode broadband
capabilities. The increase was primarily a result of salaries and benefits and
depreciation costs associated with test equipment used to develop and test new
product features. All research and development costs to date have been expensed
as incurred.
SELLING, GENERAL, AND ADMINISTRATIVE. For the third quarter of 1999, selling,
general and administrative expenses increased $1.1 million to $17.4 million
compared with $16.3 million for the same period in 1998 and represented 22.9%
and 24.5% of total revenues, respectively. In the first nine months of 1999,
selling, general and administrative expenses decreased $0.1 million to $49.0
million compared with $49.1 million for the same period in 1998 and represented
23.4% and 20.7% of total revenues, respectively.
The increase in selling, general, and administrative expenses in the third
quarter of 1999, as compared with 1998, is primarily due to higher facility
costs and costs related to closing down certain facilities.
INCOME TAXES. For the third quarter and first nine months of 1999 and 1998, we
recorded income taxes at an effective rate that approximated the combined
federal and state statutory rates. The effective tax rate declined from 35.0% in
1998 to 33.0% in 1999. This reduction was primarily due to an increase in
expected tax credits derived from research and development, a lower combined
effective state income tax expense, and benefits from tax exempt interest income
and our foreign sales corporation.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, cash and cash equivalents were $54.5 million, compared
with $20.7 million as of December 31, 1998. Marketable securities totaled $112.0
million as of September 30, 1999, compared with $90.1 million as of December 31,
1998.
Operating activities for the first nine months of 1999 generated net cash of
$64.7 million. This was primarily the result of net income and decreases in
accounts receivable and inventory. Net cash of $38.0 million was used in
investing activities in the nine months of 1999, as a result of net purchases of
marketable securities and capital asset acquisitions.
We have renewed a $50.0 million unsecured bank line with two banks, which
expires in July 2000. The bank line carries interest of LIBOR plus 1.50%. Under
the bank line, the banks may issue letters of credit up to $10.0 million on our
behalf. As of September 30, 1999, $4.3 million in letters of credit were
outstanding, of which $1.0 million was for a short-term deposit on one of our
leased facilities and of which another $1.0 million was for a five-year deposit
on the same building. The bank line requires us to comply with certain financial
covenants. As of September 30, 1999, no borrowings were outstanding under the
bank line, and we were in compliance with the covenants.
We have lease lines totaling $5.1 million that were used for equipment and
furniture purchases.
We also maintain bank facilities with two banks under which we may enter into
foreign exchange contracts up to $40.0 million. There are no borrowing
provisions associated with these facilities. As of September 30, 1999, there
were approximately $1.0 million in foreign exchange contracts outstanding.
As of September 30, 1999, we held an approximate 5% equity interest in Cerent
Corporation ("Cerent"), a privately-held company, and accounted for the
investment using the cost method. On November 1, 1999, in connection with the
acquisition of Cerent by Cisco Systems, Inc., a publicly-traded company, we
exchanged our Cerent stock for approximately 5.3 million shares of Cisco common
stock. We recorded a gain of approximately $379 million on the exchange as a
result of the step-up in basis to the market value of Cisco stock received. This
gain will be reflected in our results of operations for the fourth quarter of
1999 as non-operating income. The Cisco stock is classified as
available-for-sale. We anticipate that contractual transfer restrictions on the
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<PAGE> 12
sale of the stock will expire in the first quarter of calendar year 2000. At the
end of each quarter, we will record a net unrealized gain or loss on the stock
held in the stockholders' equity section of our balance sheet, to the extent the
market value differs from the carrying value of the stock. Upon sale of a
portion or all of the stock, we will recognize a gain or loss in our results of
operations as non-operating income or loss.
We believe that our existing cash and short-term investments, available credit
facilities and cash flows from operating and financing activities will be
adequate to support our financial resource needs, including working capital
requirements, capital expenditures, and operating lease obligations, for the
next twelve months.
FOREIGN CURRENCY, INTEREST RATE, AND MARKET VOLATILITY RISK
We are exposed to market risk as a result of foreign exchange rate fluctuations.
The UMC1000 is marketed in Central and Latin American countries, including
Venezuela and Brazil. The decrease in oil revenues in Venezuela, combined with
the effects of that country's monetary policy, have led to adverse economic
conditions and a decline in the value of the bolivar relative to the dollar.
Deterioration in the Brazilian economy has resulted in the significant
devaluation of the Brazilian real. The impact of these downturns on other
countries in the region has yet to be determined. Sales of the UMC1000 in this
region are made under U.S. dollar-denominated contracts.
One of our customer contracts is payable in French francs and the receivable is
hedged using forward currency exchange contracts. The remainder of international
sales are denominated in U.S. dollars. The introduction in 1999 of the "Euro"
currency could cause increased competition among European companies which in
turn could cause the value of the Euro to fluctuate materially relative to the
U.S. dollar. Adoption of the Euro has not, to date, had a material impact on our
business, results of operations or financial condition. We have sales and
representative offices in Hong Kong, Shanghai, Switzerland, and the U.K.
Operating expenses for these offices have historically been short-term in nature
and are not considered significant on a consolidated basis.
Changes in domestic interest rates create risk and may cause adverse
fluctuations of our marketable securities portfolio and cash flows. Changes in
short-term U.S. interest rates affect the market value of those marketable
securities. Because of the short-term nature of our investment portfolio, we
believe our exposure to these market fluctuations is not significant. We may be
affected by changes in LIBOR and the resulting interest rate on amounts borrowed
under our line of credit.
On November 1, 1999, we acquired approximately 5.3 million shares of Cisco
common stock, due to Cisco's acquisition of Cerent. The relative market price of
Cisco shares in future quarters, as compared with the closing market price at
November 1, 1999, may result in material fluctuations in our marketable
securities portfolio, unrealized gains or losses, and realized gains or losses
upon disposal. See "Liquidity and Capital Resources" as it pertains to this
matter on page 10 and Item 3 - "Quantitative and Qualitative Disclosures About
Market Risk" on page 20 of this Quarterly Report on Form 10-Q. We have not yet
determined when or to what extent we will attempt to reduce the economic risk of
ownership of this stock. Our ability to do so may be limited, in part due to
contractual transfer restrictions that we anticipate will expire in the first
quarter of calendar year 2000. We also expect that Cisco's stock price will
fluctuate, perhaps significantly. Accordingly, we cannot predict the timing of
any disposition of our Cisco stock, the value that we will ultimately realize
from this stock, or the effects on our results of operations and liquidity in
future periods.
SEASONALITY
Our customers normally install a portion of the UMC1000 in outdoor locations.
Shipments of the UMC1000 are subject to the effects of seasonality, with fewer
installation projects scheduled for the winter months. The majority of our sales
are to companies in North America, and, accordingly, we believe the effect of
seasonality will cause our revenues in the quarter ended March 31 to be lower
than revenues in the preceding quarter ended December 31.
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YEAR 2000 READINESS DISCLOSURE
We have formed a Year 2000 Committee to understand and address the year 2000
("Y2K") issue as it affects AFC's infrastructure, operations, and the UMC1000
product. Representatives from each functional area are responsible for
identifying and assessing organizational readiness, preparing remediation steps,
testing, and applying new standards and contingency plans. We have identified
and assessed a majority of the potential Y2K-affected hardware, software,
facility equipment, and vendors. For the most part, our systems and software
have been found to be Y2K compliant, or have been upgraded to compliance through
manufacturers' upgrades.
We have surveyed 100% of our mission critical vendors regarding their Y2K
readiness. In some cases, we reviewed vendors' Y2K readiness plans to gain
further assurance as to the adequacy and scope of their assessment, testing,
remediation, and contingency plans in the event of Y2K-related failures. We have
developed our own contingency plans in case of vendors' failures which include
pre-qualified alternative vendors, multiple vendor sources for some critical
components and assemblies, and additional supplies of key components on hand.
However, there can be no assurance that we will be able to obtain sufficient
materials from alternative sources. Current or alternative vendors may not be
able to meet our supply requirements and such supplies may not continue to be
made available at favorable prices, or at all.
We are currently surveying our leased properties and facilities, including
vendors providing power, local and long distance telecommunications, water,
heating and cooling, and various services to determine the status of embedded
technology equipment that could affect our operations. Vendors' Y2K
non-compliance may affect the delivery of power, telecommunications, water, and
heating and cooling services. Additionally, transportation, banking, and
government services may be impacted by non-compliance. In such an event, we may
experience temporary disruption of our manufacturing, customer service, sales
and marketing, research and development, information systems, treasury, and
administrative functions. Due to additional leased property commitments
beginning in Fall 1999, we have extended the period for assessing and completing
the property and facility vendor surveys until after we have completed a planned
move into the new facility. We plan to test and validate the operations of the
new facility and finalize and implement contingency plans by late 1999. However,
due to the timing of our planned move, we will have only a limited period of
time to rectify any Y2K issues associated with our new facility.
The UMC1000 was originally designed and developed to be Y2K ready. The UMC1000
utilizes operating systems and software applications that were designed and
developed to properly reflect the year 2000 and subsequent years' data. Although
we believe that the UMC1000 is Y2K ready, our vendors may utilize equipment or
software that is not compliant. Vendors' failures to adequately address their
own Y2K compliance issues could lead to disruption of services provided by
vendors, delays in delivery of components used to assemble the UMC1000, and may
affect the timing of our shipment of finished product. In addition, customer
demand for the UMC1000 could be adversely affected if customers encounter Y2K
related problems and elect to address Y2K issues as a higher priority over
UMC1000 purchases, or if customers delay purchasing decisions until later in
calendar year 2000 due to uncertainties about Y2K issues. Any of these factors
could result in, among other things, delays in or loss of customer orders,
decreased revenue levels, and delays in customer service.
We believe we are taking the steps necessary to understand and resolve Y2K
issues; however, failure to adequately address all known and unknown Y2K
readiness issues could result in, among other things, unforeseen operating
expenses and lower net income. The remaining Y2K readiness activities are not
expected to result in significant incremental operating expenses, and we
estimate the cost to complete our Y2K readiness and contingency plans will not
exceed $200,000. We track external costs incurred to remedy Y2K-affected
software, hardware, and embedded technology; however, we do not separately track
internal costs incurred, such as payroll costs for employees working on Y2K
matters. To date, expenditures on external costs relating to Y2K readiness have
been $30,000.
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CERTAIN FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
In addition to the other information in this Quarterly Report on Form 10-Q, the
following are important factors that should be considered in evaluating the
Company and its business.
POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS AND SEASONALITY. Our
operating results have been, and will continue to be, affected by a wide variety
of factors, some of which are outside of our control, that could, among other
things, lower revenues, increase operating expenses, and lower net income. These
factors include:
o Domestic and international sales mix
o Customer mix
o Product feature component mix
o Timing and size of orders which are received and can be shipped in a
quarter
o Availability of adequate supplies of key components and assemblies
o Ability to introduce new product features and technologies on a timely
basis
o Timing of new product feature introductions or announcements by us or by
our competitors
o Price competition
o Unit volume
o Royalty revenue levels
o Excess or obsolete inventory
o Adequacy of manufacturing capacity
o Customers' ability to pay when due
o Expanded warranty coverage
We sell the UMC1000 primarily to telecommunications companies installing the
UMC1000 as part of their access networks. Additions to those networks represent
complex engineering projects, requiring lengthy periods from project
conceptualization to completion. The UMC1000 typically represents only a portion
of a given project and, therefore, the timing of product shipment and revenue
recognition is often difficult to forecast. Our customers normally install a
portion of the UMC1000 in outdoor locations. Shipments of the system can be
subject to the effects of seasonality, with fewer installation projects
scheduled for the winter months. In developing countries, delays and reductions
in the planned project deployment can be caused by additional factors, including
currency fluctuations, reductions in capital availability due to declines in the
local economy, priority changes in the governments' budgets, political
environment and delays in receiving government approval for deployment of the
UMC1000 system in the local loop.
Expenditures for research and development, sales, general, and administrative
functions are based, in part, on future growth projections and in the near term
are relatively fixed. We may be unable to adjust spending in a timely manner in
response to any unanticipated failure to meet these growth projections.
Accordingly, any significant decline in demand for the UMC1000 relative to
planned levels could result in, among other things, higher operating expenses
and lower net income.
All of the above factors are difficult to forecast, and these or other factors
could, among other things, lower revenues, increase operating expenses, and
lower net income. As a result, we believe that period to period comparisons are
not necessarily meaningful and should not be relied upon as indications of
future performance. There can be no assurance that we will sustain or increase
our profitability in the future.
Fluctuations in the market value of our Cisco stock portfolio may have material
effects on our net income, marketable securities portfolio, and cash flows. We
have not yet determined when or to what extent we will attempt to reduce the
economic risk of ownership of this stock. Our ability to do so may be limited,
in part, due to contractual transfer restrictions that we anticipate will expire
in the first quarter of calendar year 2000. We also expect that Cisco's stock
price will fluctuate, perhaps significantly. Accordingly, we cannot predict the
timing of any disposition of our Cisco stock, the value that we will ultimately
realize from this stock, or the effects on our results of operations and
liquidity in future periods.
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Fluctuations in our operating results may cause volatility in the price of our
common stock. It is possible that in any given period, revenues or operating
results will be below the expectations of public market analysts and investors.
In such event, the market price of our common stock would likely be materially
adversely affected. We attempt, through timely press releases and announcements,
to disclose significant factors impacting, or expected to impact, the business,
financial condition, and results of operations. However, due to factors outside
our control, there may be little or no meaningful relationship between the
resulting market price of our common stock and the results of operations.
Factors outside of our control, such as market analysts' published expectations
and short traders' activities, can cause a material fluctuation in our stock
price. The significant decline in the market price of our common stock in
mid-1998 resulted in stockholder litigation against AFC and various officers and
directors. Such litigation could result in substantial litigation costs, and a
diversion of management's attention and resources from our operations. See Part
I - "Note 4 Commitments and Contingencies" as it pertains to this matter on page
5 of this Quarterly Report on Form 10-Q.
CUSTOMER CONCENTRATION. WinStar Communications, Inc. ("WinStar") accounted for
23.5% of total revenues in the third quarter of 1999 and 11.4% in the third
quarter of 1998. In the first nine months of 1999, WinStar accounted for 14.5%
of total revenues, and North Supply, a subsidiary of Sprint, accounted for
12.4%. In the first nine months of 1998, Integrators of System Technology (Pty)
Ltd. in South Africa accounted for 11.6% of total revenues. No other single
customer accounted for 10% or more of total revenues in any of these periods.
Our five largest customers accounted for 50.2% of total revenues in the third
quarter of 1999 and 39.0% in the corresponding period of 1998. Year-to-date, our
five largest customers accounted for 43.9% of total revenues in 1999 compared
with 39.2% in 1998. Although our largest customers have varied from period to
period, we anticipate that results of operations in any given period will
continue to depend to a significant extent upon sales to a small number of
customers. None of our customers have entered into agreements requiring them to
purchase a minimum amount of product from us. There can be no assurance that
significant customers will continue to purchase product at current levels, if at
all. In the event that a significant existing customer merges with another
company, there can be no assurance that such customer will continue to purchase
the UMC1000. The loss of one or more significant customers could, among other
things, decrease revenues and net income, and increase our dependency on our
remaining significant customers.
DELAYS AND DEFECTS IN PRODUCT DEVELOPMENT AND PRODUCT FEATURE RELEASES. We have
experienced delays in completing development and introduction of new product
variations and feature enhancements, and there can be no assurance that such
delays will not continue or recur in the future. We could incur contract
penalties should we fail to meet production and delivery time schedules on
certain orders. There can be no assurance that we will be successful in
developing new product features and releasing products to the market, or that we
will be able to do so before our competitors. The UMC1000 contains a significant
amount of complex hardware and software that may contain undetected or
unresolved errors that may become apparent as product features are introduced,
or as new versions are released. Technical difficulties have been discovered in
certain system installations. It is possible that, despite significant testing,
hardware or software errors will be found in the UMC1000 after commencement of
shipments, resulting in delays in, or cancellation of, customer orders, payment
of contract penalties to customers, or the loss of market acceptance. Any of
these factors could result in, among other things, decreased revenues, net
income, and cash flows.
RISKS ASSOCIATED WITH INTERNATIONAL MARKETS. A portion of our business is
conducted internationally. Operating in international markets subjects us to
certain risks, including:
o Political and economic conditions
o Tariffs or other barriers
o Longer sales and payment cycles
o Collection of accounts receivable
o Staffing and managing international operations
o Exchange and repatriation controls on foreign earnings
o Negative tax consequences
o Exchange rate fluctuations
o Changes in regulatory requirements
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International sales constituted 10.3% of our total revenues in the third quarter
of 1999 and 11.7% in the first nine months. International sales in the
corresponding periods of 1998 were 21.8% and 30.0%, respectively. Sales to
customers in South Africa, China, and Brazil decreased significantly in the
third quarter of 1999 as compared with the corresponding period in 1998. Sales
to customers in South Africa, France, China, Brazil, and Venezuela declined
year-to-date compared with the corresponding period in 1998. We continue to
experience certain difficulties in international markets, and there can be no
assurance that we will successfully expand our international operations. Failure
to meet revenue projections in the international market could, among other
things, adversely affect consolidated revenues, gross profit, and net income.
Many international telecommunications companies are owned or strictly regulated
by local authorities. Access to international markets is often difficult to
obtain due to trade barriers and established relationships between a
government-owned or controlled telecommunications company and its traditional
indigenous equipment suppliers. Many of these companies require extended payment
terms and financing options which increase the risk of nonpayment and may, among
other things, have the effect of increasing our operating expenses, lowering our
net income, and decreasing cash flows. We may be required to post bid and
performance bonds for certain customers in some international markets. Failure
to meet delivery schedules could also result in the loss of collateral posted
for the bonds or financial penalties, which could, among other things, increase
our operating expenses and lower our net income.
We are working to enter new international markets which demand significant
management attention and financial commitment. Successful expansion of
international operations and sales in certain markets may depend on our ability
to establish and maintain productive strategic relationships. We rely on a
number of third party distributors and sales representatives to market and sell
the UMC1000 outside of North America. There can be no assurance that such
distributors or sales representatives will provide the support and effort
necessary to service international markets effectively. There can be no
assurance that we will be able to identify suitable parties for joint ventures
or strategic relationships or, even if such parties are identified, that
successful joint ventures or strategic relationships will result. We may be
unable to increase international sales of the UMC1000 through joint ventures or
strategic relationships. The failure to do so could significantly limit our
ability to expand international operations and could, among other things, reduce
our revenues, gross profit, and net income.
Sales activities in foreign countries may subject us to taxation in those
countries. Although we have attempted to minimize our exposure to taxation in
foreign countries, any income or other taxes imposed may increase our overall
effective tax rate and adversely impact our competitiveness in those countries.
In addition, we currently intend that the earnings of our foreign subsidiaries
remain permanently invested in these entities in order to facilitate the
potential expansion of our business. To the extent that these earnings are
actually or deemed repatriated, U.S. and state income taxes would be imposed,
and this could adversely impact our overall effective tax rate, net income, and
cash flows.
The economies in some Central and Latin American countries have deteriorated,
resulting in the devaluation of currencies in certain of these countries. These
conditions may persist or intensify. These conditions have contributed to a
decline in our international sales. We expect that adverse economic conditions
in foreign countries or foreign currency exchange rates could result in, among
other things, delays in or cancellation of customer orders, decreased revenues,
and lower net income.
Our international sales are primarily U.S. dollar denominated. As a result, an
increase in the value of the U.S. dollar relative to foreign currencies could
make our product less competitive in international markets. Refer to Part I -
"Foreign Currency, Interest Rate, and Market Volatility Risk" as it pertains to
this matter on page 11 of this Quarterly Report on Form 10-Q.
We must comply with various country-specific regulations and standards to
compete in international markets. Any inability to obtain local regulatory
approval could delay or prevent entrance into international markets, which could
result in, among other things, delays in or loss of customer orders, decreased
revenues, and lower net income.
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COMPETITION. Many of our competitors have more extensive financial, marketing
and technical resources than AFC and enjoy superior name recognition in the
market. Our primary competitors include: ADC Telecommunications, Inc., Alcatel
Alsthom Compagnie, Ericsson Inc., Fujitsu America, Inc., Hitron Technology,
Inc., Huawei Technologies Co. Ltd., Lucent Technologies, Inc., Marconi
Communications, Inc., NEC America, Inc., Nokia Telecommunications, Northern
Telecom Ltd., Opnet Technologies Co. Ltd., Shenzhen Zhongxing Telecom
Corporation, Ltd., UT Starcom, Inc., and Vidar-SMS Co. Ltd.
As a result of a settlement agreement and related agreements entered into in
1998 with the Industrial Technology Research Institute, certain of its Member
Companies have been granted certain rights to manufacture and sell the European
Telecommunications Standards Institute version of the UMC1000 outside of North
America. Such entities currently compete with AFC in international markets,
primarily in China. Upon termination of certain restrictions set forth in the
settlement agreement, those Member Companies will gain a worldwide,
non-exclusive, royalty-free, irrevocable license to use certain UMC1000
technology in January 2005, and will be able to compete with us worldwide.
We believe rapid technological change, continuing regulatory change and industry
consolidation will continue to cause rapid evolution in the competitive
environment of the telecommunications equipment market, the full scope and
nature of which is difficult to predict. Industry consolidation among our
competitors may provide those companies with price competition leverage and
broader product lines superior to our pricing and present technology. Moreover,
we believe that technological and regulatory change will continue to attract new
entrants to the market in which we compete. There can be no assurance that we
will be able to compete successfully in the future.
RISK OF FAILURE TO MANAGE EXPANDING OPERATIONS. We experienced a period of rapid
growth over the last several years, which imposed significant burdens on
management, operations, finance, and other resources. We need to continue to
recruit, train, assimilate, motivate, and retain qualified managers and
employees to effectively manage our operations. Our results of operations could
be adversely affected if revenues do not increase sufficiently to compensate for
any increase in operating expenses and facility obligations resulting from any
expansion. If we fail to effectively manage any growth in our domestic and
international operations, our business could be disrupted, and we could incur,
among other things, increased operating expenses, lower net income, and
decreases in cash flow.
There can be no assurance that we will not have excess manufacturing capacity or
that further utilization of our manufacturing and distribution facility will
continue without interruption.
Our facility obligations and commitments are based in part on anticipated growth
projections, and, in the near-term, are relatively fixed. Based on existing
commitments for additional office space, we may have excess office space in the
future. If we do have excess facilities, we will pursue subleasing or
restructuring our commitments on any excess space. Our operating expenses and
cash flows could be adversely affected if we are unable to, in a timely manner,
restructure our existing commitments or sublease any excess facility space at
rents comparable to our obligations.
CONCENTRATED PRODUCT LINE, UNCERTAINTIES ASSOCIATED WITH NEW PRODUCT FEATURES
AND RAPID TECHNOLOGICAL CHANGE. Substantially all of our revenues are derived
from the UMC1000 and we expect this concentration will continue in the
foreseeable future. Any decrease in the level of sales of, or the prices for the
UMC1000 could result in, among other things, decreased revenues and lower net
income. Factors potentially affecting sales include price competition,
introductions or announcements by competitors, a decline in the demand for the
UMC1000, or product obsolescence, among others.
The telecommunications equipment market is characterized by rapidly changing
technology, evolving industry standards, changes in end-user requirements, and
frequent new product introductions and enhancements. The introduction of
products embodying new technologies or the emergence of new industry standards
can render existing products obsolete or unmarketable. For example, the
introduction of new industry digital switch interfaces, such as GR-303, TR-08,
and V5, reduces the amount of equipment required to support each access line or
port. There can be no assurance that technological advances in the
telecommunications industry will not reduce sales of the UMC1000, diminish
market acceptance of the
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system or render the system obsolete and possibly result in, among other things,
loss of customer orders, decreased revenues, and lower net income.
Our success will depend upon our ability to enhance the UMC1000 technology and
to develop and introduce, on a timely basis, new products or product
enhancements. Product enhancements must keep pace with technological
developments and emerging industry standards, and address changing customer
requirements in a cost-effective manner. There can be no assurance that we will
be successful in identifying, developing, manufacturing, and marketing new
products or product enhancements that respond to technological change or
evolving industry standards. There can be no assurance that we will overcome
difficulties that could delay or prevent the successful development,
introduction and marketing of these products and enhancements, or that new
products or enhancements will achieve market acceptance. We may be required to
incur substantial costs to modify the UMC1000, develop new products, and build
our infrastructure to accommodate these changes. From time to time, we or our
competitors may announce new products or product enhancements, services, or
technologies that have the potential to replace or shorten the life cycle of the
UMC1000 and that may cause customers to defer purchasing the UMC1000.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISK OF THIRD-PARTY CLAIMS OF
INFRINGEMENT. We attempt to protect our technology through a combination of
copyrights, trade secret laws, and contractual obligations. We do not presently
hold any patents for the UMC1000 product, and although four patent applications
are pending, they may not result in any issued patents. These intellectual
property protection measures may not be sufficient to prevent wrongful
misappropriation of our technology nor will they prevent competitors from
independently developing technologies that are substantially equivalent or
superior to our technology. The laws of many foreign countries do not protect
our intellectual property rights to the same extent as the laws of the U.S.
Failure to protect proprietary information could result in, among other things,
loss of our competitive advantage, loss of customer orders, decreased revenues,
and lower net income. We are currently involved in a dispute with RELTEC
Corporation regarding, among other things, RELTEC's alleged trade secret
misappropriation. See Part I - "Note 4 Commitments and Contingencies" as it
pertains to this matter on page 5 of this Quarterly Report on Form 10-Q.
Like other participants in our industry, we expect that we will be increasingly
subject to infringement claims and other intellectual property disputes as
competition in our market continues to intensify. We have been subject to
several intellectual property disputes in the past. For example, in 1996, we
settled litigation with DSC Communications, Inc. ("DSC") under which DSC had
claimed proprietary rights to the UMC1000 technology. In June 1999, we settled
litigation with DSC under a separate proprietary rights claim to our UMC1000
technology.
In 1998, we settled litigation with the Industrial Technology Research Institute
and its sub-licensee Member Companies, and others, involving breach of a prior
agreement, trade secret misappropriation, unfair competition and related claims.
This settlement involved AFC granting a limited license for the use of certain
proprietary technology. In September 1998, we settled litigation with Acer
Netxus, Inc. enjoining them from developing, manufacturing, and selling any
device utilizing or deriving from our UMC1000 technology.
In the future, we may be subject to additional litigation to defend against
claimed infringements of the rights of others or to determine the scope and
validity of the proprietary rights of others. Litigation also may be necessary
to enforce and protect our trade secrets and other intellectual property rights.
Any such litigation could be costly and divert management's attention from
running our operations, either of which could result in, among other things,
increased operating expenses, lower net income, and failure to remain
competitive in a rapidly changing technological environment. Adverse
determinations in such litigation could result in the loss of our proprietary
rights, subject us to significant liabilities, require us to seek licenses from
third parties, or prevent us from manufacturing or selling our products, any one
of which could, among other things, decrease revenues, increase operating
expenses, lower net income, and decrease cash flows. Furthermore, there can be
no assurance that any necessary licenses will be available on reasonable terms.
DEPENDENCE ON THE TELECOMMUNICATIONS INDUSTRY AND SMALL TO MID-LINE SIZE MARKET.
Our customers are concentrated in the public carrier telecommunications industry
and, in the U.S. market, include Competitive Local Exchange Carriers, National
Local Exchange Carriers, Independent Local Exchange Carriers, and the
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Regional Bell Operating Companies. Accordingly, our future success depends upon
the capital spending patterns of these customers and the continued demand by
these customers for the UMC1000. Our target markets are the U.S. and
international small to mid-line size markets. Historically, these markets have
had little access to the advanced services that can be made available through
the UMC1000 and there can be no assurance that potential customers will consider
the near term value of these advanced services to be sufficient to influence
their purchasing decisions. The UMC1000 system and any new products that we
introduce may not be met with widespread acceptance among the telecommunications
companies and other potential customers in small to mid-line size markets.
Existing customers and potential customers may adopt alternative architectures
or technologies that are incompatible with our technology which could result in,
among other things, delays in or cancellation of customer orders, decreased
revenues, and lower net income. There can be no assurance that
telecommunications companies, foreign governments or other customers will pursue
infrastructure upgrades that will necessitate the implementation of advanced
products such as the UMC1000. Infrastructure improvements may be delayed or
prevented by a variety of factors including cost, regulatory obstacles, the
lack of consumer demand for advanced telecommunications services and alternative
approaches to service delivery.
DEPENDENCE ON SOLE SOURCE AND LIMITED NUMBER OF THIRD-PARTY MANUFACTURERS AND
SUPPORT ORGANIZATIONS. Certain components used in our products, including our
proprietary application specific integrated circuits ("ASICs"), codec
components, certain surface mount technology components and other components,
are only available from a single source or limited number of vendors. A limited
number of independent contractors manufacture the subassemblies to our
specifications for use in our systems. Some of the sole source vendors are
companies who, from time to time, allocate parts to telecommunications equipment
manufacturers due to market demand for components and equipment. Many of our
competitors are much larger and may be able to obtain priority allocations from
these shared vendors, thereby limiting or making unreliable the sources of
supply for these components. There can be no assurance that shortages of
components will not occur in the future or will not result in our having to pay
a higher price for components. If sufficient quantities of these or any other
components cannot be obtained, delays or reductions in manufacturing or product
shipments could occur which could result in, among other things, delays in or
cancellation of customer orders and lower revenues, gross profit, net income,
and cash flows. In particular, we rely upon:
o Flextronics International Ltd. and Solectron International USA, Inc. to
manufacture printed circuit board assemblies ("PCBAs")
o Siemens Microelectronics, Inc. for PCBA components
o Paragon Electronic Systems, Inc., and Tyco Printed Circuit Group Inc. to
manufacture backplanes and channel bank assemblies
o Celestica, Inc. for channel bank assemblies and protector panel
subassemblies
o General Cable Corporation for protector panel subassemblies
o CMOR Manufacturing and Wilco Wire Technology, Inc. for cable and wire
harnesses and various turnkey assemblies
o American Microsystems, Inc. for ASICs
o Hendry Telephone Products for fuse panels and racks
o Powersafe Standby Batteries Inc. for battery systems
o LeeMah Electronics Inc. for fully integrated cabinets
o Pairgain Technologies Inc. for custom enclosures and boards
o Sonoma Metal Products, Inc., Cowden Metal San Jose, Inc., Mayville Metal
Products, and EMAR Inc. to manufacture the external housing cabinets
o Advanced Digital Graphics, Inc. for system documentation
Our production and shipping schedules could be adversely affected if one or more
of our vendors were to experience financial, operational, production, or quality
assurance difficulties that resulted in a reduction or interruption in supply to
us or otherwise failed to meet our manufacturing requirements. We may not be
able to establish sufficient manufacturing supply from alternative sources.
Current or alternative manufacturers may not be able to meet our future
requirements and such manufacturing services may not continue to be made
available to us at favorable prices, or at all.
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Various third party support organizations provide post sales support to our
domestic sales customers. There can be no assurance that these organizations
will be able to provide the level of customer support demanded by existing or
potential customers.
DEPENDENCE ON KEY PERSONNEL. Our success depends to a significant extent upon
key technical and management employees. The loss of the services of any of these
key employees could result in, among other things, loss of our competitive
position in a rapidly changing technological environment, which in turn could
lead to decreased revenues, increased operating expenses to locate experienced
replacements, and lower net income. Recently, we have experienced an increase in
our employee turnover rate, including technical and engineering positions.
Competition for highly qualified employees is intense and the process of
locating key technical and management personnel with the required combination of
skills and attributes is often lengthy. There can be no assurance that we will
be successful in retaining our existing key personnel or in attracting and
retaining the additional employees we may require. There can be no assurance as
to the ongoing effect of key personnel on AFC's business, financial condition
and results of operations. In general, we do not have employment agreements
with, or key person life insurance for, our employees.
In September 1999, our Vice President and Chief Financial Officer resigned, and
our Vice President and Corporate Controller, Karen Godfrey, assumed the role of
Chief Financial Officer on an interim basis. We are currently engaged in a
search for a new Chief Financial Officer. There can be no assurance that we will
be successful in identifying and hiring a new Chief Financial Officer on a
timely basis.
RISKS ASSOCIATED WITH PENDING LITIGATION. We are a party to certain legal
proceedings as described in Part I - "Note 4 Commitments and Contingencies"
beginning on page 5 of this Quarterly Report on Form 10-Q. We are unable to
predict the ultimate outcome of these proceedings or determine the total expense
or possible loss, if any, that may ultimately be incurred in the resolution of
these proceedings. Regardless of the ultimate outcome, these proceedings could
result in significant diversion of management's time, and significant legal
costs which could result in, among other things, increased operating expenses
and lowered net income, and failure to remain competitive in a rapidly changing
technological environment.
YEAR 2000 READINESS. See discussion under "Year 2000 Readiness Disclosure"
beginning on page 12 of this Quarterly Report on Form 10-Q.
COMPLIANCE WITH REGULATIONS AND INDUSTRY STANDARDS. The UMC1000 is required to
comply with a large number of voice and data regulations and standards, which
vary between domestic and international markets, and may vary within specific
international markets. Standards for new services continue to evolve, and we
will need to modify the UMC1000 or develop new versions to meet these standards.
If our systems fail to comply with evolving standards in domestic and
international markets on a timely basis, our ability to sell the UMC1000 would
be impaired, and we would experience, among other things, delayed or lost
customer orders, decreased revenues, and lower net income. Standards setting and
compliance verification in the U.S. are determined by the Federal Communications
Commission, Underwriters Laboratories, Quality Management Institute ("QMI"),
Telcordia Technologies, Inc. ("Telcordia"), other independent third party
testing organizations, and by independent telecommunications companies. In
international markets, our products must comply with recommendations issued by
the Consultative Committee on International Telegraph and Telephony, Industry
Canada, and individual regional carriers' network operating system requirements
and specifications. In addition, our products must comply with standards issued
by the European Telecommunications Standards Institute and implemented and
enforced by the Telecommunications Regulatory Authority of each European nation.
We need to continue to ensure that the UMC1000 is easily integrated with various
network management systems. Telcordia testing on the UMC1000 is often required
to ensure interoperability with various standards of operations, administration,
maintenance and provisioning systems. Telcordia testing requires significant
investments in time and money to achieve compliance. Some UMC1000 features must
pass Telcordia testing prior to field release. Failure to maintain such
compliance or to obtain it on new features released in the future could result
in, among other things, delays in or loss of customer orders, decreased
revenues, and lower net income.
19
<PAGE> 21
AFC was first certified ANSI/ISO/ASQC Q9001-1994 ("ISO") compliant in 1997. The
ISO standard defines a quality system aimed at achieving quality in design,
development, production, installation and servicing. In November 1998, QMI
certified our annual ISO standard. There can be no assurance that we will
maintain such certification. The failure to maintain such certification may
preclude selling the UMC1000 in certain markets and could adversely affect our
ability to compete with other suppliers of telecommunications equipment.
Our ability to compete with other telecommunications equipment suppliers could
be adversely affected should we fail to maintain interoperability with other
companies or adopt or maintain industry standards in the UMC1000.
In 1996, the U.S. Congress passed regulations that affect telecommunications
services, including changes to pricing, access by competitive suppliers and many
other broad changes to the data and telecommunications networks and services.
These changes have had a major impact on the pricing of existing services, and
may affect the deployment of future services. These changes could cause greater
consolidation in the telecommunications industry, which in turn could disrupt
existing customer relationships, and could cause, among other things, delays in
or loss of customer orders, and lower revenues. There can be no assurance that
any future legislative and regulatory changes will not have a material adverse
effect on the demand for the UMC1000. Uncertainty regarding future policies
combined with emerging new competition may also affect the demand for
telecommunications products such as the UMC1000 system.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We received approximately 5.3 million shares of Cisco common stock on November
1, 1999 in exchange for our equity interest in Cerent. We recorded a gain of
approximately $379 million due to this acquisition which will be reflected in
our results of operations for the fourth quarter of 1999. Assuming an immediate
decrease of 20% in Cisco's stock price from the closing price at November 1,
1999 of $72.875 per share, the hypothetical unrealized loss in accumulated other
comprehensive income related to these holdings would be approximately $47
million, net of income tax effects.
See Part I - "Note 8 Subsequent Event" and "Foreign Currency, Interest Rate, and
Market Volatility Risk" pertaining to this matter on pages 7 and 11,
respectively, of this Quarterly Report on Form 10-Q.
20
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See discussion in Part I - "Note 4 Commitments and Contingencies" beginning on
page 5 of this Quarterly Report on Form 10-Q.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
(a). CHANGES IN SECURITIES: None
(b). USE OF PROCEEDS: None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a). EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
10.33.1 Redwood Business Park Net Lease, dated September 22, 1999 between the Registrant
and 99 AF Petaluma, L.L.C., for the premises located at 1465 McDowell Boulevard
North.
10.34.1 Amended and Restated Revolving Credit Agreement, dated July 29, 1999 between the
Registrant and Banque Nationale De Paris and Bank of America, N.A.
27.0 Financial data schedule.
</TABLE>
(b). REPORTS ON FORM 8-K:
The Company filed one report on Form 8-K dated November 1, 1999 on
November 5, 1999, reporting the exchange of Cerent shares held by AFC
for Cisco shares in connection with Cisco's acquisition of Cerent.
21
<PAGE> 23
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.
ADVANCED FIBRE COMMUNICATIONS, INC.
Date: November 8, 1999 By: /s/ Karen L. Godfrey
------------------------------------
Name: Karen L. Godfrey
Title: Vice President, Chief Financial
Officer, Corporate Controller,
and Assistant Secretary
(Duly Authorized Signatory and
Principal Financial Officer)
22
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------- --------------------
<S> <C>
10.33.1 Redwood Business Park Net Lease, dated September 22, 1999 between the Registrant
and 99 AF Petaluma, L.L.C., for the premises located at 1465 McDowell Boulevard
North.
10.34.1 Amended and Restated Revolving Credit Agreement, dated July 29, 1999 between the
Registrant and Banque Nationale De Paris and Bank of America, N.A.
27.0 Financial data schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.33.1
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is entered into effective as of the
22nd day of September, 1999, by and between 99 AF PETALUMA, L.L.C., a Delaware
limited liability company, having its principal office at 15601 Dallas Parkway,
Suite 525, Dallas, Texas 75001 ("Landlord"), and ADVANCED FIBRE COMMUNICATIONS,
INC., a Delaware corporation, having its principal office at #1 Willow Brook
Court, Petaluma, California 94954 ("Tenant").
FOR AND IN CONSIDERATION OF the rents and provisions herein stipulated to
be paid and performed, Landlord and Tenant, intending to be legally bound,
hereby covenant and agree as follows:
1. Certain Definitions.
"Additional Rent" shall mean all amounts, costs, expenses, liabilities
and obligations which Tenant is required to pay pursuant to the terms of this
Lease other than Basic Rent.
"Adjoining Property" shall mean all streets and public roadways,
sidewalks, curbs, gores and vault spaces adjoining any of the Leased Premises.
"Alteration" or "Alterations" shall mean any or all changes, additions
(whether or not adjacent to or abutting any then existing buildings), expansions
(whether or not adjacent to or abutting any then existing buildings),
improvements, reconstructions, removals or replacements of any of the
Improvements or Equipment, both interior or exterior, and ordinary and
extraordinary.
"Basic Rent" shall mean Basic Rent as defined in Paragraph 4.
"Basic Rent Payment Dates" shall mean the Basic Rent Payment Dates as
defined in Paragraph 4.
"Commencement Date" shall mean the Commencement Date as defined in
Paragraph 3.
"Deed of Trust" shall mean a first priority deed of trust or similar
security instrument hereafter executed covering the Leased Premises from
Landlord to Lender.
"Default Rate" shall mean an annual rate of interest equal to (i) the
highest rate of interest which may be lawfully charged on amounts past due with
respect to the Loan or (ii), if no Loan is then in effect, fifteen percent
(15%); provided, that in no event shall the Default Rate exceed the highest
lawful rate of interest which may be charged on past due Basic Rent under this
Lease.
"Equipment" shall mean the Equipment as defined in Paragraph 2.
"Event of Default" shall mean an Event of Default as defined in
Paragraph 20(a).
<PAGE> 2
"Impositions" shall mean the Impositions as defined in Paragraph 8.
"Improvements" shall mean the Improvements as defined in Paragraph 2.
"Initial Term" shall mean the Initial Term as defined in Paragraph 3.
"Insurance Requirement" or "Insurance Requirements" shall mean, as the
case may be, any one or more of the terms of each insurance policy required to
be carried by Tenant under this Lease and the requirements of the issuer of such
policy, and whenever Tenant shall be engaged in making any Alteration or
Alterations, repairs or construction work of any kind (collectively, "Work"),
the term "Insurance Requirement" or "Insurance Requirements" shall be deemed to
include a requirement that Tenant obtain or cause its contractor to obtain
completed value builder's risk insurance when the estimated cost of the Work in
any one instance exceeds the sum of One Hundred Thousand and No/100 Dollars
($100,000.00) and that Tenant or its contractor shall obtain worker's
compensation insurance or other adequate insurance coverage covering all persons
employed in connection with the Work, whether by Tenant, its contractors or
subcontractors and with respect to whom death or bodily injury claims could be
asserted against Tenant or Landlord.
"Land" shall mean the Land as defined in Paragraph 2.
"Law" shall mean any constitution, statute, code, ordinance,
regulation, judicial or administrative decision or other rule of law.
"Leased Premises" shall mean the Leased Premises as defined in
Paragraph 2.
"Legal Requirement" or "Legal Requirements" shall mean, as the case
may be, any one or more of all present and future Laws, codes, ordinances,
orders, judgments, decrees, injunctions, rules, regulations and requirements,
even if unforeseen or extraordinary, of every duly constituted governmental
authority or agency (but excluding those which by their terms are not applicable
to and do not impose any obligation on Tenant, Landlord or the Leased Premises)
and all covenants, restrictions and conditions now of record which may be
applicable to Tenant, Landlord (with respect to the Leased Premises) or to all
or any part of or interest in Leased Premises, or to the use, manner of use,
occupancy, possession, operation, maintenance, alteration, repair or
reconstruction of the Leased Premises, even if compliance therewith (i)
necessitates structural changes or improvements (including changes required to
comply with the "Americans with Disabilities Act") or results in interference
with the use or enjoyment of the Leased Premises or (ii) requires Tenant to
carry insurance other than as required by the provisions of this Lease.
"Lender" shall mean any entity identified as such in writing to Tenant
which makes a Loan to Landlord, secured by a Deed of Trust and evidenced by a
Note or Notes or which is the holder of the Deed of Trust and Note or Notes as a
result of an assignment or purchase thereof. As of the date hereof, Tenant
acknowledges that Lender is: Greenwich Capital Financial Products, Inc., 600
Steamboat Road, Greenwich, Connecticut 06830.
"Loan" shall mean a loan made by a Lender to Landlord secured by a
Deed of Trust and evidenced by a Note or Notes.
<PAGE> 3
"Net Proceeds" shall mean the entire proceeds of any insurance
required under clauses (i), (iv), (v) or (vi) of Paragraph 15(a), less any
actual and reasonable expenses incurred by Landlord in collecting such proceeds.
"Note" or "Notes" shall mean a Promissory Note or Notes executed by
Landlord and payable to Lender, which Note or Notes will be secured by a Deed of
Trust and an assignment of leases and rents.
"Permitted Encumbrances" shall mean Impositions, Legal Requirements,
any matters consented to by Tenant, those covenants, restrictions, reservations,
liens, conditions, encroachments, easements, encumbrances and other matters of
title that affect the Leased Premises as of the date of this Lease or due to the
acts or omissions of Landlord after the date hereof.
"Replaced Equipment" or "Replacement Equipment" shall mean the
Replaced Equipment and Replacement Equipment, respectively, as defined in
Paragraph 12(d).
"Restoration" shall mean the restoration of the Leased Premises after
any damage by fire or other casualty, as nearly as possible to their value,
condition and character prior to such damage and in accordance with the repair
and maintenance standards and obligations of this Lease.
"Security Deposit Letter of Credit" shall mean the Security Deposit
Letter of Credit as defined in Paragraph 4.
"State" shall mean the State of California.
"Tenant Improvement Letter of Credit" shall mean the Tenant
Improvement Letter of Credit as defined in the Leasehold Improvements Agreement
attached hereto as Exhibit D.
"Term" shall mean the Term as defined in Paragraph 3.
"Trade Fixtures" shall mean all fixtures, equipment and other items of
personal property (whether or not attached to the Improvements) which are owned
by Tenant and used in the operation of the business conducted on the Leased
Premises, including, without limitation, signage of Tenant.
2. Demise of Premises. Landlord hereby leases, 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"): (i) the lot or parcel of land described in Exhibit A-1
attached hereto and made a part hereof (the "Land"); (ii) the right to use all
easements and parking described in Exhibit A-2 attached hereto and made a part
hereof attributable to Parcel 1 [as identified in the Willow Brook North CC&R's
(hereinafter defined)]; (iii) the approximately 140,448 square foot building and
related improvements and any other buildings, structures and other improvements
now existing or hereafter constructed or reconstructed on the
-3-
<PAGE> 4
Land (collectively, the "Improvements"); and (iv) the machinery and equipment
which is attached to the Improvements in such a manner as to become fixtures
under applicable law, together with all additions and accessions thereto,
substitutions therefor and replacements thereof permitted by this Lease
(collectively, the "Equipment"), excepting therefrom the Trade Fixtures.
3. Term.
(a) Subject to the provisions hereof, Tenant shall have and hold the
Leased Premises for an Initial Term (herein so called) of fifteen (15)
years commencing on September 22, 1999 (the "Commencement Date"), and
ending on September 22, 2014 (the "Expiration Date"), unless earlier
terminated as provided herein. As used herein, the "Term" of this Lease
shall mean the Initial Term and any Renewal Term (as hereinafter defined)
which becomes effective hereunder.
(b) Provided this Lease shall not have been terminated pursuant to
the provisions hereof and no Event of Default has occurred hereunder,
Tenant shall have the right to renew and extend the term of this Lease for
up to four (4) consecutive renewal terms (each, a "Renewal Term") of five
(5) years each upon and subject to the terms and conditions set forth in
Exhibit B attached hereto and made a part hereof.
4. Rent; Security Deposit Letter of Credit.
(a) Tenant shall pay to Landlord as minimum annual rent for the
Leased Premises during the Initial Term, the annual amounts set forth on
Exhibit C attached hereto and made a part hereof (the "Basic Rent"),
commencing on the Commencement Date. Basic Rent shall be due and payable
monthly in advance in the monthly amounts set forth on Exhibit C on or
before the first (1st) day of each calendar month during the Initial Term
(the said days being called the "Basic Rent Payment Dates"), and Tenant
shall pay the same at Landlord's address set forth in the first paragraph
of this Lease, or at such other place as Landlord from time to time may
designate to Tenant in writing, in funds which at the time of such payment
shall be legal tender for the payment of public or private debts in the
United States of America. If the Commencement Date commences or the Term
ends on other than the first or last day of a calendar month, the Basic
Rent for the partial month shall be prorated on the basis of number of days
during the month for which the Term was in effect.
(b) If any installment of Basic Rent is not tendered within five (5)
days after written notice is given by Landlord to Tenant that the same is
due, Tenant shall pay to Landlord on demand, as Additional Rent, a late
charge equal to five percent (5%) on such overdue installment of Basic
Rent.
(c) Tenant shall pay and discharge before the imposition of any fine,
lien, interest or penalty may be added thereto for late payment thereof, as
Additional Rent, all other amounts and obligations which Tenant assumes or
agrees to pay or discharge pursuant to this
-4-
<PAGE> 5
Lease, together with every fine, penalty, interest and cost which may be
added by the party to whom such payment is due for nonpayment or late
payment thereof. In the event of any failure by Tenant to pay or discharge
any of the foregoing, Landlord shall have all rights, powers and remedies
provided herein, by law or otherwise, in the event of nonpayment of Basic
Rent.
(d) Each party shall reflect the transactions represented by this
Lease in all applicable books, records and reports (including, without
limitation, income tax filings) in a manner consistent with "true lease"
treatment rather than "financing" treatment.
(e) Concurrently with its execution of this Lease, Tenant shall
deposit with Landlord (or Lender) an irrevocable, unconditional,
transferable letter of credit (the "Security Deposit Letter of Credit") in
an amount equal to One Million and No/100 Dollars ($1,000,000.00) and in
form and substance satisfactory to Landlord from a financial institution
acceptable to Landlord to be issued to and naming Landlord (or Lender) as
the beneficiary. The Security Deposit Letter of Credit shall be for a term
of not less than one year and shall not expire prior to the first
anniversary of the Commencement Date. The Security Deposit Letter of Credit
shall be held by Landlord (or Lender) as security for the performance by
Tenant of its obligations under this Lease. The Security Deposit Letter of
Credit is not an advance payment of Basic Rent or the full measure of
liquidated damages for a default by Tenant under this Lease. If an Event of
Default (as hereinafter defined) shall occur under this Lease, Landlord (or
Lender) shall have the right to immediately present the Security Deposit
Letter of Credit for payment. In the event Landlord (or Lender) presents
the Security Deposit Letter of Credit for payment, Landlord (or Lender)
shall be entitled to apply such proceeds, or any part thereof, to
compensate Landlord (or Lender) for any and all losses, costs, damages or
expenses sustained due to such default and Landlord (or Lender) shall be
entitled to continue to apply such proceeds over the Term of this Lease to
such amounts until the original Expiration Date, at which time if any
proceeds remain and all of such losses, costs, damages and expenses have
been fully liquidated, the balance of such proceeds shall be returned to
Tenant. On or prior to thirty (30) days before the expiration date of the
Security Deposit Letter of Credit and on or before thirty (30) days prior
to the expiration date of any subsequent letters of credit issued in
extension or replacement thereof, Tenant shall cause the Security Deposit
Letter of Credit to be extended for no less than an additional twelve (12)
months after the expiration date of the Security Deposit Letter of Credit
in question. In the event Tenant fails or refuses to deliver to Landlord
(or Lender) an amendment to the then existing Security Deposit Letter of
Credit or a new Security Deposit Letter of Credit satisfying the
requirements set forth herein reflecting the extended twelve (12) month
expiration date on or before thirty (30) days prior to the expiration of
the Security Deposit Letter of Credit in question, an Event of Default
shall be deemed to have occurred hereunder and Landlord (or Lender) shall
have the right to present the Security Deposit Letter of Credit for
immediate payment thereafter. Any amendments to the Security Deposit Letter
of Credit in question must be signed by Landlord (or Lender, if Lender is
the beneficiary), Tenant, and the financial institution issuing such Letter
of Credit. Provided that
-5-
<PAGE> 6
no Event of Default has occurred prior to the expiration of the thirtieth
(30th) month after the Commencement Date, Tenant may, commencing in the
thirty-first (31st) month of the Lease, elect to reduce the amount of the
Security Deposit Letter of Credit to an amount equal to Five Hundred
Thousand and No/100 Dollars ($500,000.00) by sending notice of such
election to Landlord (or Lender) in writing. In such event, Landlord (or
Lender) agrees to execute an amendment to the Security Deposit Letter of
Credit with Tenant and the financial institution issuing such letter of
credit to reflect such reduction. Provided that no Event of Default has
occurred prior to the expiration of the sixtieth (60th) month after the
Commencement Date, Tenant's obligation to renew the Security Deposit Letter
of Credit shall terminate in the sixty-first (61st) month of the Lease and
Landlord (or Lender) shall return the Security Deposit Letter of Credit to
Tenant. In any event, Tenant shall be obligated to renew the Security
Deposit Letter of Credit from time to time so that the Security Deposit
Letter of Credit or any extensions or replacements thereof do not expire
prior to the expiration of the sixty-first (61st) month after the
Commencement Date. Landlord (or Lender) may deliver the Security Deposit
Letter of Credit to any purchaser of or successor to Landlord's (or
Lender's) interest in this Lease or the Leased Premises, and thereupon
Landlord (or Lender) shall be discharged from all obligation or liability
with respect to such deposit.
5. Net Lease; No Landlord Services; Non-Terminability.
(a) This is a net lease and Basic Rent, Additional Rent and all other
sums payable hereunder by Tenant shall be paid without notice, demand,
setoff, counterclaim, recoupment, abatement, suspension, deferment,
diminution, deduction, reduction or defense. It is intended that the Basic
Rent provided for in this Lease shall be absolutely net to Landlord
throughout the Term, and accordingly, Tenant covenants and agrees to pay,
as they become due and payable and before they become delinquent, all
operating and capital expenses in connection with the operation,
maintenance, repair, Restoration, use or occupation of the Leased Premises
including, without limitation, the costs, charges and assessments related
to Impositions, utilities and insurance. Tenant acknowledges and agrees
that Landlord shall not be required to provide any services to Tenant or
the Leased Premises.
(b) Tenant shall pay directly to the proper authorities charged with
the collection thereof all charges for water, sewer, gas, oil, electricity,
telephone and other utilities or services used or consumed on the Leased
Premises during the Term, whether designated as a charge, tax, assessment,
fee or otherwise, including, without limitation, water and sewer use
charges and taxes, if any, all such charges to be paid as the same from
time to time become due. It is understood and agreed that Tenant shall make
its own arrangements for the installation or provision of all such
utilities and that Landlord shall be under no obligation to furnish any
utilities to the Leased Premises and shall not be liable for any
interruption or failure in the supply of any such utilities to the Leased
Premises.
-6-
<PAGE> 7
(c) This Lease shall not terminate (except as otherwise expressly
provided in Paragraphs 14 and 20(b) of this Lease), and Tenant shall not
have any right to terminate this Lease (except as expressly provided in
Paragraph 14), during the Term. Tenant shall not be entitled to any setoff,
counterclaim, recoupment, abatement, suspension, deferment, diminution,
deduction, reduction or defense of or to Basic Rent, Additional Rent or any
other sums payable under this Lease; and the obligations of Tenant under
this Lease shall not be affected by any interference with Tenant's use of
any of the Leased Premises for any reason, including but not limited to the
following: (i) any damage to or destruction of any of the Leased Premises
by any cause whatsoever, (ii) any Condemnation (except as otherwise
expressly provided in Paragraph 14), (iii) the prohibition, limitation or
restriction of Tenant's use of any of the Leased Premises, (iv) Tenant's
acquisition of ownership of any of the Leased Premises other than pursuant
to an express provision of this Lease, (v) any latent or other defect in,
or any theft or loss of any of the Leased Premises, (vi) the breach of any
warranty of any seller or manufacturer of any of the Equipment, or (vii)
any violation of Paragraph 7 (c) by Landlord. It is the intention of the
parties hereto that the obligations of Tenant under this Lease shall be
separate and independent covenants and agreements, and that Basic Rent,
Additional Rent and all other sums payable by Tenant hereunder shall
continue to be payable in all events (or, in lieu thereof, Tenant shall pay
amounts equal thereto), and that the obligations of Tenant under this Lease
shall continue unaffected, unless this Lease shall have been terminated
pursuant to Paragraphs 14 or 20(b) of this Lease.
(d) This Lease is the absolute and unconditional obligation of
Tenant. Tenant waives all rights which are not expressly stated in this
Lease but which may now or hereafter otherwise be conferred by law (i) to
quit, terminate or surrender this Lease or any of the Leased Premises, (ii)
to any setoff, counterclaim, recoupment, abatement, suspension, deferment,
diminution, deduction, reduction or defense of or to Basic Rent, Additional
Rent or any other sums payable under this Lease, and (iii) for any
statutory lien or offset right against Landlord or its property.
6. Title and Condition.
(a) The Leased Premises are demised and let subject to (i) the
Permitted Encumbrances, (ii) all Legal Requirements and Insurance
Requirements, including any existing violation of any thereof, and (iii)
the condition of the Leased Premises as of the commencement of the Term;
without representation or warranty by Landlord; it being understood and
agreed, however, that the recital of the Permitted Encumbrances herein
shall not be construed as a revival of any thereof which for any reason may
have expired.
(b) LANDLORD LEASES AND WILL LEASE AND TENANT TAKES AND WILL TAKE THE
LEASED PREMISES "AS IS" AND "WITH ALL FAULTS", AND 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
-7-
<PAGE> 8
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE
LEASED PREMISES, INCLUDING ANY WARRANTY OR REPRESENTATION AS TO ITS
HABITABILITY, ITS FITNESS FOR USE OR PURPOSE, DESIGN OR CONDITION FOR ANY
PARTICULAR USE OR PURPOSE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP
THEREIN, LATENT OR PATENT, AS TO LANDLORD'S TITLE THERETO, OR AS TO VALUE,
COMPLIANCE WITH SPECIFICATIONS, LOCATION, USE, CONDITION, MERCHANTABILITY,
QUALITY, DESCRIPTION, DURABILITY OR OPERATION, IT BEING AGREED THAT ALL
RISKS INCIDENT THERETO ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT
THE LEASED PREMISES ARE OF ITS SELECTION AND TO ITS SPECIFICATIONS, AND
THAT THE LEASED PREMISES HAVE BEEN INSPECTED BY TENANT AND ARE SATISFACTORY
TO IT. TENANT SHALL NOT HAVE THE RIGHT TO TERMINATE THIS LEASE DUE TO ANY
CONDITION OF OR ANY LATENT OR OTHER DEFECT IN ANY OF THE LEASED PREMISES.
IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE LEASED PREMISES OF
ANY NATURE, WHETHER PATENT OR LATENT, 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 6(b) HAVE BEEN NEGOTIATED, AND THE FOREGOING PROVISIONS
ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY
LANDLORD, EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
HABITABILITY, 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 OTHERWISE.
(c) Landlord hereby assigns, without recourse or warranty whatsoever
and without representation or warranty of any kind or nature, to Tenant,
all warranties, guaranties and indemnities, express or implied, and similar
rights which Landlord may have against any manufacturer, seller, engineer,
contractor or builder in respect of any of the Leased Premises, including,
but not limited to, any rights and remedies existing under contract or
pursuant to the Uniform Commercial Code (collectively, the "guaranties").
Such assignment shall remain in effect until the termination of this Lease.
Landlord shall also retain the right to enforce any guaranties assigned in
the name of Tenant upon the occurrence of an Event of Default. Landlord
hereby agrees to execute and deliver at Tenant's expense such further
documents as Tenant may reasonably request in order that Tenant may have
the full benefit of the assignment effected or intended to be effected by
this Paragraph 3(d). Upon the termination of this Lease, the guaranties
shall automatically revert to Landlord. The foregoing provision of
reversion shall be self-operative and no further instrument of reassignment
shall be required. In confirmation of such reassignment Tenant shall
execute and deliver promptly any certificate or other instrument which
Landlord may request.
-8-
<PAGE> 9
7. Use of Leased Premises; Quiet Enjoyment.
(a) Tenant may use the Leased Premises for general office,
electrical/mechanical engineering, and research and development purposes or
for any other lawful purpose so long as such other lawful purpose would not
(i) have a material adverse effect on the value of the Leased Premises
based upon its primary use as an office building, (ii) materially increase
(when compared to use as an office building) the likelihood that Tenant,
Landlord or Lender would incur liability under any provisions of the Act
referred to in Paragraph 27 of this Lease, or (iii) result in or give rise
to any material environmental deterioration or degradation of the Leased
Premises. In no event shall the Leased Premises be used for any purpose
which would constitute a public or private nuisance or waste or which would
violate any of the provisions of any Permitted Encumbrance, any Legal
Requirements, any Insurance Requirements or any covenants or restrictions
applicable to the Leased Premises. Tenant agrees that with respect to the
Permitted Encumbrances and any such covenants or restrictions, Tenant shall
observe, perform and comply with and carry out the provisions thereof
required therein to be observed and performed by Landlord.
(b) Tenant shall not permit any unlawful occupation, business or
trade to be conducted on the Leased Premises or any use to be made thereof
contrary to applicable Legal Requirements or Insurance Requirements. Tenant
shall not use, 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 (i) make void or voidable any insurance
which Tenant is required hereunder to maintain then in force with respect
to any of the Leased Premises, (ii) affect the ability of Tenant to obtain
any insurance which Tenant is required to furnish hereunder, or (iii) cause
any injury or damage to any of the Improvements unless pursuant to
Alterations permitted under Paragraph 13 hereof.
(c) Subject to all of the provisions of this Lease, so long as no
Event of Default exists hereunder, Landlord covenants to do no act to
disturb the peaceful and quiet occupation and enjoyment of the Leased
Premises by Tenant, provided that Landlord and Lender may enter upon and
examine any of the Leased Premises at reasonable times after reasonable
notice and during business hours and exercise any rights and privileges
granted to Landlord under the provisions of this Lease.
8. Payment of Impositions; Compliance with Legal Requirements and
Insurance Requirements.
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(a) (i) Subject to the provisions of Paragraph 19 hereof relating to
contests, Tenant shall, before delinquent or interest or penalties are due
thereon, pay and discharge (all of the following being herein collectively
called the "Impositions"): all taxes of every kind and nature (including
real, ad valorem, personal property, gross income, franchise, withholding,
profits and gross receipts taxes) on or with respect to the Leased Premises
(including, without limitation, any Impositions assessed against any real
property other than the Leased Premises which is included within the tax
parcel which includes the Leased Premises); all charges and/or taxes
imposed by any governmental body for any easement or agreement maintained
for the benefit of the Leased Premises; all general and special
assessments, including, without limitation, all assessments under those
certain Redwood Business Park 3, Special Assessment District No. 23 Bonds,
Series No. 1995-A (Limited Obligation), levies, permits, inspection and
license fees on or with respect to the Leased Premises; all water and sewer
rents and other utility charges on or with respect to the Leased Premises;
and all other public charges and/or taxes whether of a like or different
nature, even if unforeseen or extraordinary, imposed or assessed upon or
with respect to the Leased Premises, prior to or during the Term, against
Landlord, Tenant or any of the Leased Premises as a result of or arising in
respect of the occupancy, leasing, use, maintenance, operation, management,
repair or possession thereof, or any activity conducted on the Leased
Premises, or the Basic Rent or Additional Rent, including without
limitation, any gross income tax, sales tax, occupancy tax or excise tax
levied by any governmental body on or with respect to such Basic Rent or
Additional Rent. If received by Landlord, Landlord shall promptly deliver
to Tenant any bill or invoice with respect to any Imposition.
(ii) Nothing herein shall obligate Tenant to pay, and the term
"Impositions" shall exclude, federal, state or local (A) transfer taxes as
the result of a conveyance by (or suffered by) Landlord, (B) franchise,
capital stock or similar taxes if any, of Landlord, (C) income, excess
profits or other taxes, if any, of Landlord, determined on the basis of or
measured by its net income, or (D) any estate, inheritance, succession,
gift, capital levy or similar taxes, unless the taxes referred to in
clauses (B) and (C) above are in lieu of or a substitute for any other tax
or assessment upon or with respect to any of the Leased Premises which, if
such other tax or assessment were in effect at the commencement of the
Term, would be payable by Tenant. In the event that any assessment against
any of the Leased Premises may be paid in installments, Tenant shall have
the option to pay such assessment in installments; and in such event,
Tenant shall be liable only for those installments which 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 copies of all settlements and notices
pertaining to the Impositions which may be issued by any governmental
authority and receipts for payments of all Impositions made during each
calendar year of the Term, within ten (10) days after payment thereof.
(b) Subject to the provisions of Paragraph 19 hereof, Tenant shall
promptly comply with and conform to all of the Legal Requirements and
Insurance Requirements.
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9. Installation of Improvements; ADA Compliance. Tenant is hereby
obligated to install or cause to be installed in the Leased Premises, at its
sole cost and expense, all improvements specified in the Leasehold Improvements
Agreement attached hereto as Exhibit D and made a part hereof pursuant to the
terms and conditions thereof; and without limiting the generality of the
foregoing sentence, Tenant will assure that the plans and specifications for its
improvements, as well as its business operations within the Leased Premises,
comply with the Americans With Disabilities Act of 1990, as amended, and all
related state and local laws. Landlord shall have no obligation to pay or
reimburse Tenant for any tenant improvements within the Leased Premises.
Concurrently with its execution of this Lease, Tenant shall deposit with
Landlord the Tenant Improvement Letter of Credit pursuant to the terms and
conditions of the Leasehold Improvements Agreement.
10. Liens and Title.
(a) Subject to the provisions of Paragraph 19 hereof, Tenant shall
not, directly or indirectly, create or permit to be created or to remain,
and shall promptly discharge, any lien on the Leased Premises, on the Basic
Rent, Additional Rent or on any other sums payable by Tenant under this
Lease, other than the Deed of Trust, the Permitted Encumbrances and any
mortgage, lien, encumbrance or other charge created by or resulting from
any act or omission by Landlord or those claiming by, through or under
Landlord (except Tenant). 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 any of the Leased Premises through or under
Tenant, and that no mechanic's 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.
(b) Nothing in this Lease and no action or inaction by Landlord shall
be deemed or construed to mean that Landlord has granted to Tenant any
right, power or permission to do any act or to make any agreement which may
create, give rise to, or be the foundation for, any right, title, interest
or lien in or upon the estate of Landlord in any of the Leased Premises.
11. Indemnification.
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(a) Tenant agrees to defend, pay, protect, indemnify, save and hold
harmless Landlord from and against any and all liabilities, losses,
damages, penalties, costs, expenses (including reasonable attorneys' fees),
causes of action, suits, claims, demands or judgments of any nature
whatsoever, howsoever caused, arising from the Leased Premises or the use,
non-use, occupancy, condition, design, construction, maintenance, repair or
rebuilding of the Leased Premises, and any injury to or death of any person
or persons or any loss of or damage to any property, real or personal, in
any manner arising therefrom connected therewith or occurring thereon,
whether or not Landlord or Lender has or should have knowledge or notice of
the defect or conditions, if any, causing or contributing to said injury,
death, loss, damage or other claim; except to the extent that any such
liability, loss, damage, penalty, cost, expense, cause of action, suit,
claim, demand or judgment is the result of the gross negligence of Landlord
or the intentional wrongful act of Landlord. In case any action or
proceeding is brought against Landlord or Lender by reason of any such
claim against which Tenant has agreed to defend, pay, protect, indemnify,
save and hold harmless pursuant to the preceding sentence, Tenant covenants
upon notice from Landlord or Lender to resist or defend Landlord and Lender
in such action, with the expenses of such defense paid by Tenant, and
Landlord will cooperate and assist in the defense of such action or
proceeding if reasonably requested so to do by Tenant.
(b) The obligations of Tenant under this Paragraph 11 shall survive
any termination of this Lease.
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12. Maintenance and Repair.
(a) Tenant shall at all times, at Tenant's sole cost and expense,
put, keep and maintain the Leased Premises (including, without limitation,
the parking areas, roof, footings, foundations, interior and exterior walls
and structural components of the Leased Premises) and the Equipment in a
first class condition and order of repair, except for ordinary wear and
tear, and shall promptly make all repairs and replacements of every kind
and nature, whether foreseen or unforseen, which may be required to be made
upon or in connection with the Leased Premises in order to keep and
maintain the Leased Premises in the order and condition required by this
Paragraph 12(a). Tenant shall do or cause others to do all shoring of the
Leased Premises or of foundations and walls of the Improvements and every
other act necessary or appropriate for preservation and safety thereof, by
reason of or in connection with any excavation or other building operation
upon any of the Leased Premises, whether or not Landlord shall, by reason
of any Legal Requirements or Insurance Requirements, be required to take
such action or be liable for failure to do so. Landlord shall not be
required to make any repair, whether foreseen or unforeseen, or to maintain
any of the Leased Premises or Adjoining Property in any way, and Tenant
hereby expressly waives the right to make repairs at the expense of the
Landlord, which right may be provided for in any Law now or hereafter in
effect. Without limiting the generality of the foregoing sentence, Tenant
expressly waives the benefits of any statute, including without limitation,
California Civil Code Sections 1941 and 1942, which would afford Tenant the
right to make repairs at Landlord's expense or to terminate this Lease due
to Landlord's failure to keep the Leased Premises in good order, condition
or repair (Landlord having no obligation under this Lease to do so).
Nothing in the preceding sentence shall be deemed to preclude Tenant from
being entitled to insurance proceeds for Restoration pursuant to Paragraph
15(g) of this Lease. Tenant shall, in all events, make all repairs for
which it is responsible hereunder promptly, and all repairs shall be in a
good, proper and workmanlike manner.
(b) In the event that any Improvement shall violate any Legal
Requirements or Insurance Requirements and as a result of such violation
enforcement action is threatened or commenced against Tenant or with
respect to the Leased Premises, then Tenant, at the request of Landlord,
shall either (i) obtain valid and effective waivers or settlements of all
claims, liabilities and damages resulting from each such violation, whether
the same shall affect Landlord, Tenant or both, or (ii) take such action as
shall be necessary to remove such violation, including, if necessary, any
Alteration. Any such repair or Alteration shall be made in conformity with
the provisions of Paragraph 13.
(c) If Tenant shall be in default under any of the provisions of this
Paragraph 12, Landlord may (but without any obligation to do so) after
thirty (30) days written notice given to Tenant and failure of Tenant to
cure during said period, but without notice in the event of an emergency,
do whatever is necessary to cure such default as may be appropriate under
the circumstances for the account of and at the expense of Tenant. In the
event of an emergency, Landlord shall make reasonable efforts to notify
Tenant of the situation by phone or other
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<PAGE> 14
available communication before taking any action to cure such default. All
reasonable sums so paid by Landlord and all reasonable costs and expenses
(including, without limitation, attorneys' fees and expenses) so incurred,
together with interest thereon at the Default Rate from the date of payment
or incurring the expense, shall constitute Additional Rent payable by
Tenant under this Lease and shall be paid by Tenant to Landlord on demand.
(d) Tenant shall from time to time replace with other operational
equipment or parts (the "Replacement Equipment") any of the Equipment (the
"Replaced Equipment") which shall have become worn out or unusable for the
purpose for which it is intended, or been lost, stolen, damaged or
destroyed as provided in Paragraph 15. Tenant shall repair at its sole cost
and expense all damage to the Leased Premises caused by the removal of
Equipment or Replaced Equipment or other personal property of Tenant or the
installation of Replacement Equipment. All Replacement Equipment shall
become the property of Landlord, shall be free and clear of all liens and
rights of others and shall become a part of the Equipment as if originally
demised herein.
13. Alterations.
(a) Tenant shall not make any Alterations which would impair the
structural integrity of the Leased Premises. Subject to the restrictions
and limitations of the preceding sentence of this Paragraph 13(a), Tenant
may make any non-structural interior Alterations without the prior written
consent of the Landlord provided such Alterations comply with all of the
provisions of Paragraph 13(b) hereof.
(b) In the event that Landlord gives its prior written consent to any
Alterations, or if such consent is not required, Tenant agrees that in
connection with any Alteration: (i) the fair market value of the Leased
Premises shall not be lessened in any material respect after the completion
of any such Alteration, or its structural integrity impaired; (ii) the
Alteration and any Alteration theretofore made or thereafter to be made
shall not in the aggregate reduce the gross floor area of the Improvements;
(iii) all such Alterations shall be performed in a good and workmanlike
manner, and shall be expeditiously completed in compliance with all Legal
Requirements; (iv) all work done in connection with any such Alteration
shall comply with all Insurance Requirements; (v) Tenant shall promptly pay
all costs and expenses of any such Alteration, and shall (subject to the
provisions of Paragraph 19 hereof) discharge all liens filed against any of
the Leased Premises arising out of the same; (vi) Tenant shall procure and
pay for all permits and licenses required in connection with any such
Alteration; (vii) all such Alterations shall be the property of Landlord
and shall be subject to this Lease; and (viii) all Alterations shall be
made in the case of any Alteration the estimated cost of which in any one
instance exceeds One Million and No/100 Dollars ($1,000,000.00) under the
supervision of an architect or engineer and, in accordance with plans and
specifications which shall be submitted to Landlord for approval prior to
the commencement of the Alterations. Such approval not to be unreasonably
withheld and any disapproval must be in writing and state all reasons for
any such disapproval.
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(c) Tenant hereby grants, conveys and transfers to Landlord all of
Tenant's right, title and interest in and to the Improvements (whether now
existing or hereafter constructed), and Tenant agrees that any and all
Improvements of whatever nature at any time constructed, placed or
maintained upon any part of the Land shall be and remain the property of
Landlord, subject to Tenant's rights under this Lease. Tenant agrees to
execute, acknowledge, deliver and file all documents necessary or
appropriate to effect the purposes of this Paragraph 13(c).
14. Condemnation. If all of the Leased Premises, or at least ten
percent (10%) of the Improvements constructed on the Land, the loss of which
would materially and adversely interfere with Tenant's use of the remainder,
shall be taken or condemned for any public use or purpose by right of eminent
domain, with or without litigation, or be transferred by agreement in connection
with or in lieu of or under threat of condemnation, then the Term of this Lease
and the leasehold estate created hereby shall terminate as of the date title
shall vest in the condemnor or transferee. Landlord shall receive the entire
award from any taking or condemnation (or the entire compensation paid because
of any transfer by agreement), and Tenant shall have no claim thereto.
Notwithstanding the foregoing, Tenant does not waive or release any claims for
an award to compensate Tenant for moving expenses, inconvenience or business
interruption related to a condemnation of the Leased Premises, but any such
claim shall be asserted, if at all, in a proceeding independent of Landlord's
primary condemnation suit.
15. Insurance.
(a) Tenant shall maintain, at its sole cost and expense, the
following insurance on the Leased Premises:
(i) Insurance against loss or damage to the Improvements and
Equipment under a fire and broad form of all risk extended coverage
insurance policy including, without limitation, earthquake insurance,
and insurance against loss or damage to the Improvements and Equipment
from flooding, in the maximum amount provided for by FEMA under its
Flood Loss Insurance Program. Such insurance shall be in amounts not
less than the actual replacement cost of the Improvements and
Equipment as determined from time to time at Landlord's request but
not more frequently than once in any 12-month period, by agreement of
Landlord and Tenant, or if not so agreed, at Tenant's expense, by the
insurer or insurers or by an appraiser approved by Landlord. Such
insurance policies may contain reasonable exclusions and deductible
amounts.
(ii) Contractual and comprehensive general liability insurance
against claims for bodily injury, death or property damage occurring
on, in or about the Leased Premises, which insurance shall be written
on a so-called "Occurrence Basis," and shall provide minimum
protection with a combined single limit in an amount not less than the
greater of (x) Five Million and No/100 Dollars ($5,000,000.00) (or in
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such increased limits from time to time to reflect declines in the
purchasing power of the dollar as Landlord may reasonably request) or
(y) the aggregate amount of such insurance carried by Tenant, for
bodily injury, death and property damage in any one occurrence.
(iii) Worker's compensation insurance covering all persons
employed by Tenant on the Leased Premises in connection with any work
done on or about any of the Leased Premises for which claims for death
or bodily injury could be asserted against Landlord, Tenant or the
Leased Premises.
(iv) Insurance against loss or damage from explosion of any steam
or pressure boilers or similar apparatus located in or about the
Improvements in an amount not less than the actual replacement cost of
the Improvements and Equipment.
(v) Whenever Tenant shall be engaged in making any Alteration or
Alterations, repairs or construction work of any kind ("Work"), Tenant
shall obtain or cause its contractor to obtain completed value
builder's risk insurance when the estimated cost of the Work in any
one instance exceeds the sum of One Hundred Thousand and No/100
Dollars ($100,000.00) and Tenant or its contractor shall obtain
worker's compensation insurance or other adequate insurance coverage
covering all persons employed in connection with the Work, whether by
Tenant, its contractors or subcontractors and with respect to whom
death or bodily injury claims could be asserted against Tenant or
Landlord.
(vi) Such additional and/or other insurance with respect to the
Improvements located on the Leased Premises and in such amounts as at
the time is customarily carried by prudent owners or tenants with
respect to improvements similar in character, location and use and
occupancy to the Improvements located on the Leased Premises.
(b) Except as otherwise provided in Paragraph 15(b), the insurance
required by Paragraph 15(a) shall be written by companies having a claims
paying ability rating by Standard & Poors of not less than A-, and all such
companies shall be authorized to do an insurance business in the State, or
otherwise agreed to by Landlord. The insurance policies (i) shall be in
amounts sufficient at all times to satisfy any coinsurance requirements
thereof, and (ii) shall (except for the worker's compensation insurance
referred to in Paragraph 15(a)(iii) hereof) name Landlord, Tenant and any
Lender as additional insured parties, as their respective interests may
appear. If said insurance or any part thereof shall expire, be withdrawn,
become void by breach of any condition thereof by Tenant or become void or
unsafe by reason of the failure or impairment of the capital of any
insurer, Tenant shall immediately obtain new or additional insurance
reasonably satisfactory to Landlord.
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(c) Each insurance policy referred to in clauses (i), (iv), (v) and
(vi) of Paragraph 15(a), shall contain standard non-contributory mortgagee
clauses in favor of any Lender which holds a Deed of Trust on the Leased
Premises. Each policy shall provide that it may not be canceled except
after thirty (30) days prior notice to Landlord and any Lender. Each policy
shall also provide that any losses 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, or (ii) the occupation or use of any of the Leased
Premises for purposes more hazardous than permitted by the provisions of
such policy.
(d) Tenant shall pay as they become due all premiums for the
insurance required by this Paragraph 15, shall renew or replace each
policy, and shall deliver to Landlord and Lender a certificate or other
evidence (reasonably satisfactory to Lender and Landlord) of the existing
policy and such renewal or replacement policy at least ten (10) days prior
to the Insurance Expiration Date (as hereinafter defined) of each policy.
Each such policy shall provide that it shall not expire until the Landlord
and Lender shall receive a notice from the insurer to the effect that a
policy will expire on a date (the "Insurance Expiration Date") which shall
be thirty (30) days following the date of the receipt by Landlord and
Lender of such notice. In the event of Tenant's failure to comply with any
of the foregoing requirements of this Paragraph 15 within five (5) business
days of the giving of written notice by Landlord to Tenant, Landlord shall
be entitled to procure such insurance. Any sums expended by Landlord in
procuring such insurance shall be Additional Rent and shall be repaid by
Tenant, together with interest thereon at the Default Rate, from the time
of payment by Landlord until fully paid by Tenant immediately upon written
demand therefor by Landlord.
(e) Anything in this Paragraph 15 to the contrary notwithstanding,
any insurance which Tenant is required to obtain pursuant to Paragraph
15(a) may be carried under a "blanket" policy or policies covering other
properties or liabilities of Tenant, provided that such "blanket" policy or
policies otherwise comply with the provisions of this Paragraph 15. In the
event any such insurance is carried under a blanket policy, Tenant shall
deliver to Landlord and Lender evidence of the issuance and effectiveness
of the policy, the amount and character of the coverage with respect to the
Leased Premises and the presence in the policy of provisions of the
character required in the above sections of this Paragraph 15.
(f) In the event of any casualty loss exceeding One Hundred Thousand
and No/100 Dollars ($100,000.00), Tenant shall give Landlord immediate
notice thereof. Tenant shall adjust, collect and compromise any and all
claims, with the consent of Lender and Landlord, and Landlord and Lender
shall have the right to join with Tenant therein. If the estimated cost of
Restoration or repair shall be One Hundred Thousand and No/100 Dollars
($100,000.00) or less, all proceeds of any insurance required under clauses
(i), (iv), (v) and (vi) of Paragraph 15(a) shall be payable to Tenant,
provided that Tenant at such time shall have a tangible net worth of not
less than Two Hundred Million and No/100 Dollars
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($200,000,000.00) as determined in accordance with generally accepted
accounting principles, consistently applied, and in all other events to a
Trustee which shall be a federally insured bank or other financial
institution, selected by Landlord and Tenant and reasonably satisfactory to
Lender (the "Trustee"). If the Leased Premises shall be covered by a Deed
of Trust, Lender, if it so desires, shall be the Trustee. Each insurer is
hereby authorized and directed to make payment under said policies directly
to such Trustee instead of to Landlord and Tenant jointly; and Tenant and
Landlord each hereby appoints such Trustee as its attorney-in-fact to
endorse any draft therefor for the purposes set forth in this Lease after
approval by Tenant of such Trustee, if Trustee is other than Lender. In the
event of any casualty (whether or not insured against) by any cause
whatsoever resulting in damage to or destruction of the Leased Premises or
any part thereof, Tenant shall not have the right to terminate this Lease,
this Lease shall not terminate, the Term shall nevertheless continue and
there shall be no abatement or reduction of Basic Rent, Additional Rent or
any other sums payable by Tenant hereunder. The provisions of California
Civil Code Sections 1932(2) and 1933(4), and any successor statutes, are
inapplicable with respect to any destruction of the Leased Premises, such
sections providing that a lease terminates upon the destruction of the
Leased Premises unless otherwise agreed between the parties to the
contrary. The Net Proceeds of such insurance payment shall be retained by
the Trustee and, promptly after such casualty, Tenant, as required in
Paragraphs 12(a) and 13, shall commence and diligently continue to perform
the Restoration to the Leased Premises. Upon payment to the Trustee of such
Net Proceeds, the Trustee shall, to the extent available, make the Net
Proceeds available to Tenant for Restoration, in accordance with the
provisions of Paragraph 16. Tenant shall, whether or not the Net Proceeds
are sufficient for the purpose, promptly repair, rebuild or replace the
Improvements and Equipment in accordance with the provisions of Paragraph
12(a) and the Net Proceeds of such loss shall thereupon be payable to
Tenant, subject to the provisions of Paragraph 16 hereof. In the event that
any damage or destruction shall occur at such time as Tenant shall not have
maintained third-party insurance in accordance with Paragraph 15(a) (i),
(iv), (v) or (vi), Tenant shall pay to the Trustee the amount of the
proceeds that would have been payable had such insurance program been in
effect (the "Tenant Insurance Payment").
(g) Tenant hereby waives and releases Landlord of and from any and
all rights of recovery, claim, action or cause of action against Landlord,
its agents, officers, directors, partners and employees, for any loss or
damage that may occur to the Leased Premises or any personal property,
including building contents, within the Leased Premises, by reason of fire
or the elements of nature or other events to the extent covered by
insurance coverage required to be carried by Tenant under this Lease.
Tenant shall immediately give written notice of the terms of the waivers
contained herein to its insurance company which has issued policies of
insurance covering such property damage, and shall have the insurance
policies properly endorsed to reflect the insurance company's
acknowledgment of such waiver and the absence of any subrogation rights.
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16. Restoration. Net Proceeds and Tenant Insurance Payment (the aggregate
of which being herein defined as the "Restoration Fund") shall be disbursed by
the Trustee in accordance with the following conditions:
(a) If the cost of Restoration will exceed Five Hundred Thousand and
No/100 Dollars ($500,000.00), prior to commencement of the Restoration the
architects, general contractor(s), and plans and specifications for the
Restoration shall be approved by Landlord, and which approval shall be
granted to the extent that the plans and specifications depict a
Restoration which is substantially similar to the Improvements and
Equipment which existed prior to the occurrence of the casualty.
(b) At the time of any disbursement, no Event of Default shall exist
and no mechanics' or materialmen's liens shall have been filed and remain
undischarged or unbonded.
(c) Disbursements shall be made from time to time in an amount not
exceeding the hard and soft cost of the work and costs incurred since the
last disbursement upon receipt of (1) satisfactory evidence, including
architects' certificates of the stage of completion, of the estimated cost
of completion and of performance of the work to date in a good and
workmanlike manner in accordance with the contracts, plans and
specifications, (2) partial releases of liens, and (3) other reasonable
evidence of cost and payment so that Landlord can verify that the amounts
disbursed from time to time are represented by work that is completed in
place or delivered to the site and free and clear of mechanics' lien
claims.
(d) Each request for disbursement shall be accompanied by a
certificate of Tenant describing the work, materials or other costs or
expenses, for which payment is requested, stating the cost incurred in
connection therewith and stating that Tenant has not previously received
payment for such work or expense and the certificate to be delivered by
Tenant upon completion of the work shall, in addition, state that the work
has been substantially completed and complies with the applicable
requirements of this Lease.
(e) The Trustee may retain twenty percent (20%) of the Restoration
Fund until the Restoration is at least fifty percent (50%) complete, and
thereafter ten percent (10%) until the Restoration is substantially
complete.
(f) The Restoration Fund shall be kept in a separate interest-bearing
federally insured account by the Trustee or by Lender.
(g) At all times the undisbursed balance of the Restoration Fund held
by Trustee plus any funds contributed thereto by Tenant, at its option,
shall be not less than the cost of completing the Restoration, free and
clear of all liens.
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(h) Prior to commencement of Restoration and at any time during
Restoration, if the estimated cost of Restoration, as reasonably determined
by Landlord, exceeds the amount of the Net Proceeds and Tenant Insurance
Payment available for such Restoration, the amount of such excess shall be
paid by Tenant to the Trustee to be added to the Restoration Fund or Tenant
shall fund at its own expense the costs of such Restoration until the
remaining Restoration Fund is sufficient for the completion of the
Restoration. Any sum in the Restoration Fund which remains in the
Restoration Fund upon the completion of Restoration shall be paid to
Landlord.
17. Subordination to Financing.
(a) (i) Subject to the provisions of Paragraph 17 (a)(ii), Tenant
agrees that this Lease shall at all times be subject and subordinate to the
lien of any Deed of Trust, and Tenant agrees, upon demand, without cost, to
execute instruments as may be required to further effectuate or confirm
such subordination.
(ii) Except as expressly provided in this Lease by reason of the
occurrence of an Event of Default, Tenant's tenancy and Tenant's rights
under this Lease shall not be disturbed, terminated or otherwise adversely
affected, nor shall this Lease be affected, by any default under any Deed
of Trust, and in the event of a foreclosure or other enforcement of any
Deed of Trust, or sale in lieu thereof, the purchaser at such foreclosure
sale shall be bound to Tenant for the Term of this Lease and any Renewal
Term, the rights of Tenant under this Lease shall expressly survive, and
this Lease shall in all respects continue in full force and effect so long
as no Event of Default has occurred and is continuing.
(b) Notwithstanding the provisions of Paragraph 17(a), the holder of
any Deed of Trust to which this Lease is subject and subordinate shall have
the right, at its sole option, at any time, to subordinate and subject the
Deed of Trust, in whole or in part, to this Lease by recording a unilateral
declaration to such effect.
(c) At any time prior to the expiration of the Term, Tenant agrees,
at the election and upon demand of any owner of the Leased Premises, or of
a Lender who has granted non-disturbance to Tenant pursuant to Paragraph
17(a) above, to attorn, from time to time, to any such owner or Lender,
upon the terms and conditions of this Lease, for the remainder of the Term.
The provisions of this Paragraph 17(c) shall inure to the benefit of any
such owner or Lender, shall apply notwithstanding that, as a matter of law,
this Lease may terminate upon the foreclosure of the Deed of Trust, shall
be self-operative upon any such demand, and no further instrument shall be
required to give effect to said provisions.
(d) Each of Tenant, any owner and Lender, however, upon demand of the
other, hereby agrees to execute, from time to time, instruments in
confirmation of the foregoing provisions of Paragraphs 17(a) and 17(c),
reasonably satisfactory to the requesting party
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acknowledging such subordination, non-disturbance and attornment as are
provided in such subsections and setting forth the terms and conditions of
its tenancy.
(e) Each of Tenant and Landlord agrees that, if requested by the
other, each shall, without charge, enter into a subordination,
non-disturbance and attornment agreement in the form attached hereto as
Exhibit E and made a part hereof for all purposes.
18. Assignment, Subleasing.
(a) The Leased Premises shall not be sublet in whole or in part
without the prior written consent of Landlord, which shall not be
unreasonably withheld. Subject to the terms and conditions of this
Paragraph 18, Landlord hereby approves a sublease of all or a portion of
the Leased Premises by Tenant to Advanced Fibre Communications North
America, Inc., a Delaware corporation. Except as expressly permitted below,
Tenant shall not assign its interest in this Lease without the prior
written consent of Landlord. The assignment of this Lease by Tenant named
herein to any purchaser of all or substantially all of the assets of Tenant
shall not require the prior written consent of Landlord. Assignment of this
Lease by Tenant to a parent, subsidiary or affiliate of Tenant shall not
require the consent of Landlord. An "affiliate" of Tenant shall mean any
corporation, partnership or other business entity which controls or is
controlled by, or is under common control with Tenant. The word "control"
(including "controlled by," "under common control with" and "controlling")
as used with respect to any corporation, partnership or other business
entity, shall mean the possession of the power to direct or cause the
direction of the management and policies of such corporation, partnership
or other business entity, whether through the ownership of voting
securities or contract.
(b) Each sublease of the Leased Premises or any part thereof shall be
subject and subordinate to the provisions of this Lease. No assignment or
sublease shall affect or reduce any of the obligations of Tenant hereunder,
and all such obligations shall continue in full force and effect as
obligations of a principal and not as obligations of a guarantor, as if no
assignment or sublease had been made. Notwithstanding any assignment or
subletting, Tenant shall continue to remain liable and responsible for the
payment of the Basic Rent and Additional Rent and the performance of all
its other obligations under this Lease. No assignment or sublease shall
impose any obligations on Landlord under this Lease except as otherwise
provided in this Lease. Tenant agrees that in the case of an assignment of
the Lease, Tenant shall, within fifteen (15) days after the execution and
delivery of any such assignment, deliver to Landlord (i) a duplicate
original of such assignment in recordable form and (ii) an agreement
executed and acknowledged by the assignee in recordable form wherein the
assignee shall agree to assume and agree to observe and perform all of the
terms and provisions of this Lease on the part of the Tenant to be observed
and performed from and after the date of such assignment. In the case of
all subleases, Tenant shall, immediately upon request of Landlord after the
occurrence of an Event of Default, deliver to Landlord and Lender a
duplicate original or certified copy of all such subleases.
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(c) Tenant agrees with Landlord that, if the rent or other
consideration due by a subtenant exceeds the Basic Rent for the Leased
Premises, then Tenant shall pay Landlord as Additional Rent hereunder fifty
percent (50%) of the amount of all such excess rent and other consideration
immediately upon Tenant's receipt thereof.
19. Permitted Contests.
(a) After prior written notice to Landlord, Tenant shall not be
required to (i) pay any Imposition, (ii) comply with any Legal Requirement,
(iii) discharge or remove any lien referred to in Paragraphs 10 or 13, or
(iv) take any action with respect to any violation referred to in Paragraph
12(b) so long as Tenant shall contest, in good faith and at its expense,
the existence, the amount or the 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 (A) the collection of, or other realization
upon, the Imposition or lien so contested, (B) the sale, forfeiture or loss
of any of the Leased Premises, any Basic Rent or any Additional Rent to
satisfy the same or to pay any damages caused by the violation of any such
Legal Requirement or by any such violation, (C) any interference with the
use or occupancy of any of the Leased Premises, (D) any interference with
the payment of any Basic Rent or any Additional Rent, and (E) the
cancellation of any fire or other insurance policy.
(b) In no event shall Tenant pursue any contest with respect to any
Imposition, Legal Requirement, lien, or violation, referred to above in
such manner that exposes Landlord or Lender to (i) criminal liability,
penalty or sanction, (ii) any civil liability, penalty or sanction for
which Tenant has not made provisions reasonably acceptable to Landlord and
Lender or (iii) defeasance of its interest the Leased Premises.
(c) Tenant agrees that each such contest shall be promptly and
diligently prosecuted to a final conclusion, except that Tenant shall, have
the right to attempt to settle or compromise such contest through
negotiations. Tenant shall indemnify and hold Lender and Landlord harmless
against any and all losses, judgments, decrees and costs (including all
attorneys' fees and expenses) 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, costs and expenses thereof or
in connection therewith, and perform all acts the performance of which
shall be ordered or decreed as a result thereof.
20. Default Provisions; Remedies.
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(a) The occurrence of any one or more of the following events (any
such event being specified herein as a "failure" or "default") shall
constitute an Event of Default under this Lease: (i) a failure by Tenant to
make (regardless of the pendency of any bankruptcy, reorganization,
receivership, insolvency or other proceedings, in law, in equity or before
any administrative tribunal which had or might have the effect of
preventing Tenant from complying with the provisions of this Lease): (x)
any payment of Basic Rent on the due date thereof and the continuation of
such failure for a period of three (3) business days after Landlord has
notified Tenant in writing of such failure or refusal; provided, however,
that in no event shall Landlord be obligated to furnish more than two (2)
notices of such failure in any calendar year; or if Landlord is not then
required to notify Tenant of such failure, then the failure by Tenant to
make any payment of Basic Rent on the due date thereof, or (y) any payment
of Additional Rent or other sum herein required to be paid by Tenant which
continues unremedied for a period of five (5) business days after written
notice thereof is given to Tenant by Landlord; (ii) failure by Tenant to
perform and observe, or a violation or breach of, any other provision in
this Lease and such default shall continue for a period of thirty (30) days
after written notice thereof is given by Landlord to Tenant or if such
default is of such a nature that it cannot reasonably be cured within such
period of thirty (30) days, such period shall be extended for such longer
time as is reasonably necessary (but in any event not to exceed a total of
ninety (90) days) provided that Tenant has commenced to cure such default
within said period of thirty (30) days, and is actively, diligently and in
good faith proceeding with continuity to remedy such default and provided
that any delay in curing such default shall not result in a material
adverse effect on the value of the Leased Premises; (iii) Tenant shall (A)
voluntarily be adjudicated a bankrupt or insolvent, (B) or voluntarily
consent to the appointment of a receiver or trustee for itself or for any
of the Leased Premises, (C) voluntarily file a petition seeking relief
under the bankruptcy or other similar laws of the United States, any state
or any jurisdiction, or (D) voluntarily file a general assignment for the
benefit of creditors; (iv) a court shall enter an order, judgment or decree
appointing, with the voluntary consent of Tenant, a receiver or trustee for
Tenant or for the Leased Premises or approving a petition filed against
Tenant which seeks relief under the bankruptcy or other similar laws of the
United States or any state, and such order, judgment or decree shall remain
in force, undischarged or unstayed, ninety (90) days after it is entered;
(v) Tenant shall in any insolvency proceedings be liquidated or dissolved
or shall voluntarily commence proceedings towards its liquidation or
dissolution; (vi) the estate or interest of Tenant in 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 ninety (90) days after such levy or
attachment; or (vii) failure by Tenant to carry or maintain in full force
and effect any insurance required hereunder, and such failure shall
continue for a period of five (5) business days after written notice
thereof is given to Tenant by Landlord.
(b) If an Event of Default shall have occurred, Landlord shall have
the rights and remedies set forth in this Paragraph 20 and all other rights
and remedies set forth in this
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Lease or now or hereafter allowed by Law, whether legal or equitable, and
all rights and remedies of Landlord shall be cumulative and none shall
exclude any other right or remedy.
(c) With respect to an Event of Default, at any time Landlord may
terminate Tenant's right to possession by written notice to Tenant stating
such election. Any written notice required pursuant to this Paragraph 20(c)
shall constitute notice of unlawful detainer pursuant to California Code of
Civil Procedure Section 1161 if, at Landlord's sole discretion, it states
Landlord's election that Tenant's right to possession is terminated after
expiration of any period required by Law. Upon the expiration of the period
stated in Landlord's written notice of termination, Tenant's right to
possession shall terminate and this Lease shall terminate, and Tenant shall
remain liable as hereinafter provided. Upon such termination in writing of
Tenant's right to possession, Landlord shall have the right, subject to
applicable Law, to reenter the Leased Premises and dispossess Tenant and
the legal representatives of Tenant and all other occupants of the Leased
Premises by unlawful detainer or other summary proceedings, or otherwise as
permitted by Law, regain possession of the Leased Premises and remove their
property (including their trade fixtures, personal property and those
tenant improvements that are alterations which Tenant is required or
permitted to remove under this Lease), but Landlord shall not be obligated
to effect such removal, and such property may, at Landlord's option, be
stored elsewhere, sold or otherwise dealt with as permitted by Law, at the
risk of, expense of and for the account of Tenant, and the proceeds of any
sale shall be applied pursuant to Law. Landlord shall in no event be
responsible for the value, preservation or safekeeping of any such
property. Tenant hereby waives all claims for damages that may be caused by
Landlord's removing or storing Tenant's personal property pursuant to this
Paragraph, and Tenant hereby indemnifies, and agrees to defend, protect and
hold harmless, Landlord from any and all loss, claims, demands, actions,
expenses, liability and cost (including attorneys' fees and expenses)
arising out of or in any way related to such removal or storage. Upon such
written termination of Tenant's right to possession and this Lease,
Landlord shall have the right to recover damages for Tenant's default as
provided herein or by Law, including the following damages provided by
California Civil Code Section 1951.2:
(i) the worth at the time of award of the unpaid Basic Rent
which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the
unpaid Basic Rent which would have been earned after termination until
the time of award exceeds the amount of such Basic Rent loss that
Tenant proves could reasonably have been avoided;
(iii) the worth at the time of award of the amount by which the
unpaid Basic Rent for the balance of the term of this Lease after the
time of award exceeds the amount of such Basic Rent loss that Tenant
proves could be reasonably avoided; and
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(iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including, without limitation,
Landlord's unamortized costs of tenant improvements, leasing
commissions and legal fees incurred in connection with entering into
this Lease. The word "rent" as used in this Paragraph 20(c) shall have
the same meaning as the defined term Basic Rent in this Lease. The
"worth at the time of award" of the amount referred to in clauses (i)
and (ii) above is computed by allowing interest at the Default Rate.
The worth at the time of award of the amount referred to in clause
(iii) above is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). For the purpose of determining unpaid Basic
Rent under clause (iii) above, the monthly Basic Rent reserved in this
Lease shall be deemed to be the sum of the monthly Basic Rent, and the
amounts last payable by Tenant as Additional Rent for the calendar
year in which Landlord terminated this Lease.
(d) Even if an Event of Default has occurred, this Lease shall
continue in effect for so long as Landlord does not terminate Tenant's
right to possession by written notice as provided in Paragraph 20(c) above,
and Landlord may enforce all its rights and remedies under this Lease,
including the right to recover Basic Rent as it becomes due under this
Lease. In such event, Landlord shall have all of the rights and remedies of
a landlord under California Civil Code Section 1951.4 (lessor may continue
Lease in effect after Tenant's Event of Default and abandonment and recover
Basic Rent as it becomes due, if Tenant has the right to sublet or assign,
subject only to reasonable limitations), or any successor statute. During
such time as an Event of Default exists, if Landlord has not terminated
this Lease by written notice and if Tenant requests Landlord's consent to
an assignment of this Lease or a sublease of the Leased Premises, Landlord
shall not unreasonably withhold its consent to such assignment or sublease.
Tenant acknowledges and agrees that the provisions of Paragraph 18 shall be
deemed to constitute reasonable limitations of Tenant's right to assign or
sublet. Tenant acknowledges and agrees that in the absence of written
notice pursuant to Paragraph 20(c) above terminating Tenant's right to
possession, no other act of Landlord shall constitute a termination of
Tenant's right to possession or an acceptance of Tenant's surrender of the
Leased Premises, including 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 or
the withholding of consent to a subletting or assignment, or terminating a
subletting or assignment, if in accordance with other provisions of this
Lease.
(e) Tenant hereby waives any and all rights to relief from
forfeiture, redemption or reinstatement granted by Law (including
California Civil Code of Procedure Sections 1174 and 1179) in the event of
Tenant being evicted or dispossessed or in the event of Landlord obtaining
possession of the Leased Premises.
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(f) Notwithstanding any other provision of this Lease, a notice to
Tenant given under this Paragraph 20 or given pursuant to California Code
of Civil Procedure Section 1161, and any notice served by mail shall be
deemed served, and the requisite waiting period deemed to begin under said
Code of Civil Procedure Section upon mailing, without any additional
waiting requirement under Code of Civil Procedure Section 1011 et seq. or
by other Law. For purposes of Code of Civil Procedure Section 1162,
Tenant's "place of residence", "usual place of business", "the property"
and "the place where the property is situated" shall mean and be the Leased
Premises, whether or not Tenant has vacated same at the time of service.
(g) No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant, and no exercise by Landlord of its
rights under this Lease to perform any duty which Tenant fails timely to
perform, shall impair any right or remedy or be construed as a waiver,
unless such waiver is in writing signed by Landlord. The waiver by Landlord
of any breach of this Lease shall not be deemed a waiver of any subsequent
breach of the same or any other provision of this Lease.
21. Additional Rights of Landlord and Tenant.
(a) No right or remedy conferred upon or reserved to Landlord in this
Lease is intended to be exclusive of any other right or remedy; and each
and every right and remedy shall be cumulative and in addition to any other
right or remedy contained in this Lease. No delay or failure by Landlord or
Tenant to enforce its rights under this Lease shall be construed as a
waiver, modification or relinquishment thereof. In addition to the other
remedies provided in this Lease, Landlord and Tenant shall be entitled, to
the extent permitted by applicable Law, to injunctive relief in case of the
violation or attempted or threatened violation of any of the provisions of
this Lease, or to specific performance of any of the provisions of this
Lease.
(b) Tenant hereby waives and surrenders for itself and all those
claiming under it, including creditors of all kinds, 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.
(c) Each of Tenant and Landlord (herein called "Paying Party") agrees
to pay to the other party (herein called "Demanding Party") any and all
reasonable costs and expenses incurred by the Demanding Party in connection
with any litigation or other action instituted by the Demanding Party to
enforce the obligations of the Paying Party under this Lease, to the extent
that the Demanding Party has prevailed in any such litigation or other
action. Any amount payable by Tenant to Landlord pursuant to this Paragraph
21(c) shall be due and payable by Tenant to Landlord as Additional Rent. No
sum payable by Landlord to Tenant
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under this subparagraph will be payable or recoverable from any sums
pledged or assigned (or intended to have been pledged or assigned) by
Landlord to Lender, Tenant's right to recover such sums from Landlord being
subordinate to the rights of Lender, such sums only being recoverable after
payment to Lender in full of the Loan.
22. 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 (collectively "Notice" or
"Notices") shall be in writing and shall be deemed to have been given for all
purposes (i) three (3) business days after having been sent by United States
mail, by registered or certified mail, return receipt requested, postage
prepaid, addressed to the other party at its address as stated below, or (ii)
one (1) business day after having been sent by Federal Express or other
nationally recognized air courier service.
To the Addresses stated below:
If to Landlord:
c/o NLP-Net Lease Properties
15601 Dallas Parkway, Suite 525
Dallas, Texas 75001
Attention: G. Alan Hargrove
Telephone No.: 972/361-5452
Facsimile No.: 972/361-5905
With a copy to:
Liechty & McGinnis, P.C.
10440 North Central Expressway, Suite 1100
Dallas, Texas 75231
Attention: Kevin P. McGinnis, Esq.
Telephone No.: 214/265-0008
Facsimile No.: 214/265-0615
If to Tenant:
Advanced Fibre Communications, Inc.
#1 Willow Brook Court
Petaluma, California 94954
Attention: Jude Radeski -- AP Manager
Telephone No.: 707/794-7556
Facsimile No.: 707/794-7511
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If any Lender shall have advised Tenant by Notice in the manner aforesaid that
it is the holder of a Deed of Trust and states in said Notice its address for
the receipt of Notices, then simultaneously with the giving of any Notice by
Tenant to Landlord, Tenant shall send a copy of such Notice to Lender in the
manner aforesaid. For the purposes of this Paragraph 22, any party may
substitute its address by giving fifteen (15) days' notice to the other party in
the manner provided above. Any Notice may be given on behalf of any party by its
counsel.
23. Estoppel Certificates. Landlord and Tenant shall at any time and
from time to time, upon not less than twenty (20) days' prior written request by
the other, execute, acknowledge and deliver to the other a statement in writing,
certifying (i) that this Lease is unmodified and in full effect (or, if there
have been modifications, that this Lease is in full effect as modified, setting
forth such modifications), (ii) the dates to which Basic Rent payable hereunder
has been paid, (iii) that to the knowledge of the signer of such certificate no
default by either Landlord or Tenant exists hereunder or specifying each such
default of which the signer may have knowledge, (iv) the remaining Term hereof,
(v) with respect to a certificate signed on behalf of Tenant, (A) that to the
knowledge of the signer of such certificate, there are no proceedings pending or
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 if any such proceedings are pending or
threatened to said signer's knowledge, specifying and describing the same, and
(B) that the Tenant has no claims of offset, abatement or deduction of Basic
Rent, Additional Rent or other amounts payable hereunder, and (vii) such other
matters as may reasonably be requested by the party requesting the certificate.
It is intended that any such statements may be relied upon by Lender, the
recipient of such statements or their assignees or by any prospective purchaser,
assignee or subtenant of the Leased Premises.
24. Surrender and Holding Over.
(a) Upon the expiration or earlier termination of this Lease, Tenant
shall peaceably leave and surrender the Leased Premises (except as to any
portion thereof with respect to which this Lease has previously terminated)
to Landlord. Tenant shall remove from the Leased Premises on or prior to
such expiration or earlier termination the Trade Fixtures and personal
property which is owned by Tenant or third parties other than Landlord, and
Tenant at its expense shall, on or prior to such expiration or earlier
Termination, repair any damage caused by such removal. Trade Fixtures and
personal property not so removed at the end of the Term or within thirty
(30) days after the earlier termination of the Term for any reason
whatsoever 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 borne by Tenant.
Landlord shall not in any manner or to any extent be obligated to reimburse
Tenant for any property which becomes the property of Landlord as a result
of such expiration or earlier termination.
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(b) Any holding over by Tenant of the Leased Premises after the
expiration or earlier termination of the Initial Term of this Lease or any
Renewal Terms, with the consent of Landlord, shall operate and be construed
as a tenancy from month to month only, at one hundred fifty percent (150%)
of the Basic Rent reserved herein and otherwise upon the same terms and
conditions as contained in this Lease except that Tenant shall have no
right to renew or extend the Term of this Lease. Notwithstanding the
foregoing, any holding over without Landlord's consent shall entitle
Landlord, in addition to collecting Basic Rent at a rate of one hundred
fifty percent (150%) thereof, to exercise all rights and remedies provided
by law or in equity, including the remedies of Paragraph 20(b).
25. No Merger of Title. There shall be no merger of this Lease nor of the
leasehold estate created by this Lease with the fee estate in or ownership of
any of the Leased Premises by reason of the fact that the same person,
corporation, firm or other entity may acquire or hold or own, directly or
indirectly, (a) this Lease or the leasehold estate created by this Lease or any
interest in this Lease or in such leasehold estate and (b) the fee estate or
ownership of any of the Leased Premises or any interest in such fee estate or
ownership. No such merger shall occur unless and until all persons,
corporations, firms and other entities having any interest in (i) this Lease or
the leasehold estate created by this Lease and (ii) the fee estate in or
ownership of the Leased Premises or any part thereof sought to be merged shall
join in a written instrument effecting such merger and shall duly record the
same.
26. Definition of Landlord.
(a) 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 Landlord's interest in the Leased
Premises and shall not be enforced against the Landlord individually or
personally.
(b) The term "Landlord" as used in this Lease so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean
and include only the owner or owners of the Leased Premises or holder of
the Deed of Trust in possession at the time in question of the Leased
Premises and in the event of any transfer or transfers of the title of the
Leased Premises, the Landlord herein named (and in case of any subsequent
transfers or conveyances, the then grantor) shall be automatically freed
and relieved from and after the date of such transfer and conveyance of all
personal liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to
be performed.
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27. Hazardous Substances.
(a) Tenant agrees that it will not on, about, or under the Leased
Premises, make, treat or dispose of any "hazardous substances" as that term
is defined in the Comprehensive Environmental Response, Compensation and
Liability Act, and the rules and regulations promulgated pursuant thereto,
as from time to time amended, 42 U.S.C. Section 9601 et seq. (the "Act");
but the foregoing shall not prevent the use of any hazardous substances in
accordance with applicable laws and regulations. Tenant covenants that it
will at all times comply with the Act and any other federal, state or local
laws, rules or regulations governing "Hazardous Materials". "Hazardous
Materials" as used herein shall mean all chemicals, petroleum, crude oil or
any fraction thereof, hydrocarbons, polychlorinated biphenyls (PCBs),
asbestos, asbestos-containing materials and/or products, urea formaldehyde,
or any substances which are classified as "hazardous" or "toxic" under the
Act; hazardous waste as defined under the Solid Waste Disposal Act, as
amended 42 U.S.C. Section 6901; air pollutants regulated under the Clean
Air Act, as amended, 42 U.S.C. Section 7401, et seq.; pollutants as defined
under the Clean Water Act, as amended, 33 U.S.C. Section 1251, et seq., any
pesticide as defined by Federal Insecticide, Fungicide, and Rodenticide
Act, as amended, 7 U.S.C. Section 136, et seq., any hazardous chemical
substance or mixture or imminently hazardous substance or mixture regulated
by the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601, et
Seq., any substance listed in the United States Department of
Transportation Table at 45 CFR l72.101; any chemicals included in
regulations promulgated under the above listed statutes; any explosives,
radioactive material, and any chemical or other hazardous substance
regulated by state statutes similar to the federal statutes listed above
and regulations promulgated under such state statutes.
(b) To the extent required by the Act and/or any federal, state or
local laws, rules or regulations governing Hazardous Materials, Tenant
shall remove any hazardous substances (as defined in the Act) and Hazardous
Materials (as defined above) whether now or hereafter existing on the
Leased Premises and whether or not arising out of or in any manner
connected with Tenant's use or occupancy (including, without limitation,
use for purposes of the construction of leasehold improvements) of the
Leased Premises from and after the date of this Lease and continuing
through the end of the Term. Tenant shall and hereby does agree to defend,
indemnify and hold Lender and Landlord, their officers, directors,
shareholders, beneficial owners, partners, members, and employees, harmless
from and against any and all causes of actions, suits, demands or judgments
of any nature whatsoever, losses, damages, penalties, expenses, fees,
claims, costs (including response and remedial costs), and liabilities,
including, but not limited to, reasonable attorneys' fees and costs of
litigation, arising out of or in any manner connected with (i) the
violation of any applicable federal, state or local environmental law with
respect to the Leased Premises, and/or (ii) the "release" or "threatened
release" of or failure to remove, as required by this Paragraph 27,
"hazardous substances" (as defined in the Act) and Hazardous Materials (as
defined above) from the Leased Premises or any portion or portions thereof,
now of hereafter existing during the Initial Term and any Renewal Term
whether or not arising out of or in
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<PAGE> 31
any manner connected with Tenant's occupancy of the Leased Premises during
the Initial Term or any Renewal Term. This indemnification shall survive
the expiration or earlier termination of this Lease.
(c) The Tenant agrees that it will not install any underground
storage tank at the Leased Premises. The Tenant agrees that it will not
store combustible or flammable materials on the Leased Premises in
violation of the Act or any other federal, state or local laws, rules or
regulations governing Hazardous Materials.
28. Entry by Landlord. Landlord and its authorized representatives shall
have the right upon reasonable notice to enter the Leased Premises at all
reasonable business hours (and at all other times in the event of an emergency):
(a) for the purpose of inspecting the same or for the purpose of doing any work
under Paragraph 12(c), and may take all such action thereon as may be necessary
or appropriate for any such purpose (but nothing contained in this Lease or
otherwise shall create or imply any duty upon the part of Landlord to make any
such inspection or do any such work), and (b) for the purpose of showing the
Leased Premises to prospective purchasers and mortgagees and, at any time within
twelve (12) months prior to the expiration of the Term of this Lease for the
purpose of showing the same to prospective tenants. No such entry shall
constitute an eviction of Tenant but any such entry shall be done by Landlord in
such reasonable manner as to minimize any disruption of Tenant's business
operation.
29. Statements. Tenant shall submit to Landlord and Lender, or its
designee, (a) any financial statements of Tenant which are provided by Tenant to
its lenders at the times such statements are provided by Tenant to its lenders,
and (b) the annual audited financial report and quarterly audited or unaudited
financial reports within one hundred twenty (120) days following the close of
each fiscal year (in the case of annual reports) or forty-five (45) days
following the close of each fiscal quarter (in the case of quarterly reports) of
Tenant. The obligations of Tenant named herein shall continue whether or not
this Lease shall have been assigned.
30. No Usury. The intention of the parties being to conform strictly to
the applicable usury laws, whenever any provision herein provides for payment by
Tenant to Landlord of interest at a rate in excess of the legal rate permitted
to be charged, such rate herein provided to be paid shall be deemed reduced to
such legal rate.
31. Separability. Each and every covenant and agreement contained in this
Lease is, and shall be construed to be, a separate and independent covenant and
agreement, and the breach of any such covenant or agreement by Landlord shall
not discharge or relieve Tenant from its obligation to perform the same. If any
term or provision of this Lease or the application thereof to any provision of
this Lease or the application thereof to any person or circumstances shall to
any extent be invalid and unenforceable, the remainder of this Lease, or the
application of such term or provision to person or circumstances other than
those as to which it is invalid or unenforceable, shall not be affected thereby,
and each term and provision of this Lease shall be valid and shall be enforced
to the extent permitted by law.
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<PAGE> 32
32. Compliance with CC&Rs. Tenant agrees that Tenant is obligated to and
shall perform all obligations of the owner of the Leased Premises and pay all
assessments and other expenses which the owner of the Leased Premises may be
required to pay in accordance with any reciprocal easement agreement, any
covenants, conditions and restrictions, or any other agreement or document of
record now affecting the Leased Premises, including, without limitation, that
certain Declaration of Covenants, Conditions and Restrictions of Redwood
Business Park 2, recorded on August 13, 1990, as Instrument No. 90-0080837 in
the Official Records of Sonoma County, California, as amended from time to time,
and that certain Declaration of Covenants, Conditions and Restrictions of Willow
Brook Center North recorded on August 13, 1999, as Instrument No. 1999 0103520
in the Official Records of Sonoma County, California (as amended from time to
time, the "Willow Brook North CC&Rs") (herein referred to collectively as the
"CC&Rs") and that Tenant shall comply with all of the terms and conditions of
the CC&Rs during the Term of this Lease. Without limiting the foregoing, Tenant
shall pay on or before the due date thereof any and all assessments required to
be paid under the CC&Rs by the owner of the Leased Premises including, without
limitation, all regular assessments, regional assessments and enforcement
assessments as such terms are used in the Willow Brook North CC&Rs. Tenant
further covenants and agrees to indemnify, defend and hold harmless Landlord and
Lender against any claim, loss or damage suffered by Landlord or Lender by
reason of Tenant's failure to perform any obligations or pay any expenses as
required under any CC&Rs or comply with the terms and conditions of any CC&Rs as
hereinabove provided during the Term.
33. 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 as
the context requires and the following words and phrases shall have the
following meanings: (i) "including" shall mean "including but not limited
to"; (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"; and (iv) "obligation" shall mean "obligation, duty, agreement,
liability, covenant or condition".
(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. Any act which Tenant is required
to perform under this Lease shall be performed at Tenant's sole cost and
expense.
(d) 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.
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<PAGE> 33
(e) The covenants of this Lease shall run with the Land and bind
Tenant, the successors and assigns of Tenant and all present and subsequent
encumbrances and subtenants of any of the Leased Premises, and shall inure
to the benefit of and bind Landlord, its successors and assigns.
(f) This Lease will be simultaneously executed in several
counterparts, each of which when so executed and delivered shall constitute
an original, fully enforceable counterpart for all purposes.
(g) This Lease shall be governed by and construed according to the
Laws of the State in which the Leased Premises is located.
(h) Nothing contained herein shall be deemed to limit Landlord's
right to sell, assign or otherwise transfer the Leased Premises and this
Lease.
(i) All references to "business days" contained herein are references
to normal working business days, i.e., Monday through Friday of each
calendar week, exclusive of federal and national bank holidays. In the
event that any event hereunder is to occur, or a time period is to expire,
on a date which is not a business day, such event shall occur or such time
period shall expire on the next succeeding business day.
(j) Whenever in this Lease the consent of the Landlord is required,
such consent shall not be unreasonably withheld or delayed.
(k) Time is of the essence with respect to this Lease.
34. Special Provision. Tenant acknowledges that pursuant to the terms
and conditions of that certain Agreement of Purchase and Sale dated effective
July 23, 1999, executed by and between G&W/Copley Redwood Business Park, L.P., a
California limited partnership ("Seller"), and Landlord (as amended from time to
time, the "Purchase Agreement"), at Landlord's option, Seller is obligated to
prepare and file with the City of Petaluma, California, an application for lot
line adjustment to reconfigure the boundaries of the Land so that the Land shall
include a portion of the common area parcel described in the Willow Brook North
CC&Rs and if granted, to cause the Willow Brook North Association, a California
non-profit member benefit corporation (the "Association") to convey a portion of
such common area parcel to Landlord. Provided that such lot line adjustment is
consummated, Tenant acknowledges that the Willow Brook North CC&Rs shall be
terminated and be released of record and that the Association, after conveying
such portion of the common area parcel to Landlord, shall be dissolved and
Landlord and Seller shall grant to each other reciprocal easements over and
under each of their respective reconfigured lots for, among other others,
ingress, egress, parking, utilities and the use of the recreation area located
on the common area parcel (the "Substitute REA"). Tenant hereby agrees to
cooperate with Seller and Landlord in processing such application for lot line
adjustment with the City of Petaluma, California, including
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<PAGE> 34
without limitation, the provision of any necessary consents, approvals, or
subordinations by Tenant. In the event the lot line adjustment is consummated
and a portion of the common area parcel is conveyed to Landlord, Tenant consents
to the termination of the Willow Brook North CC&Rs and the replacement of such
CC&Rs with the Substitute REA and agrees that the Substitute REA shall be
included within the definition of CC&Rs pursuant to Paragraph 32 hereof for all
purposes of this Lease and Tenant shall be obligated to and shall perform all
obligations and pay all assessments and other expenses which the owner of the
Leased Premises is required to perform and/or pay thereunder. Additionally,
Tenant agrees that from and after the date the lot line adjustment is
consummated, the Land shall include the portion of the common area parcel
conveyed to Landlord for all purposes of this Lease and the Premises shall
include the right to use all easements (including the recreational area) granted
for the benefit the owner of the Land. Tenant agrees that it shall not be
necessary to amend this Lease in writing for the following provisions to be
effective but Tenant shall, upon request of Landlord, enter into an amendment of
this Lease to evidence such amendments.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be
executed effective as of the day and year first above written.
LANDLORD:
99 AF PETALUMA, L.L.C.,
a Delaware limited liability company
By: NLP Finance, L.P.,
a Delaware limited partnership,
its sole member
By: Wolverine Net Lease GP Company,
a Texas corporation,
its administrator
By: /s/ A. Bryant Bryan
----------------------------
A. Brant Bryan,
Vice President
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<PAGE> 35
TENANT:
ADVANCED FIBRE COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ John Schofield
------------------------------------
Name: John Schofield
------------------------------
Title: CEO, President
-----------------------------
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<PAGE> 36
EXHIBIT A-1
LEGAL DESCRIPTION
Parcel One as shown and designated on that certain Parcel Map No. 321 of
Redwood Business Park, filed for record August 31, 1999, in Book 596 of Maps, at
Pages 15 and 16, Official Records of Sonoma County.
<PAGE> 37
EXHIBIT A-2
LEGAL DESCRIPTION
A non-exclusive right to use the easements for right of access, parking and
incidental purposes over Parcel Four of Parcel Map 321 of Redwood Business Park,
upon the terms, conditions and provisions as contained in that certain
Declaration of Covenants, Conditions and Restrictions of Willow Brook Center
North recorded August 13, 1999, as Instrument No. 1999 0103520, Official Records
of Sonoma County.
<PAGE> 38
EXHIBIT B
RENEWAL OPTIONS
Provided that Tenant, both at the time of giving the applicable renewal
notice set forth herein and at the time of the commencement of the Renewal Term
(as hereinafter defined) in question, is not in default under any term or
provision contained in this Lease and no condition exists which with the passage
of time or the giving of notice or both would constitute an Event of Default
pursuant to this Lease, Tenant (but not any assignee or subtenant of Tenant)
shall have, and is hereby given, four (4) options (each, a "Renewal Option") to
renew and to extend the term of this Lease, each Renewal Option to follow
consecutively upon the expiration of the Initial Term of this Lease (or the
immediately preceding Renewal Term [hereinafter defined], if applicable). Each
Renewal Option shall be for a term of five (5) years (a "Renewal Term") and
shall be exercised, if at all, by Tenant giving written notice thereof to
Landlord at least nine (9) months prior to (but not more than twelve (12) months
prior to) the expiration date of the Initial Term or the then current Renewal
Term, as the case may be. The renewal and extension of this Lease for any
Renewal Term shall be under the same terms, conditions and covenants contained
in the Lease, except that (a) the Basic Rent for each of the years of the
applicable Renewal Term shall be equal to the following respective amounts at
the time of the commencement of the Renewal Term in question:
<TABLE>
<CAPTION>
Renewal Term Year Annual Basic Rent Monthly Basic Rent
- ------------ ---- ----------------- ------------------
<S> <C> <C> <C>
First Renewal Term 16 $ 2,817,082 $ 234,757
17 2,877,649 239,804
18 2,939,519 244,960
19 3,002,718 250,227
20 3,067,277 255,606
Second Renewal Term 21 $ 3,133,223 $ 261,102
22 3,200,587 266,716
23 3,269,400 272,450
24 3,339,692 278,308
25 3,411,496 284,291
Third Renewal Term 26 Greater of (x) Prevailing Market Rent (hereinafter defined)
or (y) $3,411,496
27 An amount equal to 102.15% of immediately preceding year's Annual Basic Rent
28 An amount equal to 102.15% of immediately preceding year's Annual Basic Rent
29 An amount equal to 102.15% of immediately preceding year's Annual Basic Rent
30 An amount equal to 102.15% of immediately preceding year's Annual Basic Rent
Fourth Renewal Term 31 An amount equal to 102.15% of immediately preceding year's Annual Basic Rent
32 An amount equal to 102.15% of immediately preceding year's Annual Basic Rent
</TABLE>
<PAGE> 39
<TABLE>
<S> <C>
33 An amount equal to 102.15% of immediately preceding year's Annual Basic Rent
34 An amount equal to 102.15% of immediately preceding year's Annual Basic Rent
35 An amount equal to 102.15% of immediately preceding year's Annual Basic Rent
</TABLE>
(b) Tenant shall have no option to renew this Lease beyond the expiration of the
fourth Renewal Term (provided that Tenant exercised its option with respect to
the first, second and third Renewal Terms and has otherwise satisfied the
requirements of this Exhibit); and (c) all leasehold improvements within the
Leased Premises shall be provided in their then existing condition (on an
"as-is" basis) at the time the Renewal Term in question commences. Failure by
Tenant to notify Landlord in writing of Tenant's election to exercise the
Renewal Options herein granted within the time limits set forth for such
exercise shall constitute a waiver and termination of such Renewal Option and
any and all subsequent Renewal Options.
As used herein, the term "Prevailing Market Rent" means the prevailing
market rental rate (stated in the form of a dollar amount per rentable square
foot) which would be charged under a comparable lease to a tenant comparable in
size and credit standing to Tenant for all of the Leased Premises for a term of
similar duration. The determination of such Prevailing Market Rent shall, for
all applications in this Lease, be made using the following procedure:
1. Whenever, pursuant to the terms of this Lease, a determination must be
made of Prevailing Market Rent, Landlord shall provide to Tenant in
writing Landlord's reasonable determination of such Prevailing Market
Rent within fifteen (15) days after receipt of Tenant's written
exercise of the Renewal Option in question. If Tenant accepts such
determination by Landlord in writing, or if Tenant shall not have
notified Landlord of its objection to such determination in writing,
both within fifteen (15) days following Tenant's receipt of such
determination, then such determination by Landlord of the Prevailing
Market Rent for that applicable portion of the Lease shall irrevocably
become the Prevailing Market Rent.
2. If Tenant notifies Landlord, within fifteen (15) days following its
receipt of Landlord's determination of Prevailing Market Rent, that it
objects to such determination as not accurately reflecting such
Prevailing Market Rent ("Tenant's Notice of Objection"), then
Landlord's determination of Prevailing Market Rent referred to in
paragraph 1 above shall thereafter not be effective, and instead the
following procedure shall be implemented to determine Prevailing
Market Rent:
(a) Within fifteen (15) days following Landlord's receipt of Tenant's
Notice of Objection, Landlord shall select and notify Tenant of
its selection of, an independent senior real estate broker from a
recognized commercial real estate brokerage firm knowledgeable in
the commercial real estate market of the San Francisco,
California Metroplex (the "Landlord's Market Broker"). Within
fifteen (15) days following Landlord's selection of Landlord's
Market Broker, Landlord shall cause such broker to analyze the
then-existing market conditions, prepare and deliver to Landlord
and Tenant such broker's
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<PAGE> 40
determination of the Prevailing Market Rent for the Leased
Premises. If Tenant accepts in writing such determination of
Prevailing Market Rent presented by Landlord's Market Broker, or
if Tenant shall not have notified Landlord of its objection to
such determination, in writing, both within fifteen (15) days
following Tenant's receipt of such determination by Landlord's
Market Broker, then such determination by Landlord's Market
Broker of the Prevailing Market Rent shall irrevocably become the
Prevailing Market Rent.
(b) If Tenant notifies Landlord, within fifteen (15) days following
its receipt of Landlord's Market Broker's determination of the
Prevailing Market Rent, that it objects to such determination as
not accurately reflecting such Prevailing Market Rent ("Tenant's
Notice of Objection to Landlord's Market Broker's
Determination"), then the following procedure shall be
implemented to determine Prevailing Market Rent:
(i) Within fifteen (15) days following Tenant's giving or
delivering to Landlord the Tenant's Notice of Objection to
Landlord's Market Broker's Determination, Tenant shall
select, and notify Landlord of its selection of, an
independent senior real estate broker from a recognized
commercial real estate brokerage firm knowledgeable in the
commercial real estate market of the San Francisco,
California Metroplex (the "Tenant's Market Broker"). Within
fifteen (15) days following Tenant's selection of Tenant's
Market Broker, Tenant shall cause such broker to analyze the
then-existing market conditions, and prepare and deliver to
Landlord and Tenant such broker's determination of the
Prevailing Market Rent for the Leased Premises. If Landlord
accepts in writing such determination of Prevailing Market
Rent presented by Tenant's Market Broker, or if Landlord
shall not have notified Tenant of its objection to such
determination, in writing, both within fifteen (15) days
following Landlord's receipt of such determination by
Tenant's Market Broker, then such determination by Tenant's
Market Broker of the Prevailing Market Rent shall
irrevocably become the Prevailing Market Rent.
(ii) If Landlord notifies Tenant, within fifteen (15) days
following its receipt of Tenant's Market Broker's
determination of the Prevailing Market Rent, that it objects
to such determination as not accurately reflecting such
Prevailing Market Rent ("Landlord's Notice of Objection to
Tenant's Market Broker's Determination"), then Landlord
shall, within five (5) days thereafter, direct both
Landlord's Market Broker and Tenant's Market Broker to
select within ten (10) days thereafter, and notify Landlord
and Tenant of their selection of,
-3-
<PAGE> 41
a third independent senior real estate broker from a
recognized commercial real estate brokerage firm
knowledgeable in the commercial real estate market of the
San Francisco, California Metroplex (the "Third Market
Broker"). Within fifteen (15) days following such selection
of the Third Market Broker, such broker shall analyze the
then-existing market conditions, prepare and deliver to
Landlord, Tenant, Landlord's Market Broker, and Tenant's
Market Broker such Third Market Broker's determination of
the Prevailing Market Rent for the Leased Premises. If the
Third Market Broker's determination of Prevailing Market
Rent is a number between (x) the rental rate determined by
Landlord's Market Broker, augmented five percent (5%) both
higher and lower from such rental rate, and (y) the rental
rate determined by Tenant's Market Broker, augmented five
percent (5%) both higher and lower from such rental rate,
then such Third Market Broker's determination of Prevailing
Market Rent shall be irrevocably binding upon both Landlord
and Tenant. However, if the Third Market Broker's
determination of Prevailing Market Rent is a number not
between (x) and (y) from the previous sentence, then the
final, irrevocable determination of Prevailing Market Rent
which shall be binding upon both Landlord and Tenant, will
be calculated by adding together the two closest appraisals
of the three determinations from the three brokers, and
dividing such sum by two. Both Landlord and Tenant
acknowledge that the determination of Prevailing Market Rent
which is derived from such procedure shall be irrevocably
binding upon both Landlord and Tenant.
(c) Notwithstanding any provisions elsewhere in this Lease allocating
the payment of expenses, Landlord agrees to pay the expenses
associated with the services of Landlord's Market Broker, Tenant
agrees to pay the expenses associated with the services of
Tenant's Market Broker, and both Landlord and Tenant agree to
jointly and equally pay the expenses associated with the services
of the Third Market Broker. As used herein, a "senior real estate
broker" shall be deemed to be a real estate broker with at least
ten (10) years of commercial real estate experience with one or
more recognized commercial real estate brokerage firms.
Upon exercise of a Renewal Option by Tenant and subject to the conditions
set forth hereinabove, this Lease shall be extended for the period of such
applicable Renewal Term without the necessity of the execution of any further
instrument or document, although if requested by either party, Landlord and
Tenant shall enter into a written agreement modifying and supplementing the
Lease in accordance with the provisions hereof. Any termination of this Lease
during the Initial Term shall terminate all renewal rights hereunder and any
termination of the Lease during the first Renewal Term shall terminate all
rights to the second, third and fourth Renewal Options, any
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<PAGE> 42
termination of this Lease during the second Renewal Term shall terminate all
rights to the third and fourth Renewal Term and any termination of this Lease
during the third Renewal Term shall terminate all rights to the fourth Renewal
Term. The renewal rights of Tenant hereunder shall not be severable from this
Lease, nor may such rights be assigned or otherwise conveyed in connection with
any permitted assignment or sublease of this Lease. Landlord's consent to any
assignment or sublease of this Lease shall not be construed as allowing an
assignment of such rights to any assignee or subtenant.
-5-
<PAGE> 43
EXHIBIT C
INITIAL TERM BASIC RENT
<TABLE>
<CAPTION>
YEAR ANNUAL BASIC RENT MONTHLY BASIC RENT
---- ----------------- ------------------
<S> <C> <C>
1 $2,047,500 $170,625
2 $2,091,521 $174,293
3 $2,136,489 $178,041
4 $2,182,423 $181,869
5 $2,229,346 $185,779
6 $2,277,277 $189,773
7 $2,326,238 $193,853
8 $2,376,252 $198,021
9 $2,427,341 $202,278
10 $2,479,529 $206,627
11 $2,532,839 $211,070
12 $2,587,295 $215,608
13 $2,642,922 $220,244
14 $2,699,745 $224,979
15 $2,757,789 $229,816
</TABLE>
<PAGE> 44
EXHIBIT D
LEASEHOLD IMPROVEMENTS AGREEMENT
ARTICLE I
LEASEHOLD IMPROVEMENT OBLIGATIONS OF TENANT
1.1 On or before the first (1st) anniversary of the Commencement Date,
Tenant shall (a) substantially install or cause to be substantially installed on
the second floor of the Leased Premises, at its sole cost and expense, the
leasehold improvements (the "Leasehold Improvements") generally depicted on the
Second Floor Reference Plan attached hereto as Schedule 1.1 in accordance with
Tenant's Drawings (hereinafter defined), all which shall be consistent with
Tenant's leasehold improvements on the first floor of the Leased Premises, and
(b) deliver to Landlord evidence reasonably satisfactory to Landlord that Tenant
has paid at least One Million and No/100 Dollars ($1,000,000.00) in direct
out-of-pocket costs to non-affiliated third parties for materials and labor
incurred in installing the Leasehold Improvements (collectively, the "Leasehold
Improvements Obligations"). On or before the tenth (10th) day after the end of
each calendar month commencing with the first month after the month in which the
Commencement Date occurs and continuing through and including the month in which
the first (1st) anniversary of the Commencement Date occurs, Tenant shall
deliver to Landlord a written summary of all of such out-of-pocket expenses paid
by Tenant in the preceding month for labor and materials in connection with the
installation of the Leasehold Improvements.
1.2 Concurrently with its execution of this Lease, Tenant shall deposit
with Landlord an irrevocable, unconditional, transferable letter of credit (the
"Tenant Improvement Letter of Credit") in an amount equal to One Million and
No/100 Dollars ($1,000,000.00) and in form and substance satisfactory to
Landlord from a financial institution acceptable to Landlord to be issued to and
naming Landlord as the beneficiary. The Tenant Improvement Letter of Credit
shall be for a term of not less than thirteen (13) months after the Commencement
Date. The Tenant Improvement Letter of Credit shall be held by Landlord as
security for the performance by Tenant of its obligations under this Leasehold
Improvements Agreement. If (a) Tenant shall fail or refuse to timely perform the
Leasehold Improvement Obligations pursuant to Section 1.1 hereof, or (b) an
Event of Default shall occur under this Lease and Landlord has elected to
terminate Tenant's possession of the Premises pursuant to Paragraph 20 of this
Lease, without limiting or impairing Landlord's other rights and remedies under
this Lease, Landlord shall have the right to immediately present the Tenant
Improvement Letter of Credit for payment. In the event Landlord presents the
Tenant Improvement Letter of Credit for payment, Landlord shall be entitled to
retain an aggregate amount of the proceeds from such letter of credit equal to
the positive difference obtained by (x) subtracting the amount of out-of-pocket
third party costs actually incurred and paid for by Tenant in connection with
labor and materials relating to the installation of the Leasehold Improvements
(as determined in Landlord's reasonable discretion based upon the aforementioned
monthly summaries of expenses incurred by Tenant) through the date of the
occurrence of the Event of Default in question from (y) One Million and No/100
Dollars ($1,000,000.00). The remaining balance of such proceeds shall be
returned by Landlord to Tenant. For example, if at the time an
<PAGE> 45
Event of Default occurs, Tenant has provided evidence to Landlord that Tenant
has actually paid for Three Hundred Fifty Thousand and No/100 Dollars ($350,000)
of labor and materials relating to the installation of the Leasehold
Improvements, then Landlord shall be entitled to retain Six Hundred Fifty
Thousand and No/100 Dollars ($650,000) and shall deliver Three Hundred Fifty
Thousand and No/100 Dollars ($350,000) to Tenant. Landlord may deliver the
Tenant Improvement Letter of Credit to any purchaser of or successor to
Landlord's interest in this Lease or the Leased Premises, and thereupon Landlord
shall be discharged from all obligation or liability with respect to such letter
of credit.
1.3 In the event Tenant fails to complete the Leasehold Improvements or
fails to provide Landlord with evidence that Tenant has paid invoices of not
less than One Million and No/100 Dollars ($1,000,000.00) in respect of the
installation of such Tenant Improvements pursuant to the requirements of
Paragraph 1.1 hereof on or before the first (1st) anniversary of the
Commencement Date, an Event of Default shall be deemed to have occurred
hereunder and Landlord, without limiting or impairing Landlord's other rights
and remedies under this Lease, shall have the right to present the Tenant
Improvement Letter of Credit for immediate payment thereafter.
ARTICLE II
CONTRACTS AND PERMITS
2.1 Tenant is responsible for letting all contracts relating to the
construction and installation of the Leasehold Improvements, supervision and
completion of the Leasehold Improvements and payment therefor, procurement of
all permits and permissions related to the Leasehold Improvements, compliance
with the requirements of all authorities having jurisdiction over the Leasehold
Improvements, and with conditions contained herein, and payment of all fees and
charges incurred in connection therewith.
ARTICLE III
TENANT'S DRAWINGS
3.1 On or before ninety (90) days after the Commencement Date, Tenant
shall prepare and furnish to Landlord, at Tenant's cost and expense, in
compliance with applicable laws, statutes, ordinances and codes, a complete set
of interior finish working drawings (the "Tenant's Drawings") for the Leasehold
Improvements. Tenant's Drawings will be full and complete in all respects.
3.2 After Tenant submits Tenant's Drawings to Landlord, Landlord will have
fifteen (15) days to approve or disapprove Tenant's Drawings, which approval
shall not be unreasonably withheld. In the event Landlord does not approve the
Tenant's Drawings, Landlord will advise Tenant of Landlord's comments to
Tenant's Drawings. Failure by Landlord to approve or disapprove Tenant's
Drawings within the time limits prescribed herein will constitute an approval by
Landlord. In the event Landlord disapproves Tenant's Drawings, Tenant will
incorporate
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<PAGE> 46
Landlord's comments into Tenant's Drawings within ten (10) days from receipt
thereof and resubmit the same to Landlord, who will have ten (10) days to
approve or disapprove the revised Tenant's Drawings. In the event Landlord does
not approve the same, the procedures set forth herein will be followed until
such time as Landlord has approved the revised Tenant's Drawings.
3.3 In the event Tenant desires to modify or change Tenant's Drawings
after the same have been approved in the manner provided above, Tenant will
submit such modifications or changes to Landlord for review and consideration
and the procedures governing approval of Tenant's Drawings will apply to any
such modifications or changes.
3.4 Any approval by Landlord of any of Tenant's Drawings will not in any
way be construed or operated to constitute a representation or warranty of
Landlord as to the adequacy or sufficiency of Tenant's Drawings, or the
Leasehold Improvements to which they relate, for any reason, purpose or
condition, but such approval will merely be the consent of Landlord, as may be
required hereunder, in connection with performance of the installation of the
Leasehold Improvements in accordance with Tenant's Drawings.
ARTICLE IV
TENANT'S WORK
4.1 At its own expense, Tenant will provide all design, engineering,
plans, specifications, drawings, permits, fees, work, labor, skill and equipment
required to complete the second floor of the Leased Premises for occupancy, and
will construct the Leasehold Improvements in accordance with Tenant's Drawings,
approved in the manner set forth herein.
4.2 All approved modifications to the existing second floor shell building
heating, cooling, ventilating, exhaust, control, electrical distribution, life
safety and other systems may be carried out by Tenant's contractor at Tenant's
expense subject to the requirements of Section 4.3 below.
4.3 Modifications to the shell building systems set forth in Section 4.2
and special requirements of Tenant can be considered by Landlord only if applied
for at the time Tenant's Drawings are submitted for approval and if they are
compatible with the capacity and character of the Leased Premises. Landlord will
not be required to grant its consent to allow Tenant's contractor to perform
such work unless Tenant agrees to obtain from the subcontractor(s) originally
responsible for the installation of such shell building systems written
statements in form satisfactory to Landlord specifically affirming the continued
validity of any and all warranties and guaranties in effect prior to
commencement of Tenant's installation of the Leasehold Improvements from each
such shell building systems subcontractor. Restrictions on mechanical and
electrical connections by Tenant may be imposed as reasonably necessary by
Landlord to ensure that no warranty or guarantee pertaining to the shell
building is lost or jeopardized.
-3-
<PAGE> 47
4.4 No construction work will be undertaken or commenced by Tenant until:
(a) Tenant's Drawings have been submitted to and approved by
Landlord, and
(b) all necessary building permits and required insurance coverages
have been secured and certificates of insurance delivered to Landlord.
4.5 Tenant will proceed with its work expeditiously, continuously, and
efficiently, and will complete the same in a good and workmanlike manner by the
first (1st) anniversary of the Commencement Date.
4.6 Tenant will ensure that all materials, skill and workmanship in
installing all Leasehold Improvements will be of uniformly high quality, not
less than building standard, and in accordance with the best standards of
practice and any governing codes or regulations. Tenant represents and warrants
that Tenant's Drawings and the improvements contemplated thereby will be in
compliance with applicable building and zoning laws, ordinances, regulations and
any covenants, conditions or restrictions affecting the Leased Premises, and
that the same are in accordance with good engineering and architectural
practice, and that Tenant's Drawings are sufficient for issuance of a building
permit for such work.
-4-
<PAGE> 48
EXHIBIT E
RECORD AND RETURN TO:
LATHAM & WATKINS
885 Third Avenue, Suite 1000
New York, New York 10022-4802
ATTENTION: Wylie S. Allen, Esq.
____________ [SPACE ABOVE LINE FOR RECORDER'S USE ONLY] ____________
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
("MORTGAGEE")
and
ADVANCED FIBRE COMMUNICATIONS, INC.
("LESSEE")
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
September 22, 1999
This instrument affects real property situated, lying and being in the County of
Sonoma, State of California.
<PAGE> 49
SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this
"Agreement") is entered into as of September 22, 1999 (the "Effective Date"),
between GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation,
whose address is 600 Steamboat Road, Greenwich, Connecticut 06830 ("Mortgagee"),
and ADVANCED FIBRE COMMUNICATIONS, INC., a Delaware corporation, whose address
is # 1 Willow Brook Court, Petaluma, California 94954 ("Lessee"), with reference
to the following facts:
A. 99AF Petaluma L.L.C., a Delaware limited liability company, whose
address is 15601 Dallas Parkway, Suite 525, Dallas, Texas 75001 ("Lessor"), owns
the real property commonly known as 1465 N. McDowell Boulevard (such real
property, including all buildings, improvements, structures and fixtures located
thereon, the "Leased Premises"), are more particularly described in Schedule A
attached hereto and made a part hereof.
B. Mortgagee has made or will make an acquisition loan to Purchaser (such
loan, as it may be decreased, increased, or otherwise modified, and any
replacement financing in substitution therefor, in whole or in part, the
"Loan").
C. To secure the Loan, Purchaser has encumbered or will encumber the
Leased Premises by entering into that certain Deed of Trust, Indenture of
Mortgage, Assignment of Rents and Leases, Security Agreement and Fixture Filing
dated September 15, 1999, in favor of Mortgagee (as amended, increased, renewed,
extended, spread, consolidated, severed, restated, or otherwise changed from
time to time, the "Mortgage") to be recorded in the Official Records of the
County of Sonoma, State of California (the "Land Records").
D. Pursuant to a Lease Agreement of even date herewith (the "Lease"),
Lessor demised to Lessee the Leased Premises.
E. Lessee and Mortgagee desire to agree upon the relative priorities of
their interests in the Leased Premises and their rights and obligations if
certain events occur.
NOW, THEREFORE, for good and sufficient consideration, Lessee and Mortgagee
agree:
1. DEFINITIONS.
The following terms shall have the following meanings for purposes of this
Agreement.
1.1 Construction-Related Obligation. A "Construction-Related Obligation"
means any obligation of Lessor under the Lease to make, pay for, or reimburse
Lessee for any alterations, demolition, or other improvements or work at the
Leased Premises, including the Leased Premises. "Construction-Related
Obligations" shall not include: (a) reconstruction or repair following fire,
casualty or condemnation; or (b) day-to-day maintenance and repairs.
<PAGE> 50
1.2 Foreclosure Event. A "Foreclosure Event" means: (a) foreclosure under
the Mortgage; (b) any other exercise by Mortgagee of rights and remedies
(whether under the Mortgage or under applicable law, including bankruptcy law)
as holder of the Loan and/or the Mortgage, as a result of which Successor Lessor
becomes owner of the Leased Premises; or (c) delivery by Lessor to Mortgagee (or
its designee or nominee) of a deed or other conveyance of Lessor's interest in
the Leased Premises in lieu of any of the foregoing.
1.3 Former Lessor. A "Former Lessor" means Lessor and any other party that
was Lessor under the Lease at any time before the occurrence of any attornment
under this Agreement.
1.4 Offset Right. An "Offset Right" means any right or alleged right of
Lessee to any offset, defense (other than one arising from actual payment and
performance, which payment and performance would bind a Successor Lessor
pursuant to this Agreement), claim, counterclaim, reduction, deduction, or
abatement against Lessee's payment of Rent or performance of Lessee's other
obligations under the Lease, arising (whether under the Lease or under
applicable law) from Lessor's breach or default under the Lease.
1.5 Rent. The "Rent" means any fixed rent, base rent or additional rent
under the Lease.
1.6 Successor Lessor. A "Successor Lessor" means any party that becomes
owner of the Leased Premises as the result of a Foreclosure Event.
1.7 Termination Right. A "Termination Right" means any right of Lessee to
cancel or terminate the Lease or to claim a partial or total eviction arising
(whether under the Lease or under applicable law) from Lessor's breach or
default under the Lease.
2. SUBORDINATION.
The Lease shall be, and shall at all times remain, subject and subordinate
to the Mortgage, the lien imposed by the Mortgage, and all advances made under
the Mortgage.
3. NON-DISTURBANCE, RECOGNITION AND ATTORNMENT.
3.1 No Exercise of Mortgage Remedies Against Lessee. So long as the Lease
has not been terminated on account of Lessee's default that has continued beyond
applicable grace or cure periods (an "Event of Default"), Mortgagee shall not
name or join Lessee as a defendant in any exercise of Mortgagee's rights and
remedies arising upon a default under the Mortgage unless applicable law
requires Lessee to be made a party thereto as a condition to proceeding against
Lessor or prosecuting such rights and remedies. In the latter case, Mortgagee
may join Lessee as a defendant in such action only for such purpose and not to
terminate the Lease or otherwise adversely affect Lessee's rights under the
Lease or this Agreement in such action.
3.2 Non-disturbance and Attornment. If the Lease has not been terminated
on account of an Event of Default by Lessee, then, when Successor Lessor takes
title to the Leased Premises: (a) Successor Lessor shall not terminate or
disturb Lessee's possession of the Leased Premises under
<PAGE> 51
the Lease, except in accordance with the terms of the Lease and this Agreement;
(b) Successor Lessor shall be bound to Lessee under all the terms and conditions
of the Lease (except as provided in this Agreement); (c) Lessee shall recognize
and attorn to Successor Lessor as Lessee's direct Lessor under the Lease as
affected by this Agreement; and (d) the Lease shall continue in full force and
effect as a direct lease, in accordance with its terms (except as provided in
this Agreement), between Successor Lessor and Lessee.
3.3 Further Documentation. The provisions of this Article shall be
effective and self-operative without any need for Successor Lessor or Lessee to
execute any further documents. Lessee and Successor Lessor shall, however,
confirm the provisions of this Article in writing upon request by either of
them.
4. PROTECTION OF SUCCESSOR LESSOR.
Notwithstanding anything to the contrary in the Lease or the Mortgage,
Successor Lessor shall not be liable for or bound by any of the following
matters:
4.1 Claims Against Former Lessor. Any Offset Right that Lessee may have
against any Former Lessor relating to any event or occurrence before the date of
attornment, including any claim for damages of any kind whatsoever as the result
of any breach by Former Lessor that occurred before the date of attornment. (The
foregoing shall not limit either (a) Lessee's right to exercise against
Successor Lessor any Offset Right otherwise available to Lessee because of
events occurring after the date of attornment or (b) Successor Lessor's
obligation to correct any conditions that existed as of the date of attornment
and violate Successor Lessor's obligations as Lessor under the Lease).
Notwithstanding the foregoing, if Lessee notifies Successor Lessor before a
Foreclosure Event occurs that Former Lessor is in default under the Lease and
Lessee will suffer actual damages as a result of such default, Lessee shall be
entitled to an Offset Right against Rent due and payable to Successor Lessor,
but only to the extent of such actual damages that have accrued after the date
of such notice of default to Successor Lessor. Lessee may continue to make
payments of Rent to Former Lessor until Successor Lessor gives Lessee thirty
(30) days prior written notice that Successor Lessor has become the owner of the
Leased Premises or until Lessee is notified that a receiver has been appointed
to, among other things, collect such Rent.
4.2 Prepayments. Any payment of Rent that Lessee may have made to Former
Lessor more than thirty (30) days before the date such Rent was first due and
payable under the Lease with respect to any period after the date of attornment
other than, and only to the extent that, the Lease expressly required such a
prepayment.
4.3 Payment; Security Deposit. Any obligation: (a) to pay Lessee any
sum(s) that any Former Lessor owed to Lessee or (b) with respect to any security
deposited with Former Lessor, unless such security was actually delivered to
Mortgagee.
-3-
<PAGE> 52
4.4 Modification, Amendment, or Waiver. Any material modification or
material amendment of the Lease, any waiver of any material obligations of
Lessee under the Lease, any consent to assignment or subletting, or any other
action that materially affects the obligations of Lessee under the Lease, made
without Mortgagee's written consent.
4.5 Surrender, Etc. Any consensual or negotiated surrender, cancellation,
or termination of the Lease, in whole or in part, agreed upon between Lessor and
Lessee, unless effected unilaterally by Lessee pursuant to the express terms of
the Lease.
4.6 Construction-Related Obligations. Any Construction-Related Obligation
of Former Lessor.
5. EXCULPATION OF SUCCESSOR LESSOR.
Notwithstanding anything to the contrary in this Agreement or the Lease,
upon any attornment pursuant to this Agreement, the Lease shall be deemed to
have been automatically amended to provide that Successor Lessor's obligations
and liability under the Lease shall never extend beyond Successor Lessor's (or
its successors' or assigns') interest, if any, in the Leased Premises from time
to time, including insurance and condemnation proceeds, Successor Lessor's
interest in the Lease, and the proceeds from any sale or other disposition of
the Leased Premises by Successor Lessor (collectively, "Successor Lessor's
Interest"). Lessee shall look exclusively to Successor Lessor's Interest (or
that of its successors and assigns) for payment or discharge of any obligations
of Successor Lessor under the Lease as affected by this Agreement. If Lessee
obtains any money judgment against Successor Lessor with respect to the Lease or
the relationship between Successor Lessor and Lessee, then Lessee shall look
solely to Successor Lessor's Interest (or that of its successors and assigns) to
collect such judgment. Lessee shall not collect or attempt to collect any such
judgment out of any other assets of Successor Lessor.
6. MORTGAGEE'S RIGHT TO CURE.
6.1 Notice to Mortgagee. Notwithstanding anything to the contrary in the
Lease or this Agreement, before exercising any Termination Right or Offset
Right, Lessee shall provide Mortgagee with notice of the breach or default by
Lessor giving rise to same (the "Default Notice") and, thereafter, the
opportunity to cure such breach or default as provided for below.
6.2 Mortgagee's Cure Period. After Mortgagee receives a Default Notice,
Mortgagee shall have a period of thirty (30) days beyond the time available to
Lessor under the Lease in which to cure the breach or default by Lessor.
Mortgagee shall have no obligation to cure (and shall have no liability or
obligation for not curing) any breach or default by Lessor, except to the extent
that Mortgagee agrees or undertakes otherwise in writing.
6.3 Extended Cure Period. In addition, as to any breach or default by
Lessor the cure of which requires possession and control of the Leased Premises,
provided only that Mortgagee
-4-
<PAGE> 53
undertakes by written notice to Lessee within thirty (30) days after receipt of
the Default Notice to exercise reasonable efforts to cure or cause to be cured
by a receiver such breach or default within the period permitted by this
paragraph, Mortgagee's cure period shall continue for such additional time (the
"Extended Cure Period") as Mortgagee may reasonably require to either (a) obtain
possession and control of the Leased Premises and thereafter cure the breach or
default with reasonable diligence and continuity or (b) obtain the appointment
of a receiver and give such receiver a reasonable period of time in which to
cure the default.
7. MISCELLANEOUS.
7.1 Notices. All notices or other communications required or permitted
under this Agreement shall be in writing and given by certified mail (return
receipt requested) or by nationally recognized overnight courier service that
regularly maintains records of items delivered. Each party's address is as set
forth in the opening paragraph of this Agreement, subject to change by notice
under this paragraph. Notices shall be effective the next business day after
being sent by overnight courier service, and five (5) business days after being
sent by certified mail (return receipt requested).
7.2 Successors and Assigns. This Agreement shall bind and benefit the
parties, their successors and assigns, any Successor Lessor, and its successors
and assigns. If Mortgagee assigns the Mortgage, then upon delivery to Lessee of
written notice thereof accompanied by the assignee's written assumption of all
obligations under this Agreement, all liability of the assignor shall terminate.
7.3 Entire Agreement. This Agreement constitutes the entire agreement
between Mortgagee and Lessee regarding the subordination of the Lease to the
Mortgage and the rights and obligations of Lessee and Mortgagee as to the
subject matter of this Agreement.
7.4 Interaction with Lease and with Mortgage. If this Agreement conflicts
with the Lease, then this Agreement shall govern as between the parties and any
Successor Lessor, including upon any attornment pursuant to this Agreement. This
Agreement supersedes, and constitutes full compliance with, any provisions in
the Lease that provide for subordination of the Lease to, or for delivery of
non-disturbance agreements by the holder of, the Mortgage. Mortgagee confirms
that Mortgagee has consented to Lessor's entering into the Lease.
7.5 Interpretation; Governing Law. The interpretation, validity and
enforcement of this Agreement shall be governed by and construed under the
internal laws of the State where the Leased Premises are located, excluding its
principles of conflict of laws.
7.6 Amendments. This Agreement may be amended, discharged or terminated,
or any of its provisions waived, only by a written instrument executed by the
party to be charged.
-5-
<PAGE> 54
7.7 Execution. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
7.8 Mortgagee's Representation. Mortgagee represents that Mortgagee has
full authority to enter into this Agreement, and Mortgagee's entry into this
Agreement has been duly authorized by all necessary actions.
IN WITNESS WHEREOF, this Agreement has been duly executed by Mortgagee and
Lessee as of the Effective Date.
LESSEE:
---------------------------------------,
a
--------------------------------------
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
MORTGAGEE:
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC., a Delaware corporation
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
-6-
<PAGE> 55
ACKNOWLEDGMENTS
STATE OF _______________ )
)
COUNTY OF ______________ )
This instrument was acknowledged before me by _______________________,
____________________ of GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware
corporation on ________________, 199__.
My Commission Expires:
- --------------------------------- ----------------------------------------
NOTARY PUBLIC, State of ________________
-7-
<PAGE> 56
STATE OF ______________ )
)
COUNTY OF _____________ )
This instrument was acknowledged before me by __________________________,
____________________ of _______________________, a ________________________, on
________________, 199__.
My Commission Expires:
- --------------------------------- ----------------------------------------
NOTARY PUBLIC, State of ________________
-8-
<PAGE> 1
EXHIBIT 10.34.1
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
among
ADVANCED FIBRE COMMUNICATIONS, INC.,
as Borrower
LENDERS
BANQUE NATIONALE DE PARIS,
as Arranger and Administrative Agent
BANK OF AMERICA, N.A.
as Syndication Agent
as of
July 29, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1. DEFINITIONS; TRANSITION FROM 1998 AGREEMENT..................................4
Section 1.1. Defined Terms.........................................................4
Section 1.2. Other Definitional Provisions.........................................4
Section 1.3. Transition from 1998 Agreement........................................5
ARTICLE 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS.............................5
Section 2.1. Revolving Credit Commitments..........................................5
Section 2.2. Procedure for Revolving Credit Borrowing..............................6
Section 2.3. Use of Proceeds of Loans..............................................6
Section 2.4. Repayment of Loans; Evidence of Debt..................................6
Section 2.5. Fees..................................................................7
Section 2.6. Optional Prepayments..................................................7
Section 2.7. Optional Termination or Reduction of Aggregate Revolving Credit
Commitment............................................................7
Section 2.8. Conversion and Continuation Options...................................8
Section 2.9. Minimum Amounts.......................................................8
Section 2.10. Interest Rates and Payment Dates......................................8
Section 2.11. Computation of Interest and Fees......................................9
Section 2.12. Inability to Determine Interest Rate..................................9
Section 2.13. Pro Rata Treatment and Payments......................................10
Section 2.14. Illegality...........................................................11
Section 2.15. Requirements of Law..................................................11
Section 2.16. Taxes................................................................13
Section 2.17. Indemnity............................................................16
Section 2.18. Other Fees...........................................................16
Section 2.19. Change of Lending Office.............................................16
ARTICLE 3. AMOUNT AND TERMS OF LETTER OF CREDIT SUB-FACILITY...........................16
Section 3.1. L/C Commitment.......................................................16
Section 3.2. Procedure for Issuance of Letters of Credit..........................17
Section 3.3. Fees, Commissions and Other Charges..................................17
Section 3.4. L/C Participations...................................................18
Section 3.5. Reimbursement Obligation of the Borrower.............................19
Section 3.6. Obligations Absolute.................................................20
Section 3.7. Letter of Credit Payments............................................20
Section 3.8. Application..........................................................20
Section 3.9. Letters of Credit Post-Termination...................................20
ARTICLE 4. CONDITIONS PRECEDENT........................................................22
Section 4.1. Conditions to Initial Loans..........................................22
Section 4.2. Conditions to Each Loan..............................................23
Section 4.3. Continuing Representations...........................................24
ARTICLE 5. REPRESENTATIONS AND WARRANTIES..............................................24
Section 5.1. Financial Condition..................................................24
Section 5.2. No Change............................................................25
Section 5.3. Corporate Existence; Compliance with Law.............................25
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.4. Corporate Power; Authorization; Enforceable Obligations..............25
Section 5.5. No Legal Bar.........................................................26
Section 5.6. No Material Litigation...............................................26
Section 5.7. No Default...........................................................26
Section 5.8. Ownership of Property; Liens.........................................26
Section 5.9. Intellectual Property................................................26
Section 5.10. Taxes................................................................27
Section 5.11. Federal Regulations..................................................27
Section 5.12. Employee Benefits....................................................27
Section 5.13. Investment Company Act: Other Regulations............................27
Section 5.14. Subsidiaries.........................................................27
Section 5.15. Environmental Matters................................................27
Section 5.16. Accuracy and Completeness of Information.............................29
Section 5.17. Projections..........................................................29
Section 5.18. Solvency.............................................................30
ARTICLE 6. AFFIRMATIVE COVENANTS.......................................................30
Section 6.1. Financial Statements.................................................30
Section 6.2. Certificates; Other Information......................................31
Section 6.3. Payment of Obligations...............................................31
Section 6.4. Conduct of Business and Maintenance of Existence.....................31
Section 6.5. Maintenance of Property; Insurance...................................31
Section 6.6. Inspection of Property; Books and Records; Discussions...............32
Section 6.7. Notices..............................................................32
Section 6.8. Year 2000 Compliant..................................................32
ARTICLE 7. NEGATIVE COVENANTS..........................................................33
Section 7.1. Financial Condition Covenants........................................33
Section 7.2. Limitation on Indebtedness...........................................33
Section 7.3. Limitation on Liens..................................................34
Section 7.4. Limitation on Guarantee Obligations..................................36
Section 7.5. Limitation on Fundamental Changes....................................36
Section 7.6. Limitation on Sale of Assets.........................................37
Section 7.7. Limitation on Restricted Payments....................................37
Section 7.8. Limitation on Investments............................................38
Section 7.9. Limitation on Transactions with Affiliates...........................38
Section 7.10. Limitation on Sales and Leasebacks...................................39
Section 7.11. Limitation on Changes in Fiscal Year or Accounting Treatment.........39
Section 7.12. Limitation on Lines of Business......................................39
Section 7.13. No New Restrictions on Subsidiary Dividends..........................39
ARTICLE 8. EVENTS OF DEFAULT...........................................................39
ARTICLE 9. THE ADMINISTRATIVE AGENT....................................................43
Section 9.1. Appointment..........................................................43
Section 9.2. Delegation of Duties.................................................43
Section 9.3. Exculpatory Provisions...............................................43
Section 9.4. Reliance by Administrative Agent.....................................43
Section 9.5. Notice of Default....................................................44
Section 9.6. Non-Reliance on Administrative Agent, and Other Lenders..............44
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
Section 9.7. Indemnification......................................................45
Section 9.8. Agent in Its Individual Capacity.....................................45
Section 9.9. Successor Agent......................................................45
Section 9.10. Syndication Agent....................................................45
ARTICLE 10. MISCELLANEOUS..............................................................46
Section 10.1. Amendments and Waivers...............................................46
Section 10.2. Notices..............................................................47
Section 10.3. No Waiver; Cumulative Remedies.......................................47
Section 10.4. Survival of Representations and Warranties...........................47
Section 10.5. Payment of Expenses and Taxes........................................47
Section 10.6. Successors and Assigns; Participations and Assignments...............48
Section 10.7. Adjustments; Setoff..................................................50
Section 10.8. Counterparts.........................................................51
Section 10.9. Severability.........................................................51
Section 10.10. Integration..........................................................51
Section 10.11. Governing Law........................................................51
Section 10.12. Submission To Jurisdiction Waivers...................................52
Section 10.13. Acknowledgments......................................................52
Section 10.14. Waivers of Jury Trial................................................53
Section 10.15. Confidentiality......................................................53
</TABLE>
EXHIBITS
A Definitions
B Note
C Legal Opinion
D Notice of Borrowing (Drawing)
E Notice of Borrowing (Conversion)
F Notice of Borrowing (Continuation)
G Certificate of Responsible Officer
H Assignment and Acceptance
SCHEDULES
1.3 Loans and Letters of Credit Outstanding under the 1998 Agreement as of
the Closing Date
5.6 Material Litigation
5.14 List of Subsidiaries
5.15 Environmental Matters
7.2 List of Indebtedness
7.3 List of Liens
7.4 Guarantee Obligations
-iii-
<PAGE> 5
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "Agreement")
is made as of July 29, 1999, among ADVANCED FIBRE COMMUNICATIONS, INC., a
Delaware corporation (with its successors and permitted assigns, the
"Borrower"), the LENDERS from time to time parties hereto (including their
Assignees), BANQUE NATIONALE DE PARIS, a French banking association, as arranger
and administrative agent (the "Administrative Agent"), and BANK OF AMERICA, N.A.
(formerly known as Bank of America National Trust and Savings Association), a
national banking association, as syndication agent (the "Syndication Agent").
WHEREAS, the Administrative Agent, the Syndication Agent, the Lenders
and the Borrower are parties to the Revolving Credit Agreement, dated July 30,
1998, as amended by that First Amendment to Revolving Credit Agreement, dated
February 1, 1999 (collectively, the "1998 Agreement");
WHEREAS, the 1998 Agreement terminates on July 29, 1999 unless extended;
and
WHEREAS, the Borrower has requested that the 1998 Agreement be extended and
the Lenders, the Administrative Agent and the Syndication Agent are willing to
do so subject to the terms and conditions set forth herein, and each of the
parties of the 1998 Agreement, for convenience of reference, has agreed to
extend, amend and restate the 1998 Agreement as provided in this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties to the 1998 Agreement agree that the 1998
Agreement shall be and hereby is amended and restated in its entirety and the
parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS; TRANSITION FROM 1998 AGREEMENT
SECTION 1.1. DEFINED TERMS. As used in this Agreement, terms defined in
Exhibit A hereto shall have the meanings assigned to such terms in such exhibit.
SECTION 1.2. OTHER DEFINITIONAL PROVISIONS.
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in any Notes or any
certificate or other document prepared for the purposes hereof.
(b) As used herein and in any Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower and its Subsidiaries not defined in Exhibit A and accounting terms
partly defined in Exhibit A, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Article, Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
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<PAGE> 6
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 1.3. TRANSITION FROM 1998 AGREEMENT. Upon execution and delivery of
this Agreement and satisfaction of the conditions set forth in Section 4.1, all
Loans advanced to the Borrower pursuant to the 1998 Agreement and outstanding as
of the Closing Date and all Letters of Credit issued pursuant to the 1998
Agreement and outstanding as of the Closing Date shall be deemed to be issued
and outstanding under this Agreement. The Borrower, the Administrative Agent (on
behalf of the Lenders) and the Issuing Lenders hereby acknowledge and agree that
those Loans and Letters of Credit listed on Schedule 1.3 attached hereto are
outstanding under the 1998 Agreement as of the Closing Date.
ARTICLE 2.
AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
SECTION 2.1. REVOLVING CREDIT COMMITMENTS.
(a) Subject to the terms and conditions hereof, each Lender severally
agrees to make revolving credit loans ("Loans") to the Borrower from time to
time during the Commitment Period; provided, that, after giving effect to the
making of each such Loan (i) the sum of (1) the aggregate outstanding principal
amount of all Loans made by all the Lenders hereunder and (2) the aggregate
amount of the L/C Obligations then outstanding shall not exceed the Aggregate
Revolving Credit Commitment then in effect and (ii) each Lender's Available
Revolving Credit Commitment shall not be less than $0. During the Commitment
Period, the Borrower may use the Aggregate Revolving Credit Commitment by
borrowing, prepaying the Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof.
(b) The Aggregate Revolving Credit Commitment shall terminate on the
Termination Date unless earlier terminated in accordance with this Agreement.
The Borrower may request a 364-day extension of the Termination Date at any time
(and may do so more than once), and the Termination Date shall be extended upon,
but only upon, the unanimous written consent of all the Lenders. The Lenders
shall have no obligation to agree to any extension. Any such extension shall be
subject to payment by the Borrower of extension fees, to be mutually agreed upon
among the Borrower, the Lenders and the Administrative Agent.
(c) The Loans may from time to time be (i) LIBO Loans or (ii) Base
Rate Loans, as determined by the Borrower and notified to the Administrative
Agent in accordance with Sections 2.2 and 2.8, provided, that no Loan shall be
made as a LIBO Loan after the day that is one month prior to the Termination
Date.
(d) The Borrower may, from time to time during the Commitment Period,
request that Letters of Credit be issued on its behalf in the aggregate
principal amount (together with any Reimbursement Obligations) not to exceed the
L/C Commitment and otherwise in accordance with Article 3 hereof. The L/C
Commitment is a subportion of the Aggregate Revolving Credit Commitment, and
each issuance of a Letter of Credit shall reduce the Available Revolving Credit
Commitment by a like amount.
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SECTION 2.2. PROCEDURE FOR REVOLVING CREDIT BORROWING. The Borrower may
borrow Loans under the Aggregate Revolving Credit Commitment during the
Commitment Period on any Business Day, provided, that the Borrower shall give
the Administrative Agent an irrevocable Notice of Borrowing (Drawing), which
notice must be received by the Administrative Agent prior to 11:00 A.M., San
Francisco time, (a) three Business Days prior to the requested Borrowing Date,
if all or any part of the requested Loans are to be initially LIBO Loans or (b)
one Business Day prior to the requested Borrowing Date, otherwise, specifying
(i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether
the borrowing is to be of LIBO Loans or Base Rate Loans and (iv) if the
borrowing is to be entirely or partly of LIBO Loans, the amount of each Type and
the length of the initial Interest Period therefor. Each Loan under the
Aggregate Revolving Credit Commitment shall be in an amount not less than
$5,000,000 and in increments of $1,000,000. Upon receipt of any such notice from
the Borrower, the Administrative Agent shall promptly notify each Lender
thereof. Each Lender will make the amount of its Revolving Credit Commitment
Percentage of each borrowing available to the Administrative Agent for the
account of the Borrower at the office of the Administrative Agent specified in
Section 10.2 prior to 1:00 P.M., San Francisco time, on the Borrowing Date
requested by the Borrower in funds immediately available to the Administrative
Agent. Such borrowing will then be made available to the Borrower by the
Administrative Agent crediting the Payment Account with the aggregate of the
amounts made available to the Administrative Agent by the Lenders and in like
funds as received by the Administrative Agent.
SECTION 2.3. USE OF PROCEEDS OF LOANS. The proceeds of the Loans shall be
utilized by the Borrower for general corporate purposes of the Borrower,
including acquisitions.
SECTION 2.4. REPAYMENT OF LOANS; EVIDENCE OF DEBT.
(a) The Borrower hereby unconditionally promises to pay to the
Administrative Agent the then unpaid principal amount of each Loan on the
Termination Date (or such earlier date on which such Loans become due and
payable hereunder). The Borrower hereby further agrees to pay interest on the
unpaid principal amount of the Loans from time to time owing by it from the date
hereof until payment in full thereof at the rates per annum, and on the dates,
set forth in Section 2.10.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
Section 10.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Loan made hereunder, the Type thereof, each
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) both the amount of any sum received by the Administrative
Agent hereunder from the Borrower and each applicable Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.4(b) shall, to the extent permitted by
applicable law, be prima
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facie evidence of the existence and amounts of the obligations of the Borrower
therein recorded; provided, however, that the failure of any Lender or the
Administrative Agent to maintain the Register or any such account, or any error
therein, shall not in any manner affect the obligation of the Borrower to repay
(with applicable interest) the Loans made to the Borrower by such Lender in
accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon request of any Lender through the
Administrative Agent, the Borrower will execute and deliver to such Lender a
promissory note of the Borrower evidencing the Loans of such Lender,
substantially in the form of Exhibit B with appropriate insertions as to date
and principal amount (a "Note").
SECTION 2.5. FEES.
(a) FACILITY FEE. The Borrower shall pay to the Administrative Agent,
for the account of each Lender, a facility fee for each day during the period
from and including the first day of the Commitment Period to and including the
Termination Date, computed at the rate per annum equal to 0.30% per annum on the
average daily unused portion of the Revolving Credit Commitment of such Lender
during the period for which payment is made. Such facility fee shall be payable
(A) quarterly in arrears on the last Business Day of each March, June, September
and December, commencing on September 30, 1999, for the fiscal quarter ending on
(and including) the last day of the immediately preceding December, March, June
or September, respectively, and (B) on the Termination Date or any earlier date
on which the obligation of the Lenders to make Loans available hereunder is
terminated in accordance with this Agreement.
(b) EXTENSION FEE. The Borrower shall pay to the Administrative Agent
on the Closing Date, for the account of each Lender, a one-time extension fee,
computed by multiplying each Lender's Revolving Credit Commitment by 0.10
percent.
SECTION 2.6. OPTIONAL PREPAYMENTS. The Borrower may at any time and from
time to time prepay the Loans made to it in whole or in part, without premium or
penalty, upon at least three Business Days' (or, in the case of prepayments of
Base Rate Loans, one Business Day's) irrevocable notice to the Administrative
Agent (which notice must be received by the Administrative Agent prior to 11:00
A.M., San Francisco time, on the date upon which such notice is due), specifying
the date and amount of prepayment and whether the prepayment is of LIBO Loans or
Base Rate Loans. Upon receipt of any such notice, the Administrative Agent shall
promptly notify each Lender. If any such notice is given, the amount specified
in such notice shall be due and payable on the date specified therein, together
with any amounts payable pursuant to Section 2.1 and accrued interest to such
date on the amount prepaid. Partial prepayments shall be in an aggregate
principal amount of not less than $5,000,000 and in increments of $1,000,000.
SECTION 2.7. OPTIONAL TERMINATION OR REDUCTION OF AGGREGATE REVOLVING
CREDIT COMMITMENt. The Borrower shall have the right, upon not less than three
Business Days' notice to the Administrative Agent, to terminate the Aggregate
Revolving Credit Commitment or, from time to time, to reduce the amount thereof;
provided, that no such termination or reduction shall be permitted if, after
giving effect thereto and to any prepayments of the Loans, made on the effective
date thereof, the sum of (a) the aggregate principal amount of the Loans then
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<PAGE> 9
outstanding and (b) the L/C Obligations then outstanding, would exceed the
Aggregate Revolving Credit Commitment then in effect. Any such reduction shall
be in an amount not less than $5,000,000 and in increments of $1,000,000 and
shall reduce permanently the Aggregate Revolving Credit Commitment then in
effect. Upon receipt of any such notice from the Borrower, the Administrative
Agent shall promptly notify each Lender thereof.
SECTION 2.8. CONVERSION AND CONTINUATION OPTIONS.
(a) The Borrower may elect from time to time to convert LIBO Loans to
Base Rate Loans by delivering to the Administrative Agent an irrevocable Notice
of Borrowing (Conversion) by 11:00 A.M., San Francisco time, at least one
Business Day prior to the requested date of conversion; provided, that any such
conversion of LIBO Loans may only be made on the last day of an Interest Period
with respect thereto. The Borrower may elect from time to time to convert Base
Rate Loans to LIBO Loans by delivering to the Administrative Agent an
irrevocable Notice of Borrowing (Conversion) by 11:00 A.M., San Francisco time,
at least three Business Days' prior to the requested conversion date. Any such
Notice of Borrowing (Conversion) with respect to a conversion to LIBO Loans
shall specify the length of the initial Interest Period or Interest Periods
therefor. Upon receipt of any such notice, the Administrative Agent shall
promptly notify each Lender thereof. All or any part of outstanding LIBO Loans
and Base Rate Loans may be converted as provided herein, provided, that (i) no
Loan may be converted into a LIBO Loan when any Event of Default has occurred
and is continuing and the Administrative Agent has or the Required Lenders have
determined that such a conversion is not appropriate and (ii) no Base Rate Loan
may be converted into a LIBO Loan after the date that is one month prior to the
Termination Date.
(b) Any LIBO Loans may be continued as such upon the expiration of
the then current Interest Period with respect thereto by the Borrower delivering
to the Administrative Agent an irrevocable Notice of Borrowing (Continuation),
in accordance with the applicable provisions of the term "Interest Period" set
forth in Exhibit A, setting forth (among other things) the length of the next
Interest Period to be applicable to such Loans, provided, that (i) no Loan may
be continued as a LIBO Loan when any Event of Default has occurred and is
continuing and the Administrative Agent has or the Required Lenders have
determined that such a continuation is not appropriate and (ii) no Loan may be
continued as a LIBO Loan after the date that is one month prior to the
Termination Date, and provided, further, that if the Borrower shall fail to give
such notice or if such continuation is not permitted, such Loans shall be
automatically converted to Base Rate Loans on the last day of such then expiring
Interest Period. Upon receipt of any such notice, the Administrative Agent shall
promptly notify each Lender thereof.
SECTION 2.9. MINIMUM AMOUNTs. All borrowings, conversions and continuations
of the Loans hereunder and all selections of Interest Periods hereunder shall be
in such amounts and be made pursuant to such elections so that, after giving
effect thereto, the aggregate principal amount of each Loan shall be not less
than $5,000,000 and in increments of $1,000,000.
SECTION 2.5. INTEREST RATES AND PAYMENT DATES.
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(a) Each LIBO Loan shall bear interest for each day during each
Interest Period with respect thereto at a rate per annum equal to the LIBO Rate
determined for such day plus the Applicable Margin with respect thereto.
(b) Each Base Rate Loan shall bear interest at a rate per annum equal
to the Base Rate plus the Applicable Margin with respect thereto.
(c) If all or a portion of (i) any principal of any Loan, (ii) any
interest payable thereon, (iii) any Reimbursement Obligation, (iv) any facility
fee or (v) any other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), the principal of
the Loans and any such overdue interest, Reimbursement Obligation, facility fee
or other amount shall bear interest at a rate per annum which is (x) in the case
of principal, the rate that would otherwise be applicable thereto pursuant to
the foregoing provisions of this Section plus 2% or (y) in the case of any such
overdue interest, Reimbursement Obligation, facility fee or other amount
(including, without limitation, fees, and commissions on Letters of Credit), the
rate which would have been applicable thereto if such amount were principal of a
Base Rate Loan plus 2%, in each case from the date of such non-payment until
such overdue principal, interest, facility fee or other amount is paid in full
(as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date (provided, that interest accruing pursuant to paragraph (c) of this Section
shall be payable from time to time on demand) and shall be payable to the
Administrative Agent (for the ratable account of the Lenders holding the
obligations on account of which such interest was paid).
SECTION 2.6. COMPUTATION OF INTEREST AND FEES.
(a) Interest determined on the basis of the LIBO Rate shall be
calculated on the basis of the actual number of days elapsed over a 360-day
year. Facility fees and interest determined on the basis of the Base Rate shall
be calculated on the basis of a 365 (or 366, as the case may be) day year for
the actual days elapsed. The Administrative Agent shall as soon as practicable
notify the Borrower and the Lenders of each determination of a LIBO Rate. Any
change in the interest rate on a Loan resulting from a change in the Base Rate
or the LIBO Reserve Requirements shall become effective as of the opening of
business on the day on which such change becomes effective. The Administrative
Agent shall as soon as practicable notify the Borrower and the affected Lenders
of the effective date and the amount of each such change in interest rate.
(b) Each determination of a fee, interest rate or interest payment by
the Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error.
SECTION 2.12. INABILITY TO DETERMINE INTEREST RATe. If prior to the
determination of the LIBO Rate with respect to any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason
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of circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the LIBO Rate for such Interest Period;
(b) the Administrative Agent shall have received notice from any
Lender that deposits in Dollars in the principal amounts of the LIBO Loans
to which such Interest Period is to be applicable are not generally
available in the London interbank market for a period equal to such
Interest Period; or
(c) the Administrative Agent shall have received notice from the
Required Lenders that the LIBO Rate to be determined for such Interest
Period will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any LIBO Loans requested to be made on the first day of such Interest
Period shall be made as Base Rate Loans, (y) any Loans that were to have been
converted on the first day of such Interest Period to LIBO Loans shall be
converted to or continued as Base Rate Loans and (z) any outstanding LIBO Loans
shall be converted, on the first day of such Interest Period, to Base Rate
Loans. Until such notice has been withdrawn by the Administrative Agent, no
further LIBO Loans under the Aggregate Revolving Credit Commitment shall be made
or continued as such, nor shall the Borrower have the right to convert Base Rate
Loans to LIBO Loans.
SECTION 2.13. PRO RATA TREATMENT AND PAYMENTS.
(a) Each borrowing by the Borrower from the Lenders hereunder, each
payment by the Borrower on account of any facility fee hereunder and any
reduction of the Revolving Credit Commitments of the Lenders shall be made pro
rata according to the respective relevant Revolving Credit Commitment
Percentages of the Lenders holding obligations in respect of which such amounts
were paid. Each payment (including each prepayment) by the Borrower on account
of principal of and (subject to the provisions of Section 2.14) interest on the
Loans shall be made pro rata according to the respective outstanding principal
amounts of such Loans then held by the Lenders. Except as otherwise set forth
herein, all payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without set off or counterclaim and shall be made prior to 11:00 A.M.,
San Francisco time, on the due date thereof to the Administrative Agent, for the
account of the applicable Lenders, at the Administrative Agent's office
specified in Section 10.2 (or at such other office as the Administrative Agent
may from time to time specify), in immediately available funds. The
Administrative Agent shall distribute such payments to the Lenders holding
obligations on account of which such amounts were paid promptly upon receipt in
like funds as received. If any payment hereunder becomes due and payable on a
day other than a Business Day, such payment shall be extended to the next
succeeding Business Day, and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
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(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its relevant Revolving Credit Commitment Percentage
of such borrowing available to the Administrative Agent, the Administrative
Agent may assume that such Lender is making such amount available to the
Administrative Agent, and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
amount is not made available to the Administrative Agent by the required time on
the Borrowing Date therefor, such Lender shall pay to the Administrative Agent,
on demand, such amount with interest thereon at a rate equal to the daily
average Federal Funds Effective Rate for the period until such Lender makes such
amount immediately available to the Administrative Agent. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts owing
under this Section shall be conclusive in the absence of manifest error. If such
Lender's relevant Revolving Credit Commitment Percentage of such borrowing is
not made available to the Administrative Agent by such Lender within three
Business Days of such Borrowing Date, the Administrative Agent shall also be
entitled to recover such amount with interest thereon at the rate per annum
applicable to Base Rate Loans hereunder, on demand, from the Borrower.
(c) Notwithstanding anything to the contrary contained herein, in the
event that the Administrative Agent shall make any payment to a Lender on
account of amounts owing to such Lender by the Borrower hereunder and the
Administrative Agent either (i) shall not receive the corresponding amount from
the Borrower or (ii) shall be required to be return such amount to the Borrower,
such Lender shall (upon the request of the Administrative Agent) promptly return
to the Administrative Agent the amount of such payment.
SECTION 2.14. ILLEGALITY. Notwithstanding any other provision herein, if
the adoption of or any change in any Requirement of Law or in the interpretation
or application thereof shall make it unlawful for any Lender to make or maintain
LIBO Loans as contemplated by this Agreement, (a) the commitment of such Lender
hereunder to make LIBO Loans, continue LIBO Loans as such and convert Base Rate
Loans to LIBO Loans shall forthwith be canceled and (b) such Lender's Loans then
outstanding as LIBO Loans, if any, shall be converted automatically to Base Rate
Loans, on the respective last days of the then current Interest Periods with
respect to such Loans or within such earlier period as required by law. If any
such conversion of a LIBO Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to the
relevant Lenders such amounts, if any, as may be required pursuant to Section
2.17.
SECTION 2.15. REQUIREMENTS OF LAW.
(a) If the adoption of or any change in any Requirement of Law or in
the interpretation or application thereof or compliance by any Lender with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note, any Letter of Credit, or any LIBO
Loan, or change the basis of taxation of payments to such Lender in respect
thereof (except for Non-Excluded Taxes covered by Section 2.16, changes in
the rate of
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or the imposition of net income taxes and franchise taxes (in lieu of net
income taxes)) imposed on such Lender as a result of a present or former
connection between the Administrative Agent or such Lender and the
jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than
any such connection arising solely from the Administrative Agent or such
Lender having executed, delivered or performed its obligations or received
a payment under, or enforced, this Agreement or any Note);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the LIBO Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining LIBO Loans or issuing or participating in Letters of
Credit or to reduce any amount receivable hereunder in respect thereof, then, in
any such case, the Borrower shall promptly pay to such Lender such additional
amount or amounts as will compensate such Lender for such increased cost or
reduced amount receivable.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under any Letter of Credit to a
level below that which such Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such Lender's
or such corporation's policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, the Borrower shall
promptly pay (or cause to be paid) to such Lender such additional amount or
amounts as will compensate such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrower (with a copy to
the Administrative Agent) of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to this
Section (accompanied by a statement as to the amount of such compensation and a
summary of the basis for such demand with detailed calculations) submitted by
such Lender to the Borrower (with a copy to the Administrative Agent) shall be
conclusive in the absence of manifest error. The agreements in this Section
shall survive the termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.
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(d) The Borrower shall be permitted to replace any Lender which (a)
requests reimbursement for amounts owing pursuant to this Section with a
replacement financial institution; provided, that (i) such replacement does not
conflict with any Requirement of Law, (ii) no Event of Default shall have
occurred and be continuing at the time of such replacement, (iii) prior to any
such replacement, such Lender shall not have taken action under Section 2.19 so
as to eliminate the continued need for payment of amounts owing pursuant to this
Section, (iv) the replacement financial institution shall purchase, at par, all
Loans and other amounts owing to such replaced Lender on or prior to the date of
replacement, (v) the Borrower shall be liable to such replaced Lender under
Section 2.17 if any LIBO Loan owing to such replaced Lender shall be purchased
other than on the last day of the Interest Period relating thereto, (vi) the
replacement financial institution, if not already a Lender, shall be reasonably
satisfactory to the Administrative Agent, (vii) the replaced Lender shall be
obligated to make such replacement in accordance with the provisions of Section
10.6 (provided, that the Borrower shall be obligated to pay the registration and
processing fee referred to therein), (viii) the Borrower shall pay to the
replaced Lender all additional amounts (if any) owing pursuant to this Section.
SECTION 2.16. TAXES.
(a) All payments made by the Borrower under this Agreement and any
Notes shall be made free and clear of, and without deduction or withholding for
or on account of, any present or future income, stamp, documentary, or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (in lieu
of net income taxes) imposed on the Administrative Agent or any Lender as a
result of a present or former connection between the Administrative Agent or
such Lender and the jurisdiction of the Governmental Authority imposing such tax
or any political subdivision or taxing authority thereof or therein (other than
any such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any Note). If any such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions or withholdings
("Non-Excluded Taxes") are required to be withheld from any amounts payable to
the Administrative Agent or any Lender hereunder or under any Note, the amounts
so payable to the Administrative Agent or such Lender shall be increased to the
extent necessary so that, after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums payable
under this Section), such Lender or the Administrative Agent, as the case may
be, receives and retains an amount equal to the sum it would have received and
retained had no such deductions or withholdings been made, provided, however,
that the Borrower shall not be required to increase any such amounts paid to any
Lender that is not organized under the laws of the United States of America or a
state thereof if such Lender fails to comply with the requirements of paragraph
(b) of this Section. Whenever any Non-Excluded Taxes are payable by the
Borrower, within thirty days of such payment the Borrower shall send to the
Administrative Agent for its own account or for the account of such Lender, as
the case may be, a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any
Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to the Administrative Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Administrative Agent and
the Lenders for any incremental taxes, interest, penalties or expenses that may
become payable by the Administrative Agent or any
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<PAGE> 15
Lender as a result of any such failure. The agreements in this Section shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.
(b) If any Lender is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Lender is able to claim any exemption
from, or a reduction of, United States withholding tax under Sections 1441 or
1442 of the Code, such Lender agrees with and in favor of the Administrative
Agent and the Borrower, to deliver to the Administrative Agent:
(i) if such Lender is able to claim any exemption from, or a
reduction of, withholding tax under a United States tax treaty, two
properly completed and executed copies of IRS Form 1001 before the payment
of any interest in the first calendar year and before the payment of any
interest in each third succeeding calendar year during which interest may
be paid under this Agreement;
(ii) if such Lender is able to claim any interest paid under this
Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such
Lender, two properly completed and executed copies of IRS Form 4224 before
the payment of any interest is due in the first taxable year of such Lender
and in each succeeding taxable year of such Lender during which interest
may be paid under this Agreement; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees to promptly notify the Administrative Agent of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction.
(e) If any Lender claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the obligations of the Borrower to such Lender, such Lender agrees to notify the
Administrative Agent of the percentage amount in which it is no longer the
beneficial owner of obligations of the Borrower to such Lender. To the extent of
such percentage amount, the Administrative Agent will treat such Lender's IRS
Form 1001 as no longer valid.
(f) If any Lender claiming exemption from United States withholding
tax by filing IRS Form 4224 with the Administrative Agent sells, assigns, grants
a participation in, or otherwise transfers all or part of the obligations of the
Borrower to such Lender, such Lenders agrees to undertake sole responsibility
for complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
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(e) If any Lender is entitled to a reduction in the applicable
withholding tax, the Administrative Agent may withhold from any interest payment
to such Lender an amount equivalent to the applicable withholding tax after
taking into account such reduction. However, if the forms or other documentation
required by subsection (b) of this Section are not delivered to the
Administrative Agent, then the Administrative Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax imposed by Sections 1441
and 1442 of the Code, without reduction.
(f) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Administrative Agent did
not properly withhold tax from amounts paid to or for the account of any Lender
(because the appropriate form was not delivered or was not properly executed, or
because such Lender failed to notify the Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Lender shall indemnify the
Administrative Agent fully for all amounts paid, directly or indirectly, by the
Administrative Agent as tax or otherwise, including penalties and interest and
including any taxes imposed by any jurisdiction on the amounts payable to the
Administrative Agent under this Section, together with all costs and expenses
(including fees and expenses of counsel). The obligation of the Lenders under
this subsection shall survive the payment of all obligations and the resignation
or replacement of the Administrative Agent.
(g) Each of the Lenders and the Administrative Agent agrees, within a
reasonable time after receiving a written request from the Borrower, to provide
the Borrower and the Administrative Agent with such certificates as are
reasonably required and take such other actions as are reasonably necessary to
claim such exemptions as such Lender, the Administrative Agent or Affiliate may
be entitled to claim in respect of all or a portion of any Non-Excluded Taxes
that are otherwise required to be paid or deducted or withheld pursuant to this
Section in respect of any payments under this Agreement or under the Notes. Upon
any sale to a Participant or assignment to an Assignee pursuant to Section 10.6
hereof, the Assignee or the Participant of a Lender shall not be entitled to
receive pursuant to Section 2.16(a) an amount which is greater than the amount
payable pursuant to such transferring Lender unless such Assignee or Participant
is entitled to claim an exemption from or reduction of United States withholding
tax and has complied with the requirements of Section 2.16(b).
(h) To the extent that the undertaking to indemnify and reimburse the
Administrative Agent and the Lenders set forth in this Section may be invalid
and/or unenforceable because it is violative of any law or public policy, the
Borrower shall contribute the maximum portion that it is permitted to pay under
applicable law to the payment of the Non-Excluded Taxes imposed on the
Administrative Agent and the Lenders.
(i) Within thirty days after receiving a written request from the
Borrower, a Lender or the Administrative Agent shall, at the Borrower's expense,
use commercially reasonable efforts to apply for a refund of Non-Excluded Taxes
(including interest and penalties, if any) as to which the Lender or the
Administrative Agent has been indemnified pursuant to this Section.
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SECTION 2.17. INDEMNITY. The Borrower agrees to indemnify each Lender and
to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of LIBO Loans after the Borrower
has given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of LIBO Loans on a day which is not
the last day of an Interest Period with respect thereto. Any Lender requesting
indemnification pursuant to this Section shall deliver to the Borrower,
concurrently with such demand, a written statement in reasonable detail as to
such losses and expenses, and such statement shall be conclusive in the absence
of manifest error. This covenant shall survive the termination of this Agreement
and the payment of the Loans and all other amounts payable hereunder.
SECTION 2.18. OTHER FEES. The Borrower agrees to pay to the Administrative
Agent on the Closing Date, for its own account, a non-refundable administrative
agency fee pursuant to a letter agreement between the Borrower and the
Administrative Agent dated July 9, 1999.
SECTION 2.19. CHANGE OF LENDING OFFICE.
(a) Each Lender agrees that if it makes any demand for payment under
Sections 2.14 or 2.16(a), or if any adoption or change of the type described in
Section 2.15 shall occur with respect to it, it will use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions and
so long as such efforts would not be disadvantageous to it, as determined in its
sole discretion) to designate a different lending office if the making of such a
designation would reduce or obviate the need for the Borrower to make payments
under Sections 2.14 or 2.16(a), or would eliminate or reduce the effect of any
adoption or change described in Section 2.15.
(b) Notwithstanding anything to the contrary contained herein, no
Lender shall be entitled to receive any amount under Sections 2.14, 2.15 or
2.16(a) as a result of the transfer of any LIBO Loan to a lending office which
is greater than such Lender would have been entitled to receive immediately
prior thereto, unless (i) the transfer occurred at a time when circumstances
giving rise to the claim for such greater amount did not exist and (ii) such
claim would have arisen even if such transfer had not occurred.
ARTICLE 3.
AMOUNT AND TERMS OF LETTER OF CREDIT SUB-FACILITY
SECTION 3.1. L/C COMMITMENT.
(a) Subject to the terms and conditions hereof, each of the Issuing
Lenders, in reliance on the agreements of the Lenders set forth in Section
3.4(a), agrees to issue Letters of Credit for the account of the Borrower on any
Business Day during the Commitment Period in such form as may be approved from
time to time by the Issuing Lender; provided, that no Issuing Lender shall be
obliged to issue any Letter of Credit if, after giving effect to such issuance,
(i) the L/C Obligations would exceed the L/C Commitment, (ii) the sum of the
aggregate outstanding principal amount of all Loans made by the Lenders and of
the L/C Obligations then
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outstanding would exceed the Aggregate Revolving Credit Commitment then in
effect, or (iii) any Lender's Available Revolving Credit Commitment would be
less than $0.
(b) Each Letter of Credit shall (i) be denominated in Dollars, unless
otherwise approved by the Issuing Lenders; (ii) be in a minimum dollar amount of
$100,000, unless otherwise approved by the Issuing Lenders; (iii) if a Standby
Letter of Credit, be issued to support obligations of the Borrower or any of its
Subsidiaries, contingent or otherwise, or to finance the working capital and
business needs of the Borrower or any of its Subsidiaries in the ordinary course
of business; (iv) if a Standby Letter of Credit, expire no later than two years
after the date of its issuance; and (v) if a Commercial Letter of Credit, expire
no later than ninety days after the date of its issuance.
(c) Each Commercial Letter of Credit shall be subject to the Uniform
Customs and each Standby Letter of Credit shall, at the discretion of the
Issuing Lender, be subject either to the Uniform Customs or to the ISP98, except
that rule 5.09 of the ISP98 shall not be applicable; notwithstanding anything to
the contrary in any Application or other document related to any Letter of
Credit.
(d) No Issuing Lender shall at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause such
Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
SECTION 3.2. PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. The Borrower may
request that any Issuing Lender issue a Letter of Credit at any time during the
Commitment Period by delivering to an Issuing Lender at its address for notices
specified herein (with a copy to the Administrative Agent) an Application
therefor, completed to the satisfaction of the applicable Issuing Lender, and
such other certificates, documents and other papers and information as the
applicable Issuing Lender may reasonably request. Each such Application shall be
irrevocable and shall be delivered to the Issuing Lender (with a copy to the
Administrative Agent), together will all necessary supporting material and
information, not less than three Business Days before the requested issuance
date. Upon receipt of any Application, the Issuing Lender will process such
Application and the certificates, documents and other papers and information
delivered to it in connection therewith in accordance with its customary
procedures. At least one Business Day prior to the issuance of any Letter of
Credit, the applicable Issuing Lender will confirm with the Administrative Agent
(by telephone or in writing, including electronic means) that the Administrative
Agent has received a copy of the Application, and, unless such Issuing Lender
has received notice on or before the Business Day immediately preceding the date
such Issuing Lender is to issue a requested Letter of Credit from the
Administrative Agent directing such Issuing Lender not to issue the requested
Letter of Credit because such issuance would not be consistent with the terms
and conditions of this Agreement, then such Issuing Lender shall issue a Letter
of Credit on the requested issuance date for the account of the Borrower in
accordance with such Issuing Lender's usual and customary practices. The
applicable Issuing Lender shall furnish to the Borrower and the Administrative
Agent a copy of each Letter of Credit issued by such Issuing Lender, promptly
following the issuance thereof. Requests for amendments shall be submitted and
processed in a like manner.
SECTION 3.3. FEES, COMMISSIONS AND OTHER CHARGES.
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(a) The Borrower shall pay to the Administrative Agent letter of
credit fees as follows: (i) in connection with all outstanding L/C Obligations
during the calculation period, a fee for the ratable account of the applicable
Issuing Lender and the L/C Participants equal to the Applicable Margin then in
effect for the Loans which are LIBO Loans on the average daily outstanding L/C
Obligations during such calculation period; and (ii) in connection with each
Letter of Credit a fee for the account of the Issuing Lender of such Letter of
Credit equal to 0.25 percent of the portion of such Letter of Credit which is
not such Issuing Lender's Risk Participation. Such fees shall be payable to the
Administrative Agent, in arrears on each L/C Fee Payment Date and on the
Termination Date.
(b) In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse each Issuing Lender for such normal and customary fees,
costs and expenses as are incurred or charged by the Issuing Lender in issuing,
effecting payment under, amending or otherwise administering any Letter of
Credit issued by it.
(c) The Administrative Agent shall, promptly following its receipt
thereof, distribute to the applicable Issuing Lender and the L/C Participants
all fees and commissions received by the Administrative Agent for their
respective accounts pursuant to this subsection.
SECTION 3.4. L/C PARTICIPATIONS.
(a) Each Issuing Lender irrevocably agrees to grant and hereby grants
to each L/C Participant, and, to induce each Issuing Lender to issue Letters of
Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase
and hereby accepts and purchases from each Issuing Lender, on the terms and
conditions hereinafter stated, for the L/C Participant's own account and risk an
undivided interest equal to the L/C Participant's Revolving Credit Commitment
Percentage from time to time in effect in such Issuing Lender's obligations and
rights under each Letter of Credit issued by such Issuing Lender hereunder and
the amount of each draft paid by such Issuing Lender thereunder. Each L/C
Participant unconditionally and irrevocably agrees with each Issuing Lender
that, if a draft is paid under any Letter of Credit issued by such Issuing
Lender for which such Issuing Lender is not reimbursed in full by the Borrower
in accordance with the terms of this Agreement, such L/C Participant shall pay
to the Issuing Lender upon demand at the Issuing Lender's address for notices
specified herein an amount equal to such L/C Participant's then Revolving Credit
Commitment Percentage of the amount of such draft, or any part thereof, which is
not so reimbursed; provided, that, if such demand is made prior to 9:00 A.M.,
San Francisco time, on a Business Day, such L/C Participant shall make such
payment to the Issuing Lender prior to the end of such Business Day and
otherwise such L/C Participant shall make such payment on the next succeeding
Business Day.
(b) If any amount required to be paid by any L/C Participant to an
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by such Issuing Lender under any Letter of Credit is paid to
such Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average federal
funds rate, as quoted by such Issuing Lender, during the period from and
including the date such payment is required to the date on which such payment is
immediately available to such Issuing Lender, times (iii) a fraction the
numerator of which is the number of days that
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elapse during such period and the denominator of which is 360. If any such
amount required to be paid by any L/C Participant pursuant to Section 3.4(a) is
not in fact made available to an Issuing Lender by such L/C Participant within
three Business Days after the date such payment is due, such Issuing Lender
shall be entitled to recover from such L/C Participant, on demand, such amount
with interest thereon calculated from such due date at the rate per annum
applicable to Base Rate Loans hereunder. A certificate of the applicable Issuing
Lender submitted to any L/C Participant with respect to any amounts owing to
such Issuing Lender under this subsection shall be conclusive in the absence of
manifest error.
(c) Whenever, at any time after an Issuing Lender has made payment
under any Letter of Credit issued by it and has received from any L/C
Participant its Revolving Credit Commitment Percentage of such payment in
accordance with Section 3.4(a), such Issuing Lender receives any payment related
to such Letter of Credit (whether directly from the Borrower or otherwise,
including proceeds of collateral applied thereto by such Issuing Lender), or any
payment of interest on account thereof, such Issuing Lender will promptly
distribute to such L/C Participant its Revolving Credit Commitment Percentage
thereof; provided, however, that in the event that any such payment received by
such Issuing Lender and distributed to the L/C Participants shall be required to
be returned by such Issuing Lender, each such L/C Participant shall return to
such Issuing Lender the portion thereof previously distributed by such Issuing
Lender to it.
SECTION 3.5. REIMBURSEMENT OBLIGATION OF THE BORROWER.
(a) The Borrower agrees to reimburse the applicable Issuing Lender on
the same Business Day on which a draft is presented under any Letter of Credit
issued by such Issuing Lender for the account of the Borrower and paid by such
Issuing Lender, provided, that such Issuing Lender provides notice to the
Borrower prior to 9:00 A.M., San Francisco time, on such Business Day and
otherwise the Borrower will reimburse the Issuing Lender on the next succeeding
Business Day; provided, further, that the failure to provide such notice shall
not affect the absolute and unconditional obligation of the Borrower to
reimburse the applicable Issuing Lender for any draft paid under any Letter of
Credit issued by it. The applicable Issuing Lender shall provide notice to the
Borrower on such Business Day as a draft is presented and paid by such Issuing
Lender indicating the amount of (i) such draft so paid and (ii) any taxes, fees,
charges or other costs or expenses incurred by such Issuing Lender in connection
with such payment. Each such payment shall be made to such Issuing Lender at its
address for notices specified herein in lawful money of the currency in which
such Letter of Credit was denominated and in immediately available funds.
(b) Interest shall be payable on any and all amounts remaining unpaid
by the Borrower under this subsection from the date such amounts become payable
until payment in full at the rate provided in Section 2.10(c) with respect to
due and unpaid Reimbursement Obligations.
(c) Each drawing prior to the Termination Date under any Letter of
Credit shall constitute a request by the Borrower to the Administrative Agent
for a borrowing of Base Rate Loans which Loans shall be used to reimburse the
Issuing Lender as required by this subsection. The making of such Loans shall be
deemed a payment of amounts owing pursuant to
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paragraph (b) to the extent of such Loans. The Borrowing Date with respect to
such borrowing shall be the date of such drawing.
SECTION 3.6. OBLIGATIONS ABSOLUTE.
(a) The Reimbursement Obligations of the Borrower under Section
3.5(a) shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against the applicable Issuing Lender, any L/C
Participant or any beneficiary of a Letter of Credit.
(b) The Borrower also agrees with each Issuing Lender that such
Issuing Lender shall not be responsible for, and the Reimbursement Obligations
of the Borrower under Section 3.5(a) shall not be affected by, among other
things, (i) the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or (ii) any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or (iii) any claims whatsoever of the Borrower against
any beneficiary of such Letter of Credit or any such transferee.
(c) No Issuing Lender with respect to any Letter of Credit nor any
L/C Participant with respect thereto shall be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with such Letter of Credit, except
for errors or omissions caused by the Issuing Lender's gross negligence or
willful misconduct.
(d) The Borrower agrees that any action taken or omitted by any
Issuing Lender under or in connection with any Letter of Credit issued by it or
the related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of care specified in the
UCC, shall be binding on the Borrower and shall not result in any liability of
such Issuing Lender or any L/C Participant to the Borrower.
SECTION 3.7. LETTER OF CREDIT PAYMENTS. If any draft shall be presented for
payment under any Letter of Credit, the responsibility of the Issuing Lender
thereof to the Borrower in connection with such draft shall, in addition to any
payment obligation expressly provided for in such Letter of Credit, be limited
to determining that the documents (including each draft) delivered under such
Letter of Credit in connection with such presentment are in conformity with such
Letter of Credit.
SECTION 3.8. APPLICATION. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Article 3, the provisions of this Article 3 shall apply.
SECTION 3.9. LETTERS OF CREDIT POST-TERMINATION.
(a) To the extent permitted by Section 3.1, an Issuing Lender may
issue a Letter of Credit having an expiration date later than the Termination
Date. In such case, not later than five Business Days prior to the Termination
Date, the Borrower shall deliver to such Issuing Lender for its benefit, U.S.
Dollars in an amount equal to 110 percent of the outstanding
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available amount of all Letters of Credit issued by such Issuing Lender having
an expiration date later than the Termination Date (the "Collateral"). The
Borrower shall thereafter maintain Collateral in such amount until all such
Letters of Credit have expired and all payments by such Issuing Lenders with
respect to such Letters of Credit have been reimbursed; provided, however, that
the amount of the Collateral may be reduced from time to time (i) in the amount
of 110 percent of the available amount of any Standby Letter of Credit ten days
following expiration of such Standby Letter of Credit if no amount has been
drawn under such Letter of Credit, (ii) in the amount of 110 percent of
reimbursement by the Borrower to the applicable Issuing Lender in connection
with any drawing under any Standby Letter of Credit which drawing permanently
reduces the amount available under such Standby Letter of Credit, and (iii) in
the amount of 110 percent of reimbursement by the Borrower to the applicable
Issuing Lender in connection with any drawing under any Commercial Letter of
Credit; provided, further, that in all events and notwithstanding any other
provision of this Agreement, the Borrower shall cause to be maintained with the
applicable Issuing Lender at all times Collateral in an amount at least equal to
110 percent of the sum of the outstanding undrawn amount of all outstanding
Letters of Credit issued by such Issuing Lender and all outstanding and unpaid
Reimbursement Obligations with respect thereto; provided, further, that the
applicable Issuing Lender holding any Collateral shall account to the Borrower
for interest on such Collateral which shall be calculated at a rate equal to the
one-month Eurodeposit rate of the applicable Issuing Lender.
(b) The Borrower hereby agrees that the Collateral shall be pledged
to the applicable Issuing Lender as security for the payment of the
Reimbursement Obligations (including contingent obligations) of the Borrower
with respect to the Letters of Credit issued by such Issuing Lender and for the
payment and performance of all other obligations in respect thereto, including
the payment of fees, commissions and expenses. The Borrower hereby represents,
warrants and covenants: (i) that the Collateral shall not be subject to any
other lien or security interest, (ii) that the applicable Issuing Lender shall
at all times from and after the delivery of the Collateral until satisfaction in
full of all Reimbursement Obligations have a first priority and perfected
security interest in the Collateral, (iii) that the Borrower shall take all
actions reasonably requested by the applicable Issuing Lender to preserve,
protect and evidence such first priority and perfected security interest,
including, without limitation, execution, delivery and (where appropriate)
filing of UCC financing statements and written notices to any financial
institution with whom the Collateral may be deposited.
(c) In consideration of the grant of said security interest, delivery
of the Collateral and delivery of such additional documents, instruments,
filings and other writings as the applicable Issuing Lender may reasonably
request, all as provided in this Section, effective on the Termination Date, the
Administrative Agent, the Issuing Lenders, and the Lenders shall release the
Borrower from all obligations under this Agreement other than (x) the
obligations contained in or referenced in this Section, (y) the Reimbursement
Obligations and all other obligations of the Borrower to the applicable Issuing
Lender with respect to those Letters of Credit issued by such Issuing Lender
which remain outstanding, and (z) such obligations of the Borrower and such
rights of the Administrative Agent and the Lenders as are expressly stated in
this Agreement to survive termination of this Agreement; provided, however, that
no such release shall occur or shall be deemed to have occurred and all
obligations of the Borrower hereunder, including all covenants contained herein,
shall continue in full force and effect if as of the Termination Date (i) the
Borrower shall not have delivered the Collateral to the applicable
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Issuing Lender(s) or shall have failed to satisfy any other term or condition of
this Section, or (ii) any Loan shall be not have been repaid in full, or (iii)
any other amount (whether interest, fees or expenses) due but which shall not
have been paid, or (iv) any Default or Event of Default shall have occurred and
be continuing as of the Termination Date.
(d) The applicable Issuing Lender may at any time apply all or any
portion of the Collateral held by it to the payment of any (i) fees, commissions
or other charges payable by the Borrower with respect to any Letter of Credit
issued by it, or (ii) any Reimbursement Obligation which has become payable to
it, in all cases in accordance with the terms and conditions of this Agreement.
Any Reimbursement Obligation which becomes due and payable after the Termination
Date and which is not immediately paid in accordance with Section 3.5 shall bear
interest as provided in Subsection 2.10(c) with respect to due and unpaid
Reimbursement Obligations.
(e) The Borrower shall continue to pay all fees, commissions and
other charges with respect to Letters of Credit outstanding after the
Termination Date as provided in Section 3.3 of this Agreement until all Letters
of Credit have expired or otherwise terminated. Fees set forth in Subsection
3.3(a) shall be payable to the applicable Issuing Lender (instead of the
Administrative Agent) in arrears on each L/C Fee Payment Date and on the date
that the last outstanding Letter of Credit expires or otherwise terminates.
(f) Subject to this Section including satisfaction of the conditions
set forth in subsection (c), the rights and obligations of each Lender under
Section 3.4 of this Agreement as an L/C Participant shall terminate after the
Termination Date (including all rights of the L/C Participants to fees payable
under Section 3.3(c) hereof) except with respect to Letters of Credit which
remain outstanding for which such Lender is the Issuing Lender.
ARTICLE 4.
CONDITIONS PRECEDENT
SECTION 4.1. CONDITIONS TO INITIAL LOANS. The agreement of each Lender to
make the initial Loans and other extensions of credit requested to be made by it
is subject to the satisfaction, immediately prior to or concurrently with the
making of such Loan or other extension of credit, of the following conditions
precedent:
(a) CREDIT DOCUMENTS. The Administrative Agent shall have received
(i) this Agreement, executed and delivered by a duly authorized officer of the
Borrower, and (ii) if requested by any Lender prior to the Closing Date, the
appropriate Note for such Lender.
(b) CORPORATE PROCEEDINGS OF THE BORROWER. The Administrative Agent
shall have received a copy of the resolutions, in form and substance
satisfactory to the Administrative Agent, of the Board of Directors of the
Borrower authorizing (i) the execution, delivery and performance of this
Agreement and the other Credit Documents to which it is a party, and (ii) the
borrowings contemplated hereunder, certified by the Secretary or an Assistant
Secretary of the Borrower as of the Closing Date, which certificate shall be in
form and substance satisfactory to the Administrative Agent and shall state that
the resolutions thereby certified have not been amended, modified, revoked or
rescinded.
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(c) BORROWER INCUMBENCY CERTIFICATE. The Administrative Agent shall
have received a Certificate of the Borrower, dated the Closing Date, as to the
incumbency and signature of the officers of the Borrower executing any Credit
Document satisfactory in form and substance to the Administrative Agent.
(d) CORPORATE DOCUMENTS. The Administrative Agent shall have received
true and complete copies of the certificate of incorporation, bylaws, and
investment policy of the Borrower, certified as of the Closing Date as complete
and correct copies thereof by the Secretary or an Assistant Secretary of the
Borrower.
(e) LEGAL OPINIONS. The Administrative Agent shall have received the
executed legal opinion of Brobeck Phleger & Harrison LLP, counsel to the
Borrower, substantially in the form of Exhibit C.
(f) FEES. Each of the Administrative Agent and the Syndication Agent
shall have received the fees to be received on the Closing Date referred to in
Sections 2.5 and 2.18 and other amounts due and payable on or prior to the
Closing Date, including, to the extent invoiced a reasonable time prior to the
Closing Date, reimbursement or payment of all out-of-pocket expenses required to
be reimbursed or paid by the Borrower and its Subsidiaries hereunder or under
any other Credit Document.
SECTION 4.2. CONDITIONS TO EACH LOAN. The agreement of each Lender to make
any Loan (including any conversion of one Type to another or any continuation of
a Loan) to be made by it on any date and of the Issuing Lender to issue any
Letter of Credit (including, without limitation, any Loan to be made or Letter
of Credit to be issued on the Closing Date) is subject to the satisfaction of
the following conditions precedent:
(a) NOTICES. (i) In the case of each borrowing of a Loan pursuant to
Section 2.2 of this Agreement, the Borrower shall have delivered to the
Administrative Agent a Notice of Borrowing (Drawing) in the form of Exhibit D
attached hereto, duly completed and executed by a Responsible Officer, not later
than the dates and times prescribed in Section 2.2; (ii) in the case of each
conversion of a Loan pursuant to Section 2.8(a) of this Agreement, the Borrower
shall have delivered to the Administrative Agent a Notice of Borrowing
(Conversion) in the form of Exhibit E attached hereto, duly completed and
executed by a Responsible Officer, not later than the dates and times prescribed
in Section 2.8(a); (iii) in the case of each continuation of a Loan pursuant to
Section 2.8(b) of this Agreement, the Borrower shall have delivered to the
Administrative Agent a Notice of Borrowing (Continuations) in the form of
Exhibit F attached hereto, duly completed and executed by a Responsible Officer,
not later than the dates and times prescribed in Section 2.8(b); and (iv) in the
case of each Letter of Credit, the Borrower shall have provided such notice,
including execution and delivery of an Application, if required, as may be
required under Article 3 hereof.
(b) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Borrower requesting such Loan or other extension of
credit in or pursuant to the Credit Documents shall be true and correct in all
material respects on and as of such date as if made on and as of such date
except to the extent that such representations and
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warranties are given as of an earlier date, in which case, they shall be true
and correct in all material respects as of such earlier date.
(c) NO DEFAULT. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Loans and other
extensions of credit requested to be made on such date.
(d) NO MATERIAL ADVERSE CHANGE. No event shall have occurred since
December 31, 1998, which has or is reasonably likely, in the opinion of the
Required Lenders, to have a material adverse effect on the business, financial
condition, financial performance, or properties of the Borrower and its
Subsidiaries, taken as a whole.
(e) ADDITIONAL MATTERS. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Credit Documents shall
be satisfactory in form and substance to the Administrative Agent, and the
Administrative Agent shall have received such other documents and legal opinions
in respect of any aspect or consequence of the transactions contemplated hereby
or thereby as it shall reasonably request.
SECTION 4.3. CONTINUING REPRESENTATIONS. Each borrowing (including each
conversion and each continuation of any borrowing) and each request for issuance
of a Letter of Credit by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date thereof that the
conditions contained in Section 4.2 have been satisfied.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make Loans hereunder, the Borrower hereby represents and
warrants to each Lender and the Administrative Agent as follows:
SECTION 5.1. FINANCIAL CONDITION.
(a) The consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at December 31, 1998 and the related consolidated
statements of income and of cash flows for the fiscal year ended on such date,
reported on by KPMG Peat Marwick, copies of which have heretofore been furnished
to each Lender, are complete and correct and present fairly the consolidated
financial condition of the Borrower and its consolidated Subsidiaries as at such
date, and the consolidated results of their operations and their consolidated
cash flows for the fiscal year then ended. The unaudited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at March 31, 1999 and
the related unaudited consolidated statements of income and of cash flows for
the three-month period ended on such date, certified by a Responsible Officer,
copies of which have heretofore been furnished to each Lender, are complete and
correct and present fairly the consolidated financial condition of the Borrower
and its consolidated Subsidiaries as at such date, and the consolidated results
of their operations and their consolidated cash flows for the three-month period
then ended (subject to normal year-end audit adjustments). All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the
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periods involved (except as approved by such accountants or Responsible Officer,
as the case may be, and as disclosed therein).
(b) Neither the Borrower nor any of its consolidated Subsidiaries
had, at the date of the most recent balance sheet referred to above, any
material Guarantee Obligation, contingent liability or liability for taxes, or
any long-term lease or unusual forward or long-term hedging commitment,
including, without limitation, any interest rate or foreign currency swap or
exchange transaction, which is not reflected in the foregoing statements or in
the notes thereto.
(c) During the period from December 31, 1998 to and including the
date hereof, there has been no sale, transfer or other disposition by the
Borrower or any of its consolidated Subsidiaries of any material part of its
business or property and no purchase or other acquisition of any business or
property (including any capital stock of any other Person) material in relation
to the consolidated financial condition of the Borrower and its consolidated
Subsidiaries at December 31, 1998.
SECTION 5.2. NO CHANGE. Since December 31, 1998, there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect.
SECTION 5.3. CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrower
and its Subsidiaries (a) is duly organized, validly existing and (to the extent
applicable) in good standing under the laws of the jurisdiction of its
organization, (b) has the corporate power and authority, and the legal right, to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, (c) is duly qualified as
a foreign corporation and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except to the extent that the failure to
maintain such status could not, in the aggregate, reasonably be expected to have
a Material Adverse Effect and (d) is in compliance with all Requirements of Law
except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 5.4. CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
Borrower has the corporate power and authority, and the legal right, to make,
deliver and perform the Credit Documents to which it is a party and to borrow
hereunder, and has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and any Notes and to
authorize the execution, delivery and performance of the Credit Documents to
which it is a party. No consent or authorization of, filing with, notice to or
other act by or in respect of, any Governmental Authority or any other Person is
required in connection with the borrowings hereunder or with the execution,
delivery, performance, validity or enforceability of the Credit Documents to
which the Borrower is a party. This Agreement has been, and each other Credit
Document to which it is a party will be, duly executed and delivered on behalf
of the Borrower. This Agreement constitutes, and each other Credit Document to
which it is a party when executed and delivered will constitute, a legal, valid
and binding obligation of the Borrower enforceable against the Borrower in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general
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equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
SECTION 5.5. NO LEGAL BAR. The execution, delivery and performance of each
Credit Document, the incurrence or issuance of and use of the proceeds of the
Loans and of drawings under the Letters of Credit and the transactions
contemplated by the Credit Documents (a) will not violate the Certificate of
Incorporation or Bylaws of the Borrower or any material Requirement of Law or
any material Contractual Obligation applicable to or binding upon the Borrower
or any of its Subsidiaries or any of their respective properties or assets, in
any manner and (b) will not result in the creation or imposition of any Lien on
any properties or assets of the Borrower or any of its Subsidiaries pursuant to
any Requirement of Law applicable to it, as the case may be, or any of its
Contractual Obligations.
SECTION 5.6. NO MATERIAL LITIGATION. Except to the extent described in
Schedule 5.6, no litigation by, investigation by, or proceeding of or before any
arbitrator or any Governmental Authority is pending or, to the knowledge of the
Borrower, threatened by or against the Borrower or any of its Subsidiaries, or
against any of its or their respective properties or revenues, with respect to
any Credit Document, the Loans made hereunder, the use of proceeds thereof, or
any drawings under a Letter of Credit and the other transactions contemplated
hereby or which could reasonably be expected to have a Material Adverse Effect
and all applicable waiting periods have expired without any action being taken
or threatened by any Governmental Authority which would restrain, prevent or
otherwise impose material adverse conditions on the transactions contemplated
hereby or thereby or which would be reasonably likely to have a Material Adverse
Effect.
SECTION 5.7. NO DEFAULT. None of the Borrower or any of its Subsidiaries is
in default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
SECTION 5.8. OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and its
Subsidiaries has good record and marketable title in fee simple to, or a valid
leasehold interest in, all its real property, and good title to, or a valid
leasehold or license interest in, all its other property (except Intellectual
Property), and none of such property is subject to any Lien except as permitted
by Section 7.3.
SECTION 5.9. INTELLECTUAL PROPERTY. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all trademarks, trade names,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted except for those the failure to own or license
which could not reasonably be expected to have a Material Adverse Effect (the
"Intellectual Property"). No material claim has been asserted and is pending by
any Person challenging or questioning the use of any such Intellectual Property
or the validity or effectiveness of any such Intellectual Property, nor does the
Borrower know of any valid basis for any such claim. To the best of Borrower's
knowledge, the use of such Intellectual Property by the Borrower and its
Subsidiaries does not infringe on the rights of any Person, except for such
claims and infringements that, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
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SECTION 5.10. TAXES. Each of the Borrower and its Subsidiaries has filed or
caused to be filed all material tax returns which, to the knowledge of the
Borrower, are required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount or validity of
which are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has
been filed; to the knowledge of the Borrower, no claim is being asserted, with
respect to any such tax, fee or other charge which would reasonably be likely to
have a Material Adverse Effect.
SECTION 5.11. FEDERAL REGULATIONS. No part of the proceeds of any Loans
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect except in compliance with said Regulation U. If requested by
any Lender or the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in said Regulation
U, as the case may be.
SECTION 5.12 EMPLOYEE BENEFITS. Neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of Section 412 of the Code
or Section 302 of ERISA) has occurred during the five-year period prior to the
date on which this representation is made or deemed made with respect to any
Plan, and each Plan has complied in all material respects with the applicable
provisions of ERISA and the Code. No termination of a Single Employer Plan has
occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such
five-year period. The present value of all accrued benefits under each Single
Employer Plan (based on those assumptions used to fund such Plans) did not, as
of the last annual valuation date prior to the date on which this representation
is made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits by more than $1,000,000. Neither the Borrower nor any
Commonly Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither the Borrower nor any Commonly Controlled Entity
would become subject to any liability under ERISA if the Borrower or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent.
SECTION 5.13. INVESTMENT COMPANY ACT: OTHER REGULATIONS. The Borrower is
not an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
The Borrower is not subject to regulation under any federal or state statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Indebtedness.
SECTION 5.14. SUBSIDIARIES. On the Closing Date, the Subsidiaries of the
Borrower, their jurisdiction of incorporation and the percentage of the Capital
Stock thereof which is owned (directly or indirectly) by the Borrower shall be
as set forth on Schedule 5.14.
SECTION 5.15. ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.15:
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(a) none of the Borrower, any of its Subsidiaries or any of their
respective operations or present or past Property are subject to any
investigation by, or any judicial or administrative proceeding, order,
judgment, settlement, decree or other agreement alleging or addressing (i)
a material violation of any Environmental, Health or Safety Requirement of
Law; (ii) any Remedial Action; or (iii) any material claims or Liabilities
and Costs arising from the Release or threatened Release of a Contaminant
into the environment, nor has the Borrower or any of its Subsidiaries
received any notice of the foregoing, except, in each case, for any matter
that, individually or in the aggregate is not reasonably likely to have a
Material Adverse Effect;
(b) none of the Borrower or any of its Subsidiaries is or has been the
owner or operator of any Property that has any of the following that would
reasonably be likely to have a Material Adverse Effect: (i) any past or
present on-site generation, treatment, recycling, storage or disposal of
any hazardous waste, as that term is defined under 40 C.F.R. Part 261 or
any state or local equivalent; (ii) any past or present landfill,
waste-pile, underground storage tank or surface impoundment; (iii) any
asbestos-containing material or any Contaminant; (iv) any polychlorinated
biphenyls (PCBs) used in hydraulic oils, electrical transformers or other
equipment;
(c) to the best of the Borrower's knowledge, no Environmental Lien has
attached to any Property of the Borrower or any of its Subsidiaries that
would reasonably be likely to have a Material Adverse Effect;
(d) there have been no Releases of any Contaminants into the
environment in reportable quantities by the Borrower or any of its
Subsidiaries or, to the best of the Borrower's knowledge, any other Person
that would reasonably be likely to have a Material Adverse Effect;
(e) to the best of the Borrower's knowledge, neither the Borrower nor
any of its Subsidiaries has any contingent liability in connection with any
Release or threatened Release of any Contaminants into the environment that
would reasonably be likely to have a Material Adverse Effect;
(f) neither the Borrower nor any of its Subsidiaries has disposed of
or sent or directly arranged for the transport of any waste or Contaminant
at or to any site listed or proposed for listing on the National Priorities
List ("NPL") pursuant to CERCLA or on the Comprehensive Environmental
Response Compensation Liability Information System List ("CERCLIS"), or any
similar state list, or any other location the effect of which would
reasonably be likely to have a Material Adverse Effect;
(g) no present or past Property of the Borrower or any of its
Subsidiaries is listed or proposed for listing on the NPL pursuant to
CERCLA or on the CERCLIS or any similar state list of sites requiring
Remedial Action, and the Borrower and its Subsidiaries are unaware of any
conditions on such Property
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that would qualify such Property for inclusion on any such list, except, in
either case, where such listing would not reasonably be likely to have a
Material Adverse Effect;
(h) neither the Borrower nor any of its Subsidiaries is subject to any
Environmental Property Transfer Act as a result of the transactions
contemplated by the Credit Documents or, to the extent such acts are
applicable to any such property, the Borrower or the relevant Subsidiary
has fully complied with the requirements of such acts. except where the
failure to comply would not reasonably be likely to have a Material Adverse
Effect;
(i) neither the Borrower nor any of its Subsidiaries has assumed,
either contractually or by operation of law, any liabilities or potential
liabilities under any Environmental, Health or Safety Requirements of Law
except where (i) such assumption would not reasonably be likely to have a
Material Adverse Effect or (ii) the Borrower has received a written
indemnity with respect to such liabilities or potential liabilities (as the
case may be) from a Person (other than the Borrower or any of its
Subsidiaries) who would reasonably be expected to pay in full all
reasonable claims in respect of such indemnity; and
(j) the Borrower and each of its Subsidiaries has obtained, and is in
compliance with, all permits, approvals, registrations, authorization
licenses, variances, facility security clearances and personnel security
clearances, and all permissions required from a Governmental Authority,
required under the Environmental, Health or Safety Requirements of Law,
except where the failure to obtain or comply therewith would not, in the
aggregate, reasonably be likely to have a Material Adverse Effect.
SECTION 5.16. ACCURACY AND COMPLETENESS OF INFORMATIOn. The factual
statements contained in the financial statements referred to in Sections 4.1(a)
and (b), the Credit Documents (including the schedules thereto) and any other
certificates or documents furnished or to be furnished to the Administrative
Agent or the Lenders from time to time in connection with this Agreement, taken
as a whole, do not and will not, to the best knowledge of the Borrower and its
Subsidiaries, as of the date when made, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances in
which the same were made, all except as otherwise qualified herein or therein,
such knowledge qualification being given only with respect to factual statements
made by Persons other than the Borrower or any of its Subsidiaries.
SECTION 5.17. PROJECTIONs. Each of the Borrower's business plans and all
other financial projections and related materials and documents delivered to the
Lenders pursuant hereto were prepared in good faith on the basis of the
assumptions accompanying them, and such projections and assumptions as of the
date of preparation thereof were, and as of the Closing Date are, reasonable in
light of the then current and foreseeable business conditions and prospects of
the Borrower and its Subsidiaries and represented management's opinion of the
Borrower's and its Subsidiaries' projected financial performance based on the
information available to the Borrower at the time so furnished, it being
understood that nothing contained in
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this Section shall constitute a representation or warranty that such future
financial performance or results of operations will in fact be achieved.
SECTION 5.18. SOLVENCy. The Borrower is, and after giving effect to the
incurrence of all Indebtedness and obligations being incurred in connection
herewith will be, Solvent.
ARTICLE 6.
AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Aggregate Revolving Credit
Commitment remains in effect or any amount is owing to any Lender or the
Administrative Agent hereunder or under any other Credit Document, it shall and
(except in the case of delivery of financial information, reports and notices)
shall cause each of its Subsidiaries to:
SECTION 6.1. FINANCIAL STATEMENTS. Furnish to the Administrative Agent (who
shall promptly forward such documents to the Lenders):
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower after the Closing Date, a copy of
the consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of income and cash flows for such year, setting forth in each
case in comparative form the figures for the previous year, reported on
without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by KPMG Peat Marwick
or other independent certified public accountants of nationally recognized
standing; and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheets of the
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income and cash flows
of the Borrower and its consolidated Subsidiaries for such quarter and the
portion of the fiscal year through the end of such quarter, setting forth
in each case in comparative form the figures for the previous year,
certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein). To the extent that they include the information required
to be delivered to the Administrative Agent by Section 6.1(a) and (b), the
delivery of the financial statements and reports which the Borrower files with
the SEC pursuant to Section 6.2 shall be deemed to satisfy the requirements of
this Section 6.1. If any information required by Section 6.1(a) and (b) is not
included in such statements and reports, the Borrower shall forward it to the
Administrative Agent within the time frames established in Section 6.1(a) and
(b).
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SECTION 6.2. CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative
Agent (who shall promptly forward such documents to the Lenders):
(a) concurrently with the delivery of the financial statements
referred to in Sections 6.1(a) and (b), a certificate of a Responsible
Officer, substantially in the form of Exhibit G;
(b) within five days after the same are sent, copies of all financial
statements and reports which the Borrower sends to its stockholders or
debtholders generally, and within five days after the same are filed,
copies of all financial statements and reports which the Borrower may make
to, or file with, the SEC or any successor or analogous Governmental
Authority; and
(c) promptly, such additional financial and other information as any
Lender (acting through the Administrative Agent) may from time to time
reasonably request.
SECTION 6.3. PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at
or before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or its Subsidiaries, as the case may be.
SECTION 6.4. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE.
(a) Continue to engage in business of the same general type as now
conducted by it and preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business, except (i) as otherwise permitted pursuant to Section 7.5 and (ii) to
the extent that the failure to maintain or preserve such rights, privileges and
franchises would not reasonable be expected to have a Material Adverse Effect.
(b) Comply with all Contractual Obligations and Requirements of Law
except to the extent that failure to comply therewith could not, in the
aggregate, be reasonably expected to have a Material Adverse Effect.
SECTION 6.5. MAINTENANCE OF PROPERTY; INSURANCE.
(a) Keep all property useful and necessary in its business in good
working order and condition ordinary wear and tear excepted; provided, that
nothing contained in this Section shall be deemed to prohibit the Borrower or
any of its Subsidiaries from discontinuing the operation or maintenance of any
such property if such discontinuance (i) is, in the reasonable judgment of the
Borrower or such Subsidiary, necessary or appropriate in the conduct of its
business, (ii) is otherwise permitted by this Agreement and (iii) would not be
reasonably likely to have a Material Adverse Effect.
(b) Maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and against at least such
risks as are usually
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insured against in the same general area by companies engaged in the same or a
similar business; and furnish to each Lender, upon written request, full
information as to the insurance carried.
SECTION 6.6. INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and (subject to
applicable Requirements of Law concerning classified information and to the
rights of any tenants or licensees of such properties and confidentiality or
non-disclosure obligations by third parties) permit representatives of the
Administrative Agent (or, after the occurrence and during the continuance of any
Event of Default under paragraph (a) of Article 8, any Lender) to, at the cost
of the Administrative Agent at any time other than during the occurrence of a
Default or an Event of Default, visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired (upon reasonable written notice)
and to discuss the business, operations, properties and financial and other
condition of the Borrower and its Subsidiaries with officers and employees of
the Borrower and its Subsidiaries and with its independent certified public
accountants. All reasonable costs and expenses incurred by the Administrative
Agent as a result of any inspections, audits and examinations conducted pursuant
to this Section shall be paid by the Borrower.
SECTION 6.7. NOTICES. Promptly give notice to the Administrative Agent and
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to
any Plan, a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any withdrawal from,
or the termination, Reorganization or Insolvency of, any Multiemployer Plan
or (ii) the institution of proceedings or the taking of any other action by
the PBGC or the Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the terminating,
Reorganization or Insolvency of, any Plan; and
(c) any development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
SECTION 6.8. YEAR 2000 COMPLIANT. The Borrower and its Subsidiaries are
Year 2000 Compliant as of the Closing Date, and shall remain Year 2000 Compliant
at all times thereafter. For purposes of this Agreement, the term "Year 2000
Compliant" shall mean the ability of the material software and other material
processing capabilities of the Borrower and its Subsidiaries
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to correctly interpret and manipulate all data, in whatever form including
printed form, screen displays, financial records, calculations and loan-related
data, so as to avoid errors in processing that may otherwise occur because of
the inability of the software of other processing capabilities to recognize
accurately the year 2000 or subsequent dates.
ARTICLE 7.
NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Aggregate Revolving Credit
Commitment remains in effect or any amount is owing to any Lender or the
Administrative Agent hereunder or under any other Credit Document, it shall not
and (except in the case of Section 7.1) shall not permit any of its Subsidiaries
to, directly or indirectly:
SECTION 7.1. FINANCIAL CONDITION COVENANTS.
(a) MINIMUM QUICK RATIO. Permit the Quick Ratio on the last day of
any fiscal quarter of the Borrower to be less than 1.5 to 1.0.
(b) MAXIMUM TOTAL LIABILITIES TO TANGIBLE NET WORTH. Permit the ratio
of Total Liabilities to Tangible Net Worth as of the last day of any fiscal
quarter of the Borrower to be greater than 0.5 to 1.0.
(c) MINIMUM TANGIBLE NET WORTH. Permit Tangible Net Worth on the last
day of any fiscal quarter of the Borrower to be less than the sum of (i)
$233,700,000, plus (ii) 75 percent of the Net Income for such quarter, cumulated
for each quarter beginning with the quarter ending approximately June 30, 1999,
provided, however, that Net Income for any fiscal quarter shall not be added to
Tangible Net Worth if it is a negative number, less (iii) any non-cash,
nonrecurring charges taken by the Borrower or its Subsidiaries for the purchase
of in-process technology in such fiscal quarter, plus (iv) 100 percent of the
net proceeds from the issuance of any Capital Stock.
(d) PROFITABILITY TEST. Permit (i) operating or net losses in any one
fiscal quarter to exceed $10,000,000, (ii) operating or net losses in any two
consecutive fiscal quarters in to exceed $15,000,000 in the aggregate, or (iii)
operating or net losses in any three consecutive quarters (regardless of the
magnitude of such losses); provided, however, that for purposes this covenant
(x) non-cash, nonrecurring charges taken by the Borrower or its Subsidiaries for
the purchase of in-process technology, and (y) non-cash, nonrecurring charges
taken against investments made by the Borrower or its Subsidiaries relating to
activities of the Borrower's current material foreign subsidiary (with respect
to its assets) up to the amount of $7,000,000 in the aggregate, shall not be
considered in any calculation of operating or net losses.
(e) MINIMUM UNRESTRICTED CASH AND INVESTMENTS. Permit Net Cash, at
any time, be less than $75,000,000.
SECTION 7.2. LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to
exist any Indebtedness, except:
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(a) Indebtedness of the Borrower and its Subsidiaries under this
Agreement and the other Credit Documents, and other Indebtedness of the
Borrower arising pursuant to Interest Rate Agreements, currency hedging
agreements and foreign exchange contracts to which any Lender or Affiliate
thereof is a party;
(b) Indebtedness listed on Schedule 7.2 and any refinancings,
refundings, renewals or extensions thereof; provided, that (x) the
aggregate principal amount of replacement Indebtedness is not greater than
the principal amount of the Indebtedness being so replaced and (y) the
terms of such replacement Indebtedness are, in the aggregate, no less
favorable to the Borrower or such Subsidiary than the terms of the
Indebtedness being so replaced;
(c) Financing Leases, synthetic leases and purchase money Indebtedness
incurred by the Borrower or any of its Subsidiaries to finance the
acquisition of tangible or intangible assets, and Indebtedness incurred by
the Borrower or any of its Subsidiaries to refinance such Financing Leases,
synthetic leases and purchase money Indebtedness, in an aggregate principal
amount not to exceed $20,000,000 at any one time outstanding;
(d) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary not to exceed
$10,000,000 (in the net aggregate) at any one time outstanding;
(e) Permitted Subordinated Indebtedness of the Borrower;
(f) Indebtedness of the Borrower in respect of unsecured standby and
commercial letters of credit issued in an aggregate face amount (including,
without limitation, any reimbursement obligations owing in respect thereof)
not to exceed $10,000,000 at any one time outstanding; and
(g) additional Indebtedness in an aggregate principal amount not to
exceed $30,000,000 at any time outstanding.
SECTION 7.3. LIMITATION ON LIENS. Create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens for taxes, assessments and governmental charges not yet due
or which are being contested in good faith by appropriate proceedings,
provided, that adequate reserves with respect thereto are maintained on the
books of the Borrower or its Subsidiaries, as the case may be, in
conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings;
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(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any Subsidiary;
(f) Liens related to precautionary UCC financing statement filings
regarding operating leases entered into by the Borrower and its
Subsidiaries in the ordinary course of business;
(g) Liens in favor of banking institutions arising as a matter of law
and encumbering the deposits (including the right of set off held by such
banking institutions in the ordinary course of business and which are
within the general parameters customary in the banking industry);
(h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure the payment of customs duties in connection with
the importation of goods; and
(i) Liens listed on Schedule 7.3, securing Indebtedness permitted by
Section 7.2, provided, that no such Lien is spread to cover any additional
property after the Closing Date and that the amount of Indebtedness secured
thereby is not increased;
(j) purchase money Liens (including the interest of a lessor under a
Financing Lease) and Liens to which any Property is subject at the time of
the acquisition thereof securing Indebtedness permitted by Section 7.2(c)
and limited in each case to the property purchased or subject to such
lease;
(k) any attachment or judgment Lien the existence of which does not
constitute an Event of Default under paragraph (g) of Article 8; and
(l) additional Liens securing Indebtedness which, in the aggregate
with the amount guaranteed pursuant to any Guarantee Obligation created in
reliance upon the provisions of Section 7.4, does not exceed $30,000,000;
provided, that no Default or Event of Default has occurred and is
continuing at the time that such Indebtedness is incurred.
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SECTION 7.4. LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or
suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations listed on Schedule 7.4;
(b) Guarantee Obligations arising on account of obligations,
warranties and indemnities which (i) are not with respect to Indebtedness
of any Person, (ii) have been or are undertaken or made in the ordinary
course of business or in connection with the sale of assets permitted by
Section 7.6 and (iii) are not for the benefit of or in favor of an
Affiliate of the Borrower or any of its Subsidiaries;
(c) Guarantee Obligations of the Borrower in respect of obligations of
any of its Subsidiaries;
(d) Guarantee Obligations with respect to obligations, warranties and
indemnities (other than with respect to Indebtedness) arising in the
ordinary course of business;
(e) Guarantee Obligations constituting Investments pursuant to Section
7.8; and
(f) additional Guarantee Obligations of the Borrower and its
Subsidiaries in respect of obligations which does not exceed $30,000,000;
provided, that no Default or Event of Default has occurred and is
continuing at the time that such Guarantee Obligation is incurred; and
provided, further, that the aggregate amount of additional Indebtedness
permitted under Section 7.2(g) and the Guarantee Obligations permitted
under this Section 7.4(f) shall in no event exceed in the aggregate
$30,000,000.
SECTION 7.5. LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, except:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided, that the Borrower shall be the continuing
or surviving corporation) or with or into any one or more wholly owned
Subsidiaries of the Borrower (provided, that a wholly owned Subsidiary
shall be the continuing or surviving corporation); and
(b) any Subsidiary may sell, lease, transfer or otherwise dispose of
any or all of its assets (upon voluntary liquidation or otherwise) to the
Borrower or any other Subsidiary of the Borrower; and
(c) the Borrower may be merged or consolidated with or into any other
Person; provided, that (i) the Borrower shall be the continuing or
surviving corporation, and (ii) at least 30 days prior to such merger or
consolidation, the
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Borrower shall have submitted pro forma financial statements to the
Administrative Agent and the Lenders demonstrating to the reasonable
satisfaction of the Lenders that the Borrower shall be in compliance with all
covenants contained in this Article 7 immediately following the proposed merger.
SECTION 7.6. LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person other than the
Borrower or any wholly owned Subsidiary, except:
(a) the sale of inventory in the ordinary course of business;
(b) the sale or other disposition of obsolete or worn out property;
(c) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the
compromise or collection thereof;
(d) assignments and licenses of intellectual property of the Borrower
and its Subsidiaries in the ordinary course of business;
(f) leases of owned real property and subleases of leased real
property, to the extent such leases and subleases have anticipated annual
rentals of less than $10,000,000 each; provided, however, leases and
subleases of real property among the Borrower and its subsidiaries or among
such subsidiaries shall be permitted without regard to anticipated annual
rentals;
(g) sales permitted by Sections 7.5 or 7.9; and
(g) the sale or other disposition of property, business or assets with
a value not exceeding 5% of the consolidated Tangible Net Worth in any
fiscal year.
SECTION 7.7. LIMITATION ON RESTRICTED PAYMENTS. Declare or pay any dividend
(other than dividends payable solely in common stock of the Borrower) on, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of the Borrower or any
warrants or options to purchase any such stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower or
any Subsidiary (such declarations, payments, setting apart, purchases,
redemptions, defeasances, retirements, acquisitions and distributions being
herein called "Restricted Payments"), except that, during such time as no
Default or Event of Default has occurred and is continuing or would result
therefrom, the Borrower may make Restricted Payments with respect to (a)
employee or director stock options, stock incentive plans or restricted stock
plans of the Borrower, (b) the purchase from time to time by the Borrower of its
common stock (for not more than market price) with the proceeds of the exercise
by grantees under any equity-based incentive plan (c) other purchases
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from time to time by the Borrower of its common stock not to exceed $10,000,000
in the aggregate since the date hereof and (d) transactions otherwise permitted
pursuant to Section 7.13.
SECTION 7.8. LIMITATION ON INVESTMENTS. Make any Investment (other than
Investments for which and to the extent that the consideration is capital stock
of the Borrower or its Subsidiaries) in any Person after the Closing Date,
except:
(a) Investments in accordance with the Borrower's investment policy
adopted by the Board of the Borrower and amended from time to time with the
approval of the Administrative Agent;
(b) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in
the ordinary course of business;
(c) Investments on account of intercompany loans which are permitted
by Section 7.2(d);
(d) extensions of trade credit in the ordinary course of business and
endorsement of negotiable instruments for deposit or collection or similar
transactions;
(e) loans and advances to employees of the Borrower and its
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business;
(f) Investments in joint ventures or the capital stock, assets,
obligations or securities of or other interests in Persons (i) not
exceeding $25,000,000 in the aggregate in any fiscal year if there are any
Loans outstanding hereunder at the time of the relevant Investment;
provided, however, that the Borrower shall during the time such Loans are
outstanding maintain a balance of Investments permitted by paragraph (a)
above of at least $50,000,000; and (ii) not exceeding $50,000,000 in the
aggregate in any fiscal year if there are no Loans outstanding under this
Agreement at the time of the relevant Investment; and
(g) Investments accepted in connection with a sale of assets or other
property permitted under this Agreement.
SECTION 7.9. LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's or such Subsidiary's business and (c) upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate; provided, however, that
nothing contained herein shall be deemed to prohibit (i) employment or
compensation agreements or other arrangements with officers or directors of the
Borrower or any of its Subsidiaries which have been approved by the Board of
Directors of
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the Borrower or any committee of the disinterested directors of the Borrower,
(ii) existing management agreements, (iii) stock options and awards granted to
employees and directors of the Borrower or any of its Subsidiaries under
existing Plans or other employee benefit Plans, and (iv) any contract or
transaction providing for indemnification of officers or directors of the
Borrower or any of its Subsidiaries from liability, or providing or maintaining
insurance or other arrangements on behalf of any such officer or director
against any liability asserted against such person and incurred in or arising
out of such capacity.
SECTION 7.10. LIMITATION ON SALES AND LEASEBACKS. Enter into any
arrangement with any Person providing for the leasing by the Borrower or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Borrower or such
Subsidiary, other than any such transactions relating to the sale and lease of
equipment upon terms and subject to conditions satisfactory to the
Administrative Agent to the extent that the aggregate fair market value of all
equipment sold does not exceed $20,000,000.
SECTION 7.11. LIMITATION ON CHANGES IN FISCAL YEAR OR ACCOUNTING TREATMENT.
Make any material change in accounting treatment and reporting practices or tax
reporting treatment, except as required or permitted by GAAP and disclosed to
the Lenders and the Administrative Agent.
SECTION 7.12. LIMITATION ON LINES OF BUSINESS. Enter into any business,
either directly or through any Subsidiary, which would not reasonably be
considered to be related to (or an extension of) the businesses in which the
Borrower and its Subsidiaries are engaged on the date hereof.
SECTION 7.13. NO NEW RESTRICTIONS ON SUBSIDIARY DIVIDENDS. Agree to create
or otherwise permit to become effective any consensual encumbrance or
restriction of any kind (except that restrictions may exist as to the transfer
of up to $10,000,000 in the aggregate at any one time) on the ability of any
Subsidiary to:
(a) pay, directly or indirectly, dividends or make any other
distributions in respect of its Capital Stock;
(b) make any other distribution or transfer of funds or assets to the
Borrower; or
(c) make loans or advances to or other Investments in, or pay any
Indebtedness or other obligation owing to, the Borrower.
ARTICLE 8.
EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
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(a) the Borrower shall fail to pay any principal of any Loan when due
in accordance with the terms thereof or hereof; or the Borrower shall fail
to pay any interest on any Loan, or any other amount payable hereunder,
within five days after any such interest or other amount becomes due in
accordance with the terms thereof or hereof; or
(b) the Borrower shall default in the observance or performance of the
financial condition covenants contained in Section 7.1 hereof; or
(c) the Borrower shall default in the observance or performance of any
covenant or agreement contained herein (other than payment covenants
referred to in clause (a) above or the financial covenants referred to in
clause (b) above) or in any other Credit Document on its part to be
performed or observed and any such failure shall remain unremedied for
thirty days after written notice thereof shall have been given to the
Borrower by the Administrative Agent; or
(d) any representation or warranty made or deemed made by the Borrower
herein or in any other Credit Document or which is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other
Credit Document shall prove to have been incorrect in any material respect
on or as of the date made or deemed made; or
(e) the Borrower or any of its Subsidiaries shall (i) default in any
payment of principal of or interest of any Indebtedness (other than the
Loans) or in the payment of any Guarantee Obligation, beyond the period of
grace (not to exceed 30 days), if any, provided in the instrument or
agreement under which such Indebtedness or Guarantee Obligation was
created; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Guarantee
Obligation or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf
of such holder or holders or beneficiary or beneficiaries) to cause, with
the giving of notice if required, such Indebtedness to become due prior to
its stated maturity or such Guarantee Obligation to become payable;
provided, however, that no Default or Event of Default shall exist under
this paragraph unless the aggregate amount of Indebtedness and/or Guarantee
Obligations in respect of which any default or other event or condition
referred to in this paragraph shall have occurred shall be equal to at
least $5,000,000; or
(f) (i) the Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking
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reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or the Borrower or any of its Subsidiaries shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower or any of its Subsidiaries any case,
proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbounded for a period of 60 days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or
other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within 60 days from the entry thereof; or (iv) the Borrower or any of its
Subsidiaries shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or (v) the Borrower or any of its
Subsidiaries shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) (i) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
involve an aggregate amount in excess of $5,000,000; or
(h) one or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a net
liability (after reduction for the amount of any applicable insurance
coverage) of $5,000,000 or more, and all such judgments or decrees shall
not have been vacated, discharged, stayed or bonded pending appeal within
60 days from the entry thereof; or
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(i) any Change of Control shall occur; or
(j) a change in circumstance or condition shall occur which, in the
reasonable judgment of the Required Lenders, may have a Material Adverse
Effect;
then, and in any such event, (A) if such event is a Bankruptcy Event with
respect to the Borrower, automatically each of the Aggregate Revolving Credit
Commitment shall immediately terminate and the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement (including,
without limitation, all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) shall immediately become due and payable, and (B)
if such event is any other Event of Default, either or both of the following
actions may be taken: (i) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower declare the Aggregate
Revolving Credit Commitment to be terminated forthwith, whereupon such
Commitment shall immediately terminate; and (ii) with the consent of the
Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement (including, without limitation and subject to
the paragraph below, all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) to be due and payable forthwith, whereupon the
same shall immediately become due and payable.
With respect to all Letters of Credit with respect to which presentment for
honor shall not have occurred at the time of an acceleration pursuant to the
preceding paragraph, the Borrower shall at such time deposit in one or more cash
collateral accounts opened by the Administrative Agent an amount equal to the
aggregate then undrawn and unexpired amount of such Letters of Credit. The
Borrower hereby grants to the Administrative Agent, for the benefit of the
Issuing Lender and the L/C Participants, a security interest in such cash
collateral to secure all obligations of the Borrower under this Agreement. Any
amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of Credit
issued for the account of the Borrower, and the unused portion thereof after all
such Letters of Credit shall have expired or been fully drawn upon, if any,
shall be applied to repay other obligations of the Borrower hereunder and under
the Notes. After all such Letters of Credit shall have expired or been fully
drawn upon, all Reimbursement Obligations shall have been satisfied and all
other obligations of the Borrower hereunder and under the Notes shall have been
paid in full, the balance, if any, in such cash collateral account shall be
returned to the Borrower. The Borrower shall execute and deliver to the
Administrative Agent, for the account of the Issuing Lender and the L/C
Participants, such further documents and instruments as the Administrative Agent
may request to evidence the creation and perfection of the within security
interest in such cash collateral account.
Except as expressly provided above in this Article, presentment, demand,
protest and all other notices of any kind are hereby expressly waived.
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ARTICLE 9.
THE ADMINISTRATIVE AGENT
SECTION 9.1. APPOINTMENt. Each Lender hereby irrevocably designates and
appoints the Administrative Agent as the administrative agent of such Lender
under this Agreement and the other Credit Documents. Each such Lender hereby
further irrevocably authorizes the Administrative Agent, in such capacity, to
take such action on its behalf under the provisions of this Agreement and the
other Credit Documents and to exercise such powers and perform such duties as
are expressly delegated to the Administrative Agent by the terms of this
Agreement and the other Credit Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Administrative Agent shall not have any duties
or responsibilities, except those expressly set forth with respect to it herein,
or any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Credit Document or otherwise exist against the
Administrative Agent.
SECTION 9.2. DELEGATION OF DUTIEs. The Administrative Agent may execute any
of its duties under this Agreement and the other Credit Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agent or attorneys
in-fact selected by it with reasonable care.
SECTION 9.3. EXCULPATORY PROVISIONs. None of the Administrative Agent, nor
any of its respective officers, directors, employees, agents, attorneys-in-fact
or Affiliates shall be (i) liable to any of the Lenders for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
this Agreement or any other Credit Document (except for its or such Person's own
gross negligence or willful misconduct) or (ii) responsible in any manner to any
of the Lenders for any recitals, statements, representations or warranties made
by the Borrower or any officer thereof contained in this Agreement or any other
Credit Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent under or
in connection with, this Agreement or any other Credit Document or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Credit Document or for any failure of the Borrower
to perform its obligations hereunder or thereunder. The Administrative Agent
shall not be under any obligation to any Lender to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Credit Document, or to inspect the
properties, books or records of the Borrower.
SECTION 9.4. RELIANCE BY ADMINISTRATIVE AGENt. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Borrower),
independent accountants and other experts selected by the Administrative Agent.
The Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
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Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Credit Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the other Credit Documents in accordance with a request of
the Required Lenders (or such larger number of Lenders as may be explicitly
required hereunder), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.
SECTION 9.5. NOTICE OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless it has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice from any Lender or the Borrower, the
Administrative Agent shall give notice thereof to the Lenders. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders;
provided, that unless and until the Administrative Agent shall have received
such directions, it may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
SECTION 9.6. NON-RELIANCE ON ADMINISTRATIVE AGENT, AND OTHER LENDERS. Each
Lender expressly acknowledges that none of the Administrative Agent, nor any of
their respective officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and that no act by
the Administrative Agent hereinafter taken, including any review of the affairs
of the Borrower, shall be deemed to constitute any representation or warranty by
the Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that such Lender has, independently and without reliance
upon the Administrative Agent, or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to make
its Loans and other extensions of credit hereunder and enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Administrative Agent, or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Credit Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
the Borrower which may come into the possession of the Administrative Agent or
any of its respective officers, directors, employees, agents, attorneys-in-fact
or Affiliates.
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SECTION 9.7. INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent, in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably (according to the percentage which the Revolving Credit Commitment of
such Lender constitutes of the Aggregate Revolving Credit Commitment on the date
on which indemnification is sought), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Loans)
be imposed on, incurred by or asserted against the Administrative Agent, in any
way relating to or arising out of, the Aggregate Revolving Credit Commitment,
this Agreement, any of the other Credit Documents or any documents contemplated
by or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided, that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of the Administrative
Agent. The agreements in this Section shall survive the payment of the Loans and
all other amounts payable hereunder.
SECTION 9.8. AGENT IN ITS INDIVIDUAL CAPACITY. The Administrative Agent and
its respective Affiliates and Subsidiaries may make loans to, accept deposits
from and generally engage in any kind of business with the Borrower as though
the Administrative Agent was not the Administrative Agent hereunder and under
the other Credit Documents. With respect to the Loans and other extensions of
credit made by it, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Credit Documents as any Lender and may
exercise the same as though it was not the Administrative Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its respective
individual capacity.
SECTION 9.9. SUCCESSOR AGENT. The Administrative Agent may resign as such
upon 30 days' notice to the Lenders. If the Administrative Agent shall resign as
"Administrative Agent" under this Agreement and the other Credit Documents, then
the Required Lenders shall appoint from among the Lenders a successor
Administrative Agent for the Lenders, which successor Administrative Agent
(provided, that, to the extent that no Default or Event of Default is continuing
at the time of such appointment, such Administrative Agent shall have been
approved by the Borrower), shall succeed to the rights, powers and duties of the
Administrative Agent hereunder. Effective upon such appointment and approval,
the term "Administrative Agent" shall mean such successor Administrative Agent,
and the rights, powers and duties of the former Administrative Agent as
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement or any holders of the Loans. After any resignation of the
retiring Administrative Agent as Administrative Agent the provisions of this
Section shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this Agreement and the other
Credit Documents.
SECTION 9.10. SYNDICATION AGENT. Bank of America, N.A. as Syndication Agent
has no right, power, obligation, liability, responsibility, or duty under this
Agreement other than those applicable to all Lenders as such. Without limiting
the foregoing, Bank of America, N.A. as Syndication Agent does not have, and
shall not be deemed to have, any fiduciary relationship
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with any Lender. Each Lender acknowledges that it has not relied, and will not
rely, on Bank of America, N.A. as Syndication Agent in deciding to enter into
this Agreement or in taking or not taking action hereunder.
ARTICLE 10.
MISCELLANEOUS
SECTION 10.1. AMENDMENTS AND WAIVERS. Neither this Agreement nor any other
Credit Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section. The Required
Lenders may, or, with the written consent of the Required Lenders, the
Administrative Agent may, from time to time, (a) enter into with the Borrower
directly affected thereby written amendments, supplements or modifications
hereto and to the other Credit Documents for the purpose of adding any
provisions to this Agreement or the other Credit Documents or changing in any
manner the rights of the Lenders or of the Borrower hereunder or thereunder or
(b) waive, on such terms and conditions as the Required Lenders or the
Administrative Agent may specify in such instrument, any of the requirements of
this Agreement or the other Credit Documents or any Default or Event of Default
and its consequences; provided, however, that no such waiver and no such
amendment, supplement or modification shall:
(i) without the consent of each Lender directly affected
thereby, (A) reduce the amount or extend the scheduled date of maturity of
any Loan or of any installment thereof, (B) reduce the stated rate of any
interest or fee payable hereunder or extend the scheduled date of any
payment thereof or (C) increase the amount or extend the expiration date of
any Lender's Revolving Credit Commitment;
(ii) without the written consent of all the Lenders, (A) amend,
modify or waive any provision of this Section, (B) reduce the percentage
specified in the definition of Required Lenders, or (C) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Credit Documents;
(iii) without the prior written consent of the Issuing Lender
with respect, thereto, amend, supplement or otherwise modify any provisions
of or directly application to any Letter of Credit; or
(iv) amend, modify or waive any provision of Article 9 without
the written consent of the then Administrative Agent.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Borrower, the
Lenders, the Administrative Agent and all future holders of the Loans. In the
case of any waiver, the Borrower, the Lenders and the Administrative Agent shall
be restored to their former positions and rights hereunder and under the other
Credit Documents, and any Default or Event of Default waived shall be deemed to
be cured and not continuing; no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
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SECTION 10.2. NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, three days after being
deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower and the Administrative Agent, and to Lenders
as the addresses set forth below the signature blocks at the end of this
Agreement, or to such other address as may be hereafter notified by the
respective parties hereto:
The Borrower: Advanced Fibre Communications, Inc.
One Willow Brook Court
Petaluma, CA 94954
Attention: Peter Donahower, Treasurer
Fax: (707) 792-4275
The Administrative Agent: Banque Nationale de Paris
180 Montgomery Street
San Francisco, CA 94108
Attention: Jennifer Cho, Vice President
Fax: (415) 296-8954
provided, that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to Sections 2.2, 2.6, 2.7, 2.8, or 2.13(b) shall not be
effective until received.
SECTION 10.3. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Credit Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
SECTION 10.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder, in the other Credit Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans hereunder.
SECTION 10.5. PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay
or reimburse the Administrative Agent for all its respective out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Credit Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of the counsel to the Administrative Agent in
an amount not exceeding $10,000, (b) to pay or reimburse each Lender and the
Administrative Agent for all its costs and expenses incurred in connection with
the enforcement or preservation
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of any rights under this Agreement, the other Credit Documents and any such
other documents, including in the case of enforcement or workout, without
limitation, the fees and disbursements of the several counsel (including
allocated costs of in-house legal services) to the Lenders, and the
Administrative Agent, (c) to pay, indemnify, and hold each Lender, the
Administrative Agent, and the Syndication Agent harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other taxes, if any, which
may be payable or determined to be payable in connection with the execution and
delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the other Credit Documents
and any such other documents and (d) to pay, indemnify, and hold each Lender,
the Administrative Agent, and the Syndication Agent (including their respective
Affiliates, employees, officers, directors, shareholders and agents) harmless
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Credit Documents and
the other transactions contemplated hereby, or the use of the proceeds of the
Loans and other extensions of credit hereunder and any such other documents,
including, without limitation, any of the foregoing relating to the violation
of, noncompliance with or liability under, any Environmental, Health or Safety
Requirements of Law applicable to the operations of the Borrower, any of its
Subsidiaries or any Property (all the foregoing in this clause (d),
collectively, the "indemnified liabilities"), provided, that the Borrower shall
not be obligated hereunder to the Administrative Agent, the Syndication Agent or
any Lender with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of the Administrative Agent, the Syndication
Agent or any such Lender (as the case may be). The agreements in this Section
shall survive repayment of the Loans and all other amounts payable hereunder.
SECTION 10.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS.
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Lenders, the Administrative Agent and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to such Lender, the Revolving Credit Commitment of such Lender or any
other interest of such Lender hereunder and under the other Credit Documents. In
the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Loan or other extension of credit for all purposes under this Agreement
and the other Credit Documents, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Credit
Documents. No Lender shall be entitled to create in favor of any Participant, in
the participation agreement pursuant to which such Participant's participating
interest shall be created or
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otherwise, any right to vote on, consent to or approve any matter relating to
this Agreement or any other Credit Document except for those specified in clause
(ii) of the proviso to Section 10.1 or, to the extent that such Lender would
have the right to vote on any matter specified therein, clause (i) of such
proviso. The Borrower agrees that if amounts outstanding under this Agreement
are due or unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall, to
the maximum extent permitted by applicable law, be deemed to have the right of
set off in respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its participating interest were
owing directly to it as a Lender under this Agreement, provided, that, in
purchasing such participating interest, such Participant shall be deemed to have
agreed to share with the Lenders the proceeds thereof as provided in Section
10.7(a) as fully as if it were a Lender hereunder. The Borrower also agrees that
each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and
2.17 with respect to its participation in the Revolving Credit Commitments,
Loans and other extensions of credit outstanding from time to time as if it was
a Lender; provided, that, in the case of Section 2.16, such Participant shall
have complied with the requirements of said Section and provided, further, that
no Participant shall be entitled to receive any greater amount pursuant to any
such Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to (i) any Lender, (ii) with the consent (which shall not be
unreasonably withheld) of the Administrative Agent and the Borrower (except that
during the continuation of an Event of Default the consent of the Borrower shall
not be required), to any additional bank or financial institution (any assignee
described in clause (i) or (ii), an "Assignee") all or any part of its rights
and obligations under this Agreement and the other Credit Documents pursuant to
an Assignment and Acceptance, substantially in the form of Exhibit H, executed
by such Assignee, such assigning Lender (and, in the case of an Assignee that is
not then a Lender, by the Administrative Agent and the Borrower) and delivered
to the Administrative Agent for its acceptance and recording in the Register,
provided, that, in the case of any such assignment to an additional bank or
financial institution, the sum of the aggregate principal amount of the Loans,
the aggregate amount of the L/C Obligations and the aggregate amount of the
Available Revolving Credit Commitment being assigned is not less than $5,000,000
(or such lesser amount as may be agreed to by the Borrower and the
Administrative Agent). Upon such execution, delivery, acceptance and recording,
from and after the effective date determined pursuant to such Assignment and
Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder with a Revolving Credit Commitment as set
forth therein, and (y) the assigning Lender thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding any provision of this paragraph (c) and paragraph (e) of this
Section, the consent of the Borrower shall not be required, and, unless
requested by the Assignee and/or the assigning Lender, new Notes shall not be
required to be executed and delivered by the Borrower, for any assignment
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which occurs at any time when any of the events described in paragraph (e) of
Article 8 shall have occurred and be continuing.
(d) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in Section 10.2
a copy of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Lenders and
the Revolving Credit Commitments of, and principal amounts of the Loans owing
to, each Lender from time to time and the L/C Obligations (including Letters of
Credit and Reimbursement Obligations) outstanding from time to time. The entries
in the Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent, and the Lenders may (and, in the case of any
Loan or other obligation hereunder not evidenced by a Note, shall) treat each
Person whose name is recorded in the Register as the owner of a Loan or other
obligation hereunder as the owner thereof for all purposes of this Agreement and
the other Credit Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder not evidenced by a Note
shall be effective only upon appropriate entries with respect thereto being made
in the Register.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Administrative
Agent), together with payment to the Administrative Agent of a registration and
processing fee of $2,500, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Borrower.
(f) Subject to Section 10.15, the Borrower authorizes each Lender to
disclose to any Participant or Assignee (each, a "Transferee") and any
prospective Transferee any and all financial information in such Lender's
possession concerning the Borrower and its Affiliates which has been delivered
to such Lender by or on behalf of the Borrower pursuant to this Agreement or
which has been delivered to such Lender by or on behalf of the Borrower in
connection with such Lender's credit evaluation of the Borrower and its
Affiliates prior to becoming a party to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law.
SECTION 10.7. ADJUSTMENTS; SETOFF.
(a) If any Lender (a "benefited Lender") shall at any time receive
any payment of all or part of any of its Loans or Reimbursement Obligations
owing to it under the Revolving Credit Commitment, or interest thereon, pursuant
to a guarantee or otherwise, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off or otherwise), in a greater
proportion than any such payment to and collateral received by any other Lender,
if any, in respect of such other Lender's Loans or Reimbursement Obligations
owing to
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it under the Revolving Credit Commitment or interest thereon, such benefited
Lender shall purchase for cash from the other Lender such portion of each such
other Lender's similar Loans or Reimbursement Obligations or shall provide such
other Lender with the benefits of any such collateral, or the proceeds thereof,
as shall be necessary to cause such benefited Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders
which hold the Revolving Credit Commitment; provided, however, that if all or
any portion of such excess payment or benefits is thereafter recovered from such
benefited Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest. The
Borrower agrees that each Lender so purchasing a portion of another Lender's
Loans or Reimbursement Obligations may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such portion
as fully as if such purchasing Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to
set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify the
Borrower and the Administrative Agent after any such set-off and application
made by such Lender, provided, that the failure to give such notice shall not
affect the validity of such set-off and application.
SECTION 10.8. COUNTERPARTS. This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts
(including by facsimile transmission), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of the
copies of this Agreement signed by all the parties shall be lodged with the
Borrower and the Administrative Agent.
SECTION 10.9. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 10.10. INTEGRATION. This Agreement and the other Credit Documents
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Credit Documents.
SECTION 10.11. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND
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CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA.
SECTION 10.12. SUBMISSION TO JURISDICTION WAIVERS. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and for its property to the non-exclusive
jurisdiction of any California State or federal court sitting in San
Francisco, California, and any competent court of the jurisdiction of
organization of the Borrower (a "local court"), and any appellate court
from any thereof, in any action or proceeding arising out of or relating to
this Agreement or the Notes;
(b) agrees that all claims in respect of such action or proceeding may
be heard and determined in such California State or local court or, to the
extent permitted by law, in such federal court and waives, to the fullest
extent it may effectively do so, any defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court and any
right of jurisdiction on account of the place of residence or domicile of
the Borrower;
(c) agrees that nothing herein shall affect the right to effect
service of process in any manner permitted by law (including, without
limitation, by the mailing of copies of such process to the Borrower by
certified or registered air mail at its address referred to in Section
10.2) or shall limit the right to sue in any other jurisdiction;
(d) agrees that, to the fullest extent permitted by applicable law, a
final judgment in any such action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
SECTION 10.13. ACKNOWLEDGMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Credit Documents;
(b) none of the Administrative Agent, Syndication Agent, or any Lender
has any fiduciary relationship with or duty to the Borrower arising out of
or in connection with this Agreement or any of the other Credit Documents,
and the relationship between Administrative Agent and the Lenders, on one
hand, and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
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(c) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Borrower and the Lenders.
SECTION 10.14. WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
SECTION 10.15. CONFIDENTIALITY. Subject to Section 10.6(f), the
Administrative Agent and the Lenders shall hold all non-public information
obtained pursuant to the requirements hereof and identified as such by the
Borrower in accordance with such Person's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices and in any event may make disclosure reasonably required by a
bona fide offeree, assignee or participant in connection with the contemplated
transfer or participation, or as required or requested by any Governmental
Authority or representative thereof, or pursuant to legal process or any
applicable Requirement of Law, or to its accountants, lawyers and other
advisors, and shall require any such offeree, assignee or participant to agree
to comply with this Section and cause its lawyers (except in the case of
enforcement proceedings or litigation), accountants and advisors to comply with
this Section. In no event shall the Administrative Agent or any Lender be
obligated or required to return any materials furnished by the Borrower;
provided, that each offeree shall be required to agree that if it does not
become an assignee or participant it shall return all materials furnished to it
by the Borrower in connection herewith.
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IN WITNESS WHEREOF, the parties hereto have caused is Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
LENDERS:
ADVANCED FIBRE COMMUNICATIONS, BANQUE NATIONALE DE PARIS,
a Delaware corporation, as Borrower. a French banking association, as Lender
/s/ Peter A. Darbee /s/ Jennifer Y. Cho /s/ Stuart Darby
- ------------------------------------- ----------------------------------------
By: Peter A. Darbee By: Jennifer Y. Cho Stuart Darby
Title: Vice President & CFO Title: Vice President Assistant
Vice President
BANQUE NATIONALE DE PARIS, Revolving Credit Commitment: $25,000,000
a French banking association, as Revolving Credit Percentage: 50%
Arranger and Administrative Agent Notice Address:
180 Montgomery Street
San Francisco, CA 94104
BANK OF AMERICA N.A,
a national banking association,
as Lender
/s/ Jennifer Y. Cho /s/ Stuart Darby
- ---------------------------------------
By: Jennifer Y. Cho Stuart Darby
Title: Vice President Assistant Vice President
BANK OF AMERICA N.A. /s/ Michael J. McCutchin
a national banking association, ----------------------------------------
as Syndication Agent By: Michael J. McCutchin
Title: Managing Director
Revolving Credit Commitment: $25,000,000
/s/ Michael J. McCutchin Revolving Credit Percentage: 50%
- ------------------------------------- Notice Address:
By: Michael J, McCutchin Mail Code: CA5-705-41-01
Title: Managing Director 555 California Street, 41st Floor
San Francisco, CA 94104-1503
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EXHIBIT A
DEFINITIONS
"Administrative Agent": as defined in the preamble hereto, together with
any successor Administrative Agent selected pursuant to this Agreement.
"Affiliate": as to any Person, any other Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. For purposes of this definition, "control" of
a Person means the power, directly or indirectly, either to (a) vote 5% or more
of the securities having ordinary voting power for the election of directors of
such Person or (b) direct or cause the direction of the management and policies
of such Person, whether by contract or otherwise.
"Aggregate Revolving Credit Commitment": $50,000,000, as such amount may be
reduced from time to time pursuant to this Agreement.
"Agreement": this Amended and Restated Revolving Credit Agreement, as
amended, supplemented or otherwise modified from time to time.
"Applicable Margin": (a) 0.00% per annum for all Base Rate Loans and (b)
1.50% per annum for all LIBO Loans.
"Application": an application, in such form as the applicable Issuing
Lender may specify from time to time, requesting such Issuing Lender to open a
Letter of Credit.
"Assignee": as defined in Section 10.6(c).
"Available Revolving Credit Commitment": as to any Lender, at any time, an
amount equal to the excess, if any, of (a) such Lender's Revolving Credit
Commitment over (b) the sum of (i) the product of such Lender's Revolving Credit
Commitment Percentage and the aggregate principal amount of all Loans
outstanding at such time and (ii) the product of such Lender's Revolving Credit
Commitment Percentage and all L/C Obligations outstanding at such time.
"Bankruptcy Event": any event described in paragraph (f) of Article 8.
"Base Rate": for any day, a rate per annum equal to the greater of (i) the
Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in
effect on such day plus 0.5 percent. Any change in the Base Rate due to a change
in the Prime Rate or the Federal Funds Effective Rate shall be effective as of
the opening of business on the effective day of such change in the Prime Rate or
the Federal Funds Effective Rate, respectively.
"Base Rate Loans": Loans the rate of interest applicable to which is based
upon the Base Rate.
"Borrower": as defined in the preamble hereto, together with is successors
and assigns.
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"Borrowing Date": any Business Day specified in a Notice of Borrowing as a
date on which the Borrower requests the Lenders to make Loans hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on which
commercial banks are authorized or required by law to close (a) in New York, New
York or San Francisco, California and (b) in the case of LIBO Loans, in London,
England.
"Capital Stock": any and all shares, interests, participation or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
"CERCLA": the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Sections 9601 et seq., as amended, any
successor statutes, and any regulations or legally enforceable guidelines
promulgated thereunder.
"CERCLIS": as defined in Section 5.15(f).
"Change of Control": the occurrence of the following: any "person" (as such
term is used in Section 13(d) and 14(d) of the Exchange Act) beneficially owns,
directly or indirectly, more than 25% of the total voting power of the voting
stock of the Borrower.
"Closing Date": the date on which the conditions precedent set forth in
Section 4.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to time.
"Commercial Letter of Credit": means any letter of credit issued for the
account of the Borrower for the purpose of providing the primary payment
mechanism through the presentation of documents for the purchase of materials,
goods or services by the Borrower or its Subsidiaries.
"Commitment Period": the period from and including the date hereof to but
not including the Termination Date or such earlier date on which the Aggregate
Revolving Credit Commitment shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not incorporated, which
is under common control with the Borrower within the meaning of Section 4001 of
ERISA or is part of a group which includes the Borrower and which is treated as
a single employer under Section 414 of the Code.
"Contaminant": any pollutant, hazardous substance, radioactive substance,
toxic substance, hazardous waste, radioactive waste, special waste, petroleum or
petroleum-derived substance or waste, asbestos in any form or condition,
polychlorinated biphenyls (PCBs), or any hazardous or toxic constituent thereof
and includes, but is not limited to, these terms as defined under Environmental,
Health or Safety Requirements of Law.
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"Contractual Obligation": as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.
"Credit Documents": this Agreement, the Note and any other agreement,
instrument or certificate delivered by the Borrower to the Lenders, to any
Issuing Lender, or to the Administrative Agent in connection with this
Agreement, any Loan or any Letter of Credit.
"Current Liabilities": for any period, the current liabilities on a
consolidated basis of the Borrower and its Subsidiaries, calculated in
accordance with GAAP and in a manner consistently applied with the presentation
of "current liabilities" in the Borrower's consolidated balance sheet for the
fiscal year ending December 31, 1998. For purposes of this Agreement, Current
Liabilities shall include the L/C Obligations and the outstanding principal
amount of the Loans.
"Default": any of the events specified in Article 8, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"Environmental, Health or Safety Requirements of Law": all Requirements of
Law derived from or relating to foreign, European Union, United States federal,
state and local laws or regulations relating to or addressing the environment,
health or safety, including but not limited to any law, regulation, or order
relating to the use, handling, or disposal of any Contaminant, any law,
regulation, or order relating to Remedial Action and any law, regulation, or
order relating to workplace or worker safety and health, and such Requirements
of Law as are promulgated by the specifically authorized Governmental Authority
responsible for administering such Requirements of Law, each as from time to
time hereafter in effect.
"Environmental Lien": a Lien in favor of any Governmental Authority for any
(i) liabilities under any Environmental, Health or Safety Requirements of Law,
or (ii) damages arising from, or costs incurred by such Governmental Authority
in response to, a Release or threatened Release of a Contaminant into the
environment.
"Environmental Property Transfer Acts": any applicable Requirement of Law
that, for environmental reasons, conditions, restricts, prohibits or requires
any notification, Remedial Action or disclosure triggered by the closure of any
Property, the transfer, sale or lease of any Property or deed or title for any
Property or any change in the direct or indirect ownership or control of any
Property, including, but not limited to, any so-called "Industrial Site Recovery
Acts" or "Responsible Transfer Acts".
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time.
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"Event of Default": any of the events specified in Article 8, provided,
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"Exchange Act": the Securities Exchange Act of 1934 (as amended from time
to time) and any successor statute.
"Federal Funds Effective Rate": for any day, the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Administrative Agent
from three federal funds brokers of recognized standing selected by it.
"Financing Lease": any lease of property, real or personal, the obligations
of the lessee in respect of which are required in accordance with GAAP to be
capitalized on a balance sheet of the lessee.
"GAAP": generally accepted accounting principles in the United States of
America as in effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"), any
obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counter indemnity
or similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other similar obligations (the "primary
obligations") of any other third Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, any obligation of
the guaranteeing person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the purchase or payment of any
such primary obligation or (2) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such
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guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"Indebtedness": of any Person at any date (and without duplication), (a)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument, (c) all obligations of such Person
under Financing Leases and synthetic leases, (d) all obligations of such Person
in respect of acceptances issued or created for the account of such Person and
(e) all liabilities secured by any Lien on any property owned by such Person
even though such Person has not assumed or otherwise become liable for the
payment thereof; provided, however, that for purposes of calculating compliance
with the financial covenants contained in Section 7.1 only, the term
"Indebtedness" shall include only such obligations which would be reflected in a
consolidated balance sheet of the Borrower and its Subsidiaries prepared in
accordance with GAAP.
"Insolvency": with respect to any Multiemployer Plan, the condition that
such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intangible Assets": assets that are considered intangible assets under
GAAP, consistently applied, including goodwill, organization expense, patents,
trademarks, trade names, copyrights, excess of cost over book value.
"Intellectual Property": as defined in Section 5.9.
"Interest Payment Date": (a) as to any Base Rate Loan, the first Business
Day of each January, April, July and October for the fiscal quarter ending on
(and including) the last day of the immediately preceding December, March, June
or September, respectively, and the Termination Date, (b) as to any LIBO Loan
having an Interest Period of three months or less, the last day of such Interest
Period and (c) as to any LIBO Loan having an Interest Period longer than three
months, each day which is three months, or a whole multiple thereof, after the
first day of such Interest Period (or, if such day is not a Business Day, the
next succeeding Business Day) and the last day of such Interest Period.
"Interest Period": with respect to any LIBO Loan:
(a) initially, the period commencing on the borrowing or conversion
date, as the case may be, with respect to such LIBO Loan and ending one,
two, three or six months thereafter, as selected by the Borrower in its
Notice of Borrowing given with respect thereto; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such LIBO Loan and ending one, two,
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three or six months thereafter, as selected by the Borrower by irrevocable
notice to the Administrative Agent delivered by 11:00 a.m. San Francisco
time not less than three Business Days prior to the last day of the then
current Interest Period with respect thereto;
provided, that, all of the foregoing provisions relating to Interest Periods are
subject to the following:
(1) if any Interest Period would otherwise end on a day that is not a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month in which event such Interest
Period shall end on the immediately preceding Business Day;
(2) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date; and
(3) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on
the last Business Day of a calendar month.
"Interest Rate Agreement": any interest rate swap, option, cap, collar or
insurance or any other agreement or arrangement with any Person which is
designed to provide protection against fluctuations in interest rates, and any
renewals thereof or substitutions therefor.
"Investment": any (a) advance, loan, extension of credit or capital
contribution to, or (b) purchase of any stock, bonds, notes, debentures or other
securities of or any assets constituting a business unit of, or similar
investment in, any Person.
"ISP98": the International Standby Practices promulgated by the Institute
of International Banking, Law and Practice.
"Issuing Lender": with respect to any Letter of Credit, Banque National de
Paris or Bank of America, N.A., as applicable, in its capacity as issuer
thereof.
"Issuing Lender's Risk Participation": with respect to each Letter of
Credit, the portion of an Issuing Lender's risk participation in such Letter of
Credit as provided in Section 3.4.
"L/C Commitment": $10,000,000, as such may be reduced from time to time
pursuant to this Agreement.
"L/C Fee Payment Date": the last Business Day of each March, June,
September, and December.
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"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": with respect to any Letter of Credit, the collective
reference to all the Lenders other than the Issuing Lender with respect thereto.
"Lenders": the collective reference to each Issuing Lender and each bank or
other financial institution holding a Revolving Credit Commitment hereunder (or,
after the last day of the Commitment Period, having any outstanding Loans or any
interest in any L/C Obligation hereunder); collectively, the "Lenders".
"Letters of Credit": as defined in Section 3.1(a).
"Liabilities and Costs": all liabilities, obligations, responsibilities,
losses and damages with respect to or arising out of any of the following:
personal injury, death, punitive damages, economic damages, consequential
damages, treble damages, intentional, willful or wanton injury, damage or threat
to the environment or public health or welfare, costs and expenses (including,
without limitation, attorney, expert and consulting fees and costs of
investigation, feasibility or Remedial Action studies), fines, penalties and
monetary sanctions, voluntary disclosures made to, or settlements with, the
United States Government, interest, direct or indirect, known or unknown,
absolute or contingent, past, present or future, including interest, if any,
thereon.
"LIBO Base Rate": the rate per annum determined by the Administrative Agent
at approximately 11:00 a.m. (London time) on the date which is two Business Days
prior to the beginning of the relevant Interest Period (as specified in the
applicable Notice of Borrowing) by reference to the "British Bankers'
Association Interest Settlement Rates" for deposits in Dollars for a period
equal to such Interest Period (rounded, if necessary, upward to the nearest
whole multiple of 1/16th of 1%); provided, that to the extent that an interest
rate is not ascertainable pursuant to the foregoing provisions of this
definition, the "LIBO Base Rate" shall be the interest rate per annum determined
by the Administrative Agent to be the average (rounded upward to the nearest
whole multiple of one-sixteenth of one percent per annum, if such average is not
such a multiple) of the rates per annum at which deposits in Dollars are offered
to major banks in the London interbank market in London, England by the
Administrative Agent at approximately 11:00 a.m. (London time) on the date which
is two Business Days prior to the beginning of such Interest Period.
"LIBO Loans": Loans the rate of interest applicable to which is based upon
the LIBO Rate.
"LIBO Rate": with respect to each day during each Interest Period
pertaining to a LIBO Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%, if the LIBO Reserve Requirements are greater than zero):
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LIBO Base Rate
--------------------------------
1.00 - LIBO Reserve Requirements
"LIBO Reserve Requirements": for any day, that percentage which is in
effect on such day, as prescribed by the Federal Reserve Board for determining
the maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for a member bank of the
Federal Reserve System in New York, New York with deposits exceeding five
billion Dollars in respect of eurocurrency liabilities (or in respect of any
other category of liabilities which includes deposits by reference to which the
interest rate on LIBO Loans is determined or any category of extensions of
credit or other assets which includes loans by a non-United States of America
office of any bank to United States of America residents).
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the foregoing).
"Loans": as defined in Section 2.1. Loans may be Base Rate Loans or LIBO
Loans.
"Material Adverse Effect": a material adverse effect on (i) the business,
financial condition, operations, financial performance or properties of the
Borrower and its Subsidiaries, taken as a whole, (ii) the ability of the
Borrower to perform its obligations under the Credit Documents or (iii) the
ability of the Lenders or the Administrative Agent to enforce the Credit
Documents.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Cash": for any time of determination, the amount equal to the value of
the Borrower and its subsidiaries' unrestricted cash, cash equivalents and short
term readily marketable securities less (a) the principal amounts of all
outstanding Loans and (b) the aggregate available amounts of all outstanding
Letters of Credit.
"Net Income": for any period for any Person, the net income (or loss) after
taxes for such period taken as a single accounting period, determined in
conformity with GAAP.
"1998 Agreement": Revolving Credit Agreement, dated July 30, 1998, entered
into by the Administrative Agent, the Syndication Agent, the Lenders and the
Borrower, as amended by that First Amendment to Revolving Credit Agreement,
dated February 1, 1999.
"Non-Excluded Taxes": as defined in Section 2.16(a).
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"Notes": the promissory notes referred to in Section 2.4(e), the form of
which is attached to this Agreement as Exhibit B.
"Notice of Borrowing": with respect to (a) any borrowing of Loans, a Notice
of Borrowing (Drawings), substantially in the form of Exhibit D hereto, (b) any
conversion of Loans, a Notice of Borrowing (Conversions), substantially in the
form of Exhibit E hereto, and (c) any continuation of LIBO Loans, a Notice of
Borrowing (Continuations), substantially in the form of Exhibit F hereto.
"NPL": as defined in Section 5.15(f).
"Participant": as defined in Section 10.6(b).
"Payment Account": the demand account in the name of the Borrower
maintained at the Bank of the West, San Francisco Branch, Account Number
064000904.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA.
"Permitted Subordinated Indebtedness": any future Indebtedness incurred by
the Borrower and/or any Subsidiary which is fully subordinated to all
obligations of the Borrower to the Lenders and the Administration Agent
hereunder in a manner and subject to such documentation as shall be satisfactory
to the Lenders in their reasonable judgment.
"Person": an individual, partnership, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is covered by
ERISA and in respect of which the Borrower or a Commonly Controlled Entity is
(or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Prime Rate": the rate of interest per annum publicly announced from time
to time by the Administrative Agent as its prime rate in effect at its office in
New York City.
"Property": any real or personal property, including plant, building,
facility, structure, underground storage tank or unit, equipment, inventory,
general intangible, receivable, or other asset owned, leased or operated by the
Borrower or any of its Subsidiaries, as applicable (including any surface water
thereon or adjacent thereto, and soil and groundwater thereunder).
"Quick Ratio": for any fiscal quarter, the ratio of (a) the sum of (i)
unencumbered cash, (ii) unencumbered Cash Equivalents and (iii) unencumbered
receivables of the Borrower or its Subsidiaries for such period for products and
services provided in the normal course of the Borrower's business, less any
reserves maintained by the Borrower or its Subsidiaries in
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connection with such receivables, to (b) Current Liabilities of the Borrower and
its Subsidiaries for such period.
"Register": as defined in Section 10.6(d).
"Regulation U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Regulation X": Regulation X of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Reimbursement Obligation": with respect to a Letter of Credit, the
obligation of the Borrower to reimburse the Issuing Lender pursuant to Section
3.5 for amounts drawn under such Letters of Credit issued by it.
"Release": release, spill, emission, leaking, pumping, injection, deposit,
disposal, discharge, dispersal, leaching or migration into the indoor or outdoor
environment or into or out of any Property, including the movement of
Contaminants through or in the air, soil, surface water, groundwater or
Property.
"Remedial Action": actions required to (i) clean up, remove, treat or in
any other way address Contaminants in the indoor or outdoor environment; (ii)
prevent the Release or threat of Release or minimize the further Release of
Contaminants; or (iii) investigate and determine if a remedial response is
needed and to design such a response and post-remedial investigation,
monitoring, operation and maintenance and care.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section
2615.
"Required Lenders": at any time, Lenders having Revolving Credit Commitment
Percentages which aggregate more than 66-2/3% of the sum of the Aggregate
Revolving Credit Commitment then in effect (or, if such commitment has expired
or terminated, of the sum of the aggregate outstanding principal of all Loans
and the L/C Obligations.
"Requirement of Law": as to any Person , any law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
"Responsible Officer": with respect to the Borrower, the chief executive
officer, chief operating officer, senior vice president for finance and
administration or chief financial officer of
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the Borrower or, with respect to financial matters, the senior vice president
for finance and administration, chief financial officer, treasurer or controller
of the Borrower.
"Restricted Payments": as defined in Section 7.7.
"Revolving Credit Commitment": as to any Lender, its obligation to make
Loans to and/or issue or participate in Letters of Credit issued on behalf of
the Borrower hereunder in an aggregate principal and/or face amount at any one
time outstanding not to exceed the amount set forth opposite such Lender's name
below such Lender's signature block on the Agreement.
"Revolving Credit Commitment Percentage": as to any Lender at any time, the
percentage which such Lender's Revolving Credit Commitment then constitutes of
the Aggregate Revolving Credit Commitment (or, at any time after the Aggregate
Revolving Credit Commitment shall have expired or terminated, the Revolving
Credit Commitment Percentage of such Lender immediately prior to such expiry or
termination).
"Single Employer Plan": any Plan which is covered by Title IV of ERISA, but
which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that at the time of
determination, (i) the fair market value of its assets is in excess of the total
amount of its liabilities (including, without limitation, contingent
liabilities), and (ii) the present fair saleable value of its assets is greater
than its probable liability on its existing debts as such debts become absolute
and matured, and (iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other commitments) as they
mature, and (iv) it has capital sufficient to carry on its business as conducted
and as proposed to be conducted.
"Standby Letter of Credit": as defined in Section 3.1(b).
"Subsidiary": as to any Person, a corporation, partnership or other entity
of which shares of stock or other ownership interests having ordinary voting
power (other than stock or such other ownership interests having such power only
by reason of the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower.
"Syndication Agent": as defined in the preamble hereto.
"Tangible Net Worth": as of any date of determination thereof, the
consolidated total assets of the Borrower and its Subsidiaries (excluding
Intangible Assets) minus Total Liabilities of the Borrower and its Subsidiaries,
determined in accordance with GAAP, consistently applied.
"Termination Date": July 27, 2000, subject to any extension that may be
granted pursuant to Section 2.1(b).
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"Total Liabilities": as of any date of determination, the consolidated
total liabilities of the Borrower and its Subsidiaries that should be reflected
as liabilities in a consolidated balance sheet of the Borrower and its
Subsidiaries as at that date prepared in accordance with GAAP, consistently
applied, provided that for purposes of paragraph (b) of Section 7.1 only, the
term "Total Liabilities" shall include off-balance sheet Indebtedness.
"Transferee": as defined in Section 10.6(f).
"Type": as to any Loan, its nature as an Base Rate Loan or a LIBO Loan.
"UCC": the Uniform Commercial Code, as from time to time hereafter in
effect in the State of California.
"Uniform Customs": the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500, as the
same may be amended from time to time.
"Year 2000 Compliant": as defined in Section 6.8.
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EXHIBIT B
FORM OF REVOLVING CREDIT NOTE
U.S. $__________ [Date]
Petaluma, California
For value received, Advanced Fibre Communications, Inc., a Delaware
corporation (the "Borrower"), promises to pay to the order of
____________________ (the "Lender"), on the Termination Date (as defined in the
Credit Agreement referred to below), the lesser of (i) the principal amount of
____________________ Dollars ($__________) or (ii) the sum of the unpaid
principal amount of all amounts loaned by the Lender to the Borrower under this
Note as Revolving Credit Loans under the Credit Agreement. The principal amount
which can be borrowed under this Note (including L/C Obligations), when
aggregated with the principal amount which can be borrowed under all other Notes
issued in accordance with the terms of the Credit Agreement, will in no case
exceed the Aggregate Revolving Credit Commitment set forth in the Credit
Agreement.
The Borrower also promises to pay interest on the unpaid principal amount
borrowed hereunder from the date advanced until paid at the rates (which shall
not exceed the maximum rate permitted by applicable law) and at the times
determined in accordance with the provisions of that certain Amended and
Restated Revolving Credit Agreement dated as of July 29, 1999 among the
Borrower, the financial institutions from time to time parties thereto as
Lenders, Banque Nationale de Paris in its capacity as administrative agent for
the Lenders (in such capacity, the "Administrative Agent") and Bank of America,
N.A., in its capacity as Syndication Agent (as amended, restated, supplemented
or otherwise modified from time to time, the "Credit Agreement").
This Note is issued pursuant to, and is entitled to the benefits of, the
Credit Agreement to which reference is hereby made for a more complete statement
of the terms and conditions under which the Revolving Credit Loans evidenced
hereby are made and are to be repaid. Terms defined in the Credit Agreement and
not otherwise defined herein are used herein with the meanings so defined.
All payments of principal and interest in respect of this Note shall be
made on the date and at the place due, to the Administrative Agent in lawful
money of the United States of America in same day funds.
This Note shall be governed by, and shall be construed and enforced in
accordance with, the law of the State of California.
The Lender shall record in accordance with its usual practice the date and
amount of each Revolving Credit Loan made hereunder, and the date and amount of
each payment of principal; provided, that the failure to record any such amount
shall not limit or otherwise affect the obligation of the Borrower to repay the
Lender the outstanding principal amount evidenced by this Note together with
accrued interest thereon in accordance with the terms of the Credit Agreement.
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Upon the occurrence of an Event of Default set forth in paragraph (f) of
Article 8 of the Credit Agreement as applied to the Borrower (as defined in the
Credit Agreement), the unpaid balance of the principal amount of this Note may
become, and upon the occurrence and continuation of any one or more other Events
of Default, such unpaid balance may be declared to be, due and payable in the
manner, upon the conditions and with the effect provided in the Credit
Agreement.
The Borrower hereby waives diligence, presentment, protest, demand and
notice of every kind except as required pursuant to the Credit Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the day and year and at the
place first above written.
Advanced Fibre Communications, Inc.
----------------------------------------
By:
Title
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EXHIBIT C
FORM OF LEGAL OPINION
July 29, 1999
Banque Nationale de Paris
Bank of America, N.A.
Re: Amended and Restated Revolving Credit Agreement with Advanced Fibre
Communications, Inc.
Ladies and Gentlemen:
This opinion letter is furnished to you pursuant to Section 4.1(e) of the
Amended and Restated Revolving Credit Agreement dated as of July 29, 1999 (the
"Credit Agreement"), among advanced Fibre Communications, Inc. as borrower (the
"Company"), Banque Nationale de Paris, as Arranger and Administrative Agent, and
Bank of America, N.A., as Syndication Agent (collectively the "Lenders"). We
have acted as counsel for the Company in connection with the Credit Agreement.
Unless otherwise defined herein, terms used herein shall have the meanings
assigned to them in the Credit Agreement.
In connection with this opinion letter, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates, including certificates of public officials, and
other instruments as we have deemed necessary or advisable for purposes of this
opinion letter, including those relating to the authorization, execution and
delivery of the Credit Agreement. In addition, we have examined the following
documents (the items referred to in subclauses (i) through (iv) below herein
referred to as the "Loan Documents"):
(i) an executed copy of the Credit Agreement;
(ii) the Revolving Credit Notes executed by the Company in favor of the
Lenders (the "Notes");
(iii) the Certificate of Incorporation and the Bylaws of the Company, each
as in effect on the date hereof,
(iv) an executed copy of the certificate of the Secretary of the Company
dated August 12, 1999 certifying: (A) a true copy of the resolution of the Board
of Directors of the Company, adopted on August 11, 1999, authorizing, among
other things, the execution, delivery and performance of the Loan Documents,
(v) an executed copy of the certificate (the "Officer's Certificate") of
John A. Schofield, President and Chief Financial Officer of the Company, dated
August 13, 1999;
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(vi) such other documents as we have deemed necessary or appropriate as a
basis for the opinions hereinafter expressed.
In our examination and review we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of the
documents submitted to us as originals, the conformity to the original documents
of all documents submitted to us as certified, facsimile or photostatic copies,
and the authenticity of the originals of such copies. As to any facts material
to the opinions hereinafter expressed which we did not independently establish
or verify, we have relied without investigation upon certificates, statements
and representations of the Company. We have also assumed that the Lenders have
filed any required California state franchise, income or similar tax returns and
have paid any such required state franchise, income or similar taxes. Regarding
documents executed by parties other than the Company, we have assumed (i) that
each such other party had the power to enter into and perform all its
obligations thereunder, (ii) the due authorization, execution and delivery of
such documents by each such party, and (iii) that such documents constitute the
legal, valid, binding and enforceable obligations of each such party.
With respect to our opinion in paragraph 1 below, we are relying solely on
our review and examination of the certificates received from the Secretary of
State of the States of Delaware and California, without further investigation of
the corporate records of the Company.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware with the corporate
power and authority to own its properties and to carry on its business as, to
our knowledge, it is now conducted. The Company is qualified as a foreign
corporation and in good standing under the laws of California.
2. The Company has the corporate power and authority to enter into and
perform the Loan Documents, and has taken all necessary corporate action to
authorize the execution, delivery and performance of the Loan Documents.
3. No consents, approvals or authorizations of, or notices to or filings
with, any governmental authority or agency under the Delaware General
Corporation Law, the laws of the State of California or the laws of the United
States, as presently in effect and interpreted, are required or necessary on the
part of the Company in connection with the execution and delivery by the Company
of the Loan Documents.
4. The Credit Agreement is, and the Notes when executed and declared will
be the legal, valid and binding obligations of the Company, enforceable by the
Administrative Agent and the Lenders against the Company in accordance with
their respective terms.
5. The execution and delivery by the Company of the Loan Documents will
not (i) violate or be in conflict with any provision of the Certificate of
Incorporation or Bylaws of the Company, (ii) violate or be in conflict with any
federal or California law which to our knowledge are applicable to the Company,
or the Delaware General Corporation Law, as presently in effect and interpreted,
or (iii) to our knowledge, violate or contravene any judgment, decree,
injunction
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or order of any federal or California court, or any arbitrator or governmental
agency or authority, having jurisdiction over the Company or its properties or
by which the Company may be bound.
6. Except for those matters disclosed in Schedule 5.6 to the Credit
Agreement, we have no knowledge of any pending litigation or other proceedings
against the Company or its properties before any court, arbitrator or
governmental agency or authority that challenge the legality, validity or
enforceability of the Loan Documents or which, if determined adversely to the
Company, would be likely to have a Material Adverse Effect on the Company.
Whenever a statement herein is qualified by the expressions "known to us,"
"to our knowledge," "we are not aware" or a similar phrase or expression with
respect to our knowledge of matters of fact, it is intended to mean that our
knowledge is based upon the records, documents, instruments and certificates
described above and the current actual knowledge of the attorneys in this Firm
who have devoted substantive attention to the transactions contemplated by the
Loan Documents (but not including any constructive or imputed notice of any
information) and that we have not otherwise undertaken any independent
investigations for the purpose of rendering this opinion.
This opinion is limited to the laws of the State of California, the General
Corporation Law of the State of Delaware and applicable federal laws of the
United States, and we express no opinion herein with respect to the effect or
applicability of the laws of other jurisdictions.
Our opinions in paragraph 3 above and in clause (ii) of paragraph 5 above
are limited to laws and regulations normally applicable to transactions of the
type contemplated in the Loan Documents and do not extend to licenses, permits
and approvals necessary for the conduct of the Company's business. In addition
and without limiting the previous sentence, we express no opinion herein with
respect to the effect of any land use, environmental or similar law, any state
or federal antitrust law, securities laws or tax laws, or any local law.
Further, we express no opinion as to compliance or noncompliance by the Lenders
with any federal, state or other law (i) requiring a Lender to be licensed as a
bank or other financial institution, (ii) pertaining to matters regulating the
assets held by a Lender on the basis of portfolio requirements or a Lender's
capitalization, such as loan limits and capital adequacy requirements, and (iii)
otherwise applicable to the Lenders and relating to their legal or regulatory
status or the nature of their business.
The opinions set forth above are subject to the following qualifications,
assumptions, limitations and exceptions.
(a) The validity, binding nature and enforceability of the Company's
obligations under the Loan Documents may be subject to or limited by (i)
bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent
transfer and other similar laws affecting the rights of creditors generally;
(ii) general principles of equity (whether relief is sought in a proceeding at
law or in equity), including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the discretion of any court of
competent jurisdiction in awarding specific performance or injunctive relief and
other equitable remedies; and (iii) without limiting the generality of the
foregoing, the effect of California court decisions and statutes which indicate
that provisions of the Loan Documents which permit the
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Administrative Agent or any other person or entity ("Person")to take action or
make determinations may be subject to a requirement that such action be taken or
such determinations be made on a reasonable basis in good faith or that it be
shown that such action is reasonably necessary for the protection of the
Administrative Agent or such other Person.
(b) We also express no opinion as to the title of the Company to any
property or regarding the creation, attachment, perfection or priority of any
security interests in any collateral.
(c) We express no opinion as to:
(1) the enforceability of provisions of the Loan Documents pursuant
to which the Company agrees to make payments without set-off, defense or
counterclaim;
(2) provisions purporting to require the award or payment of
attorneys' fees, expenses or costs in any action where the Administrative Agent
or the Lenders (as appropriate) are not the prevailing party, or the impact of
California Civil Code ("CC") Section 1717 11 et seq. on any such provisions;
(3) under certain circumstances, provisions to the effect that rights
or remedies are not exclusive, that every right or remedy is cumulative and may
be exercised in addition to or with any other right or remedy, that the election
of some particular remedy or remedies does not preclude recourse to one or
another remedy or that failure to exercise or delay in exercising rights or
remedies will not operate as a waiver of any such right or remedy;
(4) provisions prohibiting waivers of any terms or provisions of any
of the Loan Documents other than in writing, or prohibiting oral modifications
thereof or modification by course of dealing to the extent such provisions are
inconsistent with applicable law;
(5) the enforceability under certain circumstances of provisions
indemnifying a party against, or requiring contributions toward, that party's
liability for its own wrongful or negligent acts or where such indemnification
or contribution is contrary to public policy or prohibited by law;
(6) any provision providing for the exclusive jurisdiction of a
particular court or purporting to waive rights to trial by jury, service of
process or objections to the laying of venue or to forum on the basis of forum
non conveniens, in connection with any litigation arising out of or pertaining
to the Loan Documents;
(7) Section 10.12(e) of the Credit Agreement
(8) provisions providing for an increase in the rate of interest or
imposing a late charge or penalty in the event of delinquency or default;
(9) provisions purporting to waive statutory or common law rights,
including the right to receive notice or to be allowed to cure, reinstate or
redeem in the event of default, and provisions expressly or by implication
waiving broadly or vaguely stated rights, unknown
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future rights and defenses to obligations, in each case to the extent such
rights or defenses are not waivable under applicable law;
(10) provisions purporting to waive any applicable statutes of
limitation; and
(11) provisions authorizing the Leaders to set off and apply any
deposits at any time held, and any other indebtedness at any time owing, by the
Lenders to or for the account of the Company.
(d) Our opinions are subject to the effect of judicial decisions which may
permit the introduction of extrinsic evidence to interpret the terms of written
contracts.
(c) Insofar as this opinion letter concerns the law of the State of
California limiting the rates of interest legally chargeable or collectible, we
have relied upon our understanding that each Lender is a subsidiary of a bank
holding company or is a bank organized under the laws of the United States or
any State thereof or a foreign (other nation) bank described in Section 1716 of
the California Financial Code meeting the criteria for exemption set forth
therein and, as a result thereof, is exempt from the restrictions of Section 1
of Article XV of the Constitution of the State of California relating to rates
of interest upon the loan of money. We further assume in this regard that all
Loans have been and will be made by the Lenders for their own account and
without intent to circumvent otherwise applicable interest rate limitations
under California law and that there is no present express or implied agreement
or plan to sell participations or any other interest in the Loans or the Credit
Agreement to any Person other than a Person that also qualifies for an exemption
from the interest rate limitations of California law.
The opinions expressed herein are solely for your benefit and for the
benefit of your permitted successors and assigns pursuant to the Credit
Agreement in connection with the above transactions, and such opinions may not
be relied on in any manner or for any purpose by any other Person. In addition,
this opinion is rendered as of the date hereof and speaks only to the original
Lenders, and it shall not be deemed to have been updated to any date upon which
any such other Person may rely hereon. Further, we do not undertake to advise
you or such other Person of matters which occur subsequent to the date hereof
and which affect the opinions expressed herein.
Very truly yours,
/s/ Brobeck, Phleger & Harrsion, LLP
BROBECK, PHLEGER & HARRISON LLP
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ADVANCED FIBRE COMMUNICATIONS, INC.
OFFICER'S CERTIFICATE
To: Brobeck, Phleger & Harrison LLP
I, JOHN A. SCHOFIELD, the PRESIDENT AND CEO of Advanced Fibre
Communications, Inc. (the "Company"), hereby certify on behalf of the Company
that:
1. The representations and warranties contained in Section 5 of the
Amended and Restated Revolving Credit Agreement (the "Agreement") among the
Company, Banque Nationale de Paris as Arranger and Administrative Agent, and
Bank of America, N.A as Syndication Agent dated as of July 30, 1999 and in the
other Credit Documents are true and correct on and as of the date hereof as
though made on and as of such date.
2. There are no proceedings pending, threatened or contemplated for the
dissolution, merger, consolidation or liquidation of the Company or for the sale
of all or substantially all of its assets.
3. All tax returns and payments due and owing with respect to the Company
have been filed with or paid to the proper authorities in the State of Delaware,
the State of California
4. The execution, delivery and performance by the Company of the Credit
Documents do not and will not violate, contravene or be in conflict with any
applicable law or any judgment, decree, injunction or order of any court,
arbitrator or governmental agency or authority binding on the Company or its
assets.
5. Except as set forth on Schedule 5.6 of the Agreement, there are no
actions, suits or proceedings pending or, to the best of our knowledge,
threatened against or affecting the Company or the properties of the Company
before any court, board of arbitration, governmental agency or authority which
challenge the validity or enforceability of the Credit Documents or which, if
determined adversely to the Company, would be likely to have a material adverse
effect on the operations, properties, business or condition (financial or
otherwise) of the Company.
6. We are familiar with the content of Regulation U of the Board of
Governors of the Federal Reserve System, including the definition of "margin
stock" in said Regulation U. To the best of our knowledge, the proceeds of the
Loans will not be used by the Company for the purpose of purchasing or carrying
any "margin stock".
7. The Company (i) is not subject to, or is exempt from, regulation under
(A) the Federal Power Act, the Public Utility Holding Company Act of 1935 or
other Federal or state laws and regulations applicable to public utilities, (B)
any Federal or state laws and regulations applicable to banks, finance companies
and other financial institutions, or (C) any other Federal or state laws and
regulations limiting the Company's ability to borrow money; and (ii) is not an
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investment company or a company controlled by an investment company, within the
meaning of the Investment Company Act of 1940. Without limiting the generality
of the foregoing, the Company neither engages or holds itself out as being
engaged primarily, nor proposes to engage primarily, in the business of
investing, reinvesting or trading in securities.
This Certificate is made and delivered by the undersigned in accordance
with in order to permit Brobeck, Phleger & Harrison LLP to issue its legal
opinion in connection with the Agreement. Terms defined in the Agreement have
the same meanings assigned to them therein when used herein.
IN WITNESS WHEREOF, the undersigned officer has signed this Certificate
this 13th day of August, 1999.
/s/ John A. Schofield
----------------------------------------
By: John A. Schofield
Title: President and CEO
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EXHIBIT D
FORM OF NOTICE OF BORROWING (DRAWINGS)
To: Banque Nationale de Paris, in its capacity as administrative agent (with
its successors in such capacities, the "Administrative Agent") for the
Lenders (as defined below) under the Amended and Restated Revolving Credit
Agreement dated as of July 29, 1999 (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") among
Advanced Fibre Communications, Inc., the financial institutions from time
to time parties thereto as Lenders (the "Lenders"), the Administrative
Agent and Bank of America, N.A., in its capacity as Syndication Agent.
Pursuant to Section 2.2 of the Credit Agreement, this Notice of Borrowing
("Notice") represents the request of the undersigned Borrower (the "Borrower")
to borrow on [the date hereof] __________, 19__ (the "Funding Date") from the
Lenders [the principal amount of $__________, to consist of the following Loans:
(1) Base Rate Loan in the principal amount of $____________.
(2) LIBO Loans in the principal following principal amounts and having the
following Interest Periods: ________________________.
Proceeds of such Loans are to be deposited on the Funding Date into the
Borrower's disbursement account number __________ maintained at the office of
_________________.
The Borrower certifies that as of the Funding Date all of the conditions
precedent contained in Sections 4.2 of the Credit Agreement have been satisfied
(or waived pursuant to Section 10.1 of the Credit Agreement).
Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings in this Notice.
Dated this _____ day of _________, ____.
Advanced Fibre Communications, Inc.
--------------------------------------
By:
Title
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EXHIBIT E
FORM OF NOTICE OF BORROWING (CONVERSION)
To: Banque Nationale de Paris, in its capacity as administrative agent (with
its successors in such capacities, the "Administrative Agent") for the
Lenders (as defined below) under the Amended and Restated Revolving Credit
Agreement dated as of July 29, 1999 (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") among
Advanced Fibre Communications, Inc., the financial institutions from time
to time parties thereto as Lenders (the "Lenders"), the Administrative
Agent and Bank of America, N.A., in its capacity as Syndication Agent.
Pursuant to Section 2.8(a) of the Credit Agreement, this Notice of
Borrowing (Conversion) ("Notice") represents the election of the undersigned
Borrower (the "Borrower") to
[Convert $__________ in aggregate principal amount of Revolving Credit
Loans consisting of Base Rate Loans from Base Rate Loans to LIBO Loans
denominated in the same currency on __________, _____. The initial Interest
Period(s) for such LIBO Rate Loans is requested to be a
[one][two][three][six] month period.]
[Convert $__________ in aggregate principal amount of outstanding LIBO Rate
Loans to Base Rate Loans denominated in the same currency on __________,
_____.]
The Borrower certifies that as of the Funding Date all of the conditions
precedent contained in Section 4.2 of the Credit Agreement have been satisfied
(or waived pursuant to Section 10.1 of the Credit Agreement).
Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings in this Notice.
Dated this _____ day of _________, _____.
Advanced Fibre Communications, Inc.
----------------------------------------
By:
Title
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EXHIBIT F
FORM OF NOTICE OF BORROWING (CONTINUATION)
To: Banque Nationale de Paris, in its capacity as administrative agent (with
its successors in such capacities, the "Administrative Agent") for the
Lenders (as defined below) under the Amended and Restated Revolving Credit
Agreement dated as of July 29, 1999 (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") among
Advanced Fibre Communications, Inc., the financial institutions from time
to time parties thereto as Lenders (the "Lenders"), the Administrative
Agent, and Bank of America, N.A., in its capacity as Syndication Agent.
Pursuant to Section 2.8(b) of the Credit Agreement, this Notice of
Borrowing (Continuation) ("Notice") represents the election of the undersigned
Borrower (the "Borrower") to continue as LIBO Loans $__________ in aggregate
principal amount of Revolving Credit Loans consisting of LIBO Loans with a
current Interest Period ending __________, _____. The succeeding Interest Period
for such LIBO Loans is requested to be a [one][two][three][six] month period.
The Borrower certifies that as of the Funding Date all of the conditions
precedent contained in Section 4.2 of the Credit Agreement have been satisfied
(or waived pursuant to Section 10.1 of the Credit Agreement).
Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings in this Notice.
Dated this _____ day of _________, _____.
Advanced Fibre Communications, Inc.
----------------------------------------
By:
Title
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EXHIBIT G
FORM OF COMPLIANCE CERTIFICATE
To: Banque Nationale de Paris, in its capacity as administrative agent (with
its successors in such capacities, the "Administrative Agent") for the
Lenders (as defined below) under the Amended and Restated Revolving Credit
Agreement dated as of July 29, 1999 (as amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") among
Advanced Fibre Communications, Inc., the financial institutions from time
to time parties thereto as Lenders (the "Lenders"), the Administrative
Agent and Bank of America, N.A., in its capacity as Syndication Agent.
Pursuant to Section 6.2(a) of the Credit Agreement, the [Chief Financial
Officer] [Treasurer] [Controller] of the undersigned, solely in his capacity as
such hereby certifies on behalf of the Borrower that:
1. I am the duly elected, qualified and acting [Chief Financial Officer]
[Treasurer] [Controller] of the Borrower.
2. Unless otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings in this Certificate.
3. There has been a review of the terms of the Credit Documents and a
review in reasonable detail of the transactions and consolidated financial
condition of the Borrower and its Subsidiaries during the accounting period(s)
covered by the financial statements identified below. Such review [has] [has
not] disclosed the existence during or at the end of such accounting period, and
as at the date hereof the undersigned [does] [does not] have knowledge, of any
condition or event which constitutes a Default or an Event of Default. [If such
condition or event exists or existed, specify (i) nature and period of such
condition or event and (ii) action being taken and/or proposed to be taken with
respect thereto.]
4. The financial statements, reports and copies of certain instruments and
documents attached hereto, namely,
A. ____________________, dated __________
B. ____________________, dated __________
C. ____________________, dated __________
D. ____________________, dated __________
are true, accurate and complete copies of the aforesaid instruments and
documents which constitute part of the customary books and records of the
Borrower.
5. The certificate attached as Annex I hereto demonstrates compliance by
the Borrower with the negative covenants of Section 7.1 of the Credit Agreement.
Dated this _____ day of __________, ___.
Advanced Fibre Communications, Inc.
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--------------------------------------
By:
Title
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EXHIBIT H
FORM OF ASSIGNMENT AND ACCEPTANCE
ASSIGNMENT AND ACCEPTANCE dated ________, ____, between _________________
(the "Assignor") and __________________ (the "Assignee").
PRELIMINARY STATEMENTS
A. Reference is made to the Amended and Restated Revolving Credit
Agreement dated as of July 29, 1999 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement") among Advanced Fibre
Communications, Inc., a Delaware corporation (with its successors and permitted
assigns, the "Borrower"), the institutions from time to time parties thereto as
Lenders, whether by execution of the Credit Agreement or an Assignment and
Acceptance, Banque Nationale de Paris, a French banking association acting
through its San Francisco branch, in its separate capacity as administrative
agent for the Lenders (with its successors in such capacity, the "Administrative
Agent") and Bank of America, N.A., in its capacity as Syndication Agent. Terms
defined in the Credit Agreement and not otherwise defined herein are used herein
with the meanings ascribed thereto in the Credit Agreement.
B. The Assignor is a Lender under the Credit Agreement and desires to
sell and assign to the Assignee, and the Assignee desires to purchase and assume
from the Assignor, on the terms and conditions set forth below, a _____ percent
(_____%) interest in the Aggregate Revolving Credit Commitment (the "Assigned
Percentage"), together with the Assignor's rights and obligations under the
Credit Agreement with respect to the Assigned Percentage.
NOW, THEREFORE, the Assignor and the Assignee hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, the Assigned
Percentage, together with the Assignor's rights and obligations under the Credit
Agreement with respect to such Assigned Percentage, including, without
limitation, the obligation to make Revolving Credit Loans and to participate in
Letters of Credit.
2. The Assignor (i) represents and warrants that as of the date hereof
its Revolving Credit Commitment Percentage (without giving effect to assignments
thereof which have not yet become effective) is _____% and that such Revolving
Credit Commitment Percentage multiplied by the Aggregate Revolving Credit
Commitments is equal to $_________; (ii) represents and warrants that it has
legal and beneficial title to the interests being assigned by it hereunder free
and clear of any claim adverse to such title; (iii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the execution, legality, validity, enforceability, genuineness. sufficiency
or value of the Credit Agreement, any of the other Credit Documents, or any
other instrument or document furnished pursuant thereto or executed and
delivered in connection therewith; and (iv) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Borrower or any Subsidiaries of the Borrower or the performance or observance by
the Borrower or any Subsidiaries of the
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Borrower, of any of such Persons' respective obligations under the Credit
Agreement, any other Credit Document or any instrument or document furnished
pursuant thereto.
3. The Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance; (ii) confirms that it has received
a copy of the Credit Agreement, together with copies of such other Credit
Documents, information, exhibits, reports, projections and forecasts that the
Assignee has deemed appropriate to make its own credit analysis and decision to
enter into this Assignment and Acceptance; (iii) agrees that it shall have no
recourse against the Assignor with respect to any matters relating to the Credit
Agreement, any other Credit Document or this Assignment and Acceptance (except
with respect to the representations and warranties made by the Assignor in
clauses (i) and (ii) of Paragraph 2 above); (iv) agrees that it will,
independently and without reliance upon the Administrative Agent, the Assignor
or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement and the other Credit Documents; (v)
appoints and authorizes the Administrative Agent to take such action as
administrative agent on its behalf and to exercise such powers under the Credit
Agreement and the other Credit Documents as are delegated to the Administrative
Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (vi) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Credit Agreement and
other Credit Documents are required to be performed by it as a Lender; (vii)
confirms that it is an Eligible Assignee; and (viii) specifies as its address
for notices the address set forth beneath its name on the signature page hereof,
together with the name and address of its U.S. lending office.
4. The effective date for this Assignment and Acceptance shall be
__________, _____ (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Administrative Agent for
acceptance by the Administrative Agent and for recording in the Register by the
Administrative Agent, together with a processing and recordation fee of $3,500
to be paid to the Administrative Agent by the [Assignor][Assignee].
5. As of the Effective Date, provided, that the Administrative Agent
accepts this Assignment and Acceptance and the Borrower accepts the Assignee
pursuant to the terms of Section 10.6(c) of the Credit Agreement, (i) the
Assignee shall be a party to the Credit Agreement and, to the extent provided in
this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall relinquish its rights and be released
from its obligations under the Credit Agreement with respect to the Assigned
Percentage.
6. From and after the Effective Date, provided, that the Administrative
Agent accepts this Assignment and Acceptance, the Administrative Agent shall
make all payments under the Credit Agreement in respect of the Assigned
Percentage (including, without limitation, all payments of principal, interest
and fees with respect thereto) to the Assignee. The Assignor and Assignee shall
make all appropriate adjustments in payments under the Credit Agreement for
periods prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of California.
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IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned
has caused this Assignment and Acceptance to be executed on its behalf by its
officer "hereunto duly authorized, as of ___________, _____.
[NAME OF ASSIGNOR]
----------------------------------------
By:
Title
New Revolving Credit Commitment
Percentage _____%
New Revolving Credit Commitment _____%
[NAME OF ASSIGNEE]
----------------------------------------
By:
Title
New Revolving Credit Commitment
Percentage _____%
New Revolving Credit Commitment _____%
Agreed to and accept this _____ day of
__________, ____
BANQUE NATIONALE DE PARIS,
as Administrative Agent
- --------------------------------------
By:
Title:
- --------------------------------------
By:
Title:
ADVANCED FIBRE COMMUNICATIONS, INC.
- --------------------------------------
By:
Title:
-83-
<PAGE> 85
SCHEDULE 1.3
OUTSTANDING LOANS
None
OUTSTANDING LETTERS OF CREDIT
<TABLE>
<CAPTION>
DATE OF DATE OF
ISSUING LENDER AMOUNT ISSUANCE EXPIRATION
-------------- ------ -------- ----------
<S> <C> <C> <C>
Banque Nationale de Paris US $476,891.25 11/25/98 12/30/01
Banque Nationale de Paris PLN 6,138,000 06/29/99 10/30/99
Bank of America, N.A. INR 5,000,000 01/22/99 10/15/99
</TABLE>
-84-
<PAGE> 86
SCHEDULE 5.6
MATERIAL LITIGATION
See attached
Litigation Disclosure
Marconi/RELTEC Corporation In 1997, AFC filed a lawsuit against RELTEC
Corporation, alleging trade secret misappropriation, tortious interference with
a contract, and related claims. RELTEC was acquired in 1999 by GEC and has
changed its name to Marconi Communications, Inc.; for purposes of this footnote,
reference is made only to RELTEC. The case involves RELTEC's acquisition of
AFC's technology through the Borrower's Taiwan-based licensee, Vidar-SMS Co.,
Ltd. A pre-trial hearing is scheduled for August 27, 1999. We expect that trial
will commence within 90 days after this hearing.
Stockholder Litigation AFC and various of its current and former officers and
directors are parties to a consolidated lawsuit which purports to be a class
action filed on behalf of certain of our stockholders (excluding the defendants
and parties related to them). The lawsuit alleges that the defendants violated
certain federal securities laws. The plaintiffs filed a consolidated Amended
Complaint on or about January 27, 1999. Defendants' motion to dismiss the
complaint is currently pending before the court. Limited discovery has occurred,
and only limited discovery is expected to occur pending ruling on motion to
dismiss.
-85-
<PAGE> 87
SCHEDULE 5.14
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
COMPANY JURISDICTION OF PERCENTAGE OF
INCORPORATION OWNERSHIP
<S> <C> <C>
AFC Hong Kong Hong Kong 100%
Advanced Fibre Technology Communication, Ltd.
Hong Kong Hong Kong 100%
AFC India India 100%
AFC North America Delaware 100%
AFC International Switzerland To be formed
(100% will be held by
Borrower)
</TABLE>
-86-
<PAGE> 88
SCHEDULE 5.15
ENVIRONMENTAL MATTERS
None
-87-
<PAGE> 89
SCHEDULE 7.2
LIST OF INDEBTEDNESS
None
-88-
<PAGE> 90
SCHEDULE 7.3
LIST OF LIENS
None
-89-
<PAGE> 91
SCHEDULE 7.4
GUARANTEE OBLIGATIONS
None
-90-
<PAGE> 92
Advanced Fibre Communications, Inc.
July 29, 1999
Page 91
July 29, 1999
Advanced Fibre Communications, Inc.
One Willow Brook Court
Petaluma, CA 94954
Re: Amended and Restated Revolving Credit Agreement among Advanced Fibre
Communications, Inc. (the "Company"), Banque Nationale de Paris (as
"Arranger", "Administrative Agent", "Issuing Lender" and "Lender") and
Bank of America, N.A. (as "Syndication Agent", "Issuing Lender" and
"Lender") dated as of July 29, 1999 (the "1999 Agreement"), and
Revolving Credit Agreement among the Company, Banque Nationale de
Paris (as "Arranger", "Administrative Agent", "Issuing Lender" and
"Lender") and Bank of America, N.A. (as "Co-Arranger" and "Lender")
dated as of July 30, 1998, as amended (the "1998 Agreement").
Ladies and Gentlemen:
The parties to the 1999 Agreement have signed that agreement. However, the
Company has indicated that it will not be able to deliver corporate authorizing
resolutions or an opinion of counsel, required under Section 4.1(b) and 4.1(e)
respectively of the 1999 Agreement, until approximately August 11, 1999
(together with any other conditions contained in Section 4.01 of the 1999
Agreement which have not been satisfied, the "Open Conditions"). Until the Open
Conditions have been satisfied, the Lenders have no obligation to make any
advances or issue any letters of credit under the 1999 Agreement. Furthermore,
the letters of credit outstanding under the 1998 Agreement (the "Outstanding
Letters of Credit") will not be deemed to be issued and outstanding under the
1999 Agreement, but will continue to be deemed outstanding under the terms of
the 1998 Agreement. The 1998 Agreement expires by its terms as of July 29, 1999,
and, pursuant to Section 3.1(b) of the 1998 Agreement, unless the termination
date for such agreement is extended, the Company is required to deliver to the
Administrative Agent for the benefit of the Lenders under the 1998 Agreement
cash collateral in the amount of the Outstanding Letters of Credit (the
"Collateral Requirement").
At the request of the Company, the Lenders have agreed to waive the
Collateral Requirement and any other remedies or defaults under the 1998
Agreement until the earlier of (a) August 13, 1999 or (b) further written notice
to the Company from the Lenders withdrawing
<PAGE> 93
Advanced Fibre Communications, Inc.
July 29, 1999
Page 92
such waiver. The expectation of the Company and the Lenders is that the Company
shall have satisfied the Open Conditions by not later than August 13, 1999, at
which time the Outstanding Letters of Credit will be deemed issued and
outstanding under the 1999 Agreement as provided in Section 1.3 of the 1999
Agreement.
This letter and waiver does not constitute the waiver of any right that the
Lenders may have under the 1998 Agreement except as expressly provided herein.
Furthermore, execution and delivery by the Lenders of the 1999 Agreement does
not constitute the waiver of any rights the Lenders have under the 1998
Agreement with respect to the Outstanding Letters of Credit or otherwise. The
Company agrees to the terms and conditions stated in this letter. The
Administrative Agent acknowledges receipt of all fees referenced in Section
4.1(f) of the 1999 Agreement and the Company acknowledges that such fees are not
subject to rescission or rebate in the event that the conditions contained in
Section 4.1 of the 1999 Agreement are not satisfied by the Company. Upon
satisfaction by the Company of the Open Conditions, the 1999 Agreement shall be
deemed to have become effective as of July 29, 1999 and the 1998 Agreement will
be deemed terminated as of such date.
BANQUE NATIONALE DE PARIS BANK OF AMERICA, N.A.
/s/ Jennifer Y. Cho /s/ Stuart Darby /s/ Michael J. McCutchin
- -------------------------------------- ----------------------------------------
By: Jennifer Y. Cho Stuart Darby By: Michael J. McCutchin
Title: Vice President Assistant Title: Managing Director
Vice President
Acknowledged and agreed to:
ADVANCED FIBRE COMMUNICATIONS, INC.
/s/ Peter A. Darbee
- --------------------------------------
By: Peter A. Darbee
Title: Vice President & CFO
<PAGE> 94
Advanced Fibre Communications, Inc.
July 29, 1999
Page 93
ADVANCED FIBRE COMMUNICATIONS, INC.
CERTIFICATE OF SECRETARY
I, Amy M. Paul, Secretary of ADVANCED FIBRE COMMUNICATIONS, INC., a
Delaware corporation (the "Company"), hereby certify, in my capacity as
Secretary and not in my personal capacity, that:
1. I am the duly elected, qualified and acting Secretary of the Company on the
date hereof; and
2. Attached hereto as Exhibit A is a true and complete copy of the resolution
duly and validly adopted by the Board of Directors of the Company on August
11, 1999, and, except as otherwise set forth therein, such resolution is
now in full force and effect, and has not been modified, amended or revoked
in any respect.
IN WITNESS WHEREOF, I have hereunto set my hand as of the 12th day of August,
1999.
ADVANCED FIBRE COMMUNICATIONS, INC.
By: /s/ Amy M. Paul
------------------------------------
Amy M. Paul, Secretary
-92-
<PAGE> 95
Advanced Fibre Communications, Inc.
July 29, 1999
Page 94
EXHIBIT A
RESOLUTIONS OF
THE BOARD OF DIRECTORS OF
ADVANCED FIBRE COMMUNICATIONS, INC.
AUGUST 11, 1999
WHEREAS, Advanced Fibre Communications, Inc. (the "Company") is party to
that certain Revolving Credit Agreement dated as of July 30, 1998 between the
Company, Banque Nationale de Paris ("BNP") and Bank of America, N.A. (formerly
known as Bank of America, National Trust and Savings Association) ("BofA" and
together with BNP and their successors and assigns the "Banks") (such agreement,
as amended the "Existing Credit Agreement");
WHEREAS, the Company desires to amend and restate the Existing Credit
Agreement to provide for, among other things, the extension of such credit
facility; and
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company to so amend and restate the Existing Credit
Agreement.
NOW, THEREFORE, BE IT RESOLVED, that the Company is authorized to borrow,
at any one time or from time to time, from the Banks, revolving loans in the
aggregate principal amount at any time outstanding of up to $50,000,000 (the
"Loans") and to request the issuance of letters of credit by the Banks;
RESOLVED FURTHER, that the form, terms and provisions of the Amended and
Restated Credit Agreement (the "Amended Credit Agreement"), together with all
schedules and exhibits thereto, of which drafts were submitted to the Board of
Directors, are in all respects approved;
RESOLVED FURTHER, that the President, Chief Financial Officer, Treasurer
and the Corporate Controller of this Company, any one of them acting alone (each
an "Authorized Officer"), may (i) negotiate, execute and deliver for and on
behalf of the Company, the Amended Credit Agreement and the other Credit
Documents referred to therein to which the Company is a party, including the
Notes, to be delivered thereunder, in substantially the forms hereby approved,
with such changes, additions or deletions as the Authorized Officer executing
the same may approve, such execution to be conclusive evidence of such approval,
and (ii) negotiate, execute and deliver all other instruments, certificates,
papers, agreements and other documents which the Banks or the Administrative
Agent may require in connection with the Amended Credit Agreement, in such form
and of such content as any such Authorized Officer shall approve, such execution
to be conclusive evidence of such approval;
<PAGE> 96
Advanced Fibre Communications, Inc.
July 29, 1999
Page 95
RESOLVED FURTHER, that any Authorized Officer is hereby authorized to
negotiate, execute and deliver, for and on behalf of this Company, any addendum
to, amendment of, or other renewal or extension of, the Amended Credit
Agreement, or any other Credit Documents at any time after the execution
thereof, such addendum, amendment, renewal or extension to be in such form and
of such content as shall be approved by the Authorized Officer who executes the
same, such execution to be conclusive evidence of such approval;
RESOLVED FURTHER, that any Authorized Officer, or any other officer or
employee of the Company authorized in writing by an Authorized Officer, may
issue borrowing instructions and direct the disbursement of any Loan proceeds;
RESOLVED FURTHER, that any Authorized Officer, or any other officer or
employee of the Company authorized in writing by any Authorized Officer, may
apply for and obtain letters of credit from or through the Issuing Lenders (as
defined in the Amended Credit Agreement from time to time) and sign the
agreements, applications, guarantees, indemnities and other financial
undertakings in connection therewith as the Issuing Lenders shall require;
RESOLVED FURTHER, that any Authorized Officer, or any other officer or
employee of the Company authorized in writing by an Authorized Officer, may open
deposit, checking, money market or other accounts of any type with the
Administrative Agent or Syndication Agent or the Banks;
RESOLVED FURTHER, that any Authorized Officer, or any other officer or
employee of the Company authorized in writing by an Authorized Officer, may
otherwise pay any and all costs, expenses and fees, and do and perform all acts,
in the name and on behalf of the Company, as such Authorized Officer deems
necessary or appropriate to carry out the purposes and intent of these
resolutions;
RESOLVED FURTHER, that the authority given in these resolutions is
retroactive and any and all acts authorized herein performed before the passage
of these resolutions are ratified and affirmed;
RESOLVED FURTHER, that these resolutions supersede the resolutions of the
Board of Directors of the Company related to the Company's prior borrowings from
the Banks; and
RESOLVED FURTHER, that the Credit Agreement, together with its schedules
and exhibits, and any and all other Loan Documents referred to therein,
submitted to this meeting shall be filed by the Secretary or Assistant Secretary
of the Company among the records of the Company.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 54,488
<SECURITIES> 111,989
<RECEIVABLES> 60,098
<ALLOWANCES> (3,094)
<INVENTORY> 38,477
<CURRENT-ASSETS> 269,728
<PP&E> 75,077
<DEPRECIATION> (19,311)
<TOTAL-ASSETS> 336,583
<CURRENT-LIABILITIES> 42,307
<BONDS> 0
0
0
<COMMON> 774
<OTHER-SE> 291,002
<TOTAL-LIABILITY-AND-EQUITY> 336,583
<SALES> 209,296
<TOTAL-REVENUES> 209,698
<CGS> 105,043
<TOTAL-COSTS> 111,500
<OTHER-EXPENSES> 84,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,195)
<INCOME-PRETAX> 18,831
<INCOME-TAX> 6,214
<INCOME-CONTINUING> 12,617
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,617
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
