<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
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: 000-23774
ASCEND COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3092033
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE ASCEND PLAZA
1701 HARBOR BAY PARKWAY
ALAMEDA, CALIFORNIA 94502
(510) 769-6001
(Address of principal executive offices, zip code and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the Registrant's Common Stock, $0.001 par
value, was 192,849,018 as of March 31, 1998.
This report, including exhibits, consists of 218 pages. The Index To Exhibits is
found on page 26.
<PAGE>
ASCEND COMMUNICATIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION Page No.
-------
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations for the
Quarters Ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for
the Quarters Ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II: OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K 22
A: Exhibits 22
B: Reports on Form 8-K 24
Signatures 25
Index to Exhibits 26
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
ASCEND COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................ $ 341,022 $ 240,817
Short-term investments................................... 264,095 234,610
Accounts receivable, net................................. 243,002 234,183
Inventories.............................................. 102,936 99,637
Deferred income taxes.................................... 105,057 85,057
Other current assets..................................... 18,562 20,283
------------ ------------
Total current assets................................... 1,074,674 914,587
Investments................................................ 86,328 101,212
Furniture, fixtures and equipment, net..................... 126,700 114,351
Other assets............................................... 18,810 7,744
------------ ------------
Total assets........................................... $ 1,306,512 $ 1,137,894
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 72,258 $ 54,414
Accrued compensation and related liabilities............. 16,771 25,315
Accrued liabilities...................................... 162,640 88,909
------------ ------------
Total current liabilities.............................. 251,669 168,638
Commitments and contingencies
Stockholders' equity:
Common Stock............................................. 193 191
Additional paid-in capital............................... 911,668 878,455
Retained earnings........................................ 142,982 90,610
------------ ------------
Total stockholders' equity............................. 1,054,843 969,256
------------ ------------
Total liabilities and stockholders' equity............. $ 1,306,512 $ 1,137,894
============ ============
</TABLE>
3
<PAGE>
ASCEND COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net sales................................................. $ 305,114 $ 292,740
Cost of sales............................................. 109,810 102,387
---------- ----------
Gross profit............................................ 195,304 190,353
Operating expenses:
Research and development................................ 40,988 34,668
Sales and marketing..................................... 67,339 53,241
General and administrative.............................. 10,044 9,089
Purchased research and development...................... - 231,100
---------- ----------
Total operating expenses............................... 118,371 328,098
---------- ----------
Operating income (loss)................................... 76,933 (137,745)
Interest income, net...................................... 4,964 5,276
---------- ----------
Income (loss) before income taxes......................... 81,897 (132,469)
Provision for income taxes................................ 29,525 30,772
---------- ----------
Net income (loss)......................................... $ 52,372 $ (163,241)
========= ==========
Net income (loss) per share - Basic....................... $ 0.27 $ (0.88)
========= ==========
Net income (loss) per share - Diluted..................... $ 0.26 $ (0.88)
========= ==========
Number of shares used in per share calculation - Basic.... 192,849 185,812
========= ==========
Number of shares used in per share calculation - Diluted.. 203,245 185,812
========= ==========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ASCEND COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In Thousands)
<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net income (loss)................................................................. $ 52,372 $(163,241)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization................................................. 13,725 8,868
Purchased research and development............................................. -- 231,000
Deferred income taxes......................................................... (20,000) (6,404)
Changes in operating assets and liabilities:
Accounts receivable......................................................... (8,819) (8,690)
Inventories................................................................. (3,299) (5,823)
Other current assets........................................................ 1,721 6,473
Other assets................................................................ (11,066) (4,880)
Accounts payable............................................................ 17,844 6,950
Accrued liabilities and accrued compensation and related liabilities........ 65,187 (9,294)
-------- --------
Net cash provided by operating activities................................. 107,665 55,059
-------- --------
Investing activities:
Purchases of investments...................................................... (103,274) (69,029)
Maturities and sales of investments........................................... 88,673 45,659
Purchases of furniture, fixtures and equipment................................ (26,074) (27,239)
Effects of business combinations.............................................. -- (9,300)
-------- --------
Net cash used in investing activities....................................... (40,675) (59,909)
-------- --------
Financing activities:
Proceeds from issuance of common stock, net................................... 24,259 25,027
Tax benefit related to exercise of stock options.............................. 8,956 26,200
-------- --------
Net cash provided by financing activities................................... 33,215 51,227
-------- --------
Net increase in cash and cash equivalents......................................... 100,205 46,377
Cash and cash equivalents, beginning of period.................................... 240,817 312,369
-------- --------
Cash and cash equivalents, end of period.......................................... $341,022 $ 358,746
======== ========
Supplemental non-cash investing and financing activities:
Liabilities assumed in business combination..................................... $ -- $ 9,600
======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes...................................................... $ 967 $ 290
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ASCEND COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
GENERAL
Ascend Communications, Inc. (the "Company" or "Ascend") develops, manufactures
and sells wide area networking solutions for telecommunications carriers,
Internet service providers and corporate customers worldwide that enable them to
build: (i) Internet access systems consisting of point-of-presence termination
("POP") equipment for Internet service providers ("ISPs") and remote site
Internet access equipment for Internet subscribers; (ii) telecommunications
carrier and ISP backbone networks utilizing high speed Frame Relay, Asynchronous
Transfer Mode ("ATM") and Internet Protocol ("IP") switches; (iii) extensions
and enhancements to corporate backbone networks that facilitate access to these
networks by remote offices, telecommuters and mobile computer users; and (iv)
videoconferencing and multimedia access facilities. The Company's products
support existing digital and analog networks.
In February 1997, the Company purchased InterCon Systems Corporation
("InterCon"), a leading developer of remote access client software products for
both corporate and ISP markets. The transaction was accounted for as a purchase.
The operations of InterCon have been included for periods subsequent to the
acquisition (see "Business Combinations").
On April 1, 1997, the Company acquired Whitetree, Inc. ("Whitetree"), a
developer and manufacturer of high speed ATM switching products. The transaction
was accounted for as a pooling of interests. The operations of Whitetree have
been included for periods subsequent to the acquisition. The Company's
historical consolidated financial statements prior to the combination have not
been restated to reflect the financial results of Whitetree as these results
were not material to the Company (see "Business Combinations").
On June 30, 1997, the Company acquired Cascade Communications Corp. ("Cascade"),
a leading developer and manufacturer of carrier class Frame Relay, ATM and IP
switching products. The transaction was accounted for as a pooling of interests.
The consolidated financial statements of Ascend for prior periods have been
restated to include the financial position and results of operations of Cascade
(see "Business Combinations").
On January 28, 1997, Cascade completed its acquisition of Sahara Networks, Inc.
("Sahara"), a privately held developer of scaleable high-speed broadband access
products. The acquisition was accounted for as a purchase. The operations of
Sahara have been included for periods subsequent to the acquisition.
The interim condensed consolidated financial statements of Ascend have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations.
6
<PAGE>
ASCEND COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
GENERAL (continued)
The information included in this report should be read in conjunction with the
Company's audited financial statements and notes thereto included in the
Company's 1997 Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary to summarize fairly the financial
position, results of operations and cash flows for such periods. The results for
the interim period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for any future periods.
CONCENTRATION OF CREDIT RISK
The Company sells and distributes a substantial percentage of its products to
ISPs, value-added resellers and distributors, and local and long-distance
telecommunications carriers throughout North America, Europe and Asia and the
Pacific Basin. Accounts receivable are principally from these customers. The
Company conducts ongoing credit evaluations of its customers and maintains
reserves for potential credit losses.
INVENTORIES
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories consist of (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
1998 1997
---------- ----------
<S> <C> <C>
Finished goods........................... $ 29,751 $ 18,053
Products in process...................... 41,929 15,579
Raw materials and supplies............... 31,256 66,005
---------- ----------
$ 102,936 $ 99,637
========== ==========
</TABLE>
7
<PAGE>
ASCEND COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
COMMITMENTS
In March 1996, the Company entered into an agreement to lease 13 acres of land
and fund the construction of buildings, being used for the Company's
headquarters, located in Alameda, California. In March 1998, the Company
renegotiated the lease agreement to increase the lease commitment from
approximately $24.9 million to approximately $46.0 million to fund the purchase
of additional land and the construction of additional buildings on the land. The
lease term is five years, as of the date of the re-negotiation, with an option
to renew for two years, subject to the lessor's consent. The rent obligation
commenced in December 1996 and has been adjusted as of April 1998. At any time
during the term of the lease, the Company may purchase the land and buildings.
If the Company does not exercise its purchase option at the end of the lease,
the Company has guaranteed a residual value of approximately $41.0 million.
NET INCOME (LOSS) PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128,
Earnings per Share ("FAS 128"). FAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options and warrants. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. For the
quarter ended March 31, 1998, the effect of options and warrants has been
excluded from the diluted earnings per share calculation as it would be
anti-dilutive. The Company has restated all prior period per share information
as required by FAS 128.
8
<PAGE>
ASCEND COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The computations of basic and diluted net income (loss) per share are as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Common stock......................................... 192,849 185,812
Common stock equivalents............................. 10,396 14,206
-------- --------
Total................................................ 203,245 200,018
======== ========
Net income (loss).................................... $ 52,372 $(163,241)
======== ========
Shares used in computing net income (loss)
per share - Basic.................................... 192,849 185,812
======== ========
Shares used in computing net income (loss)
per share - Diluted.................................. 203,245 185,812
======== ========
Net income (loss) per share - Basic.................. $ 0.27 $ (0.88)
======== ========
Net income (loss) per share - Diluted................ $ 0.26 $ (0.88)
======== ========
</TABLE>
BUSINESS COMBINATION
On June 30, 1997, the Company acquired Cascade in a transaction that was
accounted for as a pooling of interests. The Company issued approximately
66,346,000 shares of its common stock to Cascade stockholders in exchange for
all outstanding Cascade shares. Outstanding options to purchase Cascade common
stock were converted to options to purchase approximately 8,455,000 shares of
Ascend common stock. The historical consolidated financial results of Ascend for
prior periods have been restated to include the financial position and results
of operations of Cascade.
9
<PAGE>
ASCEND COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
BUSINESS COMBINATIONS (continued)
The following table shows the historical results of Ascend and Cascade for the
periods prior to the consummation of the merger of the two entities:
<TABLE>
<CAPTION>
QUARTER
ENDED
MARCH 31, YEAR ENDED DEC. 31,
--------- -------------------
1997 1996 1997
--------- -------- --------
<S> <C> <C> <C>
Net Sales:
Ascend....................................... $ 202,412 $549,297 $152,604
Cascade...................................... 90,328 340,976 134,834
--------- -------- --------
Total...................................... $ 292,740 $890,273 $287,438
========= ======== ========
- --------------------------------------------------------------------------------
Net Income:
Ascend....................................... $ 35,093 $113,111 $ 27,535
Cascade...................................... (198,334) 70,779 25,410
--------- -------- --------
Total...................................... (163,241) 183,890 52,945
========= ======== ========
</TABLE>
In February 1997, the Company acquired all of the outstanding stock of InterCon.
The purchase price consisted of a cash payment of $12.0 million, the assumption
of approximately $9.0 million of liabilities and transaction costs of
approximately $600,000. The acquisition was accounted for as a purchase.
Accordingly, the total purchase price of $21.6 million was allocated to the net
assets acquired based upon their estimated fair values. The estimated fair value
of tangible net assets acquired was $600,000. In addition, $18.0 million of the
purchase price was allocated to purchased research and development that had not
reached technological feasibility and that had no alternative future use, and
$3.0 million was allocated to purchased software.
On April 1, 1997, the Company acquired Whitetree in a transaction that was
accounted for as a pooling of interests. The Company issued approximately
1,315,000 shares of its common stock to Whitetree shareholders in exchange for
all outstanding Whitetree shares. In addition, the Company assumed all
outstanding Whitetree stock options to purchase approximately 99,000 shares of
the Company's stock. The results of operations of Whitetree, which have not been
material in relation to those of the Company, are included in the consolidated
results of operations for periods subsequent to the acquisition. The Company's
historical consolidated financial statements prior to the combination have not
been restated to reflect the financial results of Whitetree as these results
were not material to the Company.
10
<PAGE>
ASCEND COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
BUSINESS COMBINATIONS (continued)
On January 28, 1997, Cascade completed its acquisition of Sahara. Cascade issued
approximately 3.4 million shares of Cascade common stock (or 2.4 million
equivalent shares of the Company's common stock) in exchange for all the
outstanding shares of Sahara. In addition, Cascade assumed all outstanding
Sahara stock options to purchase approximately 400,000 shares of Cascade common
stock. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the purchase price of approximately $219.0 million was
allocated to the net assets acquired based upon their estimated fair market
value. The estimated fair value of the tangible net assets acquired was
approximately $6.0 million. In addition, approximately $213.0 million of the
purchase price was allocated to in-process research and development that had not
reached technological feasibility and that had no alternative future use.
LITIGATION
The Company and various of its current and former officers and directors are
parties to a number of related lawsuits which purport to be class actions filed
on behalf of all persons who purchased or acquired the Company's stock
(excluding the defendants and parties related to them) for the period November
5, 1996 to September 30, 1997. The lawsuits, which are substantially identical,
allege that the defendants violated the federal securities laws by engaging in a
scheme to artificially inflate and maintain the Company's stock price by
disseminating materially false and misleading information concerning its
business and earnings and the development, efficiency, introduction and
deployment of its digital modems based on 56K-bps technology.
All of these actions are in the early stages of proceedings and the Company is
currently investigating the allegations. Based on its current information, the
Company believes the suits to be without merit and intends to defend itself and
its officers and directors vigorously. Although it is reasonably possible the
Company may incur a loss upon the conclusion of these claims, 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 Company's consolidated financial
statements. In the opinion of management, resolution of this matter is not
expected to have a material adverse effect on the financial position of the
Company. However, depending on the amount and timing, an unfavorable resolution
of this matter could materially affect the Company's future results or cash
flows in a particular period. In connection with these legal proceedings, the
Company expects to incur substantial legal and other expenses. Shareholder 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 the Company's management.
11
<PAGE>
ASCEND COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
LITIGATION (continued)
On April 16, 1997, a civil action was filed against Sahara, its three founders
and ten employees of Sahara by General Datacomm Industries, Inc. in the Superior
Court for the State of Connecticut. The complaint alleges several causes of
action, including: breach of contract; tortious interference with contractual
relations; misappropriation of trade secrets; unfair competition and violation
of the Connecticut Unfair Trade Practices Act. The plaintiff seeks relief of
unspecified monetary damages, costs and injunctive relief. The Company has not
yet engaged in substantive discovery and the ultimate outcome of this matter
cannot yet be determined. The Company plans to vigorously defend this lawsuit.
No provision for any liability that may result from the action has been
recognized in the consolidated financial statements. In the opinion of
management, resolution of this litigation is not expected to have a material
adverse effect on the financial position of the Company. However, depending on
the amount and timing, an unfavorable resolution of this matter could materially
affect the Company's future results or cash flows in a particular period.
On April 18, 1997, the Company received a claim and request for royalties
alleging patent infringement on four separate patents. Subsequently, the claim
and request for royalties was amended to include four additional patents. The
Company is currently investigating the claims of such infringement and thus the
ultimate outcome of this claim cannot yet be determined. No provision for any
liability that may result from the claim has been recognized in the consolidated
financial statements. In the opinion of management, resolution of this matter is
not expected to have a material adverse effect on the financial position of the
Company. However, depending on the amount and timing, an unfavorable resolution
of this matter could materially affect the Company's future results or cash
flows in a particular period.
The Company is a party as a defendant in various other lawsuits, contractual
disputes and other legal claims, the results of which are not presently
determinable. However, in the opinion of management, after consultation with
legal counsel, the amount of losses that might be sustained, if any, from these
lawsuits would not materially affect the Company's financial position. However,
depending on the amount and timing, an unfavorable resolution of some or all of
these matters could materially affect the Company's future results of operations
or cash flows in a particular period.
12
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ASCEND COMMUNICATIONS, INC.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WHICH REFLECT THE CURRENT VIEWS
OF THE COMPANY WITH RESPECT TO FUTURE EVENTS THAT WILL HAVE AN EFFECT ON ITS
FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INCLUDE THE WORDS "EXPECTS,"
"BELIEVES," "ESTIMATES," AND SIMILAR EXPRESSIONS. THESE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE
REFERRED TO UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE HEREIN,
THAT COULD CAUSE ACTUAL FUTURE RESULTS TO DIFFER MATERIALLY FROM HISTORICAL
RESULTS OR THOSE CURRENTLY ANTICIPATED. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS.
The information set forth below should be read in conjunction with the unaudited
interim condensed consolidated financial statements and notes thereto included
in Part 1 - Item 1 of this Quarterly Report and the audited financial statements
and notes thereto and Management's Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of net
sales represented by certain line items from the Company's Condensed
Consolidated Statements of Operations for the quarters ended March 31, 1998 and
1997, respectively:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31, 1997
----------------------------
1998 1997
------ ------
<S> <C> <C>
Net sales.................................. 100% 100%
Cost of sales.............................. 36 35
------ ------
Gross margin............................. 64 65
Operating expenses:
Research and development................. 14 12
Sales and marketing...................... 22 18
General and administrative............... 3 3
Purchased research and development....... - 79
------ ------
Total operating expenses............... 39 112
------ ------
Operating income (loss).................... 25 (47)
Interest income, net....................... 2 2
------ ------
Income (loss) before income taxes.......... 27 (45)
Provision for income taxes................. 10 11
------ ------
Net income (loss).......................... 17% (56)%
======= ======
</TABLE>
13
<PAGE>
ASCEND COMMUNICATIONS, INC.
NET SALES
Net sales for the quarter ended March 31, 1998 were $305.1 million, an increase
of 4% over net sales of $292.7 million for the first quarter of 1997. UUNet, an
Internet Service Provider, accounted for approximately 20% and 18% of net sales
for the quarters ended March 31, 1998 and 1997, respectively. International
sales accounted for approximately 26% of net sales for the quarter ended March
31, 1998 compared to 30% of net sales for the same period in 1997. This
decreases was principally due to decreased sales of the Company's products in
Europe.
The following table provides a breakdown of net sales by business unit as a
percentage of total net sales:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
-----------------------
BUSINESS UNIT 1998 1997
- ---------------------------------------- -------- --------
<S> <C> <C>
Access Switching......................... 44% 59%
Core Systems............................. 41 30
Enterprise Access........................ 10 8
Other.................................... 5 3
-------- --------
Total Company.......................... 100% 100%
======== ========
</TABLE>
ACCESS SWITCHING - The Access Switching business unit offers the MAX family of
products. Access Switching products accounted for 44% and 59% of total Company
net sales for the quarters ended March 31, 1998 and 1997, respectively. The
decrease in net sales of Access Switching products was primarily attributable to
large shipments of TNT product to customers in North America in the first
quarter of 1997. The TNT was first made available for commercial shipments in
the first quarter of 1997 and demand for the product had accumulated in
anticipation of its general release.
CORE SYSTEMS - The Core Systems business unit offers the B-STDX family of Frame
Relay switches, CBX500 and GX550 families of core ATM switches, the SA family of
broadband ATM switches and the GRF family of IP switches. Core Systems products
accounted for 41% and 30% of total Company net sales for the quarters ended
March 31, 1998 and 1997, respectively. The increase in net sales of Core Systems
products was primarily attributable to continuing market acceptance of the
CBX500 ATM switches.
ENTERPRISE ACCESS - The Enterprise Access business unit offers the Pipeline
family of remote access equipment as well as the Multiband MAX family of inverse
multiplexing equipment. Enterprise Access products accounted for 10% and 8% of
total Company net sales for the quarters ended March 31, 1998 and 1997,
respectively. The increase in net sales of Enterprise Access products was
primarily attributable to strength in demand for Pipelines from the Company's
indirect distribution channels.
14
<PAGE>
ASCEND COMMUNICATIONS, INC.
GROSS MARGIN
Gross margin was 64% and 65% for the quarters ended March 31, 1998 and 1997,
respectively. The decrease in gross margin for the quarter ended March 31, 1998
was primarily due to increased manufacturing period costs. In the future, the
Company's gross margins may be affected by several factors, including the mix of
products sold, the price of products sold, the introduction of new products with
lower gross margins, the distribution channels used, price competition,
increases in material costs and changes in other components of cost of sales.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 18% to $41.0 million in the first
quarter of 1998 from $34.7 million in the first quarter of 1997. Research and
development expenses as a percent of net sales increased to 14% for the first
quarter of 1998 compared to 12% for the same quarter of 1997. These increases
were primarily due to the addition of engineering personnel, payments for
consulting services in connection with developing and enhancing the Company's
existing and new products, payments for consulting services related to filing
applications and product testing required to obtain governmental approvals to
resell the Company's products outside of North America, addition of research and
development laboratory equipment, and material costs associated with new product
prototypes. In addition, research and development expenses increased in part
through the addition of engineering personnel and facilities as a result of the
Company's merger and acquisition activities.
SALES AND MARKETING
Sales and marketing expenses increased 27% to $67.3 million for the first
quarter of 1998 from $53.2 million for the first quarter of 1997. Sales and
marketing expenses as a percent of net sales increased to 22% for the first
quarter of 1998 as compared to 18% for the same quarter of 1997. These increases
were primarily due to the addition of sales, marketing and technical support
personnel, increased commissions, spending for marketing materials and trade
shows, advertising and promotions, expenditures for demonstration and loaner
equipment used by customers, and expenses associated with opening additional
sales offices in North America, Europe and Asia and the Pacific Basin. The
growth in sales, marketing and technical support personnel was primarily due to
the need to manage the activities of an increased number of value-added
resellers and distributors, end-user customers and new products.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 11% to $10.0 million for the first
quarter of 1998 from $9.1 million for the first quarter of 1997. This increase
was primarily due to the addition of finance, information systems and
administrative personnel, accruals for performance bonuses, increased facilities
costs and the cost of investor relations activities. General and administrative
expenses as a percent of net sales were 3% for the quarters ended March 31, 1998
and 1997.
15
<PAGE>
ASCEND COMMUNICATIONS, INC.
PURCHASED RESEARCH AND DEVELOPMENT
Purchased research and development costs were $231.1 million for the quarter
ended March 31, 1997. These costs were for the purchase of technology and
related assets associated with the acquisitions of InterCon Systems Corporation
and Sahara Networks, Inc. during the first quarter of 1997. These acquisitions
provided technology and expertise that the Company used to enhance and expand
the breadth of its offerings to end-user markets.
INTEREST INCOME, NET
Interest income (net) decreased by approximately $312,000 to $5.0 million (2% of
net sales) for the first quarter of 1998 compared to $5.3 million for the same
quarter of 1997. This decrease in interest income (net) is due primarily to
shifting investments from taxable securities to non-taxable securities.
PROVISION FOR INCOME TAXES
The Company's effective tax rate for the quarters ended March 31, 1998 and 1997
was 36.0% and 38.2%, respectively, exclusive of the effect of one-time
non-deductible in-process research and development expenses. The lower effective
tax rate for 1998 is primarily attributable to reduction in the overall state
effective tax rate and utilization of various tax credits. The Company
anticipates its 1998 effective tax rate to be approximately 36.0%, however, the
rate could change upon a change in the estimated amount or geographic mix of the
Company's earnings, changes in U.S. tax law such as reinstatement of the
research tax credit, or the effect of future acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's principal sources of liquidity included $691.4
million of cash and cash equivalents, short-term investments and investments,
and an unsecured $25.0 million revolving line of credit which expires in June
1999. There were no borrowings or amounts outstanding under the line of credit
as of March 31, 1998. The increase in cash and cash equivalents of $100.2
million for the period was principally due to $107.7 million of funds provided
by operating activities and $33.2 million of funds provided by financing
activities, partially offset by $40.7 million of funds used in investing
activities. The net cash provided by operating activities for the three months
ended March 31, 1998 was primarily due to increases in accrued liabilities,
accrued compensation and accounts payable and increased net income, partially
offset by increases in other assets, accounts receivable and inventories.
Net cash used in investing activities of $40.7 million for the three months
ended March 31, 1998 related primarily to net purchases, maturities and sales of
investments and expenditures for furniture, fixtures, and equipment. Financing
activities provided $33.2 million for the three months ended March 31, 1998,
primarily due to proceeds from, and tax benefits related to, the exercise of
stock options and issuance of common stock in connection with the Company's
employee and outside director stock plans.
16
<PAGE>
ASCEND COMMUNICATIONS, INC.
LIQUIDITY AND CAPITAL RESOURCES (continued)
At March 31, 1998, the Company had $823.0 million in working capital. The
Company currently has no significant capital commitments other than commitments
under facilities and operating leases. The Company believes that its available
sources of funds and anticipated cash flow from operations will be adequate to
finance current operations, anticipated investments and capital expenditures for
at least the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's quarterly and annual operating results are affected by a wide
variety of risks and uncertainties as discussed in the Company's 1997 Annual
Report on Form 10-K. This Report on Form 10-Q should be read in conjunction with
Form 10-K, particularly the section entitled "Factors That May Affect Future
Results." These risks and uncertainties include but are not limited to
competition, the mix of products sold, the mix of distribution channels
employed, the Company's success in developing, introducing and shipping new
products, the Company's ability to attract and retain key employees, the
Company's success in integrating acquired operations, the Company's dependence
on single or limited source suppliers for certain components used in its
products, price reductions for the Company's products, risks inherent in
international sales, changes in the levels of inventory held by third-party
resellers, the timing of orders from and shipments to customers, seasonality and
general economic conditions.
In particular, a substantial portion of the Company's sales of MAX and Pipeline
products is related to the Internet industry. In North America, the Company
sells a substantial percentage of its products, particularly its MAX products,
to ISPs. Additionally, a substantial portion of the Company's sales of core
systems products is related to the telecommunications carrier industry. In North
America, the Company sells a substantial percentage of the core systems products
to public carriers. There can be no assurance that these industries and their
infrastructure will continue to develop or that acceptance of the Company's
products by these industries will be sustained. The Company believes competition
in the Internet and public carrier industry will increase significantly in the
future and could adversely affect the Company's business, results of operations
and financial condition.
The Company expects that its gross margins could be adversely affected in future
periods by price changes as a result of increased competition. In addition,
increased sales of Pipeline products as a percentage of net sales may adversely
affect the Company's gross margins in future periods as these products have
lower gross margins than the Company's other products. Further, the
Company's use of third parties to distribute its products to other value-added
resellers may adversely affect the Company's gross margins.
17
<PAGE>
ASCEND COMMUNICATIONS, INC.
FACTORS THAT MAY AFFECT FUTURE RESULTS (continued)
The Company expects that international sales will continue to account for a
significant portion of the Company's net sales in future periods. International
sales are subject to certain inherent risks, including unexpected changes in
regulatory requirements and tariffs, difficulties in staffing and managing
foreign operations, longer payment cycles, problems in collecting accounts
receivable and potentially adverse tax consequences. The Company depends on
third party resellers for a substantial portion of its international sales.
Certain of these third party resellers also act as resellers for competitors of
the Company that can devote greater effort and resources to marketing
competitive products. The loss of certain of these third party resellers could
have a material adverse effect on the Company's business and results of
operations. Although the Company's sales are denominated in U.S. dollars,
fluctuations in currency exchange rates could cause the Company's products to
become relatively more expensive to customers in a particular country, leading
to a reduction in sales and profitability in that country. Furthermore, future
international activity may result in foreign currency denominated sales, and, in
such event, gains and losses on the conversion to U.S. dollars of accounts
receivable and accounts payable arising from international operations may
contribute to fluctuations in the Company's results of operations. In addition,
sales in Europe and certain other parts of the world typically are adversely
affected in the third quarter of each calendar year as many customers reduce
their business activities during the summer months. These seasonal factors may
have an adverse effect on the Company's business, results of operations and
financial condition.
The Company typically operates with a relatively small backlog. As a result,
quarterly sales and operating results generally depend on the volume of, timing
of and ability to fulfill orders received within the quarter, which are
difficult to forecast. In the Company's most recent quarters, the sequential
sales growth slowed from prior levels, and a disproportionate share of the sales
occurred in the last month of the quarter. These occurrences are extremely
difficult to predict and may happen in the future. The Company's ability to meet
financial expectations could be hampered if the nonlinear sales pattern
continues in future periods. Accordingly, the cancellation or delay of even a
small percentage of customer purchases could adversely affect the Company's
results of operations in the quarter. A significant portion of the Company's net
sales in prior periods has been derived from relatively large sales to a limited
number of customers, and therefore the failure of the Company to secure expected
large sales may have a material adverse impact on results of operations. A
significant portion of the Company's expense levels is relatively fixed in
advance based in large part on the Company's forecasts of future sales. If sales
are below expectations in any given quarter, the adverse impact of the shortfall
on the Company's operating results may be magnified by the Company's inability
to adjust spending to compensate for the shortfall.
18
<PAGE>
ASCEND COMMUNICATIONS, INC.
FACTORS THAT MAY AFFECT FUTURE RESULTS (continued)
The market for the Company's products is characterized by rapidly changing
technologies, evolving industry standards, frequent new product introductions
and short product life cycles. The introduction of new products requires the
Company to manage the transition from older products in order to minimize
disruption in customer ordering patterns, avoid excessive levels of older
product inventories and ensure that adequate supplies of new products can be
delivered to meet customer demand. Furthermore, products such as those offered
by the Company may contain undetected or unresolved hardware problems or
software errors when they are first introduced or as new versions are released.
There can be no assurance that, despite extensive testing by the Company,
hardware problems or software errors will not be found in new products after
commencement of commercial shipments, resulting in delay in or loss of market
acceptance. Future delays in the introduction or shipment of new or enhanced
products, the inability of such products to gain market acceptance or problems
associated with new product transitions could adversely affect the Company's
business, results of operations and financial condition.
Many computer systems were not designed to handle any dates beyond the Year
1999, and therefore computer hardware and software will need to be modified
prior to the Year 2000 in order to remian functional. The Company is concerned
that many enterprises will be devoting a substantial portion of their
information systems spending to resolving this upcoming Year 2000 problem. This
may result in spending being diverted from networking solutions over the next
three years. Additionally, the Company will have to devote resources to
providing the Year 2000 solution for its own products. The Year 2000 issue could
lower demand for the Company's products while increasing the Company's costs.
These factors could have a material adverse impact on the Company's
financial results.
The Company believes the majority of its major systems are currently Year 2000
compliant, and costs to transition the Company's remaining systems to Year 2000
compliance are not anticipated to be material. There can be no assurance that
systems operated by third parties that interfere with or contain the Company's
products will timely achieve Year 2000 compliance. Any failure of these third
parties' systems to timely achieve Year 2000 compliance could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company mainly competes in four segments of the data networking market : (i)
wide area network ("WAN") and Internet access, (ii) WAN and Internet backbone
switching, (iii) remote LAN access and Internet subscriber access, and (iv)
videoconferencing and multimedia access. The Company competes in one or more of
these market segments with Cisco Systems, Inc., 3Com Corporation, Bay Networks,
Inc., Newbridge Networks, Inc., Shiva Corporation, Northern Telecom, Inc., and
many others. Some of these competitors have substantially greater financial,
marketing and technical resources than the Company. The Company expects
additional competition from existing competitors and from a number of other
companies, some of which may have substantially greater financial, marketing and
technical resources than the Company, that may enter the Company's existing and
future markets. Increased competition could result in price reductions, reduced
profit margins and loss of market share, each of which would adversely affect
the Company's business, results of operations and financial condition.
19
<PAGE>
ASCEND COMMUNICATIONS, INC.
FACTORS THAT MAY AFFECT FUTURE RESULTS (continued)
The Company's sales are, to a significant degree, made through
telecommunications carriers, value-added resellers ("VARs") and distributors.
Accordingly, the Company is dependent on the continued viability and financial
stability of these companies. While the Company has contractual relationships
with many telecommunications carriers, VARs and distributors, these agreements
do not require these companies to purchase the Company's products and can be
terminated by these companies at any time. There can be no assurance that any
of the telecommunications carriers, VARs or distributors will continue to
market the Company's products. The telecommunications carrier customers, to
the extent they are resellers, VARs and distributors, generally offer products
of several different companies, including products that are competitive with
the Company's products. Accordingly, there is a risk that these companies may
give higher priority to products of other suppliers, thus reducing their
efforts to sell the Company's products. Any special distribution arrangement
and product pricing arrangement that the Company may implement in one or more
distribution channels for strategic purposes could adversely affect gross
profit margins.
The Company's success depends to a significant degree upon the continuing
contributions of its key management, sales, marketing and product development
personnel. The Company does not have employment contracts with its key personnel
and does not maintain any key person life insurance policies. The loss of key
personnel could adversely affect the Company.
The Company is currently experiencing rapid growth and expansion, which has
placed, and will continue to place, a significant strain on its administrative,
operational and financial resources and increased demands on its systems and
controls. This growth has resulted in a continuing increase in the level of
responsibility for both existing and new management personnel. The Company
anticipates that its continued growth will require it to recruit and hire a
substantial number of new engineering, sales, marketing and managerial
personnel. There can be no assurance that the Company will be successful at
hiring or retaining these personnel. The Company's ability to manage its growth
successfully will also require the Company to continue to expand and improve its
operational, management and financial systems and controls and to expand its
manufacturing capacity. If the Company's management is unable to manage growth
effectively, the Company's business, results of operations and financial
condition may be materially and adversely affected.
The Company relies on a combination of patents, copyright, and trade secret laws
and non-disclosure agreements to protect its proprietary technology. The Company
is currently involved in patent disputes the results of which are not presently
determinable. Such disputes could result in significant expenses to the Company
and divert the efforts of the Company's technical management personnel.
20
<PAGE>
ASCEND COMMUNICATIONS, INC.
FACTORS THAT MAY AFFECT FUTURE RESULTS (continued)
Although the Company generally uses standard parts and components for its
products, certain components, including certain key microprocessors and
integrated circuits, are presently available only from a single source or from
limited sources. The Company has no supply commitments from its vendors and
generally purchases components on a purchase order basis as opposed to entering
into long term procurement agreements with vendors. The Company has generally
been able to obtain adequate supplies of components in a timely manner from
current vendors or, when necessary to meet production needs, from alternate
vendors. The Company believes that, in most cases, alternate vendors can be
identified if current vendors are unable to fulfill needs. However, delays or
failure to identify alternate vendors, if required, or a reduction or
interruption in supply, or a significant increase in the price of components
could adversely affect the Company's revenues and financial results and could
impact customer relations.
The Company has concluded the acquisition of four companies in 1997 and five
companies in 1996. Achieving the anticipated benefits of these acquisitions or
any other acquisitions the Company may undertake will depend in part upon
whether the integration of the acquired companies' products and technologies,
research and development activities, and sales, marketing and administrative
organizations is accomplished in an efficient and effective manner, and there
can be no assurance that this will occur. Moreover, the integration process may
temporarily divert management attention from the day-to-day business of the
Company. Failure to successfully accomplish the integration of the acquired
companies could have a material adverse effect on the Company's business,
financial condition and/or results of operations.
The Company's common stock has experienced significant price volatility, and
such volatility may occur in the future, particularly as a result of
quarter-to-quarter variations in the actual or anticipated financial results of
the Company or other companies in the networking industry, announcements by the
Company or competitors regarding new product introductions or other developments
affecting the Company and/or changes in financial estimates by public market
analysts. In addition, the market has experienced extreme price and volume
fluctuations that have affected the market price of many technology companies'
stocks and that have been unrelated or disproportionate to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's common stock. Recent periods of
volatility in the market price of a Company's securities resulted in securities
class action litigation against the Company and various officers and directors.
Such litigation could result in substantial costs and a diversion of
management's attention and resources, which would have a material adverse effect
on the operating results and financial condition of the Company.
In consideration of these factors, there can be no assurance that the Company
will be able to sustain growth in revenues or profitability, particularly on a
period-to-period basis.
21
<PAGE>
Item 6: Exhibits and Reports on Form 8-K:
A: Exhibits
No. Description
- ----------- --------------------------------------------------------------
(6) 3.1 Certificate of Incorporation.
(1) 3.2 By-Laws.
(1) 10.1 First Amended and Restated 1989 Stock Option Plan and forms of
stock option agreements used thereunder.
(1) 10.2 Ascend Communications, Inc. 1994 Employee Stock Purchase Plan.
(1) 10.3 Ascend Communications, Inc. 1994 Outside Directors Stock
Option Plan.
(1) 10.4 Loan Agreement and related agreements, dated October 21, 1993,
by and between the Registrant and First Interstate Bank of
California.
(1) 10.5 Lease dated August 8, 1991, by and between the Registrant and
Harbor Bay Isle Associates, the First Addendum thereto, dated
August 8, 1991, and the Second Addendum thereto, dated
February 25,1994.
(1) 10.8 Form of Indemnity Agreement for directors and officers.
(2) 10.9 Loan Agreement and related agreements, date July 29, 1994, by
and between the Registrant and First Interstate Bank of
California.
(3) 10.10 Lease Agreement, Lease Rider and Second Lease Rider, dated May
17, 1995 by and between the Registrant and Resurgence
Properties, Inc.
(4) 10.11 Loan Agreement and related agreements, dated November 30,
1995, by and between the Registrant and Wells Fargo Bank of
California.
(5) 10.12 Lease agreement dated March 27, 1996, by and between the
Registrant and Sumitomo Bank Leasing and Financing, Inc.
(7) 10.13 Ascend Communications, Inc. 1996 Restricted Stock Plan.
(8) 10.14 Cascade Communications Corp. Amended and Restated 1991 Stock
Plan.
(9) 10.15 Cascade Communications Corp. 1994 Employee Stock Purchase
Plan.
22
<PAGE>
B. Exhibits (continued):
No. Description
- ------------------ ------------------------------------------------------
(9) 10.16 Cascade Communications Corp. 1994 Non-Employee Director
Stock Plan.
(9) 10.17 Letter of Employment dated March 12, 1992 between the
Registrant and Daniel E. Smith.
(9)(10)(11) 10.18 Lease dated July 27, 1993 between Glenborough
Corporation and the Registrant; as amended by the first
amendment thereto dated February 24, 1994; as amended by
the second amendment thereto dated July 24, 1994; as
amended by the third amendment thereto dated November
10, 1994; as amended by the fourth amendment thereto
dated December 1, 1995.
(12) 10.19 Lease dated November 14, 1996 between the Registrant and
Nashoba View Associated, LLC.
(13) 10.20 Loan Agreement and related agreements, dated November
30, 1995, by and between the Registrant and Wells Fargo
Bank of California, as amended by the first amendment
thereto, dated October 15, 1997.
10.21 Lease agreement dated March 20, 1998, by and between
the Registrant and Sumitomo Bank Leasing and
Financing, Inc.
10.22 Form of Change in Control Agreement for CEO and
Executive Vice Presidents.
10.23 Form of Change in Control Agreement for Vice
Presidents.
27.0 Financial Data Schedule.
(1) Incorporated by reference from the Company's Registration Statement (No.
33-77146), effective May 12, 1994.
(2) Incorporated by reference from the Company's Form 10-Q for the quarter
ended September 30, 1994.
(3) Incorporated by reference from the Company's Form 10-Q for the quarter
ended June 30, 1995.
(4) Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1995.
(5) Incorporated by reference from the Company's Form 10-Q for the quarter
ended March 31, 1996.
23
<PAGE>
A: Exhibits (continued):
(6) Incorporated by reference from the Company's Form 10-Q for the quarter
ended June 30, 1996.
(7) Incorporated by reference from the Company's Form 10-K for the year ended
December 31, 1996.
(8) Incorporated by reference from Cascade Communications Corp.'s Registration
Statement on Form S-8 (File No. 33-93152) filed with the Securities
Commission and Exchange Commission (the "Commission") on June 6, 1995.
(9) Incorporated by reference from Cascade Communications Corp.'s Registration
Statement on Form S-1 (File No. 33-79330) filed with the Commission on May
26, 1994, as amended, which Registration Statement became effective on July
28, 1994.
(10) Incorporated by reference to the corresponding exhibit previously filed as
an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal
year ended December 31, 1994 on March 29, 1995.
(11) Incorporated by reference to the corresponding exhibit previously filed as
an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal
year ended December 31, 1995 on March 1, 1996.
(12) Incorporated by reference to the corresponding exhibit previously filed as
an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal
year ended December 31, 1996 on March 14, 1997.
(13) Incorporated by reference from the Company's Form 10-K for the year ended
December 31, 1997.
B: Reports on Form 8K:
No reports on Form 8-K were filed during the quarter ended March 31,
1998.
24
<PAGE>
ASCEND COMMUNICATIONS, INC.
SIGNATURES
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.
ASCEND COMMUNICATIONS, INC.
DATE May 15, 1998 by /S/ Michael F.G.Ashby
------------ -------------------------------------------
Michael F.G. Ashby, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
DATE May 15, 1998 by /S/ Bernard V. Schneider
------------ -------------------------------------------
Bernard V. Schneider, Vice President
and Treasurer
25
<PAGE>
ASCEND COMMUNICATIONS, INC.
INDEX TO EXHIBITS
No. Description
- ----------- --------------------------------------------------------------
(6) 3.1 Certificate of Incorporation.
(1) 3.2 By-Laws.
(1) 10.1 First Amended and Restated 1989 Stock Option Plan and forms of
stock option agreements used thereunder.
(1) 10.2 Ascend Communications, Inc. 1994 Employee Stock Purchase Plan.
(1) 10.3 Ascend Communications, Inc. 1994 Outside Directors Stock
Option Plan.
(1) 10.4 Loan Agreement and related agreements, dated October 21, 1993,
by and between the Registrant and First Interstate Bank of
California.
(1) 10.5 Lease dated August 8, 1991, by and between the Registrant and
Harbor Bay Isle Associates, the First Addendum thereto, dated
August 8, 1991, and the Second Addendum thereto, dated
February 25,1994.
(1) 10.8 Form of Indemnity Agreement for directors and officers.
(2) 10.9 Loan Agreement and related agreements, date July 29, 1994, by
and between the Registrant and First Interstate Bank of
California.
(3) 10.10 Lease Agreement, Lease Rider and Second Lease Rider, dated May
17, 1995 by and between the Registrant and Resurgence
Properties, Inc.
(4) 10.11 Loan Agreement and related agreements, dated November 30,
1995, by and between the Registrant and Wells Fargo Bank of
California.
(5) 10.12 Lease agreement dated March 27, 1996, by and between the
Registrant and Sumitomo Bank Leasing and Financing, Inc.
(7) 10.13 Ascend Communications, Inc. 1996 Restricted Stock Plan.
(8) 10.14 Cascade Communications Corp. Amended and Restated 1991 Stock
Plan.
(9) 10.15 Cascade Communications Corp. 1994 Employee Stock Purchase
Plan.
26
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
No. Description
- ------------------ ------------------------------------------------------
(9) 10.16 Cascade Communications Corp. 1994 Non-Employee Director
Stock Plan.
(9) 10.17 Letter of Employment dated March 12, 1992 between the
Registrant and Daniel E. Smith.
(9)(10)(11) 10.18 Lease dated July 27, 1993 between Glenborough
Corporation and the Registrant; as amended by the first
amendment thereto dated February 24, 1994; as amended by
the second amendment thereto dated July 24, 1994; as
amended by the third amendment thereto dated November
10, 1994; as amended by the fourth amendment thereto
dated December 1, 1995.
(12) 10.19 Lease dated November 14, 1996 between the Registrant and
Nashoba View Associated, LLC.
(13) 10.20 Loan Agreement and related agreements, dated November
30, 1995, by and between the Registrant and Wells Fargo
Bank of California, as amended by the first amendment
thereto, dated October 15, 1997.
10.21 Lease agreement dated March 20, 1998, by and between
the Registrant and Sumitomo Bank Leasing and
Financing, Inc.
10.22 Form of Change in Control Agreement for CEO and
Executive Vice Presidents.
10.23 Form of Change in Control Agreement for Vice Presidents.
27.0 Financial Data Schedule.
(1) Incorporated by reference from the Company's Registration Statement (No.
33-77146), effective May 12, 1994.
(2) Incorporated by reference from the Company's Form 10-Q for the quarter
ended September 30, 1994.
(3) Incorporated by reference from the Company's Form 10-Q for the quarter
ended June 30, 1995.
(4) Incorporated by reference from the Company's Form 10-K for the year
ended December 31, 1995.
(5) Incorporated by reference from the Company's Form 10-Q for the quarter
ended March 31, 1994.
27
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
(6) Incorporated by reference from the Company's Form 10-Q for the quarter
ended June 30, 1996.
(7) Incorporated by reference from the Company's Form 10-K for the year ended
December 31, 1996.
(8) Incorporated by reference from Cascade Communications Corp.'s Registration
Statement on Form S-8 (File No. 33-93152) filed with the Securities
Commission and Exchange Commission (the "Commission") on June 6, 1995.
(9) Incorporated by reference from Cascade Communications Corp.'s Registration
Statement on Form S-1 (File No. 33-79330) filed with the Commission on May
26, 1994, as amended, which Registration Statement became effective on July
28, 1994.
(10) Incorporated by reference to the corresponding exhibit previously filed as
an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal
year ended December 31, 1994 on March 29, 1995.
(11) Incorporated by reference to the corresponding exhibit previously filed as
an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal
year ended December 31, 1995 on March 1, 1996.
(12) Incorporated by reference to the corresponding exhibit previously filed as
an exhibit to Cascade Communications Corp.'s Form 10-K filed for the fiscal
year ended December 31, 1996 on March 14, 1997.
(13) Incorporated by reference from the Company's Form 10-K for the year ended
December 31, 1997.
28
<PAGE>
EXHIBIT 10.21
AMENDED AND RESTATED MASTER LEASE
THIS AMENDED AND RESTATED MASTER LEASE ("Lease") by and between SUMITOMO
BANK LEASING AND FINANCE, INC., a Delaware corporation ("Landlord"), and ASCEND
COMMUNICATIONS, INC., a Delaware corporation ("Tenant"), is entered into as of
the date set forth in Article I and shall be effective and binding upon the
---------
parties hereto as of such date. Capitalized terms used in this Lease shall have
the definitions set forth in Article II or in the text of this Lease.
----------
In consideration of the Base Rent reserved herein, and the terms, covenants
and conditions set forth below, Landlord and Tenant hereby agree as follows:
ARTICLE I
BASIC LEASE PROVISIONS
----------------------
<TABLE>
<CAPTION>
<S> <C>
1.1 DATE OF LEASE: March __, 1998.
1.2 LANDLORD: Sumitomo Bank Leasing and Finance, Inc., a
Delaware corporation.
1.3 TENANT: Ascend Communications, Inc., a Delaware
corporation.
1.4 LAND: Individually, the tract of land more
particularly described on Schedule 1 to a
particular Lease Supplement, executed and
delivered pursuant to this Lease, together
with all easements, rights of way,
appurtenances and other rights and benefits
belonging or pertaining to such tracts of
land. Collectively, all such tracts of land.
Landlord makes no representations as to the
accuracy of the description of the Land.
1.5 PARCEL: Individually, the Land and the Improvements
located or to be located on the Land.
Collectively, all Land and Improvements.
1.6 TERM: The term of this Lease ("Master Lease Term")
shall commence on the Date of Lease set forth
in Section 1.1 above and shall expire on March
_____, 2003 ("Expiration Date"). The term of
each Lease Supplement ("Lease Supplement
Term") shall commence on the date set forth in
the applicable Lease Supplement and expire on
the Expiration Date. The Master Lease Term
and Lease Supplement Term are sometimes
collectively referred to herein as the "Term".
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
The Term shall cease upon, and shall not refer
to any period of time after, termination of
this Lease or with respect to any Lease
Supplement, the termination of such Lease
Supplement (whether pursuant to the terms of
the Lease or Lease Supplement, by operation of
law, or otherwise).
1.7 RENT COMMENCEMENT DATE: As to any Lease Supplement for Construction,
the tenth (10th) day of the second (2nd) full
calendar month which commences immediately
following the earliest to occur of the
following:
(1) the expiration of the Construction Period;
or
(2) the first (1st) business day following the
date upon which all of the following have
occurred: (i) the Improvements that Tenant
intends to cause to be constructed with Advances
made by Landlord pursuant to the Construction
Management Agreement have been substantially
completed; (ii) valid notices of completion have
been recorded with respect thereto; and (iii) all necessary
governmental approvals (including permanent certificates
of occupancy) have been issued as may be necessary
to occupy all portions of the Improvements for the
conduct of Tenant's business therein.
As to any Lease Supplement for Acquisition,
the date of such Lease Supplement.
1.8 BASE RENT: As described in Section 2.3.
1.9 ADDRESSES FOR NOTICES:
LANDLORD: TENANT:
Sumitomo Bank Leasing and Finance, Ascend Communications, Inc.
Inc. 1701 Harbor Bay Parkway
277 Park Avenue Alameda, CA 94502
New York, NY 10172 Attention: Michael J. Johnson, Controller
Attention: Chief Credit Officer
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
With a copy to: With a copy to:
Graham & James LLP Gray Cary Ware & Freidenrich
One Maritime Plaza 400 Hamilton Avenue
Suite 300 Palo Alto, CA 94301
San Francisco, CA 94111 Attention: James Anderson, Esq.
Attention: Bruce W. Hyman, Esq.
1.10 WIRE TRANSFER INSTRUCTIONS:
Bank: Citibank, N.A., New York
Routing Number: 021 000 089
Credit To: Sumitomo Bank, New York
Acct. Number: 360 23 837
Further Credit to: SBNYTC Funds Account # 658258
F/B/O: SBLF/Ascend Communications #2, # 1080350258
1.11 INTERIM PERIOD: The period commencing on the date of any Lease
Supplement for Construction and ending on the
day before the last day of the Construction
Period for such Lease Supplement for
Construction.
</TABLE>
This Article 1 is intended to supplement and/or summarize the provisions
---------
set forth in the balance of this Lease. If there is any conflict between any
provisions contained in this Article 1 and the balance of this Lease, the
---------
balance of this Lease shall control.
ARTICLE II
DEFINITIONS
-----------
For purposes of this Lease, the following defined terms shall have the
meanings set forth in this Article II.
----------
2.1 ADDITIONAL RENT.
"Additional Rent" shall mean any amounts other than Base Rent payable by
Tenant to Landlord or to other Entities on Landlord's behalf as required under
this Lease, specifically including, but without limitation, payment of the
Commitment
3
<PAGE>
Component, the Guaranteed Residual Value, and "break-funding costs" (defined as
the cost associated with the payment of Rent on other than a scheduled Rent
Payment Date) of Landlord related to the Lease Investment Balance (as defined
below) arising out of unscheduled payments or exercise of the Purchase Option
pursuant to Section 20.1 below other than on a Rent Payment Date. Landlord
------------
agrees to deliver to Tenant in connection with any break-funding costs described
in the preceding sentence a statement setting forth in reasonable detail the
calculation used to determine the break-funding costs and any amount equal to
the lease amortization shown on each Lease Supplement, if any.
2.2 ADVANCE.
-------
"Advance" shall mean any payment by Landlord pursuant to Tenant's written
request for (i) any costs relating to the acquisition of Land and any existing
Improvements and construction of any new Improvements, whether funded under
Article VI, a Construction Management Agreement or paid directly by Landlord,
- ----------
including, without limitation, costs (including reasonable attorneys fees and
costs in connection with preparation of the applicable Lease Supplement and
security agreement(s) required by Landlord), transaction costs (including title
charges and professional fees and expenses), construction costs, architectural,
engineering and other reasonable professional fees, arrangement fees, appraisal
fees, inspection, testing and permitting fees, fees and costs for review of
plans and any changes thereto, reasonable travel expense for inspections,
insurance and any other soft costs relating to the Improvements; (ii) the items
and/or amounts described in the Initial Advance Side Letter as the Initial
Advance; (iii) Real Estate Taxes; (iv) a reasonable and customary fee relating
to the construction of the Improvements and the processing of Draw Requests
(equal to $400 per month over the period which such services are rendered,
payable to SBNYTC), (v) custodial fees related to the Collateral as set forth in
the Custodial Agreement, if applicable, and (vi) any other payment described
herein or in the Construction Management Agreement as an Advance.
2.3 BASE RENT.
---------
"Base Rent" shall mean, as of a Rent Payment Date, either the LIBOR Base
Rent (defined in Section 2.41 below) or the Federal Funds Base Rent (defined in
------------
Section 2.24 below), whichever is applicable under the terms of this Lease plus
- ------------
the aggregate lease amortization amount set forth in the Lease Supplement, if
any. Unless Tenant has elected the Federal Funds Rate pursuant to Section 21.25
-------------
below or Landlord has required the Federal Funds Rate under Section 21.22 below,
-------------
the Base Rent under this Lease shall be LIBOR Base Rent.
2.4 BUILDING.
--------
"Building" shall mean any existing building or buildings as well as
improvements that Tenant intends to construct on Land covered by a Lease
Supplement, which shall become part of the Improvements.
2.5 CALCULATION PERIOD.
------------------
"Calculation Period" shall mean, for any Lease Supplement for Construction,
the period from and including the 20th day of each month during the Interim
Period for such Lease Supplement, through the 19th day of the following month;
provided that the first Calculation Period shall be the period from the date of
the Lease Supplement through the 19th day of the following month and the last
Calculation Period shall be the period from and including the 20th day of the
month prior to the month in which the last day of the Construction Period set
forth in such Lease Supplement occurs through the last day of the Interim Period
for such Lease Supplement.
4
<PAGE>
2.6 CAPITALIZED AMOUNT.
------------------
"Capitalized Amount" for any Lease Supplement for Construction shall mean
that amount, determined as of the close of each Calculation Period during the
Term and added to the Lease Investment Balance as of such date, equal to the sum
of Capitalized Funding Costs plus the Commitment Component accrued for the
Calculation Period in question. Landlord shall notify Tenant of the Capitalized
Amount for each Calculation Period and the basis for the determination thereof;
and if Tenant fails to object to such determination within five (5) business
days of Landlord's notice thereof, Tenant shall be deemed to have authorized,
but not accepted, such determination. If necessary as determined by Landlord
pursuant to Section 6.3 below, such Capitalized Amount shall be allocated
-----------
between the Site Investment Balance and Improvements Investment Balance for any
Lease Supplement in relation to the values set forth in the appraisal for the
Parcel covered by such Lease Supplement.
2.7 CAPITALIZED FUNDING COSTS.
-------------------------
"Capitalized Funding Costs" for any Lease Supplement for Construction shall
mean, for each Calculation Period during the Interim Period for such Lease
Supplement, that amount equal to the product obtained by multiplying the
Advances outstanding from time to time during the Calculation Period in question
by the sum of the LIBOR Rate plus 100 basis points; provided, however, that in
the event Landlord requires Tenant to fully collateralize this Lease pursuant to
Article XXIV below, Capitalized Funding Costs shall be calculated using the
- ------------
LIBOR Rate plus 75 basis points which product is then multiplied by a fraction,
the numerator of which is the actual number of days in such Calculation Period
and the denominator is 360.
2.8 CITY.
----
"City" shall mean the City in which a Parcel is located.
2.9 COLLATERAL.
----------
"Collateral" shall have the meaning set forth in Section 21.23.
-------------
2.10 COMMITMENT AMOUNT.
-----------------
"Commitment Amount" shall mean an amount up to a maximum of FORTY SIX
MILLION and no/100 Dollars ($46,000,000.00).
2.11 COMMITMENT COMPONENT.
--------------------
"Commitment Component" shall mean, for each Calculation Period during the
Interim Period for any Lease Supplement for Construction, that amount equal to
the product obtained by multiplying the unused Commitment Amount outstanding
from time to time during the Calculation Period in question by .15%, which
product is then multiplied by a fraction, the numerator of which is the actual
number of days in such Calculation Period and the denominator is 360. Portions
of the Commitment Amount shall be deemed to be used (i) as of the date of each
Advance by Landlord during the Interim Period, on which date each such Advance
shall be added to and become part of the Lease Investment Balance under such
Lease Supplement, and (ii) as of the date at the close of each Calculation
Period on which the Capitalized Amount for such Calculation Period is added to
and becomes part of the Lease Investment Balance under such Lease Supplement.
For purposes of calculating the Lease Investment Balance under any Lease
Supplement and any other obligations under this Lease, the Commitment Component
shall accrue only during the Interim Period.
2.12 CONSOLIDATED TANGIBLE NET WORTH.
-------------------------------
"Consolidated Tangible Net Worth" shall mean at any date as of which the
amount thereof shall be determined, the consolidated total shareholder's equity
less any intangible assets (excluding cumulative goodwill from acquisitions
5
<PAGE>
occurring after March 1, 1998), adjusted for cumulative one-time acquisitions
related charges and write-ups (occurring within the same quarter as the
acquisition).
2.13 CONSOLIDATED TOTAL LIABILITIES.
------------------------------
"Consolidated Total Liabilities" shall mean at any date as of which
the amount thereof shall be determined, the aggregate of current and non-current
liabilities, including Off-Balance Sheet Commitments (defined below). The term
"Off Balance Sheet Commitments" shall mean any contingent obligation which
exceeds One Million Dollars ($1,000,000) in connection with any of the following
transactions: (i) an operating lease with an initial term of greater than one
(1) year, (ii) a letter of credit, (iii) a guaranty of an obligation of a
subsidiary, customer or supplier (excluding guarantees of obligations incurred
in Tenant's normal course of business and guarantees of obligations otherwise
included in Consolidated Total Liabilities) and (iv) any transaction similar in
nature to those transactions described in items (i) through (iii) above where
the contingent obligation in connection with such transaction exceeds
$1,000,000. For purposes of calculating from time to time the aggregate amount
of Off Balance Sheet Commitments, any and all contingent obligations in
connection with the financing for the Improvements to and/or construction of
facilities located in any state, including the contingent obligations under the
Lease, shall be excluded from such calculation; provided, however, in no event
shall the amount excluded exceed One Hundred Million Dollars ($100,000,000).
2.14 CONSTRUCTION MANAGEMENT AGREEMENT.
---------------------------------
"Construction Management Agreement" shall collectively mean that certain
Construction Management Agreement of even date herewith between Landlord and
Tenant regarding the construction of the Improvements in connection with Lease
Supplement for Construction No. 1 and any Construction Management Agreements
between Landlord and Tenant executed pursuant to Section 5.1 below in connection
-----------
with any additional Lease Supplements for Construction.
2.15 CONSTRUCTION PERIOD.
-------------------
"Construction Period" for any Lease Supplement for Construction shall mean
the period of time beginning with the date of the Lease Supplement for
Construction and ending on the date set forth in such Lease Supplement for
Construction.
2.16 CONTRACTOR.
----------
"Contractor" shall mean any construction manager or general contractor
hired to construct any portion of the Improvements, which contractor shall be
selected by the Construction Manager in its capacity as agent for Landlord under
the Construction Management Agreement, and shall be subject to Landlord's
approval.
2.17 CUSTODIAL AGREEMENT.
-------------------
"Custodial Agreement" shall mean that certain institutional Amended and
Restated Custodial Agreement of even date herewith by and between Tenant, Wells
Fargo Bank and Rent Purchasers.
2.18 DEBT SERVICE COVERAGE RATIO.
---------------------------
"Debt Service Coverage Ratio" shall mean earnings before interest, taxes,
depreciation and amortization expense, plus one-time acquisitions related
charges (occurring in the same quarter as the acquisition), plus rent from off-
balance sheet financings, plus interest income divided by interest expense plus
rent from off-balance sheet financings.
6
<PAGE>
2.19 DEFAULT RATE.
------------
"Default Rate" means with respect to the Lease Investment Balance, the one
(1) month LIBOR Base Rent plus 200 basis points. Notwithstanding the foregoing,
in the event that the foregoing Default Rate shall be in violation of any usury
or similar law, then the Default Rate shall be reduced to the extent necessary
to cause the Default Rate to comply with any usury or similar law.
2.20 ENTITY.
------
"Entity" shall mean any person, corporation, partnership (general or
limited), joint venture, association, limited liability company, joint stock
company, trust or other business entity or organization.
2.21 ERISA GROUP.
-----------
"ERISA Group" shall mean Tenant and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which are treated as a single employer under Section 414 of the
Code.
2.22 EUROCURRENCY RESERVE REQUIREMENTS.
---------------------------------
"Eurocurrency Reserve Requirements" shall mean the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on such day (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System ("Board") or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member
bank of the Federal Reserve System.
2.23 EVENT OF DEFAULT.
----------------
"Event of Default" shall have the meaning set forth in Section 19.1.
------------
2.24 FEDERAL FUNDS BASE RENT.
-----------------------
"Federal Funds Base Rent" shall mean the sum of (a) the amount equal to the
product obtained by multiplying the "Lease Investment Balance Equity" (at the
time of the relevant calculation) and the sum of the Federal Funds Rate (defined
for purposes of this Section 2.24 as the rate of interest given by the Federal
------------
Reserve of the United States to participating banks for borrowings corresponding
to the Borrowing Period (as defined in Section 2.40 below)) plus 50 basis points
------------
plus 100 basis points, which product is then multiplied by a fraction, the
numerator of which is the actual number of days elapsed and the denominator of
which is 360, plus (b) the amount equal to the product obtained by multiplying
the "Lease Investment Balance Debt" (at the time of the relevant calculation) by
the sum of the Federal Funds Rate plus 50 basis points plus 50 basis points,
which product is then multiplied by a fraction, the numerator of which is the
actual number of days elapsed and the denominator of which is 360; provided,
however, that in the event Landlord requires Tenant to provide Collateral under
this Lease pursuant to Article XXIV below, the Federal Funds Base Rent shall
------------
mean the sum of (a) the amount equal to the product obtained by multiplying the
"Lease Investment Balance Equity" (at the time of the relevant calculation) by
the sum of the Federal Funds Rate plus 50 basis points plus 75 basis points,
which product is then multiplied by a fraction, the numerator of which is the
actual number of days elapsed and the denominator of which is 360, plus (b) the
amount equal to the product obtained by multiplying the "Lease Investment
Balance Debt" (at the time of the relevant calculation) by the sum of the
Federal Funds Rate plus 50 basis points plus 20 basis points, which product is
then multiplied by a fraction, the numerator of
7
<PAGE>
which is the actual number of days elapsed and the denominator of which is 360.
As used in this Section 2.24, the terms "Lease Investment Balance Debt" and
------------
"Lease Investment Balance Equity" shall have the same meanings as set forth in
the Participation Agreement. In no event shall the Federal Funds Base Rent
exceed the Federal Funds Rate plus (i) 50 basis points plus 57 basis points if
Tenant has not provided Collateral pursuant to Article XXIV hereof, or (ii) 50
------------
basis points plus 27.5 basis points if Tenant has provided Collateral pursuant
to Article XXIV hereof.
------------
2.25 GOVERNMENTAL ACTION.
-------------------
"Governmental Action" means all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgments, written
interpretations, decrees, licenses, exemptions, publications, filings, notices
to and declarations of or with, or required by, any Governmental Authority, or
required by any applicable law, and shall include without limitation, all
environmental and operating permits and licenses that are required for the full
use, occupancy, zoning and operation of the Parcels.
2.26 GOVERNMENTAL AUTHORITY.
----------------------
"Governmental Authority" means any nation or government, any state, county,
city or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
2.27 GUARANTEED RESIDUAL VALUE.
-------------------------
"Guaranteed Residual Value" shall mean with respect to each Lease
Supplement an amount, the present value of which when added to the present value
of the Tenant's minimum lease payments under this Lease, both present valued to
the Date of Lease using the implicit rate in this Lease, creates a sum which is
not to exceed Eighty-Nine and Nine Tenths Percent (89.9%) of the Lease
Investment Balance, or if applicable, pursuant to the terms of Section 6.3
-----------
below, of each of the Site Investment Balance and the Improvements Investment
Balance. These calculations will be performed in accordance with the provisions
of Statement of Financial Accounting Standards Number 13. In no event shall the
Guaranteed Residual Value exceed the Lease Investment Balance multiplied by the
Guaranteed Residual Value percentage (which will be set forth in the Rent
Commencement Date Memorandum executed by Landlord and Tenant in connection with
each Lease Supplement) plus accrued and unpaid Base Rent and Additional Rent.
2.28 IMPROVEMENTS.
------------
"Improvements" shall mean any Building and all related improvements which
Tenant shall, as construction agent for Landlord, erect, construct or situate in
or on the Building or on the Land or any part thereof during the Term using
funding provided by or through Landlord under and pursuant to the terms of the
Construction Management Agreement.
2.29 IMPROVEMENTS INVESTMENT BALANCE.
-------------------------------
"Improvements Investment Balance" shall mean: (i) for any Lease Supplement
for Acquisition, the value attributable to such existing Improvements as of the
date of the Lease Supplement as set forth in an appraisal which has been
approved by Landlord and Rent Purchasers, plus the Capitalized Amount allocated
to such Lease Supplement, plus a pro rata amount of closing costs and fees in
connection with such Lease Supplement, and (ii) for any Lease Supplement for
Construction, the amount of Advances made by Landlord for construction of the
Improvements pursuant to the Construction Management
8
<PAGE>
Agreement, plus the Capitalized Amount allocated to such Lease Supplement, plus
a pro rata amount of closing costs and fees in connection with such Lease
Supplement.
2.30 INTERIM PERIOD.
--------------
"Interim Period" shall have the meaning set forth in the Basic Lease
Provisions.
2.31 INITIAL ADVANCE.
---------------
"Initial Advance" shall mean the amounts described in Exhibit B to the
Original Lease and in the Initial Advance Side Letter pertaining to execution of
this Lease and Lease Supplement No. 2.
2.32 INITIAL ADVANCE SIDE LETTER.
---------------------------
"Initial Advance Side Letter" shall mean the side letter dated March ___,
1998 executed by and between Landlord and Tenant which sets forth the amount of
and terms relating to the Initial Advance and arrangement fee made in connection
with this Lease and Lease Supplement No. 2.
2.33 LAND.
----
"Land" shall have the meaning set forth in the Basic Lease Provisions.
2.34 LANDLORD AFFILIATE.
------------------
"Landlord Affiliate" shall mean any entity which controls, is controlled by
or is under the common control of Landlord.
2.35 LEASE INVESTMENT BALANCE.
------------------------
"Lease Investment Balance" shall mean for any Lease Supplement, at the time
in question, the aggregate amount of all Advances made by Landlord reduced by
the following: (1) the aggregate of all amounts received by Landlord pursuant to
the provisions of Article XVI (Eminent Domain), and Article XVII (Damage or
----------- ------------
Destruction), Section 19.3 (Landlord's Remedies), Section 20.1 (Option to
------------ ------------
Purchase Parcels), and/or Section 20.2 (Termination Option); and (2) the
------------
aggregate of all amounts received by Landlord in respect of this Lease or any
related agreement that are not otherwise applied to reduce the Lease Investment
Balance and which constitute a repayment or reduction of the amounts placed at
risk by the Landlord, excluding for purposes of this clause amounts paid as Base
Rent hereunder, reimbursement for expenses, fees and similar items incurred by
Landlord and payable by Tenant to Landlord under this Lease and the SBLF Deed of
Trust.
2.36 LEASE SUPPLEMENT.
----------------
"Lease Supplement" shall mean any lease supplement substantially in the
form of Exhibit A or Exhibit B to this Lease, as applicable, executed and
--------- ---------
delivered by Landlord and Tenant pursuant to this Lease.
2.37 LEASE SUPPLEMENT FOR ACQUISITION.
--------------------------------
"Lease Supplement for Acquisition" shall mean a Lease Supplement covering
Land upon which there are existing Improvements being purchased with an Advance
made by Landlord pursuant to Article VI below.
----------
2.38 LEASE SUPPLEMENT FOR CONSTRUCTION.
---------------------------------
"Lease Supplement for Construction" shall mean a Lease Supplement covering
Land and/or a Building in or upon which Tenant intends to construct new
Improvements with Advances made by Landlord pursuant to a Construction
Management Agreement.
2.39 LEGAL REQUIREMENTS.
------------------
"Legal Requirements" shall mean all statutes, codes, laws, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses,
9
<PAGE>
authorizations, directions and requirements of all federal, state, county,
municipal and other governments, departments, commissions, boards, courts,
authorities, officials and officers, which now or at any time hereafter are
applicable to this Lease or applicable to and enforceable against the Parcels,
any improvements or any part thereof, as applicable.
2.40 LIBOR RATE.
----------
"LIBOR Rate" shall mean, for each Borrowing Period (as defined below) the
annualized rate determined by The Sumitomo Bank, Limited (the "Bank") as the
rate that would be offered to Bank's New York office for U.S. dollar deposits in
the London Interbank Market as quoted for the mid-morning average Libor Rate
published by Reuters Monitoring Systems for the applicable Borrowing Period for
the entire then outstanding principal balance hereof (rounded upwards to the
next higher 1/16th of 1% if such quoted rate is not a multiple of 1/16) for
deposits by the Bank of immediately available dollars in the London Interbank
Market on the day two (2) business days preceding the first day of the term of
that Borrowing Period. In the event the Reuters quote is not available, the
British Banker's Association's Interest Settlement Rate should be used.
"Borrowing Period" shall mean 1, 3, or 6 months as selected by Tenant from time
to time from and after the Rent Commencement Date at least two (2) business days
prior to the end of the then current Borrowing Period (provided that, if Tenant
fails to so select a Borrowing Period prior to the end of the then current
Borrowing Period, a Borrowing Period of one (1) month shall be deemed to have
been selected by Tenant); provided, however, that there shall not be more than
one (1) LIBOR Rate in effect at any time.
2.41 LIBOR BASE RENT.
---------------
"LIBOR Base Rent" shall mean the sum of (a) the amount equal to the product
obtained by multiplying the "Lease Investment Balance Equity" (at the time of
the relevant calculation) and the sum of the LIBOR Rate plus 100 basis points,
which product is then multiplied by a fraction, the numerator of which is the
actual number of days elapsed and the denominator of which is 360, plus (b) the
amount equal to the product obtained by multiplying the "Lease Investment
Balance Debt" (at the time of the relevant calculation) by the sum of the LIBOR
Rate plus 50 basis points, which product is then multiplied by a fraction, the
numerator of which is the actual number of days elapsed and the denominator of
which is 360; provided, however, that in the event Landlord requires Tenant to
provide Collateral under this Lease pursuant to Article XXIV below, the LIBOR
------------
Base Rent shall mean the sum of (a) the amount equal to the product obtained by
multiplying the "Lease Investment Balance Equity" (at the time of the relevant
calculation) by the sum of the LIBOR Rate plus 75 basis points, which product is
then multiplied by a fraction, the numerator of which is the actual number of
days elapsed and the denominator of which is 360, plus (b) the amount equal to
the product obtained by multiplying the "Lease Investment Balance Debt" (at the
time of the relevant calculation) by the sum of the LIBOR Rate plus 20 basis
points, which product is then multiplied by a fraction, the numerator of which
is the actual number of days elapsed and the denominator of which is 360. As
used in this Section 2.41, the terms "Lease Investment Balance Debt" and "Lease
------------
Investment Balance Equity" shall have the same meanings as set forth in the
Participation Agreement. In no event shall the LIBOR Base Rent exceed the LIBOR
Rate plus (i) 57 basis points if Tenant has not provided Collateral pursuant to
Article XXIV hereof, or (ii) 27.5 basis points if Tenant has provided Collateral
- ------------
pursuant to Article XXIV hereof.
------------
2.42 MULTIEMPLOYER PLAN.
------------------
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member
10
<PAGE>
of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five (5) plan years made
contributions, including for these purposes any person which ceased to be a
member of the ERISA Group during such five (5) year period.
2.43 NOTICE.
------
"Notice" shall mean a written advice, request, demand or notification
required or permitted by this Lease, as more particularly provided in Section
-------
21.3.
- ----
2.44 OFFICIAL RECORDS.
----------------
"Official Records" shall mean the official records of the County in which
the Land is located.
2.45 ORIGINAL LEASE.
--------------
"Original Lease" shall mean that certain Lease dated March 27, 1996
executed by and between Landlord and Tenant, as amended by that certain First
Amendment to Lease dated as of July 17, 1996, which Original Lease is being
amended and restated in its entirety by this Lease.
2.46 PARTICIPATION AGREEMENT.
-----------------------
"Participation Agreement" shall mean that certain Amended and Restated
Participation Agreement of even date herewith executed by and between Tenant,
Landlord and Rent Purchasers in the form attached hereto as Exhibit C.
---------
2.47 PERMITTED TITLE EXCEPTIONS.
--------------------------
"Permitted Title Exceptions" shall mean the following: (1) the exceptions
set forth in each Lease Supplement; (2) any exceptions created or caused by
Tenant or to which Tenant consents in writing; (3) taxes and assessments
(excluding Landlord's Taxes as defined in Section 8.1 below) not yet due and
-----------
payable; (4) the SBLF Deed of Trust; (5) all title defects, liens, encumbrances,
deeds of trust, mortgages, rights-of-way, and restrictive covenants and
conditions affecting the Land except to the extent any of the foregoing arise as
a result of Landlord's actions or with Landlord's written consent (unless such
actions taken or consent given by Landlord are requested in writing by Tenant);
and (6) this Lease and all Lease Supplements.
2.48 PLAN.
----
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which either (i) is maintained, or contributed to, by any
member of the ERISA Group for employees of any member of the ERISA Group, or
(ii) has at any time within the preceding five (5) years been maintained, or
contributed to, by any person which was at such time a member of the ERISA Group
for employees of any person which was at such time a member of the ERISA Group.
2.49 PLEDGE AGREEMENT.
----------------
"Pledge Agreement" shall mean that certain Amended and Restated Pledge
Agreement of even date herewith executed by and between Rent Purchasers and
Tenant.
2.50 REAL ESTATE TAXES.
-----------------
"Real Estate Taxes" shall have the meaning set forth in Section 8.1(b).
--------------
2.51 RENT COMMENCEMENT DATE.
----------------------
"Rent Commencement Date" shall have the meaning set forth in the Basic
Lease Provisions.
11
<PAGE>
2.52 RENT PAYMENT DATE.
-----------------
"Rent Payment Date" shall have the meaning set forth in Section 7.1.
-----------
2.53 RENT PURCHASERS.
---------------
"Rent Purchasers" shall have the meaning set forth in the Participation
Agreement.
2.54 REQUIRED PERMITS.
----------------
"Required Permits" shall mean each and every building and development
permit including, without limitation, demolition permits, site permits and
addenda thereto (including, without limitation, foundation permits and
structural permits), temporary and final occupancy permits and any other
governmental or quasi-governmental approvals which must be issued by any
governmental authority, department, commission, board, official or officer as a
condition precedent to construction and occupancy of any improvements.
2.55 SBLF DEED OF TRUST.
------------------
"SBLF Deed of Trust" shall collectively mean those certain deeds of trust,
mortgages or other security instruments executed by Tenant in favor of Landlord
encumbering the Land covered by a Lease Supplement.
2.56 SBNYTC.
------
"SBNYTC" shall mean Sumitomo Bank of New York Trust Company.
2.57 SITE INVESTMENT BALANCE.
-----------------------
"Site Investment Balance" for any Lease Supplement shall mean the aggregate
amount of Advances made by Landlord for acquisition of the Land covered by a
Lease Supplement, plus the Capitalized Amount attributable to the Land, plus a
pro rata amount of closing costs and fees in connection with such Lease
Supplement.
2.58 TAKING.
------
"Taking" shall have the meaning set forth in Section 16.1.
------------
2.59 TENANT'S PROPERTY.
-----------------
"Tenant's Property" shall mean any process equipment, fixtures, furniture,
furnishings, personal property or trade fixtures which are purchased or
constructed with funds of Tenant and not purchased, paid for, or otherwise
financed by Advances made by Landlord, whether or not installed upon the Land.
2.60 TERM.
----
"Term" shall have the meaning set forth in the Basic Lease Provisions.
2.61 TERMINOLOGY.
-----------
All personal pronouns used in this Lease shall include all other genders.
The singular shall include the plural and the plural shall include the singular.
Titles of Articles, Sections and Subsections in this Lease are for convenience
only and neither limit nor amplify the provisions of this Lease, and all
references in this Lease to Articles, Sections or Subsections shall refer to the
corresponding Article, Section or Subsection of this Lease unless specific
reference is made to the articles, sections or other subdivisions of another
document or instrument. The word "days" or "business days" as used herein shall
mean business days (i.e., excluding holidays when banks in California, New York
and London (with respect to payment of Base Rent and the determination of the
LIBOR Rate) are generally closed for business and weekends) unless otherwise
expressly stated. Unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered hereunder shall be
prepared in accordance with generally accepted accounting principles as in
effect from time to time, applied on a basis
12
<PAGE>
consistent with the most recent audited consolidated financial statements of
the Tenant and its subsidiaries delivered to Landlord.
ARTICLE III
DEMISE
------
3.1 PARCELS.
-------
Subject to the terms, covenants and conditions contained herein and in each
Lease Supplement, Landlord shall, upon delivery of a Lease Supplement executed
by Tenant, agree to lease to Tenant the Parcel covered by such Lease Supplement
and Tenant agrees to lease from Landlord the Parcel covered by such Lease
Supplement, together with all rights, privileges, easements and appurtenances
relating to the Parcels.
ARTICLE IV
TERM
----
4.1 TERM.
----
The Term of this Lease is specified in Article 1.
---------
4.2 HOLDING OVER.
------------
If Tenant remains in possession of a Parcel after the expiration of the
Term without executing a new lease, such holding over shall be construed as a
tenancy from month-to-month, subject to all terms, covenants and conditions
herein contained and in the applicable Lease Supplement, and the Base Rent shall
be calculated based upon the Default Rate and shall be required to be paid by
Tenant during such holding over in the same manner as during the Term.
4.3 OPTION TO EXTEND.
----------------
Provided that (i) no Event of Default exists hereunder or would exist
except for the passage of time or giving of notice, and (ii) Landlord, in its
sole and absolute discretion, consents, Tenant shall have the option, upon not
less than six (6) months prior written notice to Landlord, to extend the Term
of this Lease for two (2) one (1) years periods. The Base Rent and Additional
Rent shall be calculated during these extension terms in the same manner as in
the initial Term.
ARTICLE V
CONSTRUCTION OF IMPROVEMENTS
----------------------------
5.1 TENANT'S RIGHT TO CONSTRUCT IMPROVEMENTS.
----------------------------------------
All future Improvements to be constructed on any Land covered by a Lease
Supplement for Construction shall be constructed in accordance with the terms
and conditions of a Construction Management Agreement executed by Landlord and
Tenant substantially in the form attached hereto as Exhibit D. Tenant shall
---------
have the right, in accordance with the terms of the applicable Construction
Management Agreement, to require Landlord to pay Advances for the construction
of any future Improvements on the Land covered by the Lease Supplement for
Construction by Tenant during the Construction Period set forth in the
applicable Lease Supplement for Construction.
5.2 TITLE TO AND NATURE OF IMPROVEMENTS.
-----------------------------------
Subject to the provisions of this Lease, Tenant agrees that any and all
Improvements of whatever nature at any time constructed, placed or maintained on
the Land shall be and remain the property of Landlord.
13
<PAGE>
ARTICLE VI
FUNDING
-------
6.1 REQUEST FOR CONSTRUCTION FUNDING; LANDLORD'S OBLIGATION TO FUND.
---------------------------------------------------------------
During the Interim Period of any Lease Supplement for Construction, Tenant
shall request Landlord to provide Advances for the construction of Improvements
in accordance with the Construction Management Agreement and under the terms and
conditions of this Lease and the applicable Lease Supplement. Each such request
shall be in writing and shall generally describe the nature of the Advance.
Landlord shall fund Advances requested by Tenant in accordance with the terms of
the Construction Management Agreement. Landlord shall have no obligation to
make any further Advances on or after the expiration of the Construction Period
set forth in each Lease Supplement.
6.2 EXHIBIT REFLECTING RENT COMMENCEMENT DATE.
-----------------------------------------
Within thirty (30) days after the Rent Commencement Date for each Lease
Supplement, Landlord and Tenant shall execute a "Rent Commencement Date
Memorandum" in the form attached hereto as Exhibit E.
---------
6.3 ALLOCATING BETWEEN SITE AND IMPROVEMENTS INVESTMENT BALANCE.
-----------------------------------------------------------
In the event the Fair Market Value of the Land covered by a Lease
Supplement as set forth in an appraisal satisfactory to Landlord and Rent
Purchasers is greater than twenty five percent (25%) of the aggregate Fair
Market Value of the Land and Improvements as set forth in the appraisal,
Landlord shall determine a separate Site Investment Balance and Improvements
Investment Balance for such Parcel.
ARTICLE VII
RENT
----
7.1 BASE RENT.
---------
The Base Rent to be paid by Tenant under any Lease Supplement shall begin
to accrue on the Rent Commencement Date for such Lease Supplement. The first
payment of Base Rent under any Lease Supplement shall be due thirty (30) days
after the Rent Commencement Date for such Lease Supplement. Tenant shall pay
Base Rent by wire transfer. Landlord shall supply Tenant with such bank account
information as Tenant shall require to enable payment by wire transfer of
Federal funds or by ACH transfer to the account described in Section 1.10.
------------
Tenant shall wire transfer to such account until notified by Landlord of any
account change. Rental payments shall be payable monthly in arrears on the
twentieth (20th) day of each successive month, except that the last installment
of Base Rent shall be payable on the last day of the Term (each such date shall
be a "Rent Payment Date") and Rental payments shall be made to Landlord or at
such other place as Landlord may from time to time instruct. No sooner than
thirty (30) days or later than ten (10) days prior to the due date for any
installment of Base Rent hereunder, Landlord shall deliver to Tenant a Notice
indicating the exact dollar amount of the Base Rent that is due on such due date
("Invoice"). If Landlord fails to send the Invoice, Tenant shall pay the amount
shown on the previous month's Invoice. If Tenant's payment of the amount shown
on the previous month's Invoice is less than the Base Rent due for such month,
Tenant shall pay the difference within ten (10) days after receipt of notice
from Landlord of such shortfall. If Tenant's payment of the amount shown on the
previous month's Invoice exceeds the Base Rent due for such month, then
(provided that no Event of Default has
14
<PAGE>
occurred which is continuing), Landlord shall credit such excess amount to the
next installment of Base Rent due.
7.2 PRORATION.
---------
If the Term for any Lease Supplement or this Lease expires or is otherwise
terminated on other than the twentieth (20th) day of a calendar month, then Base
Rent shall be prorated for the period from the immediately preceding Rent
Payment Date until the end of the Term on the basis of actual days elapsed and a
three hundred sixty (360) day year.
7.3 NO ABATEMENT OF RENT.
--------------------
Except as a consequence of a reduction in the Lease Investment Balance or
the terms of Section 16.1 (Total or Substantial Taking) and Section 16.2
------------ ------------
(Partial Taking) Tenant shall not be entitled to any abatement, diminution,
reduction, setoff or postponement of Base Rent as a consequence of any
inconvenience to, interruption of, cessation of or loss of Tenant's use or
enjoyment of the Parcels or as a result of any reason whatsoever.
7.4 DELINQUENT RENT.
---------------
Any Base Rent not paid on the due date shall accrue interest at the Default
Rate from the date such Base Rent was originally due until the date such Base
Rent is paid. All interest accrued on past due Base Rent shall be due and
payable to Landlord at the time the Base Rent is paid, or upon demand by
Landlord, if earlier.
7.5 ADDITIONAL RENT.
---------------
Tenant agrees to pay all Additional Rent when it becomes due and payable
under this Lease.
ARTICLE VIII
TAXES
-----
8.1 REAL ESTATE TAXES.
-----------------
(a) From and after the Lease Commencement Date for each Lease
Supplement, Tenant shall pay during the Term directly to the appropriate
taxing authority all Real Estate Taxes (as defined below). If the Lease
Commencement Date occurs on, or the Lease Supplement Term expires or otherwise
terminates on, any date other than the beginning or end of a taxable year,
Tenant's obligation to pay Real Estate Taxes shall be prorated on the basis of
a 365-day year, so as to include only that portion of the taxable year which
is a part of the Lease Supplement Term.
(b) Except to the extent that Real Estate Tax bills and statements are
sent directly to Tenant by the taxing authority, upon receipt by Landlord of the
tax bills or statements, Landlord will use reasonable efforts to promptly advise
Tenant in writing of all Real Estate Taxes and shall deliver copies of all
applicable tax bills or statements to Tenant. Tenant shall pay directly to the
taxing authority all Real Estate Taxes prior to the later of (i) thirty (30)
days after receipt by Tenant from Landlord of a copy of such bills and
statements referred to above, or (ii) five (5) business days prior to
delinquency. As used herein, the term "Real Estate Taxes" shall mean any and
all taxes, governmental fees and similar charges or assessments levied or
assessed against the improvements and/or the Land including, without limitation,
ad valorem taxes and special assessments applicable to real property; provided,
however, that Real Estate Taxes shall not include any Landlord Taxes (as defined
below). Real Estate Taxes shall also
15
<PAGE>
include any and all documentary, transfer, sales, mortgage, recording or
similar taxes imposed on Landlord or Tenant in connection with any sale of the
Parcels to a third party in accordance with this Lease following an Event of
Default by Tenant or in a transaction to which Tenant is a party. As used
herein, the term "Landlord Taxes" shall mean any and all franchise, gains,
gift, succession, excess profits, gross receipts, revenue, estate, rental,
income or similar taxes or taxes in lieu thereof imposed upon Landlord or any
party other than Tenant (or an affiliate thereof) and any withholding tax
imposed as a collection device for, in lieu of, or otherwise related to any of
the foregoing without regard to whether such tax is required to be collected
by Tenant and without regard to whether Tenant would be liable for such
withholding tax in the event it failed to so withhold. For purposes of the
foregoing, an income tax shall include, without limitation, any tax imposed
under the United States Internal Revenue Code, as well as any tax which could
qualify as an "income tax" under United States Treasury Regulation Section
1.901-2 (except to the extent any such statute or regulation is subsequently
modified to include a tax or other governmental charge of a materially
different type and nature from the taxes currently described therein) and any
income tax which may be payable under the laws of any jurisdiction either now
or in the future. Real Estate Taxes for any given tax year shall exclude
assessment installments that are not due and payable during such tax year.
8.2 PERSONAL PROPERTY TAXES.
-----------------------
Tenant shall pay directly to the appropriate taxing authorities prior to
delinquency any and all taxes and assessments levied or assessed during the Term
upon or against Tenant's furniture, equipment, trade fixtures and any other
personal property in the Parcels.
8.3 RIGHT TO CONTEST.
----------------
Tenant shall not be required to pay any Real Estate Taxes or any other
taxes for which Tenant is liable hereunder (including, without limitation, any
taxes for which Tenant is required to indemnify Landlord under Section 22.1)
------------
(including penalties and interest), so long as (i) Tenant shall contest the same
or the validity thereof by appropriate legal proceedings in such a manner to
prevent the tax sale of any portion of the Parcels and (ii) the position to be
taken by Tenant pursuant to such contest would have a realistic possibility of
success if litigated. For purposes of this Lease, Tenant may conclusively
establish that a position to be taken in a contest would have a realistic
possibility of success if litigated by providing to Landlord a letter from
counsel stating an opinion to such effect. In the event of any such contest,
Tenant shall, within thirty (30) days after the final determination thereof, pay
and discharge the amounts determined to be due in accordance therewith and with
the provisions of this Lease, together with any penalties, fines, interest,
costs and expenses that may have accrued thereon or that may have resulted from
Tenant's contest. Tenant also shall have a right to contest any taxes for which
it is liable hereunder, but with regard to which the position to be taken
pursuant to such contest would not have a realistic possibility of success if
litigated, provided that Tenant pays such taxes on or prior to the date upon
which such taxes are asserted to be due by the relevant governmental authority.
Notwithstanding the foregoing provisions of this Section 8.3, Tenant shall have
-----------
an unconditional right to contest (without prior payment) any taxes imposed by
law upon Tenant rather than upon Landlord. Tenant's decision to pay any taxes
prior to contesting its or another party's underlying liability therefor shall
not be deemed to imply or suggest that the position to be taken in such contest
would not have a realistic possibility of success if litigated. Landlord shall
cooperate fully with Tenant in connection with the exercise of Tenant's
16
<PAGE>
right of contest contained herein, and in the event that applicable law shall
require that Landlord, rather than Tenant, pursue legal proceedings for such
contest, Landlord will initiate and pursue such contest upon Tenant's request
and in accordance with Tenant's instructions (including, without limitation,
Tenant's instructions as to the selection of legal counsel and matters of
strategy or settlement); provided, however, that Landlord shall not be subject
-------- -------
to any liability for the payment of any costs or expenses in connection with
any such contest or proceedings, and Tenant will indemnify and save harmless
Landlord from any such costs and expenses (including, without limitation,
reasonable attorneys' fees, costs of court and appraisal costs), reimbursing
Landlord therefor upon demand (or paying such costs and expenses directly when
due, all as directed by Landlord). Tenant shall be entitled to any refund of
any taxes and penalties or interest from any governmental authority to the
extent the refund represents monies paid to the governmental authority by
Tenant or paid by Landlord and reimbursed by Tenant.
8.4 ADDITIONAL CHARGES.
------------------
All payments made by Tenant under this Lease shall be made free and clear
of, and without reduction or withholding for or on account of, any present or
future taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
pursuant to any Legal Requirement, excluding, however, any Landlord Taxes (all
such nonexcluded taxes, levies, imposts, deductions, charges or withholdings
being hereinafter called "Additional Charges"). Tenant shall be responsible for
the payment of any such Additional Charges; and if any such Additional Charges
are required to be withheld from any amounts payable to Landlord hereunder, then
the amounts so payable to Landlord shall be increased by an amount ("Additional
Amount") necessary to yield to Landlord (after payment of all Additional
Charges) the Base Rent and other amounts payable hereunder at the rates or in
the amounts specified in this Lease. Whenever any Additional Charges are
required to be withheld by Tenant, such Additional Charges shall be deducted or
withheld by Tenant, and shall be paid by Tenant to the appropriate governmental
authority in accordance with applicable Legal Requirements. As promptly as
possible thereafter, Tenant shall send to Landlord for its own account a copy of
an original official receipt (or other evidence of payment) received by Tenant
showing payment thereof. If Tenant is required to pay Landlord any Additional
Amount, Landlord shall use its best efforts (consistent with its internal policy
and legal and regulatory restrictions) to change its jurisdiction if the making
of such a change would avoid the need for, or reduce to the greatest extent
possible the amount of, any such Additional Amount which may thereafter accrue
and would not, in the reasonable judgment of Landlord, be otherwise
disadvantageous to Landlord. If Landlord subsequently receives a refund of any
Additional Amounts, or if such Additional Amounts result in a net benefit to
Landlord, the amount of such refund or net benefit shall be paid to Tenant
within 30 days of the receipt of such refund or net benefit; provided, however,
that the payment to Tenant shall not exceed the Additional Amount to which the
refund or net benefit relates. The agreements in this Section 8.4 shall survive
-----------
the termination of this Lease with respect to any Additional Charges that become
due during the Term.
ARTICLE IX
INSURANCE
---------
9.1 LIABILITY INSURANCE.
-------------------
At all times during the Term, Tenant shall obtain at Tenant's sole cost and
expense a policy or policies of comprehensive general liability insurance
17
<PAGE>
on an "occurrence" basis against claims for "personal injury" liability,
including bodily injury, death or property damage liability. The liability
insurance policy shall contain coverage limits no less than the following: (1)
Three Million Dollars ($3,000,000) per person; (2) Five Million Dollars
($5,000,000) per incident; and (3) One Million Dollars ($1,000,000) for
property damage.
9.2 BUILDERS' RISK INSURANCE.
------------------------
With respect to any improvements which may be under construction and not
yet covered by insurance under the terms of Section 9.3, Tenant shall maintain
-----------
or cause to be maintained a policy or policies of builders' risk insurance in an
amount equal to the value upon completion of the work (exclusive of land,
foundation, excavation, grading, landscaping, architectural and development fees
and other items customarily excluded from such coverage), insuring against the
risks customarily insured against under such insurance, including fire,
vandalism, malicious mischief, sprinkler leakage, lightning, and windstorm.
9.3 ALL-RISK INSURANCE.
------------------
With respect to any improvements now or hereafter situated on the Land,
prior to the termination of the builders' risk insurance required by Section
-------
9.2, and at all times thereafter, Tenant shall, at Tenant's sole cost and
expense, obtain and maintain, or cause to be obtained and maintained, (a) a
policy or policies of all-risk insurance covering the improvements, providing
coverage against loss or damage by fire, vandalism, malicious mischief,
sprinkler leakage, lightning, windstorm, and other insurable perils, as, under
good insurance practice, from time to time are insured against under all-risk
coverage for properties of similar character, age and location in an amount or
amounts not less than one hundred percent (100%) of the then actual replacement
cost (exclusive of land, foundation, excavations, grading, landscaping,
architectural and development fees and other items customarily excluded from
such coverage and without any deduction for depreciation); and (b) standard
earthquake coverage, with a deductible which is commercially available for the
geographical location of the Parcels. Provided, however Tenant may elect not to
obtain earthquake insurance, in which case Tenant shall covenant to pay the cost
of repairing damage to the improvements caused by an earthquake.
9.4 GENERAL REQUIREMENTS.
--------------------
The insurance required under this Article IX may be furnished under a
----------
"primary" policy and an "umbrella" policy or policies. Landlord shall be named
as an additional insured under Tenant's policy of insurance required under
Section 9.1; and such policies shall contain an endorsement for cross-liability
- -----------
coverage. Tenant shall furnish Landlord with certificates from Tenant's
insurers with respect to the insurance required to be carried hereunder on or
before the date such insurance is required to be carried. The certificates
shall state that such insurance is in full force and effect and that coverage
will not be reduced below the amounts required under Section 9.1 or otherwise
-----------
limited or cancelled without thirty (30) days' prior written notice to Landlord.
Renewal certificates shall be furnished to Landlord not less than thirty (30)
days prior to the expiration of each such policy, provided, however, that Tenant
shall not be required to provide Landlord with such renewal certificates prior
to the expiration of each such policy so long as (i) Tenant provides Landlord
with reasonable assurances within ten (10) days prior to the expiration of each
such policy that there will be no lapse in the insurance coverage provided under
such policy, and (ii) Tenant provides Landlord with such renewal certificates
within ten (10) days following the expiration of each such policy. Any blanket
insurance policy or policies that insure Tenant against the risks and for the
amounts herein specified shall be deemed to satisfy the obligation of Tenant
hereunder, provided that any
18
<PAGE>
such policy of blanket insurance shall specify the amount of the total
insurance allocated to the risks required to be insured hereunder and such
allocated amount meets the requirements of this Article IX. All insurance
----------
required by this Article IX shall be with an insurance company licensed to do
----------
business in the state in which the Parcel is located with a general
policyholder's rating, as rated by the most current available "Bests"
Insurance Reports, and no less than A-XIII and non-contributing.
9.5 WAIVER OF SUBROGATION.
---------------------
Notwithstanding anything to the contrary contained herein, to the extent
permitted by law and so long as any insurance coverage maintained by Tenant is
not diminished by reason thereof, Tenant hereby (a) releases and waives any
rights it may have against Landlord and its officers, agents and employees on
account of any loss or damages occasioned to Tenant, its property or the
Parcels, and arising from any risk covered by any fire and extended coverage
insurance maintained by Tenant, whether or not due to the negligence of
Landlord, its agents, employees, contractors, licensees, invitees or other
persons, and (b) waives on behalf of any insurer providing such insurance to
Tenant any right of subrogation that any such insurer may have or acquire
against Landlord or such persons by virtue of payment of any loss under such
insurance. Tenant shall use its commercially reasonable efforts to cause its
insurance policies to contain a waiver of subrogation clauses in accordance with
the foregoing.
9.6 INDEMNITY.
---------
After receiving written notice from Landlord of a claim (failure to give
such notice shall not relieve Tenant of its obligations hereunder unless the
claim occurs as a direct result of failure to give such notice), Tenant shall
protect, defend, indemnify, hold and save Landlord harmless from and against any
and all losses, costs, liabilities or damages (including reasonable attorneys'
fees and disbursements and court costs) arising by reason of: (i) any and all
injury or death of persons or damage to property against which Tenant is
obligated to maintain insurance for the benefit of Landlord pursuant to this
Article IX; (ii) the failure to obtain the waiver of subrogation clause required
- ----------
by Section 9.5 hereof where such clause could have been obtained through the
-----------
exercise of Tenant's commercially reasonable efforts; or (iii) the invalidation
of such insurance policy required to be obtained by Tenant hereunder by Tenant's
insurer; provided this subsection (iii) shall not apply to the extent Landlord
actually receives insurance for the aforesaid losses, costs, liabilities or
damages (including reasonable attorneys' fees and disbursements and court costs
but excluding costs, fees or premiums paid by Landlord in connection with such
insurance) or to the extent recovery of insurance proceeds is prevented by
Landlord's gross negligence. Tenant's duty to indemnify Landlord under this
Section 9.6 shall survive the expiration or earlier termination of this Lease
- -----------
with respect to events occurring during the Term. Landlord agrees to cooperate
with Tenant in the defense of any claim undertaken by Tenant pursuant to this
Section.
ARTICLE X
USE
---
10.1 USE.
---
(A). PERMITTED. Tenant may use the Parcels for any lawful purpose.
---------
19
<PAGE>
(B). ENVIRONMENTAL COMPLIANCE.
------------------------
(I) Defined Terms. The term "Applicable Environmental
-------------
Laws" shall mean any applicable laws, regulations or ordinances pertaining to
health or the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 or otherwise (as
amended, hereinafter called "CERCLA"), the Resource Conservation and Recovery
Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste
Disposal Act Amendments of 1980, the Hazardous and Solid Waste Amendments of
1984 or otherwise (as amended, hereinafter called "RCRA"), and the California
Health & Safety Code Section 25501(j). The terms "hazardous substance" and
"release" as used in this Lease shall have the meanings specified in CERCLA,
and the terms "solid waste" and "disposal" (or "disposed") shall have the
meanings specified in RCRA; provided, in the event either CERCLA or RCRA is
amended or superseded by other laws so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply subsequent to the effective
date of such amendment or other laws: and, provided further, to the extent
that the laws of any state in which a Parcel is located establish a meaning
for "hazardous substance", "release", "solid waste", or "disposal" which is
broader than that specified in either CERCLA or RCRA, such broader meaning
shall apply.
(II) TENANT'S COVENANTS. Tenant will not cause or knowingly
------------------
permit the Parcels to be in violation of, or do anything or knowingly permit
anything to be done which subjects Landlord, Tenant or the Parcels to any
remedial obligations relating to the Parcels under or which creates a valid
claim or cause of action against Landlord, Tenant (which relates to the
Parcels) or the Parcels under, any Applicable Environmental Laws, including,
without limitation, CERCLA, RCRA, and the environmental laws of the state in
which the Parcel is located assuming disclosure to the applicable governmental
authorities of all relevant facts, conditions and circumstances, if any,
pertaining to the Parcels and Tenant will promptly notify Landlord in writing
of any existing, pending or threatened investigation, claim or inquiry of
which Tenant has knowledge by any governmental authority in connection with
any Applicable Environmental Laws. Tenant shall obtain any permits, licenses
or similar authorizations to construct, occupy, operate or use any
improvements, fixtures and equipment at any time located on the Parcels by
reason of any Applicable Environmental Laws. Tenant will not use the Parcels
in a manner which will result in the disposal or other release of any
hazardous substance or solid waste on or to the Parcels in violation of
Applicable Environmental Law and covenants and agrees to keep or cause the
Parcels to be kept at levels of any hazardous substance, solid waste or
environmental contaminants (including, without limitation, arsenic in soil and
friable asbestos and any substance containing asbestos deemed hazardous by any
Applicable Environmental Law) in accordance with Applicable Environmental Law,
and to remove the amounts of the same (or if removal is prohibited by law, to
take whatever action is required by law) promptly upon discovery at Tenant's
sole expense to the extent required by Applicable Environmental Law. Tenant
shall promptly notify Landlord in writing of any disposal or other release of
any hazardous substance, environmental contaminants or solid wastes on or to
the Parcels in violation of Applicable Environmental Law. In the event Tenant
fails to comply with or perform any of the foregoing covenants and
obligations, after thirty (30) days' prior written Notice to
20
<PAGE>
Tenant, Landlord may, but shall be under no obligation to, cause the Parcels
to be freed from such hazardous substance, solid waste or environmental
contaminants (or if removal is prohibited by law, to take whatever action is
required by law) to the extent required by Applicable Environmental Law and
the reasonable cost of the removal or such other action shall be a demand
obligation owing by Tenant to Landlord pursuant to this Lease. Notwithstanding
the foregoing, Landlord shall have no right to cause the removal of such
materials and no Event of Default (or default) shall be deemed to have
occurred under this Lease so long as Tenant both: (1) is diligently and in
good faith proceeding to comply with Tenant's obligation to remove such
amounts of such materials; and (2) has the financial ability to so comply.
Subject to the foregoing, Tenant grants to Landlord and Landlord's agents and
employees access to the Parcels at reasonable times and on reasonable notice
to Tenant (except in the case of an emergency), and the license to remove such
hazardous substance, solid waste or environmental contaminants (or if removal
is prohibited by law, to take whatever action is required by law to the extent
required by Applicable Environmental Law); and except for Landlord's willful
misconduct or gross negligence, agrees to indemnify and save Landlord harmless
from all reasonable costs and expenses involved and from all claims (including
consequential damages) asserted or proven against Landlord by any party in
connection therewith. Upon Landlord's reasonable request for "good cause"
(defined below), at any time and from time to time during the Term, Tenant
will provide at Tenant's sole expense an inspection or audit of the Parcels
reasonable in scope given the circumstances which created the "good cause"
(defined below) from an engineering or consulting firm approved by Landlord,
indicating the presence or absence of any hazardous substance, solid waste or
environmental contaminants located on the Parcels. If Tenant fails to provide
same after sixty (60) days' notice, Landlord may order same, and Tenant grants
to Landlord and Landlord's employees and agents access to the Parcels and a
license to undertake any testing reasonably required to obtain such inspection
or audit. The cost of obtaining such inspection or audit and any expenses
incurred by Landlord in connection therewith, shall, to the extent reasonable
under the circumstances, be a demand obligation owing by Tenant to Landlord
pursuant to this Lease. For purposes of this Section 10.1(b)(2), "good cause"
------------------
shall mean that Landlord shall have reasonable grounds to believe that release
or disposal of hazardous substances or solid wastes in violation of Applicable
Environmental Law has occurred on the Parcels.
(C) Compliance With Legal Requirements. Tenant shall at all-times
----------------------------------
comply with all material Legal Requirements applicable to the Land or any
improvements now or hereafter situated on the Land and/or the use thereof.
10.2 CONTEST OF LEGAL REQUIREMENTS.
-----------------------------
Tenant shall have the right at its sole cost and expense to contest the
validity of any Legal Requirements applicable to the Parcels by appropriate
proceedings diligently conducted in good faith; and upon the request of Tenant
and at Tenant's sole cost and expense, Landlord will join and cooperate with
Tenant in such proceedings. Subject to Section 8.3, and any other provision of
-----------
this Lease to the contrary notwithstanding, Tenant's right to contest Legal
Requirements must be exercised in such a manner as to avoid any exposure of the
Parcels or any part thereof to foreclosure or execution sale or exposure of
Landlord to civil or criminal penalties arising from Tenant's non-compliance
with such Legal Requirements. Tenant shall defend and indemnify Landlord
against, and hold
21
<PAGE>
Landlord harmless from, any and all liability, loss, cost, damage, injury or
expense (including, without limitation, attorneys' fees and costs) which
Landlord may sustain or suffer by reason of Tenant's failure or delay in
complying with, or Tenant's contest of, any such Legal Requirements (or
Landlord's contest, if requested in writing by Tenant), and Tenant's duty to
indemnify Landlord under this Section 10.2 shall survive the expiration or
------------
earlier termination of this Lease.
ARTICLE XI
UTILITIES AND SERVICES
----------------------
11.1 SERVICES TO THE PARCELS.
-----------------------
At Tenant's sole cost and expense, Tenant shall make its own arrangements
for the provision of all utilities and services to be provided to or consumed on
the Parcels, including, without limitation, air conditioning and ventilation,
service contracts, heating, electric power, telephone, water (both domestic and
fire protection), sanitary sewer, storm drain, natural gas and janitorial
services, including for the installation, maintenance and repair of service
lines and meters to measure Tenant's consumption of such utilities.
ARTICLE XII
MAINTENANCE AND REPAIRS; SURRENDER OF THE PARCELS
-------------------------------------------------
12.1 TENANT OBLIGATIONS.
------------------
Landlord shall have no obligation to maintain the Parcels. Tenant shall at
all times and at Tenants' sole cost and expense maintain the Parcels in good
repair, normal wear and tear and casualty excepted.
12.2 SURRENDER OF THE PARCELS.
------------------------
Except as provided in Section 20.1 below, upon the expiration or earlier
------------
termination of the Term, Tenant shall surrender each Parcel to Landlord in its
then "AS-IS" condition, including, without limitation, any condition resulting
from: (i) wear and tear; (ii) obsolescence and damage by fire or other casualty,
act of God or the elements; (iii) damage that is caused by Landlord, its agents,
employees or contractors; and (iv) any improvements, in, to or of the Parcels or
on the Land which are not Tenant's Property which Tenant may elect to remain on
the Land or the Parcels. Title to all Tenant's Property shall be and remain in
Tenant, and at any time during the Term of this Lease, the same may be removed
by Tenant, or, at Tenant's abandonment or written election, surrendered with the
Parcels, in which event title to such surrendered property shall, if Landlord so
elects in Landlord's sole discretion, be deemed transferred to Landlord. Any of
such property that is not removed from the Parcels on or prior to the expiration
or early termination of this Lease or any Lease Supplement shall be considered
abandoned and Landlord may deal with it as Landlord elects.
ARTICLE XIII
LIENS
-----
13.1
Except for claims that Tenant is contesting in good faith in such manner as
to avoid any exposure of the Parcels or any part thereof to foreclosure or
execution sale, Tenant shall promptly pay and discharge all claims for work or
labor done, supplies furnished or services rendered to the Parcels, and shall
keep the Parcels free and clear of all mechanics' and materialmen's liens in
connection therewith.
22
<PAGE>
ARTICLE XIV
ASSIGNMENT BY LANDLORD
----------------------
14.1 FURTHER MORTGAGES OR ENCUMBRANCES BY LANDLORD.
---------------------------------------------
Except for the SBLF Deed of Trust (which is hereby approved by Tenant),
Landlord shall not cause or create any mortgages, deeds of trust, encumbrances
or exception to exist with respect to the Parcels at any time.
14.2 LANDLORD'S RIGHT TO SELL.
------------------------
Landlord may not transfer all or any portion of its right, title and
interest in any Parcel; provided, however that nothing contained in this Lease
shall be deemed in any way to limit, restrict or otherwise affect the right of
Landlord at any time and from time to time to sell or transfer all or any
portion of its right, title and estate in any Parcel to: (1) a Landlord
Affiliate (excluding, however, a non-substantive entity that is formed
specifically for purposes of owning the Parcels subject to this Lease and has no
other substantive operations or which is a special purpose entity under the
provisions of EITF 90-15); or (2) another financial institution (excluding,
however, a non-substantive entity that is formed specifically for purposes of
owning the Parcels subject to this Lease and has no other substantive operations
or which is a special purpose entity under the provisions of EITF 90-15) with a
net worth in excess of $100,000,000; or (3) if an Event of Default has occurred
and is continuing at the time of such sale or transfer, to any Entity. Any sale
or transfer by Landlord whatsoever shall by its express terms recognize and
confirm the right of possession of Tenant to the Parcels and Tenant's other
rights arising out of this Lease shall not be affected or disturbed in any way
by any such sale, transfer, assignment or conveyance (except for any disturbance
resulting from a foreclosure sale conducted pursuant to the laws of the state
where each Parcel is located at which independent third party bids were
permitted pursuant to the SBLF Deed of Trust), and any transferee shall
expressly assume in writing all obligations of Landlord to be performed
following the date of transfer. Nothing in this Section 14.2 shall prohibit
------------
Landlord from selling rents pursuant to the Participation Agreement and/or the
rent purchase agreement executed by and between Landlord and the Rent Purchasers
(without transferring Landlord's interest in the Parcels) to any financial
institution.
14.3 TRANSFER OF FUNDS AND PROPERTY.
------------------------------
At each time Landlord sells, assigns, transfers or conveys the entire
right, title and estate of Landlord in any Parcel and in this Lease, Landlord
shall turn over to the transferee any funds or other property then held by
Landlord under this Lease and thereupon all the liabilities and obligations on
the part of the Landlord under this Lease arising after the effective date of
such sale, assignment, transfer or conveyance shall terminate as to the
transferor and be binding upon the transferee.
ARTICLE XV
ASSIGNMENT AND SUBLEASING
-------------------------
15.1 RIGHT TO ASSIGN.
---------------
(A) TENANT'S RIGHT. Provided that there is not an Event of Default
--------------
under this Lease which is continuing and uncured or if there is such an Event of
Default, provided that Tenant cures the Default in connection with the
assignment, Tenant shall have the right, at any
23
<PAGE>
time and from time to time during the Term, to assign all or any portion of
its right, title and estate in any Parcel and in this Lease without approval
by Landlord. Any such assignee, immediate or remote, shall have the same right
of assignment. Any such assignment shall be evidenced by a written instrument,
properly executed and acknowledged by all parties thereto and, at Tenant's
election, duly recorded in the Official Records, wherein and whereby the
assignee assumes all of the obligations of Tenant under this Lease.
Notwithstanding any such assignment and assumption or any sublease permitted
under Section 15.2 hereof, Tenant shall remain primarily liable for all
------------
obligations and liabilities on the part of Tenant theretofore or thereafter
arising under this Lease and all Lease Supplements.
(B) NOTICE. Tenant shall, promptly after execution of each
------
assignment, notify Landlord of the name and mailing address of the assignee
and shall, on demand, permit Landlord to examine and copy the assignment
agreement.
15.2 RIGHT TO SUBLET.
---------------
(A) TENANT'S RIGHT. Tenant shall have the right, at any time and
--------------
from time to time during the Term, to sublet all or any portion of any Parcel
and to extend, modify or renew any sublease without the approval of Landlord.
(B) NOTICE. Tenant shall, promptly after execution of each sublease,
------
notify Landlord of the name and mailing address of the subtenant and shall, on
demand, permit Landlord to examine and copy the sublease.
15.3 MORTGAGE BY TENANT.
------------------
Tenant shall not have the right to mortgage, pledge or otherwise encumber
all or any portion of the right, title and estate of Tenant in any Parcel or in
this Lease, without the consent of Landlord. Landlord shall not unreasonably
withhold its consent to any equipment lease entered into by Tenant.
ARTICLE XVI
EMINENT DOMAIN
--------------
16.1 TOTAL OR SUBSTANTIAL TAKING.
---------------------------
If title or access is taken for any public or quasi-public use, or under
any statute or by right of condemnation or eminent domain, or by sale in lieu
thereof (a "Taking") with respect to any or all of a Parcel, or if title to so
much of the Parcel or access thereto is Taken, or if the Parcel or access
thereto is damaged, blocked or impaired by the Taking, so that, in Tenant's
reasonable discretion, such Parcel or access thereto, even after a reasonable
amount of reconstruction thereof, will no longer be suitable for the conduct of
Tenant's (and/or Tenant's subtenants') business, then in any such event, this
Lease shall terminate on the date of such Taking. Notwithstanding the
foregoing, Tenant's right to purchase the Parcels shall survive any such
termination as to the portion of a Parcel not taken pursuant to and in
accordance with Section 20.1 below.
------------
16.2 PARTIAL TAKING.
--------------
If any part of a Parcel, or access thereto, shall be Taken, and the Parcel
or the remaining part thereof and access thereto will be, in Tenant's reasonable
discretion, suitable for the conduct of Tenant's (and/or Tenant's subtenants')
business in a manner
24
<PAGE>
consistent with the conduct of such business prior to such Taking, all of the
terms, covenants and conditions of this Lease and the Lease Supplement
covering such Parcel shall continue, except that Base Rent shall be adjusted
to reflect the decreased Lease Investment Balance or Site Investment Balance
and Improvements Investment Balance, if the terms of Section 6.3 are
-----------
also applicable, remaining after application thereto of the award made to
Landlord for such Taking.
16.3 TEMPORARY TAKING.
----------------
If the whole or any part of any Parcel is Taken for temporary use or
occupancy, this Lease shall not terminate by reason thereof and Tenant shall
continue to pay, in the manner and at the times herein specified, the full
amount of the Base Rent payable by Tenant hereunder, and, except only to the
extent that Tenant may be prevented from so doing by reason of such Taking,
Tenant shall continue to perform and observe all of the other terms, covenants
and conditions hereof on the part of Tenant to be performed and observed, as
though the Taking had not occurred. In the event of any such temporary Taking,
Tenant shall be entitled to receive the entire amount of the award made for the
Taking, whether paid by way of damages, rent or otherwise. If the temporary
Taking is for a term in excess of thirty (30) days, then the Taking shall be
treated as a permanent Taking and be governed by Sections 16.1 or 16.2, as
---------------------
applicable.
16.4 DAMAGES.
-------
The compensation attributable to any Parcel (in each case the compensation
or value shall be determined as of the date of the Taking) awarded or paid upon
any Taking (other than a temporary Taking, which shall be governed by Section
-------
16.3) in excess of $500,000, whether awarded to Landlord, Tenant, or both of
- ----
them, shall be held by Landlord to be applied against the Lease Investment
Balance, and all accrued and unpaid Base Rent and Additional Rent. Any
compensation below the amount of $500,000 shall be paid directly to Tenant and
applied and used as Tenant may direct in its sole discretion for any
construction, restoration or reconstruction purposes in connection with any
improvements on the Land which were affected by such taking. Any portion of
such compensation which Tenant does not want to use for any construction,
restoration or reconstruction shall be paid as follows (the order of payment as
set forth below shall be the "Distribution Formula"): (1) to Landlord (but only
to the extent of the then-existing Lease Investment Balance); and (2) with any
remaining excess to be paid to Tenant. Any compensation in excess of the Lease
Investment Balance plus all accrued and unpaid Base Rent and Additional Rent
shall be paid to Tenant.
16.5 NOTICE AND EXECUTION.
--------------------
Immediately upon service of process upon Landlord or Tenant in connection
with any Taking relating to any Parcel or any portion thereof or access thereto,
each party shall give the other Notice thereof. Each party agrees to execute
and deliver to the other all instruments that may be required to effectuate the
provisions of this Article XVI. Tenant reserves the right to appear in and to
-----------
contest any proceedings in connection with any such Taking. Tenant shall
immediately reimburse Landlord on demand for all reasonable out-of-pocket costs
and expenses incurred by Landlord in complying with Landlord's obligations under
this Section 16.5.
------------
25
<PAGE>
ARTICLE XVII
DAMAGE OR DESTRUCTION
---------------------
17.1 CASUALTY.
--------
If any of the improvements now or hereafter situated on the Land (including
the Improvements) are damaged or destroyed by fire or other casualty, except as
provided to the contrary in Section 17.2, this Lease shall continue in full
------------
force and effect without any abatement or reduction in Base Rent, and Tenant, at
Tenant's election, shall either (a) restore such improvements substantially to
their condition prior to the damage or destruction, or such other condition as
Tenant shall elect, subject to Landlord's approval in accordance with the terms
of Paragraph 12 of the Construction Management Agreement, which shall not be
------------
unreasonably withheld, or (b) not restore such improvements, but perform, or
cause to be performed, at Tenant's sole cost and expense, any work or service
required by any Legal Requirement for the protection of persons or property from
any risk, or for the abatement of any nuisance, created by or arising from the
casualty or the damage or destruction caused thereby.
17.2 TERMINATION OF LEASE SUPPLEMENT.
-------------------------------
In the case of: (a) any damage or casualty of any Improvements located on
a particular Parcel, which in the good faith judgment of Tenant's Board of
Directors would render the Improvements either unsuitable or uneconomic for
restoration or continued use by Tenant; (b) the damage or destruction of all or
substantially all (as determined in good faith by Tenant's Board of Directors)
of the Improvements; or (c) the damage or destruction of the Improvements where
restoration cannot (as determined in good faith by Tenant's Board of Directors)
reasonably be completed either within 365 days or prior to the expiration of the
Term, then Tenant may elect to terminate the Lease Supplement for such Parcel.
In the event Tenant terminates the Lease Supplement pursuant to the preceding
sentence, Tenant shall purchase Landlord's interest in such Parcel for a
purchase price equal to the Purchase Price for the Parcel as such Purchase Price
is defined in Section 20.1. The purchase of Landlord's interest in the Parcel
------------
shall be pursuant to the terms of Section 20.1, as applicable to the Parcel.
------------
17.3 INSURANCE PROCEEDS.
------------------
In the event of any fire or other casualty, the proceeds of any insurance
policies maintained by Tenant pursuant to Section 9.2 or 9.3 shall be held,
------------------
applied and dealt with as follows:
(a) Any proceeds (per occurrence) of such policies attributable to the
Improvements below the amount of Five Hundred Thousand and No/100 Dollars
($500,000) or any proceeds directly attributable to improvements constructed on
the Property by Tenant solely with its own funds shall be paid directly to
Tenant and applied and used as Tenant may direct in its sole discretion for any
construction, restoration or reconstruction purposes in connection with any
improvements located on the Land which were destroyed, damaged or affected by
such casualty. Any portion of such proceeds which Tenant does not want to use
(subject to the terms of Section 17.3(c)) for any construction, restoration or
---------------
reconstruction shall be paid in accordance with the Distribution Formula set
forth in Section 16.4 above.
------------
(b) Any proceeds (per occurrence) of such policies attributable to the
Improvements greater than Five Hundred Thousand Dollars ($500,000) shall be paid
to an escrow agent ("Escrow Agent") mutually agreeable to the parties (but such
escrow agent shall
26
<PAGE>
not be a party which is related to or affiliated with either of the parties to
this Lease, but shall be bound by the terms of this Article XVII). Such
------------
proceeds shall be invested by the Escrow Agent as Tenant may direct (provided,
however, that such proceeds may not be invested in any securities or any debt
obligations issued by Tenant). Such proceeds shall be paid by the Escrow Agent
to Tenant (or to third parties as Tenant may direct), as Tenant may direct
from time to time as restoration, construction or rebuilding progresses to pay
the cost of any restoration, construction or rebuilding which Tenant elects to
take place on the Land or any Improvements located upon the Land, so long as
Landlord reasonably determines that the following conditions are satisfied at
the time of such request for payment by Tenant: (i) the sum requested has been
paid or is then due and payable or will become due and payable within thirty
(30) days; (ii) Tenant has the financial ability (taking into account the
insurance proceeds held by the Escrow Agent) to complete the restoration,
construction or rebuilding which Tenant has elected to perform; (iii) Landlord
has approved the plans, if any, relating to the restoration of Improvements
(which approval shall not be unreasonably withheld or delayed); and (iv) in
Landlord's reasonable judgment, such restoration work which Tenant desires to
perform in connection with the Improvements can be completed prior to the
expiration of the Term. Landlord shall promptly upon request instruct the
Escrow Agent to make the payments requested by Tenant unless one of the four
(4) conditions described above is not satisfied at the time of such request.
Any excess insurance proceeds existing after either Tenant's completion of the
restoration, construction or rebuilding which Tenant elects to perform or
Tenant's failure to comply with the funding condition described in subitems
(i), (ii) and (iv) immediately above in this Section 17.3(b), shall be paid
---------------
pursuant to the Distribution Formula.
(c) If either: (1) Tenant has not delivered written notice to
Landlord within ninety (90) days after reaching final written settlement with
all insurance companies regarding the amount of proceeds to be paid for the
casualty in question, pursuant to which notice Tenant elects to either
exercise some or all of its termination rights under Section 17.2 and/or to
------------
fully or partially repair or restore pursuant to Section 17.1; or (2) Landlord
------------
reasonably believes that Tenant has abandoned reconstruction or restoration
work which Tenant may have elected to perform (and Tenant shall have failed to
diligently recommence reconstruction or restoration work which Tenant is then
able to perform within thirty (30) days after Tenant's receipt from Landlord
of a Notice of Landlord's belief of Tenant's abandonment of the reconstruction
or restoration work); then, in either case, the proceeds attributable to the
Improvements shall be paid pursuant to the Distribution Formula.
(d) Any insurance proceeds paid to Landlord under this Article XVII
------------
shall reduce the Lease Investment Balance, or Improvements Investment Balance
if the terms of Section 6.3 are applicable, for such Parcel by a like amount.
-----------
ARTICLE XVIII
QUIET ENJOYMENT
---------------
18.1 QUIET ENJOYMENT.
---------------
Landlord covenants to secure to Tenant the quiet possession of the Parcels
for the full Term against all persons claiming the same, by, through or in the
right of Landlord, subject to Landlord's rights and remedies under Article XIX
-----------
upon an Event of Default by Tenant. The existence of any Permitted Title
Exceptions shall not be deemed to
27
<PAGE>
constitute a breach of Landlord's obligations hereunder. Tenant shall,
immediately upon demand, reimburse Landlord for all reasonable costs, expenses
and damages incurred or paid by Landlord in the performance of Landlord's
obligations under this Article XVIII (except for any costs, expenses or
-------------
damages arising from any Landlord liens or Landlord's willful breach of this
Lease).
ARTICLE XIX
DEFAULT
-------
19.1 DEFAULT.
-------
Each of the following events shall constitute an event of default ("Event
of Default") by Tenant:
(A) Failure to Pay Base Rent. Tenant's failure to pay any Base Rent
------------------------
within five (5) days after the due date.
(B) FAILURE TO PAY ADDITIONAL RENT. Tenant's failure to pay any
------------------------------
Additional Rent which is due to Landlord within five (5) business days after
written notice of any past due amount under this Lease (which due date shall
be the date of Tenant's receipt of Notice from Landlord that such Additional
Rent is due).
(C) FAILURE TO CARRY INSURANCE. Tenant's failure to carry any
--------------------------
policy of insurance required by Article IX, and Tenant shall not cure such
----------
failure prior to ten (10) days after written notice thereof is sent to Tenant.
If such failure is susceptible of cure but cannot with reasonable diligence be
cured within such ten day period, and if Tenant shall promptly have commenced
to cure the same and shall thereafter prosecute the curing thereof with
reasonable diligence, the period within which such failure may be cured shall
be extended for such further period (not to exceed an additional ten (10) days
beyond the initial ten (10) day cure period) as shall be reasonably necessary
for the curing thereof.
(D) INSOLVENCY. Subject to Section 19.2, the occurrence of: (i)
---------- ------------
an assignment by Tenant for the benefit of creditors generally; or (ii) the
filing of a voluntary or involuntary petition by or against Tenant under any
present or future applicable federal, state or other statute or law having for
its purpose the adjudication of Tenant as a bankrupt; (iii) the appointment of
a receiver, liquidator or trustee for all or a substantial portion of any
Parcel by reason of the insolvency or alleged insolvency of Tenant; or (iv)
the taking of possession by any department of city, county, state or federal
government, or any officer thereof duly authorized, of all or a substantial
portion of any Parcel by reason of the insolvency or alleged insolvency of
Tenant; and Tenant's failure to timely give any Notice it is permitted to give
pursuant to Section 19.2 (or, in the event Tenant gives timely Notice and
------------
pursues a contest under Section 19.2, Tenant's failure to finally prevail in
------------
the contest).
(E) PLEDGE AGREEMENT. Tenant's failure to (i) provide the
----------------
Collateral in accordance with the terms of the Pledge Agreement if Landlord
requires Tenant to do so pursuant to Article XXIV below, or (ii) replenish the
------------
Collateral as required by the terms of the Pledge Agreement once the
Collateral has been pledged.
28
<PAGE>
(F) DEFAULT IN PAYMENT FOR OTHER CREDIT FACILITY. Tenant's
--------------------------------------------
failure to make any payment required of Tenant in connection with any other
credit facility of Tenant of $5,000,000 or more, which payment default is not
cured within any applicable notice and cure period provided by such credit
facility.
(G) DEFAULT IN PAYMENT OF LEASE INVESTMENT BALANCE. Failure of
----------------------------------------------
Tenant to pay to Landlord the Lease Investment Balance upon an Event of
Default; provided, however, that with respect to an Event of Default under
Sections 19.1(e), (f), (i) (but as to subsection (i) only as to Tenant's
- ------------------------- --------------
failure to perform its obligations pursuant to the Termination Option (defined
in Section 20.2) as set forth in clause (b) of such subsection (i)), or (j),
------------- ---------- -----------------------
Tenant shall be obligated to pay only the Guaranteed Residual Value; provided,
however, this Lease and all other documents executed in connection herewith
shall continue and remain in full force and effect in accordance with their
terms after such payment.
(H) BREACH OF CONSTRUCTION MANAGEMENT AGREEMENT. Tenant's material
-------------------------------------------
breach of its obligations under the Construction Management Agreement.
(I) DEFAULT IN COMPLETION OF PURCHASE OPTION OR PAYMENT OF
------------------------------------------------------
GUARANTEED RESIDUAL VALUE. Failure of Tenant to (a) complete the Purchase
- -------------------------
Option after election (or deemed election) to do so, or (b) to perform all of
its obligations pursuant to the Termination Option if Tenant has elected to
exercise the Termination Option (defined in Section 20.2) (and has not
------------
rescinded its election to exercise such option) set forth in Section 20.2,
------------
including, without limitation, the obligations to make the payments required
pursuant to Sections 20.2(b), (d) and (e).
-----------------------------
(J) FINANCIAL COVENANTS. Tenant's failure at any time during the
-------------------
Term of the Lease, subject to quarterly compliance (as measured on the last
day of each fiscal quarter of Tenant) to comply with the following Financial
Covenants:
1) Tenant shall at all times maintain a Quick Ratio, which is
defined as the sum of cash and marketable securities (classified as short or
long-term) and net accounts receivable, divided by current liabilities, of not
less than 1.25:1.
2) Tenant shall at all times maintain a ratio of Consolidated
Total Liabilities to Consolidated Tangible Net Worth not to exceed 0.75.
3) Tenant shall at all times maintain Consolidated Tangible
Net Worth of at least $550,000,000 plus 50% of cumulative reported net income
(with no subtraction for losses), provided that consolidated stockholders'
equity less intangible assets shall not fall below $550,000,000.
4) Tenant shall not have a net loss (before one-time charges
resulting from acquisitions occurring in the same quarter as the acquisition)
for two consecutive fiscal quarters. Tenant's aggregate net loss for any
single fiscal quarter during the Term shall not exceed 5% of consolidated
stockholders' equity.
29
<PAGE>
5) Tenant shall at all times maintain a Debt Service Coverage
Ratio of at least 5.0:1.
19.2 CONTEST BY TENANT.
-----------------
If upon the filing of any involuntary petition of the type described in
Section 19.1(d) or upon the appointment of a receiver, other than a receiver
- ---------------
appointed in any voluntary proceeding referred to in Section 19.1(d), or the
---------------
taking of possession of all or a substantial portion of a Parcel by any
department of the city, county, state or federal government, or any officer
thereof duly authorized, by reason of the alleged insolvency of Tenant without
the consent or over the objection of Tenant, should Tenant desire to contest the
same in good faith, Tenant shall, within ninety (90) days after the filing of
the petition or after the appointment or taking of possession, give Notice to
Landlord that Tenant proposes to make the contest, and the same shall not
constitute an Event of Default so long as Tenant shall prosecute the proceedings
with due diligence and no part of any Parcel shall be exposed to sale by reason
of the continuance of the contest.
19.3 LANDLORD'S REMEDIES.
-------------------
Landlord shall have the remedies specified below:
(A) CONTINUE LEASE. In connection with an Event of Default, Landlord
--------------
shall have the right to enforce, by suit or otherwise, all other covenants and
conditions hereof to be performed or complied with by Tenant and to exercise all
other remedies permitted by the laws of the state in which the Parcel is
located. Upon application by Landlord, a receiver may be appointed to take
possession of such Parcel and exercise all rights granted to Landlord as set
forth in this Section 19.3.
------------
(B) TERMINATE LEASE. In connection with an Event of Default other
---------------
than an Event of Default under Section 19.1 (e), (f), (i) (but as to
--------------------------
subsection (i) only as to Tenant's failure to perform its obligations pursuant
- --------------
to the Termination Option (defined in Section 20.2) as set forth in clause (b)
------------ ----------
of subsection (i)), or (j), Landlord may terminate this Lease or any Lease
-----------------------
Supplement, by giving Tenant Notice thereof, at any time after the occurrence
of such Event of Default. In such event Tenant shall be obligated to purchase
the Parcel (if Landlord has terminated only the Lease Supplement for such
Parcel) or all of the Parcels (if Landlord has terminated this Lease) for an
amount equal to the Purchase Price for all of the Parcels described in the
Purchase Option contained in Section 20.1 below (that is, all accrued Base
------------
Rent, Additional Rent and the Lease Investment Balance under each Lease
Supplement). If the Event of Default is under Sections 19.1 (e), (f), (i) (but
---------------------------
as to subsection (i) only as to Tenant's failure to perform its obligations
--------------
pursuant to the Termination Option (defined in Section 20.2) as set forth in
------------
clause (b) of subsection (i)) or (j), Tenant shall be obligated to pay only
- ---------- ----------------------
the Guaranteed Residual Value. Landlord shall also have its other remedies at
law (including its rights under the SBLF Deed of Trust and Pledge Agreement),
provided, however, that Tenant's option to purchase the Parcels pursuant to
Section 20.1 shall survive any termination of this Lease up through the date
- ------------
of foreclosure sale under the SBLF Deed of Trust.
(C) LANDLORD'S CONTINUING OBLIGATION TO SELL. Except in the case
----------------------------------------
of a foreclosure under the SBLF Deed of Trust, in the event Landlord obtains
possession of a Parcel pursuant to the terms of this Lease (because of Tenant's
default, Lease expiration, or otherwise), Landlord shall be under a continuing
obligation to use its commercially reasonable efforts to sell
30
<PAGE>
such Parcel to one or more unrelated third parties; provided, however, that
for a period of thirty (30) days following such termination, Tenant shall have
the exclusive option to purchase such Parcel for the Purchase Price (as
defined below), and provided further, however, that Landlord shall not be
---------------- -------
required to sell or attempt to sell any portion of such Parcel (i) in a
manner, or under circumstances, that could materially impair Landlord's
ability to enforce any of its rights or remedies under this Lease (as
determined in Landlord's sole discretion exercised in good faith) or (ii) at a
time when market conditions render it inadvisable to sell or attempt to sell
such Parcel (as determined in Landlord's sole discretion exercised in good
faith). Upon the occurrence of any such sale Landlord shall be obligated to
pay to Tenant any excess of the amount realized by Landlord in connection with
such sale over the Purchase Price (defined below). For purposes of the
preceding sentence, the amount realized by Landlord upon a sale of a Parcel
shall be net of Landlord's reasonable sale expenses and other expenses
reasonably incurred by Landlord to consummate such sale. Landlord's obligation
to pay such excess to Tenant shall survive any termination of this Lease.
Tenant agrees that the Landlord will be deemed to be acting in good faith if
it refuses to sell its interest for less than the excess of the Lease
Investment Balance over the Guaranteed Residual Value.
In the event there is a foreclosure sale under the SBLF Deed of Trust, then
the party acquiring the property sold at such foreclosure sale (the "Purchaser")
shall have the option to purchase the fee simple interest in all, but not less
than all, of the then-existing Parcels owned by Landlord on the following terms:
(i) such option to purchase must be exercised by written notice delivered to
Landlord no later than thirty (30) days following the date of completion of the
foreclosure sale, as evidenced by the recordation of a deed conveying such
property so sold at foreclosure by the trustee under the SBLF Deed of Trust;
(ii) the purchase price for the fee simple interest in the then-existing Parcels
shall be the Purchase Price set forth in Section 20.1(a) of the Lease (as
---------------
adjusted to take into account all reductions in the Lease Investment Balance
resulting from payments received by Landlord, including proceeds received by
Landlord as a result of the foreclosure sale); and (iii) the purchase and sale
of the then-existing Parcels shall be consummated in the manner described in
Section 20.1(c) of the Lease. In the event such Purchaser fails to timely
- ---------------
exercise the foregoing purchase option, the purchase option shall expire and
Landlord shall thereafter have no further obligation to sell the then-existing
Parcels.
19.4 NO WAIVER.
---------
No failure by Landlord or Tenant to insist upon the strict performance of
any term, covenant or condition of this Lease or to exercise any right or remedy
consequent upon a breach thereof and no acceptance of full or partial Base Rent
or Additional Rent during the continuance of any breach shall constitute a
waiver of any such breach or of the term, covenant, or condition. No term,
covenant or condition of this Lease to be performed or complied with by Tenant
or Landlord, and no breach thereof, shall be waived, terminated, altered or
modified except by a written instrument executed by Landlord and Tenant. No
waiver of any breach shall affect or alter this Lease, but each and every term,
covenant, and condition of this Lease shall continue in full force and effect
with respect to any other then existing subsequent breach thereof.
19.5 EFFECT OF ASSIGNMENT.
--------------------
Notwithstanding an Entity's prior assignment or transfer of its interest as
Tenant under this Lease, so long as Landlord has been given Notice of such
assignment pursuant to Sections 15.1 and 21.3, Landlord shall give such Entity
----------------------
copies of all
31
<PAGE>
Notices required by this Article XIX in connection with any Event of Default,
-----------
and such Entity shall have the period granted hereunder to Tenant to cure such
Event of Default, unless such Entity shall have been released from all
obligations arising under this Lease. Landlord may not assert any rights
against such Entity in the absence of such Notice and opportunity to cure, so
long as Landlord has been given Notice of such assignment pursuant to Sections
--------
15.1 and 21.3.
- -------------
19.6 LANDLORD CURE RIGHT.
-------------------
If Tenant fails to perform any covenant or agreement to be performed by
Tenant under this Lease, and if the failure or default continues for thirty (30)
days after Notice to Tenant (except for emergencies and except for payment of
any lien or encumbrance threatening the imminent sale of any Parcel or any
portion thereof, in which case payment or cure may be made as soon as necessary
to minimize the damage to person or property caused by such emergency or to
prevent any such sale), Landlord may, but shall have no obligation to, pay the
same and cure such default on behalf of and at the expense of Tenant and do all
reasonably necessary work and make all reasonably necessary payments in
connection therewith including, but not limited to, the payment of reasonable
attorneys' fees and disbursements incurred by Landlord. Notwithstanding the
foregoing, Landlord shall have no right to cure any such failure to perform by
Tenant so long as Tenant: (1) is diligently and in good faith attempting to
cure such matter and prosecuting such cure to completion; (2) has the financial
ability to so comply; and (3) commenced cure of such matter within thirty (30)
days after Tenant's receipt of Notice thereof from Landlord. Failure by Tenant
to comply with the above shall allow Landlord to commence in a reasonable and
customary manner and in good faith to attempt to cure such matter. Upon demand,
Tenant shall reimburse Landlord for the reasonable amount so paid, together with
interest at the Default Rate from the date incurred until the date repaid.
ARTICLE XX
TENANT'S OPTION TO PURCHASE OR TERMINATE
----------------------------------------
20.1 OPTION TO PURCHASE PARCELS.
---------------------------
(A) PURCHASE OPTION. On any Rent Payment Date during the Term,
---------------
Tenant shall have the option ("Purchase Option") to purchase all, but not less
than all, of a Parcel covered by a Lease Supplement. The purchase price
("Purchase Price") for the Parcel shall be the sum of accrued and unpaid Base
Rent, any accrued and unpaid Additional Rent, plus the Lease Investment
Balance under the applicable Lease Supplement.
(B) PURCHASE OPTION EXERCISE NOTICE. If Tenant desires to exercise
-------------------------------
the Purchase Option, Tenant shall deliver to Landlord thirty (30) days prior
written notice ("Purchase Option Exercise Notice") of Tenant's election. If
Tenant does not exercise the Termination Option with respect to any Parcel as
provided in Section 20.2 below it shall be deemed to have exercised the
------------
Purchase Option with respect to such Parcel.
(C) TRANSFER. If Tenant exercises the Purchase Option, the
--------
purchase and sale of the Parcels shall be consummated as follows:
32
<PAGE>
(i) Landlord shall grant and convey the Parcels to Tenant,
its authorized agent or assignee, pursuant to a duly executed and acknowledged
assignment and assumption of leasehold interest (as to the Land) and a grant
deed as to the Parcels (collectively herein the "Deed"), free and clear of all
title defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way
and restrictive covenants or conditions, of record, placed against the Parcels
by Landlord except for (A) the Permitted Title Exceptions (but not the SBLF
Deed of Trust), and (B) any UCC-1 filed or recorded which evidence security
interests encumbering the Parcels or any part thereof in favor of SBLF, which
security interests SBLF shall cause to be released so that they no longer
affect the Parcels.
(ii) The Purchase Price shall be paid upon delivery of the
Deed and any other documents reasonably requested by Tenant (the "Additional
Documents") to evidence the transfer of the Parcels subject to the Permitted
Title Exceptions (excluding the SBLF Deed of Trust, and any UCC-1 filed or
recorded which evidence security interests encumbering the Parcels or any part
thereof in favor of SBLF, which security interests SBLF shall cause to be
released so that they no longer affect the Parcels). In the event that Tenant
elects to assign the Purchase Option pursuant to Section 20.1(d) below, and
---------------
Tenant's assignee pays an amount less than the Purchase Price for the Parcels,
Tenant shall pay to Landlord any excess of the Purchase Price over the amount
paid by such assignee. Landlord shall deliver the Deed and the Additional
Documents to Tenant or Tenant's assignee on the date for closing specified by
Tenant in the Purchase Option Exercise Notice. The closing shall take place at
the location and in the manner reasonably set forth by Tenant or Tenant's
Assignee in the Purchase Option Exercise Notice; provided that the date of
closing shall occur no later than the last day of the Term of the Lease.
(iii) If Landlord shall fail to cause title to be in the
condition required in Section 20.1(c)(i) above within the time herein
------------------
prescribed for the delivery of the Deed, then Tenant shall have the right (in
addition to all other rights provided by law or in equity) by a written notice
to Landlord: (1) to extend the time (notwithstanding the Expiration Date of
this Lease) in which Landlord shall clear title and deliver the Deed and
Additional Documents, during which extension this Lease shall remain in full
force and effect, except Tenant shall be released from its obligation to pay
Base Rent and Additional Rent during the extension; (2) to accept delivery of
the Deed and Additional Documents subject to such title defects, liens,
encumbrances, deeds of trust, mortgages, rights-of-way and restrictive
covenants or conditions specified and set forth in the Deed and not cleared by
Landlord; (3) to rescind, by notice to Landlord and without any penalty or
liability therefor, any and all obligations Tenant may have under and by
virtue of the Purchase Option or the exercise thereof, whereupon this Lease
shall remain in full force and effect; (4) to accept delivery of the Deed and
the Additional Documents and if the title exception is curable by the payment
of money, Tenant may make such payment and such payment shall be a credit
against the Purchase Price in favor of Tenant.
(iv) Base Rent shall be prorated and paid and all Additional
Rent which is then due and payable shall be paid as of the date title to the
Parcel is vested of record in Tenant. Tenant shall pay the escrow fees; the
recorder's fee for recording the Deed; the premium for the title insurance
policy; all documentary transfer taxes; Tenant's attorneys' fees; Landlord's
reasonable attorneys' fees; all other costs and expenses incurred by Tenant in
consummating the transfer of the Parcel; and all reasonable expenses (except
as specified in the next sentence)
33
<PAGE>
incurred by Landlord in consummating the transfer of the Parcel pursuant to
this Section 20.1. Landlord shall pay the costs and expenses of clearing title
------------
as required by Section 20.1(c)(i).
------------------
(D) ASSIGNMENT. Tenant shall have the right, without Landlord's
----------
consent, to assign this Purchase Option, in whole, to any Entity at any time,
whether or not Tenant also assigns its interest in the Lease.
20.2 TERMINATION OPTION.
------------------
(A) NOTICE. Provided that no Event of Default has occurred and is
------
then continuing, unless Tenant has notified Landlord prior to such date that it
elects the Purchase Option, Tenant may, on the date which is six (6) months
prior to the expiration of the Term, exercise an option ("Termination Option")
to sell any Parcel; provided, however that at any time Tenant can rescind its
election to exercise its Termination Option if it then exercises its Purchase
Option pursuant to Section 20.1 above. The six (6) month period is referred to
------------
herein as the "Sales Period".
(B) TERMINATION OPTION. After giving the notice set forth in
------------------
section (a) above Tenant shall then use its best efforts to sell the Parcel
for cash to a third party purchaser (who is not an affiliate of Tenant within
the meaning of Rule 405 under the Securities Act of 1933) and, if the Parcels
are not conveyed to such purchaser prior to the expiration of the Term, Tenant
shall have no further right to sell the Parcels and Landlord may, at its
option either allow the Tenant to holdover pursuant to Section 6.2 above, or
-----------
terminate the Lease in which case Tenant shall immediately vacate the Parcels,
and quitclaim all interest of Tenant, if any, therein to Landlord, and pay to
Landlord the Guaranteed Residual Value as provided in Section 20.2(d) below.
---------------
(C) TERMINATION OPTION PROCEDURES. In the event that Tenant elects
-----------------------------
the Termination Option, Tenant shall use its best efforts throughout the Sales
Period to obtain a purchaser (who is not an affiliate of Tenant as described
above) for the Parcels. Tenant shall have the exclusive right to market the
Parcels during the first three (3) months of the Sales Period (the "Exclusive
Period"). Landlord may direct Tenant to hire and pay for no more than one (1)
commission sales agent after the expiration of the Exclusive Period. Except as
otherwise provided below, any sale by Tenant shall be for the highest cash bid
submitted to Tenant, including any cash bid submitted by Landlord. The
determination of the highest bid shall be made by Landlord prior to the end of
the Sales Period. After the end of the Exclusive Period, Landlord may accept
any bid solicited by Landlord, Tenant or its agent, in which case Tenant's sales
effort may be suspended until the earlier of the closing of such sale on the
last day of the Term or revocation or rejection of such cash bid.
Notwithstanding the above provisions, Tenant may (i) accept during the Exclusive
Period any cash bid (net of expenses of sale) which exceeds the Lease Investment
Balance, or (ii) rescind the Termination Option at any time so long as it is
exercising its Purchase Option, which shall be prior and superior to an accepted
offer from a third party. If Landlord undertakes any sales efforts, Tenant
shall promptly reimburse Landlord for any reasonable charges, costs and expenses
incurred in such effort, including any commissions, allocated time charges,
costs and expenses of internal counsel, external counsel or other attorneys'
fees.
34
<PAGE>
(D) PAYMENTS UNDER TERMINATION OPTION. If Tenant elects the
---------------------------------
Termination Option with respect to any Parcel, Tenant shall pay to Landlord on
the last day of the Term in immediately available funds any Base Rent or
Additional Rent due and owing under the applicable Lease Supplement and this
Lease. Except as provided in Section 20.2(e), the proceeds (the "Proceeds") of
---------------
any sale of a Parcel pursuant to the Termination Option shall be paid to
Landlord upon any such sale without deductions, and not later than the
expiration of the Lease Term. If a Parcel is not sold and conveyed to a
purchaser in exchange for Proceeds on or before the expiration of the Lease
Term, then on the expiration of the Lease Term, Tenant shall pay to Landlord
in immediately available funds an amount equal to the then Guaranteed Residual
Value under the applicable Lease Supplement, or if the terms of Section 6.3
-----------
apply, the Guaranteed Residual Value portion of the Site Investment Balance
and Improvements Investment Balance with respect to the applicable Lease
Supplement.
(E) PROCEDURES UPON SALE UNDER THE TERMINATION OPTION. Any sale
-------------------------------------------------
pursuant to the Termination Option shall be consummated on the last day of the
Term. To the extent the Proceeds exceed the Lease Investment Balance under the
applicable Lease Supplement plus any holdover rent due to Landlord under
Section 4.2 above, and such excess shall be paid out of escrow to Tenant. Upon
- -----------
payment to Landlord of all amounts due it under this Lease and the applicable
Lease Supplement, Landlord shall execute and deliver to the purchaser of the
Parcel a grant deed in the same manner and subject to the same conditions and
obligations as are set forth in Section 20.1(c) above and have the same
---------------
obligation to deliver title and remove exceptions as set forth in said
Section. Except as provided in the second sentence of this subparagraph, the
Proceeds shall be applied first to the Lease Investment Balance under the
applicable Lease Supplement plus any holdover rent due to Landlord under
Section 4.2 above, Tenant shall then reimburse Landlord for the excess of the
- -----------
Lease Investment Balance under the applicable Lease Supplement (calculated
immediately prior to receipt of the Proceeds) over the Proceeds, up to the
amount of the Guaranteed Residual Value under the applicable Lease Supplement.
In the event the terms of Section 6.3 are applicable, the Proceeds shall be
-----------
applied as follows: first, Landlord shall obtain an appraisal allocating
values between the Land and the Improvements; then the Proceeds shall be
applied to the Land and Improvements in the proportions set forth in the
appraisal. If the Proceeds allocated to the Land are less than the Site
Investment Balance (calculated immediately prior to receipt of the Proceeds),
Tenant shall reimburse Landlord in an amount equal to the difference between
the Site Investment Balance and the Proceeds up to but not to exceed the
Guaranteed Residual Value portion of the Site Investment Balance. If the
Proceeds allocated to the Improvements (calculated immediately prior to
receipt of the Proceeds) are less than the Improvements Investment Balance,
Tenant shall reimburse Landlord in an amount equal to the difference between
the Improvements Investment Balance and the Proceeds, up to but not to exceed
the Guaranteed Residual Value portion of the Improvements Investment Balance.
ARTICLE XXI
MISCELLANEOUS
-------------
21.1 RELATIONSHIP.
------------
Neither this Lease nor any agreements or transactions contemplated hereby
shall in any respect be interpreted, deemed or construed as constituting
Landlord and Tenant as partners or joint venturers, one with the other, or as
creating any
35
<PAGE>
partnership, joint venture, association or, except as set forth in
Section 21.2 below, any other relationship other than that of landlord and
- ------------
tenant: and, except as set forth in Section 21.2 below, both Landlord and Tenant
------------
agree not to make any contrary assertion, contention, claim or counterclaim in
any action, suit or other legal proceeding involving either Landlord or Tenant
or the subject matter of this Lease.
21.2 FORM OF TRANSACTION: CERTAIN TAX MATTERS.
-----------------------------------------
(a) Landlord and Tenant hereby agree and declare that the
transactions contemplated by this Lease are intended to constitute, both as to
matters of form and substance:
(i) an operating lease for financial accounting purposes, and
(ii) a financing arrangement (and not a "true lease") for
purposes of Federal, state and local income, property or other forms of tax.
Accordingly, and notwithstanding any other provision of this Lease to the
contrary, Landlord and Tenant agree and declare that (A) the transactions
contemplated hereby are intended to have a dual, rather than single, form and
(B) all references in this Lease to the "Lease" of the Parcels which fail to
reference such dual form do so as a matter of convenience only and do not
reflect the intent of Landlord and Tenant as to the true form of such
arrangements.
(b) Landlord and Tenant agree that, in accordance with their
intentions and the substance of the transactions contemplated hereby, Tenant
(and not Landlord) shall be treated as the owner of the Parcels for Federal,
state, local income and property tax purposes and this Lease shall be treated
as a financing arrangement. Tenant shall be entitled to take any deduction,
credit allowance or other reporting, filing or other tax position consistent
with such characterizations. Landlord shall not file any Federal, state or
local income tax returns, reports or other statements in a manner which is
inconsistent with the foregoing provisions of this Section 21.2.
------------
(c) Tenant acknowledges that it has retained accounting, tax and
legal advisors to assist it in structuring this Lease and Tenant is not
relying on any representations of Landlord regarding the proper treatment of
this transaction for accounting, income tax or any other purpose.
21.3 NOTICES.
-------
Each Notice shall be in writing and shall be sent by personal delivery,
overnight courier (charges prepaid or billed to the sender) or by the deposit of
such with the United States Postal Service, or any official successor thereto,
designated as registered or certified mail, return receipt requested, bearing
adequate postage and in each case addressed as provided in the Basic Lease
Provisions. Each Notice shall be effective upon being personally delivered or
actually received. The time period in which a response to any such Notice must
be given or any action taken with respect thereto shall commence to run from the
date of personal delivery or receipt of the Notice by the addressee thereof, as
reflected on the return receipt of the Notice. Rejection or other refusal to
accept shall be deemed to be receipt of the Notice sent. By giving to the other
party at least thirty (30) days' prior Notice thereof, either party to this
Lease shall have the right from time to time during the Term of this Lease to
change the address(es)
36
<PAGE>
thereof and to specify as the address(es) thereof any other address(es) within
the continental United States of America.
21.4 SEVERABILITY OF PROVISIONS.
--------------------------
If any term, covenant or condition of this Lease shall be invalid or
unenforceable, the remainder of this Lease, or the application of such term,
covenant or condition to Entities or circumstances other than those as to which
it is invalid or unenforceable, shall not be affected thereby.
21.5 ENTIRE AGREEMENT: AMENDMENT.
---------------------------
This Lease constitutes the entire agreement of Landlord and Tenant with
respect to the subject matter hereof. Neither this Lease nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
21.6 MEMORANDUM OF AMENDED AND RESTATED LEASE.
----------------------------------------
Neither party shall record this Lease. However, concurrently with the
execution of any Lease Supplement, Landlord and Tenant shall execute a
Memorandum of Amended and Restated Lease ("Memorandum of Lease") in the form
attached hereto as Exhibit F and by this reference made a part hereof, which
---------
Memorandum of Lease shall be promptly recorded in the Official Records.
21.7 SUCCESSORS AND ASSIGNS.
----------------------
Subject to Articles XIV and XV, this Lease shall inure to the benefit of
-------------------
and be binding upon Landlord and Tenant and their respective heirs, executors,
legal representatives, successors and assigns. Whenever in this Lease a
reference to any Entity is made, such reference shall be deemed to include a
reference to the heirs, executors, legal representatives, successors and assigns
of such Entity.
21.8 COMMISSIONS.
-----------
Landlord and Tenant each represent and warrant that neither has dealt with
any broker in connection with this transaction and that no real estate broker,
salesperson or finder has the right to claim a real estate brokerage,
salesperson's commission or finder's fee by reason of contact between the
parties brought about by such broker, salesperson or finder. Each party shall
hold and save the other harmless of and from any and all loss, cost, damage,
injury or expense arising out of or in any way related to claims for real estate
broker's or salesperson's commissions or fees based upon allegations made by the
claimant that it is entitled to such a fee from the indemnified party arising
out of contact with the indemnifying party or alleged introductions of the
indemnifying party to the indemnified party.
21.9 ATTORNEYS' FEES.
---------------
In the event any action is brought by Landlord or Tenant against the other
to enforce or for the breach of any of the terms, covenants or conditions
contained in this Lease, the prevailing party shall be entitled to recover
reasonable attorneys' fees to be fixed by the court, together with costs of suit
therein incurred. Tenant shall pay the reasonable attorneys' fees incurred by
Landlord for the review and negotiation of this Lease.
21.10 GOVERNING LAW.
-------------
This Lease and the obligations of the parties hereunder shall be governed
by and interpreted, construed and enforced in accordance with the laws of the
State of California, provided that any security documents shall be governed by
local law to the extent any of the Parcels covered by such documents are located
outside the State of California.
37
<PAGE>
21.11 COUNTERPARTS.
------------
This Lease may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall comprise but a
single instrument.
21.12 TIME IS OF THE ESSENCE.
----------------------
Time is of the essence of this Lease, and of each provision hereof.
21.13 NO THIRD PARTY BENEFICIARIES.
----------------------------
This Lease is entered into by Landlord and Tenant for the sole benefit of
Landlord and Tenant. There are no third party beneficiaries to this Lease.
21.14 LIMITATIONS ON RECOURSE.
-----------------------
Except for the gross negligence or willful misconduct of Landlord or
Tenant, the obligations of Tenant and Landlord under this Lease shall be without
recourse to any partner, officer, trustee, beneficiary, shareholder, director or
employee of Tenant or Landlord. Landlord's liability to Tenant for any default
by Landlord under this Lease: (1) shall be limited to Landlord's equity in the
Parcels; and (2) shall extend to any actual damages of Tenant, but shall not
extend to any foreseeable and unforeseeable consequential damages.
21.15 ESTOPPEL CERTIFICATES.
---------------------
Within thirty (30) days after request therefor by either party, the non-
requesting party shall deliver, in recordable form, a certificate to any
proposed mortgagee, purchaser, sublessee or assignee and to the requesting
party, certifying (if such be the case) that this Lease is in full force and
effect, the date of Tenant's most recent payment of Base Rent, that, to the best
of its knowledge, the non-requesting party has no defenses or offsets
outstanding, or stating those claimed, and any other information reasonably
requested. Failure to deliver said statement in time shall be conclusive upon
the non-requesting party that: (a) this Lease is in full force and effect,
without modification except as may be represented by the requesting party; (b)
there are no uncured defaults in the requesting party's performance and the non-
requesting party has no right of offset, counterclaim or deduction against the
non-requesting party's obligations hereunder; (c) no more than one month's Base
Rent has been paid in advance; and (d) any other matters reasonably requested in
such certificate.
21.16 AS-IS LEASE.
-----------
Landlord makes no representations or warranties concerning the condition,
suitability or any other matters relating to the Parcels, and Tenant hereby
acknowledges that Tenant leases the Parcels from Landlord on an "as is" basis.
21.17 NET LEASE.
---------
Except for Landlord's Taxes or as otherwise provided in this Lease, Tenant
agrees that this Lease is an absolute net Lease, and the Base Rent called for
hereunder shall be paid as required net of all expenses associated with the
Parcels, including without limitation, Real Estate Taxes and insurance premiums
for the insurance required to be carried hereunder, and all other reasonable and
customary costs and expenses incurred by Landlord and owed to independent third
parties, in connection with the Parcels or this Lease, all of which shall be
paid or reimbursed by Tenant unless otherwise specifically provided herein.
Tenant agrees to reimburse Landlord, within five (5) business days following
receipt of any written demand therefor, for all reasonable and customary fees,
late charges, title endorsements, custodian fees related to the Collateral, and
other costs and expenses charged to Landlord which accrue during any period.
38
<PAGE>
21.18 LANDLORD'S REPRESENTATIONS AND WARRANTIES.
-----------------------------------------
Landlord hereby represents and warrants that:
(a) Landlord has the full right and authority to enter into this
Lease, consummate the sale, transfers and assignments contemplated herein and
otherwise perform its obligations under this Lease;
(b) the person or persons signatory to this Lease and any document
executed pursuant hereto on behalf of such party have full power and authority
to bind such party; and
(c) the execution and delivery of this Lease and the performance
of such party's obligations hereunder do not and shall not result in the
violation of its organizational documents or any material contract or
agreement to which such party may be a party.
21.19 TENANT'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
--------------------------------------------------
Tenant hereby represents and warrants to Landlord that:
(A) CORPORATE STATUS. Tenant (i) is a duly organized and validly
----------------
existing corporation in good standing under the laws of the State of Delaware,
and (ii) has duly qualified and is authorized to do business and is in good
standing in all jurisdictions where the failure to do so might have a material
adverse effect on it or its properties.
(B) CORPORATE POWER AND AUTHORITY. Tenant has the corporate power
-----------------------------
and authority to execute, deliver and carry out the terms and provisions of the
Lease and the SBLF Deed of Trust ("Operative Documents") to which it is or will
be a party and has taken all necessary corporate action to authorize the
execution, delivery and performance of the Operative Documents to which it is a
party and has duly executed and delivered each Operative Document required to be
executed and delivered by it and, assuming the due authorization, execution and
delivery thereof on the part of each other party thereto, each such Operative
Document constitutes a legal, valid and binding obligation, enforceable in
accordance with their respective terms except as limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally, and except as the remedy of specific performance
or of injunctive relief is subject to the discretion of the court before which
any proceeding therefor may be brought and except as otherwise stated in the
opinion of Tenant's counsel delivered to Landlord in connection with the
execution and delivery of this Lease.
(C) NO VIOLATION. Neither the execution, delivery and performance
------------
by Tenant of the Operative Documents to which it is or will be a party nor
compliance with the terms and provisions thereof, nor the consummation by the
Tenant of the transactions contemplated therein (i) will result in a violation
by the Tenant of any applicable provision of any law, statute, rule, regulation,
order, writ, injunction or decree of any court or governmental instrumentality
having jurisdiction over the Tenant or the Parcels that would materially
adversely affect (x) the validity or enforceability of the Operative Documents
to which the Tenant is a party, or the title to, or value or condition of, the
Parcels, or (y) to the best of the Tenant's knowledge, the consolidated
financial position, business or consolidated results of operations of the Tenant
or the ability of the Tenant to perform its obligations under the Operative
Documents, (ii) will conflict with or
39
<PAGE>
result in any breach which would constitute a default under, or (other than
pursuant to the Operative Documents) result in the creation or imposition of
(or the obligation to create or impose) any lien upon any of the property or
assets of the Tenant pursuant to the terms of any indenture, loan agreement or
other agreement for borrowed money to which the Tenant is a party or by which
it or any of its property or assets is bound or to which it may be subject
(other than Permitted Exceptions), or (iii) will violate any provision of the
certificate of incorporation or by-laws of the Tenant.
(D) LITIGATION. Except as disclosed in Exhibit G, there are no
---------- ----------
actions, suits or proceedings pending or, to the knowledge of the Tenant,
threatened (i) that are reasonably likely to have a material adverse effect on
the Parcels or on the businesses, operations, financial condition or material
assets of the Tenant, or (ii) that question the validity of the Operative
Documents or the rights or remedies of the Landlord with respect to the Tenant
or the Parcels under the Operative Documents.
(E) GOVERNMENTAL APPROVALS. Except as disclosed in Exhibit H, no
---------------------- ---------
Governmental Action by any Governmental Authority having jurisdiction over the
Tenant, or any Parcel is required to authorize or is required in connection with
(i) the execution, delivery and performance by the Tenant of any Operative
Document to which it is a party, or (ii) the legality, validity, binding-effect
or enforceability against the Tenant of any Operative Document to which it is a
party.
(F) INVESTMENT COMPANY ACT. Tenant 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.
(G) PUBLIC UTILITY HOLDING COMPANY ACT. Tenant is not a "holding
----------------------------------
company" or a "subsidiary company," or an "affiliate" of a "holding company"
or of a "subsidiary company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(H) PROVIDED INFORMATION. The information and materials which were
--------------------
provided by Tenant to the Landlord prior to the Date of Lease are true and
accurate in all material respects on the date as of which such information and
materials are dated or certified and are not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading at
such time in light of the circumstances under which such information was
provided.
(I) TAXES. All United States Federal income tax returns and all
-----
other tax returns which are required to have been filed have been or will be
filed by or on behalf of the Tenant by the respective due dates, including
extensions, and all taxes due with respect to the Tenant pursuant to such
returns or pursuant to any assessment received by the Tenant have been or will
be paid. The charges, accruals and reserves on the books of the Tenant in
respect of taxes or other governmental charges are, in the opinion of the
Tenant adequate.
40
<PAGE>
(J) COMPLIANCE WITH ERISA. Each member of the ERISA Group has
---------------------
fulfilled its obligations under the minimum funding standards of the Employee
Retirement Income Security Act of 1974, as amended from time to time ("ERISA")
and the Internal Revenue Code of 1986, as amended from time to time (the
"Code") with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code with
respect to each Plan to the extent applicable.
(K) ENVIRONMENTAL LAWS. To the best of Tenant's knowledge, except as
------------------
disclosed in Exhibit I, the Tenant is in compliance with all Environmental Laws
---------
relating to pollution and environmental control of the Land, other than those
the non-compliance with which would not have a material adverse effect on the
Land, or the consolidated results of operations, business, or consolidated
financial position of the Tenant.
(L) OFFER OF SECURITIES, ETC. Neither the Tenant nor any person
------------------------
authorized to act on the Tenant's behalf has, directly or indirectly, offered
any interest in any Parcel or any other interest similar thereto (the sale or
offer of which would be integrated with the sale or offer of such interest in a
Parcel), for sale to, or solicited any offer to acquire any of the same from,
any person other than the Landlord and other "accredited investors" (as defined
in Regulation D of the Securities and Exchange Commission).
(M) FINANCIAL STATEMENTS.
--------------------
(i) The submitted financial statements, copies of which have
been delivered to the Landlord, present fairly in all material respects, in
conformity with generally accepted accounting principles, the financial
position of the Tenant as of such date and its results of operations and cash
flows for such fiscal year.
(ii) The unaudited consolidated statement of financial position
of the Tenant as of September 30, 1995 and any additional statements of
financial position of the Tenant, and the related unaudited consolidated
statements of income, and cash flows for the year to date, copies of which
have been delivered to Landlord, present fairly in all material respects, in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with the financial statements referred to in clause
-----
(i) of this subsection (m), the consolidated financial position of the Tenant
- --- --------------
as of such date and its consolidated results of operations and cash flows for
such year-to-date period (subject to normal year-end adjustments).
(N) PARCELS. To the best of Tenant's knowledge, the Parcels will
-------
comply in all material respects with all material requirements of law
(including, without limitation, all zoning and land use laws and environmental
laws) and insurance requirements.
(O) TITLE. Tenant covenants that to the extent the grant deed
-----
granting title to the Parcels to Landlord is not in form and substance
sufficient to convey good and marketable title to the Parcels in fee simple,
subject only to Permitted Exceptions, Tenant shall, to the extent Landlord is
not fully reimbursed by title insurance, pay any loss or claim to Landlord up
to an amount equal to the excess of the Lease Investment Balance over any such
title insurance reimbursement. Any payment made by Landlord's title company or
by Tenant directly to
41
<PAGE>
Landlord pursuant to this Section 21.19(o) shall be credited against the Lease
---------------
Investment Balance.
(P) FLOOD HAZARD AREAS. To the best of Tenant's knowledge, except as
------------------
otherwise identified on the survey delivered to Landlord, no portion of any
Parcel is located in an area identified as a special flood hazard area by the
Federal Emergency Management Agency or other applicable agency. If any Parcel
is located in an area identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable agency, then flood insurance has
been obtained for such Parcel in accordance with Article IX and in accordance
----------
with the National Flood Insurance Act of 1968, as amended.
(Q) LEASE. Upon the execution and delivery of each Lease Supplement, (i)
-----
the Tenant will have unconditionally accepted the Parcel covered by such Lease
Supplement (provided that nothing contained herein shall be deemed a waiver by
the Tenant of any right of action against persons with respect to title to and
condition of the Parcel on the Date of Lease other than the Landlord) and will
have good and marketable title to a valid and subsisting leasehold interest in
the Parcel, subject only to Permitted Title Exceptions, (ii) no right of offset
will exist with respect to any Rent or other sums payable under this Lease, and
(iii) no Rent under this Lease will have been prepaid.
(R) TITLE TO PROPERTIES. The Tenant has good and marketable title to
-------------------
all of its material assets reflected on the balance sheets in the submitted
financial statements, except for such material assets as has been disposed of in
the ordinary course of business, and all such material assets are free and clear
of any lien, except as reflected in said submitted financial statements and/or
notes thereto or as otherwise permitted by the provisions hereof or under the
Operative Documents, and except for Permitted Exceptions. The Tenant has such
trademarks, trademark rights, trade names, trade name rights, franchises,
copyrights, patents, patent rights and licenses as to allow it to conduct its
business as now operated, without known conflict with the rights of others which
would have a material adverse effect on the consolidated results of operation,
business, or consolidated financial position of Tenant.
(S) DEFAULTS. To the best of Tenant's knowledge, the Tenant is not in
--------
material default under (and no event has occurred which with the lapse of time
or notice or action by a third party could result in a default under) nor has
Tenant received written notice of any event of default which has not been cured,
under any instrument evidencing any debt or under any agreement relating thereto
or any indenture, mortgage, deed of trust, security agreement, lease, franchise
or other agreement or other instrument to which any such person is a party or by
which any such person or any of its material assets is subject to or bound.
(T) USE OF ADVANCE. No part of any Advance will be used directly or
--------------
indirectly for the purpose of purchasing or carrying, or for payment in full or
in part of debt that was incurred for the purposes of purchasing or carrying,
any margin security as such term is defined in Section 207.2 of Regulation G of
the Board of Governors of the Federal Reserve System (12 C.F.R., Chapter II,
Part 207).
42
<PAGE>
(U) CAPITAL ADEQUACY. If, after the date hereof, Landlord shall have
----------------
reasonably determined that the adoption after the date hereof of any Legal
Requirement regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy, whether or not having the force of law, of
any such Governmental Authority, has or would have the effect of reducing the
rate of return on the capital of Landlord or any Rent Purchaser as a consequence
of its obligations hereunder to a level below that which Landlord or any Rent
Purchaser could have achieved but for such adoption, change or compliance
(taking into consideration Landlord's and Rent Purchasers' policies with respect
to capital adequacy), then from time to time, within fifteen (15) days after
written demand (which demand shall be accompanied by a statement setting forth
the basis for such demand) delivered to Tenant by Landlord, Tenant shall pay to
Landlord and/or any Rent Purchaser such additional amount or amounts as will
compensate Landlord and/or any Rent Purchaser for such reduction.
(V) CLEAR MARKET. Prior to the date there are sufficient Rent
------------
Purchasers signatory to the Participation Agreement and Rent Purchase
Agreement so that the aggregate Rent Purchaser's Commitment (as defined in the
Participation Agreement) equals 100% of the Lease Investment Balance Debt (as
defined in the Participation Agreement) Tenant shall not engage in any other
financial transactions which may in the reasonable judgment of Landlord and
Tenant have a detrimental effect on the ability of Landlord to obtain
commitments from potential Rent Purchasers.
21.20 TENANT'S WAIVER OF DEMAND FOR POSSESSION.
----------------------------------------
Tenant waives any demand for possession of the Parcels and any demand for
payment of Base Rent and notice of intent to re-enter the Parcels, or of intent
to terminate this Lease, and waives any and every other notice or demand
prescribed by any applicable statutes or laws.
21.21 FINANCIAL REPORTING.
-------------------
Tenant shall provide to Landlord: (1) annually, within one-hundred (100)
days after the end of each of Tenant's fiscal years during the Term, annual
audited financial statements (including balance sheet, income statements, and
cash flow statements) of Tenant, (2) quarterly, within fifty (50) days after the
end of each of Tenant's fiscal quarters during the Term, quarterly unaudited
financial statements (including balance sheet, income statements, and cash flow
statements) of Tenant, (3) an officer's certificate delivered every reporting
period stating that no Event of Default has occurred under the Lease in the form
attached as Exhibit J, and (4) on March 15, 2001, an officer's certificate
---------
certifying Tenant's compliance with the Collateralization Triggers set forth in
Section 24.1 below.
- ------------
21.22 REGULATION D COMPENSATION.
-------------------------
For so long as the Landlord is required to maintain reserves against
Eurocurrency Liabilities (or any other category of liabilities which include
deposits by reference to which the LIBOR Rate is determined or any category of
extensions of credit or other assets which includes loans by a non-United States
office of the Landlord to United States residents), and, as a result, the cost
to the Landlord (or its funding office) of making or maintaining its Advances is
increased, then the Landlord may require the Tenant to pay, contemporaneously
with each payment of Base Rent, an additional amount (the "Additional Amount")
at a rate per annum up to but not exceeding the excess of (i) (A) the
43
<PAGE>
applicable LIBOR Rate divided by (B) one minus the Eurocurrency Reserve
-----
Requirements, over (ii) the applicable LIBOR Rate. In the event that the
Landlord wishes to require payment of the Additional Amount, Landlord (x)
shall so notify the Tenant, in which case the Additional Amount shall be
payable to the Landlord at the place indicated in such notice with respect to
each Borrowing Period commencing at least three (3) business days after the
giving of such notice and (y) shall furnish to the Tenant at least five (5)
business days prior to each date on which Base Rent is payable (the
"Additional Amount Notice") a certificate setting forth the Additional Amount
to which it is then entitled under this Section 21.22 (which shall be
-------------
consistent with it's good faith estimate of the level at which the related
reserves are maintained by it). Each such certificate shall be accompanied by
such information as the Tenant may reasonably request as to the computation
set forth therein. Upon written notice delivered to Landlord no more than five
(5) days following the receipt by Tenant of the Additional Amount Notice,
Tenant shall have the option to convert the method for calculating Base Rent
from that based on the LIBOR Rate to the Federal Funds Rate and to pay, in
lieu of LIBOR Base Rent plus the Additional Amount, the Federal Funds Base
Rent set forth above in Section 2.24.
-------------
21.23 COLLATERAL.
----------
The parties acknowledge that pursuant to Article XXIV below, Tenant may be
------------
required to pledge certain collateral ("Collateral") to the Rent Purchasers to
secure Tenant's obligations. If the Rent Purchasers apply any of the Collateral
to satisfy a Secured Obligation under the Pledge Agreement, such application
shall be deemed to reduce the Lease Investment Balance under this Lease on a
dollar-for-dollar basis. Tenant shall have no claims, rights or causes of
action against the Rent Purchasers or Landlord arising from any application of
the Collateral in accordance with the Pledge Agreement to satisfy any Secured
Obligation under the Pledge Agreement.
21.24 FIXED RATE OPTION.
-----------------
If no Event of Default exists hereunder or would exist except for the
passage of time or giving of notice, Tenant shall have the right upon five (5)
days prior written notice to Landlord to request that Landlord convert the
method for calculating Base Rent from that based on the LIBOR Rate or the
Federal Funds Rate, whichever is applicable, to that calculated on a fixed rate
of interest based on the then market conditions. In the event Tenant properly
exercises its option under this Section 21.24, Landlord and Tenant shall
-------------
cooperate in good faith to enter into an amendment to this Lease setting forth
the terms of the fixed interest rate, including, without limitation, the timing
and method of the payment of Base Rent, the new Default Rate, the term of the
fixed rate contract and any other terms and conditions of the Lease which must
be amended as a result of the conversion from the LIBOR Rate or the Federal
Funds Rate to a fixed interest rate. Upon the expiration of the fixed rate
contract, Base Rent shall be set at LIBOR Rate or Federal Funds Rate, whichever
is applicable.
21.25 FEDERAL FUNDS RATE.
------------------
If no Event of Default exists hereunder or would exist except for the
passage of time or giving of notice, Tenant shall have the right upon five (5)
business days prior written notice to Landlord to request that Landlord convert
the method for calculating Base Rent from that based on the LIBOR Rate or a
fixed rate of interest, whichever is applicable, to that calculated using the
Federal Funds Rate as set forth in Section 2.24 above, effective five (5)
------------
business days after receipt by Tenant of such written notice.
44
<PAGE>
ARTICLE XXII
INDEMNIFICATION
---------------
22.1 TAX INDEMNITY.
-------------
Notwithstanding anything in Article 8 (Taxes) to the contrary, Tenant
-----------------
shall protect and defend Landlord from and against all criminal prosecution
regarding and shall indemnify and hold Landlord harmless from and against any
and all losses, costs, liabilities or damages (including reasonable attorneys'
fees and disbursements and court costs) arising by reason of:
(a) Any and all U.S. Federal, state or local income taxes imposed
upon Landlord in consequence of Landlord being treated as the owner or lessor
of the Parcels (or any part thereof) for such tax purposes to the extent such
taxes exceed Landlord's tax liability under this transaction if Landlord was
not treated as the owner or lessor of the Parcels (but as lender) for tax
purposes; provided Landlord has fully complied with Section 21.2;
------------
(b) Any and all taxes imposed upon Tenant (except to the extent of
Landlord's Taxes or to the extent that such taxes are imposed upon Tenant as a
result of Landlord's failure to comply with its obligations under this Lease);
(c) Any and all taxes required to be withheld from payments made by
Tenant to a third party not related to or affiliated with Landlord;
(d) Any and all Real Estate Taxes;
(e) Any and all taxes owed by Landlord (other than Landlord Taxes)
as a result of payment made by Tenant to Landlord pursuant to Tenant's
indemnity obligations under this Section 22.1; and
------------
(f) Any and all costs, liabilities or damages (including reasonable
attorneys' fees) incurred by Landlord in obtaining indemnification payments from
Tenant under the provisions of this Section 22.1.
------------
Tenant's obligation to reimburse or indemnify Landlord for any taxes,
governmental fees, penalties, interest or other supplemental tax charges under
this Lease shall be reduced by the value of any related or offsetting tax
benefits derived or realized by Landlord. Tenant's duty to indemnify Landlord
under this Section 22.1 shall apply only to taxes arising during the Term
------------
(whether or not due and payable at the conclusion of the Term), but shall
otherwise survive the expiration or earlier termination of this Lease.
22.2 ENVIRONMENTAL INDEMNITY.
-----------------------
Tenant agrees to indemnify and hold Landlord harmless from and against,
and to reimburse Landlord with respect to, any and all claims, demands, causes
of action, losses, damages, liabilities, costs and expenses (including
attorneys' fees and court costs), fines and/or penalties of any and every kind
or character, known or unknown, fixed or contingent, asserted or potentially
asserted against or incurred by Landlord at any time and from time to time by
reason of, in connection with or arising out of (A) the failure of Tenant to
perform any obligation herein required to be performed by Tenant regarding
Applicable Environmental Laws, (B) any violation of any Applicable Environmental
Law by
45
<PAGE>
Tenant or with respect to the Parcels or any disposal or other release by
Tenant or with respect to the Parcels of any hazardous substance,
environmental contaminants or solid waste on or to the Parcels, whether or not
resulting in a violation of any Applicable Environmental Law, (C) any act,
omission, event or circumstance by Tenant or with respect to the Parcels which
constitutes or has constituted violation of any Applicable Environmental Law
with respect to the Parcels, regardless of whether the act, omission, event or
circumstance constituted a violation of any Applicable Environmental Law at
the time of its existence or occurrence, and (D) except to the extent of
Landlord's gross negligence or willful misconduct, any and all claims or
proceedings (whether brought by private party or governmental agencies) for
bodily injury, property damage, abatement or remediation, environmental damage
or impairment or any other injury or damage resulting from or relating to any
hazardous or toxic substance or contaminated material located upon or
migrating into, from or through the Parcels (whether or not the release of
such materials was caused by Tenant, a subtenant, a prior owner of the Parcels
or any other Entity) which Landlord may incur. Tenant's duty to indemnify
Landlord under this Section 22.2 shall survive the expiration or earlier
------------
termination of the Lease with respect to events occurring during or prior to
the Term or after the Term while Landlord has record title to and Tenant is
occupying the Parcels, but shall terminate as to events occurring wholly after
Tenant is in default under the Lease and is no longer in possession of the
Parcels.
22.3 GENERAL INDEMNITY.
-----------------
Except to the extent of Landlord's gross negligence or willful misconduct,
Tenant shall defend, indemnify, and hold Landlord harmless from and against any
and all losses, costs, expenses, liabilities, claims, causes of action and
damages of all kinds that may result to Landlord, including reasonable
attorneys' fees and disbursements incurred by Landlord, arising because of any
failure by Tenant to perform any of its obligations under this Lease or under
any of the other documents executed by Tenant in connection with this Lease.
Tenant's duty to indemnify Landlord under this Lease shall survive the
expiration or earlier termination of this Lease.
ARTICLE XXIII
COVENANTS OF LANDLORD
---------------------
23.1 TITLE.
-----
In the event Tenant so requests in writing (and so long as either Tenant
agrees to indemnify Landlord to Landlord's satisfaction from any liabilities or
obligations in connection therewith, or Landlord does not incur any liabilities
or obligations in connection therewith), Landlord shall execute all documents,
instruments and agreements reasonably requested by Tenant in order to accomplish
any of the following in the manner reasonably requested by Tenant and within the
time parameters reasonably requested by Tenant: (1) remove exceptions to title
to or affecting the Parcels; (2) create exceptions to title (including, without
limitation, easements and rights of way) to or affecting the Parcels; or (3)
modify any then-existing exception to title. Tenant shall promptly reimburse
Landlord for, or at Landlord's request, pay directly in advance, all reasonable
costs, expenses and other amounts incurred or required to be expended by
Landlord in order to comply with Tenant's requests made in accordance with the
preceding sentence, and the failure of Tenant to reimburse or pay any such
amounts shall result in the suspension of Landlord's obligations under such
sentence with respect to that particular request until the amounts required to
be paid by Tenant under this sentence have been paid.
46
<PAGE>
23.2 LAND USE.
--------
Except where requested by Tenant pursuant to this Section 23.2, Landlord
------------
shall not cause or give its written consent to any land use or zoning change
affecting the Parcels or any changes of street grade. In the event Tenant so
requests in writing (and so long as either Tenant agrees to indemnify Landlord
to Landlord's satisfaction, from any liabilities or obligations in connection
therewith, or Landlord does not incur any liabilities or obligations in
connection therewith), Landlord shall execute all documents, instruments and
agreements reasonably requested by Tenant in order to accomplish any of the
following in the manner reasonably requested by Tenant and within the time
parameters reasonably requested by Tenant: (1) cause a change in any land use
restriction or law affecting the Parcels; (2) cause a change in the zoning
affecting a Parcel; or (3) cause a change in the street grade with respect to
any street in the vicinity of a Parcel. Tenant shall promptly reimburse
Landlord for, or at Landlord's request, pay directly in advance, all reasonable
costs, expenses and other amounts incurred or required to be expended by
Landlord in order to comply with Tenant's requests made in accordance with the
preceding sentence, and the failure of Tenant to reimburse or pay any such
amounts shall result in the suspension of Landlord's obligations under such
sentence with respect to that particular request until the amounts required to
be paid by Tenant under this sentence have been paid.
23.3 TRANSFER OF PROPERTY INTERESTS.
------------------------------
Except as requested by Tenant pursuant to this Lease, Landlord shall not
transfer to any third party any rights inuring to or benefits associated with
the Parcels (including, without limitation, zoning rights, development rights,
air space rights, mineral, oil, gas or water rights). Nothing in this Section
-------
23.3 shall limit Landlord's right to transfer Landlord's interest in this Lease
- ----
to a third party or its rights to transfer the Parcels, pursuant to Section
-------
14.2; provided that as to a transfer under Section 14.2 any purchaser of
------------
Landlord's interest in the Parcels shall be bound by the terms of this Lease,
including without limitation the terms of this Section 23.3).
------------
ARTICLE XXIV
LANDLORDS RIGHT TO REQUIRE COLLATERALIZATION
--------------------------------------------
24.1 LANDLORD'S RIGHT TO REQUIRE COLLATERALIZATION.
---------------------------------------------
Tenant shall have no obligation to provide Collateral at any time prior to
March 1, 2001. On March 15, 2001, Landlord shall review the credit strength of
Tenant, and if as a result of its review Landlord determines that any of the
events listed below in this Section 24.1 as "Collateralization Triggers" have
------------
occurred with respect to Tenant, Tenant shall (i) execute a Collateral Notice in
the form attached hereto as Exhibit K (the "Collateral Notice") and deposit
---------
sufficient Collateral into the Collateral Fund (as defined in the Pledge
Agreement) to cause the value of the Collateral Fund to equal one hundred and
two percent (102%) of the aggregate Guaranteed Residual Value under the Lease
Supplements in existence as of March 1, 2001, without reduction for the amount
of Advances under the Lease which are then outstanding and (ii) deliver to
Landlord an opinion of Borrower's counsel in form and substance reasonably
acceptable to Landlord opining as to the perfection of the Collateral deposited
into the Collateral Fund. Tenant hereby agrees to deposit the Collateral in
accordance with the terms of the Pledge Agreement and this Section 24.1 no later
------------
than two (2) business days following Tenant's receipt of written notice from
Landlord that the Collateral deposit is required. Tenant hereby agrees to
deliver the legal opinion described above in accordance with this Section 24.1
------------
no later than twenty (20) business days following receipt of
47
<PAGE>
written notice from Landlord that the Collateral deposit is required and
Tenant's failure to do so will constitute an Event of Default under this
Lease. Tenant agrees that in the event Landlord has required Tenant to
collateralize the Lease pursuant to this Section 24.1, Tenant shall, as a
------------
condition to Landlord's obligation to enter into any Lease Supplements
following March 1, 2001, deposit sufficient additional Collateral into the
Collateral Fund to cause the value of the Collateral Fund to equal 102% of the
aggregate Guaranteed Residual Value for all Lease Supplement, including such
new Lease Supplement. Landlord's review of Tenant's credit strength and any
determination by Landlord that a Collateralization Trigger has occurred with
respect to Tenant for purposes of this Section 24.1, shall be based upon
------------
generally accepted accounting principles and upon the financial data contained
in the most recent SEC quarterly filing made by Tenant on Form 10-Q or annual
filing on Form 10-K, whichever is most recent. Within fifteen (15) days after
the filing of any such SEC quarterly or annual filing made by Tenant, a
financial officer of Tenant shall provide a certificate to Landlord containing
appropriate calculations to enable Landlord to determine whether or not any of
the Collateralization Triggers have occurred based on the data contained in
the applicable most recent SEC filing made with respect to the quarterly or
annual period just concluded. If none of the events listed below in this
Section 24.1 as Collateralization Triggers have occurred with respect to
Tenant on March 1, 2001, then Tenant shall have no obligation to provide
Collateral at any time prior to the expiration of the Lease Supplements in
existence as of March 1, 2001.
COLLATERALIZATION TRIGGERS:
--------------------------
(i) Tenant's failure as of March 1, 2001 to maintain a Quick Ratio, which
is defined as the sum of cash and marketable securities (classified as short
or long term) and net accounts receivable, divided by current liabilities, of
not less than 2.0.
(ii) Tenant's failure as of March 1, 2001 to maintain a ratio of
Consolidated Total Liabilities to Consolidated Tangible Net Worth not to
exceed 0.50.
(iii) Tenant's failure as of March 1, 2001 to have a consolidated
stockholders' equity less intangible assets of at least $1,000,000,000.00.
[Signatures begin on next page.]
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of
the day and year first above written.
TENANT: ASCEND COMMUNICATIONS, INC., a
Delaware Corporation
By:
----------------------------------------
Name:
----------------------------------------
Its:
----------------------------------------
(Signatures continued on next page)
49
<PAGE>
LANDLORD: SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware corporation
By:
----------------------------------------
Name:
----------------------------------------
Its:
----------------------------------------
Dated: March __, 1998
50
<PAGE>
EXHIBIT A
---------
FORM OF LEASE SUPPLEMENT FOR ACQUISITION
----------------------------------------
LEASE SUPPLEMENT NO. _______
LEASE SUPPLEMENT NO. _______ is dated as of _______ and executed by and
between SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation
("Landlord"), and ASCEND COMMUNICATIONS, INC., a Delaware corporation
("Tenant").
Landlord and Tenant have heretofore entered into that certain Amended and
Restated Master Lease dated as of March __, 1998, relating to the lease of
certain parcels of real property (herein called the "Lease" and the defined
terms therein being hereinafter used with the same meanings). The Lease
provides for the execution and delivery from time to time of Lease Supplements
for the purpose of leasing individual Parcels under the Lease as and when
delivered by Landlord in accordance with the terms thereof.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, Landlord and Tenant hereby agree as follows:
(a) Landlord hereby delivers and leases to Tenant under the Lease and
Tenant accepts and leases from Landlord under the Lease the Parcel described in
Schedule 1 attached hereto.
- ----------
(b) The lease amortization, if applicable, is described in Schedule 2
----------
attached hereto.
(c) The Permitted Title Exceptions are described in Schedule 3 attached
----------
hereto.
(d) The Site Plan for the Parcel is described in Schedule 4 attached
----------
hereto.
(e)1/ The Site Investment Balance to acquire the Land is $[__________]
and the estimated Improvement Investment Balance for the construction of the
Improvements shall be $_____________.
(f) The Lease Supplement Term shall commence on _________.
- ------------------
1/ In the case of a Parcel where the Fair Market Value of the Land is less than
twenty five percent (25%) of the aggregate expected Fair Market Value of the
Land and Improvements at Lease Commencement, substitute the following language:
"There is no separate Site Investment Balance for this Parcel. The estimated
Improvements Investment Balance (which shall, for purposes of the Parcel to with
this Lease Supplement relates, include the acquisition costs of the Parcel)
shall be $___________________.
1
<PAGE>
(g) Tenant hereby confirms its agreement to pay Landlord Base Rent and
Additional Rent for the Parcel during the Lease Supplement Term in accordance
with Article VII of the Lease.
-----------
(h) Tenant hereby confirms to Landlord that Tenant has accepted the
Parcel and agrees that it shall be incorporated into the Lease.
(i) This Lease Supplement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
(j) This Lease Supplement is being delivered in the State of California
and in all respects shall be governed by, and construed in accordance with, the
laws of the State of California, including all matters of construction, validity
and performance.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease Supplement
to be duly executed on the day and year first above written.
[Signatures begin on next page.]
2
<PAGE>
LANDLORD
--------
SUMITOMO BANK LEASING AND FINANCE, INC., a
Delaware corporation
By
--------------------------------------
Name
--------------------------------------
Its
--------------------------------------
[Signatures continued on next page]
3
<PAGE>
TENANT
------
ASCEND COMMUNICATIONS, INC., a Delaware
corporation
By
--------------------------------------
Name
--------------------------------------
Its
--------------------------------------
4
<PAGE>
Schedule 1 to
Lease Supplement No.
--------------------
DESCRIPTION OF PARCEL
[TO BE PROVIDED]
1
<PAGE>
Schedule 2 to
Lease Supplement No.
--------------------
AMORTIZATION SCHEDULE (if necessary)
[TO BE PROVIDED]
1
<PAGE>
Schedule 3 to
Lease Supplement No.
--------------------
PERMITTED TITLE EXCEPTIONS
1
<PAGE>
Schedule 4 to
Lease Supplement No.
--------------------
SITE PLAN
[follows this page]
1
<PAGE>
EXHIBIT B
---------
FORM OF LEASE SUPPLEMENT FOR CONSTRUCTION
-----------------------------------------
LEASE SUPPLEMENT NO. _______
LEASE SUPPLEMENT NO. _______ is dated as of _______ and executed by and
between SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation
("Landlord"), and ASCEND COMMUNICATIONS, INC., a Delaware corporation
("Tenant").
Landlord and Tenant have heretofore entered into that certain Amended and
Restated Master Lease dated March __, 1998, relating to the lease of certain
parcels of real property (herein called the "Lease" and the defined terms
therein being hereinafter used with the same meanings). The Lease provides for
the execution and delivery from time to time of Lease Supplements for the
purpose of leasing individual Parcels under the Lease as and when delivered by
Landlord in accordance with the terms thereof.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, Landlord and Tenant hereby agree as follows:
(a) Landlord hereby delivers and leases to Tenant under the Lease and
Tenant accepts and leases from Landlord under the Lease the Parcel described in
Schedule 1 attached hereto.
- ----------
(b) The lease amortization, if applicable, is described in Schedule 2
----------
attached hereto.
(c) The Permitted Title Exceptions are described in Schedule 3 attached
----------
hereto.
(d) The Site Plan for the Parcel is described in Schedule 4 attached
----------
hereto.
(e)1/ The Site Investment Balance to acquire the Land is $[__________]
and the estimated Improvement Investment Balance for the construction of the
Improvements shall be $_____________. [To be completed prior to Advances for
construction of Improvements.]
- -----------------
1/ In the case of a Parcel where the Fair Market Value of the Land is less than
twenty five percent (25%) of the aggregate expected Fair Market Value of the
Land and Improvements at Lease Commencement, substitute the following language:
"There is no separate Site Investment Balance for this Parcel. The estimated
Improvements Investment Balance (which shall, for purposes of the Parcel to with
this Lease Supplement relates, include the acquisition costs of the Parcel)
shall be $___________________.
1
<PAGE>
(f) The Lease Supplement Term shall commence on ____________.
(g) Tenant hereby confirms its agreement to pay Landlord Base Rent and
Additional Rent for the Parcel during the Lease Supplement Term in accordance
with Article VII of the Lease.
-----------
(h) Tenant hereby confirms to Landlord that Tenant has accepted the
Parcel and agrees that it shall be incorporated into the Lease.
(i) This Lease Supplement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
(j) This Lease Supplement is being delivered in the State of California
and in all respects shall be governed by, and construed in accordance with, the
laws of the State of California, including all matters of construction, validity
and performance.
(k) The Construction Period begins on __________ and expires __________.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease Supplement
to be duly executed on the day and year first above written.
[Signatures begin on next page.]
2
<PAGE>
LANDLORD
--------
SUMITOMO BANK LEASING AND FINANCE, INC., a
Delaware corporation
By
--------------------------------------
Name
--------------------------------------
Its
--------------------------------------
[Signatures continued on next page]
3
<PAGE>
TENANT
------
ASCEND COMMUNICATIONS, INC., a Delaware
corporation
By
--------------------------------------
Name
--------------------------------------
Its
--------------------------------------
4
<PAGE>
Schedule 1 to
Lease Supplement No.
--------------------
DESCRIPTION OF PARCEL
[TO BE PROVIDED]
1
<PAGE>
Schedule 2 to
Lease Supplement No.
--------------------
AMORTIZATION SCHEDULE (if necessary)
[TO BE PROVIDED]
1
<PAGE>
Schedule 3 to
Lease Supplement No.
--------------------
PERMITTED TITLE EXCEPTIONS
1
<PAGE>
Schedule 4 to
Lease Supplement No.
--------------------
SITE PLAN
[follows this page]
1
<PAGE>
EXHIBIT C
---------
FORM OF PARTICIPATION AGREEMENT
-------------------------------
[FOLLOWS THIS PAGE]
1
<PAGE>
EXHIBIT D
---------
FORM OF CONSTRUCTION MANAGEMENT AGREEMENT
-----------------------------------------
[FOLLOWS THIS PAGE]
1
<PAGE>
EXHIBIT E
---------
RENT COMMENCEMENT DATE MEMORANDUM
LEASE SUPPLEMENT NO. _____
THIS RENT COMMENCEMENT DATE MEMORANDUM ("Memorandum") is entered into this
____ day of __________, ______, by and between SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware corporation ("Landlord"), and ASCEND COMMUNICATIONS,
INC., a Delaware corporation ("Tenant"), concerning that certain lease ("Lease")
between Landlord and Tenant dated March __, 1998. Any capitalized terms not
defined in this Memorandum shall have their meaning as defined in the Lease.
1. Pursuant to Section 6.2 of the Lease, Landlord and Tenant are required
-----------
to enter into this Memorandum within thirty (30) days after the Rent
Commencement Date for this Lease Supplement.
2. Landlord and Tenant agree that the Rent Commencement Date for this Lease
Supplement is __________, _____________.
3. The Guaranteed Residual Value percentage for the Parcel covered by this
Lease Supplement is ________ percent ( %).
IN WITNESS WHEREOF, the parties have executed this Memorandum as of the
date and year first above written.
TENANT: ASCEND COMMUNICATIONS, INC., a
Delaware corporation
By:
--------------------------------
Name:
--------------------------------
Its:
--------------------------------
(signatures continued on next page)
1
<PAGE>
LANDLORD: SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware corporation
By:
--------------------------------
Name:
--------------------------------
Its:
--------------------------------
2
<PAGE>
Exhibit F
---------
(MEMORANDUM OF LEASE)
LEASE SUPPLEMENT NO. ____
RECORDING REQUESTED BY, AND
WHEN RECORDED, RETURN TO:
Graham & James, LLP
One Maritime Plaza, Suite 300
San Francisco, CA 94111
Attention: Bruce Hyman, Esq.
MEMORANDUM OF AMENDED AND RESTATED MASTER LEASE
THIS MEMORANDUM OF AMENDED AND RESTATED LEASE ("Memorandum of Master
Lease") is executed as of _________, 199_ by and between SUMITOMO BANK LEASING
AND FINANCE, INC., a Delaware corporation ("Landlord"), and ASCEND
COMMUNICATIONS, INC., a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant have executed that certain amended and
restated master lease ("Amended and Restated Master Lease") and a Lease
Supplement No. ___ for Construction (the "Lease Supplement No. __") (the Amended
and Restated Master Lease and Lease Supplement No. __ are hereinafter
collectively referred to as the "Amended and Restated Master Lease"), covering a
leasehold interest in certain land located on the real property located in the
City of __________, __________ County, ____________ as more particularly
described in Schedule 1 attached hereto and incorporated herein by this
----------
reference ("Land") and the improvements which are located on said Land (the Land
and improvements are referred to herein as the "Parcel"); and
WHEREAS, Landlord and Tenant desire to record notice of the Lease in the
real estate records of ____________ County, ___________:
NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant
hereby declare as follows:
1. Demise. Landlord hereby leases the Parcel to Tenant and Tenant hereby
------
leases the Parcel from Landlord.
2. Expiration Date. The term of the Lease Supplement ___ shall commence
---------------
with respect to the Parcel on the date hereof and shall expire on February
____ 2003.
<PAGE>
3. Option to Purchase. Tenant has an option to purchase the Parcel, as
------------------
more particularly described in the Amended and Restated Lease, at any time
during the Term (including any extension thereof).
4. Restrictions on Encumbrances. Landlord is prohibited from recording
----------------------------
against the Parcel liens (including, without limitation, deeds of trust),
encumbrances, and other matters that would constitute exceptions to title, and
from amending or modifying any of the foregoing that may exist now or during the
Term, as more particularly described in the Amended and Restated Lease.
5. Restrictions on Transfers by Landlord. Subject to certain exceptions,
-------------------------------------
Landlord may transfer its interest in the Parcel to a third party subject to the
restrictions which are set forth with more particularity in the Amended and
Restated Lease.
6. Counterparts. This Memorandum of Master Lease may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original and all
of which together shall comprise but a single instrument.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of
Master Lease as of the date and year first written above.
TENANT: ASCEND COMMUNICATIONS, INC., a
Delaware Corporation
By:
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
(Signatures continued on next page)
2
<PAGE>
LANDLORD: SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware corporation
By:
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
3
<PAGE>
Schedule 1 to Exhibit F
-----------------------
[to be attached]
1
<PAGE>
Exhibit G
---------
Litigation
[to be provided by Tenant]
1
<PAGE>
Exhibit H
---------
Governmental Approvals
[to be provided by Tenant]
1
<PAGE>
Exhibit I
---------
Environmental Laws
[to be provided by Tenant]
1
<PAGE>
Exhibit J
---------
FORM OF OFFICERS' CERTIFICATE
The undersigned, ____________________ of ASCEND COMMUNICATIONS, INC., a
Delaware corporation hereby certifies that as of the date hereof the lease dated
March __, 1998 by and between SUMITOMO BANK LEASING AND FINANCE, INC., a
Delaware corporation, as Landlord and ASCEND COMMUNICATIONS, INC., a Delaware
corporation, as Tenant is in full force and effect, and there exists no Event of
Default by Tenant thereunder.
Date: ____________________ __________________________________
1
<PAGE>
Exhibit K
---------
FORM OF COLLATERAL NOTICE
THIS COLLATERAL NOTICE ("Notice") is entered into this ____ day of
__________, _____, by ASCEND COMMUNICATIONS, INC., a Delaware corporation
("Tenant"), concerning that certain Pledge Agreement ("Pledge Agreement") and
Amended and Restated Master Lease ("Lease") entered into by and between SUMITOMO
BANK LEASING AND FINANCE, INC. ("Landlord") and Tenant each dated March __,
1998. Any capitalized terms not defined in this Notice shall have their meaning
as defined in the Lease or Pledge Agreement.
1. Pursuant to Section 24.1 of the Lease, Landlord has required Tenant, and
------------
Tenant has agreed, to deposit concurrently herewith Collateral into the
Collateral Fund sufficient to cause the value of the Collateral Fund to equal
102% of the aggregate Guaranteed Residual Value under all Lease Supplements in
existence as of the date hereof.
2. Tenant acknowledges and agrees that the Collateral pledged by Tenant
concurrently herewith shall be subject to all the terms and conditions of the
Pledge Agreement, Lease and all other documents evidencing and securing the
Lease.
3. Tenant acknowledges and agrees that as a result of Tenant's deposit of
Collateral, the Base Rent under the Lease shall be adjusted in accordance with
Section 2.24 or 2.41 of the Lease, as applicable.
- --------------------
IN WITNESS WHEREOF, the parties have executed this Memorandum of Lease as
of the date and year first above written.
TENANT: ASCEND COMMUNICATIONS, INC., a
Delaware corporation
By:
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
1
<PAGE>
AMENDED AND RESTATED MASTER LEASE
By and Between
SUMITOMO BANK LEASING AND FINANCE, INC.,
a Delaware corporation
as Landlord
and
ASCEND COMMUNICATIONS, INC.,
a Delaware corporation
as Tenant
THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE
FOR INCOME TAX PURPOSES. SEE SECTION 21.2
------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I BASIC LEASE PROVISIONS............................... 1
1.1 Date of Lease:........................................ 1
1.2 Landlord:............................................. 1
1.3 Tenant:............................................... 1
1.4 Land:................................................. 1
1.5 Parcel:............................................... 1
1.6 Term:................................................. 1
1.7 Rent Commencement Date:............................... 2
1.8 Base Rent:............................................ 2
1.9 Addresses for Notices:................................ 2
1.10 Wire Transfer Instructions:.......................... 3
1.11 Interim Period:...................................... 3
ARTICLE II DEFINITIONS......................................... 3
2.1 Additional Rent....................................... 3
2.2 Advance............................................... 4
2.3 Base Rent............................................. 4
2.4 Building.............................................. 4
2.5 Calculation Period.................................... 4
2.6 Capitalized Amount.................................... 5
2.7 Capitalized Funding Costs............................. 5
2.8 City.................................................. 5
2.9 Collateral............................................ 5
2.10 Commitment Amount.................................... 5
2.11 Commitment Component................................. 5
2.12 Consolidated Tangible Net Worth...................... 5
2.13 Consolidated Total Liabilities....................... 6
2.14 Construction Management Agreement.................... 6
2.15 Construction Period.................................. 6
2.16 Contractor........................................... 6
2.17 Custodial Agreement.................................. 6
2.19 Default Rate......................................... 7
2.20 Entity............................................... 7
2.21 ERISA Group.......................................... 7
2.22 Eurocurrency Reserve Requirements.................... 7
2.23 Event of Default..................................... 7
2.24 Federal Funds Base Rent.............................. 7
2.25 Governmental Action.................................. 8
2.26 Governmental Authority............................... 8
2.27 Guaranteed Residual Value............................ 8
2.28 Improvements......................................... 8
2.30 Interim Period....................................... 9
2.31 Initial Advance...................................... 9
2.33 Land................................................. 9
2.34 Landlord Affiliate................................... 9
</TABLE>
<PAGE>
TABLE OF CONTENTS (Cont'd)
<TABLE>
<CAPTION>
PAGE
<S> <C>
2.35 Lease Investment Balance............................. 9
2.39 Legal Requirements................................... 9
2.40 LIBOR Rate........................................... 10
2.41 LIBOR Base Rent...................................... 10
2.42 Multiemployer Plan................................... 10
2.43 Notice............................................... 11
2.44 Official Records..................................... 11
2.46 Participation Agreement.............................. 11
2.47 Permitted Title Exceptions........................... 11
2.48 Plan................................................. 11
2.49 Pledge Agreement..................................... 11
2.50 Real Estate Taxes.................................... 11
2.51 Rent Commencement Date............................... 11
2.52 Rent Payment Date.................................... 12
2.53 Rent Purchasers...................................... 12
2.54 Required Permits..................................... 12
2.55 SBLF Deed of Trust................................... 12
2.56 SBNYTC............................................... 12
2.57 Site Investment Balance.............................. 12
2.58 Taking............................................... 12
2.59 Tenant's Property.................................... 12
2.60 Term................................................. 12
2.61 Terminology.......................................... 12
ARTICLE III DEMISE............................................. 13
3.1 Parcels............................................... 13
ARTICLE IV TERM................................................ 13
4.1 Term.................................................. 13
4.2 Holding Over.......................................... 13
ARTICLE V CONSTRUCTION OF IMPROVEMENTS......................... 13
5.1 Tenant's Right to Construct Improvements.............. 13
5.2 Title to and Nature of Improvements................... 13
ARTICLE VI FUNDING............................................. 14
6.1 Request for Construction Funding; Landlord's
Obligation to Fund............................. 14
6.2 Exhibit Reflecting Rent Commencement Date............. 14
6.3 Allocating Between Site and Improvements
Investment Balance............................. 14
ARTICLE VII RENT............................................... 14
7.1 Base Rent............................................. 14
7.2 Proration............................................. 15
7.3 No Abatement of Rent.................................. 15
7.4 Delinquent Rent....................................... 15
7.5 Additional Rent....................................... 15
ARTICLE VIII TAXES............................................. 15
8.1 Real Estate Taxes..................................... 15
8.2 Personal Property Taxes............................... 16
8.3 Right to Contest...................................... 16
8.4 Additional Charges.................................... 17
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS (Cont'd)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE IX INSURANCE........................................... 17
9.1 Liability Insurance................................... 17
9.2 Builders' Risk Insurance.............................. 18
9.3 All-Risk Insurance.................................... 18
9.4 General Requirements.................................. 18
9.5 Waiver of Subrogation................................. 19
9.6 Indemnity............................................. 19
ARTICLE X USE.................................................. 19
10.1 Use.................................................. 19
10.2 Contest of Legal Requirements........................ 21
ARTICLE XI UTILITIES AND SERVICES.............................. 22
11.1 Services to the Parcels.............................. 22
ARTICLE XII MAINTENANCE AND REPAIRS; SURRENDER OF THE PARCELS.. 22
12.1 Tenant Obligations................................... 22
12.2 Surrender of the Parcels............................. 22
ARTICLE XIII LIENS............................................. 22
13.1...................................................... 22
ARTICLE XIV ASSIGNMENT BY LANDLORD............................. 23
14.1 Further Mortgages or Encumbrances by Landlord........ 23
14.2 Landlord's Right to Sell............................. 23
14.3 Transfer of Funds and Property....................... 23
ARTICLE XV ASSIGNMENT AND SUBLEASING........................... 23
15.1 Right to Assign...................................... 23
15.2 Right to Sublet...................................... 24
15.3 Mortgage by Tenant................................... 24
ARTICLE XVI EMINENT DOMAIN..................................... 24
16.1 Total or Substantial Taking.......................... 24
16.2 Partial Taking....................................... 24
16.3 Temporary Taking..................................... 25
16.4 Damages.............................................. 25
16.5 Notice and Execution................................. 25
ARTICLE XVII DAMAGE OR DESTRUCTION............................. 26
17.1 Casualty............................................. 26
17.2 Termination of Lease Supplement...................... 26
17.3 Insurance Proceeds................................... 26
ARTICLE XVIII QUIET ENJOYMENT.................................. 27
18.1 Quiet Enjoyment...................................... 27
ARTICLE XIX DEFAULT............................................ 28
19.1 Default.............................................. 28
19.2 Contest by Tenant.................................... 30
19.3 Landlord's Remedies.................................. 30
19.4 No Waiver............................................ 31
19.5 Effect of Assignment................................. 31
19.6 Landlord Cure Right.................................. 32
ARTICLE XX TENANT'S OPTION TO PURCHASE OR TERMINATE............ 32
20.1 Option To Purchase Parcels........................... 32
20.2 Termination Option................................... 34
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS (Cont'd)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE XXI MISCELLANEOUS...................................... 35
21.1 Relationship......................................... 35
21.2 Form of Transaction: Certain Tax Matters............ 36
21.3 Notices.............................................. 36
21.4 Severability of Provisions........................... 37
21.5 Entire Agreement: Amendment.......................... 37
21.6 Memorandum of Amended and Restated Lease............. 37
21.7 Successors and Assigns............................... 37
21.8 Commissions.......................................... 37
21.9 Attorneys' Fees...................................... 37
21.10 Governing Law....................................... 37
21.11 Counterparts........................................ 38
21.12 Time Is of the Essence.............................. 38
21.13 No Third Party Beneficiaries........................ 38
21.14 Limitations on Recourse............................. 38
21.15 Estoppel Certificates............................... 38
21.16 As-Is Lease......................................... 38
21.17 Net Lease........................................... 38
21.18 Landlord's Representations and Warranties........... 39
21.19 Tenant's Representations, Warranties and Covenants.. 39
21.20 Tenant's Waiver of Demand for Possession............ 43
21.21 Financial Reporting................................. 43
21.22 Regulation D Compensation........................... 43
21.23 Collateral.......................................... 44
21.24 Fixed Rate Option................................... 44
21.25 Federal Funds Rate.................................. 44
ARTICLE XXII INDEMNIFICATION................................... 45
22.1 Tax Indemnity........................................ 45
22.2 Environmental Indemnity.............................. 45
22.3 General Indemnity.................................... 46
ARTICLE XXIII COVENANTS OF LANDLORD............................ 46
23.1 Title................................................ 46
23.2 Land Use............................................. 47
23.3 Transfer of Property Interests....................... 47
ARTICLE XXIV LANDLORDS RIGHT TO REQUIRE COLLATERALIZATION...... 47
24.1 Landlord's Right to Require Collateralization........ 47
</TABLE>
iv
<PAGE>
AGREEMENT TO AMEND AND RESTATE LEASE AND LEASE DOCUMENTS
THIS AGREEMENT TO AMEND AND RESTATE LEASE AND LEASE DOCUMENTS (this
"Agreement") is made effective as of the ____ day of March, 1998, by and between
ASCEND COMMUNICATIONS, INC., a Delaware corporation ("Ascend") and SUMITOMO BANK
LEASING AND FINANCE, INC., a Delaware corporation ("SBLF").
RECITALS
WHEREAS, all defined terms used in this Agreement shall have the meaning
set forth for such terms in the Amended and Restated Master Lease (as defined
below) unless otherwise specified herein; and
WHEREAS, on March 27, 1996, Ascend and SBLF entered into that certain
Lease, as amended by that certain First Amendment to Lease dated July 17, 1996
(collectively, the "Original Lease") a copy of which is attached hereto as
Exhibit A, in connection with the acquisition and development of certain Land
- ---------
described therein; and
WHEREAS, in connection with the Original Lease, Ascend and SBLF executed,
among other things, that certain Participation Agreement of even date with the
Original Lease, that certain Rent Purchase Agreement of even date with the
Original Lease, that certain Custodial Agreement of even date with the Original
Lease and that certain Pledge Agreement of even date with the Original Lease
(collectively, the "Original Lease Documents"); and,
WHEREAS, Ascend and SBLF desire to amend and restate the Original Lease and
the Original Lease Documents to, among other things, convert the Original Lease
to a master lease structure and to increase the Commitment Amount to
$46,000,000.00:
NOW, THEREFORE, in consideration of the agreements herein set forth, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto make the following agreements:
1
<PAGE>
1. Ascend and SBLF mutually desire to amend and restate the Original Lease
as set forth in the Amended and Restated Master Lease attached hereto as
Exhibit B and Ascend and SBLF agree to execute and deliver the Amended
---------
and Restated Master Lease in the form attached hereto as Exhibit B.
---------
2. Ascend and SBLF mutually desire to amend and restate the Original Lease
Documents as set forth in the Amended and Restated Participation
Agreement, Amended and Restated Rent Purchase Agreement, Amended and
Restated Pledge Agreement and Amended and Restated Custodial Agreement,
all of even date with the Amended and Restated Master Lease
(collectively, the "Amended and Restated Lease Documents") and Ascend and
SBLF agree to execute and deliver the Amended and Restated Lease
Documents in form and substance reasonably satisfactory to SBLF and the
Rent Purchasers (as defined in the Amended and Restated Participation
Agreement).
3. The terms of the Amended and Restated Master Lease and the Amended and
Restated Lease Documents will govern and control to the extent such terms
conflict with the terms of the Original Lease and Original Lease
Documents.
[Signatures begin on next page.]
2
<PAGE>
IN WITNESS WHEREOF, Ascend and SBLF have executed this Agreement this _____
day of March, 1998.
ASCEND:
ASCEND COMMUNICATIONS, INC., a Delaware
corporation
By: __________________________________
Name: ___________________________
Its: ___________________________
(Signatures continue on next page)
3
<PAGE>
"SBLF"
SUMITOMO BANK LEASING AND FINANCE, INC., a
Delaware corporation
By: __________________________________
Name: ___________________________
Its: ___________________________
(signatures continued on next page)
4
<PAGE>
Rent Purchasers hereby agree to the terms set forth herein and in the Amended
and Restated Master Lease by executing this Agreement in the space provided
below as of this _______ day of March, 1998.
RENT PURCHASERS:
WELLS FARGO BANK, National Association
Date ____________________ By ____________________________________
Name __________________________________
Title _________________________________
1320 Willow Pass Road, Suite 440
Concord, CA 94520
Attention: Steve Boijkovic
UNION BANK OF CALIFORNIA, N.A.
Date ____________________ By ____________________________________
Name __________________________________
Title _________________________________
350 California Street
San Francisco, CA 94104
Attention: Wade Schlueter
5
<PAGE>
EXHIBIT A
ORIGINAL LEASE DATED March 27, 1996 AND ALL AMENDMENTS
[FOLLOWS THIS PAGE]
6
<PAGE>
EXHIBIT B
FORM OF AMENDED AND RESTATED MASTER LEASE
[FOLLOWS THIS PAGE]
7
<PAGE>
RECORDING REQUESTED BY, AND
WHEN RECORDED, RETURN TO:
Graham & James, LLP
One Maritime Plaza, Suite 300
San Francisco, CA 94111
Attention: Bruce Hyman, Esq.
MEMORANDUM OF AMENDED AND RESTATED MASTER LEASE
(PHASE II)
THIS MEMORANDUM OF AMENDED AND RESTATED MASTER LEASE ("Memorandum of Master
Lease") is executed as of March _____, 1998, by and between SUMITOMO BANK
LEASING AND FINANCE, INC., a Delaware corporation ("Landlord"), and ASCEND
COMMUNICATIONS, INC., a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant have executed that certain amended and
restated master lease dated March __, 1998 ("Amended and Restated Master Lease")
and a Lease Supplement No. 2 for Construction dated March __, 1998 (the "Lease
Supplement No. 2") (the Amended and Restated Master Lease and Lease Supplement
No. 2 are hereinafter collectively referred to as the "Amended and Restated
Master Lease"), covering a leasehold interest in certain land located on the
real property located in the City of Alameda, Alameda County, California as more
particularly described in Schedule 1 attached hereto and incorporated herein by
----------
this reference ("Land") and the improvements which are located on said Land (the
Land and improvements are referred to herein as the "Parcel"); and
WHEREAS, Landlord and Tenant desire to record notice of the Amended and
Restated Master Lease in the real estate records of Alameda County, California:
NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant
hereby declare as follows:
1
<PAGE>
1. Demise. Landlord hereby leases the Parcel to Tenant and Tenant hereby
------
leases the Parcel from Landlord.
2. Expiration Date. The term of the Lease Supplement No. 2 commenced with
---------------
respect to the Parcel on the date hereof and shall expire on March _____, 2003
unless extended by Landlord and Tenant to March ______, 2005, pursuant to the
terms of the Amended and Restated Master Lease.
3. Option to Purchase. Landlord hereby grants to Tenant an option to
------------------
purchase the Parcel, as more particularly described in the Amended and Restated
Master Lease, at any time during the Term (including any extension thereof).
4. Restrictions on Encumbrances. Landlord is prohibited from recording
----------------------------
against the Parcel liens (including, without limitation, deeds of trust),
encumbrances, and other matters that would constitute exceptions to title, and
from amending or modifying any of the foregoing that may exist now or during the
Term, as more particularly described in the Amended and Restated Master Lease.
5. Restrictions on Transfers by Landlord. Subject to certain exceptions,
-------------------------------------
Landlord may transfer its interest in the Parcel to a third party subject to the
restrictions which are set forth with more particularity in the Amended and
Restated Master Lease.
6. Counterparts. This Memorandum of Master Lease may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original and all
of which together shall comprise but a single instrument.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of
Master Lease as of the date and year first written above.
TENANT: ASCEND COMMUNICATIONS, INC., a
Delaware Corporation
By ___________________________
Name _________________________
Its __________________________
(Signatures continued on next page)
(All signatures must be acknowledged)
2
<PAGE>
LANDLORD: SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware Corporation
By _________________________________
Name _______________________________
Its ________________________________
3
<PAGE>
SCHEDULE 1
LEGAL DESCRIPTION
[TO BE ATTACHED]
4
<PAGE>
RECORDING REQUESTED BY, AND
WHEN RECORDED, RETURN TO:
Graham & James, LLP
One Maritime Plaza, Suite 300
San Francisco, CA 94111
Attention: Bruce Hyman, Esq.
MEMORANDUM OF AMENDED AND RESTATED MASTER LEASE
THIS MEMORANDUM OF AMENDED AND RESTATED MASTER LEASE ("Memorandum of Master
Lease") is executed as of March __, 1998, by and between SUMITOMO BANK LEASING
AND FINANCE, INC., a Delaware corporation ("Landlord"), and ASCEND
COMMUNICATIONS, INC., a Delaware corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant have executed that certain lease dated as of
March 27, 1996 as amended by the First Amendment to Lease dated July 17, 1996
(collectively, the "Original Lease") and Landlord and Tenant have executed that
certain Memorandum of Lease dated March 27, 1996 and recorded on March 27, 1996
in the records of Alameda County, California, as Instrument No. 96075807 (the
"Original Memorandum") covering a leasehold interest in certain land located on
the real property as more particularly described in Schedule 1 attached hereto
----------
and incorporated herein by this reference ("Land") and the improvements located
on the Land (the "Improvements"), which Land and Improvements are located in the
City of Alameda, Alameda County, California (the Land and improvements are
referred to herein as the "Parcel"); and
WHEREAS, concurrently herewith Landlord and Tenant are executing that
certain amended and restated master lease ("Amended and Restated Master Lease")
and a Lease Supplement No. 1 for Construction (the "Lease Supplement No. 1")
(the Amended and Restated Master Lease and Lease Supplement No. 1 are
hereinafter collectively referred to as the "Amended and Restated Master
Lease"); and
WHEREAS, the Amended and Restated Master Lease will restate the Original
Lease in all respects and therefore Landlord and Tenant desire to record a
notice of the Amended and
1
<PAGE>
Restated Master Lease by recording this Memorandum of Amended and Restated
Master Lease to replace and supersede in all respects the Original Memorandum:
NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant
hereby declare as follows:
1. Demise. Landlord hereby leases the Parcel to Tenant and Tenant hereby
------
leases the Parcel from Landlord, subject to the terms, covenants and conditions
contained in the Amended and Restated Master Lease.
2. Expiration Date. The term of the Lease Supplement No. 1 commenced with
---------------
respect to the Parcel on March 27, 1996 and shall expire on March ____, 2003,
unless extended by Landlord and Tenant to March _____, 2005, pursuant to the
terms of the Amended and Restated Master Lease.
3. Option to Purchase. Landlord hereby grants to Tenant an option to
------------------
purchase the Parcel, as more particularly described in the Amended and Restated
Master Lease, at any time during the Term (including any extension thereof).
4. Restrictions on Encumbrances. Landlord is prohibited from recording
----------------------------
against the Parcel liens (including, without limitation, deeds of trust),
encumbrances, and other matters that would constitute exceptions to title, and
from amending or modifying any of the foregoing that may exist now or during the
Term, as more particularly described in the Amended and Restated Master Lease.
5. Restrictions on Transfers by Landlord. Subject to certain exceptions,
-------------------------------------
Landlord may transfer its interest in the Parcel to a third party subject to the
restrictions which are set forth with more particularity in the Amended and
Restated Master Lease.
6. Counterparts. This Memorandum of Master Lease may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original and all
of which together shall comprise but a single instrument.
7. Termination of Original Memorandum. This Memorandum of Master Lease
----------------------------------
replaces and supersedes in all respects the Original Memorandum.
[Signatures begin on next page.]
2
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of
Master Lease as of the date and year first written above.
TENANT: ASCEND COMMUNICATIONS, INC.,
a Delaware Corporation
By __________________________
Name ________________________
Its _________________________
(Signatures continued on next page)
(All signatures must be acknowledged)
3
<PAGE>
LANDLORD: SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware Corporation
By _________________________________
Name _______________________________
Its ________________________________
4
<PAGE>
SCHEDULE 1
LEGAL DESCRIPTION
[TO BE ATTACHED]
5
<PAGE>
AMENDED AND RESTATED
CONSTRUCTION MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED CONSTRUCTION MANAGEMENT AGREEMENT (the
"Agreement") is entered into as of March __, 1998 by and between SUMITOMO BANK
LEASING AND FINANCE, INC., a Delaware corporation ("Owner"), and ASCEND
COMMUNICATIONS, INC., a Delaware corporation ("Construction Manager").
RECITALS
A. Owner is the owner of the Parcel located in the City of Alameda,
Alameda County, California, more particularly described on Exhibit A attached
---------
hereto (the "Parcel").
B. Owner desires to erect and construct certain improvements upon the
Parcel (the "Improvements"), as set forth in that certain Lease dated March 27,
1996, as amended by the First Amendment to Lease dated July 17, 1996, executed
by Owner, as Landlord and Construction Manager, as Tenant relating to the Parcel
and the Improvements to be constructed thereon (collectively, the "Original
Lease"). The Original Lease is being amended and restated by that certain
Amended and Restated Master Lease dated as of March __, 1998 (the "Amended and
Restated Master Lease") and the construction of the Improvements are further
described in the Lease Supplement No. 1 dated as of March __, 1998, executed by
Owner, as Landlord and Construction Manager, as Tenant (the "Lease Supplement
No. 1"). The Amended and Restated Master Lease and Lease Supplement No. 1 are
hereinafter collectively referred to as the "Amended and Restated Master Lease"
and all capitalized terms used in this Agreement shall have the same meaning as
in the Amended and Restated Master Lease.
C. Owner desires to contract with Construction Manager to provide
construction management services for the construction of the Improvements and
Construction Manager desires to perform such services.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1. Appointment. Owner hereby appoints Construction Manager to act as Owner's
-----------
agent to manage and coordinate the construction of all aspects of the
Improvements.
2. Description of Services. Construction Manager shall select the project
-----------------------
manager and/or general contractors that will be responsible for construction of
the Improvements (the "Project Manager" and each general contractor, a
"Contractor"), subject to Owner's
1
<PAGE>
reasonable approval. Owner hereby approves Steven R. Meckfessel, Inc., dba SRM
Associates as the Project Manager for the Improvements.
3. Construction Manager's Rights to Construct Improvements. Construction
-------------------------------------------------------
Manager shall have the right, subject to the terms of this Agreement, to require
Owner to pay for the construction of the Improvements (subject however to the
limitation specified in Section 11 below). With respect to such construction,
Owner hereby irrevocably appoints Construction Manager as Owner's construction
agent and Owner agrees that it has no right to construct additional Improvements
on the Parcel without Construction Manager's consent, which consent shall be
granted or withheld in its sole and absolute discretion.
4. Required Permits, Easements, etc. From time to time, upon request of
--------------------------------
Construction Manager, Owner (as holder of record of title to the Parcel) shall
execute such reasonable documents, petitions, applications and authorizations,
easements and rights of way and shall appear at and participate in such public
hearings and similar gatherings, in each case as may in the reasonable and good
faith opinion of Construction Manager be necessary or appropriate for the
purpose of obtaining any Required Permits or private easements or rights of way
or utility services for the Improvements or to remove any title encumbrances on
the Parcel which may interfere with the construction of the Improvements. All
reasonable out-of-pocket costs and expenses incurred by Owner in complying with
Owner's obligations under this Section 4 shall be deemed to be an Advance and
shall be added to the Lease Investment Balance as of the date paid by Owner.
5. Role of Construction Manager. Construction Manager shall have the
----------------------------
authority, on Owner's behalf, to oversee and direct the construction of all
Improvements, including but not limited to, approval of building, site and other
plans, obtaining building and other permits, negotiating construction,
architect, engineering and other contracts, monitoring construction and making
periodic inspections, approval of any contractor's invoice for payment, and
submission of Draw Requests. Within a reasonable time after Construction
Manager's request, Owner shall execute construction and other contracts
negotiated by Construction Manager as may be required for the construction of
Improvements on the Parcel, or Construction Manager may enter into any such
contract as agent on behalf of Owner, including, without limitation, the general
contract for construction of tenant improvements, provided that any general
contract for construction must specify a guaranteed maximum price and include a
date certain for completion of construction, and Owner shall have approved any
such contract (whether to be executed by Owner or by Construction Manager as
agent on behalf of Owner), which approval shall not be unreasonably withheld;
and Owner shall not amend, modify or terminate any such contract without the
prior written approval of Construction Manager, which consent shall be granted
or withheld in its sole and absolute discretion.
6. Term. Owner's appointment of Construction Manager under this Agreement
----
shall be irrevocable unless an Event of Default has occurred and is continuing
under the
2
<PAGE>
Amended and Restated Master Lease, whereupon Owner shall have the right, but
not the obligation, to terminate the appointment of Construction Manager under
this Agreement.
7. Owner Approval of Plans and General Contractor's Construction Contract.
----------------------------------------------------------------------
There is no general contractor's general contract in connection with Lease
Supplement No. 1 and Lease Supplement No. 2. If there is a general contractor's
general contract in connection with any future Lease Supplements, Owner has the
right to approve the general contractor's general contract which must be on a
fixed price or cost plus basis and subject to a maximum price and a date certain
for completion. Owner has the right to approve the proposed site plans
("Authorized Plans") for all Improvements, as shown on Exhibit B attached
---------
hereto. Construction Manager hereby certifies to Owner that the Authorized
Plans attached hereto as Exhibit B do not violate any Legal Requirements in any
---------
material respect. Owner's approval of the Authorized Plans does not constitute
any representation or warranty by Owner with respect to such Authorized Plans,
and Owner hereby specifically disclaims any such representations and warranties.
8. Building Permits. Construction Manager shall obtain and shall submit to
----------------
Owner from time to time copies of all building permits and approvals required
for the construction of each portion of the Improvements prior to commencement
of substantial construction of the work to which any such permit or approval
relates.
9. Conditions Precedent to Owner's Obligation to Fund Advances. The obligation
-----------------------------------------------------------
of Owner to make an Advance hereunder for the costs of constructing the
Improvements shall be subject to the following conditions precedent:
(a) Draw Request. Owner shall have received a written request from
------------
Construction Manager or its agent requesting the Advance ("Draw Request") in the
form attached hereto as Exhibit C.
---------
(b) Contractor's Certificate. With respect to any portion of an
------------------------
Advance going toward payment of labor, services, equipment and material
incorporated into the Improvements, for major materials stored at the site
during the preceding month and similar "hard costs" for the Building, Owner
shall have received a certificate in the form attached hereto as Exhibit D from
---------
the contractor responsible for the work to be paid from the Advance in question
("Contractor's Certificate").
(c) Lien Waivers. Owner shall have received Conditional Waivers and
------------
Releases Upon Progress Payment as set forth in California Civil Code Section
3262 from the Contractor and any subcontractor scheduled to receive payment in
excess of Ten Thousand Dollars ($10,000) from such Advance.
(d) Sufficient Securities in Collateral Account. Owner shall receive
-------------------------------------------
evidence satisfactory to it that Construction Manager is in full compliance with
the Pledge Agreement, if applicable.
3
<PAGE>
(e) Lease Supplement. Owner shall have received a fully executed
----------------
Lease Supplement in the form set forth in the Amended and Restated Master Lease.
(f) Contractor Budget and Appraisal. There is no contractor budget
-------------------------------
for Lease Supplement No. 1 and Lease Supplement No. 2. If there is a general
contractor in connection with any future Lease Supplements, Owner must receive a
contractor budget for the Parcel. Owner must receive an appraisal of every
Parcel and Improvements of such Parcel valued (i) after construction of the
Improvements, with respect to any Lease Supplement for Construction, and (ii) as
of the date of any Lease Supplement for Acquisition, which appraisal shall be in
a form and substance reasonably satisfactory to Owner and prepared by an
independent appraiser mutually satisfactory to Owner and Construction Manager in
accordance with all applicable regulatory requirements under the Financial
Institution Reform, Recovery and Enforcement Act of 1989 and regulations
promulgated thereunder.
10. Conditions Precedent to Owner's Obligation to Fund Final Advance.
----------------------------------------------------------------
Owner's obligation to make the final Advance for the Improvements shall be
subject to the satisfaction of the following conditions:
(a) Section 9 Conditions. All of the conditions precedent set forth
--------------------
in Section 9 above shall have been satisfied with respect to the final Advance.
(b) Building Certificate of Occupancy. Owner shall have received a
---------------------------------
copy of the certificate of occupancy or other similar approval issued by the
City for the Improvements.
11. Funding and Completion. Owner shall fund all Advances hereunder;
----------------------
provided, however, that in no event shall Owner have any obligation to fund any
Advances that would cause the Lease Investment Balance to exceed the Commitment
Amount as specified in the Amended and Restated Master Lease. Construction
Manager shall cause the Improvements to be completed within eighteen (18) months
of the date of the Agreement and within the proposed budget for construction of
the Improvements as shown in Exhibit E attached hereto ("Budget") (Owner and
---------
Construction Manager acknowledge that Exhibit E sets forth an interim budget
---------
that may be adjusted based upon receipt of final cost estimates and change
orders from the Contractors). In the event the Improvements have not been
completed within eighteen (18) months following the date of this Agreement or
the total cost of the Parcel acquisition and construction of the Improvements
exceeds $25,000,000, then Construction Manager shall re-purchase the Parcel and
Improvements for the Purchase Price (as defined in the Amended and Restated
Master Lease).
12. Further Approvals; Proposed Changes. Construction Manager shall only
-----------------------------------
be obligated to submit to Owner for approval documentation showing any proposed
material change to the Authorized Plans (but no approval shall be required with
respect to construction or design matters that are not contained in or addressed
by the Authorized Plans), and only to the extent such change is materially
inconsistent with the Authorized
4
<PAGE>
Plans and shall materially affect the value of the Improvements. Owner's
approval or rejection, which shall not be unreasonably withheld, shall be
given within ten (10) days after request by Construction Manager and its
failure to respond during that period shall be deemed approval. All reasonable
out-of-pocket costs and expenses incurred by Owner in connection with the
review and approval of any such changes shall be deemed to be an Advance and
shall be added to Lease Investment Balance as of the date paid by Owner (Owner
shall promptly notify Construction Manager of any such Advance). Construction
Manager shall have the right, without further approval of Owner, to construct
Improvements not materially inconsistent with the Authorized Plans together
with such changes thereto as may be requested or required to comply with Legal
Requirements.
13. Additional Provisions Regarding Advances.
----------------------------------------
(a) Timing and Method of Disbursement. Advances to be made hereunder
---------------------------------
shall not be made more frequently than monthly. At any time Construction
Manager desires to receive an Advance, Construction Manager shall submit a Draw
Request on or before the fifth (5th) day of the month following the month for
which an Advance is requested, and if Construction Manager submits such Draw
Request by such fifth (5th) day of the month, then Owner shall make the Advance
as requested in such Draw Request to the party(ies) designated by Construction
Manager on the fifteenth (15th) day of that month (subject to the conditions to
funding described in Section 9 above). The Advances shall be made to parties
identified by Construction Manager, which parties may include Construction
Manager. At the option of Construction Manager, Owner shall make such Advances
to one (1) or more parties. If the fifteenth (15th) day is not a business day,
then the Advance shall take place on the next succeeding business day.
(b) Retainage. There shall be a retention policy for requests for
---------
disbursement of Advances to pay the hard construction costs related to the
Improvements (i.e., amounts owed to contractors and subcontractors, including
overhead and profit). Ten percent (10%) of the value of the work performed or
materials supplied shall be retained until the Improvements are fifty percent
(50%) completed and five (5%) thereafter. All retainage shall be paid upon
payment of the Final Advance; provided, however, that at the request of
Construction Manager portions of such retainage may be released prior to the
Final Advance to pay the balance of any funds retained from a subcontractor if
such subcontractor has satisfactorily completed all of its work on the
Improvements and delivers to Construction Manager simultaneously with the
payment of such retainage an Unconditional Waiver and Release Upon Final Payment
as set forth in California Civil Code Section 3262 showing no disputed amounts.
(c) Lien Waivers. Owner agrees to execute lien waivers in form and
------------
substance satisfactory to Owner in favor of equipment lessors providing
equipment to Construction Manager.
5
<PAGE>
14. Construction Manager's Liability. Construction Manager undertakes to
--------------------------------
perform its services in accordance with generally accepted practices in the
construction industry for a construction manager and the scope of services
hereunder.
15. Successors and Assigns. This Agreement shall bind and inure to the
----------------------
benefit of Owner and Construction Manager, their respective successors, assigns
and legal representatives. Construction Manager shall not assign its interests
in or obligations under this Agreement without the prior written consent of
Owner.
16. Severability. In the event any term or provision of this Agreement is
------------
held to be illegal, invalid or unenforceable under law, such term or provision,
or part thereof, shall be deemed severed from this Agreement and the remaining
terms and provisions shall remain unaffected thereby and shall remain in full
force and effect.
17. Governing Law. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the laws of the State of California.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall comprise but a single instrument.
[Signatures begin on next page.]
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first written above.
OWNER: SUMITOMO BANK LEASING AND FINANCE, INC., a
Delaware corporation
By _______________________________________
Its _______________________________________
7
<PAGE>
CONSTRUCTION MANAGER: ASCEND COMMUNICATIONS, INC.,
a Delaware corporation
By __________________________
Its __________________________
8
<PAGE>
Exhibit A
---------
DESCRIPTION OF THE PARCEL
[TO BE ATTACHED]
<PAGE>
Exhibit B
---------
AUTHORIZED PLANS
1. Interior Plans prepared by Interform dated January 30, 1996, progress floor
plans dated February 22, 1996 (not for constructions), Job No. 5735-D.
2. Structural Plans prepared by Structural Engineers Incorporated, original
date of January 30, 1996, as amended and updated, Project No. 1455.
3. FeeMunsunEbert drawings, original date of February 9, 1996, as amended,
Project No. 9541.
<PAGE>
Exhibit C
DRAW REQUEST FORM
THIS DRAW REQUEST ("Draw Request") is submitted by ASCEND COMMUNICATIONS,
INC., a Delaware corporation ("Construction Manager") to SUMITOMO BANK LEASING
AND FINANCE, INC., a Delaware corporation ("Owner") pursuant to the terms of
that certain Amended and Restated Construction Management Agreement between
Owner and Construction Manager dated March __, 1998. Any capitalized terms not
defined in this Draw Request shall have their meaning as defined in the Amended
and Restated Construction Management Agreement.
Construction Manager hereby makes a Draw Request for an Advance from Owner.
The aggregate of the amount of the Advance requested by Construction Manager
pursuant to this Draw Request is $__________. The LIBOR borrowing period for
such Advance is one (1) month. After making this Advance the undersigned
certifies that there will not be more than one (1) LIBOR contract.
Construction Manager hereby instructs Owner to make this Advance to the
parties and in the amounts described below:
Name of Entity Amount
- --------------------------------------------------------------------------------
[Add additional sheet, if necessary, to describe all entities to receive a
portion of this Advance and the amount to be paid to each such entity.]
IN WITNESS WHEREOF, Construction Manager has executed this Draw Request as
of the date and year first above written.
CONSTRUCTION MANAGER
ASCEND COMMUNICATION, INC.,
a Delaware Corporation
By _____________________________
Its ________________________
By ______________________________
Its _________________________
<PAGE>
Exhibit D
---------
CONTRACTOR'S CERTIFICATE
[TO BE ATTACHED]
<PAGE>
Exhibit E
---------
BUDGET
[TO BE ATTACHED]
<PAGE>
LEASE SUPPLEMENT FOR CONSTRUCTION NO. 1
LEASE SUPPLEMENT NO. 1 is dated as of March __, 1998 and executed by and
between SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation
("Landlord"), and ASCEND COMMUNICATIONS, INC., a Delaware corporation
("Tenant").
Landlord and Tenant have heretofore entered into that certain Amended and
Restated Master Lease dated as of March __, 1998, relating to the lease of
certain parcels of real property (herein called the "Lease" and the defined
terms therein being hereinafter used with the same meanings). The Lease
provides for the execution and delivery from time to time of Lease Supplements
for the purpose of leasing individual Parcels under the Lease as and when
delivered by Landlord in accordance with the terms thereof.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, Landlord and Tenant hereby agree as follows:
(a) Landlord has delivered and leased to Tenant under the Lease and
Tenant has accepted and leased from Landlord under the Lease the Parcel
described in Schedule 1 attached hereto.
(b) The lease amortization, if applicable, is described in Schedule 2
attached hereto.
(c) The Permitted Title Exceptions are described in Schedule 3 attached
hereto.
(d) The Site Plan for the Parcel is described in Schedule 4 attached
hereto.
(e)1/ The Site Investment Balance to acquire the Land is $[N/A] and the
estimated Improvement Investment Balance for the construction of the
Improvements shall be $[N/A].
(f) The Lease Supplement Term commenced on March 27, 1996.
(g) Tenant hereby confirms its agreement to pay Landlord Base Rent and
Additional Rent for the Parcel during the Lease Supplement Term in accordance
with Article VII of the Lease.
(h) Tenant hereby confirms to Landlord that Tenant has accepted the
Parcel and agrees that it shall be incorporated into the Lease.
- ---------------------------
1/ In the case of a Parcel where the Fair Market Value of the Land is less than
twenty five percent (25%) of the aggregate expected Fair Market Value of the
Land and Improvements at Lease Commencement, substitute the following
language: "There is no separate Site Investment Balance for this Parcel. The
estimated Improvements Investment Balance (which shall, for purposes of the
Parcel to with this Lease Supplement relates, include the acquisition costs
of the Parcel) shall be $___________________.
1
<PAGE>
(i) This Lease Supplement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
(j) This Lease Supplement is being delivered in the State of California
and in all respects shall be governed by, and construed in accordance with, the
laws of the State of California, including all matters of construction, validity
and performance.
(k) The Construction Period commenced on March 27, 1996 and expired
eighteen (18) months thereafter.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease Supplement
to be duly executed on the day and year first above written.
[Signatures begin on next page.]
2
<PAGE>
LANDLORD
--------
SUMITOMO BANK LEASING AND FINANCE, INC., a
Delaware corporation
By_______________________________________
Name_____________________________________
Its______________________________________
[Signatures continued on next page]
3
<PAGE>
TENANT
------
ASCEND COMMUNICATIONS, INC., a Delaware
corporation
By_______________________________________
Name_____________________________________
Its______________________________________
4
<PAGE>
Schedule 1 to
Lease Supplement No.
--------------------
DESCRIPTION OF PARCEL
[TO BE PROVIDED]
1
<PAGE>
Schedule 2 to
Lease Supplement No.
--------------------
AMORTIZATION SCHEDULE (if necessary)
NONE
1
<PAGE>
Schedule 3 to
Lease Supplement No.
--------------------
PERMITTED TITLE EXCEPTIONS
1. The lien of supplemental taxes, if any, assessed as a result of transfer of
interest and/or new construction, said supplemented taxes being assessed
pursuant to Chapter 3.5 commencing with Section 75 of the California
Revenue and Taxation Code, for which no Notice of Assessment has been
issued, as of the date herein.
2. Special assessment for Harbor Bay Business Park A.D. 92-1, in the original
amount of $804,404.25, Assessment No. 6, upon which 20 year bonds have been
issued. Principal and interest are collectible with the county taxes
commencing with the year 1992-93.
3. Special assessment for Harbor Bay Business Park A.D. 92-1, in the original
amount of $867,661.76, Assessment No. 7, upon which 20 year bonds have been
issued. Principal and interest are collectible with the county taxes
commencing with the year 1992-93.
4. Special assessment for Harbor Bay Business Park A.D. 92-1, in the original
amount of $1,471,144.35, Assessment No. 13, upon which 20 year bonds have
been issued. Principal and interest are collectible with the county taxes
commencing with the year 1992-93.
5. Special assessment for Harbor Bay Business Park A.D. 92-1, in the original
amount of $719,237.97, Assessment No. 14, upon which 20 year bonds have
been issued. Principal and interest are collectible with the county taxes
commencing with the year 1992-93.
6. BAY FARM ISLAND DIKE ASSESSMENT DISTRICT NO. 93-1. Assessments that may be
levied by the City of Alameda for costs and expenses related to repairs
required in the event of "major failure" in the dike, pursuant to
instrument recorded August 9, 1993, Series No. 93-283274, and as
established by the City of Alameda Resolution No. 12429.
No assessments have been levied by the City of Alameda for the fiscal year 1995-
1996.
7. Notice of Agreement to grant noise easement and covenants, and agreement to
subordinate by and between Harbor Bay Isle Associates, a partnership, and
the City of Oakland, a municipal corporation, recorded June 5, 1980, Series
No. 80-097060.
In connection therewith:
Easement for noise, vibration, air currents, natural or artificial
illumination, and such matter, emissions, activities, or other things that
may occur or result directly or indirectly from the operations of the
Airport, now and in the future, including, but in no way limited to, ground
and flight operations of aircraft at, over, on, or about the Airport, and
appurtenances thereto, granted to City of Oakland, a municipal corporation
by instrument recorded February 18, 1992, Series No. 92-48968.
Also, in connection therewith:
Terms, conditions and provisions contained in the covenant running with
land executed by the City of Oakland and Harbor Bay Isle Associates, which
among other things, bars use of the premises, for residential, public
school, public library or open air amphitheater purposes, recorded February
18, 1992, Series No. 92-48969.
<PAGE>
8. Covenants, conditions and restrictions as set forth in the instrument
recorded March 29, 1983, Series No. 83-50078;
(a) With mortgage protection clause.
(b) With reversionary clause.
Said declaration also contains the following:
(c) Lien rights for upkeep and maintenance.
Declaration of Annexation recorded November 14, 1990, Series No. 90-300327
and Declaration of Annexation recorded June 14, 1993, Series No. 93-209799.
9. Easement for street lighting purposes, and appurtenances thereto, together
with conditions and reservations, as set forth in the grant to the City of
Alameda, by instrument recorded August 27, 1986, Series No. 86-208515.
(Affects the southwesterly portion of Parcels 6, 7 and 8 of Parcel Map
5274.)
10. Easement for public pathway purposes, and appurtenances thereto, together
with conditions and reservations as set forth in the grant to the City of
Alameda, by instrument recorded August 27, 1986, Series No. 86-208516.
(Affects the southwesterly portion of Parcels 6, 7 and 8 of Parcel Map
5274.)
11. Easement for public utility purposes, and appurtenances thereto, together
with conditions and reservations, as set forth in the grant to the City of
Alameda, by instrument recorded August 27, 1986, Series No. 86-208517.
(Affects the southwesterly portion of Parcels 6, 7 and 8 of Parcel Map
5274.)
12. Terms, conditions, provisions and easements, contained on the Certificate
Page of Parcel Map 5274, filed February 29, 1988, Map Book 176, Pages 4-11,
Alameda County Records.
(Affects streets and public utility easements as shown on said map.)
13. Terms conditions and provisions contained in the certain Development
Agreement between and among the City of Alameda and Harbor Bay Isle
Associates, et al, recorded April 24, 1989, Series No. 89-110710.
Extension and Modification Agreement thereto, recorded March 22, 1990, Series
No. 90-77929.
14. Covenants, conditions and restrictions as contained in the Deed from Harbor
Bay Isle Associates, recorded concurrently herewith.
15. An unrecorded Lease upon the terms, covenants and conditions therein
provided;
Lessor: Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation
Lessee: Ascend Communications, Inc. a Delaware corporation
Recorded: concurrently herewith.
In conjunction with said Lease:
Deed of Trust, Financing Statement, Security Agreement and Fixture Filing,
to secure payment of an amount up to $25,000,000.00 and any other amounts
or obligations secured thereby:
Dated: February 29, 1996
Trustor: Ascend Communications, Inc., a Delaware corporation
Trustee: Stewart Title of California, a California corporation
<PAGE>
Beneficiary: Sumitomo Bank Leasing & Finance, Inc. a
Delaware corporation
Recorded: Concurrently herewith.
16. Repurchase Option Agreement being recorded concurrently herewith.
17. Water rights or claims or title to water in or under the land.
18. The following matters as disclosed by ALTA/ASCM Land Title Survey for
Ascend Communications, Inc., prepared by Kier & Wright, Civil Engineers and
Surveyors, Inc., dated _______, Job No. 95599:
(a) gas, electric and telephone boxes lying along the eastern portion of
the premises, approximately 200 feet south from the northeast corner of the
premises, and another group of such utility boxes lying inside the eastern
property line in an area approximately 325.00 south on the eastern line of
the property shown as South 5 33' 41" East; 491.10 feet; and
(b) high voltage electric box on concrete pad in the southeastern corner of
the premises.
<PAGE>
[BLANK PAGE]
<PAGE>
Schedule 4 to
Lease Supplement No.
--------------------
SITE PLAN
[follows this page]
<PAGE>
LEASE SUPPLEMENT FOR CONSTRUCTION NO. 2
LEASE SUPPLEMENT NO. 2 is dated as of March ____, 1998 and executed by and
between SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation
("Landlord"), and ASCEND COMMUNICATIONS, INC., a Delaware corporation
("Tenant").
Landlord and Tenant have heretofore entered into that certain Amended and
Restated Master Lease dated as of March __, 1998, relating to the lease of
certain parcels of real property (herein called the "Lease" and the defined
terms therein being hereinafter used with the same meanings). The Lease
provides for the execution and delivery from time to time of Lease Supplements
for the purpose of leasing individual Parcels under the Lease as and when
delivered by Landlord in accordance with the terms thereof.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, Landlord and Tenant hereby agree as follows:
(a) Landlord hereby delivers and leases to Tenant under the Lease and
Tenant accepts and leases from Landlord under the Lease the Parcel described in
Schedule 1 attached hereto.
- ----------
(b) The lease amortization, if applicable, is described in Schedule 2
----------
attached hereto.
(c) The Permitted Title Exceptions are described in Schedule 3
attached hereto. ----------
(d) The Site Plan for the Parcel is described in Schedule 4 attached
----------
hereto.
(e)/1/ The Site Investment Balance to acquire the Land is $[N/A] and
the estimated Improvement Investment Balance for the construction of the
Improvements shall be $[N/A].
(f) The Lease Supplement Term shall commence on March ____, 1998.
(g) Tenant hereby confirms its agreement to pay Landlord Base Rent
and Additional Rent for the Parcel during the Lease Supplement Term in
accordance with Article VII of the Lease.
-----------
(h) Tenant hereby confirms to Landlord that Tenant has accepted the
Parcel and agrees that it shall be incorporated into the Lease.
- -------------------------
1/ In the case of a Parcel where the Fair Market Value of the Land is less than
- -
twenty five percent (25%) of the aggregate expected Fair Market Value of the
Land and Improvements at Lease Commencement, substitute the following language:
"There is no separate Site Investment Balance for this Parcel. The estimated
Improvements Investment Balance (which shall, for purposes of the Parcel to with
this Lease Supplement relates, include the acquisition costs of the Parcel)
shall be $___________________.
1
<PAGE>
(i) This Lease Supplement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
(j) This Lease Supplement is being delivered in the State of
California and in all respects shall be governed by, and construed in accordance
with, the laws of the State of California, including all matters of
construction, validity and performance.
(k) The Construction Period shall commence on March ___, 1998 and
expire eighteen (18) months thereafter.
.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease Supplement
to be duly executed on the day and year first above written.
[Signatures begin on next page.]
2
<PAGE>
LANDLORD
--------
SUMITOMO BANK LEASING AND FINANCE, INC., a
Delaware corporation
By
---------------------------------------
Name
-------------------------------------
Its
--------------------------------------
[Signatures continued on next page]
3
<PAGE>
TENANT
------
ASCEND COMMUNICATIONS, INC., a Delaware
corporation
By
---------------------------------------
Name
-------------------------------------
Its
--------------------------------------
4
<PAGE>
Schedule 1 to
Lease Supplement No.
--------------------
DESCRIPTION OF PARCEL
[TO BE PROVIDED]
1
<PAGE>
Schedule 2 to
Lease Supplement No.
-------------------
AMORTIZATION SCHEDULE (if necessary)
NONE
1
<PAGE>
Schedule 3 to
Lease Supplement No.
--------------------
PERMITTED TITLE EXCEPTIONS
1
<PAGE>
Schedule 4 to
Lease Supplement No.
--------------------
SITE PLAN
[follows this page]
<PAGE>
Recording Requested By
And
When Recorded Return To:
Graham & James LLP
One Maritime Plaza, Suite 300
San Francisco, CA 94111
Attention: Bruce W. Hyman, Esq.
================================================================================
ASCEND COMMUNICATIONS, INC.,
a Delaware corporation
as Trustor,
to
STEWART TITLE OF CALIFORNIA,
a California corporation,
as Trustee,
for the benefit of
SUMITOMO BANK LEASING AND FINANCE, INC.,
a Delaware corporation,
as Beneficiary
================================================================================
DEED OF TRUST, FINANCING STATEMENT,
SECURITY AGREEMENT AND FIXTURE FILING
(WITH ASSIGNMENT OF RENTS AND LEASES)
================================================================================
Dated: ___________, 1998
================================================================================
This instrument is a Deed of Trust, Financing Statement, Security Agreement and
Fixture Filing (with Assignment of Rents and Leases) of both real and personal
property, including fixtures. This instrument contains provisions accelerating
the obligations hereby secured upon certain sales or further encumbrances of the
property hereby covered.
<PAGE>
THIS DEED OF TRUST, FINANCING STATEMENT, SECURITY AGREEMENT and FIXTURE
FILING (WITH ASSIGNMENT OF RENTS AND LEASES) ("Deed of Trust") is made this __
day of March, 1998, by ASCEND COMMUNICATIONS, INC., a Delaware corporation
("Trustor"), having its mailing address at 1725 Harbor Bay Parkway, Alameda,
California, 94502, to STEWART TITLE OF CALIFORNIA, a corporation organized and
existing under the laws of the State of California ("Trustee") for the benefit
of SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation having its
mailing address at 277 Park Avenue, New York, New York 10172 ("Beneficiary").
W I T N E S S E T H :
---------------------
WHEREAS, Beneficiary has entered into that certain Amended and Restated
Master Lease dated as of March __, 1998 (the "Master Lease") and a Lease
Supplement for Construction No. 2 ("Lease Supplement No. 2") covering the
property more particularly described in Exhibit A attached hereto, with Trustor
---------
for the purpose of financing the acquisition of certain land and construction of
certain improvements (the "Improvements") that are part of the Mortgaged
Property (as defined below) and leasing such land and Improvements to Trustor
(the "Master Lease" and "Lease Supplement No. 2" are hereinafter collectively
referred to as the "Master Lease").
WHEREAS, the total indebtedness and liabilities that are to be secured by
this Deed of Trust shall be as follows:
i) all amounts payable by Trustor under and in connection with the
Master Lease and under any other document or instrument executed by
Trustor, securing, evidencing or relating to the Master Lease or any of the
security therefor (the Master Lease and such other documents and
instruments being hereinafter collectively referred to as the "Transaction
Documents"), in each case as the same may be modified, amended, or
supplemented from time to time including but not limited to Base Rent and
Additional Rent, as defined in the Master Lease, all sums Beneficiary may
advance, pay or incur under or in connection with the Master Lease or any
other sums advanced by Trustee or Beneficiary for the benefit of Trustor
under the Master Lease;
ii) all amounts payable by Trustor, under or in connection with this
Deed of Trust, as the same may be amended, modified or supplemented from
time to time, including all sums, amounts and expenses which Trustee or
Beneficiary may advance, pay or incur in connection with or any other sums
advanced by Trustee or Beneficiary for the protection of its security
interests under the Transaction Documents; and
iii) any other indebtedness, obligation or agreement of Trustor when
evidenced or set forth in a document or instrument executed by Trustor
reciting that it is secured by this Deed of Trust;
(all such amounts, obligations and liabilities described in (i) through (iii)
being hereinafter collectively referred to as the "Obligations"); and
1
<PAGE>
WHEREAS, it has been agreed that the payment and performance of the
Obligations shall be secured by a conveyance of certain property as hereinafter
described; and
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and in order to secure the due and punctual payment in full by
Trustor, whether at stated maturity, by acceleration or otherwise, and
performance of the Obligations, Trustor does hereby, give, grant, bargain, sell,
warrant, mortgage, transfer, grant a security interest in, set over, deliver,
confirm and convey unto Trustee, in trust, with power of sale and right of entry
-- -----
as hereinbelow provided, upon the terms and conditions of this Deed of Trust,
the following property described in Granting Clauses FIRST through SIXTH below:
GRANTING CLAUSES
----------------
All the estate, right, title and interest of Trustor, whether now owned or
hereafter acquired, in, to and under, or derived from:
GRANTING CLAUSE FIRST
Land
----
All those certain lots, pieces or parcels of land located in the City of
Alameda, the County of Alameda and the State of California, as more particularly
described in Exhibit A attached hereto, as the description of the same may be
---------
amended, modified or supplemented from time to time, all rights, title and
interest of Trustor therein, including Trustor's right, title and interest in
said real property, including such interests under the Master Lease, and
including Trustor's options to purchase said real property under Section 20.1 of
------------
the Master Lease and all and singular reversions or remainders in and to said
land and the tenements, hereditaments, transferable entitlements and development
rights, easements (in gross and/or appurtenant) existing as of the date hereof
or arising thereafter, agreements, rights-of-way or use rights (including alley,
drainage, horticultural, mineral, mining, water, oil and gas rights and any
other rights to produce or share in the production of anything therefrom or
attributable thereto), privileges, royalties and appurtenances to said land, now
or hereafter belonging or in anyway appertaining thereto, including any such
right, title, interest in, to or under any agreement or right granting,
conveying or creating, for the benefit of said land, any easement, right or
license in any way affecting said land and/or other land and in, to or under any
streets, ways, alleys, vaults, gores or strips of land adjoining said land or
any parcel thereof, or in or to the air space over said land, all rights of
ingress and egress with respect to said land, and all claims or demands of
Trustor, either at law or in equity, in possession or expectancy, of, in or to
the same (all of the foregoing hereinafter collectively referred to as the
"Land").
GRANTING CLAUSE SECOND
Improvements
------------
All buildings, structures, facilities, landscaping and other improvements
now or hereafter located on the Land, and all building material, building
equipment, supplies and fixtures of every kind and nature now or hereafter
located on the Land or attached to, contained in or used in
2
<PAGE>
connection with any such buildings, structures, facilities, landscaping or other
improvements, and all appurtenances and additions thereto and betterments,
renewals, substitutions and replacements thereof, (all of the foregoing
hereinafter collectively referred to as the "Improvements").
GRANTING CLAUSE THIRD
Equipment
---------
To the extent that the same are not Improvements, all machinery, apparatus,
goods, equipment, materials, building materials, fittings, chattels and tangible
personal property, and all appurtenances and additions thereto and betterments,
renewals, substitutions and replacements thereof, but only to the extent now or
hereafter located on, attached to, contained in or used or usable in connection
with the properties referred to in Granting Clause FIRST OR SECOND, or placed on
any part thereof, though not attached thereto (all of the foregoing hereinafter
collectively referred to as the "Equipment"), including without limitation all
screens, awnings, shades, blinds, curtains, draperies, carpeting, heating,
lighting, air conditioning, refrigerating, incinerating and/or compacting
plants, hoists, sprinkler systems and other fire prevention and extinguishing
apparatus and materials, pipes, ducts, conduits, dynamos, compressors,
generators, boilers, stokers, furnaces, pumps, tanks, (the Land, the
Improvements and the Equipment hereinafter collectively referred to as the
"Premises"); all contract rights of Trustor in construction contracts, plans and
specifications, and architects' agreements arising out of the improvements of
the Premises, all permits, licenses, franchises, certificates and other rights
and privileges required for the use and occupancy of the Premises; all names
under which the Land and Improvements may at any time be operated or known, and
all proceeds, substitutions and replacements of all of the foregoing. Except as
otherwise provided herein, Trustor hereby grants to Trustee and Beneficiary, a
security interest in and to all of Trustor's present and future "equipment" (as
defined in the Uniform Commercial Code of the State of California), that may be
hereafter acquired by Trustor, and Trustee and Beneficiary shall have, in
addition to all rights and remedies provided herein and in the Transaction
Documents, all of the rights and remedies of a "secured party" under said
Uniform Commercial Code. This Deed of Trust constitutes and shall be deemed to
be a "security agreement" for all purposes of said Uniform Commercial Code.
Except as otherwise provided herein, it is agreed that all Equipment is part and
parcel of the Land and the Improvements and appropriated to the use thereof and,
whether affixed to the Land and/or the Improvements or not, shall, for purposes
of this Deed of Trust be deemed conclusively to be real estate and mortgaged or
otherwise conveyed or encumbered hereby.
GRANTING CLAUSE FOURTH
Leasehold and Other Contractual Interests
-----------------------------------------
The Master Lease and all of rights of Trustor therein, and any and all
other leases, subleases, lettings and licenses of, and all other contracts,
bonds and agreements relating to the use or occupancy of the Premises, or any
part thereof, now or hereafter entered into, and all amendments, modifications,
supplements, additions, extensions and renewals thereof (all of the foregoing
hereinafter collectively called the "Leases"), and all right, title and interest
of Trustor thereunder, including cash and securities deposited thereunder and
any rights of first refusal with respect thereto (as down payments, security
deposits, or otherwise), the right to receive and
3
<PAGE>
collect the rents, security deposits, income, proceeds, earnings, royalties,
revenues, issues and profits payable thereunder and the right to enforce,
whether at law or in equity or by any other means, all provisions and options
thereof or thereunder (all of the foregoing hereinafter collectively called the
"Rents"), and the right to apply the same to the payment and performance of the
Obligations.
GRANTING CLAUSE FIFTH
Other and After Acquired Property
---------------------------------
INTENTIONALLY DELETED
---------------------
GRANTING CLAUSE SIXTH
Proceeds and Awards
-------------------
All unearned premiums, accrued, accruing or to accrue under insurance
policies now or hereafter obtained by Trustor, all proceeds (including funds,
accounts, deposits, instruments, general intangibles, notes or chattel paper) of
the conversion, voluntary or involuntary, of any of the property described in
these Granting Clauses into cash or other liquidated claims, including proceeds
of hazard, title and other insurance and proceeds received pursuant to any sales
or rental agreements of Trustor in respect of the property described in these
Granting Clauses, and all judgments, damages, awards, settlements and
compensation (including interest thereon) heretofore or hereafter made to the
present and all subsequent owners of the Premises and/or any other property or
rights conveyed or encumbered hereby for any injury to or decrease in the value
thereof for any reason, or by any governmental or other lawful authority for the
taking by eminent domain, condemnation or otherwise of all or any part thereof,
including awards for any change of grade of streets (the Premises and all other
property and rights described in Granting Clauses THIRD, FOURTH, and SIXTH,
hereinafter sometimes collectively referred to as the "Mortgaged Property").
Notwithstanding anything in the Granting Clauses or elsewhere in this Deed
of Trust to the contrary, the Mortgaged Property shall not include Trustor's
machinery, apparatus, goods, equipment, materials, building materials, fittings,
chattels, tangible personal property, general intangibles, money, documents,
instruments, trade fixtures, furniture, furnishings, inventory, accounts,
records, books, motors, hoists, stoves, ranges, vacuum and other cleaning
systems, engines, appliances, carpets, rugs, vehicles, contracts rights, license
rights, goodwill, trademarks, copyrights, trade secrets, servicemarks, trade
styles, trade names, patents, patent applications, leases, license agreements,
franchise agreements, blueprints, drawings, plans, diagrams, sketches, models,
purchase orders, customer lists, route lists, infringements, claims, computer
programs, computer discs, computer tapes, computer hardware systems, processes,
literature, reports, catalogs, design rights, royalties or any other item of
personal property now or hereafter installed or used by Trustor in the Premises,
except to the extent such items are essential to the use and occupancy of the
- --------------------
Premises by a third-party without regard to the particular use such third-party
would make of the Premises.
TO HAVE AND TO HOLD, all and singular the Mortgaged Property, whether now
owned or leased or hereafter acquired and whether now or hereafter existing,
together with all
4
<PAGE>
rights, privileges and appurtenances thereunto belonging, unto Trustee and
Beneficiary, forever, for the uses and purposes herein set forth, subject
however to the provisions of Article VII hereof.
-----------
AND Trustor covenants with and represents, warrants to and agrees with
Trustee and Beneficiary as follows:
ARTICLE I
---------
COVENANTS OF TRUSTOR
--------------------
SECTION 1.01 Insurance.
---------
(a) Casualty Insurance.
------------------
Trustor will keep the Premises insured at all times at no cost to Beneficiary
for the benefit of Trustee and Beneficiary to the extent and in the manner
described in the Master Lease and for the coverages described in the Master
Lease, naming Trustee and Beneficiary as loss payees or additional insureds, as
appropriate.
SECTION 1.02 Damage and Destruction.
----------------------
(a) Trustor's Obligations.
---------------------
In the event of any material damage to or loss or material destruction of the
Land or Improvements, Trustor shall promptly notify Beneficiary of such event.
(b) Beneficiary's Rights; Application of Proceeds.
---------------------------------------------
In the event that any portion of the Land or Improvements is so damaged,
destroyed or lost, and any such damage, destruction or loss is covered, in whole
or in part, by insurance described in Section 1.01, then the following
------------
provisions shall apply:
(1) If an Event of Default has occurred hereunder and is continuing,
(i) Beneficiary may, but shall not be obligated to, make proof of loss if not
made promptly by Trustor, and Beneficiary is hereby authorized and empowered by
Trustor to settle, adjust or compromise any claims for damage, destruction or
loss thereunder, and (ii) each insurance company concerned is hereby authorized
and directed to make payment therefor directly to Beneficiary, to be applied, at
Beneficiary's option, to the Obligations then secured hereby, in such order as
Beneficiary may determine in its sole discretion. Unless otherwise required by
law, such application to the Obligations by Beneficiary of such payments shall
not, by itself, cure or waive any Event of Default hereunder or notice of
default under this Deed of Trust or any other Transaction Document or invalidate
any act done pursuant to such notice.
(2) If no Event of Default hereunder has occurred and is continuing,
and if such proceeds are reasonably expected to be $500,000 or less, Trustor
shall be entitled to receive all such proceeds provided that Trustor applies
such proceeds to the restoration, replacement, and rebuilding of that portion of
the Land or Improvements so damaged, destroyed or lost in accordance with the
provisions of the Master Lease.
5
<PAGE>
(3) If such proceeds are reasonably expected to exceed $500,000 and if
an Event of Default has not occurred hereunder or has occurred but is not
continuing, then if Trustor elects not to restore the damage, the insurance
proceeds shall be paid to the Beneficiary and applied to the reduction of the
Obligations. If Trustor elects to restore the damage, the proceeds in excess of
$500,000 shall be paid to the Escrow Agent (as defined in Article 17 of the
----------
Master Lease) and Beneficiary shall apply all such insurance proceeds to the
restoration, replacement and rebuilding of the damaged portion of the Premises,
and such restoration, replacement and rebuilding shall be accomplished, upon
satisfaction of each and all of the conditions, if any, in Sections 17.3(b) and
--------------------
(d) of the Master Lease. The amounts less than $500,000 shall be paid directly
- ---
to Trustor.
(c) Effect on the Indebtedness.
--------------------------
Any reduction in the Obligations resulting from the application to the
Obligations of insurance proceeds shall be deemed to take effect only on the
date of receipt by Beneficiary of such proceeds; provided that if prior to the
receipt by Beneficiary of such proceeds, the Mortgaged Property shall have been
sold on foreclosure of this Deed of Trust, or shall have been transferred by
deed in lieu of foreclosure of this Deed of Trust, notwithstanding any
limitation on Trustor's liability contained herein or the other Transaction
Documents, Beneficiary shall have the right to receive the same to the extent of
any deficiency following such sale or conveyance, together with attorneys' fees
and disbursements incurred by Trustee and Beneficiary in connection with the
collection thereof. After payment in full of all Obligations, any excess
insurance proceeds shall be delivered to Trustor for disposition in the manner
set forth in the Master Lease.
SECTION 1.03 Condemnation.
------------
(a) Trustor's Obligations; Proceedings.
----------------------------------
Trustor, promptly upon obtaining knowledge of any pending or threatened
institution of any proceedings for the condemnation of the Land or Improvements,
or any part thereof or interest therein, or of any right of eminent domain, or
of any other proceedings arising out of injury or damage to or decrease in the
value of the Land or Improvements (including a change in grade of any street),
or any part thereof or interest therein (collectively referred to herein as
"Condemnation"), will notify Beneficiary of the threat or pendency thereof and
the following provisions shall apply:
(b) Beneficiary's Rights to Proceeds.
--------------------------------
If the amount of all compensation, awards, proceeds and other payments or
relief in connection with such condemnation, including without limitation
proceeds of sale in lieu of Condemnation, made or granted to Trustor
(collectively the "Proceeds") is in excess of $500,000, all Proceeds and all
judgments, decrees and awards for injury or damage to the Land and Improvements
are hereby assigned to Beneficiary and shall be paid to Beneficiary to be held
and disbursed as hereinafter set forth. Trustor agrees to execute and deliver
such further assignments thereof as Beneficiary may request to effectuate the
foregoing and authorizes Beneficiary to collect and receive the same for
disbursement as hereinafter set forth.
(c) Application of Proceeds - Total Taking.
--------------------------------------
In the event of a Condemnation of all or substantially all of the Land and
Improvements or, without regard to the portion of the Land
6
<PAGE>
and Improvements subject to Condemnation, if an Event of Default shall have
occurred hereunder and be continuing:
(1) Beneficiary shall be entitled to all Proceeds of such Condemnation
made or granted to Trustor and, if an Event of Default shall have occurred and
be continuing shall be entitled, at Beneficiary's option, to commence, appear in
and prosecute in its own name any action or proceedings. All such Proceeds
shall be deemed assigned to Beneficiary to the extent of any sums then secured
by this Deed of Trust, and Trustor agrees to execute such further assignments of
the Proceeds as Beneficiary or Trustee may require.
(2) Beneficiary shall apply all such Proceeds, after deducting
therefrom all costs and expenses (regardless of the particular nature thereof
and whether incurred with or without suit), including reasonable attorneys'
fees, incurred by it in connection with the collection of such Proceeds, to the
Obligations secured by this Deed of Trust, in such order as Beneficiary may
determine in its sole discretion. Unless otherwise required by applicable law,
such application or release shall not, by itself, cure or waive any Event of
Default hereunder or notice of default under this Deed of Trust or any other
Transaction Document or invalidate any act done pursuant to such notice. After
payment in full of all Obligations, any excess Proceeds shall be delivered to
Trustor for disposition in the manner set forth in the Master Lease.
(d) Application of Proceeds - Partial Taking.
----------------------------------------
If an Event of Default shall not have occurred hereunder and be continuing and
in the event of a Condemnation of less than all or substantially all of the Land
and/or Improvements, the following provisions shall apply:
(1) In the event that such Proceeds are in an amount less than
$500,000, Trustor shall be entitled to receive all such Proceeds provided that
Trustor applies such Proceeds to the payment of the costs and expenses of
repairing and restoring the Land and Improvements only to the extent necessary
to repair and restore the same.
(2) In the event that such Proceeds are in the amount of $500,000 or
more, the Proceeds in excess of $500,000 shall be paid to and shall be disbursed
by Beneficiary in the same manner, for the same purposes and subject to the same
requirements as are applicable to insurance proceeds pursuant to the provisions
hereof.
7
<PAGE>
(e) Right to Participate.
--------------------
If an Event of Default shall have occurred and be continuing hereunder
Beneficiary shall have the right to settle, adjust or compromise any claim in
connection with a Condemnation of the Land and/or Improvements in its sole
discretion. If an Event of Default shall not have occurred hereunder or has
occurred but is not continuing then: (A) Trustor may settle, adjust or
compromise any claim which is reasonably expected to be in an amount less than
$250,000; and (B) with respect to any claim which is reasonably expected to be
in the amount of $250,000 or more, Beneficiary and Trustor shall each consult
and cooperate with the other and each shall be entitled to participate in all
meetings and negotiations with respect to the settlement of such claim. Trustor
at its expense shall deliver to Beneficiary copies of all papers served in
connection with such Condemnation. Any adjustment or settlement by Trustor of
any claim which is in an amount in excess of $250,000 shall be subject to the
approval of Beneficiary.
(f) Effect on the Obligations.
-------------------------
Notwithstanding any condemnation, taking or other proceeding referred to in
this Section causing injury to or decrease in value of the Premises (including a
change in grade of any street), or any interest therein, Trustor shall continue
to pay and perform the Obligations as provided herein. Any reduction in the
Obligations resulting from the application to the Obligations of any proceeds,
judgments, decrees or awards pursuant to Section 1.03(b), (c) or (d) shall be
--------------- --- ---
deemed to take effect only on the date of receipt by Beneficiary of such
proceeds, judgments, decrees or awards; provided that if prior to the receipt by
Beneficiary of such proceeds, judgments, decrees or awards the Mortgaged
Property shall have been sold on foreclosure of this Deed of Trust, or shall
have been transferred by deed in lieu of foreclosure of this Deed of Trust,
Beneficiary shall have the right to receive the same to the extent of any
deficiency following such sale, with legal interest thereon together with
attorneys' fees and disbursements incurred by Trustee and Beneficiary in
connection with the collection thereof.
ARTICLE II.
-----------
ASSIGNMENT OF RENTS AND OTHER SUMS
----------------------------------
SECTION 2.01 Assignment.
----------
INTENTIONALLY DELETED
---------------------
ARTICLE III.
------------
ADDITIONAL ADVANCES; EXPENSES; INDEMNITY
----------------------------------------
SECTION 3.01 Additional Advances and Disbursements.
-------------------------------------
Trustor agrees that if an Event of Default occurs hereunder and is continuing
then Trustee and/or Beneficiary shall have the right, but not the obligation, in
Trustor's name or in its or their own name, and without notice to Trustor to
exercise any and all rights and remedies of the landlord under the Master Lease,
and, for such purpose, Trustor expressly grants to Trustee and Beneficiary, in
addition and without prejudice to any other rights and remedies hereunder, the
right to enter upon and take possession of the Premises in accordance with
applicable law to such extent and as often as either of them may deem necessary
or desirable. Except as otherwise provided by law, no such exercise shall be
8
<PAGE>
deemed to have cured such Event of Default with respect thereto. All sums
advanced and all expenses incurred by Trustee and/or Beneficiary in connection
with such exercise, and all other sums advanced or expenses incurred by
Beneficiary hereunder or under applicable law (whether required or optional and
whether indemnified hereunder or not) shall be part of the Obligations, shall
bear interest at the Default Rate (as defined in Section 2.19 of the Master
------------
Lease) from the date of disbursement until paid and shall be secured by this
Deed of Trust. Trustee and/or Beneficiary, upon making any such advance, shall
be subrogated to all of the rights of the person receiving such advance.
SECTION 3.02 Other Expenses.
--------------
(a) Trustor will pay or, on demand, reimburse Trustee and Beneficiary for
the payment of, all recording and filing fees, abstract fees, title insurance
premiums and fees, Uniform Commercial Code search fees, escrow fees, reasonable
attorneys' fees and disbursements and all other costs and expenses incurred by
Trustor, Trustee and/or Beneficiary in connection with the granting, closing and
enforcement (including the preparation of the Transaction Documents) of the
transactions contemplated hereunder or under the other Transaction Documents, or
otherwise attributable or chargeable to Trustor as owner of the Mortgaged
Property. Subject to Section 19.6 of the Master Lease and notwithstanding
------------
anything to the contrary contained herein in this Section 3.02(a), the
---------------
provisions of this Section 3.02(a) shall not be deemed or construed to authorize
---------------
Beneficiary to undertake, exercise or perform any action in the administration
of the transactions contemplated hereunder not otherwise (i) authorized by the
terms of this Deed of Trust or the Transaction Documents or (ii) permitted under
applicable law to be undertaken, exercised or performed by a trust deed
beneficiary to protect the security afforded by a deed of trust upon real
property.
(b) Trustor will pay or, on demand, reimburse Trustee and Beneficiary for
the payment of any costs or expenses (including reasonable attorneys' fees and
disbursements) incurred or expended in connection with or incidental to (i) any
Event of Default by Trustor or (ii) the exercise or enforcement by or on behalf
of Trustee and/or Beneficiary of any of their rights or remedies or Trustor's
obligations under this Deed of Trust or under the other Transaction Documents,
including the enforcement, compromise or settlement of this Deed of Trust or the
Obligations or the defense or assertion of the rights and claims of Trustee and
Beneficiary hereunder in respect thereof, by litigation or otherwise.
SECTION 3.03 Indemnity.
---------
(a) Except to the extent of Beneficiary's and/or Trustee's gross
negligence or willful misconduct, Trustor agrees to indemnify and hold harmless
Trustee and Beneficiary from and against any and all losses, liabilities, suits,
obligations, fines, damages, judgments, penalties, claims, charges, costs and
expenses (including attorneys' fees and disbursements) which may be imposed on,
incurred or paid by or asserted against Trustee and/or Beneficiary by reason or
on account of, or in connection with, (i) any misconduct of Trustor or any Event
of Default by Trustor hereunder, (ii) Trustee's and/or Beneficiary's exercise of
any of their rights and remedies, or the performance of any of their duties,
hereunder or under the other Transaction Documents to
9
<PAGE>
which Trustor is a party, (iii) the construction, reconstruction or alteration
of the Premises by Trustor, (iv) any negligence of Trustor, or any negligence or
misconduct of any lessee of the Premises, or any of their respective agents,
contractors, subcontractors, servants, employees, licensees or invitees, or (v)
any accident, injury, death or damage to any person or property occurring in, on
or about the Premises or any street, drive, sidewalk, curb or passageway
adjacent thereto. Any amount payable to Trustee, Beneficiary or counsel for
Beneficiary under this Section 3.03 shall be due and payable within five (5)
days after demand therefor and receipt by Trustor of a statement from Trustee,
Beneficiary and/or counsel for Beneficiary setting forth in reasonable detail
the amount claimed and the basis therefor, and such amounts shall bear interest
at the Default Rate (as defined in Section 2.19 of the Master Lease) from and
after the date such amounts are paid by counsel for Beneficiary, Beneficiary or
Trustee until paid in full by Trustor.
(b) Trustor's obligations under this Section shall not be affected by the
absence or unavailability of insurance covering the same or by the failure or
refusal by any insurance carrier to perform any obligation on its part under any
such policy of covering insurance. If any claim, action or proceeding is made
or brought against Trustee and/or Beneficiary which is subject to the indemnity
set forth in this Section, Trustor shall resist or defend against the same, if
necessary in the name of Trustee and/or Beneficiary, by attorneys for Trustor's
insurance carrier (if the same is covered by insurance) or otherwise by
attorneys approved by Beneficiary. Notwithstanding the foregoing, Trustee and
Beneficiary, in their discretion, may engage their own attorneys to resist or
defend, or assist therein, and Trustor shall pay, or, on demand, shall reimburse
Trustee and Beneficiary for the payment of, the reasonable fees and
disbursements of said attorneys.
ARTICLE IV
----------
DEFAULTS AND REMEDIES
---------------------
SECTION 4.01 Events of Default.
-----------------
The term "Event of Default", as used in this Deed of Trust, shall mean the
occurrence of an "Event of Default" under the Master Lease.
SECTION 4.02 Remedies.
--------
Upon the occurrence of any one or more Events of Default subject to Article
-------
VIII and Section 4.03 below, Trustee and/or Beneficiary may (but shall not be
- ---- ------------
obligated), in addition to any rights or remedies available to them hereunder or
under the other Transaction Documents, take such action personally or by their
agents or attorneys, with or without entry, and without notice, demand,
presentment or protest (each and all of which are hereby waived to the extent
permitted by law) as they deem necessary or advisable to protect and enforce
Beneficiary's rights and remedies against Trustor and in and to the Mortgaged
Property, including the following actions, each of which may, subject to Section
-------
4.03 hereof, be pursued concurrently or otherwise, at such time and in such
- ----
order as Trustee and/or Beneficiary may determine, in their sole discretion,
without impairing or otherwise affecting its or their other rights or remedies:
10
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(a) declare the entire balance of the Obligations (including the
entire principal balance thereof, all accrued and unpaid interest and any break-
funding costs (as defined in the Master Lease) and all other such sums secured
hereby) to be immediately due and payable and upon any such declaration the
entire unpaid balance of the Obligations shall become and be immediately due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by Trustor anything in the Transaction
Documents to the contrary notwithstanding; provided that if the Event of Default
occurs because of an Event of Default pursuant to Sections 19.1(e), (f), (i)
--------------------------
(but as to subsection (i) only as to Tenant's failure to perform its obligations
pursuant to the Termination Option (defined in Section 20.2 of the Master Lease)
------------
as set forth in clause (b) of such subsection (i)), or (j) of the Master Lease,
Trustor's liability under subparagraph (i) on page 1 of this Deed of Trust shall
be limited to the Guaranteed Residual Value (as defined in the Master Lease),
and Trustor's liability under subparagraph (ii) on page 1 of this Deed of Trust
shall not include any Base Rent and/or Additional Rent to the extent such Base
Rent and/or Additional Rent are included in the Guaranteed Residual Value; or
(b) institute a proceeding or proceedings, judicial or otherwise, for
the complete foreclosure of this Deed of Trust under any applicable provision of
law; or
(c) institute a proceeding or proceedings for the partial foreclosure
of this Deed of Trust under any applicable provision of law for the portion of
the Obligations then due and payable, subject to the lien of this Deed of Trust
continuing unimpaired and without loss of priority so as to secure the balance
of the Obligations not then due and payable; or
(d) cause any or all of the Mortgaged Property to be sold under the
power of sale granted by this Deed of Trust or any of the other Transaction
Documents in any manner permitted by applicable law. For any sale under the
power of sale granted by this Deed of Trust, Trustee or Beneficiary must record
and give all notices required by law and then, upon the expiration of such time
as is required by law, may sell the Mortgaged Property, and all estate, right,
title, interest, claim and demand of Trustor therein, and all rights of
redemption thereof, at one or more sales, as an entirety or in parcels, with
such elements of real and/or personal property (and, to the extent permitted by
applicable law, may elect to deem all of the Mortgaged Property to be real
property for purposes thereof), and at such time or place and upon such terms as
Trustee and Beneficiary may determine and shall execute and deliver to the
purchaser or purchasers thereof a deed or deeds conveying the property sold, but
without any covenant or warranty, express or implied, and the recitals in the
deed or deeds of any facts affecting the regularity or validity of the sale will
be conclusive against all persons. In the event of a sale, by foreclosure or
otherwise, of less than all of the Mortgaged Property, this Deed of Trust shall
continue as a lien and security interest on the remaining portion of the
Mortgaged Property; or
(e) institute an action, suit or proceeding in equity for the specific
performance of any of the provisions contained in the Transaction Documents; or
(f) apply for the appointment of a receiver, custodian, trustee,
liquidator or conservator of the Mortgaged Property, to be vested with the
fullest powers permitted under applicable law, as a matter of right and without
regard to or the necessity to disprove the adequacy
<PAGE>
11
of the security for the Obligations or the solvency of Trustor or any other
person liable for the payment of the Obligations, and Trustor and each other
person so liable waives or shall be deemed to have waived such necessity and
consents or shall be deemed to have consented to such appointment; or
(g) subject to the provisions and restrictions of any applicable law,
enter upon the Premises, and exclude Trustor and its agents and servants wholly
therefrom, without liability for trespass, damages or otherwise, and take
possession of all books, records and accounts relating thereto and all other
Mortgaged Property but not as to Trustor's business conducted thereon and
Trustor agrees to surrender possession of the Mortgaged Property and of such
books, records and accounts to Trustee or Beneficiary on demand after the
happening of any Event of Default; and having and holding the same may use,
operate, manage, preserve, control and otherwise deal therewith, either
personally or by its superintendents, managers, agents, servants, attorneys or
receivers, without interference from Trustor; and upon each such entry and from
time to time thereafter may, at the expense of Trustor and the Mortgaged
Property, without interference by Trustor and as Beneficiary may deem advisable
to protect the value thereof, (i) either by purchase, repair or construction,
maintain and restore the Premises, (ii) insure or reinsure the same, (iii) make
all necessary or proper repairs, renewals, replacements, alterations, additions,
betterments and improvements thereto and thereon, and (iv) in every such case in
connection with the foregoing have the right to exercise all rights and powers
of Trustor with respect to the Mortgaged Property, either in Trustor's name or
otherwise, including the right to make, terminate, cancel, enforce or modify
leases, obtain and evict tenants and subtenants on such terms as Beneficiary
shall deem advisable and to take any actions described in subsection (i) of this
Section; provided neither Trustee nor Beneficiary shall have any right to any
property other than the Mortgaged Property and the Collateral (as defined in the
Master Lease) and shall not have the right to operate Trustor's business; or
(h) subject to the provisions and restrictions of any applicable law,
may, with or without the entrance upon the Premises, collect, receive, sue for
and recover in its own name all Rents and cash collateral derived from the
Premises, and after deducting therefrom all costs, expenses and liabilities of
every character incurred by Trustee and/or Beneficiary in collecting the same
and in using, operating, managing, preserving and controlling the Premises, and
otherwise in exercising Trustee's and/or Beneficiary's rights under subsection
(g) of this Section, including all amounts necessary to pay taxes, assessments,
insurance premiums and other charges in connection with the Premises, as well as
compensation for the services of Trustee and Beneficiary and their respective
attorneys, agents and employees, to apply the remainder as provided in Section
-------
4.06; or
- ----
(i) release any portion of the Mortgaged Property for such
consideration as Beneficiary may require without, as to the remainder of the
Mortgaged Property, in any way impairing or affecting the lien or priority of
this Deed of Trust, or improving the position of any subordinate lienholder with
respect thereto, except to the extent that the Obligations shall have been
reduced by the actual monetary consideration, if any, received by Trustee and/or
Beneficiary for such release, and may accept by assignment, pledge or otherwise
any other property in place thereof as Trustee and/or Beneficiary may require
without being accountable for so doing to any other lienholder; or
12
<PAGE>
(j) may take all actions permitted under the Uniform Commercial Code
of the State of California; or
(k) may take any other action, or pursue any other right or remedy, as
Trustee and/or Beneficiary may have under applicable law, and Trustor does
hereby grant the same to Trustee and Beneficiary.
In the event that Trustee and/or Beneficiary shall exercise any of the
rights or remedies set forth in subsections (g) and (h) of this Section, neither
Trustee nor Beneficiary shall be deemed to have entered upon or taken possession
of the Mortgaged Property except upon the exercise of its option to do so,
evidenced by its demand and overt act for such purpose, nor shall it be deemed a
beneficiary or mortgagee in possession by reason of such entry or taking
possession, unless applicable law requires that it be deemed to be a beneficiary
or mortgagee in possession. Neither Trustee nor Beneficiary shall be liable to
account for any action taken pursuant to any such exercise other than for rents
actually received by such party, nor liable for any loss sustained by Trustor
resulting from any failure to let the Premises, or from any other act or
omission of Trustee and/or Beneficiary, except to the extent such loss is caused
by the willful misconduct or bad faith of such party or such liability may not
be waived under applicable law. Trustor hereby consents to, ratifies and
confirms the exercise by Trustee and/or Beneficiary of said rights and remedies.
SECTION 4.03 Trustor's Personal Property and Trade Fixtures.
----------------------------------------------
Trustor shall be entitled up to twenty (20) days after the consummation of a
foreclosure sale hereunder to enter the Mortgaged Property during normal
business hours for the purpose of removing its personal property and trade
fixtures therefrom at its expense, provided that it repairs only damage to the
Mortgaged Property caused by such removal.
SECTION 4.04 Expenses.
--------
If as a result of an Event of Default by Trustor any action is commenced to
foreclose this Deed of Trust, or to enforce any other remedy of Trustee and/or
Beneficiary under any of the Transaction Documents, whether such action is
judicial or pursuant to the power of sale contained herein or otherwise, there
shall be added to the Obligations secured by this Deed of Trust all costs and
expenses, including reasonable attorney's fees, plus interest thereon at the
Default Rate (as defined in Section 2.19 of the Master Lease) until paid, in
------------
the commencement and prosecution of such action, whether or not such action
results in a foreclosure sale, foreclosure or other judicial decree or judgment.
SECTION 4.05 Rights Pertaining to Sales.
--------------------------
Subject to the provisions or other requirements of law, the following
provisions shall apply to any sale or sales of the Mortgaged Property under or
by virtue of this Article IV following an Event of Default by Trustor, whether
----------
made under the power of sale herein granted or by virtue of judicial proceedings
or of a judgment or decree of foreclosure and sale:
(a) Trustee, at the request of Beneficiary, may conduct any number of
sales from time to time. The power of sale set forth in Section 4.02(d) hereof
---------------
shall not be exhausted by any one or more such sales as to any part of the
Mortgaged Property which shall not have been sold, nor by any sale which is not
completed or is defective in Trustee's or Beneficiary's opinion, until the
Obligations shall have been paid in full.
13
<PAGE>
(b) Any sale may be postponed or adjourned by public announcement at
the time and place appointed for such sale or for such postponed or adjourned
sale without further notice.
(c) After each sale, Trustee, or an officer of any court empowered to
do so, shall execute and deliver to the purchaser or purchasers at such sale a
good and sufficient instrument or instruments granting, conveying, assigning and
transferring all right, title and interest of Trustor in and to the Mortgaged
Property and rights sold and shall receive the proceeds of said sale or sales
and apply the same as herein provided. Upon an Event of Default by Trustor,
Trustee is hereby appointed the true and lawful attorney-in-fact of Trustor,
which appointment is irrevocable and shall be deemed to be coupled with an
interest, in Trustor's name and stead, to make all necessary conveyances,
assignments, transfers and deliveries of the property and rights so sold, and
for that purpose Trustee may execute all necessary instruments of conveyance,
assignment, transfer and delivery, and may substitute one or more persons with
like power, Trustor hereby ratifying and confirming all that said attorney or
such substitute or substitutes shall lawfully do by virtue thereof.
Nevertheless, Trustor, if requested by Trustee or Beneficiary, shall ratify and
confirm any such sale or sales by executing and delivering to Trustee or such
purchaser or purchasers all such instruments as may be advisable, in Trustee's
or Beneficiary's judgment, for the purposes as may be designated in such
request.
(d) Any and all statements of fact or other recitals made in any of
the instruments referred to in subsection (c) of this Section given by Trustee
and/or Beneficiary as to nonpayment of the Obligations, or as to the occurrence
of any Event of Default, or as to Beneficiary having declared all or any of the
Obligations to be due and payable, or as to the request to sell, or as to notice
of time, place and terms of sale and of the property or rights to be sold having
been duly given, or as to the refusal, failure or inability to act of Trustee,
or as to the appointment of any substitute or successor Trustee, or as to any
other act or thing having been duly done by Trustor, Beneficiary, or by such
Trustee, shall be taken as conclusive and binding against all persons as to
evidence of the truth of the facts so stated and recited. Trustee and/or
Beneficiary may appoint or delegate any one or more persons as agent to perform
any act or acts necessary or incident to any sale so held, including the posting
of notices and the conduct of sale, but in the name and behalf of Trustee or
Beneficiary, as applicable.
(e) The receipt by Trustee of the purchase money paid at any such
sale, or the receipt by any other person authorized to receive the same, shall
be sufficient to discharge to any purchaser of any property or rights sold as
aforesaid, and no such purchaser, or its representatives, grantees or assigns,
after paying such purchase price and receiving such receipt, shall be bound to
see to the application of such purchase price of any part thereof upon or for
any trust or purpose of this Deed of Trust or, in any manner whatsoever, be
answerable for any loss, misapplication or non-application of any such purchase
money, or part thereof, or be bound to inquire as to the authorization,
necessity, expediency or regularity of any such sale.
(f) Any such sale or sales shall operate to divest all of the estate,
right, title, interest, claim and demand whatsoever, whether at law or in
equity, of Trustor in and to the properties and rights so sold, and shall be a
perpetual bar both at law and in equity against Trustor
14
<PAGE>
and any and all persons claiming or who may claim the same, or any part thereof
or any interest therein, by, through or under Trustor to the fullest extent
permitted by applicable law.
(g) Upon any such sale or sales, Beneficiary may bid for and acquire
the Mortgaged Property and Beneficiary, in lieu of paying cash therefor, may
make settlement for the purchase price by crediting against the Obligations the
amount of the bid made therefor, after deducting therefrom the expenses of the
sale, the cost of any enforcement proceeding hereunder and any other sums which
Trustee or Beneficiary is authorized to deduct under the terms hereof, to the
extent necessary to satisfy such bid.
(h) In the event that Trustor, or any person claiming by, through or
under Trustor, shall transfer or refuse or fail to surrender possession of the
Mortgaged Property after any sale thereof, then Trustor, or such person shall be
deemed a tenant at sufferance of the purchaser at such sale, subject to eviction
by means of forcible entry and detainer proceedings, or subject to any other
right or remedy available hereunder or under applicable law.
(i) Upon any such sale, it shall not be necessary for Trustee,
Beneficiary or any public officer acting under execution or order of court to
have present or constructively in its possession any of the Mortgaged Property.
(j) In the event of any sale referred to in this Section, the entire
Obligations, if not previously due and payable, immediately thereupon shall,
notwithstanding anything to the contrary herein or in the other Transaction
Documents, become due and payable.
(k) In the event a foreclosure hereunder shall be commenced by Trustee
at the request of Beneficiary, Trustee or Beneficiary may at any time before the
sale of the Mortgaged Property abandon the sale, and may, subject to Article
VIII hereof, institute suit for the collection of the Obligations and for the
foreclosure of this Deed of Trust, or in the event that Trustee or Beneficiary
should institute a suit for collection of the Obligations, and for the
foreclosure of this Deed of Trust, Beneficiary may at any time before the entry
of final judgment in said suit dismiss the same and sell or require Trustee to
sell the Mortgaged Property in accordance with the provisions of this Deed of
Trust.
SECTION 4.06 Application of Proceeds.
-----------------------
The purchase money, proceeds of any sale referred to in Section 4.05, together
------------
with any other sums which may be held by Trustee or Beneficiary hereunder,
whether under the provisions of this Article IV or otherwise, shall, except as
----------
herein expressly provided to the contrary, be applied as follows:
First: To the payment of the costs and expenses of any such sale,
-----
including compensation to Trustee and/or Beneficiary, their agents and
counsel, and of any judicial proceeding wherein the same may be made, and
of all expenses, liabilities and advances made or incurred by Trustee
and/or Beneficiary hereunder, together with interest thereon as provided
herein, and all taxes, assessments and other charges, except any taxes,
assessments or other charges subject to which the Mortgaged Property shall
have been sold.
15
<PAGE>
Second: To the payment in full of the Obligations (including interest and
------
fees) in such order as Beneficiary may elect.
Third: To the payment of any other sums secured hereunder or required to
-----
be paid by Trustor pursuant to any provision of the Transaction Documents.
Fourth: To the payment of the surplus, if any, to whomsoever may be
------
lawfully entitled to receive the same.
SECTION 4.07 Additional Provisions as to Remedies.
------------------------------------
(a) No right or remedy herein conferred upon or reserved to Trustee or
Beneficiary is intended to be exclusive of any other right or remedy, and each
and every such right or remedy shall be cumulative and continuing, shall be in
addition to every other right or remedy given hereunder, or under the other
Transaction Documents or now or hereafter existing at law or in equity, and may
be exercised from time to time and as often as may be deemed expedient by
Trustee or Beneficiary.
(b) No delay or omission by Trustee or Beneficiary to exercise any
right or remedy hereunder upon any default or Event of Default shall impair such
exercise, or be construed to be a waiver of any such default or Event of Default
or an acquiescence therein.
(c) The failure, refusal or waiver by Trustee or Beneficiary of its
right to assert any right or remedy hereunder upon any default or Event of
Default or other occurrence shall not be construed as waiving such right or
remedy upon any other or subsequent default or Event of Default or other
occurrence.
(d) Neither Trustee nor Beneficiary shall have any obligation to
pursue any rights or remedies they may have under any other agreement prior to
pursuing their rights or remedies hereunder or under the other Transaction
Documents.
(e) No recovery of any judgment by Trustee or Beneficiary and no levy
of an execution upon the Mortgaged Property or any other property of Trustor
shall affect, in any manner or to any extent, the lien of this Deed of Trust
upon the Mortgaged Property, or any liens, rights, powers or remedies of Trustee
or Beneficiary hereunder, and such liens, rights, powers and remedies shall
continue unimpaired as before.
(f) Beneficiary may resort or cause Trustee to resort to any security
given by this Deed of Trust or any other security now given or hereafter
existing to secure the Obligations, in whole or in part, in such portions and in
such order as Beneficiary may deem advisable, and no such action shall be
construed as a waiver of any of the liens, rights or benefits granted hereunder.
(g) Acceptance of any payment after the occurrence of any default or
Event of Default shall not be deemed a waiver or a cure of such default or Event
of Default, and acceptance of any payment less than any amount then due shall be
deemed an acceptance on account only.
16
<PAGE>
(h) In the event that Trustee or Beneficiary shall have proceeded to
enforce any right or remedy hereunder by foreclosure, sale, entry or otherwise,
and such proceeding shall be discontinued, abandoned or determined adversely for
any reason, then Trustor, Trustee and Beneficiary shall be restored to their
former positions and rights hereunder with respect to the Mortgaged Property,
subject to the lien hereof.
(i) In every instance when a receiver is appointed with respect to all
or any portion of the Mortgaged Property pursuant to Section 4.02(f) above or
---------------
otherwise, at Beneficiary's discretion, the receiver shall be authorized, among
other such duties and powers as may be ordered or granted by the court, to take
possession of the Mortgaged Property; to manage, control and protect the
Mortgaged Property; to collect the rents, issues, profits, revenues, earnings
and income arising therefrom, and to apply the same toward the payment of
reasonable expenses, including reasonable management and operating expenses,
taxes, assessments, utilities, mortgage payments and insurance premiums of or in
connection with the Mortgaged Property; to maintain the Mortgaged Property in a
reasonable state of repair so that there will be no excessive depreciation or
devaluation thereof arising from lack of prudent management; to enter into such
lease agreements or rental agreements with new tenants for the Mortgaged
Property as such receiver deems reasonable and prudent; to amend, extend or
renew existing leases upon such terms as such receiver deems reasonable and
prudent; to, if necessary, retain a property management firm to assist in such
duties upon such terms as such receiver deems reasonable and appropriate; and to
take such other action as is necessary in order to provide services to the
tenants under any existing or future leases or as is necessary to accomplish any
of the foregoing.
SECTION 4.08 Waiver of Rights and Defenses.
-----------------------------
To the full extent Trustor may lawfully do so, Trustor agrees with
Beneficiary as follows:
(a) Trustor will not at any time, insist on, plead, claim or take the
benefit or advantage of any statute or rule of law now or hereafter in force
providing for any appraisement, valuation, stay, extension, moratorium or
redemption, or of any statute of limitations, and Trustor, for itself and its
heirs, devises, representatives, successors and assigns, and for any and all
persons ever claiming an interest in the Mortgaged Property (other than
Beneficiary) hereby, to the extent permitted by applicable law, waives and
releases all rights of redemption, valuation, appraisement, notice of intention
to mature or declare due the whole of the Obligations, and all rights to a
marshalling of the assets of Trustor, including the Mortgaged Property, or to a
sale in inverse order of alienation, in the event of foreclosure of the liens
and security interests created hereunder; provided, however, that Trustor is not
hereby waiving any right it may have to claim that it is not in default
hereunder or under any Transaction Document.
(b) Trustor shall not have or assert any right under any statute or rule
of law pertaining to any of the matters set forth in subsection (a) of this
Section, to the administration of estates of decedents or to any other matters
whatsoever to defeat, reduce or affect any of the rights or remedies of Trustee
and Beneficiary hereunder, including the rights of Trustee and/or Beneficiary
hereunder to a sale of the Mortgaged Property for the collection of the
Obligations without any prior or different resort for collection, or to the
payment of the Obligations out of the proceeds of sale of the Mortgaged Property
in preference to any other person.
17
<PAGE>
(c) If any statute or rule of law referred to in this Section and now in
force, of which Trustor or any of its representatives, successors or assigns and
such other persons claiming any interest in the Mortgaged Property might take
advantage despite this Section, shall hereafter be repealed or cease to be in
force, such statute or rule of law shall not thereafter be deemed to preclude
the application of this Section.
(d) Trustor shall not be relieved of its obligation to pay the Obligations
at the time and in the manner provided herein and in the other Transaction
Documents, nor shall the lien or priority of this Deed of Trust or any other
Transaction Documents be impaired by any of the following actions, non-actions
or indulgences by Trustee or Beneficiary:
(i) any failure or refusal by Trustee or Beneficiary to comply with
any request by Trustor (X) to consent to any action by Trustor or (Y) to
take any action to foreclose this Deed of Trust or otherwise enforce any of
the provisions hereof or of the other Transaction Documents;
(ii) any release, regardless of consideration, of the whole or any
part of the Mortgaged Property or any other security for the Obligations,
or any person liable for payment of the Obligations;
(iii) any waiver by Beneficiary of compliance by Trustor with any
provision of this Deed of Trust or the other Transaction Documents, or
consent by Beneficiary to the performance by Trustor of any action which
would otherwise be prohibited thereunder, or to the failure by Trustor to
take any action which would otherwise be required hereunder or thereunder;
and
(iv) any agreement or stipulation between Trustee or Beneficiary and
Trustor, or, with or without Trustor's consent, between Trustee or
Beneficiary and any subsequent owner or owners of the Mortgaged Property or
any other security for these Obligations, renewing, extending or modifying
the time of payment or the terms of this Deed of Trust or any of the other
Transaction Documents (including a modification of any interest rate), and
in any such event Trustor shall continue to be obligated to pay the
Obligations at the time and in the manner provided herein and in the other
Transaction Documents, as so renewed, extended or modified, unless
expressly released and discharged by Beneficiary.
(e) Regardless of consideration, and without the necessity for any notice
to or consent by the holder of any subordinate lien, encumbrance, right, title
or interest in or to the Mortgaged Property, Beneficiary may release any person
at any time liable for the payment of the Obligations or any portion thereof or
any part of the security held for the Obligations and may extend the time of
payment or otherwise modify the terms of this Deed of Trust or of any of the
Transaction Documents, without in any manner impairing or affecting this Deed of
Trust, as so extended and modified, as security for the Obligations over any
such subordinate lien, encumbrance, right, title or interest. Beneficiary may
resort for the payment of the Obligations to any other security held by
Beneficiary (or any trustee for the benefit of Beneficiary) in such order and
manner as Beneficiary in its discretion, may elect. Beneficiary may take or
cause to be taken action to recover the Obligations, or any portion thereof, or
to enforce any provision hereof or of
18
<PAGE>
the other Transaction Documents without prejudice to the right of Beneficiary
thereafter to foreclose or cause to be foreclosed this Deed of Trust.
Beneficiary shall not be limited exclusively to the right and remedies herein
stated but shall be entitled to every additional right and remedy now or
hereafter afforded by law or equity. The rights of Trustee and Beneficiary under
this Deed of Trust shall be separate, distinct and cumulative and none shall be
given effect to the exclusion of the others. No act of Trustee and/or
Beneficiary shall be construed as an election to proceed under any one provision
herein to the exclusion of any other provision.
SECTION 4.09 Exercise by Trustee.
-------------------
Notwithstanding anything herein to the contrary, Trustee (a) shall not
exercise, or waive the exercise of, any of its rights or remedies under this
Article (other than its right to reimbursement) except upon the request of
Beneficiary, and (b) shall exercise, or waive the exercise of, any or all of
such rights or remedies upon the request of Beneficiary and at the direction of
Beneficiary as to the manner of such exercise or waiver, provided that Trustee
shall have the right to decline to follow any of such request or direction if
Trustee shall be advised by counsel that the action or proceeding, or manner
thereof, so directed may not lawfully be taken or waived.
SECTION 4.10 Rights of Beneficiary.
---------------------
Notwithstanding anything contained herein to the contrary, Beneficiary shall
not be entitled to exercise any of its remedies under Article IV hereof upon any
----------
failure by Trustor to perform any of its obligations hereunder unless and until
an Event of Default has occurred under Section 4.01 hereof.
------------
ARTICLE V.
----------
DEFEASANCE
----------
SECTION 5.01 Defeasance.
----------
If all of the Obligations shall be paid as the same become due and payable,
then and in that event only all rights hereunder shall terminate and the
Mortgaged Property shall become wholly released and cleared of the liens,
security interests, conveyances and assignments evidenced hereby, upon receipt
by Beneficiary of payment of all Obligations secured hereby. In such event
Trustee shall at the request of the Trustor, promptly deliver to Trustor, in
recordable form, all such documents as shall be necessary to release the
Mortgaged Property from the liens, security interests, conveyances and
assignments created or evidenced hereby. Notwithstanding anything in the
preceding sentence to the contrary, Trustee shall so release the Mortgaged
Property only upon the direction of Beneficiary.
ARTICLE VI
----------
ADDITIONAL PROVISIONS
---------------------
SECTION 6.01 Provisions as to Payments, Advances.
-----------------------------------
(a) To the extent that any part of the Obligations is used to pay
indebtedness secured by any outstanding lien, security interest, charge or
encumbrance against the Mortgaged Property that is superior to this Deed of
Trust, or to pay in whole or in part the purchase price therefor, Trustee and
Beneficiary shall be subrogated to any and all rights, security interests and
19
<PAGE>
liens held by any owner or holder of the same, whether or not the same are
released. Trustor agrees that, in consideration of such payment by Trustee or
Beneficiary, effective upon such payment Trustor shall and hereby does waive and
release all demands, defenses and causes of action for offsets and payments with
respect to the same.
(b) Any payment made under this Deed of Trust by any person at any time
liable for the payment of the Obligations, or by any subsequent owner of the
Mortgaged Property or by any person or entity that might be prejudiced in the
event of a failure to make such payment, or by any partner, stockholder, officer
or director thereof, shall be deemed, as between Trustee or Beneficiary and all
such persons, to have been made on behalf of all such persons.
SECTION 6.02 Usury Savings Clause.
--------------------
All agreements in this Deed of Trust and in the other Transaction Documents
are expressly limited so that in no contingency or event whatsoever, whether by
reason of advancement or acceleration of maturity of the Obligations, or
otherwise, shall the amount paid or agreed to be paid hereunder for the use,
forbearance or detention of money exceed the highest lawful rate permitted under
applicable usury laws, if any. If, from any circumstance whatsoever,
fulfillment of any provision of the Transaction Documents, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law which a court of competent jurisdiction may deem
applicable hereto, then, ipso facto, the obligation to be fulfilled shall be
---- -----
reduced to the limit of such validity and if, from any circumstance whatsoever,
Beneficiary shall ever receive as interest an amount which would exceed the
highest lawful rate, the receipt of such excess shall be deemed a mistake and
shall be cancelled automatically or, if theretofore paid, such excess shall be
credited against the Obligations to which the same may lawfully be credited, and
any portion of such excess not capable of being so credited shall be rebated to
Trustor.
SECTION 6.03 Separability.
------------
If all or any portion of any provision of this Deed of Trust or the other
Transaction Documents shall be held to be invalid, illegal or unenforceable in
any respect, then such invalidity, illegality or unenforceability shall not
affect any other provision hereof or thereof, and such provision shall be
limited and construed in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion thereof were not contained herein or therein.
SECTION 6.04 Notices.
-------
Each notice shall be in writing and shall be sent by personal delivery,
overnight courier (charges prepaid or billed to the sender) or by the deposit of
such with the United States Postal Service, or any official successor thereto,
designated as registered or certified mail, return receipt requested, bearing
adequate postage and in each case addressed as provided below in this paragraph.
Each notice shall be effective upon being personally delivered or actually
received. The time period in which a response to any such notice must be given
or any action taken with respect thereto shall commence to run from the date of
personal delivery or receipt of the notice by the addressee thereof, as
reflected on the return receipt of the notice. Rejection or other refusal to
accept shall be deemed to be receipt of the notice sent. By giving to the other
party at least thirty (30) days prior notice thereof, either party to the Master
Lease shall have the right from time to time to change the address(es) thereof
and to specify as the address(es) thereof any other address(es) within the
continental United States of America.
20
<PAGE>
(a) If to Trustor:
Ascend Communications, Inc.
1725 Harbor Bay Parkway
Alameda, CA 94502
Attention: Michael J. Johnson
With a copy to:
--------------
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: James Anderson, Esq.
(b) If to Beneficiary:
Sumitomo Bank Leasing and Finance Inc.
277 Park Avenue
New York, NY 10172
Attn: Chief Credit Officer
With a copy to:
--------------
Graham & James LLP
One Maritime Plaza, Suite 300
San Francisco, CA 94111
Attention: Bruce W. Hyman, Esq.
21
<PAGE>
SECTION 6.05 No Merger.
---------
If both the lessor's and the lessee's interest under the Master Lease or any
other lease shall at any time become vested in any one person, this Deed of
Trust and the lien and security interest created hereby shall not be destroyed
or terminated by the application of the doctrine of merger and, in such event,
Trustee and Beneficiary shall continue to have and enjoy all of the rights and
privileges of Trustee and Beneficiary hereunder as to each separate estate.
SECTION 6.06 Applicable Law.
--------------
This Deed of Trust shall be governed by, and construed in accordance with, the
law of the State of California.
SECTION 6.07 Provisions as to Covenants and Agreements.
-----------------------------------------
All of Trustor's covenants and agreements hereunder shall run with the land
and time is of the essence with respect thereto.
SECTION 6.08 Matters to be in Writing.
------------------------
This Deed of Trust cannot be altered, amended, modified, terminated or
discharged except in a writing signed by the party against whom enforcement of
such alteration, amendment, modification, termination or discharge is sought.
No waiver, release or other forbearance by Trustee or Beneficiary will be
effective against Trustee or Beneficiary unless it is in a writing signed by
Beneficiary, and then only to the extent expressly stated.
SECTION 6.09 Construction of Provisions.
--------------------------
The following rules of construction shall be applicable for all purposes of
this Deed of Trust and all documents or instruments supplemental hereto, unless
the context otherwise requires:
(a) All references herein to numbered Articles or Sections or to lettered
Exhibits are references to the Articles and Sections hereof and the Exhibits
annexed to this Deed of Trust, unless expressly otherwise designated in context.
(b) The terms "include", "including" and similar terms shall be construed
as if followed by the phrase "without being limited to."
(c) The term "knowledge" or "to best of knowledge" when and if used in
connection with a representation or warranty made by Trustor means that Trustor
and/or the representatives of Trustor have interviewed such persons,
representatives, and responsible employees of Trustor, of the constituent
general partners of Trustor and of the constituent general partners of such
general partners, as may be applicable, as such representatives have determined
are likely, in the ordinary course of their respective duties, to have knowledge
of the matters set forth herein.
(d) The terms "Mortgaged Property" and "Premises" shall be construed as
if followed by the phrase "or any part thereof."
(e) The term "Obligations" shall be construed as if followed by the
phrase "or any other sums secured hereby, or any part thereof."
22
<PAGE>
(f) Words of masculine, feminine or neuter gender shall mean and include
the correlative words of the other genders, and words importing the singular
number shall mean and include the plural number, and vice versa.
---- -----
(g) The term "person" shall include natural persons, firms, partnerships,
corporations and any other public and private legal entities.
(h) The term "provisions," when used with respect hereto or to any other
document or instrument, shall be construed as if preceded by the phrase "terms,
covenants, agreements, requirements, conditions and/or."
(i) All Article, Section and Exhibit captions herein are used for
convenience and reference only and in no way define, limit or describe the scope
or intent of, or in any way affect, this Deed of Trust.
(j) The cover page of and all recitals set forth in, and all Exhibits to,
this Deed of Trust are hereby incorporated in this Deed of Trust.
(k) All obligations of Trustor hereunder shall be performed and satisfied
by or on behalf of Trustor at Trustor's sole cost and expense.
(l) The term "Lease" shall mean "tenancy, subtenancy, lease or sublease,"
the term "lessor" shall mean "landlord, sublandlord, owner, lessor and
sublessor" and the terms "lessee" or "tenant" shall mean "tenant, subtenant,
lessee and sublessee."
SECTION 6.10 Successors and Assigns.
----------------------
The provisions hereof shall be binding upon Trustor and the heirs, devises,
representatives, successors and assigns of Trustor, including successors in
interest of Trustor, in and to all or any part of the Mortgaged Property, and
shall inure to the benefit of Trustee, Beneficiary and their respective heirs,
successors, substitutes and assigns. All references in this Deed of Trust to
Trustor, Trustee or Beneficiary shall be construed as including all of such
other persons with respect to the person referred to. Where two or more persons
have executed this Deed of Trust, the obligations of such persons shall be joint
and several except to the extent the context clearly indicates otherwise.
SECTION 6.11 Request for Notice.
------------------
Pursuant to California Government Code Section 27321.5(b), Trustor hereby
requests that a copy of any notice of default and a copy of any notice of sale
given pursuant to this Deed of Trust be mailed to Trustor at the address set
forth herein above.
SECTION 6.12 Fixture Filing.
--------------
Portions of the Mortgaged Property are goods which are or are to become
fixtures relating to the Land and/or the Premises, and Trustor covenants and
agrees that the filing of this Deed of Trust in the real estate records of the
county where the Premises are located shall also operate from the time of filing
as a fixture filing in accordance with Section 9313 of the California Uniform
Commercial Code.
23
<PAGE>
SECTION 6.13 Entire Agreement.
----------------
This Deed of Trust together with the related Transaction Documents contains
the entire agreement between Trustor, Beneficiary and Trustee with regard to the
rights and obligations of the Trustor, Beneficiary and Trustee in connection
with the financing transaction contemplated herein.
SECTION 6.14 Lien Waiver.
-----------
Beneficiary shall consent to the granting of lien waivers on all equipment
leased by Trustor in form and substance satisfactory to Beneficiary.
ARTICLE VII
-----------
PROVISIONS AS TO TRUSTEE
------------------------
SECTION 7.01 Trustee's Appointment.
---------------------
Trustee accepts this Trust when this Deed of Trust, duly executed and
acknowledged, is made public record as provided by law. Trustee may resign by
an instrument in writing addressed to Beneficiary, or Trustee may be removed at
any time with or without cause by an instrument in writing executed by
Beneficiary and duly recorded. In case of the death, resignation, removal or
disqualification of Trustee or if for any reason Beneficiary shall deem it
desirable to appoint a substitute or successor trustee to act instead of Trustee
herein named or any substitute or successor Trustee, then Beneficiary shall have
the right and is hereby authorized and empowered to appoint a successor Trustee,
or a substitute Trustee, without other formality than appointment and
designation in writing executed and acknowledged by Beneficiary and the
recordation of such writing in the office where this Deed of Trust is recorded,
and the authority hereby conferred shall extend to the appointment of other
successor and substitute Trustees successively until the Obligations are paid in
full or until the Mortgaged Property are sold hereunder. Such appointment and
designation by Beneficiary shall be full evidence of the right and authority to
make the same and of all facts therein recited. If such appointment is executed
on behalf of Beneficiary by an officer of Beneficiary, such appointment shall be
conclusively presumed to be executed with authority and shall be valid and
sufficient without proof of any action by the Trustee or any superior officer of
Beneficiary. Upon the making of such appointment and designation, all of the
estate and title of Trustee in the Mortgaged Property shall vest in the named
successor or substitute Trustee and it shall thereupon succeed to and shall
hold, possess and execute all the rights, powers, privileges, immunities and
duties herein conferred upon Trustee; but, nevertheless, upon the written
request of Beneficiary or of the successor or substitute Trustee, Trustee
ceasing to act shall execute and deliver an instrument transferring to such
successor or substitute Trustee all of the estate and title in the Mortgaged
Property of Trustee so ceasing to act, together with all the rights, powers,
privileges, immunities and duties herein conferred upon Trustee, and shall duly
assign, transfer and deliver any of the properties and moneys held by said
Trustee hereunder to said successor or substitute Trustee. All references
herein to Trustee shall be deemed to refer to Trustee (including any successor
or substitute, appointed and designated, as herein provided) from time to time
acting hereunder. Trustor hereby ratifies and confirms any and all acts which
Trustee herein named or its successor or successors, substitute or substitutes,
in this Deed of Trust, shall do lawfully by virtue hereof.
24
<PAGE>
ARTICLE VIII
------------
SPECIAL PROVISIONS
------------------
SECTION 8.01 Subordination.
-------------
Provided no Event of Default has occurred and is continuing and no event has
occurred which would constitute an Event of Default but for the passage of time
or the giving of notice, or both, Beneficiary agrees to subordinate the lien of
this Deed of Trust to any easements created by Trustor under Section 23.1 of the
------------
Master Lease, provided Trustor reimburses Beneficiary for all costs and expenses
incurred in connection therewith.
[Signatures begin on next page.]
25
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Deed of Trust the
day first set forth above.
"Trustor"
ASCEND COMMUNICATIONS, INC.,
a Delaware corporation
By: ____________________________
Its: ___________________________
By: ____________________________
Its: ___________________________
[All Signatures must be acknowledged]
26
<PAGE>
Exhibit "A"
-----------
LEGAL DESCRIPTION
The land is situated in the State of California, City and County of Alameda, and
is described as follows:
[to be attached]
27
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
On the __ day of ___________, 1998, before me, the undersigned, a Notary
Public in and for said State, personally appeared _______________ and
____________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the
within instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signature(s)
on the instrument the person(s) or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------
Notary Public
(SEAL)
<PAGE>
TABLE OF CONTENTS
-----------------
GRANTING CLAUSES
GRANTING CLAUSE FIRST
Land........................................................................ 2
GRANTING CLAUSE SECOND
Improvements................................................................ 2
GRANTING CLAUSE THIRD
Equipment................................................................... 3
GRANTING CLAUSE FOURTH
Leasehold and Other Contractual Interests................................... 3
GRANTING CLAUSE SIXTH
Proceeds and Awards......................................................... 4
ARTICLE I
COVENANTS OF TRUSTOR
SECTION 1.01 Insurance.................................................... 5
(a) Casualty Insurance.................................................. 5
SECTION 1.02 Damage and Destruction...................................... 5
(a) Trustor's Obligations............................................... 5
(b) Beneficiary's Rights; Application of Proceeds....................... 5
(c) Effect on the Indebtedness.......................................... 6
SECTION 1.03 Condemnation................................................ 6
(a) Trustor's Obligations; Proceedings.................................. 6
(b) Beneficiary's Rights to Proceeds.................................... 6
(c) Application of Proceeds - Total Taking.............................. 6
(d) Application of Proceeds - Partial Taking............................ 7
(e) Right to Participate................................................ 8
(f) Effect on the Obligations........................................... 8
ARTICLE II.
ASSIGNMENT OF RENTS AND OTHER SUMS
SECTION 2.01 Assignment.................................................. 8
ARTICLE III.
ADDITIONAL ADVANCES; EXPENSES; INDEMNITY
SECTION 3.01 Additional Advances and Disbursements....................... 8
SECTION 3.02 Other Expenses.............................................. 9
SECTION 3.03 Indemnity................................................... 9
i
<PAGE>
ARTICLE IV
DEFAULTS AND REMEDIES
SECTION 4.01 Events of Default.......................................... 10
SECTION 4.02 Remedies................................................... 10
SECTION 4.03 Trustor's Personal Property and Trade Fixtures............. 13
SECTION 4.04 Expenses................................................... 13
SECTION 4.05 Rights Pertaining to Sales................................. 13
SECTION 4.06 Application of Proceeds.................................... 15
SECTION 4.07 Additional Provisions as to Remedies....................... 16
SECTION 4.08 Waiver of Rights and Defenses.............................. 17
SECTION 4.09 Exercise by Trustee........................................ 19
SECTION 4.10 Rights of Beneficiary...................................... 19
ARTICLE V.
DEFEASANCE
SECTION 5.01 Defeasance................................................. 19
ARTICLE VI
ADDITIONAL PROVISIONS
SECTION 6.01 Provisions as to Payments, Advances........................ 19
SECTION 6.02 Usury Savings Clause....................................... 20
SECTION 6.03 Separability............................................... 20
SECTION 6.04 Notices.................................................... 20
SECTION 6.05 No Merger.................................................. 22
SECTION 6.06 Applicable Law............................................. 22
SECTION 6.07 Provisions as to Covenants and Agreements.................. 22
SECTION 6.08 Matters to be in Writing................................... 22
SECTION 6.09 Construction of Provisions................................. 22
SECTION 6.10 Successors and Assigns..................................... 23
SECTION 6.11 Request for Notice......................................... 23
SECTION 6.12 Fixture Filing............................................. 23
SECTION 6.13 Entire Agreement........................................... 24
SECTION 6.14 Lien Waiver................................................ 24
ARTICLE VII
PROVISIONS AS TO TRUSTEE
SECTION 7.01 Trustee's Appointment...................................... 24
ARTICLE VIII
SPECIAL PROVISIONS
SECTION 8.01 Subordination.............................................. 25
ii
<PAGE>
Prepared By
And
When Recorded Return To:
Sumitomo Bank Leasing and Finance, Inc.
c/o Graham & James LLP
One Maritime Plaza
Suite 300
San Francisco, California 94111-3492
Attention: Bruce W. Hyman, Esq.
FIRST AMENDMENT TO
------------------
DEED OF TRUST, FINANCING STATEMENT, SECURITY AGREEMENT
------------------------------------------------------
AND FIXTURE FILING (WITH ASSIGNMENT OF RENTS AND LEASES)
--------------------------------------------------------
THIS FIRST AMENDMENT TO DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE
FILING (WITH ASSIGNMENT OF RENTS AND LEASES (the "Amendment") is made and
entered into as of March ___, 1998, by and between SUMITOMO BANK LEASING AND
FINANCE, INC., a Delaware corporation ("Beneficiary"), and ASCEND
COMMUNICATIONS, INC., a Delaware corporation ("Trustor ").
Recitals:
A. Trustor executed and delivered that certain Deed of Trust, Financing
Statement, Security Agreement and Fixture Filing (with Assignment of Rents and
Leases) dated as of March 27, 1996, to Stewart Title of California ("Trustee"),
for the benefit Beneficiary, recorded March 27, 1996 in Official Records of
Alameda County, California, as Instrument No. 96075808 (the "Deed of Trust"),
under which Deed of Trust Trustor assigned to Trustee, as security and
collateral for the Obligations more particularly described therein, for the
benefit of the Beneficiary all of Trustor's rights, interests, and privileges in
and to that certain real property situated in Alameda County, California, and
described in Exhibit A attached hereto (the "Parcel").
---------
B. Beneficiary and Trustor have agreed to amend the Deed of Trust as set
forth below.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereby agree as follows:
1. Recitals. The recitals set forth above are true and correct and are
--------
incorporated herein by this reference.
1
<PAGE>
2. Counterparts; Capitalized Terms. This Amendment may be executed in any
-------------------------------
number of counterparts, each of which shall be deemed to be an original and all
of which together shall comprise but a single instrument. All capitalized terms
used but not defined herein shall have the meaning ascribed to such terms in the
Deed of Trust.
3. Amendments. The Deed of Trust is hereby amended as follows:
----------
(a) Paragraphs 1 and 2, on page 1 of the Deed of Trust are hereby deleted
and replaced with the following paragraphs:
"WHEREAS, Beneficiary is the owner of the land more particularly described in
Exhibit A attached hereto and has previously entered into an Amended and
- ---------
Restated Master Lease dated March __, 1998 (the "Amended and Restated Master
Lease") and Lease Supplement No. 1 for Construction (the "Lease Supplement No.
1") with Trustor, for the purpose of constructing Improvements (as defined in
Granting Clause Second below) on the Mortgaged Property (as defined below) and
leasing such land and Improvements to Trustor (hereinafter the Amended and
Restated Master Lease and Lease Supplement No. 1 are collectively referred to
as, the "Master Lease").
WHEREAS, The total indebtedness and liabilities that are to be secured by this
Deed of Trust shall be as follows:
(i) all amounts payable by Trustor under and in connection with the Master
Lease and under any other document or instrument executed by Trustor,
securing, evidencing or relating to the Master Lease or any of the security
therefor (the Master Lease and such other documents and instruments being
hereinafter collectively referred to as the "Transaction Documents"), in
each case as the same may be modified, amended, or supplemented from time
to time including but not limited to Base Rent and Additional Rent, as
defined in the Master Lease, all sums Beneficiary may advance, pay or incur
under or in connection with the Master Lease or any other sums advanced by
Trustee or Beneficiary for the benefit of Trustor under the Master Lease;
and
(ii) all amounts payable by Trustor, under or in connection with this Deed
of Trust, as the same may be amended, modified or supplemented from time to
time, including all sums, amounts and expenses which Trustee or Beneficiary
may advance, pay or incur in connection with or any other sums advanced by
Trustee or Beneficiary for the benefit of Trustor; and
(iii) any other indebtedness, obligation or agreement of Trustor when
evidenced or set forth in a document or instrument executed by Trustor
reciting that it is secured by this Deed of Trust;
(all such amounts, obligations and liabilities described in (i) through (iii)
being hereinafter collectively referred to as the "Obligations")."
2
<PAGE>
4. Representations and Warranties. Trustor represents and warrants (1)
------------------------------
that no Event of Default exists under the Deed of Trust as of the date hereof;
(2) Trustor has the full right and authority to enter into this Amendment and
the persons signing this Amendment have full power and authority to bind
Trustor; (3) the Deed of Trust has not been amended except as set forth in this
Amendment; and (4) there has been no prior pledge or assignment by Trustor of
the Deed of Trust.
5. Existing Deed of Trust. Except to the extent specifically amended
----------------------
hereby, all terms and conditions of the Deed of Trust, as assigned by the
Assignment, remain in full force and effect.
[Signatures begin on next page.]
3
<PAGE>
IN WITNESS WHEREOF, Trustor and Beneficiary have executed this Amendment
as of the date and year first written above.
"TRUSTOR "
ASCEND COMMUNICATIONS, INC., a Delaware
corporation
By: ____________________________
Name: _____________________
Its: ______________________
(Signatures continue on next page)
(All signatures must be acknowledged)
4
<PAGE>
"BENEFICIARY"
SUMITOMO BANK LEASING AND FINANCE, INC., a
Delaware corporation
By: ____________________________
Name: _____________________
Its: ______________________
(Signatures continued on next page)
5
<PAGE>
Exhibit A
---------
LEGAL DESCRIPTION
[To be attached]
<PAGE>
ASCEND COMMUNICATIONS, INC.,
a Delaware corporation ("Debtor")
EXHIBIT A
Item No. 4 (Cont'd)
All buildings, structures, facilities, landscaping and other improvements
now or hereafter located on the Land, and all building material, building
equipment, supplies and fixtures of every kind and nature now or hereafter
located on the Land more particularly described on Schedule "1" attached hereto
------------
(the "Land") or attached to, contained in or used in connection with any such
buildings, structures, facilities, landscaping or other improvements, and all
appurtenances and additions thereto and betterments, renewals, substitutions and
replacements thereof, (all of the foregoing hereinafter collectively referred to
as the "Improvements").
To the extent that the same are not Improvements, all machinery, apparatus,
goods, equipment, materials, building materials, fittings, chattels and tangible
personal property, and all appurtenances and additions thereto and betterments,
renewals, substitutions and replacements thereof, but only to the extent now or
hereafter located on, attached to, contained in or used or usable in connection
with the properties referred to herein, or placed on any part thereof, though
not attached thereto, (all of the foregoing hereinafter collectively referred to
as the "Equipment"), including without limitation all screens, awnings, shades,
blinds, curtains, draperies, carpeting, heating, lighting, air conditioning,
refrigerating, incinerating and/or compacting plants, hoists, sprinkler systems
and other fire prevention and extinguishing apparatus and materials, pipes,
ducts, conduits, dynamos, compressors, generators, boilers, stokers, furnaces,
pumps, tanks, (the Land, the Improvements and the Equipment hereinafter
collectively referred to as the "Parcel"); all contract rights of Debtor in
construction contracts, plans and specifications, and architects' agreements
arising out of the improvements of the Parcel, all permits, licenses,
franchises, certificates and other rights and privileges required for the use
and occupancy of the Parcel; all names under which the Land and Improvements may
at any time be operated or known (provided that nothing herein shall give
Secured Party the right to use the name or any derivative of the name of Debtor
without the consent of Debtor), and all proceeds, substitutions and replacements
of all of the foregoing.
The Amended and Restated Master Lease by and between Debtor and Secured
Party and all of rights of Debtor therein, and any and all other leases,
subleases, lettings and licenses of, and all other contracts, bonds and
agreements relating to the use or occupancy of the Parcel, or any part thereof,
now or hereafter entered into, and all amendments, modifications, supplements,
additions, extensions and renewals thereof (all of the foregoing hereinafter
collectively called the "Leases"), and all right, title and interest of Debtor
thereunder, including cash and securities deposited thereunder and any rights of
first refusal with respect thereto (as down payments, security deposits, or
otherwise), the right to receive and collect the rents, security deposits,
income, proceeds, earnings, royalties, revenues, issues and profits payable
thereunder and the right to enforce, whether at law or in equity or by any other
means, all provisions and options thereof or thereunder (all of the foregoing
hereinafter collectively called the "Rents"), and the
1
<PAGE>
right to apply the same to the payment and performance of the Obligations
(defined in the Deed of Trust by and between Debtor and Secured Party).
All unearned premiums, accrued, accruing or to accrue under insurance
policies now or hereafter obtained by Debtor, all proceeds (including funds,
accounts, deposits, instruments, general intangibles, notes or chattel paper) of
the conversion, voluntary or involuntary, of any of the property described in
this Item No. 4 into cash or other liquidated claims, including proceeds of
hazard, title and other insurance and proceeds received pursuant to any sales or
rental agreements of Debtor in respect of the property described in this Item
No. 4, and all judgments, damages, awards, settlements and compensation
(including interest thereon) heretofore or hereafter made to the present and all
subsequent owners of the Parcel and/or any other property or rights conveyed or
encumbered hereby for any injury to or decrease in the value thereof for any
reason, or by any governmental or other lawful authority for the taking by
eminent domain, condemnation or otherwise of all or any part thereof, including
awards for any change of grade of streets.
Notwithstanding anything to the contrary in this financing statement, this
financing statement shall not cover Debtor's machinery, apparatus, goods,
equipment, materials, building materials, fittings, chattels, tangible personal
property, general intangibles, money, documents, instruments, trade fixtures,
furniture, furnishings, inventory, accounts, records, books, motors, hoists,
stoves, ranges, vacuum and other cleaning systems, engines, appliances, carpets,
rugs, vehicles, contracts rights, license rights, goodwill, trademarks,
copyrights, trade secrets, servicemarks, trade styles, trade names, patents,
patent applications, leases, license agreements, franchise agreements,
blueprints, drawings, plans, diagrams, sketches, models, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, computer hardware systems, processes, literature,
reports, catalogs, design rights, royalties or any other item of personal
property now or hereafter installed or used by Debtor in the Parcel, except to
the extent such items are essential to the use and occupancy of the Parcel by a
third-party without regard to the particular use such third-party would make of
the Parcel.
2
<PAGE>
EXHIBIT B
ASCEND COMMUNICATIONS, INC.,
a Delaware corporation ("Debtor")
Item No. 6
Signature of Debtor
"Debtor"
ASCEND COMMUNICATIONS, INC., a Delaware
corporation
By:
____________________________________
Its:
___________________________________
3
<PAGE>
SCHEDULE 1
----------
All that real property situated in the City of Alameda, County of Alameda, State
of California, described as follows:
[to be attached]
4
<PAGE>
EXHIBIT 10.22
FORM OF CHANGE IN CONTROL AGREEMENT FOR CEO AND EXECUTIVE VICE PRESIDENTS
CHANGE IN CONTROL AGREEMENT
This Change In Control Agreement (the "Agreement") is made and entered into
as of March 3, 1998 (the "Effective Date"), by and between Ascend
Communications, Inc., a Delaware corporation (the "Company") and
_______________________________ ("Executive").
RECITALS
--------
The Company recognizes that the possibility of a change of control or other
event which may change the nature and structure of the Company and that
uncertainty regarding the consequences of such events may adversely affect the
Company's ability to retain its key employees. The Company also recognizes that
Executive possesses an intimate and essential knowledge of the Company upon
which the Company may need to draw for objective advice and continued services
in connection with any acquisition of the Company or other change of control
that is potentially advantageous to the Company's stockholders. The Company
believes that the existence of this Agreement will serve as an incentive to
Executive to remain in the employ of the Company and will enhance its ability to
call on and rely upon Executive in connection with a change of control.
The Company and Executive desire to enter into this Agreement in order to
provide additional compensation and benefits to Executive and to encourage
Executive to continue to devote his full attention and dedication to the Company
and to continue his employment with the Company.
1. Definitions. As used in this Agreement, unless the context requires
-----------
a different meaning, the following terms shall have the meanings set forth
herein:
1.1. "Cause" means:
-----
1.1.1. Theft, a material act of dishonesty, fraud, the
intentional falsification of any employment or Company records or the commission
of any criminal act which impairs Executive's ability to perform his/her duties
under this Agreement;
1.1.2. Improper disclosure of the Company's confidential,
business or proprietary information by Executive;
1
<PAGE>
1.1.3. Executive's conviction (including any plea of guilty
or nolo contendere) for a felony causing material harm to the reputation and
standing of the Company, as determined by the Company in good faith.
1.2. "Change of Control" means:
-----------------
1.2.1. Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than a trustee or other fiduciary holding securities of the
Company under an employee benefit plan of the Company, becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company representing 55% or more of (A) the
outstanding shares of common stock of the Company or (B) the combined voting
power of the Company's then-outstanding securities;
1.2.2. The Company is party to a merger, consolidation,
sales of assets or other reorganization where the acquirer obtains 55% or more
of (A) the outstanding shares of common stock of the Company or (B) the
combined voting power of the Company's then outstanding securities; as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the
Board of Directors thereafter.
1.3. "Constructive Termination" means the occurrence of any of the
------------------------
following conditions, without Executive's written consent:
1.3.1. A material decrease in Executive's base salary and/or
a material decrease in Executive's annual incentive bonus amount (other than for
Company performance) and/or a material decrease in Executive's employee
benefits; or
1.3.2. A material, adverse change in the responsibilities or
duties assigned to Executive, as measured against Executive's responsibilities
or duties immediately prior to such change, that causes Executive to be of
materially reduced stature or responsibility; or
1.3.3. A material, adverse change in Executive's reporting
responsibilities or duties, as measured against Executive's reporting
responsibilities or duties immediately prior to such change, that severely
curtails Executive's ability to perform the services required of Executive's
position; or
1.3.4. The permanent non-voluntary relocation of Executive's
work place for the Company to a location more than 35 miles from the Executive's
current principal place of performance of services for the Company.
1.4. "Permanent Disability" means that:
--------------------
1.4.1. Executive has been incapacitated by bodily injury or
disease so as to be prevented thereby from engaging in the performance of
Executive's duties;
2
<PAGE>
1.4.2. Such total incapacity shall have continued for a
period of six consecutive months; and
1.4.3. Such incapacity will, in the opinion of a qualified
physician, be permanent and continuous during the remainder of Executive's life.
1.5. "Termination Upon a Change of Control" means:
------------------------------------
1.5.1. Any termination of the employment of Executive by the
Company without Cause during the period commencing thirty (30) days prior to the
date of the Company's first public announcement that the Company has entered
into a definitive agreement that would result in a Change of Control (even
though still subject to approval by the Company's stockholders and other
conditions and contingencies) and ending on the date which is twelve (12) months
immediately after the date of the Change of Control; or
1.5.2. Any resignation by Executive upon the occurrence of a
Constructive Termination within the twelve (12) months immediately after the
date of any Change of Control.
1.5.3. "Termination Upon Change of Control" shall not include
any termination of Executive's employment (a) by the Company for Cause; (b) by
the Company as a result of the Executive's Permanent Disability; (c) as a result
of Executive's death; or (d) as a result of the voluntary termination of
employment by Executive for a reason other than Constructive Termination.
2. Position and Duties. Executive shall continue to be an at-will
-------------------
employee of the Company employed in his/her current position at his/her then
current salary rate. Executive shall also be entitled to continue to participate
in and to receive benefits on the same basis as other executive or senior staff
members under any of the Company's employee benefit plans as in effect from time
to time. In addition, Executive shall be entitled to the benefits afforded to
other employees similarly situated under the Company's vacation, holiday and
business expense reimbursement policies. Executive agrees to devote his/her full
business time, energy and skill to his/her duties at the Company. These duties
shall include, but not be limited to, any duties consistent with Executive's
position which may be assigned to Executive from time to time.
3. Option Vesting Upon Change of Control
-------------------------------------
3.1. All stock options granted by the Company and restricted stock
issued by the Company to Executive prior to the Change of Control, to the extent
such stock options and restricted stock remain outstanding and unexercised at
the time of such Change of Control, shall have their vesting accelerated as to
one year's additional vesting effective upon the Change of Control.
3
<PAGE>
4. Termination Upon Change of Control.
----------------------------------
4.1. In the event of Executive's Termination Upon Change of
Control, Executive shall be entitled to the following severance benefits:
4.1.1. Executive shall be entitled to receive all salary,
accrued vacation earned through the date of Executive's termination and
Executive's annual incentive bonus for the year in which termination occurs, pro
rated through the date of Executive's termination, all less applicable
withholding;
4.1.2. Executive shall be entitled to receive an additional
eighteen months' of Executive's base salary as in effect on the date of such
termination, plus an additional amount equal to 100% of Executive's annual
incentive bonus for the year in which the termination occurs, all less
applicable withholding, paid in a lump sum within thirty (30) days of
termination of employment;
4.1.3. Executive shall be entitled to receive reimbursement
for all expenses that Executive reasonably and necessarily incurred by Executive
in connection with the business of the Company prior to Executive's termination
of employment, within ten (10) days of submission of proper expense reports by
Executive;
4.1.4. Executive and/or Executive's dependents shall be
entitled to elect continued group health plan coverage in accordance with the
applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and the Health Insurance Portability and Accountability Act of
1996 ("HIPAA"). The Company will pay the full premium for continuation coverage
for Executive and/or Executive's dependents for a period of 12 months following
the date of Executive's Termination Upon Change of Control. Notwithstanding the
above, Company shall cease providing continued group health plan coverage for
Executive and/or Executive's dependents in the event that, at any juncture
during the period of continuation coverage provided for herein, Executive and/or
Executive's dependents become(s) covered under another employer's group health
plan that (i) has no preexisting condition exclusions or (ii) has a preexisting
condition exclusion that does not apply to Executive and/or Executive's
dependents or is satisfied by the creditable coverage of Executive and/or
Executive's dependents in accordance with HIPAA;
4.1.5. Executive payments received under this Section 4 shall
be entitled to receive the benefits, if any, under the Company's 401(k) Plan,
qualified deferred compensation plan, employee stock purchase plan and other
Company benefit plans to which he may be entitled pursuant to the terms of such
plans; and
4.1.6. Executive shall be entitled to receive outplacement
services and Career Counseling at the Company's expense for a period of 12months
after the date of the Termination Upon Change of Control.
5. 280G. If, due to the benefits provided under this Agreement,
----
Executive is subject to any excise tax due to characterization of any amounts
payable hereunder as excess parachute
4
<PAGE>
payments pursuant to Section 4999 of the Internal Revenue Code, the Company
agrees to reimburse Executive for the amount of such excise tax; provided,
however, that, no reimbursement shall be made for any excise tax payable with
respect to the reimbursement made pursuant to this section 5. The excise tax
reimbursement made pursuant to this section 5 shall be subject to all applicable
withholding. The foregoing shall be conditioned upon Executive cooperating with
the Company in such manner as may be reasonably requested (other than reducing
amounts payable hereunder) so as to minimize the amount of such excise tax.
Unless the Company and Executive otherwise agree in writing, any determination
required under this Section 5 shall be made in writing by independent public
accountants agreed to by the Company and Executive (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Company for
all purposes. For purposes of making the calculations required by this Section
5, the Accountants may rely on reasonable, good faith interpretations concerning
the application of Sections 280G and 4999 of the Code. The Company and Executive
shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
Section 5. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this Section 5.
6. Exclusive Remedy. Under any claim for breach of this Agreement or
----------------
wrongful termination, the payments and benefits provided for in Sections 3, 4
and 5 shall constitute Executive's sole and exclusive remedy for any alleged
injury or other damages arising out of the cessation of the employment
relationship between Executive and the Company in the event of Executive's
termination. Except as expressly set forth herein, Executive shall be entitled
to no other compensation, benefits, or other payments from the Company as a
result of any termination of employment with respect to which the payments
and/or benefits described in Sections 3, 4 and 5 have been provided to
Executive.
7. Proprietary and Confidential Information. Executive agrees to
----------------------------------------
continue to abide by the terms and conditions of the Company's confidentiality
and/or proprietary rights agreement between Executive and the Company.
8. Conflict of Interest. Executive agrees that for a period of one (1)
--------------------
year after termination of his/her employment with the Company, he/she will not,
directly or indirectly, solicit the services of or in any other manner persuade
employee or customers of the Company to discontinue that person's or entity's
relationship with or to the Company as an employee or customer, as the case may
be.
9. Arbitration. Any claim, dispute or controversy arising out of this
-----------
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration by the American Arbitration Association in San Mateo County or Santa
Clara County, California and/or Middlesex County in Massachusetts; provided,
however, that this arbitration provision shall not preclude the Company from
seeking injunctive relief from any court having jurisdiction with respect to any
disputes or claims relating to or arising out of the misuse or misappropriation
of the Company's trade secrets or confidential and proprietary information.
Both parties hereby waive any right to a jury trial to resolve such
5
<PAGE>
claims, disputes, or controversies. All costs and expenses of arbitration or
litigation, including but not limited to attorneys fees and other costs
reasonably incurred by Executive, shall be paid by the Company. Judgment may be
entered on the award of the arbitration in any court having jurisdiction.
10. Interpretation. Executive and the Company agree that this Change in
--------------
Control Agreement shall be interpreted in accordance with and governed by the
laws of the State of California.
11. Conflict in Benefits. This Agreement shall supersede all prior
--------------------
arrangements, whether written or oral, and understandings regarding the subject
matter of this Agreement and shall be the exclusive agreement for the
determination of any payments and accelerated option vesting due upon
Executive's termination of employment upon a Change of Control; provided,
however, that this Agreement is not intended to and shall not affect, limit or
terminate (i) any plans, programs, or arrangements of the Company that are
regularly made available to a significant number of employees of the Company,
(ii) any agreement or arrangement with Executive that has been reduced to
writing and which does not relate to the subject matter hereof, or (iii) any
agreements or arrangements hereafter entered into by the parties in writing,
except as otherwise expressly provided herein.
12. Release of Claims. No severance benefits shall be paid to Executive
-----------------
under this Agreement unless and until Executive shall, in consideration of the
payment of such severance benefit, execute a release of claims in a form
satisfactory to the Company; provided however that such release shall not apply
to any right of Executive to be indemnified by the Company.
13. Successors and Assigns.
----------------------
13.1. Successors of the Company. The Company will require any
-------------------------
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, expressly, absolutely and unconditionally to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession transaction shall be a breach of this
Agreement and shall entitle Executive to terminate his or her employment with
the Company within three months thereafter and to receive the benefits provided
under of this Agreement in the event of Termination Upon Change of Control. As
used in this Agreement, "Company" shall mean the Company as defined above and
any successor or assign to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 12 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
13.2. Heirs of Executive. This Agreement shall inure to the benefit
------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devises and
legatees.
6
<PAGE>
14. Notices. For purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
if to the Company: Ascend Communications, Inc.
One Ascend Plaza
1701 Harbor Bay Parkway
Alameda, CA 94502
Attn: General Counsel
and if to Executive at the address specified at the end of this Agreement.
Notice may also be given at such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
15. No Representations. Executive acknowledges that he/she is not
------------------
relying and has not relied on any promise, representation or statement made by
or on behalf of the Company which is not set forth in this Agreement.
16. Validity. If any one or more of the provisions (or any part thereof)
--------
of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
(or any part thereof) shall not in any way be affected or impaired thereby.
17. Modification. This Agreement may only be modified or amended by a
------------
supplemental written agreement signed by Executive and the Company.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year written below.
"Company"
ASCEND COMMUNICATIONS, INC.
Date: By:
------------------------ -----------------------
Title:
--------------------
"Executive"
Print Name:
---------------
Date:
------------------------ -------------------------
Executive's Signature
Address for Notice:
- -----------------------
- -----------------------
- -----------------------
8
<PAGE>
EXHIBIT 10.23
FORM OF CHANGE IN CONTROL AGREEMENT FOR VICE PRESIDENT
CHANGE IN CONTROL AGREEMENT
This Change In Control Agreement (the "Agreement") is made and entered into
as of March 3, 1998 (the "Effective Date"), by and between Ascend
Communications, Inc., a Delaware corporation (the "Company") and
_______________________________ ("Executive").
RECITALS
--------
The Company recognizes that the possibility of a change of control or other
event which may change the nature and structure of the Company and that
uncertainty regarding the consequences of such events may adversely affect the
Company's ability to retain its key employees. The Company also recognizes that
Executive possesses an intimate and essential knowledge of the Company upon
which the Company may need to draw for objective advice and continued services
in connection with any acquisition of the Company or other change of control
that is potentially advantageous to the Company's stockholders. The Company
believes that the existence of this Agreement will serve as an incentive to
Executive to remain in the employ of the Company and will enhance its ability to
call on and rely upon Executive in connection with a change of control.
The Company and Executive desire to enter into this Agreement in order to
provide additional compensation and benefits to Executive and to encourage
Executive to continue to devote his full attention and dedication to the Company
and to continue his employment with the Company.
1. Definitions. As used in this Agreement, unless the context requires
-----------
a different meaning, the following terms shall have the meanings set forth
herein:
1.1. "Cause" means:
-----
1.1.1. Theft, a material act of dishonesty, fraud, the
intentional falsification of any employment or Company records or the commission
of any criminal act which impairs Executive's ability to perform his/her duties
under this Agreement;
1.1.2. Improper disclosure of the Company's confidential,
business or proprietary information by Executive;
1.1.3. Executive's conviction (including any plea of guilty
or nolo contendere) for a felony causing material harm to the reputation and
standing of the Company, as determined by the Company in good faith.
1
<PAGE>
1.2 "Change of Control" means:
-----------------
1.2.1. Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than a trustee or other fiduciary holding securities of the
Company under an employee benefit plan of the Company, becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company representing 55% or more of (A) the
outstanding shares of common stock of the Company or (B) the combined voting
power of the Company's then-outstanding securities;
1.2.2. The Company is party to a merger, consolidation,
sales of assets or other reorganization where the acquirer obtains 55% or more
of (A) the outstanding shares of common stock of the Company or (B) the
combined voting power of the Company's then outstanding securities; as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the
Board of Directors thereafter.
1.3. "Constructive Termination" means the occurrence of any of the
------------------------
following conditions, without Executive's written consent:
1.3.1. A material decrease in Executive's base salary and/or
a material decrease in Executive's annual incentive bonus amount (other than for
Company performance) and/or a material decrease in Executive's employee
benefits; or
1.3.2. A material, adverse change in the responsibilities or
duties assigned to Executive, as measured against Executive's responsibilities
or duties immediately prior to such change, that causes Executive to be of
materially reduced stature or responsibility; or
1.3.3. A material, adverse change in Executive's reporting
responsibilities or duties, as measured against Executive's reporting
responsibilities or duties immediately prior to such change, that severely
curtails Executive's ability to perform the services required of Executive's
position; or
1.3.4. The permanent non-voluntary relocation of Executive's
work place for the Company to a location more than 35 miles from the Executive's
current principal place of performance of services for the Company.
1.4. "Permanent Disability" means that:
--------------------
1.4.1. Executive has been incapacitated by bodily injury or
disease so as to be prevented thereby from engaging in the performance of
Executive's duties;
1.4.2. Such total incapacity shall have continued for a period
of six consecutive months; and
1.4.3. Such incapacity will, in the opinion of a qualified
physician, be permanent and continuous during the remainder of Executive's life.
2
<PAGE>
1.5. "Termination Upon a Change of Control" means:
------------------------------------
1.5.1. Any termination of the employment of Executive by the
Company without Cause during the period commencing thirty (30) days prior to the
date of the Company's first public announcement that the Company has entered
into a definitive agreement that would result in a Change of Control (even
though still subject to approval by the Company's stockholders and other
conditions and contingencies) and ending on the date which is twelve (12) months
immediately after the date of the Change of Control; or
1.5.2. Any resignation by Executive upon the occurrence of a
Constructive Termination within the twelve (12) months immediately after the
date of any Change of Control.
1.5.3. "Termination Upon Change of Control" shall not include
any termination of Executive's employment (a) by the Company for Cause; (b) by
the Company as a result of the Executive's Permanent Disability; (c) as a result
of Executive's death; or (d) as a result of the voluntary termination of
employment by Executive for a reason other than Constructive Termination.
2. Position and Duties. Executive shall continue to be an at-will
-------------------
employee of the Company employed in his/her current position at his/her then
current salary rate. Executive shall also be entitled to continue to participate
in and to receive benefits on the same basis as other executive or senior staff
members under any of the Company's employee benefit plans as in effect from time
to time. In addition, Executive shall be entitled to the benefits afforded to
other employees similarly situated under the Company's vacation, holiday and
business expense reimbursement policies. Executive agrees to devote his/her full
business time, energy and skill to his/her duties at the Company. These duties
shall include, but not be limited to, any duties consistent with Executive's
position which may be assigned to Executive from time to time.
3. Option Vesting Upon Change of Control
-------------------------------------
3.1. All stock options granted by the Company and restricted stock
issued by the Company to Executive prior to the Change of Control, to the extent
such stock options and restricted stock remain outstanding and unexercised at
the time of such Change of Control, shall have their vesting accelerated as to
one year's additional vesting effective upon the Change of Control.
4. Termination Upon Change of Control.
----------------------------------
4.1. In the event of Executive's Termination Upon Change of
Control, Executive shall be entitled to the following severance benefits:
4.1.1. Executive shall be entitled to receive all salary,
accrued vacation earned through the date of Executive's termination and
Executive's annual incentive bonus for
3
<PAGE>
the year in which termination occurs, pro rated through the date of Executive's
termination, all less applicable withholding;
4.1.2. Executive shall be entitled to receive an additional
twelve months' of Executive's base salary as in effect on the date of such
termination, plus an additional amount equal to 100% of Executive's annual
incentive bonus for the year in which the termination occurs, all less
applicable withholding, paid in a lump sum within thirty (30) days of
termination of employment;
4.1.3. Executive shall be entitled to receive reimbursement
for all expenses that Executive reasonably and necessarily incurred by Executive
in connection with the business of the Company prior to Executive's termination
of employment, within ten (10) days of submission of proper expense reports by
Executive;
4.1.4. Executive and/or Executive's dependents shall be
entitled to elect continued group health plan coverage in accordance with the
applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and the Health Insurance Portability and Accountability Act of
1996 ("HIPAA"). The Company will pay the full premium for continuation coverage
for Executive and/or Executive's dependents for a period of 12 months following
the date of Executive's Termination Upon Change of Control. Notwithstanding the
above, Company shall cease providing continued group health plan coverage for
Executive and/or Executive's dependents in the event that, at any juncture
during the period of continuation coverage provided for herein, Executive and/or
Executive's dependents become(s) covered under another employer's group health
plan that (i) has no preexisting condition exclusions or (ii) has a preexisting
condition exclusion that does not apply to Executive and/or Executive's
dependents or is satisfied by the creditable coverage of Executive and/or
Executive's dependents in accordance with HIPAA;
4.1.5. Executive payments received under this Section 4 shall
be entitled to receive the benefits, if any, under the Company's 401(k) Plan,
qualified deferred compensation plan, employee stock purchase plan and other
Company benefit plans to which he may be entitled pursuant to the terms of such
plans; and
4.1.6. Executive shall be entitled to receive outplacement
services and Career Counseling at the Company's expense for a period of 12months
after the date of the Termination Upon Change of Control.
5. 280G. If, due to the benefits provided under this Agreement,
----
Executive is subject to any excise tax due to characterization of any amounts
payable hereunder as excess parachute payments pursuant to Section 4999 of the
Internal Revenue Code, the Company agrees to reimburse Executive for the amount
of such excise tax; provided, however, that, no reimbursement shall be made for
any excise tax payable with respect to the reimbursement made pursuant to this
section 5. The excise tax reimbursement made pursuant to this section 5 shall be
subject to all applicable withholding. The foregoing shall be conditioned upon
Executive cooperating with the Company in such manner as may be reasonably
requested (other than reducing amounts payable hereunder) so as to minimize the
amount of such excise tax. Unless
4
<PAGE>
the Company and Executive otherwise agree in writing, any determination required
under this Section 5 shall be made in writing by independent public accountants
agreed to by the Company and Executive (the "Accountants"), whose determination
shall be conclusive and binding upon Executive and the Company for all purposes.
For purposes of making the calculations required by this Section 5, the
Accountants may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and Executive
shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
Section 5. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this Section 5.
6. Exclusive Remedy. Under any claim for breach of this Agreement or
----------------
wrongful termination, the payments and benefits provided for in Sections 3, 4
and 5 shall constitute Executive's sole and exclusive remedy for any alleged
injury or other damages arising out of the cessation of the employment
relationship between Executive and the Company in the event of Executive's
termination. Except as expressly set forth herein, Executive shall be entitled
to no other compensation, benefits, or other payments from the Company as a
result of any termination of employment with respect to which the payments
and/or benefits described in Sections 3, 4 and 5 have been provided to
Executive.
7. Proprietary and Confidential Information. Executive agrees to
----------------------------------------
continue to abide by the terms and conditions of the Company's confidentiality
and/or proprietary rights agreement between Executive and the Company.
8. Conflict of Interest. Executive agrees that for a period of one (1)
--------------------
year after termination of his/her employment with the Company, he/she will not,
directly or indirectly, solicit the services of or in any other manner persuade
employee or customers of the Company to discontinue that person's or entity's
relationship with or to the Company as an employee or customer, as the case may
be.
9. Arbitration. Any claim, dispute or controversy arising out of this
-----------
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration by the American Arbitration Association in San Mateo County or Santa
Clara County, California and/or Middlesex County in Massachusetts; provided,
however, that this arbitration provision shall not preclude the Company from
seeking injunctive relief from any court having jurisdiction with respect to any
disputes or claims relating to or arising out of the misuse or misappropriation
of the Company's trade secrets or confidential and proprietary information.
Both parties hereby waive any right to a jury trial to resolve such claims,
disputes, or controversies. All costs and expenses of arbitration or
litigation, including but not limited to attorneys fees and other costs
reasonably incurred by Executive, shall be paid by the Company. Judgment may be
entered on the award of the arbitration in any court having jurisdiction.
5
<PAGE>
10. Interpretation. Executive and the Company agree that this Change in
--------------
Control Agreement shall be interpreted in accordance with and governed by the
laws of the State of California.
11. Conflict in Benefits. This Agreement shall supersede all prior
--------------------
arrangements, whether written or oral, and understandings regarding the subject
matter of this Agreement and shall be the exclusive agreement for the
determination of any payments and accelerated option vesting due upon
Executive's termination of employment upon a Change of Control; provided,
however, that this Agreement is not intended to and shall not affect, limit or
terminate (i) any plans, programs, or arrangements of the Company that are
regularly made available to a significant number of employees of the Company,
(ii) any agreement or arrangement with Executive that has been reduced to
writing and which does not relate to the subject matter hereof, or (iii) any
agreements or arrangements hereafter entered into by the parties in writing,
except as otherwise expressly provided herein.
12. Release of Claims. No severance benefits shall be paid to Executive
-----------------
under this Agreement unless and until Executive shall, in consideration of the
payment of such severance benefit, execute a release of claims in a form
satisfactory to the Company; provided however that such release shall not apply
to any right of Executive to be indemnified by the Company.
13. Successors and Assigns.
----------------------
13.1. Successors of the Company. The Company will require any
-------------------------
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, expressly, absolutely and unconditionally to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession transaction shall be a breach of this
Agreement and shall entitle Executive to terminate his or her employment with
the Company within three months thereafter and to receive the benefits provided
under of this Agreement in the event of Termination Upon Change of Control. As
used in this Agreement, "Company" shall mean the Company as defined above and
any successor or assign to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 12 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
13.2. Heirs of Executive. This Agreement shall inure to the benefit
------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devises and
legatees.
14. Notices. For purposes of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
if to the Company: Ascend Communications, Inc.
6
<PAGE>
One Ascend Plaza
1701 Harbor Bay Parkway
Alameda, CA 94502
Attn: General Counsel
and if to Executive at the address specified at the end of this Agreement.
Notice may also be given at such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
15. No Representations. Executive acknowledges that he/she is not
------------------
relying and has not relied on any promise, representation or statement made by
or on behalf of the Company which is not set forth in this Agreement.
16. Validity. If any one or more of the provisions (or any part
--------
thereof) of this Agreement shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
17. Modification. This Agreement may only be modified or amended by a
------------
supplemental written agreement signed by Executive and the Company.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year written below.
"Company"
ASCEND COMMUNICATIONS, INC.
Date: By:
------------------------ -------------------------
Title:
----------------------
"Executive"
Print Name:
-----------------
Date:
------------------------ ----------------------------
Executive's Signature
Address for Notice:
- ------------------------
- ------------------------
- ------------------------
8
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<PAGE>
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<PERIOD-START> JAN-01-1998
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<SECURITIES> 264,095
<RECEIVABLES> 252,771
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0
0
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