UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10079
CYPRESS SEMICONDUCTOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2885898
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
|
3901 North First Street, San Jose, California 95134-1599
(Address of principal executive offices and zip code)
(408) 943-2600
(Registrant's telephone number, including area code)
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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as outlined in Rule 12b-2 of the Exchange Act): Yes |X| No |_|
The total number of shares of the registrant's common stock outstanding as of August 5, 2003 was 118,320,440.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements .............................................. 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 20
Item 3. Quantitative and Qualitative Disclosures about Market Risk ........ 36
Item 4. Controls and Procedures ........................................... 38
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 38
Item 2. Changes in Securities and Use of Proceeds ......................... 38
Item 3. Defaults Upon Senior Securities ................................... 38
Item 4. Submission of Matters to a Vote of Security Holders ............... 38
Item 5. Other Information ................................................. 39
Item 6. Exhibits and Reports on Form 8-K .................................. 39
Signatures ................................................................ 40
Certifications of Quarterly Report ........................................ 41
2
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ITEM 1. FINANCIAL STATEMENTS |
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
June 29, December 29,
2003 2002
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 481,908 $ 87,200
Short-term investments ............................................... 29,385 40,737
----------- -----------
Total cash, cash equivalents and short-term investments ...... 511,293 127,937
Accounts receivable, net ............................................. 92,996 83,054
Inventories, net ..................................................... 81,100 92,721
Other current assets ................................................. 207,270 210,235
----------- -----------
Total current assets ......................................... 892,659 513,947
----------- -----------
Property, plant and equipment, net ..................................... 464,618 496,566
Goodwill ............................................................... 321,981 321,669
Other intangible assets ................................................ 72,149 89,615
Other assets ........................................................... 173,999 150,851
----------- -----------
Total assets ........................................................... $ 1,925,406 $ 1,572,648
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................... $ 64,466 $ 59,431
Accrued compensation and employee benefits ........................... 39,313 39,151
Other current liabilities ............................................ 103,418 84,112
Current portion of long-term debt .................................... 332,416 0
Deferred income on sales to distributors ............................. 6,448 15,774
Income taxes payable ................................................. 1,585 1,292
----------- -----------
Total current liabilities .................................... 547,646 199,760
----------- -----------
Convertible subordinated notes ......................................... 668,652 468,900
Deferred income taxes and other tax liabilities ........................ 172,576 177,404
Other long-term liabilities ............................................ 33,993 52,961
----------- -----------
Total liabilities ............................................ 1,422,867 899,025
----------- -----------
Commitments and contingencies (See Note 6) Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized; none
issued and outstanding ............................................ -- --
Common stock, $.01 par value, 650,000 and 650,000 shares authorized;
139,164 and 139,164 issued; 116,716 and 123,743 outstanding at June
29, 2003 and December 29, 2002 ...................................... 1,391 1,391
Additional paid-in-capital ............................................. 1,115,522 1,172,654
Deferred stock compensation ............................................ (9,506) (25,283)
Accumulated other comprehensive income ................................. 5,943 2,376
Accumulated deficit .................................................... (242,286) (155,916)
----------- -----------
871,064 995,222
Less: shares of common stock held in treasury, at cost; 22,448 shares
and 15,421 shares at June 29, 2003 and December 29, 2002 ............... (368,525) (321,599)
----------- -----------
Total stockholders' equity ................................... 502,539 673,623
----------- -----------
Total liabilities and stockholders' equity ........................... $ 1,925,406 $ 1,572,648
=========== ===========
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three months ended Six months ended
---------------------- ----------------------
June 29, June 30, June 29, June 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues ........................................................ $ 203,116 $ 202,121 $ 384,083 $ 395,276
Cost of revenues ................................................ 106,448 110,852 209,021 229,118
--------- --------- --------- ---------
Gross margin .................................................... 96,668 91,269 175,062 166,158
Operating expenses:
Research and development ................................... 64,208 80,119 128,614 153,601
Selling, general and administrative ........................ 31,811 35,362 62,940 70,745
Restructuring .............................................. (185) (10,305) 3,175 (8,710)
Acquisition-related costs .................................. 9,346 9,795 18,830 21,487
--------- --------- --------- ---------
Total operating expenses ............................... 105,180 114,971 213,559 237,123
--------- --------- --------- ---------
Operating loss .................................................. (8,512) (23,702) (38,497) (70,965)
Interest income ................................................. 5,131 3,835 8,324 12,359
Interest expense ................................................ (5,130) (4,684) (9,806) (9,629)
Other income and (expense), net ................................. (3,721) (1,527) (4,080) 1,177
--------- --------- --------- ---------
Loss before income taxes ........................................ (12,232) (26,078) (44,059) (67,058)
Provision for income taxes ...................................... (206) (1,983) (1,702) (794)
--------- --------- --------- ---------
Net loss ............................................... $ (12,438) $ (28,061) $ (45,761) $ (67,852)
========= ========= ========= =========
Basic and diluted net loss per share ............................ $ (0.10) $ (0.23) $ (0.37) $ (0.55)
Weighted average common and common equivalent shares outstanding:
Basic and diluted ...................................... 122,941 122,964 123,973 122,543
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
----------------------
June 29, June 30,
2003 2002
--------- ---------
Cash flow from operating activities:
Net loss .......................................................... $ (45,761) $ (67,852)
Adjustments to reconcile net loss to net cash
generated from (used for) operating activities:
Depreciation and amortization ..................................... 84,097 84,797
Amortization of deferred stock compensation ....................... 9,100 20,421
(Gain) loss on sales of property, plant and equipment, net ........ 138 (368)
Employee stock purchase assistance plan interest .................. (1,566) (2,612)
Acquired in-process research and development ...................... -- 500
Net (gain) loss on early retirement of debt ....................... 802 (5,946)
Unrealized (gain) loss on foreign currency derivatives ............ 1,558 (503)
Asset impairment and other ........................................ 1,269 2,101
Restructuring ..................................................... (185) (10,650)
Minority interest ................................................. (1,045) --
Deferred income taxes ............................................. 422 (4,761)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable ........................................... (9,600) (15,463)
Inventories ................................................... 11,621 (6,062)
Other assets .................................................. 4,010 (3,420)
Accounts payable, accrued liabilities and other liabilities ... (9,161) (6,149)
Deferred income ............................................... (9,326) 7,032
Income taxes payable .......................................... 293 102
--------- ---------
Net cash generated from (used for) operating activities .. 36,666 (8,833)
--------- ---------
Cash flow from investing activities:
Purchase of investments ........................................... (35,092) (31,443)
Sale or maturities of investments ................................. 36,275 123,886
Cash refunded from (used for) acquisitions, net .................. 1,474 (582)
Acquisition of property, plant and equipment ...................... (36,726) (89,387)
(Issuance) repayment of notes to employees, net ................... 152 16,569
Proceeds from the sale of equipment ............................... 1,775 203
Other investment .................................................. (2,253) (24,832)
--------- ---------
Net cash generated from (used for) investing activities ... (34,395) (5,586)
--------- ---------
Cash flow from financing activities:
Proceeds from borrowings, net of issuance costs ................... 24,678 --
Proceeds from issuance of convertible debt, net of issuance costs . 581,550 --
Redemption of convertible debt .................................... (75,058) (42,124)
Issuance (repurchase) of common shares, net ....................... (87,519) 15,354
Purchase of call spread on common stock .......................... (49,300) --
Premiums received from stock put options .......................... -- 198
Maturity of structured options, net ............................... -- 1,574
Issuance (repayment) of stockholder notes receivable, net ......... 60 (257)
Other long-term liabilities ....................................... (1,974) (1,548)
--------- ---------
Net cash generated from (used for) financing activities ... 392,437 (26,803)
--------- ---------
Net increase (decrease) in cash and cash equivalents ................... 394,708 (41,222)
--------- ---------
Cash and cash equivalents, beginning of period ......................... 87,200 109,999
--------- ---------
Cash and cash equivalents, end of period ............................... $ 481,908 $ 68,777
========= =========
Supplemental Disclosure of Non-Cash Information
Common stock issued for acquisitions ................................... $ -- $ 2,318
Customer prior advances used for equipment sale ........................ $ 5,500 $ --
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
CYPRESS SEMICONDUCTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended June 29, 2003
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
Fiscal Year
Cypress Semiconductor Corporation ("Cypress") reports on a fiscal year basis and ends its quarters on the Sunday closest to the end of the applicable calendar quarter. The three month periods ended June 29, 2003 ("Q2 2003"), March 30, 2003 ("Q1 2003"), June 30, 2002 ("Q2 2002") and March 31, 2002 ("Q1 2002") all included thirteen weeks.
Basis of Presentation
In the opinion of the management of Cypress, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial information included therein. Certain prior year amounts have been reclassified to conform to current year presentation. Cypress believes that the disclosures are adequate to make the information not misleading. However, this financial data should be read in conjunction with the audited consolidated financial statements and related notes thereto included in Cypress's Annual Report on Form 10-K for the fiscal year ended December 29, 2002.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates, although such differences are not expected to be material to the financial statements.
The results of operations for the three and six months ended June 29, 2003 are not necessarily indicative of the results to be expected for the full year.
Recent Accounting Pronouncements
Financial Accounting Standards Board ("FASB") Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), was issued in January 2003. FIN 46 requires that if an entity is the primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity should be included in the consolidated financial statements of the entity. The provisions of FIN 46 are effective immediately for all arrangements entered into after January 31, 2003. Cypress has not invested in any variable interest entities after January 31, 2003. For those arrangements entered into prior to January 31, 2003, the provisions of FIN 46 are required to be adopted at the beginning of the first interim or annual period beginning after June 15, 2003. On June 27, 2003, Cypress entered into a new operating lease to refinance the old ones (see Note 6). The company refinanced these leases in a manner that best met its financing strategy. The new operating leases are not subject to the consolidation provisions of FIN 46. Cypress is evaluating the effect on its condensed consolidated financial statements of arrangements created prior to February 1, 2003. Cypress does not expect to identify any significant variable interest entities that would be consolidated.
In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). The new guidance
amends SFAS 133 for decisions made: (a) as part of the Derivatives
Implementation Group process that effectively required amendments to SFAS 133,
(b) in connection with other Board projects dealing with financial instruments,
and (c) regarding implementation issues raised in relation to the application of
the definition of a derivative, particularly regarding the meaning of
"underlying" and the characteristics of a derivative that contains financing
components. The amendments set forth in SFAS 149 improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly. SFAS 149 is generally effective for contracts entered into or
modified after June 30, 2003 (with a few exceptions) and for hedging
relationships designated after June 30, 2003. Cypress will apply the provisions
of SFAS 149 prospectively to transactions entered into and or modified after
June 30, 2003.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain circumstances). Many of these instruments were previously classified as equity. Although some of the provisions of this statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, "Elements of Financial Statements", the remainder are consistent with FASB's intention to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own shares. This statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. There was no impact to the condensed consolidated financial statements related to SFAS 150 for the six months ended June 29, 2003. Cypress does not expect the application of SFAS 150 to have a material effect on its condensed consolidated financial statements.
Accounting for Stock-Based Compensation
Cypress has a number of stock-based employee compensation plans. Cypress accounts for those plans under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related Interpretation. In certain instances, Cypress reflects stock-based employee compensation cost in net income (loss). If there is any compensation under the rules of APB 25, the expense is amortized using an accelerated method prescribed under the rules of FASB Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans" ("FIN 28"). The following table illustrates the effect on net loss and loss per share if Cypress had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), to stock-based employee compensation.
Three months ended Six months ended
-------------------------------------------------------------------------------------------------------------------
June 29, June 30, June 29, June 30,
(In thousands, except per share amounts) 2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------------
Net loss, as reported $ (12,438) $ (28,061) $ (45,761) $ (67,852)
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effect of zero 18,493 28,367 25,604 57,139
------------ ------------ ------------ ------------
Pro forma net loss $ (30,931) $ (56,428) $ (71,365) $ (124,991)
============ ============ ============ ============
Loss per share:
Basic and diluted--as reported $ (0.10) $ (0.23) $ (0.37) $ (0.55)
Basic and diluted--pro forma $ (0.25) $ (0.46) $ (0.58) $ (1.02)
-------------------------------------------------------------------------------------------------------------------
|
Note 2 - Consolidation of SunPower Corporation ("SunPower")
Cypress gained effective control over SunPower in Q1 2003. As a result, effective the beginning of fiscal 2003, Cypress consolidated the results of SunPower, which was previously accounted for under the equity method in fiscal 2002 due to the existence of substantive participating rights of the minority shareholders. Cypress and its Chief Executive Officer ("CEO") own preferred stock of SunPower which is convertible into common stock. As of June 29, 2003, Cypress and its CEO own approximately 57% and 6%, respectively, of SunPower on an as converted basis.
Minority interest in the losses of SunPower are included in other income and (expense), net. In Q2 2003, the minority shareholders' share of losses in SunPower was limited to their investment balance in SunPower and Cypress absorbed a higher proportion of SunPower losses in the amount of $1.0 million. As the minority shareholder's investment in SunPower, which was included in other long-term liabilities, has been reduced to zero at the end of Q2 2003, any future losses attributable to the minority shareholders' of SunPower will be born solely by Cypress. The minority interest in losses of SunPower was $0.1 million and $1.0 million for the three and six-month periods ended Q2 2003, respectively. Pro forma statement of operations information has not been presented because the effect of the SunPower consolidation was not material.
Cypress owns a warrant to purchase an additional $16.0 million in convertible preferred stock ("Preferred Stock Warrant") of SunPower. Since Cypress did not exercise the warrant by April 1, 2003, it is obligated to fund SunPower up to $5.6 million through May 2004 at a rate of up to $0.4 million per month. As of June 29, 2003,
Cypress had loaned SunPower $1.2 million bearing interest at the applicable federal rate in accordance with this obligation. Subject to certain product qualification tests, Cypress intends to exercise the Preferred Stock Warrant in the second half of fiscal 2003.
In Q1 2003, Cypress loaned SunPower $2.5 million. SunPower will be repaying the loan monthly through 2008. In addition, Cypress intends to secure financing for a loan of up to $30.0 million on behalf of SunPower in the third quarter of fiscal 2003 ("Q3 2003"). As of June 29, 2003, Cypress had advanced $3.5 million against this future facility. Subsequent to June 29, 2003, Cypress advanced an additional $8.2 million.
Note 3 - Goodwill and Intangibles
Goodwill
Cypress's goodwill is reported in the Non-memory business segment. The following is a rollforward for the goodwill balance in this segment in fiscal 2003:
Balance at Balance at
December 29, June 29,
(in thousands) 2002 Reclassified Other 2003
---------------------------------------------------------
Non-memory $321,669 $2,683 $(2,371) $321,981
|
As a result of Cypress's consolidation of SunPower during Q1 2003, a total of $2.7 million was reclassified from Other assets to Goodwill. Other represents other miscellaneous adjustments to goodwill primarily as a result of Cypress's prior acquisition escrow closings.
Purchased Intangibles
The following tables present details of Cypress's total purchased intangible assets:
As of June 29, 2003
----------------------------------------------------------------------------------------------------------------------
Accumulated
(In thousands) Gross Amortization Net
----------------------------------------------------------------------------------------------------------------------
Purchased technology $ 192,656 $ (133,667) $ 58,989
Non-compete agreements 18,650 (11,307) 7,343
Patents, licenses and trademarks 6,703 (3,010) 3,693
Other 4,600 (2,476) 2,124
----------------------------------------------------------------------------------------------------------------------
Total $ 222,609 $ (150,460) $ 72,149
----------------------------------------------------------------------------------------------------------------------
|
As of December 29, 2002
----------------------------------------------------------------------------------------------------------------------
Accumulated
(In thousands) Gross Amortization Net
----------------------------------------------------------------------------------------------------------------------
Purchased technology $ 191,700 $ (119,133) $ 72,567
Non-compete agreements 18,650 (8,243) 10,407
Patents, licenses and trademarks 6,350 (2,233) 4,117
Under market leases 1,850 (1,850) --
Other 4,600 (2,076) 2,524
----------------------------------------------------------------------------------------------------------------------
Total $ 223,150 $ (133,535) $ 89,615
----------------------------------------------------------------------------------------------------------------------
|
Amortization expense for Q2 2003 and the six months ended June 29, 2003 of $9.3 million and $18.8 million, respectively, associated with these acquired intangibles is included in acquisition-related costs in the condensed consolidated statement of operations. The estimated annual amortization expense of purchased intangible assets is as follows:
---------------------------------------------------------------------- (In thousands) Amount ---------------------------------------------------------------------- 2003 (remaining six months) $ 19,132 2004 32,924 2005 14,833 2006 2,667 2007 471 2008 and beyond 2,122 ---------------------------------------------------------------------- Total $ 72,149 ---------------------------------------------------------------------- |
Note 4 - Restructuring
The semiconductor industry has historically been characterized by wide fluctuations in demand for, and supply of, semiconductors. In some cases, industry downturns have lasted more than a year. Prior experience has shown that restructuring of the operations, resulting in significant restructuring charges, may become necessary if an industry downturn persists. Cypress currently has two active restructuring plans - one initiated in the third quarter of fiscal 2001 ("Fiscal 2001 Restructuring Plan") and the other initiated in the fourth quarter of fiscal 2002 ("Fiscal 2002 Restructuring Plan"). Cypress recorded initial restructuring charges in fiscal 2002 and fiscal 2001 based on assumptions that it deemed appropriate for the economic environment that existed at the time these estimates were made. However, due to continued changes in the semiconductor industry and in specific business conditions, Cypress took additional actions and made appropriate adjustments to both the Fiscal 2001 Restructuring Plan for property, plant and equipment, leased facilities and personnel costs and the Fiscal 2002 Restructuring Plan for personnel costs.
Fiscal 2002 Restructuring Plan:
On October 17, 2002, Cypress announced a restructuring plan that included the resizing of Cypress's manufacturing facilities and the reduction of operating expenses, including research and development and selling, general and administrative. In the fourth quarter of fiscal 2002 ("Q4 2002"), Cypress recorded a charge of $45.4 million which consisted of $36.0 million related to equipment removed from service and held for sale, $8.2 million for workforce reductions for approximately 380 employees, including severance and benefits costs, and $1.2 million for leased facilities. To date, Cypress has disposed of equipment with a net book value of $7.3 million. The net book value of the remaining unsold equipment as of June 29, 2003 was $30.7 million. The proceeds from the sales of the assets approximated their carrying values. The majority of the workforce reduction affected the United States, with some reductions in Europe and the Philippines and sales offices that were closed in Europe and the United States. As of the end of Q2 2003, all of these employees had left Cypress.
A restructuring charge of $3.4 million was recorded in Q1 2003 for additional opportunities identified as part of the personnel portion of the Fiscal 2002 Restructuring Plan. The charge relates to the severance and related employee benefit costs for the termination of approximately 150 additional employees, the majority of whom were located in the United States at Cypress's facilities in San Jose, Texas and Minnesota. As of the end of Q2 2003, all of these employees had left Cypress.
In Q2 2003, Cypress placed back into service certain of these assets previously recorded as held for sale. The assets were needed to meet increased production requirements resulting from a substantial increase in unit demand versus Cypress's initial assumptions at the time of the restructuring in Q4 2002. When the assets were put back into service, they were recorded at their fair value in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), and the related impairment reserve of $3.2 million was reversed. This resulted in an excess recovery of the reserves initially established for these assets. This amount was not material.
The following table summarizes the activity associated with the restructuring liabilities and asset write-downs since the inception of the restructuring plan in Q4 2002:
---------------------------------------------------------------------------------------------------
Property, plant Leased
(In thousands) & equipment Facilities Personnel Total
---------------------------------------------------------------------------------------------------
Q4 2002 Provision $ 35,959 $ 1,211 $ 8,188 $ 45,358
Non-cash charges (39) -- (40) (79)
Cash charges (50) (524) (5,276) (5,850)
---------------------------------------------------------------------------------------------------
Balance at December 29, 2002 35,870 687 2,872 39,429
Q1 2003 Provision -- -- 3,360 3,360
Non-cash charges (2,413) -- -- (2,413)
Cash charges (98) (2) (2,263) (2,363)
---------------------------------------------------------------------------------------------------
Balance at March 30, 2003 33,359 685 3,969 38,013
Non-cash charges (3,161) -- -- (3,161)
Cash charges (225) (51) (3,224) (3,500)
Other adjustments (3,191) -- -- (3,191)
---------------------------------------------------------------------------------------------------
Balance at June 29, 2003 $ 26,782 $ 634 $ 745 $ 28,161
---------------------------------------------------------------------------------------------------
|
Fiscal 2001 Restructuring Plan:
On July 16, 2001, Cypress announced a restructuring plan that involved resizing its manufacturing facilities, reducing its workforce and combining facilities. The restructuring was precipitated by the worldwide economic slowdown, particularly in the business areas in which Cypress operates. The intended effect of the plan was to size the manufacturing operations and facilities to meet future demand and reduce expenses in all operations areas. During the third quarter of fiscal 2001, Cypress recorded restructuring charges of $132.1 million related to property, plant and equipment, leased facilities and personnel.
In connection with the July 16, 2001 announcement, in the third quarter of fiscal 2001, Cypress removed from service and held for sale equipment with a net book value of $116.9 million, resulting in a charge of $113.4 million. Cypress has actively marketed the equipment. Through June 29, 2003, Cypress has disposed of equipment with a net book value of $55.4 million. The proceeds from the sales of the assets generally approximated their carrying values. In the second and third quarters of fiscal 2002 ("Q2 2002" and "Q3 2002," respectively), Cypress placed back into service certain of these assets previously recorded as held for sale. The assets were needed to meet increased production requirements resulting from a substantial increase in unit demand versus Cypress's initial assumptions at the time of the restructuring in the third quarter of fiscal 2001 ("Q3 2001"). When the assets were put back into service, they were written up to their prior cost basis (an adjustment of $13.2 million and $9.6 million in Q2 2002 and Q3 2002, respectively), reduced for depreciation expense that would have been recorded during the period the asset was removed from service (an adjustment of $2.9 million and $2.6 million in Q2 2002 and Q3 2002, respectively), as required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS 121"). The net effect of the asset adjustment was a credit to the restructuring line on the Statement of Operations of $10.3 million and $7.0 million in Q2 2002 and Q3 2003, respectively. In Q1 2002, Cypress also sold and then leased back certain other pieces of equipment classified as held for sale. The proceeds from the sales of the assets approximated their net carrying values. Cypress continues to actively market the remaining assets held for sale.
In Q1 2002, Cypress recorded an additional charge of $1.6 million for additional cost reductions identified as part of the personnel portion of the Fiscal 2001 Restructuring Plan. The charge related to severance and related employee benefit costs for the termination of employees, the majority of whom were located in the Philippines facility.
In Q3 2002, as a result of the continued drive to lower Cypress's cost structure and break-even sales, Cypress further expanded the scope of the restructuring and recorded net restructuring costs of $2.4 million, which was comprised of a charge of $9.4 million offset by a $7.0 million reversal for previously written-down equipment put back into service discussed above. The charge of $9.4 million consisted of $3.3 million for work force reductions, and included severance, benefit costs and stock compensation, $3.4 million for capital equipment removed from service and held for sale and $2.7 million for the exiting of facility leases.
In Q4 2002, Cypress recorded a credit of $0.7 million related to the revised estimate of personnel costs. All the personnel related charges and actions taken by Cypress in Q3 2001, Q1 2002, and Q3 2002 resulted in the termination of approximately 890 employees, all of whom had left Cypress as of the end of Q2 2003.
The remaining net book value of unsold equipment as of June 29, 2003 was $26.7 million. The following table summarizes the activity associated with the restructuring liabilities and asset write-downs since the inception of the Fiscal 2001 Restructuring Plan in Q3 2001:
-----------------------------------------------------------------------------------------------------------
Property, plant & Leased
(In thousands) equipment Facilities Personnel Total
-----------------------------------------------------------------------------------------------------------
Initial provision in September 30, 2001 $ 113,350 $ 4,079 $ 14,684 $ 132,113
Non-cash charges (5,145) -- (8,970) (14,115)
Cash charges (380) (53) (3,836) (4,269)
-----------------------------------------------------------------------------------------------------------
Balance at September 30, 2001 107,825 4,026 1,878 113,729
Non-cash charges (2,124) -- (86) (2,210)
Cash charges (1,239) (160) (407) (1,806)
-----------------------------------------------------------------------------------------------------------
Balance at December 30, 2001 104,462 3,866 1,385 109,713
Provision -- -- 1,595 1,595
Non-cash charges (5,096) -- -- (5,096)
Cash charges (147) (375) (1,581) (2,103)
-----------------------------------------------------------------------------------------------------------
Balance at March 31, 2002 99,219 3,491 1,399 104,109
Cash charges (151) (503) (553) (1,207)
Other adjustments (13,217) -- -- (13,217)
-----------------------------------------------------------------------------------------------------------
Balance at June 30, 2002 85,851 2,988 846 89,685
Provision 3,378 2,761 3,251 9,390
Non-cash charges (12,316) -- (924) (13,240)
Cash charges (484) (502) (1,039) (2,025)
Other adjustments (9,545) -- -- (9,545)
-----------------------------------------------------------------------------------------------------------
Balance at September 29, 2002 66,884 5,247 2,134 74,265
Provision -- -- (701) (701)
Non-cash charges (12,786) -- -- (12,786)
Cash charges (419) (582) (799) (1,800)
-----------------------------------------------------------------------------------------------------------
Balance at December 29, 2002 53,679 4,665 634 58,978
Provision -- -- -- --
Non-cash charges (16,046) -- -- (16,046)
Cash charges (862) (674) (540) (2,076)
-----------------------------------------------------------------------------------------------------------
Balance at March 30, 2003 36,771 3,991 94 40,856
Provision -- -- -- --
Non-cash charges (1,206) -- -- (1,206)
Cash charges (471) (739) (115) (1,325)
Other adjustments (64) -- 21 (43)
-----------------------------------------------------------------------------------------------------------
Balance at June 29, 2003 $ 35,030 $ 3,252 $ 0 $ 38,282
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Note 5 - Balance Sheet Components
Inventories, Net
--------------------------------------------------------------------------------
June 29, December 29,
(In thousands) 2003 2002
--------------------------------------------------------------------------------
Raw materials $ 2,886 $ 3,185
Work-in-process 50,279 54,668
Finished goods 27,935 34,868
--------------------------------------------------------------------------------
Inventories, net $ 81,100 $ 92,721
--------------------------------------------------------------------------------
Other Current Assets
--------------------------------------------------------------------------------
June 29, December 29,
(In thousands) 2003 2002
--------------------------------------------------------------------------------
Employee stock purchase assistance plan, net $ 91,793 $ 90,636
Deferred tax assets 77,450 85,041
Prepaid assets 25,372 24,962
Other current assets 12,655 9,596
--------------------------------------------------------------------------------
Other current assets $ 207,270 $ 210,235
--------------------------------------------------------------------------------
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Other Assets
--------------------------------------------------------------------------------
June 29, December 29,
(In thousands) 2003 2002
--------------------------------------------------------------------------------
Long-term investments $ 25,761 $ 16,574
Key employee deferred compensation plan 16,463 15,574
Restricted cash 62,728 62,380
Deferred tax asset 25,724 26,037
Other 43,323 30,286
--------------------------------------------------------------------------------
Other assets $ 173,999 $ 150,851
--------------------------------------------------------------------------------
Other Current Liabilities
--------------------------------------------------------------------------------
June 29, December 29,
(In thousands) 2003 2002
--------------------------------------------------------------------------------
Customer advances $ 26,984 $ 3,950
Interest payable 7,634 8,216
Key employee deferred compensation plan 19,421 16,785
Accrued royalties 3,078 4,098
Accrued rep commissions 4,701 4,291
Other 41,600 46,772
--------------------------------------------------------------------------------
Other current liabilities $ 103,418 $ 84,112
--------------------------------------------------------------------------------
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Note 6 - Commitments and Contingencies
Guarantees and Product Warranties
Cypress applies the disclosure provisions of FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45") to its agreements that contain guarantee or indemnification clauses. These disclosure provisions expand those required by SFAS No. 5, "Accounting for Contingencies," by requiring that guarantors disclose certain types of guarantees, even if the likelihood of requiring the guarantor's performance is remote. As of June 29, 2003, Cypress has accrued its estimate of liability incurred under these indemnification arrangements and guarantees, as applicable. Cypress maintains self-insurance for certain liabilities of its officers and directors. The following is a description of significant arrangements in which Cypress is a guarantor.
Indemnification Obligations
Cypress is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by Cypress, under which Cypress customarily agrees to hold the other party harmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold, certain intellectual property rights, specified environmental matters and certain income taxes. In each of these circumstances, payment by Cypress is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow Cypress to challenge the other party's claims. Further, Cypress's obligations under these agreements may be limited in terms of time and/or amount, and in some instances, Cypress may have recourse against third parties for certain payments made by it under these agreements.
It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of Cypress's obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by Cypress under these agreements did not have a material effect on its business, financial condition or results of operations. Cypress believes that if it were to incur a loss in any of these matters, such loss would not have a material effect on its business, financial condition, cash flows or results of operations.
Product Warranties
Cypress estimates its warranty costs based on historical warranty claim experience and applies this estimate to the revenue stream for products under warranty. Included in Cypress's warranty accrual are costs for limited warranties and extended warranty coverage. Future costs for warranties applicable to revenue recognized in the
current period are charged to cost of revenues. The warranty accrual is reviewed quarterly to verify that it properly reflects the remaining obligations based on the anticipated expenditures over the balance of the obligation period. Adjustments are made when actual warranty claim experience differs from estimates. As of the end of Q2 2003, warranty reserve was $1.9 million. Warranty costs have historically been insignificant.
SunPower Corporation
See Note 2 for discussion of Cypress's funding obligations to SunPower.
Synthetic Lease Transactions
On June 27, 2003, Cypress entered into a synthetic operating lease agreement with a new lessor for manufacturing and office facilities located in Minnesota and California. This transaction, which qualifies for operating lease accounting treatment, replaced the three existing synthetic leases associated with these two facilities. There was no impact to our results of operations for the three and six month period ended Q2 2003 as a result of terminating the former leases and entering into the new lease. Lease obligations related to the replaced synthetic leases, totaling $61.4 million, were extinguished with existing restricted cash collateral and a new synthetic lease obligation of $62.7 million was established as of the end of Q2 2003. The new synthetic lease requires Cypress to purchase the property or to arrange for the property to be acquired by a third party at lease expiration. If Cypress had exercised its right to purchase all the properties subject to the new synthetic lease at June 29, 2003, Cypress would have been required to make a payment and record assets totaling $62.7 million. Cypress's management believes that proceeds from the sale of properties under the new synthetic lease would equal or exceed the payment obligation and therefore no liability to Cypress currently exists. Cypress is required to maintain restricted cash or investments to serve as collateral for this lease. As of June 29, 2003, the amount of restricted cash recorded was $62.7 million and was classified within other assets in the condensed consolidated balance sheet. As of June 29, 2003, Cypress was in compliance with the financial covenant required by the new lessor. As of June 29, 2003, the maximum potential exposure to residual value guarantees was approximately $54.5 million and Cypress does not not expect to have a loss on such guarantees.
Legal Matters
In January 2002, Cypress was contacted by Syndia Corporation ("Syndia"), which alleged that Cypress infringed two patents on which Jerome Lemelson was named as the inventor (see the Lemelson Partnership discussion below). These two patents are related to three of the non-stayed patents in the Lemelson Partnership litigation in Arizona, described below. In Q1 2003, Cypress was informed that the United States Patent and Trademark Office had commenced reexamination of these two patents. Furthermore, Cypress was informed in Q2 2003 that Syndia had been sued by Taiwan Semiconductor Manufacturing Corporation in the United States District Court of the Northern District of California, in a declaratory judgment action alleging these two Syndia patents are invalid, unenforceable and not infringed. Cypress has reviewed and investigated the allegations by Syndia. Cypress believes that it has meritorious defenses to these allegations and will vigorously defend itself in this matter. However, because of the nature and inherent uncertainties of litigation, should Syndia sue Cypress and should the outcome of the action be unfavorable, Cypress's business, financial condition, results of operations and cash flows could be materially and adversely affected.
In January 1998, an attorney representing the estate of Mr. Jerome Lemelson contacted Cypress and charged that Cypress infringed certain patents owned by Mr. Lemelson and/or a partnership controlled by Mr. Lemelson's estate. On February 26, 1999, the Lemelson Partnership sued Cypress and 87 other companies in the United States District Court for the District of Arizona for infringement of 16 patents. In May 2000, the Court stayed litigation on 14 of the 16 patents in view of concurrent litigation in the United States District Court, District of Nevada on the same 14 patents, in which the plaintiffs allege that the patents are invalid, unenforceable and not infringed. The Nevada trial proceedings concluded in January 2003, post-trial briefing has concluded and the matter is under submission with the judge. In October 2001, the Lemelson Partnership amended its Arizona complaint to add allegations that two more patents were infringed. Thus, there are currently four patents that are not stayed in this litigation. A bench trial (i.e. a trial with no jury) on only the defenses relating to Lemelson's alleged inequitable conduct in obtaining the four non-stayed patents was held on February 4, 2003, post-trial briefing has concluded and the matter is under submission with the judge. A ruling is not expected until the third or fourth quarter of fiscal 2003. The case is proceeding in the claim construction phase on the four non-stayed patents and the parties have submitted their opening claim construction briefs. Claim construction briefing is expected to be completed in the third quarter of fiscal 2003, after which the judge may request a claim construction hearing or may take the matter under submission on the briefs. Cypress has reviewed and investigated the allegations in both Lemelson's original and amended complaints. Cypress believes that it has meritorious defenses to these allegations and will vigorously defend
itself in this matter. However, because of the nature and inherent uncertainties of litigation, should the outcome of this action be unfavorable, Cypress's business, financial condition, results of operations and cash flows could be materially and adversely affected.
In February 2002, Cypress was contacted by an attorney representing Mr. Peng Tan, alleging that Cypress infringed a patent owned by Mr. Tan. Cypress was informed in Q2 2003 that Mr. Tan was sued by Ramtron International Corporation in the United States District Court of the District of Colorado, in a declaratory judgment action alleging that Mr. Tan's patent is invalid and not infringed. Cypress has reviewed and investigated Mr. Tan's allegations. Cypress believes it has meritorious defenses to these allegations, and will vigorously defend itself in this matter. However, because of the nature and inherent uncertainties of litigation, should Mr. Tan sue Cypress and should the outcome of the action be unfavorable, Cypress's business, financial condition, results of operations and cash flows could be materially and adversely affected.
Cypress is currently a party to various other legal proceedings, claims, disputes and litigation arising in the ordinary course of business, including those noted above. Cypress currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse affect on Cypress's financial position, results of operation or cash flows. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, Cypress's business, financial condition, results of operations and cash flows could be materially and adversely affected.
Note 7 - Debt and Equity Transactions
Option Contracts
At June 29, 2003, Cypress had outstanding a series of equity options on Cypress common stock with an initial cost of $26.0 million, which is classified in stockholders' equity. The contracts, which were extended during Q2 2003, require physical settlement and expire in December 2003. Upon expiration of the options, if Cypress's stock price is above the threshold price of $20.00 per share, Cypress will receive a settlement value totaling $28.9 million. If Cypress's stock price is below the threshold price of $20.00 per share, Cypress will receive 1.4 million shares of its common stock. Alternatively, the contract may be renewed and extended. The transaction is recorded in stockholders' equity in the accompanying condensed consolidated balance sheet.
In conjunction with the 1.25% convertible subordinated notes offering in June 2003, Cypress purchased a call spread option on Cypress' common stock ("Call Spread Option") maturing in July 2004 for $49.3 million. The Call Spread Option, including fees and costs, has been accounted for as an equity transaction in accordance with Emerging Issues Task Force No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." The Call Spread Option covers approximately 32 million shares of Cypress common stock. The Call Spread Option is designed to mitigate dilution from conversion of the 1.25% convertible subordinated notes in the event that the market price per share of the Company's common stock upon exercise of the call spread options is greater than $15 per share and is less than or equal to $24.50 per share. The call spread option may be settled at the Company's option in either net shares or in cash. Settlement of the Call Spread Option in net shares on the expiration date would result in the Company receiving a number of shares, not to exceed 12.4 million shares, of our common stock with a value equal to the amount otherwise receivable on cash settlement. Should there be an early unwind of the Call Spread Option, the amount of cash or net shares potentially received by the Company will be dependent upon then existing overall market conditions, and on the Company's stock price, the volatility of the Company's stock and the amount of time remaining on the Call Spread Option.
Deferred stock-based compensation
Cypress records provisions for deferred stock compensation related to acquisitions. There was no such provision recorded in either Q2 2003 or the first six months of fiscal 2003. This amount is being amortized over the vesting period of the individual stock options or restricted stock, generally a period of four to five years. Deferred stock compensation expense, included in cost of revenues, selling, general and administrative expense and research and development expense in the condensed consolidated statements of operations, totaled approximately $2.4 million and $7.4 million for the three and six months ended June 29, 2003, respectively, and approximately $10.2 million and $20.4 million for the three and six months ended June 30, 2002, respectively.
Convertible Subordinated Notes
During Q2 2003, Cypress issued $600.0 million of five-year convertible subordinated notes with a coupon of 1.25% ("1.25% notes") payable on June 15 and December 15 beginning December 15, 2003. Each note, which
may be converted at anytime by the holders prior to maturity, is convertible into 55.172 shares of Cypress stock plus a cash payment of $300. Cypress, at its option, may satisfy the $300 cash payment by issuing common stock. The 1.25% notes are callable at anytime on or after June 20, 2006. At anytime prior to maturity, Cypress may, at its option, elect to terminate the holders' conversion rights if the closing price of Cypress's common stock exceeds $21.75 (subject to certain adjustments) for 20 days out of a 30 consecutive trading day period. If Cypress issues a notice of termination of conversion rights prior to June 20, 2006, Cypress will pay additional interest in an amount equal to three years of interest, less any interest actually paid prior to the conversion date, to holders who convert their 1.25% notes.
Of the $600.0 million of 1.25% note proceeds, as of the end of Q2 2003, Cypress used approximately $75.1 million to retire portions of its existing 4.0% and 3.75% convertible notes, $95.3 million to repurchase 9.0 million shares of Cypress common stock, $49.3 million to purchase an issuer call spread and $18.0 million for transaction costs. The issuer call spread was recorded in stockholders' equity.
After the $75.1 million of the 1.25% notes proceeds were used to retire portions of its existing 4.0% and 3.75% convertible notes, a total of $255.2 million and $138.7 million of the 4% and 3.75% convertible notes, respectively, were outstanding at the end of Q2 2003. In addition, as of the end of Q2 2003, Cypress had called for the full redemption of its remaining 4.0% convertible subordinated notes due February 2005, and also for the redemption of $70.0 million in principle amount of its remaining 3.75% convertible subordinated notes due July 2005. A total of $325.2 million was therefore classified as a current liability as at the end of Q2 2003, leaving approximately $68.7 million of the 3.75% notes outstanding and classified within long term debt. As of July 8, 2003, the $325.2 million had been paid to the note holders. Cypress will record a loss on redemption related to the $325.2 million repurchase of approximately $6.3 million in Q3 2003 consisting of premiums paid and the write-off of a proportionate share of the bond issuance costs.
On June 30, 2003, Cypress filed a resale shelf registration statement on Form S-3 for the registration of the shares underlying the 1.25% notes. The registration statement will become effective upon approval by the Securities and Exchange Commission.
Collateralized Debt Instruments
During Q1 2003, Cypress entered into long-term loan agreements with two lenders with an aggregate principal amount equal to $24.8 million. These agreements are collateralized by specific equipment located at Cypress's U.S. manufacturing facilities. Principal amounts are to be repaid in monthly installments inclusive of accrued interest, over a 3 to 4 year period. The applicable interest rates are variable based on changes to LIBOR rates. Both loans are subject to a financial covenant. As of June 29, 2003, the aggregate principal outstanding was $23.7 million and Cypress was in compliance with the financial covenants.
Stock Option Plans
Cypress has two stock option plans: the 1999 non-stockholder approved Stock Option Plan ("1999 Plan") and the 1994 stockholder approved Stock Option Plan ("1994 Plan"). The 1999 Plan does not allow for the issuance of options to officers and directors while the 1994 Plan does. The 1994 Plan expires in May 2004.
Cypress believes that stock option grants are critical to its ability to attract and retain personnel. As a result, in order to secure sufficient options for issuance to non-officers and directors, Cypress's Board of Directors, in Q2 2003, approved an increase of 20 million shares for issuance under the 1999 Plan. While Cypress continues to evaluate its overall compensation structure, Cypress will submit for stockholder approval, in its 2003 Proxy statement, a new stock option plan that will cover employees, officers and directors.
Note 8 - Comprehensive Income (Loss) and Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income, net of tax, were as follows:
--------------------------------------------------------------------------------
June 29, December 29,
(In thousands) 2003 2002
--------------------------------------------------------------------------------
Accumulated net unrealized gain on available for
sale investments $ 4,281 $ 1,033
Accumulated net unrealized gain on derivatives 1,662 1,343
--------------------------------------------------------------------------------
Total accumulated other comprehensive income $ 5,943 $ 2,376
--------------------------------------------------------------------------------
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The components of comprehensive loss are as follows:
Three months ended Six months ended
--------------------------------------------------------------------------------------------------------------------------------
June 29, June 30, June 29, June 30,
(In thousands) 2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------------------------------
Net loss $ (12,438) $ (28,061) $ (45,761) $ (67,852)
Unrealized gain (loss) on available for sale
securities 4,539 946 3,248 946
Unrealized gain (loss) on derivatives 556 (317) 319 (1,608)
--------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss $ (7,343) $ (27,432) $ (42,194) $ (68,514)
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Note 9 - Foreign Currency Derivatives
Cypress purchases capital equipment using foreign currencies and has foreign subsidiaries that operate and sell Cypress's products in various global markets. As a result, Cypress is exposed to risks associated with changes in foreign currency exchange rates. At any point in time, Cypress might use various hedge instruments, primarily forward contracts, to manage the exposures associated with forecasted purchases of equipment and net asset or liability positions. Cypress does not enter into derivative financial instruments for speculative or trading purposes.
Cypress estimates the fair value of its forward contracts based on changes in forward rates from published sources. Cypress accounts for its hedges of committed purchases of equipment as cash flow hedges, such that changes in fair value of the effective portion of hedge contracts, if material, are recorded in accumulated other comprehensive income in stockholders' equity. Amounts deferred in accumulated other comprehensive income will be recorded in the condensed consolidated statement of operations in the period in which the underlying transactions impact earnings. At June 29, 2003, the effective portion of unrealized gains on cash flow hedges recorded in other comprehensive income was $1.7 million net of tax. Ineffective hedges are recorded in other income and (expense), net and were $0.0 and $(0.3) million for the three and six months ended June 29, 2003 and $0.5 and $0.5 for the three and six months ended June 30, 2002. As of June 29, 2003, Cypress had forward contracts for Euro exposures with an aggregate notional value of $15.1 million.
Cypress records its hedges of foreign currency denominated assets and liabilities at fair value with the related gains or losses recorded in other income and (expense), net. The gains and losses on these contracts are substantially offset by transaction gains and losses on the underlying balances being hedged. As of June 29, 2003, Cypress held forward contracts with an aggregate notional value of $0.9 million to hedge the risks associated with Yen foreign currency denominated assets and liabilities. Aggregate net foreign exchange gains (losses) on these hedging transactions and foreign currency remeasurement gains (losses) were $(0.6) and $(0.6) million for the three and six month period ended June 29, 2003 compared to $(0.5) and $(1.9) million for the three and six month period ended June 30, 2002. The amounts are included in other income and (expense), net in the condensed consolidated statements of operations.
Note 10 - Income Taxes
Cypress's effective rates of income tax expense for Q2 2003 and Q2 2002 were 1.7% and 7.6%, respectively. For the six months ended June 29, 2003 and June 30, 2002, Cypress's effective rates of income tax expense were 3.9% and 1.2%, respectively. A tax provision of $0.2 million was recorded during Q2 2003 compared to a tax provision of $2.0 million during Q2 2002. The tax provision for each fiscal year is attributable to foreign withholding tax on royalty income and income earned in certain countries that is not offset by current year net operating losses in other countries. The future tax benefit of certain losses is not currently recognized due to Cypress's assessment of the likelihood of realization of these benefits. Cypress's effective tax rate may vary from the U.S. statutory rate primarily due to utilization of future benefits, the earnings of foreign subsidiaries taxed at different rates, tax credits, and other business factors.
Note 11 - 2001 Employee Stock Purchase Assistance Plan
On May 3, 2001, Cypress stockholders approved the adoption of the 2001 Employee Stock Purchase Assistance Plan (the "Plan"). The Plan allowed for loans to employees to purchase shares of Cypress common stock on the open market. Employees of Cypress and its subsidiaries, including executive officers but excluding the CEO and the Board of Directors of Cypress, were allowed to participate in the Plan. Each loan was evidenced by a full recourse, promissory note executed by the employee in favor of Cypress and was secured by a pledge of the shares of Cypress's common stock purchased with the proceeds of the loan. If a participant sells the shares of Cypress common stock purchased with the proceeds from the loan(s), the proceeds of the sale must first be used
to repay the interest and then the principal on the loan(s) before being received by the Plan participant. The loans are callable and currently bear interest at a minimum rate of 4.0% per annum compounded annually, except for loans to executive officers, who are also named corporate officers, whose loans bear interest at the rate of 5.0% per annum, compounded annually. As the loans are at interest rates below the estimated market rate, Cypress recorded compensation expense of $1.3 million in Q2 2003 and $0.9 million in Q2 2002 to reflect the difference between the rate charged and an estimated market rate for each loan outstanding. In addition, Cypress is recording interest income on the outstanding loan balances. Accrued interest outstanding at June 29, 2003 totaled $7.9 million. The Plan became effective on May 3, 2001 and will terminate on the earlier of May 3, 2011, or such time as determined by the Board of Directors. As of June 29, 2003, loans (including accrued interest) outstanding under the Plan net of loss reserve were $91.8 million, as compared to $90.6 million at December 29, 2002. This balance is classified on the condensed consolidated balance sheet within other current assets. Cypress has established a loss reserve, which represents an amount for estimated uncollectible balances, with changes in the loss reserve recognized in selling, general and administrative expense. In determining this loss reserve, Cypress considered various factors, including an independent fair value analysis of the loans and the underlying collateral. To date, there have been immaterial write-offs. At June 29, 2003 and December 29, 2002, the loss reserve was $16.2 million and $16.0 million, respectively. Cypress is willing to pursue every available avenue, including those covered under the Uniform Commercial Code, to recover these loans by pursuing employees' personal assets should the employees not repay these loans.
Note 12 - Segment Reporting
Historically, Cypress has disclosed two reportable business segments, Memory Products and Non-memory Products. The Memory Products business segment includes Static Random Access Memories ("SRAMs") and is characterized by high unit sales volume and generally subject to greater pricing pressures. The Non-memory Products business segment includes data communication devices, programmable logic products, specialty memories, timing and interface products.
In October 2000, Cypress announced the formation of new divisions in order to enhance its focus on communications market segments. The Wide Area Networks ("WAN") and Storage Area Networks ("SAN") divisions help to provide product definition in the networking arena. Similarly, the Wireless Terminals ("WIT") and Wireless Infrastructure ("WIN") divisions help focus Cypress's efforts in the wireless space. The Computation and consumer market segment includes products used in computers, peripherals and other applications. Cypress periodically reviews its customer and product portfolio and makes corresponding changes to its segment data alignment as appropriate. Based on that review, during Q1 2003, Cypress began disclosing its subsidiaries Silicon Light Machines, Silicon Magnetic Systems, Cypress Microsystems and SunPower Corporation as a separate segment called Cypress Subsidiaries. The prior year market segment data has been restated to conform with current presentation. The market focus is expected to provide systems knowledge, cross-product-line product portfolio definition, early engagement with strategic accounts and added management of research and development ("R&D") spending.
Cypress evaluates the performance of its segments based on profit or loss from operations before income taxes, excluding acquisition-related costs, restructuring costs, interest income, interest expense and other income and (expense), net.
Business Segment Information
Cypress's reportable business segments are business units that offer different products. Products that fall under the two business segments differ in nature, are manufactured utilizing different technologies and have a different end-purpose. As such, they are managed separately. Memory Products are characterized by high unit sales volume and generally subject to greater pricing pressures. These products are manufactured using more advanced technology. A significant portion of the wafers produced for Memory Products are manufactured at Cypress's technologically advanced, eight-inch wafer production facility located in Minnesota ("Fab 4"). Memory Products are used by a variety of end-users generally for the storage and retrieval of information. In contrast to Memory Products, unit sales of Non-memory Products are generally lower than Memory Products, but sell at higher gross margins. Some Non-memory Products are manufactured utilizing less technologically advanced processes. A majority of wafers for Non-memory Products are manufactured at Cypress's six-inch wafer production facility located in Texas ("Fab 2"), while some wafers are procured from foundries. Products in the Non-memory segment perform functions such as timing management, data transfer and routing in computer, communications and storage systems. Products range from high volume Universal Serial Bus ("USB") interfaces for personal computers to high value products such as Cypress's OC-48 Serializer/Deserializer ("SERDES") device for optical communications systems.
The tables below set forth information about the reportable business segments for the three and six months ended June 29, 2003 and June 30, 2002, respectively. Cypress does not allocate interest income and expense, income taxes, acquisition-related costs or restructuring charges to its segments. Cypress does not allocate assets to segments. In addition, business segments do not have significant non-cash items other than depreciation and amortization in reported profit or loss.
Business Segment Net Revenues
Three months ended Six months ended
--------------------------------------------------------------------------------------------------------------------------------
June 29, June 30, June 29, June 30,
(In thousands) 2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------------------------------
Memory $ 80,780 $ 84,117 $ 148,590 $ 157,154
Non-memory 122,336 118,004 235,493 238,122
--------------------------------------------------------------------------------------------------------------------------------
Total consolidated revenues $ 203,116 $ 202,121 $ 384,083 $ 395,276
--------------------------------------------------------------------------------------------------------------------------------
|
Business Segment Income (Loss) before Provision for Income Taxes
Three months ended Six months ended
--------------------------------------------------------------------------------------------------------------------------------
June 29, June 30, June 29, June 30,
(In thousands) 2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------------------------------
Memory $ (4,364) $ (4,945) $ (11,618) $ (13,576)
Non-memory 5,013 (19,267) (4,874) (44,612)
Restructuring and acquisition costs 9,161 (510) 22,005 12,777
Interest income 5,131 3,835 8,324 12,359
Interest expense (5,130) (4,684) (9,806) (9,629)
Other income and (expense), net (3,721) (1,527) (4,080) 1,177
--------------------------------------------------------------------------------------------------------------------------------
Loss before provision for income taxes $ (12,232) $ (26,078) $ (44,059) $ (67,058)
--------------------------------------------------------------------------------------------------------------------------------
|
Market Segment Information
Cypress does not allocate interest income and expense, income taxes, acquisition-related costs or restructuring charges to segments. Cypress does not allocate assets to segments. In addition, market segments do not have significant non-cash items other than depreciation and amortization in reported profit or loss.
Market Segment Net Revenues
Three months ended Six months ended
--------------------------------------------------------------------------------------------------------------------------------
June 29, June 30, June 29, June 30,
(In thousands) 2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------------------------------
Wide area networks/storage area networks $ 65,017 $ 64,300 $ 120,634 $ 125,312
Wireless terminals/wireless infrastructure 58,701 67,249 116,192 126,375
Computation and consumer 71,440 65,470 131,805 134,638
Cypress subsidiaries 7,958 5,102 15,452 8,951
--------------------------------------------------------------------------------------------------------------------------------
Total consolidated revenues $ 203,116 $ 202,121 $ 384,083 $ 395,276
--------------------------------------------------------------------------------------------------------------------------------
|
Market Segment Income (Loss) Before Provision for Income Taxes
Three months ended Six months ended
--------------------------------------------------------------------------------------------------------------------------------
June 29, June 30, June 29, June 30,
(In thousands) 2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------------------------------
Wide area networks/storage area networks $ (2,336) $ (10,973) $ (13,045) $ (27,812)
Wireless terminals/wireless infrastructure 191 (4,376) (1,955) (14,636)
Computation and consumer 10,523 (2,094) 12,952 (2,143)
Cypress subsidiaries (7,729) (6,769) (14,444) (13,597)
Restructuring and acquisition costs 9,161 (510) 22,005 12,777
Interest income 5,131 3,835 8,324 12,359
Interest expense (5,130) (4,684) (9,806) (9,629)
Other income and (expense), net (3,721) (1,527) (4,080) 1,177
--------------------------------------------------------------------------------------------------------------------------------
Loss before provision for income taxes $ (12,232) $ (26,078) $ (44,059) $ (67,058)
--------------------------------------------------------------------------------------------------------------------------------
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Note 13 - Earnings (Loss) Per Share
Basic net income (loss) per common share is computed using the weighted-average common shares outstanding for the period. Diluted net income (loss) per common share is computed as though all potential dilutive common shares were outstanding during the period. Dilutive securities include stock options and shares issuable upon the conversion of convertible debt.
For the three and six months ended June 29, 2003 and June 30, 2002, common stock issuable upon the assumed conversion of convertible subordinated notes were excluded from the calculation of diluted net loss per share as the effect would be anti-dilutive. In addition, at June 29, 2003 and June 30, 2002, total outstanding options to
purchase 42.5 million shares of common stock with a weighted-average exercise price of $13.19, and 37.2 million shares of common stock with a weighted-average exercise price of $15.36, respectively, were excluded from the calculation of diluted net loss per share, as the effect would be anti-dilutive.
Of each of Cypress's $1,000 principal value 1.25% convertible notes issued in June 2003, $700 principle value (70%) is convertible at any time prior to maturity into 55.172 shares of common stock, subject to certain adjustments, plus $300 of cash. Cypress, at its option may pay the $300 in shares of common stock, subject to certain conditions. For purposes of determining Cypress's diluted earnings per share calculation, it is presumed that the $300 payment will be settled in cash. Therefore, earnings in the diluted earnings per share calculation, which assumes conversion of the convertible notes into 55.172 shares of common stock at the beginning of the period (or at time of issuance, if later), will be adjusted by 70% of the interest expense and bond issuance costs.
Note 14 - Micron Technology Inc.
In Q2 2003, Cypress entered into a sale and purchase agreement pursuant to which Micron transferred its high-performance communications oriented synchronous SRAM product inventory to Cypress.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CYPRESS SEMICONDUCTOR CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the Three and Six Month Periods Ended June 29, 2003
The discussion in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties, including, but not limited to, statements as to future operating results and business plans, our prospects and the prospects of the semiconductor industry generally, the impact of new product development and improvements in manufacturing technologies and yields on variances, pressure on and trends for average selling prices, our intention to seek intellectual property protection for our manufacturing processes, expected capital expenditures, future acquisitions, the financing of SunPower Corporation, the repayment of loans by SunPower, the dependence of future success on our ability to develop and introduce new products, the general economy and its impact to the market segments we serve, changing environment and the cycles of the semiconductor industry, competitive pricing and the rate at which new products are introduced, successful integration and achieving the objectives of the acquired businesses, cost goals emanating from manufacturing efficiencies, expected financing and investment cash outlays, adequacy of cash and working capital, when we expect to generate positive cash flow from operations, risks related to investing in development stage companies, and other liquidity risks. We use words such as "anticipates," "believes," "expects," "future," "intends" and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in "Risk Factors" below and elsewhere in this report.
Results of Operations
Business Segment Net Revenues
Revenues for the three and six months ended June 29, 2003 ("Q2 2003") were $203.1 and $384.1 million, respectively, an increase of $1.0 million or 0.5% and a decrease of $11.2 million or 2.8%, respectively, compared to revenues for the three and six months ended June 30, 2002 ("Q2 2002") of $202.1 and $395.3 million. We derive our revenues from the sale of Memory products and Non-memory products, which are targeted primarily to the data communications, wireless, computation and consumer markets.
Three months ended Six months ended
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June 29, June 30, June 29, June 30,
(In thousands) 2003 2002 2003 2002
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Memory $ 80,780 $ 84,117 $ 148,590 $ 157,154
Non-memory 122,336 118,004 235,493 238,122
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Total consolidated revenues $ 203,116 $ 202,121 $ 384,083 $ 395,276
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Revenues from the sale of Memory products for the three and six months ended Q2 2003 decreased $3.3 million and $8.6 million or 4.0% and 5.4% versus revenues from the sale of these products for the three and six months ended Q2 2002. In Q2 2003, we acquired Micron's Synchronous Static Random Access Memory ("SRAM") product portfolio, which contributed $9.6 million of revenue to the Memory product group for Q2 2003 and the first half of fiscal 2003. The decline in revenue for both the three and six months ended Q2 2003 were driven by declines in the Fast and Micropower families compared to the three and six months ended June 30, 2002.
Memory product units decreased 7.4% for the six months ended Q2 2003 versus the comparable fiscal 2002 period, with declines in the Fast and Micropower family products being partially offset by increases in the Sync family of products. Average selling prices ("ASPs") for the first half of fiscal 2003 decreased from the first half of fiscal 2002 although the average density (Mbits/Unit) of SRAM products sold continued to increase. We use ASP/Mbit as an indication of the magnitude of price change for Memory Products. This metric reflects changes in product mix and density as well as market price. ASP/Mbit declined 27.0% in the six months ended Q2 2003 from the six months ended Q2 2002.
For the fiscal quarter ended Q2 2003, revenue from the sale of Non-memory products increased $4.3 million or 3.7% versus the second quarter of fiscal 2002. The increase was driven by Universal Serial Bus ("USB") 2.0, Neuron, adoption of our multi-PORT ("MPORT"), Network Search Engines ("NSEs"), Programmable Logic
Devices ("PLDs") and Programmable System on a Chip ("PSoC") products offset by reduced demand for our Frequency Timing Generators ("FTG") and Programmable Clocks. Non-memory revenue for the first half of fiscal 2003 declined by $2.6 million or 1.1% versus the comparable fiscal 2002 period. The decrease resulted from lower Programmable Read Only Memory ("PROM") and PLD revenue.
Non-memory product unit sales increased for the three and six months ended Q2 2003 by 1.4% and 0.5% compared to the three and six months ended Q2 2002. This reflects an increase in unit sales from our USB family of products, Neuron, FTG, MPORT, NSEs and PSoC products offset by reduced unit demand for Programmable Clocks, First-In, First-Out ("FIFO") Memories and PLDs.
As is typical in the semiconductor industry, ASPs of products generally decline over the lifetime of the products. To increase revenues, we seek to expand our market share in the markets we currently serve and to introduce and sell new products with higher ASPs.
Cost of Revenues/Gross Margin
Costs of revenues for the three and six months ended Q2 2003 were $106.4 million and $209.0 million, respectively, compared to $110.9 and $229.1 million, respectively, for the three and six months ended Q2 2002. This equates to gross margins for the three and six months ended Q2 2003 of 47.6% and 45.6%, respectively, compared to 45.2% and 42.0%, respectively, for the three and six months ended Q2 2002.
The gross margin of Memory products for the three and six months ended Q2 2003 were 24.9% and 24.8%, respectively, compared to 24.0% and 22.8%, respectively, for the three and six months ended Q2 2002. The gross margin of Non-memory products for the three and six months ended Q2 2003 were 62.6% and 58.7%, respectively, compared to 60.2% and 54.8%, respectively, for the three and six months ended Q2 2002.
For Memory products, revenue from the sale of products manufactured on our 0.15 micron technology increased to 42% and 45%, respectively, of revenue for the three and six months ended Q2 2003 from 31% and 20%, respectively, for the comparable fiscal 2002 periods. Gross margins increased as cost reduction programs and the shift to more advanced technologies offset the decline in ASPs.
The Non-memory products gross margin improved due to a shift to higher margin MPORT, NSE, physical layer ("PHY") and PLD product sales as well as a transition to USB 2.0 for the three and six months ended Q2 2003 as compared to the same periods in fiscal 2002.
In the three and six months ended Q2 2003 compared to Q2 2002, although our ASPs declined significantly, we were able to offset the impact of declining prices on our gross margin by implementing cost cutting measures including reducing manufacturing capacity and related headcount. In addition, we continued to reduce manufacturing cycle times, reduce die size, improve labor productivity, improve efficient use of capital resources, improve defect densities, improve yields and ultimately lower manufacturing costs.
During the three and six months ended Q2 2003, our gross margin benefited as a result of the sale of previously reserved inventory in an amount representing the reserves previously recognized. The incremental gross profit benefit recognized was 3% and 2% for the three and six months ended Q2 2003, and 3% and 2% for the three and six months ended Q2 2002.
In January 2002, the Department of Commerce revoked a 1998 antidumping order that had been imposed on SRAMs fabricated in Taiwan and imported into the United States. The United States Customs Service was ordered to refund, with interest, all duties deposited under the 1998 antidumping order. Between 1998 and 2001, we charged $10.3 million to Cost of revenues for such duties. During Q1 2002, we received $11.8 million in refunds, of which $9.9 million was recorded as an offset to Cost of revenues for Memory products and $1.9 million was recorded in Interest income. This benefit to our gross margin was substantially offset by certain other items, including a change in estimate for deferred income on sales to distributors.
Research and Development
Three months ended Six months ended
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June 29, June 30, % June 29, June 30, %
(In thousands) 2003 2002 Change 2003 2002 Change
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Revenues $203,116 $202,121 0.5% $384,083 $395,276 (2.8)%
Research and development 64,208 80,119 (19.9)% 128,614 153,601 (16.3)%
R&D as a percent of revenues 31.6% 39.6% (8.0)% 33.5% 38.9% (5.4)%
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Research and development ("R&D") expenditures in the three month and six month periods ended Q2 2003 decreased from the same periods in fiscal 2002 due to closing down of design centers, headcount reductions in existing locations, and a reduction in non-cash deferred stock compensation. To keep up with changing business conditions and with our customer needs, we have scaled back on some of our process and design projects and refocused our attention on fewer projects that are critical to our success. At the end of Q2 2003, we had 65 active design projects compared to 72 at the end of Q2 2002. The design center closures and headcount reductions contributed a reduction of $5.8 million and $10.7 million for the three month and six month periods ended Q2 2003 compared to the equivalent periods in fiscal 2002. During Q2 2003 and the first six months of fiscal 2003, we recorded $3.8 million and $9.8 million, respectively, in non-cash deferred stock compensation and cash compensation related to milestone/revenue-based compensation from acquisitions as compared to $16.6 million and $28.5 million, respectively, for the comparable fiscal 2002 periods. The decrease in these acquisition-related compensation charges is attributed to the reduction in non-cash deferred compensation amortization (headcount reduction) and milestones not being achieved in the second quarter and the first six months of fiscal 2003.
We believe that our future success will depend on our ability to develop and introduce new products that will compete effectively on the basis of price, performance and ability to address customer needs. Our process technology research focuses primarily on the continuous migration to smaller geometries. During Q2 2003, we continued ramping our latest 0.13-micron technology in manufacturing. We are simultaneously transferring our 90 nanometer technology from our eight-inch R&D facility in San Jose, California ("Fab 1") to our eight-inch manufacturing facility in Minnesota ("Fab 4"). We successfully introduced our first 72M SRAM samples on our 90 nanometer technology in June 2003.
Selling, General and Administrative
Three months ended Six months ended
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June 29, June 30, % June 29, June 30, %
(In thousands) 2003 2002 Change 2003 2002 Change
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Revenues $203,116 $202,121 0.5% $384,083 $395,276 (2.8)%
Selling, general and administrative 31,811 35,362 (10.0)% 62,940 70,745 (11.0)%
SG&A as a percent of revenues 15.7% 17.5% (1.8)% 16.4% 17.9% (1.5)%
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Selling, general and administrative ("SG&A") expenses for the three and six months ending in Q2 2003 decreased $3.6 million and $7.8 million, respectively, compared to the three and six months ended Q2 2002. The reduction is the result of the restructuring/reduction efforts in fiscal 2002 and fiscal 2001. These efforts have led to reduced labor charges, lower commission and travel expenses and decreases in general spending levels. Legal spending in fiscal 2003 has also declined due to the settlement of litigation with Integrated Circuit Systems, Inc. which was settled in the third quarter of fiscal 2002.
For the three and six months ended Q2 2003, we recorded $0.1 million and $0.3 million, respectively, in non-cash deferred compensation from acquisitions and cash compensation related to milestone/revenue-based compensation from acquisitions compared to $0.6 million and $2.6 million, respectively, for the comparable fiscal 2002 periods.
Restructuring
The semiconductor industry has historically been characterized by wide fluctuations in demand for, and supply of, semiconductors. In some cases, industry downturns have lasted more than a year. Prior experience has shown that restructuring of the operations, resulting in significant restructuring charges, may become necessary if an industry downturn persists. We currently have two active restructuring plans - one initiated in the third quarter of fiscal 2001 ("Fiscal 2001 Restructuring Plan") and the other initiated in the fourth quarter of fiscal 2002 ("Fiscal 2002 Restructuring Plan"). We recorded initial restructuring charges in fiscal 2002 and fiscal 2001 based on assumptions that we deemed appropriate for the economic environment that existed at the time these estimates were made. However, due to continued changes in the semiconductor industry and in specific business conditions, we took additional actions and made appropriate adjustments to both the Fiscal 2001 Restructuring Plan for property, plant and equipment, leased facilities and personnel costs and the Fiscal 2002 Restructuring Plan for personnel costs.
Fiscal 2002 Restructuring Plan:
On October 17, 2002, we announced a restructuring plan that included the resizing of our manufacturing facilities and the reduction of operating expenses, including research and development and selling, general and administrative. In the fourth quarter of fiscal 2002 ("Q4 2002"), we recorded a charge of $45.4 million which
consisted of $36.0 million related to equipment removed from service and held for sale, $8.2 million for workforce reductions for approximately 380 employees, including severance and benefits costs, and $1.2 million for leased facilities. To date, we have disposed of equipment with a net book value of $7.3 million. The net book value of the remaining unsold equipment as of June 29, 2003 was $30.7 million. The proceeds from the sales of the assets approximated their carrying values. The majority of the workforce reduction affected the United States, with some reductions in Europe and the Philippines and sales offices that were closed in Europe and the United States. As of the end of Q2 2003, all of these employees had left Cypress.
A restructuring charge of $3.4 million was recorded in the first quarter of 2003 ("Q1 2003") for additional opportunities identified as part of the personnel portion of the Fiscal 2002 Restructuring Plan. The charge relates to the severance and related employee benefit costs for the termination of approximately 150 additional employees, the majority of whom were located in the United States at our facilities in San Jose, Texas and Minnesota. As of the end of Q2 2003, all of these employees had left Cypress.
In Q2 2003, we placed back into service certain of these assets previously recorded as held for sale. The assets were needed to meet increased production requirements resulting from a substantial increase in unit demand versus our initial assumptions at the time of the restructuring in Q4 2002. When the assets were put back into service, they were recorded at their fair value in accordance with SFAS No. 144, and the related impairment reserve of $3.2 million was reversed.
The following table summarizes the activity associated with the restructuring liabilities and asset write-downs since the inception of the restructuring plan in the Q4 2002:
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Property, plant Leased
(In thousands) & equipment Facilities Personnel Total
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Q4 2002 Provision $ 35,959 $ 1,211 $ 8,188 $ 45,358
Non-cash charges (39) -- (40) (79)
Cash charges (50) (524) (5,276) (5,850)
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Balance at December 29, 2002 35,870 687 2,872 39,429
Q1 2003 Provision -- -- 3,360 3,360
Non-cash charges (2,413) -- -- (2,413)
Cash charges (98) (2) (2,263) (2,363)
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Balance at March 30, 2003 33,359 685 3,969 38,013
Non-cash charges (3,161) -- -- (3,161)
Cash charges (225) (51) (3,224) (3,500)
Other adjustments (3,191) -- -- (3,191)
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Balance at June 29, 2003 $ 26,782 $ 634 $ 745 $ 28,161
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Fiscal 2001 Restructuring Plan:
On July 16, 2001, we announced a restructuring plan that involved resizing our manufacturing facilities, reducing our workforce and combining facilities. The restructuring was precipitated by the worldwide economic slowdown, particularly in the business areas in which we operate. The intended effect of the plan was to size the manufacturing operations and facilities to meet future demand and reduce expenses in all operations areas. During the third quarter of fiscal 2001, we recorded restructuring charges of $132.1 million related to property, plant and equipment, leased facilities and personnel.
In connection with the July 16, 2001 announcement, in the third quarter of fiscal 2001, we removed from service and held for sale equipment with a net book value of $116.9 million, resulting in a charge of $113.4 million. We have actively marketed the equipment. Through June 29, 2003, we had disposed of equipment with a net book value of $55.4 million. The proceeds from the sales of the assets generally approximated their carrying values. In the second and third quarters of fiscal 2002 ("Q2 2002" and "Q3 2002," respectively), we placed back into service certain of these assets previously recorded as held for sale. The assets were needed to meet increased production requirements resulting from a substantial increase in unit demand versus our initial assumptions at the time of the restructuring in the third quarter of 2001 ("Q3 2001"). When the assets were put back into service, they were written up to their prior cost basis (an adjustment of $13.2 million and $9.6 million in Q2 2002 and Q3 2002, respectively), reduced for depreciation expense that would have been recorded during the period the asset was removed from service (an adjustment of $2.9 million and $2.6 million in Q2 2002 and Q3 2002, respectively), as required by Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS 121"). The net effect of the asset adjustment was a credit to the Restructuring line on the Condensed Consolidated Statement of Operations of $10.3 million and $7.0 million in their prior cost basis. In the first
quarter of fiscal 2002 ("Q1 2002"), we also sold and then leased back certain other pieces of equipment classified as held for sale. The proceeds from the sales of the assets approximated their net carrying values. We continue to actively market the remaining assets held for sale.
In Q1 2002, we recorded an additional charge of $1.6 million for additional cost reductions identified as part of the personnel portion of the Fiscal 2001 Restructuring Plan. The charge related to severance and related employee benefit costs for the termination of employees, the majority of whom were located in the Philippines facility.
In Q3 2002, as a result of the continued drive to lower our cost structure and break-even sales, we further expanded the scope of the restructuring and recorded net restructuring costs of $2.4 million, which was comprised of a charge of $9.4 million offset by a $7.0 million reversal for previously written-down equipment put back into service discussed above. The charge of $9.4 million consisted of $3.3 million for work force reductions, and included severance, benefit costs and stock compensation, $3.4 million for capital equipment removed from service and held for sale and $2.7 million for the exiting of facility leases.
In Q4 2002, we recorded a credit of $0.7 million related to the revised estimate of personnel costs. In connection with the Fiscal 2001 Restructuring Plan, we had accrued costs related to an estimated 890 employees to be terminated. As of the end of Q2 2003, all of these employees had left Cypress.
The remaining net book value of unsold equipment as of June 29, 2003 was $26.7 million.
The following table summarizes the activity associated with the restructuring liabilities and asset write-downs since the inception of the Fiscal 2001 Restructuring Plan in Q3 2001:
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Property, plant Leased
(In thousands) & equipment Facilities Personnel Total
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Initial provision in September
30, 2001 $113,350 $ 4,079 $14,684 $132,113
Non-cash charges (5,145) -- (8,970) (14,115)
Cash charges (380) (53) (3,836) (4,269)
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Balance at September 30, 2001 107,825 4,026 1,878 113,729
Non-cash charges (2,124) -- (86) (2,210)
Cash charges (1,239) (160) (407) (1,806)
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Balance at December 30, 2001 104,462 3,866 1,385 109,713
Provision -- -- 1,595 1,595
Non-cash charges (5,096) -- -- (5,096)
Cash charges (147) (375) (1,581) (2,103)
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Balance at March 31, 2002 99,219 3,491 1,399 104,109
Cash charges (151) (503) (553) (1,207)
Other adjustments (13,217) -- -- (13,217)
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Balance at June 30, 2002 85,851 2,988 846 89,685
Provision 3,378 2,761 3,251 9,390
Non-cash charges (12,316) -- (924) (13,240)
Cash charges (484) (502) (1,039) (2,025)
Other adjustments (9,545) -- -- (9,545)
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Balance at September 29, 2002 66,884 5,247 2,134 74,265
Provision -- -- (701) (701)
Non-cash charges (12,786) -- -- (12,786)
Cash charges (419) (582) (799) (1,800)
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Balance at December 29, 2002 53,679 4,665 634 58,978
Provision -- -- -- --
Non-cash charges (16,046) -- -- (16,046)
Cash charges (862) (674) (540) (2,076)
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Balance at March 30, 2003 36,771 3,991 94 40,856
Provision -- -- -- --
Non-cash charges (1,206) -- -- (1,206)
Cash charges (471) (739) (115) (1,325)
Other adjustments (64) -- 21 (43)
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Balance at June 29, 2003 $ 35,030 $ 3,252 $ 0 $ 38,282
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Acquisition Costs
Acquisition costs consist primarily of the amortization of acquired intangible assets and expensed in-process research and development charges. Amortization of intangible assets was $9.3 million and $18.8 million for the three and six months ended June 29, 2003, respectively, compared to $9.8 million and $21.5 million for the three and six months ended June 30, 2002, respectively. We expensed in-process research and development of $0.5 million in Q1 2002 related to the acquisition of Sahasra Networks.
Interest Income, Interest Expense and Other Income and (Expense), Net
Three months ended Six months ended
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June 29, June 30, June 29, June 30,
(In thousands) 2003 2002 2003 2002
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Interest income $ 5,131 $ 3,835 $ 8,324 $ 12,359
Interest expense (5,130) (4,684) (9,806) (9,629)
Other income and (expense), net (3,721) (1,527) (4,080) 1,177
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Interest and other income and (expense), net $ (3,720) $ (2,376) $ (5,562) $ 3,907
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Interest income increased by $1.3 million or 33.8% in Q2 2003 versus Q2 2002 due to higher cash balances, but was tempered by lower investment yields. The higher cash balance was driven primarily by proceeds received from our 1.25% convertible bond offering during Q2 2003. Interest bearing cash and investment balances increased by $351.9 million from $247.9 million as of June 30, 2002 to $599.8 million as of June 29, 2003. Subsequent to June 29, 2003, we retired all of our 4.0% convertible subordinated notes (principle amount $255.2 million) and $70.0 million (principle amount), of our 3.75% convertible subordinated notes. Interest income for the three and six month periods ended June 29, 2003 included $1.1 million and $1.3 million, respectively, of interest related to the shareholder approved Stock Purchase Assistance Plan (see Note 11 for more details).
Interest expense increased by $0.4 million in Q2 2003 to $5.1 million versus Q2 2002 primarily due to the issuance of $600.0 million 1.25% convertible subordinated notes on June 3, 2003. Interest expense is primarily associated with our 4.0%, 3.75% and 1.25% convertible subordinated notes issued in January 2000, June 2000 and June 2003, respectively.
Other income and (expense), net was $(3.7) million and $(4.1) million, respectively, for Q2 2003 and the first six months of fiscal 2003 compared to $(1.5) million and $1.2 million, respectively, for the comparable fiscal 2002 periods. Below is a summary of the major components:
Three months ended Six months ended
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June 29, June 30, June 29, June 30,
(In thousands) 2003 2002 2003 2002
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Amortization of bond issuance costs $ (960) $ (704) $ (1,651) $ (1,456)
Gain (loss) on repurchase of bonds (1,247) 1,242 (1,247) 5,946
Investment impairment charges (1,012) (2,101) (1,012) (2,101)
Foreign exchange losses (608) 40 (897) (1,366)
Minority interest 66 -- 1,045 --
Other 40 (4) (318) 154
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Other income and (expense), net $ (3,721) $ (1,527) $ (4,080) $ 1,177
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Income Taxes
Our effective rates of income tax expense for Q2 2003 and Q2 2002 were 1.7% and 7.6%, respectively. For the six months ended June 29, 2003 and June 30, 2002, our effective rates of income tax expense were 3.9% and 1.2%, respectively. A tax provision of $0.2 million was recorded during Q2 2003 compared to a tax provision of $2.0 million during Q2 2002. The tax provision for each fiscal year is attributable to foreign withholding tax on royalty income and income earned in certain countries that is not offset by current year net operating losses in other countries. The future tax benefit of certain losses is not currently recognized due to management's assessment of the likelihood of realization of these benefits. Our effective tax rate may vary from the U.S. statutory rate primarily due to utilization of future benefits, the earnings of foreign subsidiaries taxed at different rates, tax credits, and other business factors.
Liquidity and Capital Resources
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June 29, December 29,
2003 2002
(In thousands)
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Cash, cash equivalents and short-term investments $ 511,293 $ 127,937
Long-term marketable securities 25,761 16,574
Restricted cash 62,728 62,380
Long-term debt (excluding current portion) 685,159 469,875
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Key Components of Cash Flow
Our cash, cash equivalents and short-term investments totaled $511.3 million at June 29, 2003, a $383.4 million increase from the end of fiscal 2002. In July 2003, we redeemed $325.2 million of our 4.0% and 3.75% convertible notes. The increase is primarily due to financing activities in the first six months of fiscal 2003.
Cash generated from operations was $36.7 million in the first half of fiscal 2003 compared to a use of cash of $8.8 million in the first half of fiscal 2002. Lower operating losses contributed $22.1 million of this; $11.8 million resulted from lower working capital requirements and the balance of $11.6 million is related to changes in non-cash items.
Investment activities used cash of $34.4 million in the first half of fiscal 2003 compared to a use of cash of $5.6 million in the first half of fiscal 2002, despite $52.7 million of lower capital expenditures and $22.6 million less of other investments. The difference was driven by the lower sales or maturities of investments.
Financing activities generated $392.4 million in the first half of fiscal 2003 compared to using $26.8 million in the first half of fiscal 2002. This was driven by the timing of the new convertible debt issue with the net proceeds received in the second quarter of fiscal 2003. See Note 7 to the Condensed Consolidated financial statements for a detailed discussion related to changes in our convertible debt.
Liquidity
Based on our current plan, we expect to generate positive cash flow from operations in the fiscal year ending December 28, 2003. Our expected significant investment and financing cash outlays for the fiscal year ending December 28, 2003 include capital expenditures for investment in our product development and technology initiatives and investments in SunPower Corporation ("SunPower"). The Board of Directors has approved programs authorizing the repurchase of our common stock and convertible subordinated notes (the "Subordinated Notes") in the open market or in privately negotiated transactions at anytime. However, the timing and actual number of shares or principal amount to be repurchased is limited to $15.0 million, is at the discretion of management and is contingent on numerous factors including cash flow.
We have $668.7 million of aggregate principal amount in subordinated notes that are due in July 2005 and June 2008 in the amount of $68.7 million and $600.0 million, respectively. In July 2003, we repurchased our 3.75% Convertible Subordinated Notes with a principal balance of $70.0 million and repurchased the remaining outstanding 4.0% Convertible Subordinated Notes with a principal balance of $255.2 million. All the subordinated notes are subject to compliance with certain covenants that do not contain financial ratios. As of June 29, 2003, we were in compliance with these covenants. If we failed to be in compliance with these covenants beyond any applicable grace period, the trustee of the Subordinated Notes, or the holders of a specific percentage thereof, would have the ability to demand immediate payment of all amounts outstanding.
We have entered into a new master synthetic operating lease agreement, to replace two previously existing synthetic operating lease agreements, for manufacturing and office facilities with one lessor. This lease requires us to purchase the property or to arrange for the property to be acquired by a third party at lease expiration. If we had exercised our right to purchase all the properties subject to this lease at June 29, 2003, we would have been required to make a payment and record assets totaling $62.7 million. We are required to maintain restricted cash or investments to serve as collateral for this lease. As of June 29, 2003, the amount of restricted cash recorded was $62.7 million, which was classified as a non-current asset on our condensed consolidated balance sheet.
At June 29, 2003, we had an outstanding note with Sumitomo Bank Japan. The principal amount including accrued interest was $3.9 million (denominated in Yen). This amount was paid on June 30, 2003.
In May 2002, we invested $8.7 million in convertible preferred stock of privately held SunPower, a manufacturer of ultra-high-efficiency silicon solar cells. We currently own approximately 57% of SunPower on an as converted basis. We own a warrant to purchase an additional $16.0 million in convertible preferred stock ("Preferred Stock Warrant") of SunPower. Since we did not exercise the warrant by April 1, 2003, we are obligated to fund SunPower up to $5.6 million through May 2004 at a rate of up to $0.4 million per month. As of June 29, 2003, we had loaned SunPower $1.2 million bearing interest at the applicable federal rate in accordance with this obligation. Subject to certain product qualification tests, we intend to exercise the Preferred Stock Warrant in the second half of fiscal 2003.
In Q1 2003, we loaned SunPower $2.5 million. SunPower will be repaying the loan monthly through 2008. In addition, we intend to secure financing for a loan of up to $30.0 million on behalf of SunPower in the third quarter of fiscal 2003 ("Q3 2003"). As of June 29, 2003, Cypress had advanced $3.5 million against this future facility. Subsequent to June 29, 2003, Cypress advanced an additional $8.2 million. During Q1 2003, we obtained effective control and now include SunPower in our condensed consolidated financial results.
As disclosed in Note 7, we entered into long-term loan agreements with two lenders with an aggregate principal equal to $24.8 million in Q1 2003. These agreements are collateralized by specific equipment located at our U.S. manufacturing facilities. Principal amounts are to be repaid with monthly installments inclusive of accrued interest, over a 3 to 4 year period. The applicable interest rates are variable based on changes to LIBOR rates. Both loans are subject to financial and non-financial covenants and we were in compliance with these covenants as of June 29, 2003. As of June 29, 2003, the remaining principal amount of both loans was $23.7 million.
We currently plan for approximately $100.0 million in expenditures on equipment in fiscal 2003 and anticipate significant continuing capital expenditures in subsequent years.
Capital Resources and Financial Condition
As of June 30, 2003 we had cash, cash equivalents, and investments totaling $537.1 million. In July 2003, we used $325.2 million to retire our 4.0% convertible subordinated notes (principal amount of $255.2) and 3.75% convertible subordinated notes (principal amount of $70.0 million). After the retirement of the above notes, we had cash, cash equivalents, and investments of approximately $211.9 million. We had an additional $62.7 million of restricted cash held as collateral for real estate synthetic leases.
We believe that liquidity provided by existing cash, cash equivalents, investments, our borrowing arrangements described above and cash generated from operations, will provide sufficient capital to meet our requirements for at least the next twelve months. However, should prevailing economic conditions and/or financial, business and other factors beyond our control adversely affect our estimates of our future cash requirements (including our debt obligations), we would be required to fund our cash requirements by alternative financing. There can be no assurance that additional financing, if needed, would be available on terms acceptable to us or at all.
We may choose at any time to raise additional capital to strengthen our financial position, facilitate growth, refinance and/or restructure our debt and provide us with additional flexibility to take advantage of business opportunities that arise.
Recent Accounting Pronouncements
Financial Accounting Standards Board ("FASB") Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), was issued in January 2003. FIN 46 requires that if an entity is the primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity should be included in the consolidated financial statements of the entity. The provisions of FIN 46 are effective immediately for all arrangements entered into after January 31, 2003. We have not invested in any variable interest entities after January 31, 2003. For those arrangements entered into prior to January 31, 2003, the provisions of FIN 46 are required to be adopted at the beginning of the first interim or annual period beginning after June 15, 2003. On June 27, 2003, we entered into a new operating lease to refinance the old ones (see Note 6). We refinanced these leases in a manner that best met our financing strategy and is not subject to the consolidation provisions of FIN 46. We are evaluating the effect on our condensed consolidated financial statements of arrangements created prior to February 1, 2003. We do not expect to identify any significant variable interest entities that would be consolidated.
In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). The new guidance
amends SFAS 133 for decisions made: (a) as part of the Derivatives
Implementation Group process that effectively required amendments to SFAS 133,
(b) in connection with other Board projects dealing with financial instruments,
and (c) regarding implementation issues raised in relation to the application of
the definition of a derivative, particularly regarding the meaning of
"underlying" and the characteristics of a derivative that contains financing
components. The amendments set forth in SFAS 149 improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly. SFAS 149 is generally effective for contracts entered into or
modified after June 30,
2003 (with a few exceptions) and for hedging relationships designated after June 30, 2003. We will apply the provisions of SFAS 149 prospectively to transactions entered into and or modified after June 30, 2003.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain circumstances). Many of these instruments were previously classified as equity. Although some of the provisions of this statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, "Elements of Financial Statements", the remainder are consistent with FASB's intention to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own shares. This statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. There was no impact to the condensed consolidated financial statements related to SFAS 150 for the six months ended June 29, 2003. We do not expect the application of SFAS 150 to have a material effect on our condensed consolidated financial statements.
Risk Factors
The discussion in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties, including, but not limited to, statements as to future operating results and business plans, our prospects and the prospects of the semiconductor industry generally, the impact of new product development and improvements in manufacturing technologies and yields on variances, pressure on and trends for average selling prices, our intention to seek intellectual property protection for our manufacturing processes, expected capital expenditures, future acquisitions, the financing of SunPower Corporation, the repayment of loans by SunPower, the dependence of future success on our ability to develop and introduce new products, the general economy and its impact to the market segments we serve, changing environment and the cycles of the semiconductor industry, competitive pricing and the rate at which new products are introduced, successful integration and achieving the objectives of the acquired businesses, cost goals emanating from manufacturing efficiencies, expected financing and investment cash outlays, adequacy of cash and working capital, when we expect to generate positive cash flow from operations, risks related to investing in development stage companies, and other liquidity risks. We use words such as "anticipates," "believes," "expects," "future," "intends" and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in "Risk Factors" below and elsewhere in this report.
We are exposed to the risks associated with the slowdown in the U.S. and worldwide economy.
Among other factors, concerns about inflation, decreased consumer confidence and spending and reduced corporate profits and capital spending have resulted in a downturn in the U.S. economy generally and in the semiconductor industry in particular. As a result of the downturn, our volumes initially declined and were followed by significant reductions in our average selling prices. We expect continued pressure on average selling prices in the future. As a consequence of the continued economic downturn in fiscal 2002, during the fourth quarter of fiscal 2002, we announced a restructuring plan that resized our manufacturing facilities, reduced our workforce and combined facilities. In Q1 2003, we took an additional charge for personnel related to the Fiscal 2002 Restructuring Plan. In fiscal 2002, we recorded a charge for the impairment of goodwill and intangibles related to Silicon Light Machines as well as the impairment of certain other investments in development stage companies. If the adverse economic conditions continue or worsen, additional restructuring of operations may be required, and our business, financial condition and results of operations may be seriously harmed.
We face periods of industry-wide semiconductor over-supply that harm our results.
The semiconductor industry has historically been characterized by wide fluctuations in the demand for, and supply of, semiconductors. These fluctuations have helped produce many occasions when supply and demand for semiconductors have not been in balance. In the past, these industry-wide fluctuations in demand, which have resulted in under-utilization of our manufacturing capacity, have seriously harmed our operating results. In some cases, industry downturns with these characteristics have lasted more than a year. Prior experience has shown that restructuring of the operations, resulting in significant restructuring charges, may become necessary if an industry downturn persists. In response to the current significant downturn, we restructured our manufacturing operations and administrative areas in Q3 2001 and Q4 2002 to increase cost efficiency while
still maintaining an infrastructure that will enable us to grow when sustainable economic recovery begins. When these cycles occur, however, they will likely seriously harm our business, financial condition and results of operations and we may need to take further action to respond to them.
Our future operating results are likely to fluctuate and therefore may fail to meet expectations.
Our operating results have varied widely in the past and may continue to fluctuate in the future. In addition, our operating results may not follow any past trends. Our future operating results will depend on many factors and may fluctuate and fail to meet our expectations or those of others for a variety of reasons, including the following:
o the intense competitive pricing pressure to which our products are
subject, which can lead to rapid and unexpected declines in average
selling prices;
o the complexity of our manufacturing processes and the sensitivity of our
production costs to declines in manufacturing yields, which make yield
problems both possible and costly when they occur; and
o the need for constant, rapid, new product introductions which present an
ongoing design and manufacturing challenge, which can be significantly
impacted by even relatively minor errors, and which may result in products
never achieving expected market demand.
As a result of these or other factors, we could fail to achieve our expectations as to future revenues, gross profit and income from operations. Any downward fluctuation or failure to meet expectations will likely adversely affect the value of your investment in Cypress.
In addition, because we recognize revenues from sales to certain distributors only when these distributors make a sale to customers, we are highly dependent on the accuracy of their resale estimates. The occurrence of inaccurate estimates also contributes to the difficulty in predicting our quarterly revenue and results of operations and we can fail to meet expectations if we are not accurate in our estimates.
Our financial results could be seriously harmed if the markets in which we sell our products do not grow.
Our continued success depends in large part on the continued growth of various electronics industries that use our semiconductors, including the following industries:
o networking equipment;
o wireless telecommunications equipment;
o computers and computer-related peripherals; and
o consumer electronics, automotive electronics and industrial controls.
Many of our products are incorporated into data communications and telecommunications end products. Any reduction in the growth of, or decline in the demand for, networking applications, mass storage, telecommunications, cellular base stations, cellular handsets and other personal communication devices that incorporate our products could seriously harm our business, financial condition and results of operations. In addition, certain of our products, including USB microcontrollers and high-frequency clocks, are incorporated into computer and computer-related products, which have historically and may in the future experience significant fluctuations in demand. We may also be seriously harmed by slower growth in the other markets in which we sell our products.
We are affected by a general pattern of product price decline and fluctuations, which can harm our business.
Even in the absence of an industry downturn, the average selling prices of our products have historically decreased during the products' lives and we expect this trend to continue. In order to offset selling price decreases, we attempt to decrease the manufacturing costs of our products and to introduce new, higher priced products that incorporate advanced features. If these efforts are not successful or do not occur in a timely manner, or if our newly introduced products do not gain market acceptance, our business, financial condition and results of operations could be seriously harmed.
In addition to following the general pattern of decreasing average selling prices, the selling prices for certain products, particularly commodity products, fluctuate significantly with real and perceived changes in the balance of supply and demand for these products. In the event we are unable to decrease per unit manufacturing costs at a rate equal to or faster than the rate at which selling prices continue to decline, our business, financial
condition and results of operations will be seriously harmed. Furthermore, we expect our competitors to invest in new manufacturing capacity and achieve significant manufacturing yield improvements in the future. These developments could dramatically increase the worldwide supply of competitive products and result in further downward pressure on prices.
We may be unable to protect our intellectual property rights adequately and may face significant expenses as a result of ongoing or future litigation.
Protection of our intellectual property rights is essential to keep others from copying the innovations that are central to our existing and future products. Consequently, we may become involved in litigation to enforce our patents or other intellectual property rights, to protect our trade secrets and know-how, to determine the validity or scope of the proprietary rights of others or to defend against claims of invalidity. This type of litigation can be expensive, regardless of whether we win or lose.
We are now and may again become involved in litigation relating to alleged infringement by us of others' patents or other intellectual property rights. This type of litigation is frequently expensive to both the winning party and the losing party and could take up significant amounts of management's time and attention. In addition, if we lose such a lawsuit, a court could require us to pay substantial damages and/or royalties or prohibit us from using essential technologies. For these and other reasons, this type of litigation could seriously harm our business, financial condition and results of operations. Also, although in certain instances we may seek to obtain a license under a third party's intellectual property rights in order to bring an end to certain claims or actions asserted against us, we may not be able to obtain such a license on reasonable terms or at all.
For a variety of reasons, we have entered into technology license agreements with third parties that give those parties the right to use patents and other technology developed by us and that gives us the right to use patents and other technology developed by them. We anticipate that we will continue to enter into these kinds of licensing arrangements in the future. It is possible however, that licenses we want will not be available to us on commercially reasonable terms or at all. If we lose existing licenses to key technology, or are unable to enter into new licenses that we deem important, our business, financial condition and results of operations could be seriously harmed.
It is critical to our success that we are able to prevent competitors from copying our innovations. We, therefore, intend to continue to seek patent, trade secret and mask work protection for our semiconductor manufacturing technologies. The process of seeking patent protection can be long and expensive and we cannot be certain that any currently pending or future applications will actually result in issued patents, or that, even if patents are issued, they will be of sufficient scope or strength to provide meaningful protection or any commercial advantage to us. Furthermore, others may develop technologies that are similar or superior to our technology or design around the patents we own.
We also rely on trade secret protection for our technology, in part through confidentiality agreements with our employees, consultants and third parties. However, these parties may breach these agreements and we may not have adequate remedies for any breach. Also, others may come to know about or determine our trade secrets through a variety of methods. In addition, the laws of certain countries in which we develop, manufacture or sell our products may not protect our intellectual property rights to the same extent as the laws of the United States.
Our financial results could be adversely impacted if we fail to develop, introduce and sell new products or fail to develop and implement new manufacturing technologies.
Like many semiconductor companies, which frequently operate in a highly competitive, quickly changing environment marked by rapid obsolescence of existing products, our future success depends on our ability to develop and introduce new products that customers choose to buy. We introduce significant numbers of products each year, which are an important source of revenue for us. If we fail to introduce new product designs in a timely manner or are unable to manufacture products according to the requirements of these designs, or if our customers do not successfully introduce new systems or products incorporating ours or market demand for our new products does not exist as anticipated, our business, financial condition and results of operations could be seriously harmed.
For us and many other semiconductor companies, introduction of new products is a major manufacturing challenge. The new products the market requires tend to be increasingly complex, incorporating more functions and operating at faster speeds than prior products. Increasing complexity generally requires smaller features on a chip. This makes manufacturing new generations of products substantially more difficult than prior generations. Ultimately, whether we can successfully introduce these and other new products depends on our
ability to develop and implement new ways of manufacturing semiconductors. If we are unable to design, develop, manufacture, market and sell new products successfully, our business, financial condition and results of operations would be seriously harmed.
Our ability to meet our cash requirements depends on a number of factors, many of which are beyond our control.
Our ability to meet our cash requirements (including our debt service obligations) is dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. We cannot assure that our business will generate sufficient cash flows from operations to fund our cash requirements. If we were unable to meet our cash requirements from operations, we would be required to fund these cash requirements by alternative financing. The degree to which we may be leveraged could materially and adversely affect our ability to obtain financing for working capital, acquisitions or other purposes, could make us more vulnerable to industry downturns and competitive pressures or could limit our flexibility in planning for, or reacting to, changes and opportunities in our industry, which may place us at a competitive disadvantage compared to our competitors. There can be no assurance that we will be able to obtain alternative financing, that any such financing would be on acceptable terms or that we will be permitted to do so under the terms of our existing financing arrangements. In the absence of such financing, our ability to respond to changing business and economic conditions, make future acquisitions, react to adverse operating results, meet our debt service obligations or fund required capital expenditures or increased working capital requirements may be adversely affected.
Interruptions in the availability of raw materials can seriously harm our financial performance.
Our semiconductor manufacturing operations require raw materials that must meet exacting standards. We generally have more than one source available for these materials, but for certain of our products there are only a limited number of suppliers capable of delivering the raw materials that meet our standards. If we need to use other companies as suppliers, they must go through a qualification process, which can be difficult and lengthy. In addition, for certain of our products the raw materials we need for our business could become more scarce as worldwide demand for semiconductors increases. Interruption of our sources of raw materials could seriously harm our business, financial condition and results of operations.
Problems in the performance of other companies we hire to perform certain manufacturing tasks can seriously harm our financial performance.
A high percentage of our products are assembled, packaged and tested at our manufacturing facility located in the Philippines. We rely on independent subcontractors to assemble, package and test the balance of our products. This reliance involves certain risks, because we have less control over manufacturing quality and delivery schedules, whether these companies have adequate capacity to meet our needs and whether or not they discontinue or phase-out assembly processes we require. We cannot be certain that these subcontractors will continue to assemble, package and test products for us and it might be difficult for us to find alternatives if they do not do so.
The complex nature of our manufacturing activities makes us highly susceptible to manufacturing problems and these problems can have substantial negative impact on us when they occur.
Making semiconductors is a highly complex and precise process, requiring production in a tightly controlled, clean environment. Even very small impurities in our manufacturing materials, difficulties in the wafer fabrication process, defects in the masks used to print circuits on a wafer or other factors can cause a substantial percentage of wafers to be rejected or numerous chips on each wafer to be nonfunctional. We may experience problems in achieving an acceptable success rate in the manufacture of wafers and the likelihood of facing such difficulties is higher in connection with the transition to new manufacturing methods. The interruption of wafer fabrication or the failure to achieve acceptable manufacturing yields at any of our facilities would seriously harm our business, financial condition and results of operations. We may also experience manufacturing problems in our assembly and test operations and in the introduction of new packaging materials.
We may not be able to use all of our existing or future manufacturing capacity, which can negatively impact our business.
We have in the past spent, and will continue to spend, significant amounts of money to upgrade and increase our wafer fabrication, assembly and test manufacturing capability and capacity. If we do not need some of this capacity and capability for any of a variety of reasons, including inadequate demand or a significant shift in the
mix of product orders that makes our existing capacity and capability inadequate or in excess of our actual needs, our fixed costs per semiconductor produced will increase, which will harm our business, financial condition and results of operations. In addition, if the need for more advanced products requires accelerated conversion to technologies capable of manufacturing semiconductors having smaller features or requires the use of larger wafers, we are likely to face higher operating expenses and may need to write-off capital equipment made obsolete by the technology conversion, either of which could seriously harm our business, financial condition and results of operations. For example, in response to various downturns and changes in our business, we have not been able to use all of our existing equipment and we have restructured our operations. These restructurings have resulted in material charges, which have negatively affected our business. If the downturn continues, we could incur additional restructuring charges, which could further negatively affect our business.
Our operations and financial results could be severely harmed by certain natural disasters.
Our headquarters, some manufacturing facilities and some of our major vendors' facilities are located near major earthquake faults. We have not been able to maintain earthquake insurance coverage at reasonable costs. Instead, we rely on self-insurance and preventative/safety measures. If a major earthquake or other natural disaster occurs, we may need to spend significant amounts to repair or replace our facilities and equipment and we could suffer damages that could seriously harm our business, financial condition and results of operations.
Our business, financial condition and results of operations will be seriously harmed if we fail to compete successfully in our highly competitive industry and markets.
The semiconductor industry is intensely competitive. This intense competition results in a difficult operating environment for us and most other semiconductor companies that is marked by erosion of average selling prices over the lives of each product, rapid technological change, limited product life cycles and strong domestic and foreign competition in many markets. A primary cause of this highly competitive environment is the strength of our competitors. The industry consists of major domestic and international semiconductor companies, many of which have substantially greater financial, technical, marketing, distribution and other resources than we do. We face competition from other domestic and foreign high-performance integrated circuit manufacturers, many of which have advanced technological capabilities and have increased their participation in markets that are important to us.
Our ability to compete successfully in the rapidly evolving high performance portion of the semiconductor technology industry depends on many factors, including:
o our success in developing new products and manufacturing technologies;
o the quality and price of our products;
o the diversity of our product line;
o the cost effectiveness of our design, development, manufacturing and
marketing efforts;
o our customer service;
o our customer satisfaction;
o the pace at which customers incorporate our products into their systems;
o the number and nature of our competitors and general economic conditions;
and
o our access to and the availability of capital.
Although we believe we currently compete effectively in the above areas to the extent they are within our control, given the pace of change in the industry, our current abilities are not a guarantee of future success. If we are unable to compete successfully in this environment, our business, financial condition and results of operations will be seriously harmed.
We must build semiconductors based on our forecasts of demand, and if our forecasts are inaccurate, we may have large amounts of unsold products or we may not be able to fill all orders.
We order materials and build semiconductors based primarily on our internal forecasts and secondarily on existing orders, which may be cancelled under many circumstances. Consequently, we depend on our forecasts as a principal means to determine inventory levels for our products and the amount of manufacturing capacity that we need. Because our markets are volatile and subject to rapid technological and price changes, our forecasts may be wrong and we may make too many or too few of certain products or have too much or too little manufacturing capacity. Also, our customers frequently place orders requesting product delivery almost immediately after the order is made, which makes forecasting customer demand even more difficult, particularly when supply is abundant. These factors also make it difficult to forecast quarterly operating results. If we are unable to predict accurately the appropriate amount of product required to meet customer demand, our
business, financial condition and results of operations could be seriously harmed, either through missed revenue opportunities because inventory for sale was insufficient or through excessive inventory that would require write-offs.
We must spend heavily on equipment to stay competitive and will be adversely impacted if we are unable to secure financing for such investments.
In order to remain competitive, semiconductor manufacturers generally must spend heavily on equipment to maintain or increase technology and design development and manufacturing capacity and capability. We currently plan for approximately $100.0 million in expenditures on equipment in fiscal 2003 and anticipate significant continuing capital expenditures in subsequent years. In the past, we have reinvested a substantial portion of our cash flow from operations in technology, design development and capacity expansion and improvement programs.
If we are unable to decrease costs for our products at a rate at least as fast as the rate of the decline in selling prices for such products, we may not be able to generate enough cash flow from operations to maintain or increase manufacturing capability and capacity as necessary. In such a situation, we would need to seek financing from external sources to satisfy our needs for manufacturing equipment and, if cash flow from operations declines too much, for operational cash needs as well. Such financing, however, may not be available on terms that are satisfactory to us or at all, in which case our business, financial condition and results of operations would be seriously harmed.
We compete with others to attract and retain key personnel, and any loss of, or inability to attract, such personnel would harm us.
To a greater degree than most non-technology companies, we depend on the efforts and abilities of certain key management and technical personnel. Our future success depends, in part, upon our ability to retain such personnel and to attract and retain other highly qualified personnel, particularly product and process engineers. We compete for these individuals with other companies, academic institutions, government entities and other organizations. Competition for such personnel is intense and we may not be successful in hiring or retaining new or existing qualified personnel.
We believe that stock option grants are critical to our ability to attract and retain personnel. The New York Stock Exchange implemented rules effective June 30, 2003 that would require, subject to certain exceptions, stockholder approval for equity compensation plans, including stock option plans. Our ability to hire or retain highly qualified personnel may be seriously impacted due to an inability to grant stock options and other equity based compensation if we are unable to obtain stockholder approval for such new plans in a timely manner or at all.
If we lose existing qualified personnel or are unable to hire new qualified personnel as needed, our business, financial condition and results of operations could be seriously harmed.
We face additional problems and uncertainties associated with international operations that could seriously harm us.
International revenues accounted for 61% of our total revenues in Q2 2003 and the first six months of fiscal 2003. Long-lived assets are held primarily in the United States with 10% held in the Philippines and 1% in other foreign countries. Our Philippine assembly and test operations, as well as our international sales offices, face risks frequently associated with foreign operations including:
o currency exchange fluctuations;
o the devaluation of local currencies;
o political instability;
o changes in local economic conditions;
o import and export controls; and
o changes in tax laws, tariffs and freight rates.
To the extent any such risks materialize, our business, financial condition and results of operations could be seriously harmed.
We are subject to many different environmental regulations and compliance with them may be costly.
We are subject to many different governmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing process. Compliance with these regulations can be costly. In addition, over the last several years, the public has paid a great deal of attention to the potentially negative environmental impact of semiconductor manufacturing operations. This attention and other factors may lead to changes in environmental regulations that could force us to purchase additional equipment or comply with other potentially costly requirements. If we fail to control the use of, or to adequately restrict the discharge of, hazardous substances under present or future regulations, we could face substantial liability or suspension of our manufacturing operations, which could seriously harm our business, financial condition and results of operations.
We depend on third parties to transport our products.
We rely on independent carriers and freight haulers to move our products between manufacturing plants and our customers. Any transport or delivery problems because of their errors or because of unforeseen interruptions in their activities due to factors such as strikes, political instability, terrorism, natural disasters and accidents could seriously harm our business, financial condition and results of operations and ultimately impact our relationship with our customers.
We may fail to integrate our business and technologies with those of companies that we have recently acquired and that we may acquire in the future.
We completed one acquisition in fiscal 2002, six acquisitions in fiscal 2001 and four acquisitions in fiscal 2000 and may pursue additional acquisitions in the future. If we fail to integrate these businesses successfully or properly, our quarterly and annual results may be seriously harmed. Integrating these businesses, people, products and services with our existing business could be expensive, time-consuming and a strain on our resources. Specific issues that we face with regard to prior and future acquisitions include:
o integrating acquired technology or products;
o integrating acquired products into our manufacturing facilities;
o assimilating the personnel of the acquired companies;
o coordinating and integrating geographically dispersed operations;
o our ability to retain customers of the acquired company;
o the potential disruption of our ongoing business and distraction of
management;
o the maintenance of brand recognition of acquired businesses;
o the failure to successfully develop acquired in-process technology,
resulting in the impairment of amounts currently capitalized as intangible
assets;
o unanticipated expenses related to technology integration;
o the development and maintenance of uniform standards, corporate cultures,
controls, procedures and policies;
o the impairment of relationships with employees and customers as a result
of any integration of new management personnel; and
o the potential unknown liabilities associated with acquired businesses.
We may incur losses in connection with loans made under our stock purchase assistance plan.
We have outstanding loans, consisting of principal and cumulative accrued interest, of $108.0 million to employees and former employees under the shareholder-approved 2001 Employee Stock Purchase Assistance Plan. (See Note 11 to our condensed consolidated financial statements included in this report for a further description of this plan.) We made the loans to employees for the purpose of purchasing Cypress common stock. Each loan is evidenced by a full recourse promissory note executed by the employee in favor of Cypress and is secured by a pledge of the shares of Cypress's common stock purchased with the proceeds of the loan. The primary benefit to us from this program is increased employee retention. In accordance with the plan, the CEO and the Board of Directors do not participate in this program. To date, there have been immaterial write-offs. As of June 29, 2003, we have a loss reserve against these loans of $16.2 million, including an increase to the reserve of $0.1 million recorded during Q2 2003. In determining this reserve requirement, management considered various factors, including an independent fair value analysis of these loans and the underlying collateral. At June 29, 2003, the difference between the carrying value of the loans and the underlying common stock collateral was $31.3 million. While the loans are secured by the shares of our stock purchased with the loan proceeds, the value of this collateral would be adversely affected if our stock price declined significantly.
Our results of operations would be adversely affected if a significant amount of these loans were not repaid. Similarly, if our stock price were to decrease, our employees bear greater repayment risk and we would have increased risk to our results of operations. However, we are willing to pursue every available avenue, including those covered under the Uniform Commercial Code, to recover these loans by pursuing employees' personal assets should the employees not repay these loans.
We maintain self-insurance for certain liabilities of our officers and directors.
Our certificate of incorporation, by-laws and indemnification agreements require us to indemnify our officers and directors for certain liabilities that may arise in the course of their service to us. We self-insure with respect to potential indemnifiable claims. If we were required to pay a significant amount on account of these liabilities for which we self-insure, our business, financial condition and results of operations could be seriously harmed.
ITEM III. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest and Foreign Currency Exchange Rates
Cypress is exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. A majority of Cypress's revenue and capital spending is transacted in U.S. dollars. However, Cypress does enter into these transactions in other currencies, primarily the Japanese Yen and the Euro. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, Cypress has established hedging programs for balance sheet exposures and exposures to exchange rate changes for purchases of capital equipment. Cypress's hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. To mitigate these risks, Cypress utilizes derivative financial instruments. Based on Cypress's overall currency rate exposure at June 29, 2003, a near-term 10% appreciation or depreciation in the U.S. dollar, relative to the Japanese Yen or the Euro, would have an immaterial effect on Cypress's financial position, results of operations and cash flows over the next fiscal year. Cypress does not use derivative financial instruments for speculative or trading purposes.
A 100 basis point increase or decrease in interest rates would not materially impact the fair market value of Cypress's investment portfolio nor Cypress's statement of operations due to the short-term nature of Cypress's investment portfolio and the variable interest rate characteristics of Cypress's debt and synthetic lease obligations. At June 29, 2003, Cypress's debt and synthetic lease obligations containing variable interest rate characteristics amounted to $23.7 million and $62.7 million, respectively.
Equity Options
At June 29, 2003, Cypress had outstanding a series of equity options on Cypress common stock with an initial cost of $26.0 million, which is classified in stockholders' equity. The contracts, which were extended during Q2 2003, require physical settlement and expire in December 2003. Upon expiration of the options, if Cypress's stock price is above the threshold price of $20.00 per share, Cypress will receive a settlement value totaling $28.9 million. If Cypress's stock price is below the threshold price of $20.00 per share, Cypress will receive 1.4 million shares of its common stock. Alternatively, the contract may be renewed and extended. The transaction is recorded in stockholders' equity in the accompanying condensed consolidated balance sheet.
In conjunction with the 1.25% convertible subordinated notes offering in June 2003, Cypress purchased a call spread option on Cypress's common stock ("Call Spread Option") maturing in July 2004 for $49.3 million. The Call Spread Option, including fees and costs, has been accounted for as an equity transaction in accordance with Emerging Issues Task Force No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock." The Call Spread Option covers approximately 32 million shares of Cypress common stock. The Call Spread Option is designed to mitigate dilution from conversion of the 1.25% convertible subordinated notes in the event that the market price per share of the Company's common stock upon exercise of the call spread options is greater than $15 per share and is less than or equal to $24.50 per share. The call spread option may be settled at the Company's option in either net shares or in cash. Settlement of the Call Spread Option in net shares on the expiration date would result in the Company receiving a number of shares, not to exceed 12.4 million shares, of our common stock with a value equal to the amount otherwise receivable on cash settlement. Should there be an early unwind of the Call Spread Option, the amount of cash or net shares potentially received by the Company will be dependent upon then existing overall market conditions, and on the Company's stock price, the volatility of the Company's stock and the amount of time remaining on the Call Spread Option.
Investments in Development Stage Companies
Cypress has invested in several privately held companies, all of which can be considered in the startup or development stages. These investments are inherently risky as the market for the technologies or products they have under development are typically in the early stages and may never materialize. As of June 29, 2003, Cypress had invested $25.2 million in development stage companies, all of which could be lost if the companies are not successful.
As Cypress's equity investments generally do not permit Cypress to exert significant influence or control over the entity in which Cypress is investing, these amounts generally represent Cypress's cost of the investment, less any adjustments Cypress makes when it determines that an investment's net realizable value is less than its carrying cost.
The process of assessing whether a particular equity investment's net realizable value is less than its carrying cost requires a significant amount of judgment. In making this judgment, Cypress carefully considers the investee's cash position, projected cash flows (both short- and long-term), financing needs, most recent valuation data, the current investing environment, management/ownership changes and competition. This evaluation process is based on information that Cypress requests from these privately held companies. This information is not subject to the same disclosure and audit requirements as the reports required of U.S. public companies, and as such, the reliability and accuracy of the data may vary. Based on its evaluation, Cypress previously recorded impairment charges related to Cypress's investments in privately held companies in the aggregate of $19.6 million in fiscal years 2002 and 2001. Cypress has recorded impairment charges of $1.0 million in Q2 2003 and the six months ended Q2 2003.
Estimating the net realizable value of investments in privately held early-stage technology companies is inherently subjective and may contribute to volatility in Cypress's reported results of operations. For example, if the current weak investing environment continues throughout fiscal 2003, Cypress may incur additional impairments to its equity investments in privately held companies.
Stock Purchase Assistance Plan
Included in Other current assets at June 29, 2003, Cypress has outstanding loans, consisting of principal and cumulative accrued interest, of $108.0 million to employees and former employees under the shareholder-approved 2001 Employee Stock Purchase Assistance Plan. As of the end of fiscal 2002, the outstanding principal and cumulative accrued interest totaled $106.6 million. Cypress made the loans to employees for the purpose of purchasing Cypress common stock. Each loan is evidenced by a full recourse promissory note executed by the employee in favor of Cypress and is secured by a pledge of the shares of Cypress's common stock purchased with the proceeds of the loan. The primary benefit to Cypress from this program is increased employee retention. In accordance with the plan, the CEO and the Board of Directors do not participate in this program. To date, there have been immaterial write-offs. As of June 29, 2003, Cypress had a loss reserve against these loans of $16.2 million. In determining the reserve, management considered various factors, including an independent fair value analysis of the loans and the underlying collateral. At June 29, 2003, the difference between the carrying value of the loans and the underlying common stock collateral was $31.3 million.
If there were an additional 10% decline in the stock price, the difference between the carrying value of the loans and the underlying common stock collateral would be $37.4 million. If the stock continues at the same level, or does not increase, Cypress may have to further evaluate the reserve. However, Cypress is willing to pursue every available avenue, including those covered under the Uniform Commercial Code, to recover these loans by pursuing employees' personal assets should the employees not repay these loans.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, Cypress's principal executive officer and principal financial officer have concluded that Cypress's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that information required to be disclosed by Cypress in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
(b) Changes in internal controls. There were no significant changes in Cypress's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Cypress has not identified any significant deficiencies or material weaknesses in such controls, and therefore there were no corrective actions taken.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required by this item is included in Part I in Note 6 to the Condensed Consolidated Financial Statements and is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 3, 2003, Cypress sold $600 million in principal amount of its 1.25% Convertible Subordinated Plus Cash(SM) Notes due 2008 to U.S. Bancorp Piper Jaffray Inc., Credit Suisse First Boston LLC, Merrill Lynch, Pierce Fenner & Smith Incorporated and Wachovia Securities, Inc. initial purchasers, pursuant to the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, for resale by the initial purchasers to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The proceeds to Cypress from the offering were net of the initial purchasers' discount of $18,000,000.
Each $1,000 principal amount of the notes is convertible into 55.172 shares (subject to certain adjustment of Cypress's common stock plus a cash payment of $300. Upon conversion of a note, Cypress may, at its option and subject to certain conditions, elect to make the $300 cash payment in shares of its common stock based on the market price of its common stock at the time of conversion. At any time prior to maturity, Cypress may, at its option, elect to terminate the holders' conversion rights if the closing price of Cypress common stock exceeds $21.75 (subject to certain adjustments) for 20 out of 30 consecutive trading days. Cypress may redeem some or all of the notes at any time on or after June 20, 2006 at 100% of the principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 1, 2003, at Cypress's Annual Meeting of Shareholders, the nominated directors were elected and the appointment of PricewaterhouseCoopers LLP as Cypress's independent auditors was ratified. The results of the votes were as follows:
(1) Election of Directors:
--------------------------------------------------------------------------------
Total Votes for Each Total Votes Withheld From
Director Each Director including
abstentions
--------------------------------------------------------------------------------
T.J. Rodgers 112,288,005 763,309
W. Steve Albrecht 110,179,045 2,872,269
Eric A. Benhamou 109,779,394 3,271,919
Fred B. Bialek 111,638,362 1,412,952
John C. Lewis 109,822,182 3,229,132
James R. Long 109,811,557 3,239,757
Alan F. Shugart 112,283,268 768,046
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(2) Ratify the appointment of PricewaterhouseCoopers LLP as the independent auditors of Cypress for the fiscal year ending December 28, 2003:
For 107,479,167 Against 5,493,601 Abstain 78,546
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits
Exhibit 4.1 Indenture, dated as of June 3, 2003, between Cypress
Semiconductor Corporation and U.S. Bank National
Association, as trustee (incorporated by reference to
Exhibit 4.1 to Cypress's Registration Statement on
Form S-3 filed on June 30, 2003 (file No.
333-106667)).
Exhibit 4.2 Form of 1.25% Convertible Subordinated Plus Cash
(incorporated by reference to Exhibit 4.2 to Cypress's
Registration statement on Form S-3 filed on June 30,
2003 (file No. 333-106667).
Exhibit 4.3 Registration Rights Agreement, dated June 3, 2003,
between the Registrant and the initial purchasers
named therein (incorporated by reference to Exhibit
4.3 to Cypress's Registration Statement on Form S-3
filed on June 30, 2003 (File No. 33-106667).
Exhibit 10.1 Amendment to 1999 Nonstatutory Stock Option Plan.
Exhibit 10.2 Lease Agreement dated as of June 27, 2003 between
Wachovia Development Corporation and Cypress
Semiconductor Corporation.
Exhibit 10.3 Participation Agreement, dated as of June 27, 2003, by
and among Cypress Semiconductor Corporation, Wachovia
Development Corporation, the holders of credit notes
from time to time party thereto, the mortgage lenders
from time to time party thereto, the Wachovia Bank,
National Association, as agent.
Exhibit 10.4 Call Spread Option Confirmation, dated May 29, 2003,
among Cypress Semiconductor Corporation, Credit Suisse
First Boston International, and Credit Suisse First
Boston.
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(2) Reports on Form 8-K
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We filed three reports on Form 8-K:
Filing Date Item Reported On
April 17, 2003 Item 9. We furnished a copy of our press release
announcing our results for the fiscal quarter ending
March 30, 2003, including a reconciliation between
GAAP and non-GAAP measures discussed in the press
release.
April 18, 2003 Item 9. We furnished a reconciliation between certain
non-GAAP financial information included in our Annual
Report to Stockholders and financial measures
calculated in accordance with GAAP.
May 29, 2003 Item 5. We filed as exhibits: (1) the registrant's
press release, dated May 28, 2003, announcing the
registrant's intention to offer approximately $500
million aggregate principal amount (excluding any
option of the initial purchasers to purchase
additional notes) of convertible subordinated notes
plus cash notes (the "Notes") through an offering to
qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended and the
simultaneous purchase of issuer call spread options
and (2) the registrant's press release, dated May 29,
2003, announcing that the registrant priced its
offering of the $500.0 million aggregate principal
amount of the Notes.
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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.
CYPRESS SEMICONDUCTOR CORPORATION
By /s/ Emmanuel Hernandez
------------------------------------------
Emmanuel Hernandez
Vice President, Finance and
Administration and Chief Financial Officer
Dated: August 11, 2003
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CERTIFICATION OF QUARTERLY REPORT
I, T.J. Rodgers, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cypress Semiconductor Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: August 11, 2003
By /s/ T.J. Rodgers
-------------------------------------
President and Chief Executive Officer
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CERTIFICATION OF QUARTERLY REPORT
I, Emmanuel Hernandez, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cypress Semiconductor Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Dated: August 11, 2003
By /s/ Emmanuel Hernandez
------------------------------------------
Vice President, Finance and
Administration and Chief Financial Officer
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Exhibit 10.1
CYPRESS SEMICONDUCTOR CORPORATION
AMENDMENT TO 1999 NONSTATUTORY STOCK OPTION PLAN
Pursuant to: (i) resolutions of the Board of Directors of Cypress
Semiconductor Corporation (the "Company") effective as of: (a) December 14,
1999, authorizing an increase of 600,000 shares of common stock of the Company,
par value $0.01 per share (the "Common Stock"), subject to the Company's
Nonstatutory Stock Option Plan (the "Plan"); (b) May 4, 2000, authorizing an
increase of 250,000 shares of Common Stock subject to the Plan; (c) August 11,
2000, authorizing an increase of 1,000,000 shares of Common Stock subject to the
Plan; (d) June 26, 2001, authorizing an increase of 3,000,000 shares of Common
Stock subject to the Plan; (e) September 26, 2001, authorizing an increase of
1,500,000 shares of Common Stock subject to the Plan; (f) January 31, 2002,
authorizing an increase of 1,500,000 shares of Common Stock subject to the Plan;
(g) August 1, 2002, authorizing an increase of 2,500,000 shares of Common Stock
subject to the Plan; and (h) June 27, 2003, authorizing an increase of
20,000,000 shares of Common Stock subject to the Plan (collectively, the
"Resolutions"), and; (ii) the power granted to the Board of Directors pursuant
to Section 14 of the Plan, the Plan is hereby amended as set forth herein.
1. The first paragraph of Section 3 of the Plan is hereby amended and restated in its entirety to read as follows:
"3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 31,850,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock."
2. The terms and provisions of this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Plan, and except as expressly modified by this Amendment, the terms and provisions of each of the Plan shall continue in full force and effect.
3. Each increase to the Plan was effective as of the date of the Resolutions relating thereto and described above.
Exhibit 10.2
LEASE AGREEMENT
Dated as of June 27, 2003
between
WACHOVIA DEVELOPMENT CORPORATION,
as Lessor
and
CYPRESS SEMICONDUCTOR CORPORATION,
as Lessee
This Lease Agreement is subject to a security interest in favor of Wachovia Bank, National Association, as the agent for the Primary Financing Parties and respecting the Security Documents, as the agent for the Secured Parties (the "Agent") under a Security Agreement dated as of June 27, 2003, between Wachovia Development Corporation, as the Borrower and the Agent, as amended, modified, extended, supplemented and/or restated from time to time in accordance with the applicable provisions thereof. This Lease Agreement has been executed in several counterparts. To the extent, if any, that this Lease Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no security interest in this Lease Agreement may be created through the transfer or possession of any counterpart other than the original counterpart containing the receipt therefor executed by the Agent on the signature page hereof.
TABLE OF CONTENTS
ARTICLE I....................................................................1
1.1 Definitions......................................................1
1.2 Interpretation...................................................2
ARTICLE II...................................................................2
2.1 Properties.......................................................2
2.2 Lease Term.......................................................2
2.3 Title............................................................3
2.4 Lease Supplement.................................................3
ARTICLE III..................................................................3
3.1 Rent.............................................................3
3.2 Payment of Basic Rent............................................4
3.3 Supplemental Rent................................................4
3.4 Performance on a Non-Business Day................................5
3.5 Rent Payment Provisions..........................................5
3.6 Payment to Agent.................................................5
ARTICLE IV...................................................................5
4.1 Taxes; Utility Charges...........................................5
ARTICLE V....................................................................6
5.1 Quiet Enjoyment..................................................6
ARTICLE VI...................................................................6
6.1 Net Lease........................................................6
6.2 No Termination or Abatement......................................7
ARTICLE VII..................................................................7
7.1 Ownership of Each Property.......................................7
ARTICLE VIII.................................................................9
8.1 Condition of Each Property.......................................9
8.2 Possession and Use of Each Property..............................9
ARTICLE IX..................................................................11
9.1 Compliance With Legal Requirements, Insurance Requirements and
Manufacturer's Specifications and Standards.....................11
ARTICLE X...................................................................11
10.1 Maintenance and Repair; Return..................................11
10.2 Environmental Inspection........................................13
ARTICLE XI..................................................................13
11.1 Modifications...................................................13
ARTICLE XII.................................................................15
12.1 Warranty of Title...............................................15
ARTICLE XIII................................................................16
13.1 Permitted Contests Other Than in Respect of Indemnities.........16
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13.2 Impositions, Utility Charges, Other Matters; Compliance with
Legal Requirements..............................................16
ARTICLE XIV.................................................................17
14.1 Public Liability and Workers' Compensation Insurance............17
14.2 Permanent Hazard and Other Insurance............................17
14.3 Coverage........................................................18
ARTICLE XV..................................................................19
15.1 Casualty and Condemnation.......................................19
15.2 Environmental Matters...........................................23
15.3 Notice of Environmental Matters.................................24
ARTICLE XVI.................................................................24
16.1 Termination Upon Certain Events.................................24
16.2 Procedures......................................................24
ARTICLE XVII................................................................24
17.1 Lease Events of Default.........................................24
17.2 Surrender of Possession.........................................29
17.3 Reletting.......................................................29
17.4 Damages.........................................................30
17.5 Power of Sale...................................................30
17.6 Final Liquidated Damages........................................31
17.7 Environmental Costs.............................................31
17.8 Waiver of Certain Rights........................................32
17.9 Assignment of Rights Under Contracts............................32
17.10 Remedies Cumulative.............................................32
17.11 Lessee's Right to Cure by Purchase of the Properties............32
17.12 Limitation Regarding Certain Lease Events of Default............33
ARTICLE XVIII...............................................................34
18.1 Lessor's Right to Cure Lessee's Lease Defaults..................34
ARTICLE XIX.................................................................34
19.1 [Reserved]......................................................34
19.2 No Purchase or Termination With Respect to Less than All of
a Property......................................................34
ARTICLE XX..................................................................35
20.1 Purchase Option or Sale Option-General Provisions...............35
20.2 Lessee Purchase Option..........................................35
20.3 Third Party Sale Option.........................................36
ARTICLE XXI.................................................................37
21.1 [Reserved]......................................................37
ARTICLE XXII................................................................37
22.1 Sale Procedure..................................................37
22.2 Application of Proceeds of Sale.................................39
22.3 Indemnity for Excessive Wear....................................39
22.4 Appraisal Procedure.............................................40
22.5 Certain Obligations Continue....................................40
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ARTICLE XXIII...............................................................40
23.1 Holding Over....................................................40
ARTICLE XXIV................................................................41
24.1 Risk of Loss....................................................41
ARTICLE XXV.................................................................41
25.1 Assignment......................................................41
25.2 Subleases.......................................................42
ARTICLE XXVI................................................................42
26.1 No Waiver.......................................................42
ARTICLE XXVII...............................................................43
27.1 Acceptance of Surrender.........................................43
27.2 No Merger of Title..............................................43
ARTICLE XXVIII..............................................................43
28.1 [Reserved]......................................................43
ARTICLE XXIX................................................................43
29.1 Notices.........................................................43
ARTICLE XXX.................................................................43
30.1 Miscellaneous...................................................43
30.2 Amendments and Modifications....................................44
30.3 Successors and Assigns..........................................44
30.4 Headings and Table of Contents..................................44
30.5 Counterparts....................................................44
30.6 GOVERNING LAW...................................................44
30.7 Calculation of Rent.............................................44
30.8 Memoranda of Lease and Lease Supplement.........................44
30.9 Allocations between the Lenders and Lessor......................45
30.10 Limitations on Recourse.........................................45
30.11 WAIVERS OF JURY TRIAL...........................................45
30.12 Exercise of Lessor Rights.......................................45
30.13 SUBMISSION TO JURISDICTION; VENUE...............................45
30.14 USURY SAVINGS PROVISION.........................................46
30.15 Restriction On Collateralization................................47
EXHIBITS
EXHIBIT A - Lease Supplement No. ____
EXHIBIT B - Memorandum of Lease and Lease Supplement No. ____
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LEASE AGREEMENT
THIS LEASE AGREEMENT dated as of June 27, 2003 (as amended, modified, extended, supplemented and/or restated from time to time, this "Lease") is between WACHOVIA DEVELOPMENT CORPORATION, a North Carolina corporation, having its principal office at One Wachovia Center, 301 South College Street, Charlotte, North Carolina 28288, as lessor (the "Lessor"), and CYPRESS SEMICONDUCTOR CORPORATION, having its principal office at 3901 North First Street, San Jose, California 95314, as lessee (the "Lessee").
W I T N E S S E T H:
A. WHEREAS, subject to the terms and conditions of the Participation Agreement, Lessor will acquire one or more Properties consisting of parcels of Land, Improvements and Equipment; and
B. WHEREAS, the Term shall commence with respect to each Property upon the Commencement Date; and
C. WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to lease from Lessor, the Properties.
NOW, THEREFORE, in consideration of the foregoing, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
1.1 Definitions.
For purposes of this Lease, capitalized terms used in this Lease and not otherwise defined herein shall have the meanings assigned to them in Appendix A to that certain Participation Agreement dated as of June 27, 2003 (as amended, modified, extended, supplemented and/or restated from time to time in accordance with the applicable provisions thereof, the "Participation Agreement") among Lessee, Lessor, the various financial institutions and other institutional investors which are parties thereto from time to time as Credit Lenders, the various financial institutions and other institutional investors which are parties thereto from time to time as Mortgage Lenders, Wachovia Bank, National Association, as agent for the Primary Financing Parties and respecting the Security Documents, as the agent for the Secured Parties. Unless otherwise indicated, references in this Lease to articles, sections, paragraphs, clauses, appendices, schedules and exhibits are to the same contained in this Lease.
1.2 Interpretation.
The rules of usage set forth in Appendix A to the Participation Agreement shall apply to this Lease.
ARTICLE II
2.1 Properties.
Subject to the terms and conditions hereinafter set forth and contained in the Lease Supplement relating to the applicable Property, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor, each Property.
2.2 Lease Term.
The term of this Lease with respect to each Property (the "Basic Term") shall begin upon the Property Closing Date for such Property (the "Basic Term Commencement Date") and shall end on the fifth annual anniversary of the Initial Closing Date (the "Basic Term Expiration Date"), unless the Basic Term is earlier terminated or renewed.
Subject to the consents required pursuant to this Section 2.2 and the other applicable terms and conditions of the Operative Agreements, the Lessee may request that the Lease be extended for up to three (3) successive five-year terms (each a "Renewal Term") for all, but not less than all of the Properties. Each Renewal Term shall end on the fifth annual anniversary of the commencement of such Renewal Term, unless such Renewal Term is earlier terminated.
To the extent no Default or Event of Default has occurred and is
continuing as of the Basic Term Expiration Date or the last day of the first or
second Renewal Term only, as applicable, Lessee may, not less two hundred fifty
(250) days and no more than three hundred sixty (360) days prior to the fifth
annual anniversary of the Initial Closing Date or the last day of the first or
second (but not the third) Renewal Term, if any, by irrevocable notice to
Lessor, the Lenders and the Agent make written request to extend the Expiration
Date for all, but not less than all, of the Properties for an additional period
of five (5) years. Lessor, each Lender and the Agent shall each make a
determination, in the absolute and sole discretion of each such party, within
sixty (60) days of receiving a request from the Lessee to extend the Term as to
whether or not such party will agree to extend the Expiration Date as requested;
provided, however, that failure by any such party to make a timely response to
Lessee's request for extension of the Expiration Date shall be deemed to
constitute a refusal by such party to the requested extension of the Expiration
Date. In response to a request for an extension of the Expiration Date, if (a)
Lessor, each Lender (including replacement Lenders pursuant to Section 5.7 of
the Participation Agreement) and the Agent shall each agree to the requested
extension by delivering written confirmation of such acceptance of the extension
to the Agent, Lessee and Lessor, then the Term shall be extended and shall
expire on the date five (5) years after the then current Expiration Date or (b)
Lessor, any Lender or the Agent shall refuse (or be deemed to have refused) to
agree to the requested extension, then the Term shall not be extended and shall
expire on the then current
Expiration Date and unless the Lessee properly makes an election pursuant to
Section 20.1, the Lessee shall be deemed to have elected the Purchase Option
which shall be exercised on the then current Expiration Date. If any Lender
declines, or is deemed to have declined, to consent to such extension, the
Lessee may cause any such Lender to be replaced as a Lender pursuant to Section
5.7 of the Participation Agreement. Each Renewal Term, if any, shall commence on
the day immediately following the Basic Term Expiration Date or the last day of
the first or second Renewal Term, as applicable.
2.3 Title.
Each Property is leased to Lessee without any representation or warranty,
express or implied, by Lessor and subject to the rights of parties in possession
(if any), the state of title (including without limitation the Permitted Liens)
existing as of the Commencement Date, and all applicable Legal Requirements.
Lessee shall in no event have any recourse against Lessor for any defect in
Lessor's title to any Property or any interest of Lessee therein other than for
Lessor Liens.
2.4 Lease Supplement.
On or prior to the Commencement Date, Lessee and Lessor shall each execute and deliver a different Lease Supplement for each Property effective as of such Commencement Date in substantially the form of Exhibit A hereto.
ARTICLE III
3.1 Rent.
(a) Lessee shall pay Basic Rent in arrears on each Scheduled Interest Payment Date during the Term and on any date on which this Lease shall terminate with respect to any or all Properties.
(b) Basic Rent shall be due and payable in lawful money of the United States and shall be paid by wire transfer of immediately available funds on the due date therefor to such account at such bank as Lessor shall from time to time direct.
(c) Lessee's inability or failure to take possession of all or any portion of any Property when delivered by Lessor, whether or not attributable to any act or omission of Lessor, Lessee or any other Person or for any other reason whatsoever, shall not delay or otherwise affect Lessee's obligation to pay Rent for such Property in accordance with the terms of this Lease.
(d) Lessee shall make all payments of Rent payable to Lessor by wire transfer initiated prior to 1:00 p.m., Charlotte, North Carolina time, on the applicable date for payment of such amount.
3.2 Payment of Basic Rent.
Basic Rent shall be paid absolutely net to Lessor or its designee, so that this Lease shall yield to Lessor the full amount thereof, without setoff, deduction or reduction.
3.3 Supplemental Rent.
Lessee shall pay directly to the Person entitled thereto any and all
Supplemental Rent when and as the same shall become due and payable. All such
payments of Supplemental Rent payable to any Financing Party shall be in the
full amount thereof, without setoff, deduction or reduction. Lessee shall pay to
the appropriate Person or a designee therefor, as Supplemental Rent due and
owing to such Person, among other things, on demand, (a) any and all payment
obligations (except for amounts payable as Basic Rent) owing from time to time
under the Operative Agreements by any Person to the Agent, any Primary Financing
Party or any other Person, (b) (i) interest at the interest rate determined
pursuant to Section 2.8(b) of the Credit Note Loan Agreement with respect to (A)
any portion of any installment of Basic Rent payable to any Credit Lender not
paid when due for the period for which the same shall be overdue and (B) any
portion of any payment of Supplemental Rent payable to any Credit Lender not
paid when due for the period from the due date until the same shall be paid,
(ii) interest at the interest rate determined pursuant to Section 2.8(b) of the
Mortgage Note Loan Agreement with respect to (A) any portion of any installment
of Basic Rent payable to any Mortgage Lender not paid when due for the period
for which the same shall be overdue and (B) any portion of any payment of
Supplemental Rent payable to any Mortgage Lender not paid when due for the
period from the due date until the same shall be paid, (iii) interest at the
Lessor Overdue Rate with respect to (A) any portion of any installment of Basic
Rent payable to Lessor not paid when due for the period for which the same shall
be overdue and (B) any portion of any payment of Supplemental Rent payable to
Lessor not paid when due for the period from the due date until the same shall
be paid and (iv) to the extent such is not duplicative of the foregoing,
interest at the greater of the interest rates determined pursuant to Section
2.8(b) of the Credit Note Loan Agreement and Section 2.8(b) of the Mortgage Note
Loan Agreement with respect to (A) any portion of any installment of Basic Rent
payable to any Financing Party (other than any Credit Lender, any Mortgage
Lender or Lessor) not paid when due for the period for which the same shall be
overdue and (B) any portion of any payment of Supplemental Rent payable to any
Financing Party (other than any Credit Lender, any Mortgage Lender or Lessor)
not paid when due for the period from the due date until the same shall be paid
and (c) amounts referenced as Supplemental Rent obligations pursuant to Section
8.3 of the Participation Agreement. The expiration or other termination of
Lessee's obligations to pay Basic Rent hereunder shall not limit or modify the
obligations of Lessee with respect to Supplemental Rent. Unless expressly
provided otherwise in this Lease, in the event of any failure on the part of
Lessee to pay and discharge any Supplemental Rent as and when due, Lessee shall
also promptly pay and discharge any fine, penalty, interest or cost which may be
assessed or added for nonpayment or late payment of such Supplemental Rent, all
of which shall also constitute Supplemental Rent, except to the extent such
payment arises from a Primary Financing Party entering into a financing of its
Note or Lessor Advance not contemplated in the transactions set forth in the
Operative Agreements.
3.4 Performance on a Non-Business Day.
If any Basic Rent or Supplemental Rent is required hereunder on a day that is not a Business Day, then such Basic Rent or Supplemental Rent, as applicable, shall, subject to the definition of "Interest Period" in Appendix A to the Participation Agreement, be due on the next succeeding Business Day, and such extension of time in such case shall be included in the computation of Basic Rent and Supplemental Rent and fees payable pursuant to the Operative Agreements, as applicable and as the case may be.
3.5 Rent Payment Provisions.
Lessee shall make payment of all Basic Rent and Supplemental Rent when due regardless of whether any of the Operative Agreements pursuant to which same is calculated and is owing shall have been rejected, avoided or disavowed in any bankruptcy or insolvency proceeding involving any of the parties to any of the Operative Agreements. Such Operative Agreements and their related definitions are incorporated herein by reference and shall survive any termination, amendment or rejection of any such Operative Agreements pursuant to or in connection with such bankruptcy or insolvency proceeding.
3.6 Payment to Agent.
Notwithstanding any other provision herein, Lessor hereby instructs Lessee, and Lessee hereby acknowledges and agrees, that until such time as all the Lessee Secured Obligations are paid in full and all Commitments have been terminated, any and all Rent (excluding Excepted Payments) and any and all other amounts of any kind or type under this Lease due and owing or payable to any Person shall instead be paid directly to the Agent (excluding Excepted Payments) or as the Agent may direct from time to time for allocation and distribution in accordance with the procedures set forth in Section 8.7 of the Participation Agreement.
ARTICLE IV
4.1 Taxes; Utility Charges.
Subject to the terms of Article XIII relating to permitted contests, Lessee shall pay or cause to be paid all Impositions with respect to each Property and/or the use, occupancy, operation, repair, access, maintenance or operation thereof and all charges for electricity, power, gas, oil, water, telephone, sanitary sewer service and all other rents, utilities and operating expenses of any kind or type used in or on any Property during the Term. Upon Lessor's reasonable request, Lessee shall provide from time to time Lessor with evidence of all such payments referenced in the foregoing sentence. Lessee shall be entitled to receive any credit or refund with respect to any Imposition or utility charge paid by Lessee. Unless an Event of Default shall have occurred and be continuing, the amount of any credit or refund received by Lessor on account of any Imposition or utility charge paid by Lessee, net of the costs and expenses incurred by Lessor in obtaining such credit or refund, shall be promptly paid over to Lessee. All charges for Impositions or utilities imposed with respect to any Property for a period
during which this Lease expires or terminates shall be adjusted and prorated on a daily basis between Lessor and Lessee, and each party shall pay or reimburse the other for such party's pro rata share thereof.
ARTICLE V
5.1 Quiet Enjoyment.
Subject to the rights of Lessor contained in Sections 17.2, 17.3 and 20.3 and the other terms of this Lease and the other Operative Agreements and in the event of a foreclosure of Lessor's Interest so long as no Lease Event of Default shall have occurred and be continuing, (a) Lessee shall peaceably and quietly have, hold and enjoy each Property for the Term, free of any claim or other action by Lessor and the Financing Parties or anyone rightfully claiming by, through or under Lessor or the Financing Parties (other than Lessee) with respect to any matters arising during the Term and (b) the Lease shall continue in full force and effect and the Lease shall automatically and unconditionally become a direct lease between the Primary Financing Parties or any successor thereto, as lessor as if such Primary Financing Parties or their successors were the Lessor originally named in the Lease, and Lessee.
ARTICLE VI
6.1 Net Lease.
This Lease shall constitute a net lease, and the obligations of Lessee hereunder are absolute and unconditional. Lessee shall pay all operating expenses arising out of the use, operation and/or occupancy of each Property during the Term. Any present or future law to the contrary notwithstanding, except as expressly provided in the Operative Agreements, this Lease shall not terminate prior to the Expiration Date, nor shall Lessee be entitled to any abatement, suspension, deferment, reduction, setoff, counterclaim, or defense with respect to the Rent, nor shall the obligations of Lessee hereunder be affected (except in each case as expressly contemplated under the terms of the Operative Agreement) for any reason whatsoever, including without limitation by reason of: (a) any damage to or destruction of any Property or any part thereof (subject to Article XV below); (b) any taking of any Property or any part thereof or interest therein by Condemnation or otherwise (subject to Article XV below); (c) any prohibition, limitation, restriction or prevention of Lessee's use, occupancy or enjoyment of any Property or any part thereof, or any interference with such use, occupancy or enjoyment by any Person or for any other reason; (d) any title defect, Lien or any matter affecting title to any Property; (e) any eviction by paramount title or otherwise; (f) any default by Lessor hereunder; (g) any action for bankruptcy, insolvency, reorganization, liquidation, receivership, dissolution or other proceeding relating to or affecting the Agent, any Primary Financing Party, Lessee or any Governmental Authority; (h) the impossibility or illegality of performance by Lessor, Lessee or both; (i) any action of any Governmental Authority or any other Person; (j) Lessee's acquisition of ownership of all or part of any Property; (k) breach of any warranty or representation with respect to any Property or any Operative Agreement; (l) any defect in the
condition, quality or fitness for use of any Property or any part thereof; or
(m) any other cause or circumstance whether similar or dissimilar to the
foregoing and whether or not Lessee shall have notice or knowledge of any of the
foregoing. The parties intend that the obligations of Lessee hereunder shall be
covenants, agreements and obligations that are separate and independent from any
obligations of Lessor hereunder and shall continue unaffected unless such
covenants, agreements and obligations shall have been modified or terminated in
accordance with an express provision of this Lease. Lessor and Lessee
acknowledge and agree that the provisions of this Section 6.1 have been
specifically reviewed and subject to negotiation.
6.2 No Termination or Abatement.
Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any action for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other proceeding affecting any Person or any Governmental Authority, or any action with respect to this Lease or any Operative Agreement which may be taken by any trustee, receiver or liquidator of any Person or any Governmental Authority or by any court with respect to any Person, or any Governmental Authority. Lessee hereby waives all right (a) to terminate or surrender this Lease (except in each case as expressly contemplated under the terms of the Operative Agreements) or (b) to avail itself of any abatement, suspension, deferment, reduction, setoff, counterclaim or defense with respect to any Rent. Lessee shall remain obligated under this Lease in accordance with its terms and Lessee hereby waives any and all rights now or hereafter conferred by statute or otherwise to modify or to avoid strict compliance with its obligations under this Lease. Notwithstanding any such statute or otherwise, Lessee shall be bound by all of the terms and conditions contained in this Lease.
ARTICLE VII
7.1 Ownership of Each Property.
(a) Lessor and Lessee intend that (i) for financial accounting purposes with respect to Lessee (A) this Lease will be treated as an "operating lease" pursuant to Statement of Financial Accounting Standards No. 13, as amended, (B) Lessor will be treated as the owner and lessor of each Property and (C) Lessee will be treated as the lessee of each Property, but (ii) for federal and all state and local income tax purposes, bankruptcy purposes, regulatory purposes, commercial law and real estate purposes and all other purposes (A) this Lease will be treated as a financing arrangement and (B) Lessee will be treated as the owner of the Properties and will be entitled to all tax benefits ordinarily available to owners of property similar to the Properties for such tax purposes. Notwithstanding the foregoing, neither party hereto has made, or shall be deemed to have made, any representation or warranty as to the availability of any of the foregoing treatments under applicable accounting rules, tax, bankruptcy, regulatory, commercial or real estate law or under any other set of rules. Lessee shall treat payments made by Lessee hereunder as payments of interest and principal for income taxes and bankruptcy purposes and shall claim the cost recovery deductions associated with each Property, and
Lessor shall not, to the extent not prohibited by Law, take on its tax return a position inconsistent with Lessee's treatment of such items or such deductions.
(b) In order to secure the obligations of Lessee now existing or hereafter arising under any and all Operative Agreements, pursuant hereto and to the Lease Supplement, Lessee hereby conveys, grants, assigns, bargains, transfers, pledges, hypothecates, mortgages and sets over to Agent, for the benefit of the Secured Parties, (i) a security interest in and lien on and hereby conveys and transfers to the party described in the Lease Supplement, as security for Lessee Secured Obligations, all right, title and interest of Lessee (now owned or hereafter acquired) in and to each Property and all proceeds (including without limitation Property Proceeds), to the extent such is personal property and (ii) irrevocably grants and conveys a lien, deed of trust or mortgage, as applicable, on all right, title and interest of Lessee (now owned or hereafter acquired) in and to each Property and all proceeds (including without limitation insurance proceeds thereof), to the Agent in trust with private power of sale, all right, title and interest of Lessee in the Property to the extent such is real property to secure the Lessee Secured Obligations. Lessor and Lessee further intend and agree that, for the purpose of securing the Lessee Secured Obligations now existing or hereafter arising under the Operative Agreements, this Lease as supplemented by the Lease Supplement shall be a security agreement and financing statement within the meaning of Article 9 of the Uniform Commercial Code respecting the Lessee's interest in each Property and all proceeds (including without limitation Property Proceeds and insurance proceeds thereof) and in and to the deposit amount referenced in Section 15.1(e)(iii), to the extent such is property governed by the UCC and irrevocably grants and conveys a lien, deed of trust or mortgage, as applicable, on the Lessee's interest in each Property and all proceeds (including without limitation Property Proceeds), to the Agent in trust with private power at sale, all right, title and interest of Lessee in the Property to the extent such is real property and constitutes a grant by Lessee to Lessor of a security interest, lien, deed of trust or mortgage, as applicable, in all of Lessee's right, title and interest in and to each Property and all proceeds (including without limitation Property Proceeds thereof) of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property, whether in the form of cash, investments, securities or other property, and an assignment of all rents, profits and income produced by any Property. Lessee and Lessor further intend and agree that notifications to Persons holding such proceeds, and acknowledgments, receipts or confirmations from financial intermediaries, bankers or agents (as applicable) of Lessee, when given, shall be deemed to have been given for the purpose of perfecting the foregoing lien, security interest, mortgage lien or deed of trust, as applicable, under applicable law (including without limitation the UCC). Lessee shall promptly take such actions as necessary (including without limitation the filing of Uniform Commercial Code Financing Statements, Uniform Commercial Code Fixture Filings and memoranda (or short forms) of this Lease and the Lease Supplement) to ensure that the lien, security interest, mortgage lien or deed of trust, as applicable, in each Property and the other items referenced above will be deemed to be a perfected lien, security interest, mortgage lien or deed of trust under applicable law and will be maintained as such throughout the Term.
ARTICLE VIII
8.1 Condition of Each Property.
EXCEPT FOR THE REPRESENTATIONS OF LESSOR IN SECTION 6.1 OF THE PARTICIPATION AGREEMENT, LESSEE ACKNOWLEDGES AND AGREES THAT IT IS LEASING EACH PROPERTY "AS-IS WHERE-IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY LESSOR (EXCEPT THAT LESSOR SHALL KEEP EACH PROPERTY FREE AND CLEAR OF LESSOR LIENS) AND IN EACH CASE SUBJECT TO (A) THE STATE OF TITLE EXISTING AS OF THE COMMENCEMENT DATE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF (IF ANY), (C) ANY STATE OF FACTS REGARDING ITS PHYSICAL CONDITION OR WHICH AN ACCURATE SURVEY MIGHT SHOW, (D) ALL APPLICABLE LEGAL REQUIREMENTS AND (E) VIOLATIONS OF LEGAL REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF AND/OR THE DATE OF THE APPLICABLE LEASE SUPPLEMENT. NEITHER THE AGENT NOR ANY PRIMARY FINANCING PARTY HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) (EXCEPT THAT LESSOR SHALL KEEP EACH PROPERTY FREE AND CLEAR OF LESSOR LIENS) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE, VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF ANY PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY
PART THEREOF), AND NEITHER THE AGENT NOR ANY PRIMARY FINANCING PARTY SHALL BE
LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREON OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT. LESSEE HAS OR PRIOR TO THE COMMENCEMENT DATE WILL HAVE BEEN AFFORDED FULL OPPORTUNITY TO INSPECT EACH PROPERTY AND THE IMPROVEMENTS THEREON, IS OR WILL BE (INSOFAR AS THE AGENT AND EACH PRIMARY FINANCING PARTY ARE CONCERNED) SATISFIED WITH THE RESULTS OF ITS INSPECTIONS AND IS ENTERING INTO THIS LEASE SOLELY ON THE BASIS OF THE RESULTS OF ITS OWN INSPECTIONS (EXCEPT FOR THE REPRESENTATIONS OF LESSOR IN SECTION 6.1 OF THE PARTICIPATION AGREEMENT), AND ALL RISKS INCIDENT TO THE MATTERS DESCRIBED IN THE PRECEDING SENTENCE, AS BETWEEN THE AGENT AND THE PRIMARY FINANCING PARTIES, ON THE ONE HAND, AND LESSEE, ON THE OTHER HAND, ARE TO BE BORNE BY LESSEE.
8.2 Possession and Use of Each Property.
(a) At all times during the Term, each Property shall be a Permitted Facility and shall be used by Lessee in the ordinary course of its business provided, subleasing pursuant to Section 25.2 hereof shall be permitted. Lessee shall pay, or cause to be paid during the Term, all charges and costs required in connection with the use of each
Property as contemplated by this Lease. Lessee shall not commit or permit any waste of any Property or any part thereof.
(b) The address stated in Section 6.2(i) of the Participation Agreement is the principal place of business and chief executive office of Lessee and its jurisdiction of organization (as such terms are used in the Uniform Commercial Code of any applicable jurisdiction), and Lessee will provide Lessor with prior written notice of any change of the location of its principal place of business, the location of its chief executive office or the location of its jurisdiction of organization. Regarding each Property, the applicable Lease Supplement shall correctly identify the Equipment and the Improvements and contain an accurate legal description for the related parcel of Land. The Equipment and Improvements respecting each Property will be located on the parcel of Land identified in the applicable Lease Supplement.
(c) Lessee will not attach or incorporate any item of Equipment to or in any other item of equipment or personal property, or to or in any real property, in a manner that could give rise to the assertion of any Lien on such item of Equipment in favor of a third party that is prior to the Liens thereon created by the Operative Agreements by reason of such attachment or the assertion of a claim that such item of Equipment has become an accession or a fixture and is subject to a Lien in favor of a third party that is prior to the Liens thereon created by the Operative Agreements.
(d) On or prior to the Commencement Date for each Property, Lessor and Lessee shall execute a Lease Supplement in regard to such Property which shall contain an Equipment Schedule that has a general description of the Equipment which shall comprise a part of such Property, a schedule that has a general description of the Improvements which shall comprise a part of such Property and a legal description of the Land upon which such Improvements are located, all of which shall be leased hereunder as of the Commencement Date. As of the Commencement Date, such Equipment, Improvements, Land (whether owned or ground leased) and the remainder of such Property shall be deemed to have been accepted by Lessee for all purposes of this Lease and to be subject to this Lease.
(e) At all times during the Term with respect to each Property, Lessee will comply with all obligations under, and (to the extent no Event of Default exists and provided that any such exercise of rights and remedies hereinafter referred to in this Section 8.2(e) will not impair the value, utility or remaining useful life of such Property) shall be permitted to exercise all rights and remedies under, all operation and easement agreements and related or similar agreements applicable to such Property.
8.3 [Reserved.]
ARTICLE IX
9.1 Compliance With Legal Requirements, Insurance Requirements and Manufacturer's Specifications and Standards.
Subject to the terms of Article XIII relating to permitted contests, during the Term Lessee, at its sole cost and expense, shall (a) comply with all applicable Legal Requirements (including without limitation all Environmental Laws) and all Insurance Requirements relating to each Property, (b) procure, maintain and comply with all licenses, permits, orders, approvals, consents and other authorizations required for the acquisition, use, operation, maintenance, repair, refurbishment and restoration of each Property, and (c) comply with all industry standards, including without limitation the acquisition, use, operation, maintenance, repair, refurbishment and restoration of each Property, whether or not compliance therewith shall require structural or extraordinary changes in any Property or interfere with the use and enjoyment of any Property unless the failure to procure, maintain and comply with such items identified in subparagraphs (b) and (c), individually or in the aggregate, shall not and could not reasonably be expected to have a Material Adverse Effect. Lessor agrees to take such actions as may be reasonably requested by Lessee in connection with the compliance by Lessee of its obligations under this Section 9.1.
ARTICLE X
10.1 Maintenance and Repair; Return.
(a) During the Term, subject to the provisions of Article XV with
respect to a Casualty or Condemnation, Lessee, at its sole cost and
expense, shall maintain each Property as the type of facility described in
the applicable Appraisal as of the Commencement Date and shall maintain,
repair and keep the condition of such Property to the industry standard
applicable to such type of facility (ordinary wear and tear excepted), but
in any event, Lessee shall maintain each Property in a manner which does
not have a Material Adverse Effect on such Property. Lessee, at its sole
cost and expense, shall make all necessary repairs to each Property and
replacements thereof, of every kind and nature whatsoever, whether
interior or exterior, ordinary or extraordinary, structural or
nonstructural or foreseen or unforeseen, in each case as required by
Section 9.1 and on a basis consistent with the operation and maintenance
of Lessee's properties or equipment comparable in type and function to
each Property, such that each Property is capable of being immediately
utilized by a third party, subject to normal tenant upfits, and in
compliance with standard industry practice for the type of facility
described in the applicable Appraisal as of the Commencement Date,
subject, however, to the provisions of Article XV with respect to Casualty
and Condemnation.
(b) Lessee shall not use or locate any component of any Property outside of the Approved State therefor. Lessee shall not move or relocate any component of any Property beyond the boundaries of the Land (comprising part of such Property) described
in the applicable Lease Supplement, except for the temporary removal of Equipment or Fixtures for repair or replacement of worn out or obsolete Equipment or Fixtures.
(c) If any component of any Property becomes worn out, lost, destroyed, damaged beyond repair or otherwise rendered unfit for use, Lessee, at its own expense, will within a reasonable time replace such component with a replacement substitute component which is free and clear of all Liens (other than Permitted Liens and Lessor Liens) and has a value, utility and useful life at least equal to the component replaced (assuming the component replaced had been maintained and repaired in accordance with the requirements of this Lease). All such component replacements and substitutions which are added to any Property shall be treated as Required Modifications as provided in Article XI and shall be replaced in accordance with such Article XI.
(d) Upon reasonable advance notice and during regular business hours, Lessor and its agents shall have the right to inspect each Property and all maintenance records with respect thereto, but shall not, in the absence of an Event of Default, materially disrupt the business of Lessee. In connection with any such inspection initiated upon the occurrence of, and thereafter during any continuance of, a Lease Event of Default, costs and expenses in connection with any such inspection shall be borne by the Lessee. Such inspection shall be subject to Lessee's reasonable safety and security procedures applicable to employees and invitees of Lessee.
(e) Lessee shall cause to be delivered to Lessor Appraisals in compliance with Section 8.3(e) of the Participation Agreement.
(f) Lessor shall under no circumstances be required to build any improvements or install any equipment on any Property, make any repairs, replacements, alterations or renewals of any nature or description to any Property, make any expenditure whatsoever in connection with this Lease or maintain any Property in any way. Lessor shall not be required to maintain, repair or rebuild all or any part of any Property, and Lessee waives the right to (i) require Lessor to maintain, repair, or rebuild all or any part of any Property, or (ii) make repairs at the expense of Lessor pursuant to any Legal Requirement, Insurance Requirement, industry standards, contract, agreement, covenant, condition or restriction at any time in effect.
(g) Lessee shall, upon the expiration or earlier termination of this Lease with respect to any Property, if Lessee shall not have exercised its Purchase Option with respect to such Property and purchased or caused its designee to purchase such Property, surrender such Property (i) to Lessor pursuant to the exercise of the applicable remedies upon the occurrence and continuance of a Lease Event of Default or (ii) pursuant to the second paragraph of Section 22.1(a) hereof, to Lessor or the third party purchaser, as the case may be, subject to Lessee's obligations under this Lease (including without limitation the obligations of Lessee at the time of such surrender under Sections 9.1, 10.1(a) through (f), 10.2, 11.1, 12.1, 22.1 and 23.1).
10.2 Environmental Inspection.
If Lessee has not given notice of exercise of its Purchase Option on the Expiration Date pursuant to Section 20.1 or for whatever reason Lessee does not elect (for itself or its designee) to purchase each Property in accordance with the terms of this Lease, then not more than one hundred eighty (180) days nor less than sixty (60) days prior to the Expiration Date, Lessee at its expense shall cause to be delivered to Lessor a Phase I environmental site assessment recently prepared (no more than thirty (30) days prior to the date of delivery) by an independent recognized professional reasonably acceptable to Lessor, and in form, scope and content reasonably satisfactory to Lessor.
ARTICLE XI
11.1 Modifications.
(a) Lessee at its sole cost and expense, at any time and from time to time without the consent of Lessor, may make modifications, alterations, renovations, improvements and additions to each Property or any part thereof and substitutions and replacements therefor (collectively and including Required Modifications (hereinafter defined), "Modifications"), and Lessee shall make any and all Modifications necessary to maintain warranties for the Properties and each component thereof or required to be made pursuant to all Legal Requirements, Insurance Requirements and industry standards applicable to the Property or any part thereof, but in all cases excluding Non-Integral Equipment (the "Required Modifications"); provided, that: (i) unless required or recommended pursuant to any Legal Requirement, Insurance Requirement or industry standard, no Modification shall diminish the fair market value, utility or useful life of any Property from that which existed immediately prior to such Modification (assuming such Property has been maintained and repaired in accordance with the requirements of this Lease) nor shall such Modification otherwise have or reasonably be expected to have a Material Adverse Effect; (ii) each Modification shall be performed and completed diligently and in a good and workmanlike manner; (iii) no Modification shall adversely affect the structural integrity of any Property; (iv) to the extent required by Section 14.2(a), Lessee shall maintain builders' risk insurance at all times when a Modification is in progress; (v) subject to the terms of Article XIII relating to permitted contests, Lessee shall pay all costs and expenses and discharge any Liens arising with respect to any Modification; (vi) each Modification shall comply with the requirements of this Lease (including without limitation Sections 8.2 and 10.1); (vii) no Improvement shall be demolished or otherwise rendered unfit for use unless Lessee shall, at its cost and expense, provide a replacement Modification in compliance with the Lease and the other Operative Agreements; (viii) Lessee has obtained all consents, approvals and each other item required by any Governmental Authority and as required pursuant to the restrictive covenants applicable to the Land and Improvements; and (ix) no Modification shall result in a diminution in the value of such Property, after taking into account the removal of such Modification (provided such Modification is permitted to be removed), in the aggregate, below what the expected value of such Property would have been prior to the
addition of such Modifications, in the aggregate, as determined by the
Lessor in its sole discretion. Excluding in each case, Non-Integral
Equipment, all Modifications shall immediately and without further action
upon their incorporation into any Property (1) become property of Lessor,
(2) be subject to this Lease and (3) be titled in the name of Lessor.
Subject to the fourth sentence of this Section 11.1, Lessee shall not
remove or attempt to remove any Modification titled to Lessor from any
Property, except as set forth in Section 10.1. Notwithstanding the
immediately preceding sentence, provided, no Lease Event of Default has
occurred and is continuing (or for ninety (90) days after the date a Lease
Event of Default has first occurred and, if requested by Lessor, Lessee
has posted a bond to cover damages to the Properties caused by removal of
the Non-Integral Equipment or otherwise caused by Lessee or its Affiliates
or agents during such period), then Lessee may, upon reasonable advance
notice to Lessor and with the consent of Lessor (which consent shall not
be unreasonably or delayed) enter the applicable Properties for the
purpose of removing the Non-Integral Equipment in accordance with Sections
10.1 and 11.1) and so long as Lessee has completed all repairs required
pursuant to the Lease contemporaneously with the removal of such
Non-Integral Equipment and such removal occurs prior to the Expiration
Date, Lessee may remove such Non-Integral Equipment prior to the end of
the Basic Term or during such 90-day period, as applicable, and such
Non-Integral Equipment shall be deemed to be property of Lessee or the
relevant third party who financed such Non-Integral Equipment, provided,
if Lessee fails to remove such Non-Integral Equipment in accordance with
the Operative Agreements (including the 90-day period set forth above) or
prior to the Expiration Date then all of Lessee's right, title and
interest in and to such Non-Integral Equipment shall be deemed to be
immediately and automatically transferred to Lessor on such date and shall
become part of the applicable Property and Lessor may sell or dispose of
such Non-Integral Equipment without notice to Lessee and Lessee waives all
rights it may have to dispute or contest such sale or disposal, provided
proceeds of such sale or disposal are distributed in accordance with
Section 8.7 of the Participation Agreement. In all cases, Lessee, at its
own cost and expense, will pay for the repairs of any damage to any
Property caused by the removal or attempted removal of any Non-Integral
Equipment.
(b) [Reserved].
(c) The parties hereto agree that Non-Integral Equipment and other personal property which is owned by Lessee or a third party and is not a part of any Property may be removed by Lessee prior to the Expiration Date, so long as such personal property without causing material damage, after taking into account repairs which are actually completed or caused to be completed by Lessee, at Lessee's sole cost and expense, at the time of such removal.
ARTICLE XII
12.1 Warranty of Title.
(a) Lessee hereby acknowledges and shall cause title in each Property (including without limitation all Equipment, all Improvements, all replacement components to each Property and all Modifications, but not Non-Integral Equipment) immediately and without further action to vest in and become the property of Lessor and to be subject to the terms of this Lease from and after the date hereof or such date of incorporation into any Property. Lessee agrees that, subject to the terms of Article XIII relating to permitted contests, Lessee shall not directly or indirectly create or allow to remain, and shall promptly discharge at its sole cost and expense, any Lien, defect, attachment, levy, title retention agreement or claim upon any Property, any component thereof or any Modification (or any part or component thereof other than Non-Integral Equipment) or any Lien, attachment, levy or claim with respect to the Rent or with respect to any amount held by the Agent or any Primary Financing Party pursuant to any Operative Agreement, other than Permitted Liens and Lessor Liens. Lessee shall promptly notify Lessor in the event it receives actual knowledge that a Lien other than a Permitted Lien or Lessor Lien has occurred with respect to any such Property, any component thereof, any Modification other than Non-Integral Equipment, the Rent or any other such amount, and Lessee represents and warrants to, and covenants with, Lessor that the Liens in favor of Lessor and/or the Agent created by the Operative Agreements are (and until the Financing Parties under the Operative Agreements have been paid in full shall remain) perfected Liens subject only to Permitted Liens and Lessor Liens. At all times subsequent to the Commencement Date respecting any Property, Lessee shall (i) cause a valid, perfected Lien on each Property to be in place in favor of the Agent (for the benefit of the Secured Parties), subject to no Lien other than Permitted Liens and Lessor Liens and (ii) file, or cause to be filed, all necessary documents under the applicable real property law and Article 9 of the Uniform Commercial Code to perfect such title and Liens.
(b) Nothing contained in this Lease shall be construed as constituting the consent or request of Lessor or Agent, expressed or implied, to or for the performance by any contractor, mechanic, laborer, materialman, supplier or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to any Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER LESSOR NOR THE AGENT IS AND NEITHER SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING ANY PROPERTY OR ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR OR THE AGENT IN AND TO ANY PROPERTY.
ARTICLE XIII
13.1 Permitted Contests Other Than in Respect of Indemnities.
Except to the extent otherwise provided for in Section 11 of the
Participation Agreement, Lessee, on its own or on Lessor's behalf but at
Lessee's sole cost and expense, may contest, by appropriate administrative or
judicial proceedings conducted in good faith and with due diligence, the amount,
validity or application, in whole or in part, of any Legal Requirement,
Insurance Requirement, Imposition or utility charge payable pursuant to Section
4.1 or 13.2 or any Lien, attachment, levy, encumbrance or encroachment (other
than the Liens created pursuant to the Operative Agreements in favor of the
Agent for the benefit of the Financing Parties) and Lessor agrees not to pay,
settle or otherwise compromise any such item, provided, that (a) the
commencement and continuation of such proceedings shall suspend the collection
of any such contested amount from, and suspend the enforcement thereof against,
each Property, the Agent and each Primary Financing Party; (b) there shall not
be imposed a Lien (other than Permitted Liens and Lessor Liens) on any Property
that would subject any part of any Property or any Rent to a material risk of
being sold, forfeited, lost or deferred or a material reduction in value (with
respect to a reduction in value, after taking into account actual reserves
designated for payment of the applicable loss on Lessee's books and any bonds
provided by Lessee to protect the Lessor's Interest and the interest of the
Financing Parties from the applicable loss; (c) at no time during the permitted
contest shall there be a risk of the imposition of criminal liability or
material civil liability on the Agent or any Primary Financing Party for failure
to comply therewith; (d) to the extent a payment or any portion thereof, which
is the subject of a permitted contest, was paid with Advances, then upon receipt
of any payment, refund or other receipt of proceeds pursuant to a permitted
contest, such amount shall be delivered to the Agent for distribution pursuant
to Section 8.7 (b)(i) of the Participation Agreement; and (e) in the event that,
at any time, there shall be a material risk of extending the application of such
item beyond the end of the Term, then Lessee shall deliver to each Financing
Party an Officer's Certificate certifying as to the matters set forth in clauses
(a), (b) and (c) of this Section 13.1. Lessor shall execute and deliver to
Lessee such authorizations and other documents as may reasonably be required in
connection with any such contest and, if reasonably requested by Lessee, shall
join as a party therein; provided, that all reasonable costs and expenses
actually incurred by Lessor shall be payable by Lessee.
13.2 Impositions, Utility Charges, Other Matters; Compliance with Legal Requirements.
Except with respect to Impositions, Legal Requirements, utility charges and such other matters referenced in Section 13.1 which are the subject of ongoing proceedings contesting the same in a manner consistent with the requirements of Section 13.1, Lessee shall cause (a) all Impositions, utility charges, Insurance Requirements and such other matters to be timely paid, settled or compromised, as appropriate, with respect to each Property and (b) each Property to comply with all applicable Legal Requirements, Insurance Requirements and industry standards.
ARTICLE XIV
14.1 Public Liability and Workers' Compensation Insurance.
During the Term for each Property, Lessee shall procure and carry, at Lessee's sole cost and expense, commercial general liability and umbrella liability insurance for claims for injuries or death sustained by persons or damage to property while on any Property or respecting the Equipment and such other public liability coverages as are in accordance with Lessee's historical practices and if required by the Mortgage Note Lender other than Wachovia Bank, National Association, earthquake insurance acceptable to the Mortgage Note Lender. Such insurance shall be on terms and in amounts that are no less favorable than insurance maintained by Lessee with respect to similar properties and equipment that it owns and are then carried by similarly situated companies conducting business similar to that conducted by Lessee, and in no event shall have a minimum combined single limit per occurrence coverage (i) for commercial general liability of less than $1,000,000 and (ii) for umbrella liability of less than $15,000,000. The policies shall name Lessee as the insured and shall name the Agent and each Primary Financing Party as additional insureds. The policies shall also specifically provide that such policies shall be considered primary insurance which shall apply to any loss or claim arising in connection with any Property before any contribution by any insurance which the Agent or any Primary Financing Party may have in force. In the operation of each Property, Lessee shall comply with applicable workers' compensation laws and protect the Agent and each Primary Financing Party against any liability under such laws.
14.2 Permanent Hazard and Other Insurance.
(a) During the Term for each Property, Lessee shall keep such Property insured against all risk of physical loss or damage by fire and other risks and shall maintain builders' risk insurance during construction of any Modifications in each case in amounts no less than the Property Cost of such Property from time to time and on terms that (i) are no less favorable than insurance covering other similar properties owned by Lessee and (ii) are then carried by similarly situated companies conducting business similar to that conducted by Lessee; provided, that Lessee shall not be required to maintain builders' risk insurance during construction of any Modifications that have construction costs equal to or less than of $250,000, provided, however, all contractors, subcontractors and any other party providing services related to such construction shall be bonded and insured pursuant to industry standards appropriate for the work to be performed. The policies shall name Lessee as the insured and the policies themselves or by endorsement shall name Lessor and the Agent (on behalf of the Secured Parties) as additional insureds, mortgagees and loss payees, as their interests may appear; provided, so long as no Lease Event of Default exists, any loss payable under the insurance policies required by this Section for losses up to $1,000,000 will be paid directly to Lessee.
(b) If, during the Term with respect to each Property the area in which such Property is located is designated a "flood-prone" area pursuant to the Flood Disaster Protection Act of 1973, or any amendments or supplements thereto or is in a zone designated A or V, then Lessee shall comply with the National Flood Insurance Program
as set forth in the Flood Disaster Protection Act of 1973. In addition, Lessee will fully comply with the requirements of the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as each may be amended from time to time, and with any other Legal Requirement, concerning flood insurance to the extent that it applies to any Property. During the Term, Lessee shall, in the operation and use of each Property, maintain workers' compensation insurance compliant with all Legal Requirements and consistent with that carried by similarly situated companies conducting business similar to that conducted by Lessee and containing minimum liability limits of no less than $100,000.
14.3 Coverage.
(a) As of the date of this Lease and annually thereafter during the Term, Lessee shall furnish the Agent (on behalf of the Agent, each Primary Financing Party) with certificates, in form and substance reasonably satisfactory to the Agent, prepared by the insurers or insurance broker of Lessee showing the insurance required under Sections 14.1 and 14.2 to be in effect, naming (to the extent of their respective interests) the Agent and each Primary Financing Party as additional insureds (in the case of liability insurance) and mortgagees and loss payees (in the case of property/hazard, builders' risk and flood insurance) and evidencing the other requirements of this Article XIV. All such insurance shall be at the cost and expense of Lessee and provided by nationally recognized, financially sound insurance companies having an A or better rating by A.M. Best's Key Rating Guide with respect to property and casualty insurance and at least A- or better rating by A.M. Best's Key Rating Guide with respect to all other insurance and, in all cases, a rating by S&P or Moody's of A or A2, respectively, or higher. Lessee shall cause such certificates to include a provision for ten (10) days' advance written notice by the insurer to the Agent (on behalf of the Agent and each Primary Financing Party) in the event of cancellation or material alteration of such insurance. If an Event of Default has occurred and is continuing and the Agent (on behalf of the Agent and each Primary Financing Party) so requests, Lessee shall deliver to the Agent (on behalf of the Agent and each Primary Financing Party) copies of all insurance policies required by Sections 14.1 and 14.2.
(b) Lessee agrees that the insurance policy or policies required by Sections 14.1, 14.2(a) and 14.2(b) shall include an appropriate clause pursuant to which any such policy shall provide that it will not be invalidated should Lessee or any contractor, as the case may be, have waived any or all rights of recovery against any party for losses covered by such policy or due to any breach of warranty, fraud, action, inaction or misrepresentation by Lessee or any Person acting on behalf of Lessee. Lessee hereby waives any and all such rights against the Agent and each Primary Financing Party to the extent of payments made to any such Person under any such policy in accordance with the Operative Agreements.
(c) Neither Lessor nor Lessee shall carry separate insurance concurrent in kind or form or contributing in the event of loss with any insurance required under this
Article XIV, except that Lessor may carry separate liability insurance at Lessor's sole cost.
(d) Lessee shall pay as they become due all premiums for the insurance required by Section 14.1 and Section 14.2, shall renew or replace each policy prior to the expiration date thereof or otherwise maintain the coverage required by such Sections without any lapse in coverage.
ARTICLE XV
15.1 Casualty and Condemnation.
(a) Subject to this Article XV and Article XVI (in the event Lessee delivers, or is obligated to deliver or is deemed to have delivered, a Termination Notice with respect to a Property), and prior to the occurrence and continuation of a Lease Default or Lease Event of Default, Lessee shall be entitled to receive (and Lessor hereby irrevocably assigns to Lessee all of Lessor's right, title and interest in) any Property Proceeds or other condemnation proceeds, award, compensation or insurance proceeds under Sections 14.2(a) or 14.2(b) hereof to which Lessee or Lessor may become entitled by reason of their respective interests in any Property (i) if all or a portion of such Property is damaged or destroyed in whole or in part by a Casualty or (ii) if the use, access, occupancy, easement rights or title to such Property or any part thereof is the subject of a Condemnation; provided, however, if a Lease Default or Lease Event of Default shall have occurred and be continuing or if such Property Proceeds shall exceed $1,000,000, then such Property Proceeds shall be paid directly to Lessor to be held for the benefit of the Secured Parties and, provided no Lease Default or Lease Event of Default has occurred and is continuing, to be disbursed pursuant to this Article XV and if received by Lessee or any Primary Financing Party shall be held in trust for Lessor, and shall be paid over by such party to the Agent and held in accordance with the terms of this paragraph (a). Except as expressly set forth in this Section 15.1, all such amounts in excess of $1,000,000 held by the Agent hereunder for the benefit of the Secured Parties on account of any condemnation proceeds, award, compensation or insurance proceeds either paid directly to Lessor or turned over to Lessor shall be delivered to the Agent and held for the benefit of the Secured Parties as security for the performance of Lessee's obligations hereunder and under the other Operative Agreements. When all such obligations of Lessee with respect to such matters (and all other obligations of Lessee which should have been satisfied pursuant to the Operative Agreements as of such date) have been satisfied or expressly waived, all amounts so held by Lessor shall be paid over to Lessee. If a Property is sold pursuant to this Lease, the Agent has received Termination Value with respect to each such Property and no Lease Default or Lease Event of Default has occurred and is continuing, the Property Proceeds held by the Agent with respect to such Property, shall be delivered by the Agent to the purchaser of such Property at the time of such sale subject to the foregoing conditions.
(b) Lessee may appear in any proceeding or action to negotiate, prosecute, adjust or appeal any claim for any Property Proceeds on account of any such Casualty or Condemnation and shall pay all expenses thereof. At Lessee's reasonable request, Lessor and the Agent shall participate in any such proceeding, action, negotiation, prosecution or adjustment; provided, that all reasonable costs and expenses actually incurred by Lessor or the Agent in connection therewith shall be payable by the Lessee. Lessor and Lessee agree that this Lease shall control the rights of Lessor and Lessee in and to any such Property Proceeds or other condemnation proceeds, award, compensation or insurance payment.
(c) If Lessee shall receive notice or otherwise have knowledge of a Casualty where the cost to repair, restore or replace the damaged portion of any Property is estimated to equal or exceed ten percent (10%) of the Property Cost of such Property, Lessee shall give notice thereof to Lessor promptly after Lessee's receipt of such notice or gaining of such knowledge. In the event such a Casualty occurs (regardless of whether Lessee gives notice thereof), then Lessee shall be deemed to have delivered a Termination Notice to Lessor and the provisions of Sections 16.1 and 16.2 shall apply; provided, however, if no Lease Default or Lease Event of Default shall have occurred and be continuing and if the cost to repair, restore or replace the damaged portion of such Property is less than thirty-five percent (35%) of the Property Cost of such Property and, Lessee delivers within thirty (30) days of such Casualty written notice to Lessor that Lessee intends to repair and restore the portion of such Property affected by such Casualty, then Lessee may repair and restore the portion of such Property affected by such Casualty pursuant to the terms and conditions of the Operative Agreements, including without limitation Sections 10.1, 11.1 and 15.1 of this Lease and Property Proceeds held by Lessor pursuant to this Section 15.1 with respect to such loss shall be made available for the Restoration in accordance with Section 15.1(e) hereof. If Lessee shall receive notice of a Condemnation of any Property or any portion thereof or interest therein where the fair market value of such Property shall be diminished by more than ten percent (10%), Lessee shall give notice thereof to Lessor promptly after Lessee's receipt of such notice. In the event such a Condemnation occurs (regardless of whether Lessee gives notice thereof), then Lessee shall be deemed to have delivered a Termination Notice for the affected Property to Lessor and the provisions of Sections 16.1 and 16.2 shall apply.
(d) In the event of a Casualty or a Condemnation with respect to any Property (regardless of whether notice thereof must be given pursuant to paragraph (c)), this Lease shall terminate with respect to such Property in accordance with Section 16.1 if Lessee, within thirty (30) days after such occurrence, delivers to Lessor a notice to such effect.
(e) (i) If, pursuant to this Section 15.1, Lessee does not deliver a notice to terminate this Lease pursuant to clause (d) above or is not required to deliver or deemed to have delivered a notice to terminate this Lease pursuant to clause (c) above, then this Lease shall continue in full force and effect following a Casualty or Condemnation with respect to any affected Property, Lessee shall, at its sole cost and expense (subject to reimbursement in accordance with this Section 15.1)
promptly and diligently repair any damage to any affected Property caused by such Casualty or Condemnation in conformity with the requirements of Sections 10.1 and 11.1 (the "Restoration"), using the as-built plans and specifications, in accordance with industry standards, for the applicable Improvements, Equipment, Fixtures or other components of such Property other than Non-Integral Equipment (as modified to give effect to (x) any subsequent Modifications or to give effect to such Modifications to be made as a part of such Restoration as may be permitted under Section 11.1, (y) any previous Condemnation affecting such Property and (z) all applicable Legal Requirements, Insurance Requirements and industry standards), so as to restore such Property to the same or a greater fair market value, and such that such Property shall after such Restoration have the same or greater useful life and utility for its intended use as existed immediately prior to such Casualty or Condemnation (assuming all maintenance and repair standards have been satisfied) and such that the fair market value of the Property is not less than the Termination Value for such Property and the security interests of Lessor and the Primary Financing Parties in the Property are not adversely affected. In such event, title to such Property shall remain with Lessor.
(ii) If the Property Proceeds are received by or turned over to the Agent, in accordance with Section 15.1(a), in respect of any Casualty or Condemnation, and if a Lease Default or Lease Event of Default shall not have occurred and be continuing, then the Agent shall make available for expenses related to the Restoration of any affected Property all such Property Proceeds Lessor receives pursuant to this Lease with respect to such Property provided that such Restoration shall be accomplished as provided in Section 15.1(g) so long as such Restoration can, in the reasonable judgment of the Agent, be completed by the earlier of (A) nine (9) months after the date of the Casualty or Condemnation or (B) the date two hundred forty (240) days prior to the Expiration Date, and in such a manner so that such Property will, on the date upon which Restoration was completed or was supposed to be completed, have a value (as determined in the reasonable judgement of the Agent) at least equal to its value prior to the Casualty or Condemnation.
(iii) Unless a Default or Event of Default shall have occurred
and be continuing, any such Property Proceeds held by the Agent for
the Restoration shall be made available by the Agent (or at Lessor's
election by a disbursing or escrow agent who shall be selected by
Lessor and whose fees shall be paid by Lessee) from time to time as
requested by Lessee, but no more frequently than once a month as the
Restoration progresses, upon delivery to the Agent of the following:
(A) evidence reasonably satisfactory to the Agent of the estimated
cost of the Restoration; (B) funds (or assurances reasonably
satisfactory to the Agent that such funds are available) sufficient
in addition to such Proceeds to complete and fully pay for the
Restoration; and (C) such architect's certificates, waivers of lien,
contractor's sworn statements, title insurance endorsements, plats
of survey and such other evidence of cost, payment and performance
as the Agent may
reasonably require and approve. No payment made from such Property Proceeds prior to the final completion of the Restoration shall exceed ninety percent (90%) of the value of the work performed from time to time, as such value shall be determined by the Agent in its reasonable judgment. Prior to commencement of the work, and from time to time thereafter, if so requested by the Agent, Lessee shall deposit with Lessor an amount of funds in excess of such Property Proceeds which, together with such Property Proceeds, shall at all times be at least sufficient in the reasonable judgment of the Agent to pay the entire unpaid cost of the Restoration, free and clear of all Liens or claims of Lien other than the Liens created pursuant to the Operative Agreements. If requested by the Agent, Lessee shall execute such documentation at the time the initial deposit is made to subject all such deposit amounts to a perfected security interest in favor of the Agent for the Secured Parties, which perfected security interest shall be assigned to the Agent. Further, if requested by the Agent, a legal opinion shall be issued in favor of the Agent and the Primary Financing Parties opining as to the perfected status of such security interest. All such documentation and legal opinion shall be in form and substance reasonably satisfactory to the Agent. Unless a Lease Default or Lease Event of Default shall have occurred and be continuing, any surplus which may remain out of such Property Proceeds held by the Agent after payment of all costs of the Restoration shall be paid to Lessee. At Lessee's reasonable request, Lessor shall deliver to the Agent and the Agent will deposit any Proceeds held by the Agent for the Restoration into an interest-bearing account over which the Agent has sole possession, authority and control, and otherwise on terms and conditions reasonably satisfactory to the Agent.
(f) In no event shall a Casualty or Condemnation affect Lessee's obligations to pay Rent pursuant to Article III.
(g) Notwithstanding anything to the contrary set forth in Section
15.1(a) or Section 15.1(e), if during the Term with respect to any
affected Property a Casualty occurs with respect to such Property or
Lessee receives notice of a Condemnation with respect to any Property, and
following such Casualty or Condemnation, such Property cannot reasonably
be restored, repaired or replaced on or before the day two hundred forty
(240) days prior to the Expiration Date or the date nine (9) months after
the occurrence of such Casualty or Condemnation to the same or a greater
fair market value, and such that such Property shall after such repair or
restoration have the same or greater useful life and utility for its
intended purpose as existed immediately prior to such Casualty or
Condemnation (assuming all maintenance and repair standards have been
satisfied) or on or before such day such Property is not in fact so
restored, repaired or replaced, then Lessee shall be required to exercise
its Purchase Option for such Property on the next Payment Date
(notwithstanding the limits on such exercise contained in Section 20.2 or
otherwise) and pay Lessor the Termination Value for such Property. If a
Lease Default or a Lease Event of Default has occurred and is continuing
and any Loans, Lessor Advances or other amounts are owing with respect
thereto, then any Excess Proceeds (to the extent of any such Loans, Lessor
Advances or other amounts owing with respect thereto) shall be paid to the
Agent, held as security for the performance of the
Lessee Secured Obligations hereunder and under the other Operative Agreements and applied to such obligations upon the exercise of remedies in connection with the occurrence of an Event of Default, with the remainder of such Excess Proceeds in excess of such Loans, Lessor Advances and other amounts owing with respect thereto being distributed to the Lessee.
15.2 Environmental Matters.
Promptly upon Lessee's actual knowledge of the presence of Hazardous Substances in any portion of any Property in concentrations and conditions that constitute an Environmental Violation and which, in the reasonable opinion of Lessee, the cost to undertake any legally required response, clean up, remedial or other action will or might result in a cost to Lessee of more than $100,000, Lessee shall notify Lessor in writing of such condition. In the event of any Environmental Violation (regardless of whether notice thereof must be given), Lessee shall, not later than thirty (30) days after Lessee has actual knowledge of such Environmental Violation, either deliver to Lessor a Termination Notice with respect to such Property pursuant to Section 16.1, if applicable, or, at Lessee's sole cost and expense, promptly during such thirty (30) day period deliver to Lessor notice of intention to remediate, and thereafter promptly and diligently undertake and complete any response, clean up, remedial or other action (including without limitation the pursuit by Lessee of appropriate action against any off-site or third party source for contamination) necessary to remove, cleanup or remediate the Environmental Violation in compliance with all Environmental Laws. Any such undertaking shall be timely completed in accordance with prudent industry standards. If Lessee does not deliver a Termination Notice with respect to such Property pursuant to Section 16.1, Lessee shall, upon completion of remedial action by Lessee, cause to be prepared by a reputable environmental consultant reasonably acceptable to Agent a report describing the Environmental Violation and the actions taken by Lessee (or its agents) in response to such Environmental Violation, and a statement by the consultant that the Environmental Violation has been remedied in compliance with applicable Environmental Law. Not less than sixty (60) days and not more than one hundred eighty (180) days prior to any time that Lessee elects to cease operations with respect to any Property or to remarket any Property pursuant to the Sale Option pursuant to Section 20.1 hereof or pursuant to any other provision of any Operative Agreement, Lessee at its expense shall cause to be delivered to the Agent a Phase I environmental site assessment (or an update of a prior Phase I environmental site assessment) respecting such Property recently prepared (no more than thirty (30) days prior to the date of delivery) by an independent recognized professional acceptable to the Agent in its reasonable discretion and in form, scope and content satisfactory to the Agent in its reasonable discretion. Notwithstanding any other provision of any Operative Agreement, if Lessee fails to comply with the foregoing obligation regarding the Phase I environmental site assessment, Lessee shall be obligated to purchase such Property for its Termination Value and shall not be permitted to exercise (and Lessor shall have no obligation to honor any such exercise) any rights under any Operative Agreement regarding a sale of such Property to a Person other than Lessee or any Affiliate or other designee of Lessee.
15.3 Notice of Environmental Matters.
Promptly, but in any event within fifteen (15) days from the date Lessee has actual knowledge thereof, Lessee shall provide to Lessor written notice of any pending or threatened claim, action or proceeding involving any Environmental Law or any Release on or in connection with any Property. All such notices shall describe in reasonable detail the nature of the claim, action or proceeding and Lessee's proposed response thereto. In addition, Lessee shall provide to Lessor, within ten (10) days of receipt, copies of all written communications with any Governmental Authority relating to any Environmental Law in connection with any Property. Lessee shall also promptly provide such detailed reports of any such environmental claims as may reasonably be requested by Lessor.
ARTICLE XVI
16.1 Termination Upon Certain Events.
If Lessee has delivered, or is deemed to have delivered, written notice of a termination of this Lease with respect to any Property to Lessor in the form described in Section 16.2(a) (a "Termination Notice") pursuant to the provisions of this Lease, then following the applicable Casualty, Condemnation or Environmental Violation, this Lease shall terminate with respect to such Property upon the payment in full of the Termination Value for such Property in accordance with the terms of the Operative Agreements on the applicable Termination Date.
16.2 Procedures.
(a) A Termination Notice shall contain: (i) notice of termination of this Lease with respect to the applicable Property on a Payment Date not more than sixty (60) days after Lessor's receipt of such Termination Notice (the "Termination Date"); and (ii) a binding and irrevocable agreement of Lessee to pay the Termination Value for the applicable Property and purchase such Property on such Termination Date.
(b) On each Termination Date, Lessee shall pay to Lessor the Termination Value for the applicable Property, and Lessor shall convey such Property or the remaining portion thereof, if any, to Lessee (or Lessee's designee), all in accordance with Section 20.2.
ARTICLE XVII
17.1 Lease Events of Default.
If any one (1) or more of the following events, subject to the penultimate paragraph of this Section 17.1, (each a "Lease Event of Default") shall occur and be continuing:
(a) Lessee shall fail to make payment of (i) any Basic Rent (except as set forth in clause (ii)) within three (3) days after the same has become due and payable or (ii) any Termination Value on the date any such payment is due and payable, any payment of Basic Rent or Supplemental Rent due on the due date of any such payment of Termination Value or any amount due on the Expiration Date;
(b) Lessee shall fail to make payment of any Supplemental Rent (other than Supplemental Rent referred to in Section 17.1(a)(ii)) within three (3) days after receipt of written notice that such payment is due and payable;
(c) Lessee shall fail to maintain insurance as required by Article XIV of this Lease or to deliver any requisite annual certificate with respect thereto within ten (10) days of the date such certificate is due under the terms hereof;
(d) (i) Lessee shall fail to observe or perform pursuant to Sections 5.4 or 8A.9 of the Participation Agreement or (ii) Lessee shall fail to observe or perform any term, covenant, obligation or condition of Lessee under this Lease or any other Operative Agreement to which Lessee is a party other than those set forth in Sections 17.1(a), (b), (c) or (d)(i) hereof, and such failure shall continue for thirty (30) days after the Lessee either has received written notice thereof or a Responsible Officer of Lessee shall have actual knowledge thereof; provided, that in the case of this clause (ii), if such failure is not capable of remedy by the payment of money or otherwise within such thirty (30) day period but may be remedied with further diligence and if Lessee has and continues to pursue diligently such remedy, then Lessee shall be granted additional time to pursue such remedy for such period as the Agent may determine in its reasonable discretion; provided, further, in no event shall such additional period exceed ninety (90) days or (iii) any representation or warranty or statement of fact made by Lessee set forth in this Lease or in any other Operative Agreement or in any document entered into in connection herewith or therewith or in any document, certificate or financial or other statement delivered in connection herewith or therewith shall be false or inaccurate in any material way when made, provided, however, with respect to this Section 17.1(d)(ii) and (iii) to the extent Agent exercises discretion in making the determination that an Event of Default has occurred, Agent shall exercise such discretion in a commercially reasonable manner;
(e) [Reserved];
(f) The Lessee or any Subsidiary of the Lessee shall (i) fail to make any payment, whether of principal, premium or interest, in an aggregate amount equal to or greater than $5,000,000 in respect of any Indebtedness (other than any Indebtedness pursuant to the Operative Agreements) of, or guaranteed by, the Lessee or any Subsidiary when due (whether at scheduled maturity or by required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such indebtedness; or (ii) any other default under any agreement or instrument relating to any Indebtedness of the
Lessee or any of its Subsidiaries, or any other event (including a default in payment of a lesser amount than that specified above if such default would cause or permit acceleration as described in this clause) shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event (A) is to permit the acceleration of the maturity of any such indebtedness in an aggregate principal amount equal to or greater than $20,000,000 or (B) results in the acceleration of the maturity of any such indebtedness in an aggregate principal amount equal to or greater than $20,000,000;
(g) The liquidation or dissolution of Lessee, or the suspension of the business of Lessee, or the filing by Lessee of a voluntary petition or an answer seeking reorganization, arrangement, receivership, readjustment of its debts, insolvency, liquidation, dissolution, winding-up or for any other relief under the Bankruptcy Code, or under any other insolvency act or law, state or federal, now or hereafter existing, or any other action of the Lessee indicating its consent to, approval of or acquiescence in, any such petition or proceeding; the application by the Lessee for, or the appointment by, consent or acquiescence of the Lessee of a receiver, a conservator, a trustee or a custodian of the Lessee for all or a substantial part of its property; the making by the Lessee of any general assignment for the benefit of creditors; the inability of the Lessee or the admission by the Lessee in writing of its inability to pay its debts as they mature or the Lessee is generally not paying its debts and other financial obligations as they become due and payable; or the Lessee taking any corporate action to authorize any of the foregoing;
(h) The filing of an involuntary petition against the Lessee in bankruptcy or seeking reorganization, arrangement, readjustment of its debts, insolvency, liquidation, dissolution, winding-up or for any other relief under the Bankruptcy Code, or under any other insolvency act or law, state or federal, now or hereafter existing; or the involuntary appointment of a receiver, a conservator, a trustee or a custodian of the Lessee for all or a substantial part of its property; or the issuance of a warrant of attachment, execution or similar process against any substantial part of the property of the Lessee, and the continuance of any of such events for sixty (60) days undismissed or undischarged;
(i) [Reserved];
(j) The entering of any order in any proceedings against the Lessee or any Subsidiary of the Lessee decreeing the dissolution, divestiture or split-up of the Lessee or any Subsidiary of the Lessee and such order remains in effect for more than sixty (60) days; provided to the extent such does not have a Material Adverse Effect (determined in a commercially reasonable manner), Subsidiaries of Lessee may be dissolved, provided, however, with respect to this Section 17.1(j) to the extent Agent exercises discretion in making the determination that an Event of Default has occurred, Agent shall exercise such discretion in a commercially reasonable manner
(k) Any Environmental Violation shall have occurred relating to any Property and either (i) Lessee shall, not within thirty (30) days after Lessee has actual knowledge
of such Environmental Violation, either deliver to Lessor a Termination Notice with respect to such Property pursuant to Section 16.1, if applicable, or, at Lessee's sole cost and expense, promptly during such thirty (30) day period deliver to Lessor notice of intention to remediate or (ii) such Environmental Violation is reasonably expected to exceed $500,000 in remediation costs;
(l) [Reserved];
(m) A final judgment or judgments for the payment of money shall be
rendered by a court or courts against the Lessee or any Subsidiary of the
Lessee in excess of $20,000,000 in the aggregate above amounts covered by
insurance, and (i) the same shall not be discharged (or provision shall
not be made for such discharge), or a stay of execution thereof shall not
be procured, within thirty (30) days from the date of entry thereof, or
(ii) the Lessee or any such Subsidiary shall not, within said period of
thirty (30) days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof
to be stayed during such appeal, or (iii) such judgment or judgments shall
not be discharged (or provisions shall not be made for such discharge)
within thirty (30) days after a final decision has been reached with
respect to such appeal and the related stay has been lifted;
(n) The Lessee or any member of the Controlled Group shall fail to pay when due an amount or amounts aggregating in excess of $2,000,000 which it shall have become liable to pay to the PBGC or shall fail to pay within thirty (30) days after becoming due an amount or amounts aggregating in excess of $2,000,000 which it shall have become liable to pay to a Pension Plan under Title IV of ERISA; or notice of intent to terminate a Pension Plan or Pension Plans having aggregate Unfunded Liabilities in excess of $2,000,000 shall be filed under Title IV of ERISA by the Lessee or any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Pension Plan or Pension Plans or a proceeding shall be instituted by a fiduciary of any such Pension Plan or Pension Plans against the Lessee or any member of the Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Pension Plan or Pension Plans must be terminated;
(o) (i) As a result of one (1) or more transactions after the date of this Lease, any "person" or "group" of persons shall have "beneficial ownership" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder) of fifty percent (50%) or more of the outstanding common stock of Lessee; or (ii) without limiting the generality of the foregoing, during any period of twelve (12) consecutive months, commencing after the date of this Lease, individuals who at the beginning of such period of twelve (12) months were directors of Lessee shall cease for any reason to constitute a majority of the board of directors of Lessee (excluding for such calculation, directors who die or retire (for reasons other than any sale, transfer of assets or merger involving Lessee) during any
period of twelve (12) consecutive months so long as such directors are replaced by the surviving directors during such period), provided, that the relationships among the respective shareholders of Lessee on the Initial Closing Date shall not be deemed to constitute all or any combination of them as a "group" for purposes of clause (o)(i), provided, it shall not cause an Event of Default pursuant to this Section 17.1(o) in the event Lessee is acquired by or merged with and does not survive the merger a company with a rating by S&P of BB+ or higher or a rating by Moody's of Ba1 or higher, provided, further, such successor shall execute and deliver documents in form and substance reasonably acceptable to the Agent which reaffirm its obligations as Lessee pursuant to the Operative Agreements;
(p) (i) Any Basic Document to which Lessee is a party shall cease to be in full force and effect or (ii) any other Operative Agreement to which Lessee is a party shall cease to be in full force and effect and such could reasonably be expected to have a Material Adverse Effect, provided, however, with respect to this Section 17.1(p) to the extent Agent exercises discretion in making the determination that an Event of Default has occurred, Agent shall exercise such discretion in a commercially reasonable manner; or
(q) Any failure by Lessee to comply with any of its obligations under the Cash Collateral Agreement and such failure shall continue for ten (10) days after the earlier of (i) a Responsible Officer of Lessee has knowledge of such noncompliance or (ii) the date upon which Lessor or the Agent first provides notice thereof;
then, in any such event, Lessor may, in addition to the other rights and remedies provided for in this Article XVII and in Section 18.1, accelerate the date for payment by Lessee of the Termination Value for all Properties or terminate this Lease by giving Lessee five (5) days written notice of such acceleration or termination, as the case may be, (provided, notwithstanding the foregoing, this Lease shall be deemed to be automatically terminated, unless otherwise accelerated, without the giving of notice upon the occurrence of a Lease Event of Default under Sections 17.1(g), (h) or (j)), and this Lease shall terminate, and all rights of Lessee under this Lease shall cease. Lessee shall, to the fullest extent permitted by law, pay as Supplemental Rent all costs and expenses incurred by or on behalf of Lessor or any other Financing Party, including without limitation reasonable fees and expenses of counsel, as a result of any Lease Event of Default hereunder.
Upon the occurrence of any event described in Sections 17.1(c), (d), (f),
(k), (m), (n) or (o) or, if applicable, during any cure period, if any, the
Lessee may on or before the date such event would otherwise constitute a Lease
Event of Default to avoid such Event of Default or, if applicable, during the
cure period, if any, provided with respect to such Lease Event of Default, by
providing written notice to the Agent and each Primary Financing Party and
confirming receipt thereof which notice states that Lessee shall purchase all,
but not less than all, of the Properties for the aggregate Termination Value for
all Properties within two (2) Business Days (the "Immediate Purchase Notice"),
then such event which would otherwise constitute a Lease Event of Default shall
be deemed not to constitute a Lease Event of Default so long as Lessee is in
strict compliance (in the Lessor's judgment) with this Section 17.1. Immediately
upon receipt
of the Immediate Purchase Notice, the Loans, Lessor Advances and all other
obligations of the Lessee pursuant to the Operative Agreements shall be deemed
to be due and owing and the Agent and the Primary Financing Parties may
immediately apply all Cash Collateral to the aggregate Termination Value for all
Properties. Within five (5) Business Days of the delivery of the Immediate
Purchase Notice, Lessee shall deliver to the Agent the aggregate Termination
Value for all Properties less (to the extent such is not duplicative) the amount
of Cash Collateral, if any, that has been previously applied to such Termination
Value. Upon receipt in full of the aggregate Termination Value for all
Properties, Lessor and the Agent shall diligently work to convey title to the
Properties to Lessee and release the Liens on the Properties created by the
Operative Agreements pursuant to the applicable documentation set forth in
Section 20.2 of the Lease.
A POWER OF SALE HAS BEEN GRANTED IN THIS LEASE AS SUPPLEMENTED BY THE LEASE SUPPLEMENT. A POWER OF SALE MAY ALLOW AGENT, AS AGENT FOR LESSOR AND THE PRIMARY FINANCING PARTIES, TO TAKE EACH PROPERTY AND SELL EACH PROPERTY WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON THE OCCURRENCE AND CONTINUANCE OF A LEASE EVENT OF DEFAULT.
17.2 Surrender of Possession.
If a Lease Event of Default shall have occurred after the Commencement Date and be continuing, and the Lessee's right to possession of the Property has been foreclosed or terminated pursuant to Section 17.1 in any other manner, in any event in accordance with any applicable Law, Lessee shall, upon thirty (30) days written notice, surrender to Lessor possession of each Property. Lessor may enter upon and repossess each Property by such means as are available at law or in equity, and may remove Lessee and all other Persons and any and all personal property and Lessee's equipment and personalty and severable Modifications not required to be surrendered to Lessor under this Lease from each Property. Such removed property shall be deemed abandoned and Lessor shall have no liability by reason of any such entry, repossession or removal performed in accordance with applicable law. Upon the written demand of Lessor, Lessee shall return each Property promptly to Lessor, in the manner and condition required by, and otherwise in accordance with the provisions of, Section 22.1(c) hereof.
17.3 Reletting.
If a Lease Event of Default shall have occurred after the Commencement Date and be continuing, and whether or not this Lease shall have been terminated pursuant to Section 17.1, Lessor may, but shall be under no obligation to, relet any or all of the Properties, for the account of Lessee or otherwise, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the Term) and on such conditions (which may include concessions or free rent) and for such purposes as Lessor may determine, and Lessor may collect, receive and retain the rents resulting from such reletting. Lessor shall not be liable to Lessee for any failure to relet any Property or for any failure to collect any rent due upon such reletting.
17.4 Damages.
The parties hereto agree that upon the occurrence of an Event of Default
damages would be hard to estimate and the parties agree that this damages
section and the damages set forth in Section 17.6 are a good estimate of the
damages. Neither (a) the termination of this Lease as to any Property pursuant
to Section 17.1; (b) the repossession of any Property; nor (c) the failure of
Lessor to relet any Property, the reletting of all or any portion thereof, nor
the failure of Lessor to collect or receive any rentals due upon any such
reletting, shall relieve Lessee of its liabilities and obligations hereunder,
all of which shall survive any such termination, repossession or reletting. If
any Lease Event of Default shall have occurred after the Commencement Date and
be continuing and this Lease is terminated pursuant to Section 17.1, Lessee
shall forthwith pay to Lessor all Rent and other sums due and payable hereunder
to and including without limitation the date of such termination. In the event
this Lease is not terminated pursuant hereto, on the days on which the Basic
Rent or Supplemental Rent, as applicable, are payable under this Lease or would
have been payable under this Lease and until the end of the Term hereof Lessee
shall pay Lessor, as current liquidated damages (it being agreed that it would
be impossible accurately to determine actual damages) an amount equal to the
Basic Rent and Supplemental Rent that are payable under this Lease or would have
been payable by Lessee hereunder if this Lease had not been terminated pursuant
to Section 17.1, less the net proceeds, if any, which are actually received by
Lessor with respect to the period in question of any reletting of any Property
or any portion thereof; provided, that Lessee's obligation to make payments of
Basic Rent and Supplemental Rent under this Section 17.4 shall continue only so
long as Lessor shall not have received the amounts specified in Section 17.6. In
calculating the amount of such net proceeds from reletting, there shall be
deducted all of the Agent's and any Primary Financing Party's reasonable
expenses in connection therewith, including without limitation repossession
costs, brokerage or sales commissions, fees and expenses for counsel and any
necessary repair or alteration costs and expenses incurred in preparation for
such reletting. To the extent Lessor receives any damages pursuant to this
Section 17.4, such amounts shall be regarded as amounts paid on account of Rent.
Lessee specifically acknowledges and agrees that its obligations under this
Section 17.4 shall be absolute and unconditional under any and all circumstances
and shall be paid and/or performed, as the case may be, without notice or demand
and without any abatement, reduction, diminution, setoff, defense, counterclaim
or recoupment whatsoever.
17.5 Power of Sale.
(a) Without limiting any other remedies set forth in this Lease, Lessor and Lessee agree that Lessee has granted, pursuant to Section 7.1(b) hereof and the Lease Supplement its right, title and interest in and to the Properties and this Lease to the Agent for the benefit of the Secured Parties, a Lien against each Property as trustee WITH POWER OF SALE for each Property, and that, upon the occurrence and during the continuance of any Lease Event of Default, the Agent shall have the power and authority, to the extent provided by law, after prior notice and lapse of such time as may be required by law, to foreclose Lessee's interest (or cause such interest to be foreclosed) in all or any part of any Property for use in satisfaction of the Lessee Secured Obligations.
(b) Upon the occurrence and during the continuance of a Lease Event of Default, the Agent, in lieu of or in addition to exercising any power of sale hereinabove given, may proceed by a suit or suits in equity or at law, whether for a foreclosure hereunder, or for the sale of such interest in one or more of the Properties, against Lessee for the Termination Value or for the appointment of a receiver pending any foreclosure hereunder or the sale of such interest in such Property or Properties, or for the enforcement of any other appropriate legal or equitable remedy.
17.6 Final Liquidated Damages.
If a Lease Event of Default shall have occurred and be continuing, whether or not this Lease shall have been terminated pursuant to Section 17.1 and whether or not Lessor shall have collected any current liquidated damages pursuant to Section 17.4, Lessor shall have the right to recover, by demand to Lessee and at Lessor's election, and Lessee shall pay to Lessor, as and for final liquidated damages, but exclusive of the indemnities payable under Section 11 of the Participation Agreement (which, if requested, shall be paid concurrently), and in lieu of all current liquidated damages beyond the date of such demand (it being agreed that it would be impossible accurately to determine actual damages) the Termination Value (including, without limitation, the Make - Whole Amount). Upon payment of the amount specified pursuant to the first sentence of this Section 17.6, Lessee shall be entitled to receive from Lessor, either at Lessee's request or upon Lessor's election, in either case at Lessee's cost, an assignment of Lessor's entire right, title and interest in and to the Properties, Improvements, Fixtures, Modifications, Equipment which is not, in each of the foregoing cases, Non-Integral Equipment and all components thereof, in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of this Lease and the other Operative Agreements (including without limitation the release of any memoranda of Lease and/or the Lease Supplement recorded in connection therewith) and any Lessor Liens. The Properties shall be conveyed to Lessee "AS-IS, WHERE-IS" and in their then present physical condition. If any statute or rule of law shall limit the amount of such final liquidated damages to less than the amount agreed upon, Lessor shall be entitled to the maximum amount allowable under such statute or rule of law; provided, however, Lessee shall not be entitled to receive an assignment of Lessor's interest in the Properties, the Improvements, Fixtures, Modifications, Equipment or the components thereof unless Lessee shall have paid in full the Termination Value. Lessee specifically acknowledges and agrees that its obligations under this Section 17.6 shall be absolute and unconditional under any and all circumstances and shall be paid and/or performed, as the case may be, without notice or demand and without any abatement, reduction, diminution, setoff, defense, counterclaim or recoupment whatsoever.
17.7 Environmental Costs.
If a Lease Event of Default shall have occurred and be continuing, and whether or not this Lease shall have been terminated pursuant to Section 17.3, Lessee shall pay directly to any third party (or at Lessor's election, reimburse Lessor) for the cost of any environmental testing and/or remediation work undertaken respecting one or more Properties, as such testing or work is deemed appropriate in the reasonable judgment of Lessor, and shall indemnify and hold harmless Lessor and each other Indemnified Person therefrom. Lessee shall pay all amounts referenced in the immediately preceding sentence within five (5) Business Days of any request by Lessor for
such payment. Except as otherwise provided in the Operative Agreements, Lessee
shall not be responsible for additional incidents caused by actions by third
parties other than Lessee, Lessee's Affiliates and any of their agents,
employees, designees and assignees occurring after sale and conveyance of such
Property so long as none of Lessee, any of its Affiliates or and any of their
agents, employees, designees and assignees is in possession of, occupies or has
any right, title or interest in or to such Property. The provisions of this
Section 17.7 shall not limit the obligations of Lessee under any Operative
Agreement regarding indemnification obligations, environmental testing,
remediation and/or work.
17.8 Waiver of Certain Rights.
If this Lease shall be terminated pursuant to Section 17.1, Lessee waives,
to the fullest extent permitted by Law, (a) any notice of re-entry or the
institution of legal proceedings to obtain re-entry or possession; (b) any right
of redemption, re-entry or possession; (c) the benefit of any laws now or
hereafter in force exempting property from liability for rent or for debt; and
(d) the benefit of all appraisement, valuation, stay, extension and redemption
laws now or hereafter in force and all rights of marshalling in the event of any
sale of the Properties or any portion thereof or interest therein; and (e) any
other rights which might otherwise limit or modify any of Lessor's rights or
remedies under this Article XVII.
17.9 Assignment of Rights Under Contracts.
If a Lease Event of Default shall have occurred and be continuing, and whether or not this Lease shall have been terminated pursuant to Section 17.1, Lessee shall upon Lessor's demand immediately assign, transfer and set over to Lessor all of Lessee's right, title and interest in and to each agreement executed by Lessee in connection with the acquisition, testing, use, operation, maintenance, repair, refurbishment and restoration of the Properties (including without limitation all right, title and interest of Lessee with respect to all warranty, performance, service and indemnity provisions), as and to the extent that the same relate to the acquisition, testing, use, operation, maintenance, repair, refurbishment and restoration of the Properties or any of them.
17.10 Remedies Cumulative.
The remedies herein provided shall be cumulative and in addition to (and not in limitation of) any other remedies available at law, equity or otherwise, including without limitation any mortgage foreclosure remedies.
17.11 Lessee's Right to Cure by Purchase of the Properties.
Notwithstanding anything in this Lease or in any of the other Operative
Agreements to the contrary, upon the occurrence and continuance of a Lease
Default or Lease Event of Default, Lessee may, but shall not be obligated to,
cure any such Lease Default or Lease Event of Default, as the case may be, by
purchasing the Properties, such purchase to be consummated as provided in
Section 20.2.
17.12 Limitation Regarding Certain Lease Events of Default.
Notwithstanding anything contained herein or in any other Operative
Agreement to the contrary, upon the occurrence and during the continuance of a
Lease Event of Default under Sections 17.1(d)(ii) or 17.1(d)(iii) of the Lease
arising solely as a result of a violation of Sections 5.3(k), 5.3(u), 5.3(x),
6.2(z), 8A.1 (relating solely to the "going concern" qualification of the
Lessee's financial statements by its independent certified public accountants),
in each case of the Participation Agreement and with respect to Section
17.1(d)(i) of the Lease, arising solely as a result of a violation of Section
8A.9 of the Participation Agreement, attributable solely to a Lease Event of
Default pursuant to Section 17.1(f)(ii)(A), or 17.1(f)(ii)(B) if the Primary
Financing Parties and their Affiliates, either collectively or individually,
have the ability to control (by vote or otherwise) whether such Indebtedness
will become due prior to its stated maturity or Section 17.1(o) (collectively, a
"Limited Recourse Event of Default"), the maximum aggregate amount of Lessee's
obligations attributable solely to a Limited Recourse Event of Default
(including without limitation any liability of amounts due pursuant to Section
3.2 of the Cash Collateral Agreement or Section 7.3(c) and 7.3(d) of the
Participation Agreement, pursuant to Section 11.1 (c) or (g) or 11.4 of the
Participation Agreement for enforcement costs or losses arising as a result of
such Limited Recourse Event of Default, or pursuant to Section 11.2 of the
Participation Agreement related to transfer taxes incurred as a result of a
disposition of any Property following and resulting from a Limited Recourse
Event of Default) shall be an amount equal to the Maximum Residual Guarantee
Amount (net of Remarketing Expense for such Property) for each affected
Property, provided, this Section 17.12 shall not in any way limit the liability
of the Lessee in the event of any other Lease Event of Default other than a
Limited Recourse Event of Default or any indemnity payment to any Indemnified
Person not resulting from or related to the occurrence of such Limited Recourse
Event of Default, including without limitation (except as expressly stated
above), the indemnities set forth in Sections 11.1 through 11.5 of the
Participation Agreement and such indemnity payment shall not be included in the
calculation set forth above. Lessee nonetheless acknowledges and agrees that
even though the maximum aggregate recovery from Lessee is limited as aforesaid,
neither Lessor's nor any other Financing Party's right of recovery from the
Properties (as opposed to any recovery from Lessee) is so limited and Lessor or
any other applicable Financing Party shall be entitled to recover 100% of the
amounts owed to Lessor or such other Financing Party in accordance with the
Operative Agreements from its interest in the Properties, including without
limitation, to the extent not duplicative, 100% of the aggregate Termination
Value for all Properties. Proceeds from any such disposition of the Properties
after the occurrence of a Limited Recourse Event of Default shall be distributed
in accordance with Section 8.7 of the Participation Agreement. In the event any
Property is remarketed by Lessor after the occurrence and solely as a result of
a Limited Recourse Event of Default, then Lessee shall have a nonexclusive right
to deliver bids for the purchase of any Property to Lessor for one hundred
twenty (120) days commencing on the date the applicable Limited Recourse Event
of Default occurred (such period the "LRED Period"). Promptly upon, but in no
event more than three (3) Business Days after the occurrence of a Limited
Recourse Event of Default, Lessee shall pay the Maximum Residual Guarantee
Amount to the Agent and shall promptly surrender, or cause to be surrendered,
(but in not event greater than thirty (30) days after the date of such Limited
Recourse Event of Default) each Property in accordance with the terms and
conditions of Section 10.1, and thereafter Lessee shall have an additional sixty
(60) days when Lessee may, upon reasonable advance notice to Lessor and the
consent of Lessor (which consent shall not be unreasonably or delayed) enter the
applicable
Properties for the purpose of removing the Non-Integral Equipment in accordance with Sections 10.1 and 11.1 of the Lease. If Lessee should fail to timely pay the Maximum Residual Guarantee Amount, Lessee shall purchase (or cause its designee to purchase) all such Properties in accordance with Section 20.2 on the date one (1) Business Day after the Maximum Residual Guaranty Amount was due pursuant to the preceding sentence. Lessor may reject any and all bids (and retain the Properties) with respect to any Property which is less than the Limited Recourse Amount and may solicit and obtain bids by giving Lessee written notice to that effect; provided, however, that notwithstanding the foregoing, Lessor may not reject any bid submitted by Lessee during the LRED Period if such bid would result in the full repayment of the Limited Recourse Amount for such Property, and represents a bona fide offer from one (1) or more third party purchasers. If the highest price (net of Remarketing Expense) which a prospective purchaser or the prospective purchasers shall have offered to pay for any such Property during the LRED Period would not result in the full payment of the Limited Recourse Amount for the Properties or if such bid does not represent a bona fide offer from one (1) or more third parties or if there are no bids, then Lessor shall have the option to retain the Properties.
ARTICLE XVIII
18.1 Lessor's Right to Cure Lessee's Lease Defaults.
Lessor, without waiving or releasing any obligation or Lease Event of Default, may (but shall be under no obligation to) remedy any Lease Event of Default for the account and at the sole cost and expense of Lessee, including without limitation the failure by Lessee to maintain the insurance required by Article XIV, and may, to the fullest extent permitted by law, and notwithstanding any right of quiet enjoyment in favor of Lessee, enter upon each Property, and take all such action thereon as may be necessary or appropriate therefor. No such entry shall be deemed an eviction of any lessee. All reasonable out-of-pocket costs and expenses so incurred (including without limitation fees and expenses of counsel), together with interest thereon at the interest rates referenced in Section 3.3(b)(iii) from the date on which such sums or expenses are paid by Lessor, shall be paid by Lessee to Lessor on demand and constitutes part of the obligations secured by this Lease.
ARTICLE XIX
19.1 [Reserved].
19.2 No Purchase or Termination With Respect to Less than All of a Property.
Lessee shall not be entitled to exercise its Purchase Option or the Sale Option separately with respect to a portion of any Property but shall be required to exercise its Purchase Option or the Sale Option with respect to the entire Property, which shall be an entire Lease Supplement.
ARTICLE XX
20.1 Purchase Option or Sale Option-General Provisions.
Not less than one hundred eighty (180) days and no more than three hundred sixty (360) days prior to the Expiration Date, Lessee shall give the Agent (on behalf of Lessor) irrevocable written notice (the "Election Notice") that Lessee is electing (a) to purchase any of the Properties on the Expiration Date or (b) with respect to an Election Notice given in connection with the Expiration Date only, the option to remarket any of the Properties to a Person other than Lessee or any Affiliate of Lessee and cause a sale of such Properties to occur on the applicable Election Date pursuant to the terms of Section 22.1 (the "Sale Option"). In addition, Lessee may during the Term, provide an Election Notice not less that sixty (60) and not more than more than two hundred forty (240) days prior to any Payment Date irrevocably electing to purchase a Property on such Payment Date (the Expiration Date or, respecting the Purchase Option only, any such Payment Date being hereinafter referred to as the "Election Date") referenced in the Election Notice that it will purchase one or more Properties for the respective Termination Values (the "Early Purchase Option" and together with the option set forth in (a) above, the "Purchase Option"). If Lessee does not give an Election Notice indicating the Purchase Option or the Sale Option at least one hundred eighty (180) days and not more than three hundred sixty (360) days prior to the Expiration Date, then Lessee shall be deemed to have elected for the Purchase Option to apply on the Expiration Date.
If any Property has not been fully repaired after a Casualty pursuant to Article XV or is the subject of remediation efforts respecting Hazardous Substances at the applicable Election Date which could materially and adversely impact the Fair Market Sales Value of such Property (with materiality determined in Lessor's reasonable discretion), then Lessee shall be obligated to purchase such Property pursuant to Section 20.2.
20.2 Lessee Purchase Option.
Provided, that the Election Notice has been appropriately given specifying the Purchase Option or Lessee shall be deemed to have elected the Purchase Option, Lessee shall purchase all the Properties on the applicable Election Date at a price equal to the Termination Value for all the Properties (which the parties do not intend to be a "bargain" purchase price) or with respect to the Early Purchase Option, Lessee shall purchase the applicable Property on the applicable Election Date at a price equal to the Termination Value for such Property.
Subject to Section 19.2, in connection with any termination of this Lease with respect to any Property pursuant to Section 16.2, or in connection with Lessee's exercise of its Purchase Option, upon the date on which this Lease is to terminate with respect to all the Properties (or any individual Property pursuant to Section 16.2 or the Early Purchase Option) and upon tender by Lessee of the amounts set forth in Section 16.2(b) or this Section 20.2, as applicable (which could include the application of the Cash Collateral as permitted by the terms and conditions of the Operative Agreements), Lessor shall execute, acknowledge (where required) and deliver to Lessee, at Lessee's cost and expense, each of the following: (a) a special or limited warranty Deed or the local law equivalent conveying each such Property (to the extent it is real property)
to Lessee (or Lessee's designee) free and clear of the Lien of this Lease, the Liens of the Security Documents and any other Operative Agreements and any Lessor Liens; (b) a Bill of Sale conveying each such Property (to the extent it is personal property) to Lessee (or Lessee's designee) free and clear of the Lien of this Lease, the Liens of the Credit Documents and any other Operative Agreements and any Lessor Liens; (c) any real estate tax affidavit required by law to be executed by Lessor and filed in order to record the Deed; (d) FIRPTA affidavits and (e) such other documents as the Lessee or the Agent shall reasonably request, in form and substance acceptable to each of Lessee and the Agent in each party's sole discretion, to facilitate the conveyance of the Properties in accordance with the Operative Agreements. All of the foregoing documentation must be in form and substance reasonably satisfactory to Agent and Lessee. Each such Property shall be conveyed to Lessee (or Lessee's designee) "AS-IS, WHERE-IS" and in then present physical condition.
On the applicable Election Date on which Lessee has elected to exercise its Purchase Option, Lessee shall pay (or cause to be paid) to Lessor or the Agent, as appropriate, the sum of all reasonable costs and expenses incurred by any such party in connection with the election by Lessee to exercise its Purchase Option and all Rent then due and payable or accrued under this Lease and/or any other Operative Agreement.
20.3 Third Party Sale Option.
(a) Provided, that (i) no Lease Default or Lease Event of Default shall have occurred and be continuing and (ii) the Election Notice has been appropriately given specifying the Sale Option, Lessee shall undertake to cause a sale of all the Properties (with respect to which the Sale Option has been elected) on the Expiration Date (all as specified in the Election Notice), in accordance with the provisions of Section 22.1 hereof. The Expiration Date may be hereafter referred to as the "Sale Date".
(b) In the event Lessee exercises the Sale Option then, as soon as practicable and in all events not less than sixty (60) days and not more than one hundred eighty (180) days prior to the Sale Date, Lessee at its expense shall cause to be delivered to Lessor a Phase I environmental site assessment (or an update of a Phase I environmental site assessment previously delivered) (with respect to which the Sale Option has been elected) for each Property recently prepared (no more than thirty (30) days old prior to the date of delivery) by an independent recognized professional reasonably acceptable to Lessor and in form, scope and content reasonably satisfactory to Lessor. In the event that Lessor shall not have received each such environmental site assessment by the date sixty (60) days prior to the Sale Date or in the event that any such environmental assessment shall reveal the existence of any material violation of Environmental Laws, other material Environmental Violation or potential material Environmental Violation (with materiality determined in each case by Lessor in its reasonable discretion), then Lessee on the Sale Date shall pay to Lessor an amount equal to the Termination Value for all such Properties. Upon receipt of such payment, Lessor shall transfer to Lessee all of Lessor's right, title and interest in and to all such Properties in accordance with the second paragraph of Section 20.2.
ARTICLE XXI
21.1 [Reserved].
ARTICLE XXII
22.1 Sale Procedure.
(a) If Lessee properly elects the Sale Option, during the Marketing Period, Lessee, on behalf of Lessor, shall obtain bids for the cash purchase of any of the Properties (with respect to which the Sale Option has been elected) in connection with a sale to one (1) or more third party purchasers to be consummated on the Sale Date for the highest price available, shall notify Lessor promptly of the name and address of each prospective purchaser and the cash price which each prospective purchaser shall have offered to pay for each such Property and shall provide Lessor with such additional information about the bids and the bid solicitation procedure as Lessor may reasonably request from time to time. All such prospective purchasers must be Persons other than Lessee or any Affiliate of Lessee. On the Sale Date, Lessee shall pay (or cause to be paid) to the Agent the sum of all reasonable costs and expenses incurred by Lessor and/or the Agent (as the case may be) in connection with such sale of the Properties, all Rent then due and payable or accrued under this Lease and/or any other Operative Agreement.
Lessor may reject any and all bids (and retain such Property) with respect to any Property which is less than the Limited Recourse Amount and may solicit and obtain bids by giving Lessee written notice to that effect; provided, however, that notwithstanding the foregoing, Lessor may not reject any bid submitted by Lessee if such bid would result in the full repayment of the Limited Recourse Amount for such Property, and represents a bona fide offer from one (1) or more third party purchasers. If the highest price (net of Remarketing Expense) which a prospective purchaser or the prospective purchasers shall have offered to pay for any such Property on the Sale Date would not result in the full payment of the Limited Recourse Amount for such Property or if such bid does not represent a bona fide offer from one (1) or more third parties or if there are no bids, then Lessee shall pay the Maximum Residual Guarantee Amount and shall surrender, or cause to be surrendered, each such Property in accordance with the terms and conditions of Section 10.1 each on or before the Expiration Date and if Lessee should fail to timely pay such amount Lessee shall purchase (or cause its designee to purchase) all such Properties on the Expiration Date in accordance with Section 20.2.
Unless Lessor shall have elected to retain one or more of the Properties pursuant to the provisions of the preceding paragraph, Lessee shall arrange for Lessor to sell all the Properties free and clear of the Lien of this Lease, the Liens of the Credit Documents and any other Operative Agreement and any Lessor Liens, without recourse or warranty (of title or otherwise), for cash on the Sale Date to the purchaser or purchasers offering the highest cash sales price, as identified by Lessee or Lessor, as the case may be. To effect
such transfer and assignment, Lessor shall execute, acknowledge (where
required) and deliver to the appropriate purchaser each of the following:
(a) a special or limited warranty Deed or its local law equivalent
conveying each such Property or the local law equivalent (to the extent it
is real property) to the appropriate purchaser free and clear of the Lien
of this Lease, the Liens of the Credit Documents and the other Operative
Agreements and any Lessor Liens; (b) a Bill of Sale conveying each such
Property (to the extent it is personal property) titled to Lessor to the
appropriate purchaser free and clear of the Lien of this Lease, the Liens
of the Credit Documents and the other Operative Agreements and any Lessor
Liens; (c) any real estate tax affidavit required by law to be executed by
Lessor and filed in order to record the Deed; (d) FIRPTA affidavits and
(e) such other documents as the Lessee or the Agent shall reasonably
request, in form and substance acceptable to each of Lessee and the Agent
in each party's sole discretion, to facilitate the conveyance of the
Properties in accordance with the Operative Agreements. All of the
foregoing documentation must be in form and substance reasonably
satisfactory to Lessor and the Agent. Lessee shall surrender each such
Property so sold or subject to such documents to each purchaser in the
condition specified in Section 10.1, or in such other condition as may be
agreed between Lessee and such purchaser. Neither Lessor nor Lessee shall
take or fail to take any action which would have the effect of
unreasonably discouraging bona fide third party bids for any Property. If
any Property is neither (i) sold on the Sale Date in accordance with the
terms of this Section 22.1, nor (ii) retained by Lessor pursuant to an
affirmative election made by Lessor pursuant to the second sentence of the
second paragraph of this Section 22.1(a), then Lessee shall pay the
Maximum Residual Guarantee Amount and shall surrender, or cause to be
surrendered, each such Property in accordance with the terms and
conditions of Section 10.1 each on or before the Expiration Date and if
Lessee should fail to timely pay such amount Lessee shall purchase (or
cause its designee to purchase) all such Properties on the Expiration Date
in accordance with Section 20.2.
(b) In the event Lessee shall have elected the Sale Option, Lessee
hereby unconditionally promises to pay to Lessor on the Sale Date, the
Maximum Residual Guarantee Amount. On the Sale Date if (x) Lessor receives
the aggregate Termination Value for any of the Properties from one (1) or
more third party purchasers and (y) Lessor and such other parties receive
all other amounts specified in the last sentence of the first paragraph of
Section 22.1(a) then Lessee may retain any excess above Termination Value.
If one or more of the Properties is retained by Lessor pursuant to an
affirmative election made by Lessor pursuant to the provisions of Section
22.1(a), then Lessee hereby unconditionally promises to pay to Lessor on
the Sale Date all Basic Rent and Supplemental Rent (exclusive of a payment
of the Termination Value) and, without duplication, all other amounts then
due and owing pursuant to the Operative Agreements and, without
duplication, an amount equal to the Maximum Residual Guarantee Amount for
each Property so retained. Any payment of the foregoing amounts described
in this Section 22.1(b) shall be made, without duplication, together with
a payment of all Rent and all other amounts referenced in the last
sentence of the first paragraph of Section 22.1(a).
(c) In the event that all the Properties are either sold to one (1) or more third party purchasers on the Sale Date or retained by Lessor in connection with an affirmative election made by Lessor pursuant to the provisions of Section 22.1(a), then in either case on the Sale Date Lessee shall provide Lessor or such third party purchaser (unless otherwise agreed by such third party purchaser) with (i) all permits, certificates of occupancy, governmental licenses and authorizations necessary to use, operate, repair, access and maintain each such Property for the purpose it is being used by Lessee, and (ii) such manuals, permits, easements, licenses, intellectual property, know-how, rights-of-way and other rights and privileges in the nature of an easement as are reasonably necessary or desirable in connection with the use, operation, repair, access to or maintenance of each such Property for its intended purpose or otherwise as Lessor or such third party purchaser(s) shall reasonably request (and a royalty-free license or similar agreement to effectuate the foregoing on terms reasonably agreeable to Lessor or such third party purchaser(s), as applicable). All assignments, licenses, easements, agreements and other deliveries required by clauses (i) and (ii) of this paragraph (c) shall be in form reasonably satisfactory to Lessor or such third party purchaser(s), as applicable, and shall be fully assignable (including without limitation both primary assignments and assignments given in the nature of security) without payment of any fee, cost or other charge.
22.2 Application of Proceeds of Sale.
In the event Lessee receives any proceeds of sale of any Property, such proceeds shall be deemed to have been received in trust on behalf of Lessor, and Lessee shall promptly remit such proceeds to Lessor. Lessor shall apply the proceeds of sale of any Property in the following order of priority:
(a) FIRST, to pay or to reimburse Lessor (and/or the Agent, as the case may be) for the payment of all Remarketing Expense; and
(b) SECOND, in accordance with Section 8.7 of the Participation Agreement.
22.3 Indemnity for Excessive Wear.
If the proceeds of the sale described in Section 22.1 with respect to all the Properties shall be less than the Limited Recourse Amount with respect to all the Properties, and at the time of such sale it shall have been reasonably determined (pursuant to the Appraisal Procedure) that the Fair Market Sales Value of any Property shall have been impaired by greater than expected wear and tear during the term of the Lease, Lessee shall pay to Lessor within ten (10) days after receipt of Lessor's written statement (i) the amount of such excess wear and tear determined by the Appraisal Procedure or (ii) the amount of the Sale Proceeds Shortfall, whichever amount is less.
22.4 Appraisal Procedure.
For determining the Fair Market Sales Value of one or more Properties or any other amount which may, pursuant to any provision of any Operative Agreement, be determined by an appraisal procedure, Lessor and Lessee shall use the following procedure (the "Appraisal Procedure"). Lessor and Lessee shall endeavor to reach a mutual agreement as to such amount for a period of ten (10) days from commencement of the Appraisal Procedure under the applicable Section of the applicable Operative Agreement, and if they cannot agree within ten (10) days, then two (2) qualified appraisers, one (1) chosen by Lessee and one (1) chosen by Lessor, shall mutually agree thereupon, but if either party shall fail to choose an appraiser within twenty (20) days after notice from the other party of the selection of its appraiser, then the appraisal by such appointed appraiser shall be binding on Lessee and Lessor. If the two (2) appraisers cannot agree within twenty (20) days after both shall have been appointed, then a third appraiser shall be selected by the two (2) appraisers or, failing agreement as to such third appraiser within thirty (30) days after both shall have been appointed, by the American Arbitration Association. The decisions of the three (3) appraisers shall be given within twenty (20) days of the appointment of the third appraiser and the decision of the appraiser most different from the average of the other two (2) shall be discarded and such average shall be binding on Lessor and Lessee; provided, that if the highest appraisal and the lowest appraisal are equidistant from the third appraisal, the third appraisal shall be binding on Lessor and Lessee. The fees and expenses of the appraiser appointed by Lessee shall be paid by Lessee; the fees and expenses of the appraiser appointed by Lessor shall be paid by Lessor (such fees and expenses not being indemnified pursuant to Section 11 of the Participation Agreement); and the fees and expenses of the third appraiser shall be divided equally between Lessee and Lessor.
22.5 Certain Obligations Continue.
During the Marketing Period, the obligation of Lessee to pay Rent with respect to all the Properties (including without limitation the installment of Basic Rent due on the Sale Date) shall continue undiminished until payment in full to Lessor of the Maximum Residual Guarantee Amount, the sale proceeds, if any, remaining after the payment of the Maximum Residual Guarantee Amount, the amount due under Section 22.3, if any, and all other amounts due to Lessor or any other Person with respect to one or more Properties or any Operative Agreement. Lessor shall have the right, but shall be under no duty, to solicit bids, to inquire into the efforts of Lessee to obtain bids or otherwise to take action in connection with any such sale, other than as expressly provided in this Article XXII.
ARTICLE XXIII
23.1 Holding Over.
If Lessee shall for any reason remain in possession of any Property after the expiration or earlier termination of this Lease (unless such Property is conveyed to Lessee), such possession shall be as a tenancy at sufferance during which time Lessee shall continue to pay Supplemental Rent that would be payable by Lessee hereunder were the Lease then in full force and effect with
respect to such Property and Lessee shall continue to pay Basic Rent at the lesser of the highest lawful rate and one hundred ten percent (110%) of the last payment of Basic Rent due with respect to such Property prior to such expiration or earlier termination of this Lease. Such Basic Rent shall be payable from time to time upon demand by Lessor and such additional amount of Basic Rent shall be paid to the Agent and applied ratably to the Primary Financing Parties based on their relative amounts of the then outstanding Property Cost for such Property. During any period of tenancy at sufferance, Lessee shall, subject to the second preceding sentence, be obligated to perform and observe all of the terms, covenants and conditions of this Lease, but shall have no rights hereunder other than the right, to the extent given by law to tenants at sufferance, to continue their occupancy and use of such Property. Nothing contained in this Article XXIII shall constitute the consent, express or implied, of Lessor to the holding over of Lessee after the expiration or earlier termination of this Lease (unless such Property is conveyed to Lessee) and nothing contained herein shall be read or construed as preventing Lessor from maintaining a suit for possession of such Property or exercising any other remedy available to Lessor at law or in equity.
ARTICLE XXIV
24.1 Risk of Loss.
During the Term, unless Lessee shall not be in actual possession of any Property solely by reason of Lessor's exercise of its remedies of dispossession under Article XVII, the risk of loss or decrease in the enjoyment and beneficial use of such Property as a result of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is assumed by Lessee, and Lessor shall in no event be answerable or accountable therefor.
ARTICLE XXV
25.1 Assignment.
(a) Lessee may not assign this Lease or any of its rights or obligations hereunder or with respect to any Property in whole or in part to any Person without the prior written consent of each of the Agent, the Credit Lenders, the Mortgage Lenders and the Lessor.
(b) No assignment by Lessee (referenced in this Section 25.1 or otherwise) or other relinquishment of possession to any Property shall in any way discharge or diminish any of the obligations of Lessee to Lessor hereunder and Lessee shall remain directly and primarily liable under the Operative Agreements as to any rights or obligations assigned by Lessee.
25.2 Subleases.
(a) Promptly, but in any event within five (5) Business Days, following the execution and delivery of any sublease permitted by this Article XXV, Lessee shall notify Lessor and the Agent of the execution of such sublease and shall provide a copy of such sublease to Lessor and the Agent. As of the date of each Lease Supplement, Lessee shall lease the Property described in such Lease Supplement from Lessor, and any existing tenant respecting such Property shall automatically be deemed to be a subtenant of Lessee and not a tenant of Lessor.
(b) Without the prior written consent of the Agent or any Primary Financing Party and subject to the other provisions of this Section 25.2, Lessee may sublet any Property or any portion thereof (i) only to any Wholly-Owned Entity of Lessee or (ii) to any other Person provided, all subleasing pursuant to this subsection (ii) shall be done on market terms for a term not to exceed the Term hereof and shall in no way diminish the fair market value, useful life or utility of such Property.
(c) No sublease (referenced in this Section 25.2 or otherwise) or other relinquishment of possession to any Property shall in any way discharge or diminish any of Lessee's obligations to Lessor hereunder and Lessee shall remain directly and primarily liable under this Lease as to such Property, or portion thereof, so sublet. The term of any such sublease shall not extend beyond the Term. Each sublease shall be expressly subject and subordinate to this Lease. Subject to a subordination, non disturbance and attornment agreement acceptable to Lessor and upon request, Lessor shall agree that it will recognize any sublease entered into on market terms to an entity which would fulfill Lessor's customary credit requirements (in Lessor's discretion) for the obligations undertaken by the sublessee in the sublease and which is not otherwise prohibited by this Lease, in the event this Lease is terminated prior to the Expiration Date.
ARTICLE XXVI
26.1 No Waiver.
No failure by Lessor or Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy upon a default hereunder, and no acceptance of full or partial payment of Rent during the continuance of any such default, shall constitute a waiver of any such default or of any such term. To the fullest extent permitted by law, no waiver of any default shall affect or alter this Lease, and this Lease shall continue in full force and effect with respect to any other then existing or subsequent default.
ARTICLE XXVII
27.1 Acceptance of Surrender.
No surrender to Lessor of this Lease or of all or any portion of any Property or of any part of any thereof or of any interest therein shall be valid or effective unless agreed to and accepted in writing by Lessor and no act by Lessor or the Agent or any representative or agent of Lessor or the Agent, other than a written acceptance, shall constitute an acceptance of any such surrender.
27.2 No Merger of Title.
There shall be no merger of this Lease or of the leasehold estate created
hereby by reason of the fact that the same Person may acquire, own or hold,
directly or indirectly, in whole or in part, (a) this Lease or the leasehold
estate created hereby or any interest in this Lease or such leasehold estate,
(b) any right, title or interest in any Property or (c) any Note.
ARTICLE XXVIII
28.1 [Reserved].
ARTICLE XXIX
29.1 Notices.
All notices required or permitted to be given under this Lease shall be in writing and delivered as provided in Section 12.2 of the Participation Agreement.
ARTICLE XXX
30.1 Miscellaneous.
Anything contained in this Lease to the contrary notwithstanding, all claims against and liabilities of Lessee or Lessor arising from events commencing prior to the expiration or earlier termination of this Lease shall survive such expiration or earlier termination. If any provision of this Lease shall be held to be unenforceable in any jurisdiction, such unenforceability shall not affect the enforceability of any other provision of this Lease or of such provision or of any other provision hereof in any other jurisdiction.
30.2 Amendments and Modifications.
Neither this Lease nor any Lease Supplement may be amended, waived, discharged or terminated except in accordance with the provisions of Section 12.4 of the Participation Agreement.
30.3 Successors and Assigns.
All the terms and provisions of this Lease shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.
30.4 Headings and Table of Contents.
The headings and table of contents in this Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
30.5 Counterparts.
This Lease may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one (1) and the same instrument.
30.6 GOVERNING LAW.
THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE LAWS OF THE STATE WHERE A PARTICULAR PROPERTY IS LOCATED ARE REQUIRED TO APPLY.
30.7 Calculation of Rent.
All calculation of Rent payable hereunder shall be computed based on the actual number of days elapsed over a year of three hundred sixty (360) days or, to the extent such Rent is based on the Prime Lending Rate, three hundred sixty-five (365) (or three hundred sixty-six (366), as applicable) days.
30.8 Memoranda of Lease and Lease Supplement.
This Lease shall not be recorded; provided, Lessor and Lessee shall promptly record a memorandum of this Lease and each Lease Supplement (in substantially the form of Exhibit A attached hereto) or a short form lease (in form and substance reasonably satisfactory to Lessor) regarding each Property in the local filing office with respect thereto, in all cases at Lessee's cost and expense, and as required under applicable law to sufficiently evidence this Lease and any such Lease Supplement in the applicable real estate filing records.
30.9 Allocations between the Lenders and Lessor.
Notwithstanding any other term or provision of this Lease to the contrary, the allocations of the proceeds of each Property and any and all other Rent and other amounts received hereunder shall be subject to the inter-creditor provisions among the Primary Financing Parties contained in the Intercreditor Agreement and the other Operative Agreements (or as otherwise agreed among the Primary Financing Parties from time to time).
30.10 Limitations on Recourse.
Notwithstanding anything contained in this Lease to the contrary, Lessee agrees to look solely to Lessor's estate and interest in each Property (and in no circumstance to the Agent, the Primary Financing Parties or otherwise to Lessor) for the collection of any judgment requiring the payment of money by Lessor in the event of liability by Lessor, and no other property or assets of Lessor or any shareholder, owner or partner (direct or indirect) in or of Lessor, or any director, officer, employee, beneficiary or Affiliate of any of the foregoing shall be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Lessee under or with respect to this Lease or otherwise for the satisfaction of any other liability of Lessor to Lessee. Nothing in this Section shall be interpreted so as to limit the terms of Sections 6.1 or 6.2 or the provisions of Section 12.9 of the Participation Agreement.
30.11 WAIVERS OF JURY TRIAL.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY, TO THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW, WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS LEASE AND FOR ANY COUNTERCLAIM THEREIN.
30.12 Exercise of Lessor Rights.
Lessee hereby acknowledges and agrees that the rights and powers of Lessor under this Lease have been assigned by Lessor to the Agent pursuant to the terms of the Security Agreement and the other Operative Agreements. Lessor and Lessee hereby acknowledge and agree that (a) the Agent shall, in its discretion, direct and/or act on behalf of Lessor pursuant to the provisions of Sections 8.2(e) and 8.6 of the Participation Agreement, (b) all notices to be given to Lessor shall be given to the Agent and (c) all notices to be given by Lessor may be given by the Agent, at its election.
30.13 SUBMISSION TO JURISDICTION; VENUE.
THE PROVISIONS OF SECTION 12.7 OF THE PARTICIPATION AGREEMENT RELATING TO SUBMISSION TO JURISDICTION AND VENUE ARE HEREBY INCORPORATED BY REFERENCE HEREIN, MUTATIS MUTANDIS.
30.14 USURY SAVINGS PROVISION.
IT IS THE INTENT OF THE PARTIES HERETO TO CONFORM TO AND CONTRACT IN STRICT COMPLIANCE WITH APPLICABLE USURY LAW FROM TIME TO TIME IN EFFECT. TO THE EXTENT ANY RENT OR PAYMENTS HEREUNDER ARE HEREINAFTER CHARACTERIZED BY ANY COURT OF COMPETENT JURISDICTION AS THE REPAYMENT OF PRINCIPAL AND INTEREST THEREON, THIS SECTION 30.14 SHALL APPLY. ANY SUCH RENT OR PAYMENTS SO CHARACTERIZED AS INTEREST MAY BE REFERRED TO HEREIN AS "INTEREST." ALL AGREEMENTS AMONG THE PARTIES HERETO ARE HEREBY LIMITED BY THE PROVISIONS OF THIS PARAGRAPH WHICH SHALL OVERRIDE AND CONTROL ALL SUCH AGREEMENTS, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER WRITTEN OR ORAL. IN NO WAY, NOR IN ANY EVENT OR CONTINGENCY (INCLUDING WITHOUT LIMITATION PREPAYMENT OR ACCELERATION OF THE MATURITY OF ANY OBLIGATION), SHALL ANY INTEREST TAKEN, RESERVED, CONTRACTED FOR, CHARGED, OR RECEIVED UNDER THIS LEASE OR OTHERWISE, EXCEED THE MAXIMUM NONUSURIOUS AMOUNT PERMISSIBLE UNDER APPLICABLE LAW. IF, FROM ANY POSSIBLE CONSTRUCTION OF ANY OF THE OPERATIVE AGREEMENTS OR ANY OTHER DOCUMENT OR AGREEMENT, INTEREST WOULD OTHERWISE BE PAYABLE IN EXCESS OF THE MAXIMUM NONUSURIOUS AMOUNT, ANY SUCH CONSTRUCTION SHALL BE SUBJECT TO THE PROVISIONS OF THIS PARAGRAPH AND SUCH AMOUNTS UNDER SUCH DOCUMENTS OR AGREEMENTS SHALL BE AUTOMATICALLY REDUCED TO THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED UNDER APPLICABLE LAW, WITHOUT THE NECESSITY OF EXECUTION OF ANY AMENDMENT OR NEW DOCUMENT OR AGREEMENT. IF LESSOR SHALL EVER RECEIVE ANYTHING OF VALUE WHICH IS CHARACTERIZED AS INTEREST WITH RESPECT TO THE OBLIGATIONS OWED HEREUNDER OR UNDER APPLICABLE LAW AND WHICH WOULD, APART FROM THIS PROVISION, BE IN EXCESS OF THE MAXIMUM LAWFUL AMOUNT, AN AMOUNT EQUAL TO THE AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE INTEREST SHALL, WITHOUT PENALTY, BE APPLIED TO THE REDUCTION OF THE COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL AND NOT TO THE PAYMENT OF INTEREST, OR REFUNDED TO LESSEE OR ANY OTHER PAYOR THEREOF, IF AND TO THE EXTENT SUCH AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE EXCEEDS THE COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL. THE RIGHT TO DEMAND PAYMENT OF ANY AMOUNTS EVIDENCED BY ANY OF THE OPERATIVE AGREEMENTS DOES NOT INCLUDE THE RIGHT TO RECEIVE ANY INTEREST WHICH HAS NOT OTHERWISE ACCRUED ON THE DATE OF SUCH DEMAND, AND LESSOR DOES NOT INTEND TO CHARGE OR RECEIVE ANY UNEARNED INTEREST IN THE EVENT OF SUCH DEMAND. ALL INTEREST PAID OR AGREED TO BE PAID TO LESSOR SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE AMORTIZED, PRORATED, ALLOCATED, AND SPREAD THROUGHOUT THE FULL STATED TERM (INCLUDING WITHOUT LIMITATION ANY RENEWAL OR EXTENSION) OF THIS LEASE SO THAT THE AMOUNT OF INTEREST ON ACCOUNT
OF SUCH PAYMENTS DOES NOT EXCEED THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED BY APPLICABLE LAW.
30.15 Restriction On Collateralization.
Except to the extent required or permitted by the Operative Agreements, Lessor shall not mortgage, pledge, hypothecate or encumber its interest in this Lease, any Lease Supplement or any Property.
[signature pages follow]
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed and delivered as of the date first above written.
WACHOVIA DEVELOPMENT CORPORATION, as Lessor
[signature pages continue]
CYPRESS SEMICONDUCTOR CORPORATION, as Lessee
[signature pages continue]
Receipt of this original counterpart of
the foregoing Lease is hereby
acknowledged as the date hereof
WACHOVIA BANK, NATIONAL ASSOCIATION,
as the Agent
[signature pages end]
EXHIBIT A TO THE LEASE
LEASE SUPPLEMENT NO. ___
THIS LEASE SUPPLEMENT NO. ___ (this "Lease Supplement") dated as of ___________, 200___ between WACHOVIA DEVELOPMENT CORPORATION, a North Carolina corporation, as lessor (the "Lessor"), and Cypress Semiconductor Corporation, a Delaware corporation, as lessee (the "Lessee").
WHEREAS, Lessor is the owner or will be the owner of the Property described on Schedule 1 hereto (the "Leased Property") and wishes to lease the same to Lessee;
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions; Rules of Usage. For purposes of this Lease Supplement, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in Appendix A to the Participation Agreement, dated as of June 27, 2003, among Lessee, Lessor, the various financial institutions and other institutional investors which are parties hereto from time to time as Credit Lenders, the various financial institutions and other institutional investors which are parties hereto from time to time as Mortgage Lenders, Wachovia Bank, National Association, as the Agent for the Primary Financing Parties and respecting the Security Documents, as the Agent for the Secured Parties, as such may be amended, modified, extended, supplemented and/or restated from time to time.
SECTION 2. The Property. Attached hereto as Schedule 1 is the description of the Leased Property, a schedule of Improvements attached hereto as Schedule 1-B and a legal description of the Land attached hereto as Schedule 1-C. Effective upon the execution and delivery of this Lease Supplement by Lessor and Lessee, the Leased Property shall be subject to the terms and provisions of the Lease. Without further action, any and all additional Equipment funded under the Operative Agreements and any and all additional Improvements which are not Non-Integral Equipment made to the Land shall be deemed to be titled to the Lessor and subject to the terms and conditions of the Lease and this Lease Supplement.
This Lease Supplement shall constitute a mortgage, deed of trust, security agreement and financing statement under the laws of the state in which the Leased Property is situated. The maturity date of the obligations secured hereby shall be ___________ unless extended to not later than ___________.
For purposes of provisions of the Lease and this Lease Supplement related to the creation and enforcement of the Lease and this Lease Supplement as a security agreement and a fixture filing, Lessee is the debtor and Lessor is the secured party. The mailing addresses of the debtor (Lessee herein) and of the secured party (Lessor herein) from which information concerning security interests hereunder may be obtained are set forth on the signature pages hereto.
A carbon, photographic or other reproduction of the Lease and this Lease Supplement or of any financing statement related to the Lease and this Lease Supplement shall be sufficient as a financing statement for any of the purposes referenced herein.
SECTION 3. Use of Leased Property. At all times during the Term with respect to the Property, Lessee will comply with all obligations under and (to the extent no Lease Event of Default exists and provided, that such exercise will not impair the value of the Leased Property) shall be permitted to exercise all rights and remedies under, all operation and easement agreements and related or similar agreements applicable to the Leased Property.
SECTION 4. Ratification; Incorporation by Reference. Except as specifically modified hereby, the terms and provisions of the Lease and the Operative Agreements are hereby ratified and confirmed and remain in full force and effect. The Lease is hereby incorporated herein by reference as though restated herein in its entirety.
SECTION 5. Original Lease Supplement. The single executed original of this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature page thereof and containing the receipt of the Agent therefor on or following the signature page thereof shall be the original executed counterpart of this Lease Supplement (the "Original Executed Counterpart"). To the extent that this Lease Supplement constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Lease Supplement may be created through the transfer or possession of any counterpart other than the Original Executed Counterpart.
SECTION 6. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE LAWS OF THE STATE WHERE THE LEASED PROPERTY IS LOCATED ARE REQUIRED TO APPLY.
SECTION 7. Mortgage; Power of Sale. Without limiting any other remedies set forth in the Lease, in the event that a court of competent jurisdiction rules that the Lease constitutes a mortgage, deed of trust or other secured financing as is the intent of the parties, then Lessor and Lessee agree that Lessee hereby grants a Lien or deed of trust interest in and against the Leased Property WITH POWER OF SALE, for the benefit of the Secured Parties, and that, upon the occurrence of any Lease Event of Default, Lessor shall have the power and authority, to the extent provided by law, after prior notice and lapse of such time as may be required by law, to foreclose its interest (or cause such interest to be foreclosed) in all or any part of the Leased Property.
SECTION 8. Lessee Acknowledgement. Lessee hereby acknowledges that Lessor's rights under the Lease and this Lease Supplement have been assigned to the Agent.
SECTION 9. Counterpart Execution. This Lease Supplement may be executed in any number of counterparts and by each of the parties hereto in separate counterparts, all such counterparts together constituting but one (1) and the same instrument.
For purposes of the provisions of this Lease Supplement concerning this Lease Supplement constituting a security agreement and fixture filing, the addresses of the debtor (Lessee herein) and the secured party (Lessor herein), from whom information may be obtained about this Lease Supplement, are as set forth on the signature pages hereto.
[The remainder of this page has been intentionally left blank.]
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Supplement to be duly executed by an officer thereunto duly authorized as of the
date and year first above written.
WACHOVIA DEVELOPMENT CORPORATION, as Lessor
Wachovia Development Corporation c/o Wachovia Securities One Wachovia Center 301 South College Street Charlotte, North Carolina 28288-0174 Attn: Gabrielle Braverman
CYPRESS SEMICONDUCTOR CORPORATION, as Lessee
Cypress Semiconductor Corporation 3901 North First Street San Jose, California 95134-1599 Attn: _________________________
[Signature Pages Continued]
Receipt of this original counterpart of
the foregoing Lease Supplement is hereby
acknowledged as the date hereof.
WACHOVIA BANK, NATIONAL ASSOCIATION, as
the Agent
Wachovia Bank, National Association
201 South College Street
Charlotte, North Carolina 28288-5708
Attention: Angela Abessinio
[Signatures Pages End]
SCHEDULE 1
TO LEASE SUPPLEMENT NO. ____
(Description of the Leased Property)
SCHEDULE 1-A
TO LEASE SUPPLEMENT NO. ____
(Equipment)
SCHEDULE 1-B
TO LEASE SUPPLEMENT NO. ____
(Improvements)
SCHEDULE 1-C
TO LEASE SUPPLEMENT NO. ____
(Land)
EXHIBIT B TO THE LEASE
[MODIFY OR SUBSTITUTE SHORT FORM LEASE AS
NECESSARY FOR LOCAL LAW REQUIREMENTS]
This Instrument Has Been Prepared By and Should Be Mailed to:
Moore & Van Allen, PLLC
100 North Tryon Street
Suite 4700
Charlotte, North Carolina 28202
Attention: Lea Stromire Johnson
Space above this line for Recorder's use
MEMORANDUM OF LEASE AGREEMENT
AND
LEASE SUPPLEMENT NO. ____
THIS MEMORANDUM OF LEASE AGREEMENT AND LEASE SUPPLEMENT NO. ____
("Memorandum"), dated as of _____________, 200___, is by and between WACHOVIA
DEVELOPMENT CORPORATION, a North Carolina corporation (hereinafter referred to
as "Lessor") having an address at c/o Wachovia Securities, One Wachovia Center,
------- 301 South College Street, Charlotte, North Carolina 28288-0174, Attn:
Gabrielle Braverman and CYPRESS SEMICONDUCTOR CORPORATION, a Delaware
corporation (hereinafter referred to as "Lessee") having an address at 3901
North First Street, San Jose, California 95134-1599, Attention:
________________.
WITNESSETH:
That for value received, Lessor and Lessee do hereby covenant, promise and agree as follows:
1. Demised Premises and Date of Lease. Lessor has leased to Lessee, and Lessee has leased from Lessor, for the Term (as hereinafter defined), certain real property and other property located in ________________, which is described in the attached Schedule 1 (the "Property"), pursuant to the terms of a Lease Agreement between Lessor and Lessee dated as of June 27, 2003 (as such may be amended, modified, extended, supplemented and/or restated from
time to time, "Lease") and a Lease Supplement No. _____ between Lessor and Lessee dated as of ______________ (the "Lease Supplement").
The Lease and the Lease Supplement shall constitute a mortgage, deed of trust and security agreement and financing statement under the laws of the state in which the Property is situated. The maturity date of the obligations secured thereby shall be ___________, unless extended to not later than ___________.
For purposes of provisions of the Lease and the Lease Supplement related to the creation and enforcement of the Lease and the Lease Supplement as a security agreement and a fixture filing, Lessee is the debtor and Lessor is the secured party. The mailing addresses of the debtor (Lessee herein) and of the secured party (Lessor herein) from which information concerning security interests hereunder may be obtained are as set forth on the signature pages hereof. A carbon, photographic or other reproduction of this Memorandum or of any financing statement related to the Lease and the Lease Supplement shall be sufficient as a financing statement for any of the purposes referenced herein.
2. Term, Renewal, Extension and Purchase Option. The term of the Lease for the Property ("Term") commenced as of __________, 200__ and shall end as of _________, 200__, unless the Term is extended or earlier terminated in accordance with the provisions of the Lease. The tenant has a purchase option under the Lease.
3. Tax Payer Numbers.
Lessor's tax payer number: __________________.
Lessee's tax payer number: __________________.
4. Mortgage; Power of Sale. Without limiting any other remedies set forth in the Lease, in the event that a court of competent jurisdiction rules that the Lease constitutes a mortgage, deed of trust or other secured financing as is the intent of the parties, then Lessor and Lessee agree that Lessee has granted, pursuant to the terms of the Lease and the Lease Supplement, a Lien against the Property WITH POWER OF SALE, and that, upon the occurrence and during the continuance of any Lease Event of Default, Lessor shall have the power and authority, to the extent provided by law, after prior notice and lapse of such time as may be required by law, to foreclose its interest (or cause such interest to be foreclosed) in all or any part of the Property.
5. Effect of Memorandum. The purpose of this instrument is to give notice of the Lease and the Lease Supplement and their respective terms, covenants and conditions to the same extent as if the Lease and the Lease Supplement were fully set forth herein. This Memorandum shall not modify in any manner the terms, conditions or intent of the Lease or the Lease Supplement and the parties agree that this Memorandum is not intended nor shall it be used to interpret the Lease or the Lease Supplement or determine the intent of the parties under the Lease or the Lease Supplement.
[The remainder of this page has been intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have duly executed this instrument as of the day and year first written.
LESSOR:
WACHOVIA DEVELOPMENT CORPORATION
Wachovia Development Corporation c/o Wachovia Securities One Wachovia Center 301 South College Street Charlotte, North Carolina 28288-0174 Attn: Gabrielle Braverman
LESSEE:
CYPRESS SEMICONDUCTOR CORPORATION
Cypress Semiconductor Corporation 3901 North First Street San Jose, California 95134-1599 Attn: _________________________
SCHEDULE 1
(Description of Property)
[CONFORM TO STATE LAW REQUIREMENTS]
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
|
The foregoing Memorandum of Lease Agreement and Lease Supplement No. _____ was acknowledged before me, the undersigned Notary Public, in the County of _________________ this _____ day of ______________, by ________________, as __________________ of WACHOVIA DEVELOPMENT CORPORATION, a North Carolina corporation, on behalf of the corporation.
Notary Public
My commission expires: ____________
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
|
The foregoing Memorandum of Lease Agreement and Lease Supplement No. _____ was acknowledged before me, the undersigned Notary Public, in the County of _________________ this _____ day of ______________, by ________________, as __________________ of CYPRESS SEMICONDUCTOR CORPORATION, a Delaware corporation, on behalf of the corporation.
My commission expires: ____________
Exhibit 10.3
PARTICIPATION AGREEMENT
Dated as of June 27, 2003
among
CYPRESS SEMICONDUCTOR CORPORATION, as the Lessee,
WACHOVIA DEVELOPMENT CORPORATION,
as the Lessor,
THE VARIOUS FINANCIAL INSTITUTIONS AND OTHER INSTITUTIONAL INVESTORS WHICH
ARE PARTIES HERETO FROM TIME TO TIME, as the Credit Lenders,
THE VARIOUS FINANCIAL INSTITUTIONS AND OTHER INSTITUTIONAL INVESTORS WHICH
ARE PARTIES HERETO FROM TIME TO TIME, as the Mortgage Lenders,
and
WACHOVIA BANK, NATIONAL ASSOCIATION,
as the Agent for the Primary Financing Parties and, respecting the Security Documents, as the Agent for the Secured Parties
TABLE OF CONTENTS
Page
----
SECTION 1. THE FINANCING .................................................... 1
SECTION 2. [RESERVED] ....................................................... 2
SECTION 3. SUMMARY OF TRANSACTIONS .......................................... 2
3.1. Operative Agreements ............................................. 2
3.2. Property Purchase ................................................ 2
3.3. Commencement of Basic Rent ....................................... 2
SECTION 4. THE CLOSING ...................................................... 3
4.1. Closing Date ..................................................... 3
4.2. Requisitions ..................................................... 3
SECTION 5. FUNDING OF THE ADVANCE; CONDITIONS PRECEDENT; THE LESSEE'S
DELIVERY OF NOTICES; RESTRICTIONS ON LIENS ....................... 3
5.1. General .......................................................... 3
5.2. Procedures for Funding ........................................... 3
5.3. Conditions Precedent for the Lessee, the Agent and the
Primary Financing Parties Relating to each Property Closing
Date and the Advance of Funds for the Acquisition of the
Properties ....................................................... 4
5.4. Cash Collateral Account .......................................... 10
5.5. Restrictions on Liens ............................................ 12
5.6. [Reserved] ....................................................... 12
5.7. Special Provision Regarding Replacement of Nonextending
Lenders .......................................................... 12
5.8. Payments ......................................................... 13
SECTION 5A. [RESERVED.] ..................................................... 13
SECTION 5B. LESSOR ADVANCE .................................................. 13
5B.1. Procedure for Lessor Advance .................................... 13
5B.2. Lessor Yield .................................................... 13
5B.3. Scheduled Return of Lessor Advance .............................. 14
5B.4. Early Return of Lessor Advance .................................. 14
5B.5. Conversion and Continuation Options ............................. 14
5B.6. Computation of Lessor Yield ..................................... 15
SECTION 6. REPRESENTATIONS AND WARRANTIES .................................. 16
6.1. Representations and Warranties of the Lessor .................... 16
6.2. Representations and Warranties of the Lessee .................... 18
6.3. Representations and Warranties of the Lenders ................... 24
SECTION 7. PAYMENT OF CERTAIN EXPENSES ...................................... 25
7.1. Transaction Expenses ............................................. 25
7.2. Brokers' Fees .................................................... 26
7.3. Certain Fees and Expenses ........................................ 26
7.4. [Reserved] ....................................................... 27
7.5. Administrative Fee ............................................... 27
SECTION 8. OTHER COVENANTS AND AGREEMENTS ................................... 27
|
8.1. Cooperation with the Lessee ..................................... 27
8.2. Covenants of the Lessor ......................................... 27
8.3. Lessee Covenants, Consent and Acknowledgment .................... 29
8.4. Sharing of Certain Payments ..................................... 35
8.5. Grant of Easements, etc ......................................... 35
8.6. Appointment of the Agent by the Primary Financing Parties ....... 36
8.7. Collection and Allocation of Payments and Other Amounts ......... 40
8.8. Release of Properties, etc ...................................... 45
8.9. Limitation of Lessor's Obligations .............................. 45
8.10. No Representations or Warranties as to the Property or the
Operative Agreements ............................................ 46
8.11. Reliance; Advice of Counsel ..................................... 46
8.12. Non Disturbance ................................................. 47
8.13. Payment of Appraiser Expenses ................................... 47
SECTION 8A. AFFIRMATIVE COVENANTS OF THE LESSEE ............................. 47
8A.1. Financial Statements ............................................ 47
8A.2. Certificates; Other Information ................................. 48
8A.3. [Reserved] ...................................................... 49
8A.4. [Reserved] ...................................................... 49
8A.5. Maintenance of Property Insurance ............................... 49
8A.6. Inspection of Property; Books and Records; Discussions .......... 50
8A.7. [Reserved] ...................................................... 50
8A.8. [Reserved] ...................................................... 50
8A.9. Financial Covenant .............................................. 50
SECTION 9. CREDIT NOTE LOAN AGREEMENT, MORTGAGE NOTE LOAN AGREEMENT AND
LESSOR ADVANCES .................................................. 50
SECTION 10. TRANSFER OF INTEREST ............................................ 52
10.1. Restrictions on Transfer ........................................ 52
10.2. Effect of Transfer .............................................. 53
SECTION 11. INDEMNIFICATION ................................................. 54
11.1. General Indemnity ............................................... 54
11.2. General Tax Indemnity ........................................... 57
11.3. Increased Costs, Illegality, etc ................................ 62
11.4. Funding/Contribution Indemnity .................................. 65
11.5. EXPRESS INDEMNIFICATION FOR ORDINARY NEGLIGENCE, STRICT
LIABILITY, ETC .................................................. 65
SECTION 12. MISCELLANEOUS ................................................... 66
12.1. Survival of Agreements .......................................... 66
12.2. Notices ......................................................... 66
12.3. Counterparts .................................................... 67
12.4. Terminations, Amendments, Waivers, Etc.; Unanimous Vote
Matters ......................................................... 67
12.5. Headings, etc ................................................... 69
12.6. Parties in Interest ............................................. 69
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12.7. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; VENUE ................................................... 69
12.8. Severability ................................................... 70 12.9. Liability Limited .............................................. 71 12.10. [Reserved] ..................................................... 72 12.11. Further Assurances ............................................. 72 12.12. Calculations under Operative Agreements ........................ 72 12.13. Confidentiality ................................................ 72 12.14. Financial Reporting/Tax Characterization ....................... 74 |
EXHIBITS
A - Form of Requisition - Sections 4.2, 5.2, and 5.3
B - Form of Outside Local Counsel Opinion for the Lessee - Section 5.3(j)
C - Form of Lessee's Secretary's Certificate - Section 5.3(w)
D- Form of Lessee's Officer's Certificate - Section 5.3(y)
E - Form of Lessor's Secretary's Certificate - Section 5.3(z)
F - Form of Lessor's Officer's Certificate - Section 5.3(aa)
G - Form of Officer's Cash Collateral Compliance Certificate - Section
H - Form of Officer's Financial Compliance Certificate - Section
I - Form of Lessee's Counsel's Legal Opinion Section 5.3(cc)
Appendix A - Rules of Usage and Definitions
SCHEDULES
1. Schedule of Credit Lender Commitments
2. Schedule of Mortgage Lender Commitments
3. Schedule of Excluded Equipment
4. Schedule of Maximum Residual Guarantee Amount for Each Property
6.2(d). Schedule of Litigation
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of June 27, 2003 (as amended, modified, extended, supplemented and/or restated from time to time, this "Agreement") is by and among CYPRESS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Lessee"); WACHOVIA DEVELOPMENT CORPORATION, a North Carolina corporation (the "Lessor"); the various financial institutions and other institutional investors which are parties hereto from time to time as holders of the Credit Notes (subject to the definition of Credit Lenders in Appendix A hereto, individually, a "Credit Lender" and collectively, the "Credit Lenders"); the various financial institutions and other institutional investors, which are parties hereto from time to time as Mortgage Lenders (subject to the definition of Mortgage Lenders in Appendix A hereto, individually, a "Mortgage Lender" and collectively, the "Mortgage Lenders") (the Lessor, each Credit Lender and each Mortgage Lender may be referred to individually as a "Primary Financing Party" and collectively as the "Primary Financing Parties"); and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as the agent for the Primary Financing Parties and respecting the Security Documents, as the agent for the Secured Parties (in such capacity, the "Agent"). Capitalized terms used but not otherwise defined in this Agreement shall have the meanings set forth in Appendix A hereto.
In consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. THE FINANCING.
Subject to the terms and conditions of this Agreement and the other Operative Agreements and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, the Primary Financing Parties have agreed to make the Lessor Advances (in the case of the Lessor) or make loans pursuant to the Credit Notes and the Mortgage Notes (in the case of the Credit Lenders and the Mortgage Lenders, respectively) issued by the Lessor on each Closing Date, with such Lessor Advance, the Credit Notes and Mortgage Notes to be in an aggregate principal amount of up to the aggregate amount of the Primary Financing Parties' Commitments in order for (i) the Lessor to acquire the Properties in accordance with the terms and provisions hereof and for the other purposes described herein and (ii) to enter into the Operative Agreements with the Lessee. The Credit Lenders will make loans to the Lessor pursuant to the Credit Note Loan Agreement and the Credit Notes. The Mortgage Lenders will make loans to the Lessor pursuant to the Mortgage Note Loan Agreement and the Mortgage Notes. The Lessor will make Lessor Advances pursuant to the terms and conditions herein. The obligations of the Lessor to the Primary Financing Parties and the Lessee Secured Obligations shall be secured by the Collateral provided by the Lessee in the Security Documents (including without limitation
the Properties and the Cash Collateral), as more particularly set forth herein and in the other Operative Agreements and the obligations of the Lessor to the Lenders shall be secured by the Collateral provided by the Lessor (including without limitation the Lessor's right, title and interest in the Lease and the other Operative Agreements and the Properties), as more particularly set forth herein and in the other Operative Agreements.
SECTION 2. [RESERVED].
SECTION 3. SUMMARY OF TRANSACTIONS.
3.1. Operative Agreements.
On the Initial Closing Date, each of the respective parties hereto and thereto shall execute and deliver each of the following agreements to which it is a party this Agreement, the Lease, each applicable Ground Lease (or restatement thereof), the Credit Note Loan Agreement, the Mortgage Note Loan Agreement, the Credit Notes, the Mortgage Notes, the Security Agreement, each applicable Mortgage Instrument, each applicable Security Document and such other documents, instruments, certificates and opinions of counsel as agreed to by the parties hereto or reasonably required for the closing of the transactions as contemplated in the Operative Agreements.
3.2. Property Purchase.
On each Property Closing Date and subject to the terms and conditions of this Agreement (a) the Credit Lenders will make loans to the Lessor in accordance with Section 5 of this Agreement and the terms and provisions of the Credit Note Loan Agreement, (b) the Mortgage Lenders will make loans to the Lessor in accordance with Section 5 of this Agreement and the terms and provisions of the Mortgage Note Loan Agreement, (c) the Lessor will make Lessor Advances in accordance with Sections 5 and 5B of this Agreement, (d) the Lessor will acquire title to or a Ground Lease interest in the Properties for the benefit of Lessee and subject to the Operative Agreements and (e) the Lessee and the Lessor shall each grant to the Agent and the Lessee shall grant to the Lessor (in accordance with the Lease), as applicable, Liens on its right, title and interest in the Properties and the other Collateral for the benefit of the Primary Financing Parties (provided,- only the Lessee shall grant an interest in the Cash Collateral and such grant shall be for the benefit of the Credit Lenders, the Wachovia Mortgage Lender and the Lessor) by execution of the required Security Documents.
3.3. Commencement of Basic Rent.
The Lessee shall commence to pay Basic Rent for each Property as of the Property Closing Date for such Property.
SECTION 4. THE CLOSING.
4.1. Closing Date.
All documents and instruments required to be delivered on any Closing Date shall be delivered at the offices of Moore & Van Allen PLLC, Charlotte, North Carolina, or at such other location as may be determined by the Lessor, the Agent and the Lessee, provided the Agent, in its discretion may deliver documents to the appropriate title companies prior to the relevant Property Closing Date.
4.2. Requisitions.
Prior to each Closing Date, the Lessee shall deliver to the Agent a requisition (a "Requisition"), in the form attached hereto as Exhibit A or in such other form as is satisfactory to the Agent, in its reasonable discretion, in connection with (a) the Transaction Expenses and other fees, expenses and disbursements payable, pursuant to Section 7.1, by the Lessor, and (b) the Advances pursuant to Section 5.3.
SECTION 5. FUNDING OF THE ADVANCE; CONDITIONS PRECEDENT; THE LESSEE'S DELIVERY OF NOTICES; RESTRICTIONS ON LIENS.
5.1. General.
To the extent funds have been made available to the Lessor pursuant to this Section 5, the Lessor will use such funds on the applicable Property Closing Date in accordance with the terms and conditions of this Agreement and the other Operative Agreements for the following purposes (i) at the direction of the Lessee to acquire the Properties in accordance with and subject to the terms of this Agreement and the other Operative Agreements, and (ii) to pay Transaction Expenses, and reasonable fees, expenses and other disbursements payable by the Lessor under Section 7.
5.2. Procedures for Funding.
(a) The Lessee shall deliver to the Agent, not less than three (3) Business Days prior to each Property Closing Date a Requisition as described in Section 4.2.
(b) [Reserved].
(c) Subject to the satisfaction of the conditions precedent set
forth in Section 5.3, on the applicable Property Closing Date and provided
the applicable Property Closing Date is during the Commitment Period, (i)
the Credit Lenders shall make Loans to the Lessor under the Credit Note
Loan Agreement based on their respective Credit Note Commitments, (ii) the
Mortgage Lenders shall make Loans to the Lessor under the Mortgage Note
Loan Agreement based on their respective Mortgage Note Commitments, and
(iii) the Lessor shall make an advance based on its Lessor
Commitment (each advance by the Lessor, a "Lessor Advance"). The Requested Funds shall be funded by the Credit Lenders, the Mortgage Lenders and the Lessor such that (I) the Credit Loans made by the Credit Lenders under the Credit Notes shall equal the product of the Requested Funds set forth in such Requisition times sixty-nine percent (69%), (II) the Mortgage Loans made by the Mortgage Lenders under the Mortgage Notes shall equal the product of the Requested Funds set forth in such Requisition times twenty-five percent (25%), and (III) the Lessor Advance shall equal the product of the Requested Funds set forth in such Requisition times six percent (6%). Notwithstanding that the Operative Agreements state that the Advance shall be directed to the Lessor, the Advance shall in fact be paid to such Persons as directed by the Lessee (for the benefit of the Lessor) pursuant to the requirements imposed on the Lessor and the Lessee under the Operative Agreements.
(d) [Reserved].
(e) All Operative Agreements which are to be delivered to the Agent or the Primary Financing Parties shall be delivered to the Agent, on behalf of the Agent or the Primary Financing Parties, and such items (except for Notes, Bills of Sale, Deeds and chattel paper originals, with respect to which in each case there shall be only one original) shall be delivered with a number of originals sufficient for the Lessor, the Agent and each Credit Lender and Mortgage Lender. The Agent shall then deliver such Operative Agreements to the Lessor and each Credit Lender and Mortgage Lender. All other items which are to be delivered to the Agent or the Primary Financing Parties shall be delivered to the Agent, on behalf of the Agent or the Primary Financing Parties, or directly to such party as required by the Operative Agreements. Except as otherwise noted, copies shall be sufficient for any other deliveries to parties other than the Agent required under Section 5.3. To the extent any such other items delivered to the Agent are requested in writing from time to time by the Lessor or any other Primary Financing Party or are required to be delivered by the Agent pursuant to Section 8.6(g), the Agent shall provide a copy of such item to the party requesting it or to the parties entitled thereto, as applicable.
(f) [Reserved].
(g) Notwithstanding the completion of the closing under this
Agreement, any condition precedent (other than Sections 5.3(u), (x), (z),
(aa), (bb), (dd) and (ff) and Sections 5.3(a), (b), (k), (m), (v) and (z)
solely with respect to deliveries from any Financing Party) not satisfied
prior to the Closing Date may be subsequently enforced by the Agent as a
covenant obligation of the Lessee, if the applicable Closing Date was
permitted to occur even though such condition precedent was not satisfied
on such Closing Date, unless expressly waived in writing by the Agent.
5.3. Conditions Precedent for the Lessee, the Agent and the Primary Financing Parties Relating to each Property Closing Date and the Advance of Funds for the Acquisition of the Properties.
The obligations (i) on the Initial Closing Date of the Lessee and the Financing Parties to enter into the transactions contemplated by this Agreement, including without limitation the obligation to execute and deliver the applicable Operative Agreements to which each is a party on the Initial Closing Date and, in the case of the Credit Lenders and the Mortgage Lenders, to make Loans to the Lessor, and in the case of the Lessor, to make the Lessor Advance, (ii) on the Initial Closing Date of the Lessor (or the Agent on behalf of the Lessor) to use the proceeds from the sale of the Credit Notes and the Mortgage Notes and the Lessor Advance to pay Transaction Expenses, fees, expenses and other disbursements payable by the Lessor under Section 7.1(a) of this Agreement and (iii) on each Property Closing Date of the Lessor to make Lessor Advances and the Credit Lenders and the Mortgage Lenders to make Loans for the purpose of providing funds to the Lessor necessary to pay Transaction Expenses, fees, expenses and other disbursements payable by the Lessor under Section 7.1(a) of this Agreement and to acquire the Properties (each of the foregoing (ii) and (iii), an "Advance"), in each case (with regard to the foregoing Sections 5.3(i), (ii) and (iii) are subject to the satisfaction or waiver of each of the following conditions precedent on or prior to the Initial Closing Date or the applicable Property Closing Date, as the case may be, (to the extent such conditions precedent require the delivery of any agreement, certificate, instrument, memorandum, legal or other opinion, appraisal, commitment, title insurance commitment, lien report or any other document of any kind or type, such shall be in form and substance satisfactory to the Agent and the Primary Financing Parties, in their reasonable discretion; notwithstanding the foregoing, the obligations of each party shall not be subject to any conditions contained in this Section 5.3 which are required to be performed by such party);
(a) the correctness of the representations and warranties of the parties to this Agreement contained herein, in each of the other Operative Agreements and each certificate delivered by such party pursuant to any Operative Agreement;
(b) the performance by the parties to this Agreement of their respective agreements contained herein and in the other Operative Agreements to be performed by them on or prior to such date;
(c) the Agent shall have received a fully executed counterpart copy of the Requisition, appropriately completed;
(d) with respect to a Property Closing Date only, title to each such
Property shall conform to the representations and warranties set forth in
Section 6.2(l) hereof;
(e) with respect to a Property Closing Date only, the Lessee shall have delivered to the Agent a good standing certificate for the Lessee in the state where the Property is located, the Deed with respect to the Land and Improvements (if any), a copy of the Ground Lease (if any) and a copy of the Bill of Sale with respect to the Equipment, respecting such of the foregoing as are being acquired or ground leased on such date;
(f) there shall not have occurred and be continuing any Default or Event of Default and no Default or Event of Default will have occurred after giving effect to the Advance;
(g) with respect to a Property Closing Date only, the Lessee shall have delivered or caused to be delivered to the Agent title insurance commitments to issue policies insuring the Lien of the Mortgage Instruments up to the amount of the Notes and the Lessor Advance respecting each Property being acquired or ground leased on such Property Closing Date, with such endorsements as the Agent deems reasonably necessary, in favor of the Lessor and the Agent from a title insurance company reasonably acceptable to the Agent, but only with such title exceptions thereto as are reasonably acceptable to the Agent;
(h) with respect to a Property Closing Date only, the Lessee shall have delivered to the Agent an environmental site assessment respecting each Property being acquired on such Property Closing Date, prepared by an independent recognized professional reasonably acceptable to the Agent and evidencing no pre-existing environmental condition with respect to which there is more than a remote risk of loss;
(i) with respect to a Property Closing Date only, the Lessee shall have delivered to the Agent an ALTA survey (with a flood hazard certification) respecting each Property being acquired on such Property Closing Date prepared by (i) an independent recognized professional reasonably acceptable to the Agent and (ii) in a manner and including such information as is reasonably required by the Agent;
(j) with respect to a Property Closing Date only, the Lessee shall have caused to be delivered to the Agent a legal opinion in the form attached hereto as Exhibit B or in such other form as is reasonably acceptable to the Agent with respect to local law real property issues respecting the state in which each Property being acquired on such Property Closing Date is located addressed to the Agent, from counsel located in the state where each such Property is located, prepared by counsel reasonably acceptable to the Agent;
(k) [Reserved];
(l) the Lessee shall have delivered to the Agent invoices for, or other reasonably satisfactory evidence of, the various Transaction Expenses and other fees, expenses and disbursements referenced in Section 7 of this Agreement, as appropriate;
(m) with respect to a Property Closing Date only, the Lessee shall have caused to be delivered to the Agent Mortgage Instruments (in such form as is reasonably acceptable to the Agent, with revisions as necessary to conform to applicable state law), Lessor Financing Statements and Lender Financing Statements respecting each Property being acquired on such Property Closing Date, all fully executed and in recordable form;
(n) with respect to a Property Closing Date only, the Lessee shall have delivered to the Agent with respect to each Property being acquired on such Property Closing Date a Lease Supplement and a memorandum (or short form lease) regarding the Lease and such Lease Supplement (such memorandum or short form lease to be in the form attached to the Lease as Exhibit B or in such other form as is reasonably acceptable to the Agent and Lessee, with modifications as necessary to conform to applicable state law, and in form suitable for recording);
(o) with respect to each Advance, the sum of the Available Credit Note Commitments, plus the Available Mortgage Note Commitments, plus the Available Lessor Commitment will be sufficient to pay all amounts payable therefrom;
(p) with respect to a Property Closing Date only, if any such Property is subject to a Ground Lease, the Lessee shall have caused a lease memorandum (or short form lease) to be delivered to the Agent for such Ground Lease and, if requested by the Agent, a landlord waiver and a mortgagee waiver (in each case, in such form as is reasonably acceptable to the Agent);
(q) with respect to a Property Closing Date only (other than the Initial Closing Date), counsel (reasonably acceptable to the Agent) for the ground lessor (to the extent the ground lessor is the Lessee or an Affiliate of the Lessee) of each such Property subject to a Ground Lease shall have issued to the Agent, its opinion (in form and substance reasonably satisfactory to the Agent);
(r) with the respect to a Property Closing Date only, the Lessee shall have provided evidence of insurance to the Agent with respect to each Property being acquired on such Property Closing Date as provided in the Lease;
(s) with respect to a Property Closing Date only, the Lessee shall have caused an Appraisal regarding each Property being acquired on such Property Closing Date to be provided to the Agent from an appraiser reasonably satisfactory to the Agent;
(t) all taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of the Operative Agreements and/or documents related thereto shall have been paid or provisions for such payment shall have been made to the satisfaction of the Agent;
(u) in the opinion of the Agent and its counsel, the transactions contemplated by the Operative Agreements do not and will not subject the Primary Financing Parties or the Agent to any materially adverse regulatory prohibitions, constraints, penalties or fines;
(v) each of the Operative Agreements to be entered into on such date shall have been duly authorized, executed and delivered by the parties thereto, and shall be in full force and effect, and the Agent shall have received a fully executed copy of each of the Operative Agreements;
(w) as of the Initial Closing Date only, the Agent shall have received an Officer's Certificate, dated as of the Initial Closing Date, of the Lessee in the form attached hereto as Exhibit C or in such other form as is reasonably acceptable to the Agent stating that (i) each and every representation and warranty of the Lessee contained in the Operative Agreements to which it is a party is true and correct on and as of the Initial Closing Date; (ii) no Lease Default or Lease Event of Default has occurred and is continuing under any Operative Agreement and Lessee is not aware or any other Default or Event of Default; (iii) each Operative Agreement to which the Lessee is a party is in full force and effect with respect to it except as the same may be limited by applicable bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' or lessors' rights generally and general principles of equity; and (iv) the Lessee has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Agreement required to be performed or complied with by it on or prior to the Initial Closing Date;
(x) since the date of the most recent audited financial statements of the Lessee (which have been previously delivered to the Agent), there shall not have occurred any event, condition or state of facts which shall have or could reasonably be expected to have a Material Adverse Effect, other than (i) an increase of approximately $150,000,000 in the convertible debt outstanding and (ii) as specifically contemplated by the Operative Agreements;
(y) as of the Initial Closing Date only, the Agent shall have received (i) a certificate of the Secretary or an Assistant Secretary of the Lessee, dated as of the Initial Closing Date, in the form attached hereto as Exhibit D or in such other form as is reasonably acceptable to the Agent attaching and certifying as to (1) the resolutions of the Board of Directors of the Lessee duly authorizing the execution, delivery and performance by the Lessee of each of the Operative Agreements to which it is or will be a party, (2) the certificate of incorporation of the Lessee certified as of a recent date by the Secretary of State of its state of incorporation and its by-laws and (3) the incumbency and signature of persons authorized to execute and deliver on behalf of the Lessee the Operative Agreements to which it is or will be a party and (ii) a good standing certificate (or local equivalent) from the appropriate office of the respective states where the Lessee is incorporated and where the principal place of business of the Lessee is located as to its good standing in each such state;
(z) as of the Initial Closing Date only, the Agent and Lessee, shall have received an Officer's Certificate of the Lessor dated as of the Initial Closing Date in the form attached hereto as Exhibit E or in such other form as is reasonably acceptable to the Agent, stating that (i) each and every representation and warranty of the Lessor contained in the Operative Agreements to which it is a party is true and correct on and as of the Initial Closing Date, (ii) each Operative Agreement to which the Lessor is a party is in full force and effect with respect to it except as the same may be limited by applicable bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' or lessors' rights
generally and general principles of equity; (iii) the Lessor has duly performed and complied with all covenants, agreements and conditions contained herein or in any Operative Agreement required to be performed or complied with by it on or prior to the Initial Closing Date and (iv) no Credit Agreement Default or Credit Agreement Event of Default attributable solely to Lessor has occurred and is continuing under any Operative Agreement;
(aa) as of the Initial Closing Date only, the Agent and Lessee shall have received (i) a certificate of the Secretary or an Assistant Secretary of the Lessor, dated as of the Initial Closing Date in the form attached hereto as Exhibit F or in such other form as is reasonably acceptable to the Agent attaching and certifying as to (A) the signing resolutions duly authorizing the execution, delivery and performance by the Lessor of each of the Operative Agreements to which it is or will be a party, (B) its articles of incorporation or other equivalent charter documents as certified by the Secretary of State of its state of incorporation and its by-laws, as the case may be, certified as of a recent date by an appropriate officer of the Lessor and (C) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Agreements to which it is a party and (ii) a good standing certificate from the appropriate governmental authority in the jurisdiction of the Lessor's organization and the jurisdiction of the Lessor's principal place of business;
(bb) as of the Initial Closing Date only, counsel for the Lessor reasonably acceptable to the Agent shall have issued to the Primary Financing Parties (other than the Lessor), the Lessee and the Agent its opinion dated as of the Initial Closing Date in such form as is reasonably acceptable to the Agent;
(cc) as of the Initial Closing Date only, counsel for the Lessee reasonably acceptable to the Agent shall have issued to the Primary Financing Parties and the Agent its opinion dated as of the Initial Closing Date in such form as is reasonably acceptable to the Agent; provided, however, that if the Initial Closing Date and the Property Closing Date occur simultaneously, the opinion required by this Section 5.3(cc) and the opinion required by Section 5.3(j) may be combined into a single legal opinion, provided such legal opinion satisfies both Sections 5.3(j) and 5.3(cc);
(dd) as of each Property Closing Date only, no Casualty and no Condemnation respecting any Property to be acquired or ground leased on such Property Closing Date shall have occurred and no action shall be pending or threatened by a Governmental Authority to initiate a Condemnation with respect to any such Property;
(ee) the Lessee shall cause (i) Uniform Commercial Code lien searches, tax lien searches and judgment lien searches regarding the Lessee and the Lessor to be conducted (and copies thereof to be delivered to the Agent) in such jurisdictions as determined by the Agent by a nationally recognized search company reasonably acceptable to the Agent and (ii) the liens referenced in such lien searches which are objectionable to the Agent to be either removed or otherwise handled in a manner reasonably satisfactory to the Agent;
(ff) with respect to a Property Closing Date only, the Lessor shall have caused to be delivered to the Agent, Mortgage Instruments to which it is a party (in such form as is reasonably acceptable to the Agent, with revisions as necessary to conform to applicable state law), respecting each Property being acquired on such Property Closing Date, all fully executed and in recordable form;
(gg) [Reserved];
(hh) [Reserved]; and
(ii) the Lessee shall have deposited good and immediately available funds, in Dollars, into the Cash Collateral Account in a sufficient amount so that after giving effect to the requested Advance on the applicable Closing Date the Lessee is in compliance with Section 5.4 hereof.
5.4. Cash Collateral Account.
(a) On the Initial Closing Date, each Property Closing Date and pursuant to the Cash Collateral Security Documents, the Lessee shall pledge to the Agent, for the benefit of the Lenders, as security for the Cash Collateral Obligations, by delivery to the Intermediary or by otherwise depositing into the Cash Collateral Account, Cash Collateral (which may be in the form of cash or Cash Equivalents or a combination thereof) in an amount such that the Total Coverage Amount after such pledge or deposit on such date is equal to or greater than the Required Cash Collateral Balance as of such date;
(b) On each February 15th May 15th, August 15th, November 15th (unless such day is not a Business Day, then on the previously occurring Business Day) (each such date, a "Cash Collateral Compliance Date"), the Lessee shall furnish to the Agent an Officer's Certificate in the form of Exhibit G setting forth the Lessee's calculation, in reasonable detail, demonstrating compliance by the Lessee with the provisions of this Section 5.4 as of such date;
(c) (i) If on any Cash Collateral Compliance Date or on any other date that the Agent provides notice to the Lessee that the Total Coverage Amount shall be less than the Required Cash Collateral Balance, as of such date, then the Lessee shall pledge to the Agent, by delivery to the Intermediary or by otherwise depositing into the Cash Collateral Account, additional Cash Collateral in an amount such that the Total Coverage Amount after such pledge or deposit on such Cash Collateral Compliance Date or within two (2) Business Days of such notice is equal to or greater than the Required Cash Collateral Balance as of such date.
(ii) If on any Cash Collateral Compliance Date or the date one
(1) Business Day after the completion of an assignment to a Mortgage
Lender other than the Wachovia Mortgage Lender the Total Coverage
Amount shall be greater
than the Required Cash Collateral Balance as of such date, and provided no Default or Event of Default has occurred and is continuing, upon the written request of the Lessee, the Agent shall cause the Intermediary to convey to the Lessee and otherwise release from the Lien of the Cash Collateral Security Documents, a portion of the Cash Collateral (as requested by the Lessee); provided, in no event shall the Lessee request the conveyance and release of, and in no event shall the Agent be required to cause the Intermediary to convey and release, any Cash Collateral if as a result of such conveyance and release the Total Coverage Amount will be less than the Required Cash Collateral Balance after taking into account unfunded Requisitions as of such date.
(d) The Lessor and the Lessee hereby acknowledge and agree that the Cash Collateral Account (and the Cash Collateral on deposit therein from time to time) constitutes additional Collateral to secure any and all Cash Collateral Obligations and the Lessor and the Lessee agree to execute and deliver any agreements, financing statements, instruments or other documents reasonably requested by the Agent to perfect the security interest of the Credit Lenders the Wachovia Mortgage Lender or the Lessor in the Cash Collateral Account (including without limitation the Cash Collateral Security Documents).
(e) Notwithstanding any provision contained herein or in any other Operative Agreement to the contrary:
(i) upon delivery to the Agent of the Termination Value for all Properties less an amount actually in the Cash Collateral as of such date, the Agent may, apply the Cash Collateral Account to the remaining balance of the Termination Value,
(ii) provided no Lease Default or Lease Event of Default has occurred and is continuing, upon (A) payment in full of the principal of and interest on the Credit Notes, the Mortgage Notes held by the Wachovia Mortgage Lender, the Lessor Advances and Lessor Yield, all other Cash Collateral Obligations and all other amounts owing by Lessee pursuant to the Operative Agreements and (B) termination of the Commitments of the Credit Lenders, the Wachovia Mortgage Lender and the Lessor, the Agent shall, upon the written request of the Lessee, cause all amounts being held on deposit in the Cash Collateral Account to be returned to the Lessee or
(iii) provided, the Lessee has properly elected either the Immediate Purchase Option or the Purchase Option and complies with the provisions of the Operative Agreements applicable thereto, the Agent is not prohibited by any Governmental Authority or Law from distributing the Cash Collateral to the Cash Secured Parties or any other Financing Party, no Lease Event of Default has occurred and is continuing and Lessee has delivered to the Agent in good and immediately available Dollars an amount equal to the Termination Value for all Properties less the amount of Cash Collateral which is not so prohibited to be
applied to the Termination Value for all Properties, then the Agent shall distribute the Cash Collateral in accordance with Section 8.7(b)(vi) of the Participation Agreement (for the avoidance of doubt, such distribution of the Termination Value may include Cash Collateral being distributed to Financing Parties other than the Cash Secured Parties). After all such payments have been made, the Properties will be transferred in accordance with the Immediate Purchase Option or the Purchase Option, as applicable.
5.5. Restrictions on Liens.
On each Property Closing Date, the Lessee shall cause each Property acquired by the Lessor on such date to be free and clear of all Liens except those referenced in Sections 6.2(q)(i) and 6.2(q)(ii), such other Liens that are expressly set forth as title exceptions on the title commitment or policy issued under Section 5.3(g) with respect to such Property, Liens for Taxes that are not yet due and payable and such other Liens that have been expressly approved or agreed to by the Agent. On the date any Property is either sold to a third party (other than the Lessee or any Affiliate or designee of the Lessee) in accordance with the terms of the Operative Agreements or, pursuant to Section 22.1(a) of the Lease Agreement, retained by the Lessor, the Lessee shall cause such Property to be free and clear of all Liens (other than Lessor Liens, such other Liens that are expressly set forth as title exceptions on the title commitment or policy issued under Section 5.3(g) with respect to such Property, to the extent such title commitment has been approved by the Agent, Liens for Taxes that are not yet due and payable and such other Liens that have been expressly approved or agreed to by the Agent).
5.6. [Reserved].
5.7. Special Provision Regarding Replacement of Nonextending Lenders.
In the event a Lender does not consent to (or is deemed to have rejected) a Renewal Term proposed by Lessee in accordance with Section 2.2 of the Lease, the Lessee shall have the right to replace such a Lender as a party to this Agreement and the other relevant Operative Agreements, the Lessee may, upon notice to such Lender and the Agent, replace such Lender by causing such Lender to assign its Credit Note Commitment or Mortgage Note Commitment, as applicable, if any, and its Credit Note or Mortgage Note, as applicable, (with the assignment fee to be paid by the Lessee in such instance) pursuant to Section 10 hereof and Sections 9.7 and 9.8 of the Credit Note Loan Agreement or the Mortgage Note Loan Agreement, as applicable, and the other applicable terms and conditions in the Operative Agreements to one or more other Lenders or eligible assignees designated by the Lessee. To the extent not paid by the replacement Lender, the Lessee shall (a) pay or cause to be paid in full all principal, interest, fees and other amounts payable under the Operative Agreements to such Lender through the date of replacement, (b) provide or cause to be provided by the eligible assignee approved by the Agent, Lessee and reasonably acceptable to the replaced Lender, appropriate assurances and indemnities as each replaced Lender may reasonably require with respect to the Operative Agreements, and (c) release such Lender from its obligations under the Operative Agreements. Any Lender being replaced and the replacement Lenders shall execute and deliver an Assignment and Acceptance in the form of Exhibit B to the Credit Note Loan
Agreement or the Mortgage Note Loan Agreement, as applicable, and take actions to comply with Section 10 hereof and Sections 9.7 and 9.8 of the Credit Note Loan Agreement or the Mortgage Note Loan Agreement, as applicable, and the other applicable terms and conditions in the Operative Agreements.
5.8. Payments.
All payments of Rent, and other amounts payable to any Financing Party to be made by the Lessee under this Agreement or any other Operative Agreements (excluding Excepted Payments which shall be paid directly to the party to whom such payments are owed) shall be made to the Agent at the office designated by the Agent from time to time by written notice as provided herein in Dollars and in immediately available funds, without setoff, deduction, or counterclaim. Subject to the definition of "Interest Period" in Appendix A attached hereto, whenever any payment under this Agreement or any other Operative Agreements shall be stated to be due on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time in such case shall be included in the computation of interest, Lessor Yield and fees payable pursuant to the Operative Agreements, as applicable and as the case may be.
SECTION 5A. [RESERVED.]
SECTION 5B. LESSOR ADVANCE.
5B.1. Procedure for Lessor Advance.
Upon receipt from Lessee by the Agent of a Requisition pursuant to
Section 4.2, and subject to the terms and conditions of this Agreement,
the Lessor shall make an Advance under the Lessor Commitment equal to six
percent (6%) of the amount requested in such Requisition on the applicable
Property Closing Date. The Lessor Advance shall be based on the Eurodollar
Rate or the ABR, as designated by the Lessee in the applicable
Requisition.
5B.2. Lessor Yield.
(a) The Lessor Advance shall bear yield calculated at the rate of Lessor Yield applicable from time to time. The Lessee shall pay as Basic Rent to the Agent for distribution to the Lessor the Lessor Yield in arrears on each Interest Payment Date or as otherwise provided herein or in Section 8.7 of this Agreement.
(b) If all or a portion of Lessor Yield shall not be received by the Lessor when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall, without limiting the rights of the Lessor hereunder or under any other Operative Agreement, bear interest at the Lessor Overdue Rate, in each case from the date of nonpayment until paid (whether after or before judgment) and shall be paid upon demand.
5B.3. Scheduled Return of Lessor Advance.
The outstanding amount of the Lessor Advance shall be due in full on the Expiration Date. On the Expiration Date, subject to the terms of this Agreement, the Lessor (or the Agent on behalf of the Lessor) shall receive from the Lessee as Basic Rent under the Lease the outstanding amount of the Lessor Advance then due, together with all accrued but unpaid Lessor Yield and all other amounts due to Lessor under the Operative Agreements provided; nothing in this Section 5B.3 shall limit the rights, or increase the obligations, of the Lessee with respect to a Limited Recourse Event of Default or Lessee's exercise of the Sale Option pursuant to the Lease.
5B.4. Early Return of Lessor Advance.
(a) Subject to Sections 11.2(e), 11.3 and 11.4 of this Agreement, the Lessor Advance may at any time and from time to time be prepaid by the Lessee with its funds (or in Agent's discretion and at times permitted pursuant to this Agreement and the Cash Collateral Security Documents by application of the Cash Collateral) as a payment of Supplemental Rent, in whole or in part, without premium or penalty, upon at least one (1) Business Day's prior irrevocable notice to the Agent, on behalf of the Lessor, specifying the date and amount of prepayment of the Lessor Advance. Upon receipt of such notice, the Agent shall promptly notify the Lessor thereof. If such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Amounts prepaid shall not be re-advanced and such prepayments shall be distributed in accordance with Section 8.7(b) of this Agreement.
(b) If on any date the Agent or the Lessor shall receive any payment
in respect of (i) any Casualty, or Condemnation or Environmental Violation
pursuant to Sections 15.1(a) or 15.1(g) or Article XVI of the Lease
(excluding any payments in respect thereof which are payable to Lessee in
accordance with the Lease), or (ii) the Termination Value of any Property
in connection with the delivery of a Termination Notice pursuant to
Article XVI of the Lease, or (iii) the Termination Value of any Property
or such other applicable amount in connection with the exercise of the
Purchase Option under Article XX of the Lease or the exercise of the
option of the Lessor to transfer the Properties to the Lessee pursuant to
Section 20.3 of the Lease, then in each case, the Agent or the Lessor
shall receive such payment to be distributed in accordance with Section
8.7(b) of this Agreement.
(c) Each prepayment of the Lessor Advances pursuant to Section 5B.4 shall (i) be credited to reduce the Property Cost of the Properties ratably unless such prepayment is associated with a specific Property in which case it shall be allocated to reduce the Property Cost of such Property and (ii) be distributed pursuant to Section 8.7.
5B.5. Conversion and Continuation Options.
(a) The Lessee may elect from time to time to convert Lessor Advances based on the Eurodollar Rate to Lessor Advances based on the ABR by giving the Lessor at
least three (3) Business Days' prior irrevocable notice of such election, provided, that any such conversion may only be made on the last day of an Interest Period with respect thereto, and provided, further, to the extent a Lease Event of Default has occurred and is continuing on the last day of any such Interest Period, the applicable Lessor Advances based on the Eurodollar Rate shall automatically be converted to Lessor Advances based on the ABR. The Lessee may elect from time to time to convert Lessor Advances based on the ABR to Lessor Advances based on the Eurodollar Rate by giving the Lessor at least three (3) Business Days' prior irrevocable notice of such election. All or any part of outstanding Lessor Advance may be converted as provided herein, provided, that (i) no Lessor Advance based on the ABR may be converted into a Lessor Advance based on the Eurodollar Rate after the date that is one (1) month prior to the Expiration Date and (ii) such notice of conversion regarding any Lessor Advance based on the Eurodollar Rate shall contain an election by the Lessee of an Interest Period for such Lessor Advance based on the Eurodollar Rate to be created by such conversion and such Interest Period shall be in accordance with the terms of the definition of the term "Interest Period" including without limitation subparagraphs (A) through (D) thereof.
(b) Any Lessor Advance based on the Eurodollar Rate may be continued
as such upon the expiration of the then current Interest Period with
respect thereto by the Lessee giving irrevocable notice to the Lessor, in
accordance with the applicable notice provision for the conversion of
Lessor Advances based on the ABR to Lessor Advances based on the
Eurodollar Rate set forth herein, provided, that no Lessor Advance based
on the Eurodollar Rate may be continued as such after the date that is one
(1) month prior to the Expiration Date, provided, further, no Lessor
Advance based on the Eurodollar Rate may be continued as such if a Lease
Event of Default has occurred and is continuing as of the last day of the
Interest Period for such Lessor Advance based on the Eurodollar Rate, and
provided, further, that if the Lessee shall fail to give any required
notice as described above or otherwise herein or if such continuation is
not permitted pursuant to the preceding proviso, such Lessor Advance shall
automatically be converted to an ABR Lessor Advance on the last day of
such then expiring Interest Period.
5B.6. Computation of Lessor Yield.
(a) Lessor Yield shall be calculated on the basis of (i) a year of three hundred sixty (360) days for the actual days elapsed with respect to Eurodollar Loans and Eurodollar Lessor Advances and (ii) a year of three hundred sixty-five (365) or three hundred sixty-six (366) days, as applicable, for the actual days elapsed with respect to Loans and ABR Lessor Advances. Any change in the Lessor Yield resulting from a change in the Eurocurrency Reserve Requirements applicable to Lessor after the Initial Closing Date shall become effective as of the opening of business on the day on which such change becomes effective with respect to each Interest Period commencing at least three (3) Business Days after the Lessor notifies Lessee of such change in the Eurocurrency Reserve Requirements.
(b) Pursuant to Section 12.12 of this Agreement, the calculation of Lessor Yield under this Section 5B.6 shall be made by the Agent. Each determination of Lessor Yield by the Agent shall be conclusive and binding in the absence of manifest error.
(c) If the Eurodollar Rate cannot be determined by the Agent in the manner specified in the definition of the term "Eurodollar Rate", then commencing on the Interest Payment Date next occurring and continuing until such time as the Eurodollar Rate can be determined by the Agent in the manner specified in the definition of such term, the outstanding Lessor Advance shall bear a yield at the ABR.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
6.1. Representations and Warranties of the Lessor.
The Lessor represents and warrants to each of the other parties hereto that as of each Closing Date (except to the extent any such representation or warranty relates to an earlier date):
(a) It is a corporation duly organized and validly existing and in good standing under the laws of the State of North Carolina, is qualified to do business in each jurisdiction necessary to permit the Lessor to own and lease the Properties and perform its obligations under the Operative Agreements and has the power and authority to enter into and perform its obligations under each of the Operative Agreements to which it is or will be a party and each other agreement, instrument and document to be executed and delivered by it on or before such Closing Date in connection with or as contemplated by each such Operative Agreement to which the Lessor is or will be a party, and is a multi-purpose, Wholly-Owned Entity of Wachovia Corporation;
(b) The execution, delivery and performance of each Operative Agreement to which it is or will be a party are within the corporate powers of the Lessor, has been duly authorized by all necessary action on its part, have been duly executed and delivered, and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) does or will require any approval or consent of any trustee or holders of any of its indebtedness or obligations or any other consent or approval that has not previously been obtained, (ii) does or will contravene any Legal Requirement applicable to Lessor, (iii) does or will contravene or result in any breach of or constitute any default under, or result in the creation of any Lien upon the Properties (except as described in the Operative Agreements) or any of its other property under, (A) its charter or by-laws, or (B) any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected, which contravention, breach, default or Lien under clause (B) could reasonably be expected to materially and adversely affect its ability to perform its obligations under the Operative Agreements to
which it is a party or would question the validity or enforceability of
any of the Operative Agreements to which it is or will become a party or
(iv) does or will require any Governmental Action by any Governmental
Authority;
(c) Each Operative Agreement to which the Lessor is or will be a party has been, or on or before such Closing Date will be, duly executed and delivered by the Lessor, and each Operative Agreement to which the Lessor is a party constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against the Lessor in accordance with the terms thereof;
(d) There is no action or proceeding pending or, to its knowledge, threatened to which it is or will be a party before any Governmental Authority that, if adversely determined, would materially and adversely affect its ability to perform its obligations under the Operative Agreements to which it is a party or would question the validity or enforceability of any of the Operative Agreements to which it is or will become a party;
(e) The Lessor has not assigned or transferred any of its right, title or interest in or under the Lease or its interest in any Property or any portion thereof, except in accordance with the Operative Agreements;
(f) No Default or Event of Default under the Operative Agreements attributable to it has occurred and is continuing;
(g) Except as otherwise contemplated in the Operative Agreements, the proceeds of the Advance shall not be applied by the Lessor for any purpose other than the purchase and/or lease of the Properties or to pay Transaction Expenses, fees, expenses and other disbursements payable by the Lessor under Section 7.1(a) of this Agreement;
(h) Neither the Lessor nor any Person authorized by the Lessor to act on its behalf has offered or sold any interest in the Lessor's Interest or the Notes, or in any similar security relating to the Properties, or in any security the offering of which for the purposes of the Securities Act would be deemed to be part of the same offering as the offering of the aforementioned securities to, or solicited any offer to acquire any of the same from, any Person other than, in the case of the Notes, the Agent and the Lenders and neither the Lessor nor any Person authorized by the Lessor to act on its behalf will take any action which would subject, as a direct result of such action alone, the issuance or sale of any interest in the Lessor's Interest or the Notes to the provisions of Section 5 of the Securities Act or require the qualification of any Operative Agreement under the Trust Indenture Act of 1939, as amended;
(i) The location of the Lessor for purposes of the UCC is North Carolina. The Lessor's principal place of business, chief executive office and office where the documents, accounts and records relating to the transactions contemplated by this Agreement and each other Operative Agreement are kept are located at One Wachovia Center, 301 South College Street, Charlotte, North Carolina 28288;
(j) The Lessor is not engaged principally in, and does not have as one (1) of its important activities, the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulation U), and no part of the proceeds of the Loans or the Lessor Advance will be used by it to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates, or is inconsistent with, the provisions of Regulations T, U, or X;
(k) The Lessor is not an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act;
(l) Each Property and the Collateral in which Lessor has any right, title or interest is free and clear of all Lessor Liens attributable to the Lessor;
(m) [Reserved].
(n) The Lessor's true legal name as registered in the jurisdiction of its organization is "Wachovia Development Corporation" and its Federal Employer Identification Number is 56-1610288. During the five (5) year period immediately prior to the Initial Closing Date, the true legal name of the Lessor has not been other than "Wachovia Development Corporation" or "First Union Development Corporation". The Lessor does not use, or transact and has not used, or transacted within the five (5) years immediately prior to the Initial Closing Date any business under, any trade name other than its current or prior legal name referenced in the preceding sentence; and
(o) The Lessor has filed all tax returns and all other material reports that are required under applicable Law to be filed by it and has paid all taxes or other charges of any Governmental Authority due pursuant to such returns or other reports, except for any taxes or other charges that are being diligently contested in good faith by appropriate proceedings and for which adequate reserves have been set aside on the books and records of the Lessor.
6.2. Representations and Warranties of the Lessee.
Lessee represents and warrants to each of the other parties hereto that as of each Closing Date (except to the extent that any such representation or warranty relates to an earlier date):
(a) The Lessee is duly organized or formed and validly existing in good standing under the laws of the jurisdiction of its incorporation or formation, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business makes such qualification necessary, and has all requisite power and authority to own its properties and to carry on its business as now conducted;
(b) (i) The Lessee has the power and authority to enter into and perform its obligations under the Operative Agreements to which it is a party or will be a party and has the corporate power and authority to act as the Lessee;
(ii) The execution and delivery by the Lessee of this Agreement and the other applicable Operative Agreements to which the Lessee is a party as of such date and the performance by the Lessee of its obligations under this Agreement and the other applicable Operative Agreements to which the Lessee is a party are within the corporate powers of the Lessee, have been duly authorized by all necessary corporate action on the part of the Lessee (including without limitation any necessary shareholder action), have been duly executed and delivered, have received all necessary governmental approval, and do not and will not (A) violate any Legal Requirement which is binding on the Lessee, (B) contravene or conflict with, or result in a breach of, any provision of the Certificate of Incorporation, By-Laws or other organizational documents of the Lessee or of any agreement, indenture, instrument or other document which is binding on the Lessee or (C) result in, or require, the creation or imposition of any Lien (other than pursuant to the terms of the Operative Agreements) on any asset of the Lessee;
(c) This Agreement and the other applicable Operative Agreements to which the Lessee is a party, executed prior to or as of such date by the Lessee, constitute the legal, valid and binding obligation of the Lessee, enforceable against the Lessee, in accordance with their terms except as the same may be limited by applicable bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' or lessors' rights generally and by general principles of equity;
(d) Except as set forth in Schedule 6.2(d), there are no actions, suits or proceedings pending or, to Lessee's knowledge, threatened against the Lessee in any court or before any Governmental Authority (nor has any order, judgment or decree been issued or, to the knowledge of the Lessee, is proposed to be issued by any Governmental Authority against the Lessee to set aside, restrain, enjoin or prevent the full performance of any Operative Agreement or any transaction contemplated thereby) that (i) concern any Property or Lessee's interest therein, (ii) that question the validity or enforceability of any obligation of Lessee pursuant to the Operative Agreements or the overall transaction, as it applies to Lessee, described in the Operative Agreements or to Lessee's knowledge, that question the validity or enforceability of any obligation of any other party pursuant to the Operative Agreements or the overall transaction described in the Operative Agreements or (iii) have or could reasonably be expected to have a Material Adverse Effect;
(e) No Governmental Action by any Governmental Authority or other authorization, registration, consent, approval, waiver, notice or other action by, to or of any other Person pursuant to any Legal Requirement or any contract, indenture, instrument or agreement or for any other reason is required to authorize or is required in connection with (i) the execution, delivery or performance by Lessee of any Operative Agreement to which the Lessee is a party, (ii) the legality, validity, binding effect or enforceability against Lessee of any Operative Agreement to which the Lessee is a party, (iii) the acquisition, ownership, occupancy, operation, leasing or subleasing by Lessee of
any Property or (iv) the Lessee's request for the Advance, in each case, except those which have been obtained or performed and are in full force and effect;
(f) Upon the execution and delivery of a Lease Supplement to the Lease respecting any Property, (i) the Lessee will have unconditionally accepted such Property subject to the Lease Supplement, and (ii) no offset will exist with respect to any Rent or other sums payable under the Lease;
(g) Except as otherwise contemplated by the Operative Agreements, the Lessee shall cause the proceeds of any Lessor Advance or Loan not to be used for any purpose other than the purchase and/or lease of the Properties and the payment of Transaction Expenses referenced in Section 7.1(a) of this Agreement with respect to a particular Property;
(h) All information with respect to Lessee or any of its Affiliates heretofore or contemporaneously herewith furnished in writing by Lessee (or any of its Affiliates) to the Agent, the Lessor or any other Primary Financing Party for purposes of or in connection with this Agreement and the transactions contemplated hereby is, taken as a whole, true and accurate in every material respect on the date as of which such information is dated or certified, and such information, taken as a whole, does not omit to state any material fact necessary to make such information, taken as a whole, not misleading;
(i) The location of the Lessee for purposes of the UCC is Delaware. The principal place of business, chief executive office and office of the Lessee where the documents, accounts and records relating to the transactions contemplated by this Agreement and each other Operative Agreement are kept are located at 3901 North First Street, San Jose, California 95134-1599;
(j) The representations and warranties of Lessee set forth in any of the Operative Agreements are true and correct. There exists no Lease Default or Lease Event of Default under any of the Operative Agreements which is continuing and which has not been cured within any cure period expressly granted under the terms of the applicable Operative Agreement or otherwise waived in accordance with the applicable Operative Agreement and Lessee has no actual knowledge of any other Default or Event of Default under any of the Operative Agreements which is continuing and which has not been cured within any cure period expressly granted under the terms of the applicable Operative Agreement or otherwise waived in accordance with the applicable Operative Agreement;
(k) Each Property being financed consists of Land (either owned or ground leased by Lessor) and existing Improvements thereon which Improvements are suitable for their intended use at the time of the Property Closing Date;
(l) No portion of any Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable
agency, or if any Property (or any portion thereof) 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 Property in accordance with Section 14.2(b) of the Lease and in accordance with the National Flood Insurance Act of 1968, as amended;
(m) Each Property complies with all Insurance Requirements and all standards of Lessee with respect to similar properties owned by Lessee;
(n) Each Property complies with all Legal Requirements as of such date (including without limitation all zoning and land use laws and Environmental Laws), except to the extent that failure to comply therewith, individually or in the aggregate, shall not have and could not reasonably be expected to have a Material Adverse Effect;
(o) All utility services and facilities necessary for the operation of the Improvements and the Equipment for the Lessee's intended use of each Property (including without limitation gas, electrical, water and sewage services and facilities) are available at the applicable Property;
(p) Acquisition, installation and testing of the Equipment and construction of the Improvements have been performed in a good and workmanlike manner;
(q) (i) The Security Documents create, as security for the Obligations (as such term is defined in the Security Agreement), valid and enforceable mortgage and security interests in, and Liens on, all of the Collateral, in favor of the Agent, for the benefit of the Secured Parties and such security interests and Liens are subject to no other Liens other than Liens that are expressly set forth as title exceptions on the title commitment or policy issued under Section 5.3(g) with respect to any Property. Upon execution of the Control Agreement by the parties thereto, the Lien created by the Cash Collateral Security Documents shall be a perfected first priority Lien on the Cash Collateral;
(ii) The Lease Agreement creates, as security for the
obligations of the Lessee under the Lease Agreement, valid and enforceable
mortgage and security interests in, and Liens on, each Property leased
thereunder, in favor of the Lessor, and such security interests and Liens
are subject to no other Liens other than Liens that are expressly set
forth as title exceptions on the title commitment or policy issued under
Section 5.3(g) with respect to such Property;
(r) (i) Neither Lessee nor any Subsidiary of Lessee is engaged principally, or as one of its more important activities, in the business of extending credit for the purposes of buying or carrying Margin Stock (as defined in Regulation U); and
(ii) No part of the proceeds of the Advance will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any
purpose that entails a violation of, or that is inconsistent with, the provisions of the Regulations of the Board including Regulation T, U or X;
(s) Except as such could not reasonably be expected to have a Material Adverse Effect:
(i) No Property (including soils, surface waters, groundwaters on, at or under any Property) contains or is otherwise affected by, nor to Lessee's knowledge has any Property previously contained or been affected by, any Hazardous Substance in amounts or concentrations which (A) constitute a violation of applicable Environmental Laws or (B) could give rise to liability or obligation under applicable Environmental Laws;
(ii) Each Property and all operations conducted by Lessee or its Subsidiaries on any Property in connection therewith are in compliance with all applicable Environmental Laws, and there are no Hazardous Substances at, under or about any Property or such operations which could reasonably be expected to interfere with the continued operation of such Property;
(iii) Lessee or its Subsidiaries have obtained, are in compliance with, and have made all appropriate filings for issuance or renewal of, all environmental permits with respect to each Property, and all such environmental permits are in full force and effect;
(iv) Neither Lessee nor any Subsidiary thereof has received any notice of violation, alleged violation, noncompliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws, in each case, with respect to any Property, nor does Lessee have knowledge or reason to believe that any such notice will be received or is being threatened;
(v) Hazardous Substances have not been transported or disposed of from any Property in violation of, or in a manner or to a location which could reasonably be expected to give rise to liability under, applicable Environmental Laws, nor have any Hazardous Substances been generated, treated, stored or disposed of at, on or under any Property in violation of, or in a manner which could reasonably be expected to give rise to liability under, any applicable Environmental Laws;
(vi) No judicial proceedings or governmental or administrative action is pending, or threatened, under any applicable Environmental Law with respect to any Property to which Lessee or any Subsidiary in occupancy thereof has been or will be named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any applicable Environmental Law with respect to any Property;
(vii) There has been no release, or imminent threat of release, of Hazardous Substances at or from any Property, in violation of or in amounts or in a
manner that could reasonably be expected to give rise to liability under applicable Environmental Laws; and
(viii) Neither Lessee nor any Subsidiary of Lessee (A) is failing to comply with any applicable Environmental Law or to obtain, maintain or comply with any applicable permit, license or other approval required under any applicable Environmental Law or (B) has become subject to any Environmental Claim;
(t) No notices, complaints or orders of violation or non-compliance or liability have been issued to the Lessee or, to the best of its knowledge, threatened by any Person with respect to any Property or the present or intended future use thereof, except for such violations and instances of non-compliance as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and Lessee is not aware of any circumstances which could give rise to the issuance of any such notices, complaints or orders;
(u) The fair market value for each Property is within 10% of the Property Cost allocated to such Property;
(v) The audited consolidated balance sheet and income statement of the Lessee and its Consolidated Subsidiaries as of December 31, 2002, together with related audited consolidated statements of operations, retained earnings and cash flows as of December 31, 2002 and the unaudited consolidated balance sheet and income statement of the Lessee and its Consolidated Subsidiaries as of March 31, 2003, together with related unaudited consolidated statements of operations, retained earnings and cash flows as of March 31, 2002, fairly present in all material respects the consolidated financial condition of the Lessee and its Consolidated Subsidiaries as at such dates and the consolidated results of the operations of the Lessee and its Consolidated Subsidiaries for the period ended on such dates, all in accordance with GAAP, subject with respect to the March 31, 2003 financial statements, to changes resulting from audit and normal year end audit adjustments;
(w) Neither the Lessee nor any of its Subsidiaries is in default with respect to any judgment, order, writ, injunction, decree or decision of any Governmental Authority which default could reasonably be expected to have a Material Adverse Effect. Each of the Lessee and its Subsidiaries is complying in all material respects with all statutes, regulations, rules and orders applicable to it of all Governmental Authorities, a violation of which could reasonably be expected to have a Material Adverse Effect;
(x) Each of the Lessee and its Subsidiaries has filed or caused to be filed all tax returns required to be filed and has paid, or has made adequate provision for the payment of, all taxes shown to be due and payable on said returns or in any assessments made against it, except any Taxes that are being contested in good faith by appropriate proceedings and for which the Lessee or such Subsidiary, as applicable, has set aside on its books adequate reserves; except to the extent failure to reserve could not be expected to have Material Adverse Effect;
(y) The Lessee is not subject to regulation under the Public Utility Holding Company Act of 1935, as amended, the Federal Power Act or the Investment Company Act of 1940, as amended, nor is the Lessee subject to any statute or regulation which prohibits the incurrence of indebtedness under this Agreement or the other Operative Agreements, including, without limitation, statutes or regulations relative to common or contract carriers or to the sale of electricity, gas, steam, water, telephone, telegraph or other public utility services;
(z) There has been no material adverse change in the consolidated
assets, liabilities, operations, business or conditions (financial or
otherwise) of the Lessee and its Consolidated Subsidiaries taken as a
whole from that set forth in the financial statements referenced in
Section 6.2(x);
(aa) The execution and delivery of the Operative Agreements by Lessee will not involve any transaction that is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representation by the Lessee in the first sentence of this Section 6.2(aa) is made in reliance upon and subject to (i) the accuracy of the representations of the Credit Lenders and the Mortgage Lenders in Section 6.3 of the Participation Agreement;
(bb) The true legal name of the Lessee as registered in the jurisdiction of its organization is and has been for at least five (5) years "Cypress Semiconductor Corporation" and its Federal Employer Identification number is 94-288-5898. The Lesser does not use or transact, and has not used or transacted within the five (5) years immediately prior to the Initial Closing Date, any business under any trade name other than its legal name; and
(cc) None of the Advances have been used to purchase Non-Integral Equipment.
(dd) No Advances have been used to acquire any of the items set forth in Schedule 3 to the Participation Agreement.
6.3. Representations and Warranties of the Lenders.
Each Lender, severally, represents and warrants to each of the other parties hereto that as of each Closing Date (except to the extent any such representation or warranty expressly is made to relate to an earlier date):
(a) It is a corporation duly organized and validly existing and in good standing under the laws of its jurisdiction of organization and has the power and authority to enter into and perform its obligations under each of the Operative Agreements to which it is or will be a party and each other agreement, instrument and document to be executed and delivered by it on or before such Closing Date in connection with or as
contemplated by each such Operative Agreement to which such Lender is or will be a party;
(b) The execution, delivery and performance of each Operative Agreement to which such Lender is or will be a party are within the corporate powers of such Lender, has been duly authorized by all necessary action on such Lender's part, has been duly executed and delivered, and neither the execution and delivery thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (i) does or will require any approval or consent of any trustee or holders of any of its indebtedness or obligations or any other consent or approval that has not previously been obtained, (ii) does or will contravene any Legal Requirement applicable to such Lender, (iii) does or will contravene or result in any breach of or constitute any default under or any of its other property under, (A) its charter or by-laws, or (B) any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected, which contravention, breach, default or Lien under clause (B) could reasonably be expected to materially and adversely affect its ability to perform its obligations under the Operative Agreements to which it is a party or would question the validity or enforceability of any of the Operative Agreements to which it is or will become a party or (iv) does or will require any Government Action by any Governmental Authority;
(c) Each Operative Agreement to which such Lender is or will be a party has been, or on or before such Closing Date will be, duly executed and delivered by such Lender, and each Financing Agreement to which such lender is a party constitutes, or upon execution and delivery will constitute, a legal, valid and binding obligation enforceable against such Lender in accordance with the terms thereof; and
(d) There is no action or proceeding pending or, to its knowledge, threatened to which it is or will be a party before any Governmental Authority that, if adversely determined, would materially and adversely affect its ability to perform its obligations under the Operative Agreements to which it is a party or would question the validity or enforceability of any of the Operative Agreements to which it is or will become a party.
SECTION 7. PAYMENT OF CERTAIN EXPENSES.
7.1. Transaction Expenses.
(a) The Lessor agrees on each Closing Date, to pay, or cause to be paid, all Transaction Expenses arising with respect to such Closing Date and the transactions contemplated by the Operative Agreements, including without limitation all reasonable fees, expenses and disbursements of Moore & Van Allen PLLC (as counsel for the Agent and the Lessor), the Lessor and the Agent in connection with the transactions contemplated by the Operative Agreements and incurred in connection with such Closing Date, and the reasonable out-of-pocket expenses of the Lessor due and payable on such Closing Date, all fees, taxes and expenses for the recording, registration and filing of
documents, all fees, taxes and expenses related to or arising out of the
Lessor's qualifying to do business in any Approved State and all other
reasonable fees, expenses and disbursements incurred in connection with
such Closing Date; provided, however, the Lessor shall be required to pay
such amounts described in this Section 7.1(a) only if (i) such amounts are
properly described in a Requisition delivered on or before such Closing
Date, and (ii) funds are made available by the Lessor, the Credit Lenders
and the Mortgage Lenders in connection with such Requisition in an amount
sufficient to allow such payment on such Closing Date. On each such
Closing Date after delivery and receipt of the Requisition referenced in
Section 4.2 hereof and satisfaction of the other conditions precedent for
such date, the Lessor shall make a Lessor Advance, the Credit Lenders
shall make Loans pursuant to the Credit Note Loan Agreement and the
Mortgage Lenders shall make Loans pursuant to the Mortgage Note Loan
Agreement, in order to enable the Lessor to pay for the Transaction
Expenses, fees, expenses and other disbursements referenced in this
Section 7.1(a). The Lessee agrees to timely pay all amounts referred to in
this Section 7.1(a) to the extent the Lessor is not required to pay such
amounts.
(b) [Reserved].
(c) [Reserved].
7.2. Brokers' Fees.
The Lessee agrees to pay or cause to be paid any and all brokers' fees, if any, payable in accordance with the engagement letter dated June 16, 2003 or otherwise agreed to in writing by the Lessee, including without limitation any interest and penalties thereon, which are payable in connection with the transactions contemplated by this Agreement and the other Operative Agreements, excluding the fees of any brokers retained by the Agent, any Primary Financing Party, or any Affiliate of any of the foregoing.
7.3. Certain Fees and Expenses.
To the extent not duplicative of amounts funded by the Advance on the Closing Date, the Lessee agrees to pay or cause to be paid (a) all reasonable out-of-pocket expenses of the Lessor (including without limitation reasonable counsel fees and expenses) incurred in connection with the transactions contemplated hereby and by the other Operative Agreements (b) all reasonable out-of-pocket costs and expenses incurred by the Lessee, the Agent or the Primary Financing Parties in entering into any future amendments, modifications, supplements and/or restatements with respect to any of the Operative Agreements which have been requested by the Lessee, whether or not such amendments, modifications, supplements and/or restatements are ultimately entered into, or giving or withholding of waivers or consents hereto or thereto, (c) all reasonable out-of-pocket costs and expenses incurred by the Lessor, the Agent or the Primary Financing Parties in connection with any exercise of remedies arising out of a Lease Event of Default under any Operative Agreement or any purchase of the Properties pursuant to the terms of the Operative Agreements by the Lessee or its designee and (d) all reasonable out-of-pocket costs and expenses incurred by the Lessee, the Agent or any Primary Financing Party in connection
with any transfer or conveyance of any Property to the Lessee or its designee or any third party pursuant to the terms of the Operative Agreements, whether or not such transfer or conveyance is ultimately accomplished.
7.4. [Reserved].
7.5. Administrative Fee.
The Lessee shall pay or cause to be paid an administrative fee to the Agent (for its individual account) in the amount equal to the product of (a) 0.06% and (b) the sum of the Property Cost of all Properties (or such other amount as may be agreed upon by the Lessee and the Agent from time to time) which shall be paid on the Initial Closing Date and each annual anniversary thereof while the Lease is in effect and such amount shall be deemed to be earned in full by the Agent as of the Initial Closing Date or annual anniversary thereof, as applicable.
SECTION 8. OTHER COVENANTS AND AGREEMENTS.
8.1. Cooperation with the Lessee.
The Primary Financing Parties and the Agent shall, at the expense of and to the extent reasonably requested by the Lessee (but without assuming additional liabilities on account thereof and only to the extent such is required to carry out the intent of the Operative Agreements, to document the status of the parties' rights and obligations under the Operative Agreements, or is otherwise acceptable to the Primary Financing Parties and/or the Agent, as applicable, in their reasonable discretion), cooperate with the Lessee in connection with the Lessee satisfying its covenant obligations contained in the Operative Agreements including without limitation at any time and from time to time, promptly and duly executing and delivering any and all such further instruments, documents and financing statements (and continuation statements related thereto) executing estoppel statements in reasonable form, executing collateral, mortgage and deed of trust releases as and when appropriate in accordance with the terms and conditions of the Operative Agreements.
8.2. Covenants of the Lessor.
The Lessor hereby agrees that so long as this Agreement is in effect:
(a) The Lessor will not create or permit to exist at any time, and it will, at its own cost and expense, promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Lessor Liens on the Properties;
(b) [Reserved];
(c) The Lessor shall not (i) commence any case, proceeding or other action under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, arrangement, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (ii) seek appointment of a receiver, trustee, custodian or other similar official for all or any substantial benefit of the creditors of the Lessor; and the Lessor shall not take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in this paragraph;
(d) The Lessor shall give prompt written notice to the Lessee, the Primary Financing Parties (other than the Lessor) and the Agent if the Lessor's location for purposes of the UCC shall cease to be North Carolina, or if the Lessor's principal place of business or chief executive office, or the office where the records concerning the accounts or contract rights relating to the Properties are kept, shall cease to be located at One Wachovia Center, 301 South College Street, Charlotte, North Carolina 28288; and
(e) The Lessor shall take or refrain from taking such actions and grant or refrain from granting such approvals with respect to the Operative Agreements and/or relating to the Properties in each case as directed in writing by the Agent or, in connection with Section 8.5 hereof, the Lessee; provided, however, that notwithstanding the foregoing provisions of this subparagraph (e) the Lessee, the Agent and the Primary Financing Parties each acknowledge, covenant and agree that neither the Lessor not the Agent shall act or refrain from acting except in accordance with the provisions of the Intercreditor Agreement; provided, further, that each of the Agent, the Primary Financing Parties (other than the Lessor) and the Lessee acknowledges, covenants and agrees that it will not instruct the Lessor to take any action in violation of the terms of any Operative Agreement.
(f) The Lessor shall give the Lessee prompt written notice (a
"Lessor Notice") following the Lessor's knowledge, but in any event
promptly upon receipt by it of (x) notice from an acquiring Person as
provided in the related underlying transaction documents that a
disposition of property will occur or (y) an appraisal or other form of
written valuation study, in either case that, in the exercise of the
Lessor's reasonable judgment, would (regarding the Fair Market Sales Value
of the Property as set forth in the Appraisal delivered pursuant to
Section 5.3(s)), in the case of clause (x) above, cause such Fair Market
Sales Value of the Property to exceed fifty percent (50%) of (or, in the
case of clause (y) above, provide the Lessor with adequate information to
determine that, such Fair Market Sales Value of the Property exceeds fifty
percent (50%) of) the fair market value (based on appraisals or other
information in the Lessor's possession and delivered in connection with
the consummation of such underlying transactions relating to various
properties of the Lessor or received by the Lessor as described in clause
(y) above) of all of the property owned (as determined in accordance with
Lessor's financial reporting under GAAP) by the Lessor (the "Fifty Percent
FMV Event"). In the event that a Lessor Notice is given, the Lessor, upon
receipt of a written request from the Lessee, may, at its option, elect to
either (i) obtain additional assets such that the gross asset value of the
Property does not ever constitute more than fifty percent (50%) of the
total assets of the Lessor, (ii) transfer its interests in all of the
Property to another Affiliate of the Lessor such that the representations
set forth in the Lessor Confirmation Letter remain correct, (iii) obtain,
at the Lessee's sole cost and expense, additional appraisals on assets
owned by the Lessor, or (iv) obtain, at the Lessee's sole cost and expense, a SAS 97-type letter reasonably acceptable to the Lessee from the Lessor's auditor to certify that the Lessor is a voting interest entity as defined by FASB Interpretation No. 46 (to be renewed as required). Nothing relating to the circumstances surrounding or the physical delivery of the Lessor Notice will in any way inhibit or prohibit the Lessee's right to replace the Lessor pursuant to Section 10.1(d). Notwithstanding the foregoing, in no event will the Lessor be required to disclose or provide access to any information to the extent that such disclosure or access would violate any law applicable to the Lessor or its Affiliates, including without limitation banking regulations applicable to national banks, or result in a breach of the Lessor's or any Affiliate's confidentiality policies or agreements. The parties hereto agree that the Lessee is the sole beneficiary of the matters addressed in this Section 8.2(f).
(g) Upon the Lessee's prior written request, the Lessor shall provide to the Lessee at least fifteen (15) days prior to the end of each calendar quarter and at least forty-five (45) days prior to the end of each calendar year, a confirmed copy of the Lessor Confirmation Letter. The parties hereto agree that the Lessee is the sole beneficiary of the matters addressed in this Section 8.2(g).
(h) Lessor shall not obtain nonrecourse financing with respect to the Properties in excess of ninety-four percent (94%) of the aggregate Termination Value for all Properties.
8.3. Lessee Covenants, Consent and Acknowledgment.
(a) The Lessee acknowledges and agrees that the Lessor, pursuant to the terms and conditions of the Security Agreement and the Mortgage Instruments, shall create Liens respecting the Properties (including without limitation the Land, Improvements and Equipment constituting such Properties) described therein in favor of the Agent for the benefit of the Secured Parties Lenders. The Lessee hereby irrevocably consents to the creation, perfection and maintenance of such Liens in accordance with the Operative Agreements. The Lessee shall, to the extent reasonably requested by any of the other parties hereto, cooperate with the other parties in connection with their covenants herein or in the other Operative Agreements and shall from time to time duly execute and deliver any and all such future instruments, documents and financing statements (and continuation statements related thereto) as any other party hereto may reasonably request to carry out the intent of such agreements.
(b) The Lessor hereby instructs the Lessee, and the Lessee hereby acknowledges and agrees, that until such time as all of the Lessee Secured Obligations have been paid in full and all Commitments have been terminated (i) any and all Rent (excluding Excepted Payments) and any and all other amounts of any kind or type under any of the Operative Agreements due and owing or payable to any Person shall instead be paid directly to the Agent (excluding Excepted Payments) or as the Agent may direct from time to time for allocation and distribution in accordance with the procedures set
forth in Section 8.7 hereof, (ii) all rights of the Lessor under the Lease shall be exercised by the Agent and (iii) the Lessee shall cause all notices, certificates, financial statements, communications and other information which are delivered, or are required to be delivered, to the Lessor, to be delivered to the Agent, as Lessor's agent.
(c) The Lessee shall not consent to any amendment, supplement or other modification of the terms or provisions of any Operative Agreement to which it is a party except in accordance with Section 12.4 of this Agreement.
(d) The Lessee hereby covenants and agrees that, except for amounts
payable as Basic Rent, any and all payment obligations owing from time to
time under the Operative Agreements by any Person to the Agent, the
Lessor, any Primary Financing Party or any other Person shall (without
further action) be deemed to be Supplemental Rent obligations payable by
the Lessee. Without limitation, such Supplemental Rent obligations of the
Lessee shall include the Supplemental Rent obligations pursuant to this
Section 8.3(d), Section 3.3 of the Lease, arrangement fees any
administrative fees, breakage costs, participation fees, upfront fees,
prepayment penalties, Make-Whole Amounts, indemnities, filing fees,
assessments, impositions, penalties and other costs associated with
Lessor's qualification to do business in any Approved State, other
reasonable fees and transaction expenses incurred by the parties hereto in
connection with the transactions contemplated by the Operative Agreements.
(e) The Lessee hereby covenants and agrees to cause an Appraisal or reappraisal (in form and substance reasonably satisfactory to the Agent and from an appraiser selected by the Agent) at Lessee's sole cost and expense, to be issued respecting each Property as requested by the Agent from time to time (i) at each and every time as such shall be required to satisfy any regulatory requirements or Legal Requirements imposed on the Agent and/or any Primary Financing Party and (ii) after the occurrence of a Lease Event of Default.
(f) The Lessee hereby covenants and agrees that, except for amounts payable as Basic Rent, any and all payment obligations owing from time to time under the Operative Agreements by any Person to the Agent, any Primary Financing Party or any other Person shall (without further action) be deemed to be Supplemental Rent obligations payable by the Lessee. Without limitation, such obligations of the Lessee shall include the Supplemental Rent obligations pursuant to this Section 8.3(f), Section 3.3 of the Lease, arrangement fees, administrative fees, participation fees, upfront fees, unused fees, prepayment penalties, breakage costs, indemnities and transaction expenses incurred by the parties hereto in connection with the transactions contemplated by the Operative Agreements.
(g) At any time the Lessor or the Agent is entitled under the Operative Agreements to possession of any Property, the Lessee hereby covenants and agrees, at its own cost and expense, to make such Property available to the Agent (on behalf of the Lessor).
(h) The Lessee hereby covenants and agrees that none of the Advances have been used to purchase Non-Integral Equipment.
(i) [Reserved].
(j) The Lessee hereby covenants and agrees that it shall give prompt notice to the Agent if the Lessee's location or jurisdiction of organization for purposes of the UCC, its principal place of business or chief executive office, or the office where the records concerning the accounts or contract rights relating to the Properties are kept, shall cease to be located at the locations set forth in Section 6.2(i) or if it shall change its name.
(k) [Reserved].
(l) Until all of the obligations under the Operative Agreements have been finally and indefeasibly paid and satisfied in full and the Commitments terminated, unless consent has been obtained from the Majority Secured Parties, the Lessee will:
(i) continue to engage in the same general type of business as conducted by it on the Initial Closing Date, preserve and maintain its corporate existence and qualify and remain qualified as a foreign corporation (or partnership, limited liability company or other such similar entity, as the case may be) and, unless failure to so perform would not have a Material Adverse Effect, preserve and maintain all rights, franchises, licenses and privileges necessary to the conduct of its business, remain authorized to do business in each applicable jurisdiction and shall maintain all licenses, permits and registrations necessary for the conduct of its operations;
(ii) pay and perform all obligations of the Lessee under the Operative Agreements and pay and perform (A) all taxes, assessments and other governmental charges that may be levied or assessed upon any Property, which if not paid or performed would have a Material Adverse Effect, (B) all taxes, assessments and other governmental charges that may be levied or assessed upon it or any of its property, which if not paid or performed would have a Material Adverse Effect, and (C) all other indebtedness, obligations and liabilities in accordance with customary trade practices, which if not paid would have a Material Adverse Effect; provided that the Lessee may contest any item described in this Section 8.3(l)(ii) in good faith so long as adequate reserves are maintained with respect thereto in accordance with GAAP;
(iii) to the extent failure to do so would have a Material Adverse Effect, observe and remain in compliance with all applicable Laws and maintain in full force and effect all Governmental Actions, in each case applicable to the conduct of its business; keep in full force and effect all licenses, certifications or accreditations necessary for any Property to carry on its business; and not permit the termination of any insurance reimbursement program required by the Operative Agreements to be made available to any Property;
(iv) and will cause each of its Subsidiaries to, provided that the Agent and the Primary Financing Parties use reasonable efforts to minimize disruption to the business of the Lessee and its Subsidiaries and subject to the provisions of Section 12.13, permit representatives of the Agent or any Primary Financing Party (including without limitation, independent accountants, agents, attorneys, employees and appraisers), from time to time, to visit and inspect their properties (including without limitation the Properties); inspect, audit and make extracts photocopies or photographs or record any information obtained from their books, records, accounts receivable and files, including without limitation management letters prepared by independent accountants; discuss with its principal officers, and its independent accountants, its business, assets, liabilities, financial condition, results of operations and business prospects and investigate or verify the accuracy of any information provided or obtained for the purpose of determining whether a Lease Default or Lease Event of Default has occurred; and
(v) not enter into any agreement, any term or condition of which would, if complied with by the Lessee, result in a Default or Event of Default either immediately or upon the elapsing of time.
(m) Lessee shall perform any and all obligations of Lessor under , and cause Lessor to otherwise remain in full compliance with, the terms and provisions of each Ground Lease, if any.
(n) With respect to any Modification or any other alteration to any Improvement and at any time during the Term, promptly after obtaining any required architectural approvals by any business park or any other applicable entity with oversight responsibility for the applicable Improvements, the Lessee shall deliver to the Agent copies of the same.
(o) [Reserved].
(p) Lessee shall promptly, but in any event within five (5) days of when any Responsible Officer of the Lessee gains such knowledge, notify the Agent and each Primary Financing Party, or cause the Agent and each Primary Financing Party to be promptly notified, of the occurrence of any Default or Event of Default which is continuing at such time and describing the same in reasonable detail with a description of the action the Lessee or any Affiliate has taken or proposes to take with respect thereto.
(q) The Lessee authorizes the Agent at the expense of the Lessee to file fixture filings and/or financing statements, including without limitation amendments, with respect to any collateral under or pursuant to any Operative Agreement without the signature of the Lessee in such form and in such filing offices as the Agent reasonably determines appropriate to perfect the security interests of the Agent under the applicable Operative Agreements.
(r) [Reserved].
(s) Lessee shall not, nor shall it permit anyone authorized to act on its behalf to, take any action which would subject the issuance or sale of the Notes, the Property or the Operative Agreements, or any security or lease, the offering of which, for purposes of the Securities Act or any state securities laws, would be deemed to be part of the same offering as the offering of the aforementioned items, to the registration requirements of Section 5 of the Securities Act or any state securities laws.
(t) With respect to each determination of interest and Lessor Yield pursuant to this Participation Agreement, the Credit Note Loan Agreement and the Mortgage Note Loan Agreement and of Basic Rent under the Lease, Lessee agrees to be bound by Sections 2.2, 2.8, 2.9 and 9.19 of the Credit Note Loan Agreement and the Mortgage Note Loan Agreement, respectively, Sections 5B, 9 and 11.3 and the applicable definitions in Appendix A.
(u) [Reserved].
(v) [Reserved].
(w) Lessee will, and will cause each of its Consolidated Subsidiaries to, promptly notify the Lessor, the Agent and each Lender in writing of any change made (i) by Lessee or any of its Consolidated Subsidiaries to its fiscal year, or (ii) by Lessee to its Certificate of Incorporation (or other similar organizational documents) or bylaws (or other similar document). Lessee also agrees that it will provide the Lessor, the Agent and each Lender with copies of any amendments to the Certificate of Incorporation, bylaws or other organizational documents referred to above.
(x) The Lessee shall deliver (or cause to be delivered) to the Agent an annual certificate evidencing the insurance required to be maintained by the Lessee under Article XIV of the Lease on the date such certificate is due thereunder.
(y) Each Property shall comply with all Insurance Requirements (unless the failure to comply with such Insurance Requirements will not result in a denial of coverage under any insurance policy required to be maintained hereunder or under any other Operative Agreement) and all standards of Lessee with respect to similar properties owned by Lessee.
(z) Each Property shall comply with all Legal Requirements (including without limitation all zoning and land use laws and Environmental Laws), except to the extent that failure to comply therewith, individually or in the aggregate, shall not have and could not reasonably be expected to have a Material Adverse Effect.
(aa) [Reserved].
(bb) The Lessee shall cause each Ground Lease to include a provision
that grants the Agent (on behalf of the Secured Parties) at least thirty
(30) days, after the Agent's receipt of notice of an event of default
pursuant to the applicable Ground Lease, to cure such event of default
under such Ground lease.
(cc) Upon recordation of the Mortgage Instruments in the applicable real estate recording office in the applicable Approved State identified by the Lessee, where the Property is located, the Lien created by each Mortgage Instrument in the real property described therein shall create a deed of trust or be a perfected mortgage Lien on the applicable Property in favor of the Agent, for the benefit of the Mortgage Lenders, the Lessor and the Credit Lenders. To the extent that the security interests in the portion of the Collateral comprised of personal property can be perfected by filing in the filing offices in the state where such Property is located or in the state of the Lessee's "location", as such term is used in the UCC, upon filing of the Secured Party Financing Statements in such filing offices, the security interests created by the Security Agreement shall be perfected security interests in such personal property in favor of the Agent, for the ratable benefit of the Secured Parties.
(dd) Upon recordation of the memorandum of the Lease Agreement (or, a short form lease) in the applicable real estate recording office in the state where the Property is located, the Lien created by the Lease Agreement in the real property described therein shall create a deed of trust or be a perfected mortgage Lien on the Properties in favor of the Lessor. To the extent that the security interests in the portion of any Property comprised of personal property can be perfected by the filing in the filing offices in the state where such Property is located or in the state of the Lessee's "location", as such term is used in the UCC, upon filing of the Lessor Financing Statements in such filing offices, the security interests created by the Lease Agreement shall be perfected security interests in such personal property in favor of the Lessor, which rights pursuant to the Lessor Financing Statements are assigned to the Agent, for the benefit of the Secured Parties.
(ee) Lessee shall not incur or suffer to exist any Lien on any Property or other Collateral other than the Liens created and/or evidenced by the Security Documents, Permitted Liens, Lessor Liens, or Liens that are expressly set forth as title exceptions on the title commitments issued in connection with Section 5.3(g) with respect to each Property and as otherwise permitted under Section 8.5.
(ff) Lessee shall deliver a written notice to Agent and the Lessor promptly upon a Responsible Person of the Lessee receiving notice or having actual knowledge of the taking by a Governmental Authority of an action which would constitute a Condemnation or receiving notice of a violation of any Legal Requirement (including without limitation Environmental Laws) on or at any Property that could be reasonably likely to have a Material Adverse Effect or impose any civil or criminal liability upon Lessor, Agent, any Primary Financing Party, Lessee or any other Indemnified Person.
(gg) [Reserved].
(hh) [Reserved].
(ii) Without providing at least sixty (60) days' prior written notice to the Agent, Lessee will not change its legal name.
(jj) The Lessee shall not finance and grant any Lien in favor of any third party with respect to any addition, improvement, replacement, substitution or any other construction on any Property other than Non-Integral Equipment.
(kk) The Lessee shall deliver within fifteen (15) Business Days of the Initial Closing Date a survey regarding the Property located in San Jose, California that, except for time of delivery, complies with the Operative Agreements.
(ll) Lessee shall not remove, destroy any Property or any portion thereof or make any Modification which would impair the value of any Property or any portion thereof unless Lessee either (i) receives the prior written consent of Lessor to take such action and provides all reasonably requested information regarding such action or (ii) such action would only affect Improvements and Equipment which are promptly replaced, in compliance with the Operative Agreements, with Improvements and Equipment titled in Lessor's name which are of equal or greater value, utility and useful life than the affected Improvements and Equipment.
8.4. Sharing of Certain Payments.
Except for Excepted Payments, the parties hereto acknowledge and agree
that all payments due and owing by the Lessee to the Lessor under the Lease or
any of the other Operative Agreements shall be made by the Lessee directly to
the Agent as more particularly provided in Section 8.3 hereof. The Lessor, the
Agent, the Credit Lenders, the Mortgage Lenders and the Lessee acknowledge the
terms of Section 8.7 of this Agreement regarding the allocation of payments and
other amounts made or received from time to time under the Operative Agreements
and agree that all such payments and amounts are to be allocated as provided in
Section 8.7 of this Agreement.
8.5. Grant of Easements, etc.
The Agent, the Credit Lenders, the Mortgage Lenders and the Lessor hereby agree that, so long as no Lease Event of Default shall have occurred and be continuing, and until such time as the Agent gives instructions to the contrary to the Lessor after the occurrence and continuance of such Lease Event of Default, the Lessor shall from time to time at the request of the Lessee, in connection with the transactions contemplated by the Lease or the other Operative Agreements, (i) grant easements and other rights with respect to any Property, (ii) release existing easements or other rights which are for the benefit of any Property, (iii) execute and deliver to any Person any instrument appropriate to confirm or effect such grants or releases, and (iv) execute and deliver to any Person such other documents or materials in connection with the acquisition, testing or operation of any Property, including without limitation reciprocal easement
agreements, operating agreements, plats, replats or subdivision documents; provided, that each of the agreements referred to in this Section 8.5 shall be of the type normally executed by the Lessee with respect to the Lessee's other properties and shall be on commercially reasonable terms so as not to diminish the value of the Property in any material respect or otherwise have a Material Adverse Effect.
8.6. Appointment of the Agent by the Primary Financing Parties.
(a) The Secured Parties acknowledge and agree and direct that the rights and remedies of the beneficiaries of the Liens created by the Security Documents shall be exercised by the Agent on behalf of the Secured Parties in accordance with the provisions of the Operative Agreements; provided, in all cases, the Agent shall allocate payments and other amounts received in accordance with Section 8.7. The Agent is further appointed to provide notices under the Operative Agreements on behalf of the Lessor and each other Primary Financing Party (as determined by the Agent, in its reasonable discretion), to receive notices under the Operative Agreements on behalf of the Lessor and each other Primary Financing Party. The Agent hereby accepts such appointments.
(b) Each Primary Financing Party hereby designates and appoints the Agent as the agent of such Primary Financing Party under this Agreement and the other Operative Agreements, and each such Primary Financing Party authorizes the Agent, in such capacity, to execute the Operative Agreements as agent for and on behalf of such Primary Financing Party, to take such action on behalf of such Primary Financing Party under the provisions of this Agreement and the other Operative Agreements and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and other Operative Agreements, together with such other powers as are reasonably incidental thereto. Subject to the terms of the Operative Agreements, each of the Primary Financing Parties directs the Agent to exercise such powers, make such decisions and otherwise perform such duties as are delegated to the Agent hereunder or thereunder. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Primary Financing Party, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Operative Agreement or otherwise exist against the Agent.
(c) The Agent may execute any of its duties under this Agreement and the other Operative Agreements by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.
(d) Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Operative Agreement (except for its or such Person's own gross negligence, willful
misconduct or its or such Person's failure to use ordinary care in the handling of funds) or (b) responsible in any manner to any of the Primary Financing Parties for any recitals, statements, representations or warranties made by the Lessor or the Lessee or any officer thereof contained in this Agreement or any other Operative Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Operative Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Operative Agreement or for any failure of the Lessor or the Lessee to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Primary Financing Party to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Operative Agreement, or to inspect the properties, books or records of the Lessor or the Lessee.
(e) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including without limitation counsel to the Lessor or the Lessee), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Operative Agreement unless it shall first receive such advice or concurrence of the Majority Secured Parties, the Majority Credit Lenders, the Majority Mortgage Lenders or all the Primary Financing Parties, as the case may be, as set forth in this Agreement or any other Operative Agreement or it shall first be indemnified to its satisfaction by the Primary Financing Parties against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Operative Agreements in accordance therewith, and such and any action taken or failure to act pursuant thereto shall be binding upon all the Primary Financing Parties and all future holders of the Notes.
(f) The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received written notice from a Primary Financing Party, the Lessee or the Lessor referring to this Agreement or such other Operative Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Primary Financing Parties and the Lessee. The Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Majority Secured Parties or otherwise as determined pursuant to intercreditor provisions in any other agreement among the Primary Financing Parties; provided, that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Primary Financing Parties; provided, further, the foregoing shall not limit the rights of the Lessor, the Majority Credit Lenders, the Majority Mortgage Lenders or all the Primary Financing Parties, as the case may be, as described in this Agreement or any other Operative Agreement.
(g) Each Primary Financing Party expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including without limitation any review of the affairs of the Lessor or the Lessee, shall be deemed to constitute any representation or warranty by the Agent to any Primary Financing Party. Each Primary Financing Party represents to the Agent that it has, independently and without reliance upon the Agent or any other Primary Financing Party, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Lessor and the Lessee and made its own decision to make Loans pursuant to its Credit Notes or its Mortgage Notes or make its Lessor Advance hereunder and enter into this Agreement. Each Primary Financing Party also represents that it will, independently and without reliance upon the Agent or any other Primary Financing Party, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Operative Agreements, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Lessor and the Lessee. The Agent agrees to provide to the Primary Financing Parties notices, reports and other documents that are customarily provided by the Agent in its capacity as Agent in transactions similar to the transactions contemplated hereby and by the other Operative Agreements. Except for notices, reports and other documents expressly required to be furnished to the Primary Financing Parties by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Primary Financing Party with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Lessor or the Lessee which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.
(h) The Primary Financing Parties agree to indemnify the Agent, in its capacity as such (to the extent not reimbursed by the Lessor or the Lessee and without limiting any obligation of the Lessor or the Lessee under and in accordance with the terms of the Operative Agreements to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Notes and the Lessor Advance shall have been paid in full, ratably in accordance with their Commitment Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including without limitation at any time following the payment of the
Notes) be imposed on, incurred by or asserted against any of them in any way relating to or arising out of, the Commitments, this Agreement, any of the other Operative Agreements or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any of them under or in connection with any of the foregoing; provided, that no Primary Financing Party shall be liable for the payment of any portion of such liabilities, obligations, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of the Agent, or its failure to use ordinary care in the handling of funds. The agreements in this Section shall survive the payment of the Notes and all other amounts payable hereunder.
(i) The Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Lessor or the Lessee as though the Agent were not the Agent hereunder and under the other Operative Agreements.
(j) (i) The Agent may resign at any time as the Agent upon sixty
(60) days' notice to the Primary Financing Parties, the Lessor and the
Lessee, provided if a Lease Event of Default shall have occurred and be
continuing then such notice period may be waived by the Majority Secured
Parties without consent of the Lessee. If the Agent shall resign as the
Agent under this Agreement, a successor Agent shall be appointed by the
Majority Secured Parties which successor Agent shall be subject to the
approval of, so long as no Event of Default shall have occurred and be
continuing, the Lessee, such approval not to be unreasonably withheld or
delayed. If no successor Agent is appointed prior to the effective date of
the resignation of the resigning Agent, the Agent may appoint, after
consulting with the Primary Financing Parties and subject to the approval
of, so long as no Event of Default shall have occurred and be continuing,
the Lessee, such approval not to be unreasonably withheld or delayed, a
successor Agent. Any successor Agent, however appointed, shall be a bank
or trust company incorporated and doing business within the United States
of America and having a combined capital and surplus of at least
$500,000,000, if there be such an institution willing, able and legally
qualified to perform the duties of the Agent hereunder upon reasonable or
customary terms. If no successor Agent has accepted appointment as the
Agent by the date which is sixty (60) days following a retiring Agent's
notice of resignation, the retiring Agent's notice of resignation shall
nevertheless thereupon become effective and the Primary Financing Parties
shall perform all of the duties of the Agent until such time, if any, as
the Majority Secured Parties appoint and, if required, the Lessee
approves, a successor Agent, as provided for above. Upon the effective
date of such resignation, only such successor Agent shall succeed to all
the rights, powers and duties of the retiring Agent and the term "Agent"
shall mean such successor agent and the retiring Agent's rights, powers
and duties in such capacity shall be terminated. After any retiring Agent
resigns hereunder as the Agent, the provisions of this Section 8.6 shall
inure to their respective benefit as to any actions taken or omitted to be
taken by it while it was the Agent under this Agreement.
(ii) The Agent may be removed (x) by either the Majority
Credit Lenders, the Majority Mortgage Lenders or the Lessee in the
case of fraud, misappropriation of funds or the commission of
illegal acts by the Agent or where the Agent has failed to perform
its obligations hereunder or under any other Operative Agreement in
any material respect, or (y) any time at the request of any Primary
Financing Party, but only with the consent of the Majority Credit
Lenders and the Majority Mortgage Lenders and, so long as no Lease
Event of Default shall have occurred and be continuing, the Lessee.
Any such removal shall be effective upon the acceptance of
appointment of a successor Agent in accordance with the provisions
of paragraph (i) of this Section 8.6(j); provided, however, to the
extent the Agent being replaced pursuant to clause (x) of this
Section 8.6(j)(ii) is also a Credit Lender or a Mortgage Lender,
such Person shall not be permitted to vote in connection with the
appointment or approval of a successor Agent pursuant to paragraph
(i) of this Section 8.6(j).
(k) Other than the exercise of reasonable care to assure the safe custody of the Collateral while being held by the Agent hereunder or under any other Operative Agreement, the Agent shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that the Lessee shall, to the extent possible, be responsible for preservation of all rights in the Collateral, and the Agent shall be relieved of all responsibility for the Collateral upon surrendering it or tendering the surrender of it to the Lessee. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Agent accords its own property, which shall be no less than the treatment employed by a reasonable and prudent agent in the industry, it being understood that the Agent shall not have responsibility for taking any necessary steps to preserve rights against any parties with respect to any of the Collateral.
8.7. Collection and Allocation of Payments and Other Amounts.
(a) The Lessee has agreed pursuant to Section 5.8 and otherwise in accordance with the terms of this Agreement to pay to (i) the Agent any and all Rent (excluding Excepted Payments) and any and all other amounts of any kind or type under any of the Operative Agreements due and owing or payable by the Lessee to any party hereto and (ii) each Person as appropriate the Excepted Payments. Promptly after receipt, the Agent shall apply and allocate, in accordance with the terms of this Section 8.7, such amounts received from the Lessee and all other payments, receipts and other consideration of any kind whatsoever received by the Agent pursuant to the Security Agreement or otherwise received by the Agent, the Lessor or any of the Primary Financing Parties in connection with the Collateral, the Security Documents or any of the other Operative Agreements. Ratable distributions
among the Primary Financing Parties under this Section 8.7 shall be made
based on the ratio of the amounts outstanding under the Financing to the
aggregate Property Cost. Ratable distributions among the Credit Lenders
under this Section 8.7 shall be made based on the ratio of the amounts
outstanding under an individual Credit Lender's Credit Note to the
aggregate of all amounts outstanding under all of the Credit Lenders'
Credit Notes. Ratable distributions among the Mortgage Lenders under this
Section 8.7 shall be made based on the ratio of the amounts outstanding
under an individual Mortgage Lender's Mortgage Note to the aggregate of
all amounts outstanding under all of the Mortgage Lenders' Mortgage Notes.
(b) Payments and other amounts received by the Agent or Lessor from time to time in accordance with the terms of subparagraph (a) shall be applied and allocated as follows (subject in all cases to Section 8.7(c)):
(i) Any such payment or amount identified as or deemed to be Basic Rent shall be applied and allocated by the Agent if no Default or Event of Default is in effect, first, ratably to the Primary Financing Parties for application and allocation to the payment of interest on the Notes and Lessor Yield on the Lessor Advance; second, to any and all other amounts then owing by the Lessee under the Operative Agreements; and third, any excess shall be paid to the Lessee or such Person or Persons as the Lessee may designate; provided, that if a Default or Event of Default is in effect, such amounts shall instead be held by the Agent until the earlier of (I) the first date thereafter on which no Default or Event of Default shall be in effect (in which case such amounts shall be applied pursuant to this subparagraph (i)) and (II) the Expiration Date (or, if earlier, the date of any Acceleration or payment by or for Lessee of the Termination Value in accordance with the Operative Agreements), in which case such amounts shall be applied and allocated in the manner contemplated by Section 8.7(b)(iv) below.
(ii) Without regard to whether a Default or Event of Default
exists, if on any date the Agent or the Lessor shall receive any
amount in respect of any Casualty, Condemnation, Environmental
Violation or any other Property Proceeds pursuant to Sections
15.1(a) or 15.1(g) of the Lease (excluding any payments in respect
thereof which are payable to the Lessee in accordance with the
Lease) and such payment is in an amount less than the Termination
Value at such time, the Lessor or the Agent, as the case may be,
shall be required to pay such amount received in accordance with
Section 8.7(b)(iii) hereof; provided, distribution of such payment
may be delayed if such payment received and credited is permitted to
be used for Restoration in accordance with Article XV of the Lease.
(iii) Without regard to whether a Default or Event of Default
exists, an amount equal to any payment identified as proceeds of the
sale or other disposition (or lease upon the exercise of remedies)
of any Property or any portion thereof, to a third party, whether
pursuant to (A) the Lessee's election for the Sale Option pursuant
to Article XXII of the Lease, (B) a Limited Recourse Event of
Default, (C) the exercise of remedies under the Security Documents
or otherwise, or (D) the exercise of foreclosure remedies under the
Lease and any payment in respect of excess wear and tear pursuant to
Section 22.3 of the Lease, shall be applied and allocated by the
Agent (only in the case of Section 8.7(b)(iii)(A) or (B) above,
prior to the distribution below, to the Lessee to reimburse its
Remarketing Expenses incurred with respect to the applicable
Property) first,
ratably to the Mortgage Lenders for payment of the principal, interest and Make-Whole Amounts, if any, of the Mortgage Notes then outstanding, with respect to each such Property, second, to any and all other amounts owing by the Lessee under the Operative Agreements to the Mortgage Lenders, with respect to each such Property, third, to the payment of the Lessor Advance and Lessor Yield and in addition to the Lessor Advance and Lessor Yield, all other amounts due and owing by the Lessee under the Operative Agreements to the Lessor related to its capacity as the provider of the Lessor Advances, with respect to each such Property, fourth, to the extent such amount exceeds the maximum amount to be returned pursuant to the foregoing provisions of this paragraph (iii), ratably to the payment of the principal and interest on the Credit Notes then outstanding, with respect to each such Property, fifth, to any and all other amounts owing by the Lessee under the Operative Agreements to the Credit Lenders, with respect to each such Property pursuant to the Operative Agreements, sixth, to the extent moneys remain after application and allocation pursuant to clauses first through fifth above, to the Lessor for application and allocation to any and all other amounts owing by the Lessee under the Operative Agreements to any Financing Party, with respect to each such Property, as the Lessor shall determine, absent manifest error and seventh, to the extent moneys remain after application and allocation pursuant to clauses first through sixth above, to the Lessee, provided, the proceeds of the sale or other disposition of each Property shall be distributed separately pursuant to this Section 8.7(b)(iii), such that any deficiency upon a sale or other disposition of any Property cannot be satisfied with the excess proceeds from any other Property.
(iv) Without regard to whether a Default or Event of Default exists, an amount equal to (A) any payment pursuant to Section 22.1(b) of the Lease (or otherwise) of the Maximum Residual Guarantee Amount in respect of any Property and any payment or proceeds which are derived from the Cash Collateral Account and (B) any other amount payable after the occurrence of an Event of Default not covered by Sections 8.7(b)(i) or 8.7(b)(iii) above (including without limitation any amount received in connection with an action for liquidated damages pursuant to Section 17.4 or Section 17.6 of the Lease or by set off by the Agent) shall be applied and allocated by the Agent first, ratably, to the payment of the principal and interest on the Credit Notes then outstanding, second, to any and all other amounts owing by the Lessee under the Operative Agreements to the Credit Lenders, third, to the extent such amount exceeds the maximum amount to be retained pursuant to the foregoing provisions of this paragraph (iv), ratably to the Wachovia Mortgage Lender for the payment of the principal and interest of the Mortgage Notes, held by the Wachovia Mortgage Lender then outstanding, fourth, to any and all other amounts owing by the Lessee under the Operative Agreements to the Wachovia Mortgage Lender, fifth, to the payment of the Lessor Advance and Lessor Yield and in addition to the Lessor Advance and Lessor Yield, all other amounts due and owing by the Lessee under the Operative Agreements to the Lessor (to the extent payments or proceeds which are derived from the Cash Collateral Account remain after distribution pursuant to first
through fifth above, such shall be distributed pursuant to eighth and ninth as provided below), sixth, ratably to the payment of the principal, interest and Make-Whole Amount, if any, of the Mortgage Notes, held by Mortgage Lenders other than the Wachovia Mortgage Lender, then outstanding, seventh, to any and all other amounts owing by the Lessee under the Operative Agreements to the Mortgage Lenders other than the Wachovia Mortgage Lender, eighth, to the extent moneys remain after application and allocation pursuant to clauses first through seventh above, to the Lessor for application and allocation to any and all other amounts owing by the Lessee under the Operative Agreements to any Financing Party as the Lessor shall determine, absent manifest error and ninth, to the extent moneys remain after application and allocation pursuant to clauses first through eighth above, to the Lessee, provided, the Maximum Residual Guarantee Amount shall be distributed separately pursuant to this Section 8.7(b)(iv), such that any deficiency on any Property cannot be satisfied with excess Maximum Residual Guarantee Amount proceeds from any other Property.
(v) Without regard to whether a Default or Event of Default
exists, an amount equal to any such payment identified as
Supplemental Rent payable to the Agent or any Primary Financing
Party (not described in subparts (i) through (iv), above), shall be
applied and allocated by the Agent to the payment of any amounts
then owing to the Agent, the Primary Financing Parties and the other
parties to the Operative Agreements (or any of them) (other than any
such amounts payable pursuant to the preceding provisions of this
Section 8.7(b)) as shall be determined by the Agent in its
reasonable discretion; provided, however, that Supplemental Rent
received after the occurrence and continuance of an Event of Default
shall be applied and allocated as set forth in Section 8.7(b)(iv).
(vi) Except as set forth in subparagraph (ii) of this Section 8.7(b), any payment of Termination Value (including any application of Cash Collateral to payment of the Termination Value for all Properties pursuant to Section 5.4(e)(iii)) shall be applied and allocated by the Agent if no Default or Event of Default is in effect, first, ratably to the Primary Financing Parties for application and allocation to the payment of the principal, interest and Make-Whole Amount, if any, on the Notes, and the principal amount of the Lessor Advance, Lessor Yield and breakage costs, in each case, which is due and payable on such date; second, to any and all other amounts owing under the Operative Agreements to the Financing Parties; third, any excess shall be paid to the Lessee or such Person or Persons as the Lessee may designate; provided, that if a Default or Event of Default is in effect, such amount shall be applied and allocated in the manner contemplated by Section 8.7(b)(iv).
(vii) The Agent in its reasonable judgment shall identify the nature of each payment or amount received by the Agent and apply and allocate each such amount in the manner specified above.
(viii) To the extent that the value of the Land component of
any Property exceeds twenty-five percent (25%) of the Property Cost
for such Property, as of the Property Closing Date, based on the
Appraisal delivered to the Agent pursuant to Section 5.3(s) ("Split
Property"), the Land and the Improvements shall each be treated as a
separate "Property" solely for the allocation of the sales proceeds
from such Property pursuant to Section 8.7(b)(iii) and the
allocation of the Maximum Residual Guarantee Amount pursuant to
Section 8.7(b)(iv). Upon the sale of or receipt of the Maximum
Residual Guarantee Amount regarding any Split Property, an Appraisal
delivered in conjunction with the sale shall set forth the
proportionate value of the Land and Improvements at the time of such
sale, which shall be used to set the allocation of the proceeds
received with respect to such Split Property for distribution
pursuant to Section 8.7(b)(iii) or 8.7(b)(iv), as applicable.
(c) Notwithstanding any provision contained herein or in any other
Operative Agreement to the contrary, (i) except for Exempted Payments and
Excepted Payments, each Primary Financing Party shall promptly deliver to
the Agent for distribution pursuant to this Section 8.7 any sums received
from the Lessee or with respect to the Properties in excess of the amounts
owing to them pursuant to the applicable foregoing subparts of this
Section 8.7 of this Agreement and (ii) upon the payment in full of the
Notes and the Lessor Advance and all other amounts then due and owing by
or to the Lessor hereunder or under any Operative Agreement and the
payment in full of all other amounts then due and owing to the Primary
Financing Parties, the Agent and the other Financing Parties pursuant to
the Operative Agreements, any moneys remaining with or received thereafter
with respect to the Property by the Agent shall be returned to the Lessee
or its designee. Notwithstanding the foregoing, the obligations of the
Lessee to pay all amounts due to any Financing Party under the Notes or
any other Operative Agreement shall be automatically reinstated if and to
the extent that for any reason any payment by or on behalf of the Lessee
is rescinded or must be otherwise restored by any Financing Party, whether
as a result of any proceedings in bankruptcy or reorganization or
otherwise, and the Lessee agrees that it will indemnify each Financing
Party on demand for all reasonable costs and expenses (including, without
limitation, reasonable fees of counsel) incurred by any Financing Party in
connection with such rescission or restoration, including without
limitation any such costs and expenses incurred in defending against any
claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar
law. It is agreed that, prior to the application and allocation of amounts
received by the Agent in the order described in Section 8.7(b) above or
any distribution of money to the Lessee, any such amounts shall first be
applied and allocated to the payment of (i) any and all sums advanced by
the Agent in order to preserve the Collateral or any portion thereof or to
preserve its Liens thereon, (ii) the expenses of retaking, holding,
preparing for sale or lease, selling or otherwise disposing or realizing
on the Collateral or any portion thereof, or of any exercise by the Agent
of its rights under the Security Documents, together with reasonable
attorneys' fees and expenses and court costs in connection therewith and
(iii) any and all other amounts owed to the Agent under or in connection
with the transactions
contemplated by the Operative Agreements (including without limitation any accrued and unpaid administrative fees arising in connection with the Operative Agreements).
8.8. Release of Properties, etc.
If the Lessee shall at any time purchase the Properties pursuant to the Lease, or if the Properties shall be sold in accordance with Article XXII of the Lease, then, upon satisfaction by the Lessor of its obligation to prepay the Financing and all other amounts owing to the Financing Parties under the Operative Agreements (using proceeds of payments from the Lessee or from the disposition of the Properties), the Agent is hereby authorized and directed to release such Properties from the Liens created by the Security Documents to the extent of its interest therein. In addition, upon the payment in full of the Financing and all other amounts owing by the Lessor and the Lessee hereunder and under each other Operative Agreement, the Agent is hereby authorized and directed to release the Properties from the Liens (including without limitation the Liens granted by the Lessor) created by the Security Documents to the extent of its interest therein. Upon request of the Lessor or the Lessee following any such release, the Agent shall, at the sole cost and expense of the Lessee, execute and deliver to the Lessor and the Lessee such documents as the Lessor or the Lessee shall reasonably request to evidence such release.
8.9. Limitation of Lessor's Obligations.
(a) The Lessor shall not have any duty or obligation to manage, control, use, make any payment in respect of, register, record, insure, inspect, sell, dispose of or otherwise deal with the Properties or any other part of the Lessor's Interest, or to otherwise take or refrain from taking any action under or in connection with any Operative Agreement to which the Lessor is a party, except as expressly provided by the terms of the Operative Agreements or in written instructions from the Agent, received pursuant to Section 8.6; and no implied duties or obligations shall be read into the Operative Agreements against the Lessor. The Lessor nevertheless agrees that it will, subject to Section 19.1 of the Lease, promptly take all action as may be necessary to discharge any Lessor Liens on any part of any Property or the Collateral.
(b) The Lessor agrees that it will not manage, control, use, sell,
dispose of or otherwise deal with any Property, the Collateral or any
other part of the Lessor's Interest except (a) as required by the terms of
the Operative Agreements, (b) in accordance with the powers granted to, or
the authority conferred upon, it pursuant to the Operative Agreements or
(c) in accordance with the express terms hereof and with written
instructions from the Agent pursuant to Section 8.6.
(c) Except in accordance with written instructions furnished
pursuant to an applicable provision of the Operative Agreements (expressly
cited in such instructions), and without limitation of the generality of
Section 8.9(a), the Lessor shall not have any duty to (i) file, record or
deposit any Operative Agreement or any other document, or to maintain any
such filing, recording or deposit or to refile, rerecord or redeposit any
such document; (ii) obtain insurance on any Property or effect or maintain
any such insurance, other than to receive and forward to each Primary
Financing Party and the Agent any
notices, policies, certificates or binders furnished to the Lessor
pursuant to the Lease; (iii) maintain any Property; (iv) pay or discharge
any Tax or any Lien owing with respect to or assessed or levied against
any part of the Lessor's Interest, except as provided in the last sentence
of Section 8.9(a), other than to forward notice of such Tax or Lien
received by the Lessor to each Primary Financing Party and the Agent; (v)
confirm, verify, investigate or inquire into the failure to receive any
reports or financial statements of Lessee or any other Person; (vi)
inspect the Property at any time or ascertain or inquire as to the
performance or observance of any of the covenants of Lessee or any other
Person under any Operative Agreement with respect to the Property; or
(vii) manage, control, use, sell, dispose of or otherwise deal with the
Property or any part thereof or any other part of the Lessor's Interest,
except as provided in Section 8.9(b).
(d) The Lessor, in the exercise or administration of its powers pursuant to the Operative Agreements, may, at the expense and, so long as no Lease Default or Lease Event of Default shall have occurred and be continuing, with the consent of Lessee, employ agents, attorneys, accountants, and auditors and enter into agreements with any of them and the Lessor shall not be liable for the default or misconduct of any such agents, attorneys, accountants or auditors if such agents, attorneys, accountants or auditors shall have been selected by it with reasonable care.
8.10. No Representations or Warranties as to the Property or the Operative Agreements.
THE LESSOR MAKES (i) NO REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE TITLE, VALUE, USE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF ANY PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY PART THEREOF) AND THE LESSOR SHALL NOT BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT except that the Lessor hereby represents, warrants and covenants to each Primary Financing Party that it will comply with the last sentence of Section 8.9(a), and (ii) no representation or warranty as to the validity or enforceability of any Operative Agreement as against any Person other than the Lessor or as to the correctness of any statement made by a Person other than the Lessor contained in any thereof.
8.11. Reliance; Advice of Counsel.
The Lessor shall not incur any liability to any Person in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper reasonably believed by it to be genuine and believed by it in good faith to be signed by the proper party or parties. The Lessor may accept and rely upon a certified copy of a resolution of the board of directors or other governing body of any corporate party as conclusive evidence that such resolution has been duly adopted by such body and that the same is in full force and effect. As to any fact or matter the manner of ascertainment of which is not
specifically prescribed herein, the Lessor may for all purposes of the Operative Agreements rely on an Officer's Certificate of the relevant party, as to such fact or matter, and such certificate shall constitute full protection to the Lessor for any action taken or omitted to be taken by it reasonably in good faith in reliance thereon. In the administration of the Lessor's duties, the Lessor may execute and perform its powers and duties directly or through agents or attorneys and may consult with counsel, accountants and other skilled Persons to be selected and employed by it, and the Lessor shall not be liable for anything done, suffered or omitted reasonably in good faith by it in accordance with the advice or opinion of any such counsel, accountants or other skilled Persons and not contrary to the Operative Agreements.
8.12 Non Disturbance.
In the event of a foreclosure under any Security Document (other than the Lease), so long as there shall then exist no Lease Event of Default, the Primary Financing Parties agree, for themselves and their respective successors and assigns, that no right, title or interest of the Lessee in nor the leasehold interest of Lessee in, or the right of possession nor use and enjoyment of the Properties by the Lessee under the Lease or the other Operative Agreements shall be extinguished or terminated by reason of such foreclosure, but rather the rights of the Lessee in the Collateral and under Lease shall continue in full force and effect and the Lease shall automatically and unconditionally become a direct lease between the Primary Financing Parties or any successor thereto, as lessor as if such Primary Financing Parties or successor were the Lessor originally named in the Lease, and Lessee.
8.13 Payment of Appraiser Expenses.
Notwithstanding any provision in any Operative Agreement to the contrary, each of the Primary Financing Parties hereby agrees to pay its ratable share (based on such Primary Financing Party's pro rata share of the aggregate amount then outstanding under the Financing) of the fees or expenses of any appraiser otherwise payable by the Lessor pursuant to Section 22.4 of the Lease.
SECTION 8A. AFFIRMATIVE COVENANTS OF THE LESSEE
The Lessee hereby covenants and agrees that on the Initial Closing Date, and thereafter for so long as any Operative Agreement is in effect and until the Commitments have terminated, all of the Lessee Secured Obligations have been paid in full and all other amounts accrued or due and owing from the Lessee pursuant to any Operative Agreement have been paid in full, the Lessee shall, and shall cause each of its Subsidiaries to:
8A.1. Financial Statements.
Furnish to the Agent and each of the Primary Financing Parties:
(a) As soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Lessee, a copy of the consolidated balance sheet of the Lessee and its consolidated subsidiaries as at the end of such fiscal year and the related
consolidated and consolidating statements of income and retained earnings and of consolidated cash flows of the Lessee and its consolidated subsidiaries for such year which, other than in the case of the consolidating statements, shall be audited by a firm of independent certified public accountants of nationally recognized standing and, if different from Lessee's accountants as of the Initial Closing Date, reasonably acceptable to the Primary Financing Parties, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification indicating that the scope of the audit was inadequate to permit such independent certified public accountants to certify such financial statements without such qualification;
(b) As soon as available and in any event within forty-five (45) days after the end of each of the first three fiscal quarters of the Lessee, a copy of the unaudited consolidated balance sheet of the Lessee and its consolidated subsidiaries as at the end of such period and related consolidated and consolidating statements of income and retained earnings and of consolidated cash flows for the Lessee and its consolidated subsidiaries for such quarterly period and for the portion of the fiscal year ending with such period, in each case setting forth in comparative form consolidated figures for the corresponding period or periods of the preceding fiscal year (subject to normal recurring year-end audit adjustments);
(c) [Reserved];
all such financial statements to be complete and correct in all material respects (subject, in the case of interim statements, to normal recurring year-end audit adjustments) and to be prepared in reasonable detail and, in the case of the annual and quarterly financial statements provided in accordance with subsections (a) and (b) above, in accordance with GAAP applied consistently throughout the periods reflected therein and further accompanied by a description of, and an estimation of the effect on the financial statements on account of, a change, if any, in the application of accounting principles as provided in Section (n) of the rules of usage in Appendix A hereto.
The Lessee shall deliver to the Agent and each Primary Financing Party at the same time as the delivery of any annual or quarterly financial statements given in accordance with the provisions of Section 8A.1, (i) a description in reasonable detail of any material change in the application of accounting principles employed in the preparation of such financial statements from those applied in the most recently preceding quarterly or annual financial statements as to which no objection shall have been made in accordance with the provisions above and (ii) a reasonable estimate of the effect on the financial statements on account of such changes in application.
8A.2. Certificates; Other Information.
Furnish to the Agent and each of the Primary Financing Parties:
(a) [Reserved];
(b) concurrently with the delivery of the financial statements
referred to in Sections 8A.1(a) and 8A.1(b) above, a certificate of a
Responsible Officer, in the form set forth in Exhibit H, stating that, to
the best of such Responsible Officer's knowledge, the Lessee during such
period observed or performed in all material respects all of its covenants
and other agreements or cured such non-performance within the time
permitted by the Operative Agreements, and satisfied in all material
respects every condition, contained in the Operative Agreements to be
observed, performed or satisfied by it, and that such Responsible Officer
has obtained no knowledge of any Default or Event of Default except as
specified in such certificate and such certificate shall include the
calculations in reasonable detail required to indicate compliance with
Section 8A.9 as of the last day of such period;
(c) within thirty (30) days after the same are provided, make available by electronic mail or by posting on the Lessee's website copies of all reports (other than those otherwise provided pursuant to Section 8A.1 and those which are of a promotional nature) and other financial information which the Lessee sends to its stockholders, and within thirty days after the same are filed, copies of all financial statements and non-confidential reports which the Lessee may make to, or file with the Securities and Exchange Commission or any successor or analogous Governmental Authority;
(d) [Reserved];
(e) promptly upon receipt thereof, a copy the portions of any other report or "management letter" submitted by independent accountants to the Lessee in connection with any annual, interim or special audit of the books of such Person, to the extent such report or letter addresses any qualification of the independent accountants' opinion on the Lessee's financial statements;
(f) promptly, such other documents or other information as the Agent, on behalf of any Primary Financing Party, may from time to time reasonably request; and
(g) upon written request from the Agent and thereafter, as soon as available, and in any event within ten (10) days of receipt of each statement or any correspondence regarding the Cash Collateral Account, Lessee shall deliver to the Agent a copy of such statement or correspondence.
8A.3. [Reserved].
8A.4. [Reserved].
8A.5. Maintenance of Property Insurance.
(a) [Reserved]; and
(b) Maintain with financially sound and reputable insurance companies insurance on all its material property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Agent, upon written request, full information as to the insurance carried; provided, however, that the Lessee and its Subsidiaries may maintain self insurance plans (including wholly-owned captive insurance company coverage) to the extent companies of similar size and in similar businesses do so.
8A.6. Inspection of Property; Books and Records; Discussions.
Keep proper books of records and account in which full, true and correct entries in all material respects, taken as a whole, in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its businesses and activities. Permit, upon at least five (5) Business Days' notice from the Agent (or, if a Default or Event of Default shall have occurred and be continuing, upon at least one (1) Business Day's notice from the Agent), representatives of the Agent or any Primary Financing Party, from time to time with respect to any Property or Lessee's performance or compliance with any Operative Agreement, to visit and inspect, its properties and to inspect, audit and make extracts from its books, records and files, including without limitation management letters prepared by independent accountants (with respect to any Property or Lessee's performance or compliance with any Operative Agreement) and to discuss with its principal officers, and its independent accountants, its business, assets, liabilities, financial condition, results of operations and business prospects (with respect to any Property or Lessee's performance or compliance with any Operative Agreement). All such inspected items shall be full, true and correct in all material respects.
8A.7. [Reserved].
8A.8. [Reserved].
8A.9. Financial Covenant.
Commencing on the Initial Closing Date, the Lessee shall maintain and shall cause its Consolidated Subsidiaries to maintain a Current Ratio of greater than 0.75:1.00 as of the last day of each fiscal quarter of the Consolidated Group.
SECTION 9. CREDIT NOTE LOAN AGREEMENT, MORTGAGE NOTE LOAN AGREEMENT AND LESSOR ADVANCES.
Notwithstanding anything to the contrary contained in the Credit Note Loan Agreement, the Mortgage Note Loan Agreement or any other Operative Agreement, the Agent, the Lenders, the Lessee and the Lessor hereby agree that, unless a Lease Default or Lease Event of Default has occurred and is continuing, the Lessee, as the case may be, shall have the following rights:
(a) [Reserved];
(b) [Reserved];
(c) the right to exercise the conversion and continuation options
pursuant to Section 2.7 of the Credit Note Loan Agreement or pursuant to
Section 2.7 of the Mortgage Note Loan Agreement;
(d) the right to receive any notice and any certificate issued pursuant to Section 2.11(a) of the Credit Note Loan Agreement or pursuant to Section 2.11(a) of the Mortgage Note Loan Agreement;
(e) the right to replace any Credit Note Lender pursuant to Section 2.11(b) of the Credit Note Loan Agreement or any Mortgage Note Lender pursuant to Section 2.11(b) of the Mortgage Note Loan Agreement;
(f) the right to consent to any assignment by a Credit Note Lender or a Mortgage Note Lender pursuant to Section 9.8 of the Credit Note Loan Agreement or Section 9.8 of the Mortgage Note Loan Agreement, as applicable;
(g) the right to make determinations as to whether the Loans made
pursuant to the Credit Note Loan Agreement and pursuant to the Mortgage
Note Loan Agreement will be based on the Eurodollar Rate or the ABR
pursuant to Sections 2.1(b), 2.3 and 2.8(a) of the Credit Note Loan
Agreement and Sections 2.1(b), 2.3 and 2.8(a) of the Mortgage Note Loan
Agreement, respectively, and as to whether the Lessor Advances pursuant to
Section 5B will be based on the Eurodollar Rate or the ABR;
(h) the right to require Lessor to elect to convert Loans based on the Eurodollar Rate to Loans based on the ABR pursuant to Section 2.7 of the Credit Note Loan Agreement and Section 2.7 of the Mortgage Note Loan Agreement, respectively;
(i) the right to elect to require any Credit Note Lender to transfer or assign its interests, rights and obligations under the Credit Note Loan Agreement to a replacement bank or institution, or to require the Lessor to prepay all outstanding Loans made pursuant to the Credit Note Loan Agreement in accordance with Section 2.11 of the Credit Note Loan Agreement;
(j) the right to elect to require any Mortgage Note Lender to transfer or assign its interests, rights and obligations under the Mortgage Note Loan Agreement to a replacement bank or institution, or to require the Lessor to prepay all outstanding Loans made pursuant to the Mortgage Note Loan Agreement in accordance with Section 2.11 of the Mortgage Note Loan Agreement;
(k) the right to approve any successor agent pursuant to Section 8.6 of the Participation Agreement; and
(l) the right of Lessee set forth in Section 5.4(e).
SECTION 10. TRANSFER OF INTEREST.
10.1. Restrictions on Transfer.
(a) Each Credit Lender and each Mortgage Lender may participate, assign or transfer all or a portion of its interest hereunder and under the other Operative Agreements in accordance with Sections 9.7 and 9.8 of the Credit Note Loan Agreement or the Mortgage Note Loan Agreement, respectively, provided, that each Credit Lender and each Mortgage Lender that participates, assigns or transfers all or a portion of its interest hereunder and under the other Operative Agreements shall deliver to the Agent a copy of each Assignment and Acceptance (as referenced in Section 9.8 of the Credit Note Loan Agreement or the Mortgage Note Loan Agreement, as applicable) for purposes of maintaining the Register. The Lessor may, subject to the rights of the Lessee under the Lease and the other Operative Agreements and to the Lien of the applicable Security Documents, directly or indirectly, assign, convey, appoint an agent with respect to enforcement of, or otherwise transfer any of its right, title or interest in or to any Property, any Collateral, the Lease and the other Operative Agreements (including without limitation any right to indemnification thereunder), or any other document relating to a Property or any interest in a Property as provided in the Lease to any Eligible Lessor (i) if at any time the Lessor deems it necessary or appropriate under applicable Law or pursuant to the direction or recommendation of any Government Authority or (ii) for any other reason, but, with respect to this clause (ii), only with the prior written consent of the Agent (not to be unreasonably withheld or delayed) and (provided, no Lease Default or Lease Event of Default has occurred and is continuing) with the consent of the Lessee (not to be unreasonably withheld or delayed). Each Eligible Lessor who receives any right, title or interest of the Lessor with respect to the Operative Agreements shall provide the documentation required and otherwise comply with Section 9.8(c) of the Credit Note Loan Agreement or the Mortgage Note Loan Agreement, as applicable, mutatis mutandis, as if such Eligible Lessor was a Purchasing Lender thereunder. The provisions of the immediately preceding sentence shall not apply to the obligations of the Lessor to transfer Property to the Lessee or a third party purchaser pursuant to Article XX or XXII of the Lease or Section 8.8 hereof upon payment for such Property in accordance with the terms and conditions of the Lease. Except as provided in Article XXV of the Lease, Lessee may not assign any of the Operative Agreements or any of its rights or obligations thereunder or with respect to any Property in whole or in part to any Person without the prior written consent of the Agent and the Primary Financing Parties. Except as otherwise expressly permitted under the Operative Agreements (including pursuant to Article XXV of the Lease), the Lessee may not assign any of the Operative Agreements or any of its rights or obligations thereunder or with respect to the Properties or the Collateral in whole or in part to any Person without the prior written consent of the Agent and each Primary Financing Party, provided, if Article XXV of the Lease expressly permits such assignment, and no Lease Default or Lease Event of Default has occurred and is continuing, then such consents shall not be unreasonably withheld or delayed.
(b) Notwithstanding anything to the contrary in Section 10.1(a), no consent shall be required from the Agent, the Lessee or any Primary Financing Party (but Lessor shall provide one hundred eighty (180) days (or such shorter period as required by the Legal Requirement
giving rise to the assignment, conveyance, appointment or transfer contemplated by this Section 10.1(b)) written notice to the Agent and the Lessee) in connection with any assignment, conveyance, appointment or transfer by the Lessor required by any Legal Requirement of all or any of its right, title or interest in or to the Properties, the Lease and the other Operative Agreements (including without limitation any right to indemnification thereunder), or any other document relating to the Properties or any interest in the Properties as provided in the to Lease an Eligible Lessor; provided, in such case, so long as no Default or Event of Default shall have occurred and be continuing, Lessee shall have the right to require the Lessor (unless such transfer or conveyance has already occurred, in which case the Lessee shall have the right to require such transferee) to transfer its interest to an Eligible Lessor selected by the Lessee, in its reasonable discretion; provided, further, Lessee shall be responsible for any cost or expense incurred by the Lessor, the transferor and any transferee in connection with any assignment, conveyance, appointment or transfer by the Lessor pursuant to this Section 10.1(b), unless the Legal Requirement requiring such transfer is specific to Lessor (as opposed to a Legal Requirement applicable generally to financial institutions or other corporations engaged in activities similar to those of Lessor).
(c) [Reserved].
(d) Upon the occurrence and during the continuance of an Event of Default by the Lessor, Lessee shall have the right to require the Lessor to transfer its interest in the Properties and the Operative Agreements to an Eligible Lessor selected by the Lessee, in its reasonable discretion.
10.2. Effect of Transfer.
From and after any transfer effected in accordance with this Section 10, the transferor shall be released, to the extent of such transfer, from its liability hereunder and under the other documents to which it is a party in respect of obligations to be performed on or after the date of such transfer; provided, however, that any transferor shall remain liable hereunder and under such other documents to the extent that the transferee shall not have assumed the obligations of the transferor thereunder. Upon any transfer by the Lessor or any other Primary Financing Party as above provided, any such transferee shall assume the obligations of the Lessor or such Primary Financing Party, as the case may be, and shall be deemed the "Lessor" and/or a "Primary Financing Party", as the case may be, for all purposes of such documents and each reference herein to the transferor shall thereafter be deemed a reference to such transferee for all purposes, except as provided in the preceding sentence. Notwithstanding any transfer of all or a portion of the transferor's interest as provided in this Section 10, the transferor shall be entitled to all benefits accrued and all rights vested prior to such transfer including without limitation rights to indemnification under any such document.
SECTION 11. INDEMNIFICATION.
11.1. General Indemnity.
Whether or not any of the transactions contemplated hereby shall be consummated, the Indemnity Provider hereby assumes liability for and agrees to defend, indemnify and hold harmless each Indemnified Person on an After Tax Basis from and against any Claims which may be imposed on, incurred by or asserted against an Indemnified Person by any third party, including without limitation Claims arising from the negligence of an Indemnified Person (but not to the extent such Claims arise from the gross negligence or willful misconduct of such Indemnified Person, as determined by a court of competent jurisdiction) in any way relating to or arising or alleged to arise out of the negotiation, execution, delivery, performance or enforcement of this Agreement, the Lease or any other Operative Agreement or with respect to or on any Property or any component thereof, including without limitation Claims in any way relating to or arising or alleged to arise out of (a) the financing, refinancing, purchase, acceptance, rejection, ownership, design, construction, refurbishment, development, delivery, nondelivery, leasing, subleasing, of the Property, (b) the possession, use, occupancy, operation, maintenance, repair, modification, or transportation of the Property by the Lessee, (c) the condition, sale, return, repossession (whether by summary proceedings or otherwise), or any disposition of any Property or any part thereof, including without limitation the acquisition, holding or disposition of any interest in any Property, lease or agreement comprising a portion of any thereof; (d) any latent or other defects in any Property or any portion thereof whether or not discoverable by an Indemnified Person or the Indemnity Provider; (e) a violation of, or penalties arising from any violation of, Environmental Laws, Environmental Claims or other loss of or damage to any property or the environment, including any claim relating to any Property (except to the extent such violation is solely related to and arose after foreclosure of Lessee's interest in such Property and after Lessee's surrender of possession with respect to such Property in accordance with the Operative Agreements and after Lessee has provided a Phase I environmental site assessment recently prepared (no more than thirty (30) days prior to the date when Lessee has delivered possession of such Property) by an independent recognized professional reasonably acceptable to the Agent, and in form, scope and content reasonably satisfactory to the Agent), the Lease or the Indemnity Provider; (f) the Operative Agreements, or any transaction contemplated thereby; (g) any breach by the Indemnity Provider of any of its representations or warranties under the Operative Agreements to which the Indemnity Provider is a party or failure by the Indemnity Provider to perform or observe any covenant or agreement to be performed by it under any of the Operative Agreements; (h) the transactions contemplated hereby or by any other Operative Agreement, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA; (i) personal injury, death or property damage, including without limitation Claims based on strict or absolute liability in tort; (j) any claim for patent, trademark or copyright infringement relating to events or circumstances at the Property; (k) any fees, expenses and/or other assessments by any business park or any other applicable entity with oversight responsibility for any Property, and (l) any condition of any Property which violates any covenant, condition, representation or warranty by Lessee in the Operative Agreements.
If a written Claim is made against any Indemnified Person or if any proceeding shall be commenced against such Indemnified Person (including without limitation a written notice of such proceeding), for any Claim, such Indemnified Person shall promptly notify the Indemnity Provider in writing and shall not take action with respect to such Claim without the consent of the Indemnity Provider for thirty (30) days after the receipt of such notice by the Indemnity Provider; provided, however, that in the case of any such Claim, if action shall be required by law or regulation to be taken prior to the end of such period of thirty (30) days, such Indemnified Person shall endeavor to, in such notice to the Indemnity Provider, inform the Indemnity Provider of such shorter period, and no action shall be taken with respect to such Claim without the consent of the Indemnity Provider before seven (7) days before the end of such shorter period unless the Indemnified Person shall be required by such law or regulation to take action prior to the end of such seven (7) day period; provided, further, that the failure of such Indemnified Person to give the notices referred to in this sentence shall not diminish the Indemnity Provider's obligation hereunder except to the extent such failure precludes in all respects the Indemnity Provider from contesting such Claim.
If, within thirty (30) days of receipt of such notice from the Indemnified Person (or such shorter period as the Indemnified Person has notified the Indemnity Provider is required by law or regulation for the Indemnified Person to respond to such Claim), the Indemnity Provider shall request in writing that such Indemnified Person respond to such Claim, the Indemnified Person shall, at the reasonable expense of the Indemnity Provider, in good faith conduct and control such action (including without limitation by pursuit of appeals) (provided, however, that (A) if such Claim, in the Indemnity Provider's reasonable discretion, can be pursued by the Indemnity Provider on behalf of or in the name of such Indemnified Person, the Indemnified Person, at the Indemnity Provider's request, shall allow the Indemnity Provider to conduct and control the response to such Claim and (B) in the case of any Claim (and notwithstanding the provisions of the foregoing subsection (A)), the Indemnified Person may request in writing that the Indemnity Provider conduct and control the response to such Claim (with counsel to be selected by the Indemnity Provider and consented to by such Indemnified Person, such consent not to be unreasonably withheld or delayed; provided, however, that any Indemnified Person may retain separate counsel at the expense of the Indemnity Provider in the event of a potential conflict of interest between such Indemnified Person and the Indemnity Provider)) by, in the sole discretion of the Person conducting and controlling the response to such Claim (1) resisting payment thereof, (2) not paying the same except under protest, if protest is necessary and proper, (3) if the payment be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and judicial proceedings, or (4) taking such other action as is reasonably requested by the Indemnity Provider from time to time.
The party controlling the response to any Claim shall consult in good faith with the non-controlling party and shall keep the non-controlling party reasonably informed as to the conduct of the response to such Claim; provided, that all decisions ultimately shall be made in the discretion of the controlling party. The parties agree that an Indemnified Person may at any time decline to take further action with respect to the response to such Claim and may settle such Claim if such Indemnified Person shall waive its rights to any indemnity from the Indemnity Provider that otherwise would be payable in respect of such Claim (and any future Claim, the pursuit of which is precluded by reason of such resolution of such Claim) and shall pay to the
Indemnity Provider any amount previously paid or advanced by the Indemnity Provider pursuant to this Section 11.1 by way of indemnification or advance for the payment of an amount regarding such Claim, except reasonable expenses therefrom incurred by such Indemnified Person in connection with the response to such Claim.
Notwithstanding the foregoing provisions of this Section 11.1, an Indemnified Person shall not be required to take any action and the Indemnity Provider shall not be permitted to respond to any Claim in its own name or that of the Indemnified Person unless (A) the Indemnity Provider shall have agreed to pay and shall pay to such Indemnified Person on demand and on an After Tax Basis all reasonable and properly documented out-of-pocket costs, losses and expenses that such Indemnified Person actually incurs in connection with such Claim, including without limitation all reasonable legal, accounting and investigatory fees and disbursements and the Indemnity Provider shall have agreed that the Claim is an indemnifiable Claim hereunder, (B) in the case of a Claim that must be pursued in the name of an Indemnified Person (or an Affiliate thereof), the amount of the potential indemnity (taking into account all similar or logically related Claims that have been or could be raised for which the Indemnity Provider may be liable to pay an indemnity under this Section 11.1) exceeds $25,000 (or such lesser amount as may be subsequently agreed between the Indemnity Provider and the Indemnified Person), (C) the Indemnified Person shall have reasonably determined that the action to be taken will not result in any material danger of sale, forfeiture or loss of the Property, or any material part thereof or material interest therein, will not interfere with the payment of Rent, and will not result in risk of criminal liability, (D) if such Claim shall involve the payment of any amount prior to the resolution of such Claim, the Indemnity Provider shall provide to the Indemnified Person an interest-free advance in an amount equal to the amount that the Indemnified Person is required to pay (with no additional net after-tax cost to such Indemnified Person) prior to the date such payment is due, (E) in the case of a Claim that must be pursued in the name of an Indemnified Person (or an Affiliate thereof), the Indemnity Provider shall have provided to such Indemnified Person an opinion of independent reputable counsel selected by the Indemnity Provider and reasonably satisfactory to the Indemnified Person stating that a reasonable basis exists to contest such Claim (or, in the case of an appeal of an adverse determination, an opinion of such counsel to the effect that the position asserted in such appeal will more likely than not prevail) and (F) no Event of Default shall have occurred and be continuing. In no event shall an Indemnified Person be required to appeal an adverse judicial determination to the United States Supreme Court. In addition, an Indemnified Person shall not be required to contest any Claim in its name (or that of an Affiliate) if the subject matter thereof shall be of a continuing nature and shall have previously been decided adversely by a court of competent jurisdiction pursuant to the contest provisions of this Section 11.1, unless there shall have been a change in law (or interpretation thereof) and the Indemnified Person shall have received, at the Indemnity Provider's expense, an opinion of independent counsel selected by the Indemnity Provider and reasonably acceptable to the Indemnified Person stating that as a result of such change in law (or interpretation thereof), it is more likely than not that the Indemnified Person will prevail in such contest. In no event shall the Indemnity Provider be permitted to adjust or settle any Claim without the consent of the Indemnified Person to the extent any such adjustment or settlement involves, or is reasonably likely to involve, any performance by or adverse admission by or with respect to the Indemnified Person.
11.2. General Tax Indemnity.
(a) Subject to Sections 11.2(b) and 11.2(e), the Indemnity Provider shall pay and assume liability for, and does hereby agree to indemnify, protect and defend the Property and all Indemnified Persons, and hold them harmless against, all Impositions on an After Tax Basis, and all payments pursuant to the Operative Agreements shall be made free and clear of and without deduction for any and all present and future Impositions.
(b) Notwithstanding anything to the contrary in Section 11.2(a)
hereof, the following shall be excluded from the indemnity required by
Section 11.2(a):
(i) Taxes (other than Taxes that are, or are in the nature of, sales, use, rental, value added, transfer or property taxes) that are imposed on a Indemnified Person by the United States federal government that are based on or measured by the net income (including without limitation taxes based on capital gains and minimum taxes) of such Person; provided, that this clause (i) shall not be interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made;
(ii) Taxes (other than Taxes that are, or are in the nature
of, sales, use, rental, value added, transfer or property taxes)
that are imposed on any Indemnified Person (other than the Lessor)
by any state or local jurisdiction or taxing authority within any
state or local jurisdiction and that are based upon or measured by
the net income (including without limitation taxes based on capital
gains and minimum taxes) of such Person; provided, that this clause
(ii) shall not be interpreted to prevent a payment from being made
on an After Tax Basis if such payment is otherwise required to be so
made;
(iii) any Tax to the extent it relates to any act, event or omission that occurs after the termination of the Lease and redelivery or sale of any Property in accordance with the terms of the Lease (but not any Tax that relates to such termination, redelivery or sale and/or to any period prior to such termination, redelivery or sale);
(iv) any Taxes which are imposed on an Indemnified Person as a result of the gross negligence or willful misconduct of such Indemnified Person itself, as determined by a court of competent jurisdiction (as opposed to gross negligence or willful misconduct imputed to such Indemnified Person), but not Taxes imposed as a result of ordinary negligence of such Indemnified Person; and
(v) Impositions imposed on a Tax Indemnitee which become
payable by reason of any transfer or disposition by such Tax
Indemnitee or an Affiliate of a Tax Indemnitee of any interest in
some or all of the Property or the Operative Agreements, other than
Impositions that result from transfers or dispositions which occur
(A) while an Event of Default has occurred and is continuing or (B)
in connection with (v) the Lessee's purchase of some or all of the
Property pursuant to the Operative Agreements; (w) the return of
some or all of the Property pursuant to the Operative Agreements;
(x) an Event of Loss, theft, destruction or damage to the Property
or any part thereof; (y) a substitution, replacement, improvement,
modification or addition of or to the Property or any part thereof
by any Lessee or Affiliate of any Lessee; or (z) a transfer required
by applicable law.
Notwithstanding the foregoing, the exclusions from the definition of "Impositions" set forth in clauses (i), (ii), (iii) and (iv) shall not apply (but the other exclusions shall apply) to any Taxes or increase in Taxes imposed on an Indemnified Person net of any decrease in taxes realized by such Indemnified Person, to the extent that such tax increase or decrease would not have occurred if on the date of the Advance the Primary Financing Parties advanced funds to the Lessee in the form of a loan secured by the Properties in an amount equal to the Advance funded on such date, with debt service equal to the Basic Rent payable on each Schedule Interest Payment Date and a principal balance at the maturity of such loan in an amount equal to the then outstanding amount of the Notes and the Lessor Advance at the end of the term of the Lease.
(c) (i) Subject to the terms of Section 11.2(f), the Indemnity Provider shall pay or cause to be paid all Impositions directly to the taxing authorities where feasible and otherwise to the Indemnified Person, as appropriate, and the Indemnity Provider shall at its own expense, upon such Indemnified Person's reasonable request, furnish to such Indemnified Person copies of official receipts or other satisfactory proof evidencing such payment.
(ii) In the case of Impositions for which no contest is conducted pursuant to Section 11.2(f) and which the Indemnity Provider pays directly to the taxing authorities, the Indemnity Provider shall pay such Impositions prior to the latest time permitted by the relevant taxing authority for timely payment. In the case of Impositions for which the Indemnity Provider reimburses an Indemnified Person, the Indemnity Provider shall do so within thirty (30) days after receipt by the Indemnity Provider of demand by such Indemnified Person describing in reasonable detail the nature of the Imposition and the basis for the demand (including without limitation the computation of the amount payable), accompanied by receipts or other reasonable evidence of such demand. In the case of Impositions for which a contest is conducted pursuant to Section 11.2(f), the Indemnity Provider shall pay such Impositions or reimburse such Indemnified Person for such Impositions, to the extent not previously paid or reimbursed pursuant to subsection (a), prior to the latest time permitted by the relevant taxing authority for timely payment after conclusion of all contests under Section 11.2(f).
(iii) At the Indemnity Provider's request, the amount of any indemnification payment by the Indemnity Provider pursuant to subsection (a) shall be verified and certified by an independent public accounting firm mutually acceptable to the Indemnity Provider and the Indemnified Person. The fees and
expenses of such independent public accounting firm shall be paid by the Indemnity Provider unless such verification shall result in an adjustment in the Indemnity Provider's favor of fifteen percent (15%) or more of the payment as computed by the Indemnified Person, in which case such fee shall be paid by the Indemnified Person.
(d) The Indemnity Provider shall be responsible for preparing and filing any real and personal property or ad valorem tax returns in respect of the Properties. In case any other report or tax return shall be required to be made with respect to any obligations of the Indemnity Provider under or arising out of subsection (a) and of which the Indemnity Provider has knowledge or should have knowledge, the Indemnity Provider, at its sole cost and expense, shall notify the relevant Indemnified Person of such requirement and (except if such Indemnified Person notifies the Indemnity Provider that such Indemnified Person intends to prepare and file such report or return) (A) to the extent required or permitted by and consistent with Legal Requirements, make and file in the Indemnity Provider's name such return, statement or report; and (B) in the case of any other such return, statement or report required to be made in the name of such Indemnified Person, advise such Indemnified Person of such fact and prepare such return, statement or report for filing by such Indemnified Person or, where such return, statement or report shall be required to reflect items in addition to any obligations of the Indemnity Provider under or arising out of subsection (a), provide such Indemnified Person at the Indemnity Provider's expense with information sufficient to permit such return, statement or report to be properly made with respect to any obligations of the Indemnity Provider under or arising out of subsection (a) no later than ten (10) days prior to the due date thereof. Such Indemnified Person shall provide any data maintained by such Indemnified Person (and not otherwise available to or within the control of the Indemnity Provider) with respect to each Property which the Indemnity Provider may reasonably require to prepare any required tax returns or reports. At the expense of the Indemnity Provider, Indemnified Persons shall make Tax information available to the Indemnity Provider as reasonably requested in order to prepare such returns, statements or reports. Indemnified Persons shall, upon receipt of any notice or correspondence relating to Taxes for which the Indemnity Provider could be liable, promptly forward such notice or correspondence to the Indemnity Provider; provided that any delay of an Indemnified Person in forwarding such notice or correspondence to the Indemnity Provider shall not result in a loss of any indemnification hereunder unless such delay precludes the ability of the Indemnity Provider to contest such Taxes.
(e) As between the Indemnity Provider on one hand, and each Financing Party on the other hand, the Indemnity Provider shall be responsible for, and the Indemnity Provider shall indemnify and hold harmless each Financing Party (without duplication of any indemnification required by subsection (a)) on an After Tax Basis against, any obligation for United States or foreign withholding taxes or similar levies, imposts, charges, fees, deductions or withholdings (collectively, "Withholdings") imposed in respect of the interest payable on the Notes, Lessor Yield payable on the Lessor Advance or with respect to any other payments under the Operative Agreements (all such payments being referred to herein as "Exempt Payments" to be made without deduction,
withholding or set off) (and, if any Financing Party receives a demand for such payment from any taxing authority or a Withholding is otherwise required with respect to any Exempt Payment, the Indemnity Provider shall discharge such demand on behalf of such Financing Party); provided, however, that the obligation of the Indemnity Provider under this Section 11.2(e) shall not apply to:
(i) Withholdings on any Exempt Payment to any Financing Party
which is a non-U.S. Person unless such Financing Party is, on the
date hereof (or on the date it becomes a Financing Party hereunder)
and on the date of any change in the principal place of business or
the lending office of such Financing Party (provided that this
Section 11.2(e)(i) shall not apply with respect to any change in a
Financing Party's principal place or Lending Office unless such
change subjects such Financing Party to additional U.S.
Withholdings), entitled to and does timely submit to the Agent two
(2) complete original signed copies of a Form W-8BEN or Form W-8ECI
or successor applicable form, certifying in each case that such
party is entitled under Section 1442 of the Code or any other
applicable provision thereof or under any applicable tax treaty or
convention to receive payments pursuant to the Operative Agreements
without deduction or withholding of United States federal income tax
and is a foreign Person thereby entitled to an exemption from United
States backup withholding taxes (except where the failure of the
exemption results from a change in the principal place of business
of the Lessee); provided, however, if a failure of the exemption is
due to a change in law after the date hereof or in the case of a
Financing Party that acquires its interest after the date hereof, a
change in law occurring after such date, then the Indemnity Provider
shall be liable for any withholding resulting therefrom; or
(ii) Any Withholdings of U.S. Taxes imposed solely by reason of the failure by a non-U.S. Person to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the United States of America of such non-U.S. Person if such compliance is required by statute or regulation of the United States of America as a precondition to relief or exemption from such U.S. Taxes if the Indemnity Provider has provided such certification, information, documentation or other reporting requirements to the Financing Party and the Financing Party is eligible for such relief or exemption.
For the purposes of this Section 11.2(e), (A) "U.S. Person" shall mean a
citizen, national or resident of the United States of America, a
corporation, partnership or other entity created or organized in or under
any laws of the United States of America or any State thereof, or any
estate or trust that is subject to Federal income taxation regardless of
the source of its income, (B) "U.S. Taxes" shall mean any present or
future tax, assessment or other charge or levy imposed by or on behalf of
the United States of America or any taxing authority thereof or therein,
(C) "Form W-8BEN" shall mean Form W-8BEN (Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding) of the Department of
the Treasury of the United States of America and (D) "Form W-8ECI"
shall mean Form W-8ECI (Certificate of Foreign Person's Claim for Exemption from Withholding on Income Effectively Connected with the Conduct of a Trade or Business in the United States) of the Department of the Treasury of the United States of America. Each of the Forms referred to in the foregoing clauses (C) and (D) shall include such successor and related forms as may from time to time be adopted by the relevant taxing authorities of the United States of America to document a claim to which such Form relates.
If a Financing Party or an Affiliate with whom such Financing Party files a consolidated tax return (or equivalent) subsequently receives the benefit in any country of a tax credit or an allowance resulting from U.S. Taxes with respect to which it has received a payment of an additional amount under this Section 11.2(e), such Financing Party will pay to the Indemnity Provider such part of that benefit as in the opinion of such Financing Party will leave it (after such payment) in a position no more and no less favorable than it would have been in if no additional payment had been required to be paid, provided always that (i) such Financing Party will use commercially reasonable efforts to accurately judge the amount of any such benefit and of the date on which it is received, (ii) such Financing Party will have commercially reasonable discretion as to the order and manner in which it employs or claims tax credits and allowances available to it and (iii) such Financing Party will not be obliged to disclose to the Lessor any information regarding its tax affairs or tax computations, other than such information as is directly relevant to the calculations provided in this paragraph or other information permitted to be disclosed under other provisions of the Operative Agreements. A subsequent loss of such tax credit or allowance with respect to which a payment is made pursuant to this paragraph to an Indemnity Provider shall be treated as an Imposition that is indemnifiable under Section 11.2(a) hereof without regard to the exclusions of Section 11.2(b)(i), (ii), and (iii) hereof.
Each non-U.S. Person that shall become a Financing Party after the date hereof shall, upon the effectiveness of the related transfer or otherwise upon becoming a Financing Party hereunder, be required to provide all of the forms and statements referenced above or other evidences of exemption from Withholdings if the Indemnity Provider has provided such certification, information, documentation or other reporting requirements to the Financing Party and the Financing Party is eligible for such relief or exemption.
(f) If a written Claim is made against any Indemnified Person or if any proceeding shall be commenced against such Indemnified Person (including without limitation a written notice of such proceeding), for any Impositions, the provisions in Section 11.1 relating to notification and rights to contest shall apply; provided, however, that the Indemnity Provider shall have the right to conduct and control such contest only if such contest involves a Tax other than a Tax on net income of the Indemnified Person that can be pursued independently from any other proceeding involving a Tax liability of such Indemnified Person.
11.3. Increased Costs, Illegality, etc.
(a) If, on or after the Initial Closing Date, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (but excluding a change in the internal policies of the applicable Primary Financing Party) binding on any Primary Financing Party, or compliance by any Primary Financing Party with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Primary Financing Party to make, convert or continue its Eurodollar Loans or Lessor Advance based on the Eurodollar Rate, as the case may be, and such Primary Financing Party shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Primary Financing Parties and the Lessor, whereupon until such Primary Financing Party notifies the Lessor and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Primary Financing Party to make, convert or continue Eurodollar Loans or Lessor Advance based on the Eurodollar Rate, as the case maybe, shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Primary Financing Party shall designate a different office from which to make, convert or continue such Loans or Lessor Advance if such designation will avoid the need for giving such notice and will not, in the judgment of such Primary Financing Party, result in any economic or regulatory disadvantage to such Primary Financing Party. If such Primary Financing Party shall determine that it may not lawfully continue to maintain and fund any of its outstanding Eurodollar Loans or Lessor Advance based on the Eurodollar Rate to maturity and shall so specify in such notice, the Lessor shall (with funds provided by the Lessee or its designee as Supplemental Rent for such purpose) immediately prepay in full the then outstanding principal amount of each such Eurodollar Loan or Lessor Advance based on the Eurodollar Rate, as the case may be, together with accrued interest thereon. Concurrently with prepaying each such Eurodollar Loan or Lessor Advance based on the Eurodollar Rate, the Lessor shall borrow an ABR Loan or a Lessor Advance based on the ABR in an equal principal amount from such Primary Financing Party (on which interest and principal shall be payable contemporaneously with the related Eurodollar Loans or Lessor Advance based on the Eurodollar Rate of the other Primary Financing Parties), and such Primary Financing Party shall make such an ABR Loan or Lessor Advance based on the ABR, provided, compliance with this Section 11.3(a) shall not constitute a "reborrowing" which is prohibited by Section 2.1(a) of the Credit Note Loan Agreement or the Mortgage Note Loan Agreement, as applicable.
(b) If, on or after the date hereof, in the case of any Loan or the Lessor Advance, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Primary Financing Party with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:
(i) shall subject any Primary Financing Party to any new tax or any increased tax, duty or other charge with respect to its Loans or its Lessor Advance, or shall change the basis of taxation of payments to any Primary Financing Party of the principal of or interest or yield on its Loans or Lessor Advance or any other amounts due under this Agreement or any other Operative Agreement in respect of its Loans or its Lessor Advance (except for (A) franchise taxes, taxes or other charges related to the general authority of such Primary Financing Party to do business or taxes on the overall income of such Primary Financing Party, in each case imposed by the jurisdiction where such Primary Financing Party is incorporated (or any political subdivision thereof) or where it is managed or controlled, or (B) withholding taxes imposed under the laws of any jurisdiction other than the United States or any State thereof); or
(ii) shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Eurodollar Loan or Lessor Advance based on the Eurodollar Rate any such requirement with respect to which such Primary Financing Party is entitled to compensation during the current Interest Period pursuant to a change in the Eurocurrency Reserve Requirements), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Primary Financing Party or shall impose on any Primary Financing Party or on the London inter bank market any other condition affecting its Loans or its Lessor Advance;
and the result of any of the foregoing is to increase the cost to such Primary Financing Party of making or maintaining any Loan or Lessor Advance, or to reduce the amount of any sum received or receivable by such Primary Financing Party under this Agreement or any other Operative Agreement, by an amount deemed by such Primary Financing Party to be material, then, within 15 days after demand by such Primary Financing Party (with a copy to the Agent), the Lessor shall pay (with funds provided by the Lessee as Supplemental Rent for such purpose) to such Primary Financing Party such additional amount or amounts as will compensate such Primary Financing Party for such increased cost or reduction; provided that no such amount shall be payable with respect to any such increased costs or reductions incurred more than 180 days before the date such Primary Financing Party first notifies the Lessor and the Lessee of its intention to demand compensation under this Section 11.3(b); provided further that if the adoption of or change in applicable law, rule or regulation, or change in the interpretation or
administration thereof, that gives rise to such increased cost or reduction is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
(c) If any Primary Financing Party shall have determined in good faith that any applicable law, rule, guideline or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency 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 authority, central bank or comparable agency (a "regulatory requirement"), has or would have the effect of reducing the rate of return on capital of such Primary Financing Party (or its Parent) as a consequence of such Primary Financing Party's obligations hereunder to a level below that which such Primary Financing Party (or its Parent) could have achieved but for such regulatory requirement (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Primary Financing Party to be material, then from time to time, within 15 days after demand by such Primary Financing Party (with a copy to the Agent), the Lessor shall pay (with funds provided by the Lessee as Supplemental Rent for such purpose) to such Primary Financing Party such additional amount or amounts as will compensate such Primary Financing Party (or its Parent) for the portion of any such reduction which is reasonably allocable to the transactions contemplated by this Agreement and the other Operative Agreements; provided that no such amount shall be payable with respect to any period commencing less than 30 days after the date such Primary Financing Party first notifies the Lessor and the Lessee of its intention to demand compensation under this Section 11.3(c).
(d) Each Primary Financing Party will promptly notify the Lessor, the Lessee and the Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Primary Financing Party to compensation pursuant to this Section and will designate a different office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Primary Financing Party, result in any economic or regulatory disadvantage to such Primary Financing Party. A certificate of any Primary Financing Party claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder, accompanied by a computation in reasonable detail of such amount or amounts, shall be conclusive if prepared in good faith and on a reasonable basis. In determining such amount, such Primary Financing Party may use any reasonable averaging and attribution methods; provided that such methods shall not be inconsistent with the methods used by such Primary Financing Party in calculating the reduction in return allocable to other similar loans or commitments to other borrowers. Upon receipt of any such notice from a Primary Financing Party, Lessee or Lessor may require that such Primary Financing Party assign its Loan or Advance, as applicable, on a non-recourse basis to a substitute Primary Financing Party in accordance with the terms of this Participation Agreement, the Mortgage Loan Agreement, the Credit Loan Agreement or any other Operative Agreement, as applicable.
11.4. Funding/Contribution Indemnity.
If (a) the Lessor makes any payment of principal with respect to any Loan or the Lessor Advance or converts any Eurodollar Loan or Lessor Advance based on the Eurodollar Rate on any day other than the last day of the Interest Period applicable thereto, (b) any default by the Lessee in the drawing of funds, whereby the Advance is not made on the date specified in the Requisition delivered in accordance with Section 4.2 or (c) the Lessor fails to prepay any Loan or the Lessor Advance on the date fixed for prepayment pursuant to Section 2.6 of the Credit Note Loan Agreement, Section 2.6 of the Mortgage Note Loan Agreement or Section 5B.4 hereof, as applicable, then the Lessor (with funds provided by the Lessee as Supplemental Rent (to the extent such is not duplicative) unless Lessee has otherwise fully performed its obligations under the Lease and the other Operative Agreements as of the applicable date) shall reimburse each Primary Financing Party within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective participant in the related Loan or Lessor Advance), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow or prepay, provided that such Primary Financing Party shall have delivered to the Lessor and the Lessee a certificate as to the amount of such loss or expense and describing in reasonable detail the calculation thereof, which certificate shall be conclusive in the absence of manifest error. This provision shall survive the termination of the Operative Agreements and the payment of all other amounts payable hereunder or thereunder.
11.5. EXPRESS INDEMNIFICATION FOR ORDINARY NEGLIGENCE, STRICT LIABILITY, ETC.
WITHOUT LIMITING THE GENERALITY OF THE INDEMNIFICATION PROVISIONS OF ANY
AND ALL OF THE OPERATIVE AGREEMENTS (BUT SUBJECT TO THE PROVISIONS OF SECTION
11.1 AND ANY OTHER EXPRESS LIMITATIONS OF THE OPERATIVE AGREEMENTS) AND TO THE
EXTENT PERMITTED BY APPLICABLE LAW, EACH PERSON PROVIDING INDEMNIFICATION OF
ANOTHER PERSON UNDER ANY OPERATIVE AGREEMENT HEREBY FURTHER EXPRESSLY RELEASES
EACH BENEFICIARY OF ANY SUCH INDEMNIFICATION FROM ALL CLAIMS FOR LOSS OR DAMAGE,
DESCRIBED IN ANY OPERATIVE AGREEMENT, CAUSED BY ANY ACT OR OMISSION ON THE PART
OF ANY SUCH BENEFICIARY ATTRIBUTABLE TO THE ORDINARY NEGLIGENCE (WHETHER SOLE OR
CONTRIBUTORY) OR STRICT LIABILITY OF ANY SUCH BENEFICIARY, AND INDEMNIFIES,
EXONERATES AND HOLDS EACH SUCH BENEFICIARY FREE AND HARMLESS FROM AND AGAINST
ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, CLAIMS, LOSSES, COSTS,
LIABILITIES, DAMAGES AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE
ATTORNEY'S FEES AND EXPENSES), DESCRIBED ABOVE, INCURRED BY ANY SUCH BENEFICIARY
(IRRESPECTIVE OF WHETHER ANY SUCH BENEFICIARY IS A PARTY TO THE ACTION FOR WHICH
INDEMNIFICATION UNDER THIS AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT IS SOUGHT)
ATTRIBUTABLE TO THE ORDINARY
NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OR STRICT LIABILITY OF ANY SUCH BENEFICIARY.
SECTION 12. MISCELLANEOUS.
12.1. Survival of Agreements.
The representations, warranties, covenants, indemnities and agreements of the parties provided for in the Operative Agreements, and the parties' obligations under any and all thereof, shall survive the execution and delivery of this Agreement, the transfer of the Properties to the Lessor or the Lessee, the acquisition of the Properties (or any of its components), any disposition of any interest of the Lessor in the Properties or the Collateral, the payment of the Notes and the Lessor Advance and any disposition thereof and shall be and continue in effect notwithstanding any investigation made by any party and the fact that any party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Agreements. Except as otherwise expressly set forth herein or in other Operative Agreements, the indemnities of the parties provided for in the Operative Agreements shall survive the expiration or termination of any such agreements with respect to matters occurring prior to such expiration or termination.
12.2. Notices.
All notices required or permitted to be given under any Operative Agreement shall be in writing. Notices may be served by certified or registered mail, postage paid with return receipt requested; by private courier, prepaid; by telex, facsimile, or other telecommunication device capable of transmitting or creating a written record; or personally. Mailed notices shall be deemed delivered five (5) days after mailing, properly addressed. Couriered notices shall be deemed delivered when delivered as addressed, or if the addressee refuses delivery, when presented for delivery notwithstanding such refusal. Telex or telecommunicated notices shall be deemed delivered when receipt is either confirmed by confirming transmission equipment or acknowledged by the addressee or its office. Personal delivery shall be effective when accomplished. Unless a party changes its address by giving notice to the other party as provided herein, notices shall be delivered to the parties at the following addresses:
If to the Lessee, to such entity at the following address:
Cypress Semiconductor Corporation 3901 North First Street San Jose, California 95134-1599 Attention: Treasurer, Neil Weiss Telephone: (408) 943-2854 Telecopy: (408) 943-2796
If to the Lessor or the Lessor, to such entity at the following address:
Wachovia Development Corporation
c/o Wachovia Securities
One Wachovia Center
301 South College Street
Charlotte, North Carolina 28288-0174
Attention: Gabrielle Braverman
Telephone: (704) 383-1967
Telecopy: (704) 383-8108
If to the Agent, to it at the following address:
Wachovia Bank, National Association 201 South College Street Charlotte, North Carolina 28288-5708 Attention: Angela Abessinio Telephone: (704) 383-9334 Telecopy: (704) 383-7989
If to any Credit Lender, or any Mortgage Lender, to it at the address set forth for such Primary Financing Party in Schedule 1 or Schedule 2 to the Participation Agreement, as applicable.
From time to time, any party may designate another address for notice purposes by notice to each of the other parties hereto. Each notice hereunder shall be effective upon receipt or refusal thereof.
12.3. Counterparts.
This Agreement 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 (1) and the same instrument.
12.4. Terminations, Amendments, Waivers, Etc.; Unanimous Vote Matters.
Each of the parties hereto agrees that:
(a) except as expressly provided in subsections (b) and (c) below and except for the Unanimous Vote Matters, each Operative Agreement may only be terminated, amended, modified, extended supplemented, restated, replaced or waived upon the approval in writing by the Lessor, the Agent, the Majority Secured Parties and the Lessee (to the extent the Lessee is a party to such Operative Agreement); provided, each termination, amendment, modification, extension, supplement, restatement, replacement or waiver regarding any Operative Agreement, which affects the rights or obligations of the Lessee shall also require the written consent of the Lessee, provided, further, that
each termination, amendment, modification, extension, supplement, restatement, replacement or waiver regarding any Operative Agreement shall also require the written consent of each Financing Party affected thereby (the "Unanimous Vote Matters"), so as to
(i) extend the scheduled date of maturity of any Note;
(ii) extend the scheduled Expiration Date or extend any payment date of any Note or Lessor Advance;
(iii) reduce the stated rate of interest payable on any Note or reduce the stated Lessor Yield payable on any Lessor Advance (other than as a result of waiving the applicability of any post-default increase in interest rates or Lessor Yield);
(iv) modify the priority of any Lien in favor of the Agent under any Security Document;
(v) subordinate any obligation owed to such Lender or the Lessor;
(vi) terminate, amend, supplement, waive, discharge or modify any provision of this Section 12.4 or reduce the percentages specified in the definitions of Majority Credit Lenders, Majority Mortgage Lenders or Majority Secured Parties;
(vii) release a material portion of the Collateral (except in accordance with Section 8.8);
(viii) release the Lessor or the Lessee from its obligations under any Operative Agreement or otherwise alter any payment obligations of the Lessee, Lessor, or any Financing Party under the Operative Agreements;
(ix) terminate, amend, supplement, waive, discharge or modify any provision of Sections 8.6(h), (j) or (k) or 8.7 of this Agreement;
(x) impose any additional affirmative obligation or requirement on the applicable Financing Party, make any existing obligations of the applicable Financing Party materially more onerous, or further obligate, prohibit or restrict the applicable Financing Party or its right, title or interest under the Operative Agreements in any material manner; or
(xi) modify or amend any definition, referenced provision or other term or condition so as to affect the matters described in the foregoing (i)-(x).
(b) the Mortgage Instrument (and any UCC Financing Statement related thereto) may only be terminated, amended, modified, extended supplemented, restated,
replaced or waived upon the approval in writing by the Lessor, the Majority Mortgage Lenders and (to the extent the Lessee is a party thereto or the same relates to the Lessee as opposed to relating to the Lessor) the Lessee.
(c) each termination, amendment, modification, extension, supplement, restatement, replacement or waiver regarding any Operative Agreement affecting Sections 4.1, 8.2, 8.3, 9.1, 10.1, 10.2, 11.1, 12.1, 13.1, 13.2, 14.1, 14.2, 14.3, 15.1, 15.2, 15.3, 16.1, 16.2, 18.1, 19.1, 19.2, 20.2, 20.3 (excluding all provisions related to payments in Sections 20.2 or 20.3), 22.1, 22.4, 22.5, 23.1 or 24.1 of the Lease or affecting in any way the Real Estate Collateral or any Property requires the consent of the Lessor.
Any such termination, amendment, supplement, waiver, discharge or
modification approved, executed, adopted or consented to pursuant to this
Section 12.4 shall apply equally to each of the Lenders and the Lessor and shall
be binding upon all the parties to this Agreement. In the case of any waiver,
each party to this Agreement shall be restored to its former position and rights
under the Operative Agreements, and any Default or Event of Default waived shall
be deemed to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impair any right consequent
thereon.
12.5. Headings, etc.
The Table of Contents and headings of the various Articles and Sections of this Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof.
12.6. Parties in Interest.
Except as expressly provided herein, none of the provisions of this Agreement are intended for the benefit of any Person except the parties hereto.
12.7. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; VENUE.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE LAWS OF THE STATE WHERE A PARTICULAR PROPERTY IS LOCATED ARE REQUIRED TO APPLY. Any legal action or proceeding with respect to this Agreement or any other Operative Agreement may be brought in the courts of the State of New York or of the United States for the Southern District of New York, in each case located in the Borough of Manhattan (provided, if no such courts are located in the Borough of Manhattan, such action or proceeding may be brought in any of the courts of the State of New York or of the United States for the Southern District of New York), and, by execution and delivery of this Agreement, each of the parties to this Agreement
hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the nonexclusive jurisdiction of such
courts. Each of the parties tot his Agreement further irrevocably consents
to the service of process out of any of the aforementioned courts in any
such action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to it at the address set out for
notices pursuant to Section 12.2, such service to become effective five
(5) days after such mailing. Nothing herein shall affect the right of any
party to serve process in any manner permitted by Law or to commence legal
proceedings or to otherwise proceed against any party in any other
jurisdiction permitted by Law.
(b) EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY, TO THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW, WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO ANY DISPUTE OR THIS AGREEMENT, ANY OTHER OPERATIVE AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
(c) Each of the parties to this Agreement hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Operative Agreement brought in the courts referred to in subsection (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.
Subject to the other applicable provisions of the Operative Agreements,
the parties shall have the right to proceed in any court of proper jurisdiction
or by self-help to exercise or prosecute the following remedies, as applicable:
(i) all rights to foreclose against any real or personal property or other
security under applicable law by judicial foreclosure; (ii) all rights of
self-help including peaceful occupation of real property and collection of
rents, set-off and peaceful possession of personal property; (iii) obtaining
provisional or ancillary remedies including injunctive relief, sequestration,
garnishment, attachment, appointment of receiver and filing an involuntary
bankruptcy proceedings; and (iv) when applicable, a judgment by confession of
judgment. Any claim or controversy with regard to any party's entitlement to
such remedies is a Dispute.
Each party to this Agreement agrees that it shall not have a remedy of punitive or exemplary damages against any other party in any Dispute and hereby waives any right or claim to punitive or exemplary damages it has now or which may arise in the future in connection with any Dispute.
12.8. Severability.
Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
12.9. Liability Limited.
(a) [Reserved].
(b) Anything to the contrary contained in this Agreement, the Credit
Note Loan Agreement, the Mortgage Note Loan Agreement, the Notes or in any
other Operative Agreement notwithstanding, no Exculpated Person shall be
personally liable in any respect for any liability or obligation arising
hereunder or in any other Operative Agreement including without limitation
the payment of the principal of, or interest on, the Notes, or for
monetary damages for the breach of performance of any of the covenants
contained in the Credit Note Loan Agreement, the Mortgage Note Loan
Agreement, the Notes, this Agreement, the Security Agreement or any of the
other Operative Agreements. The Primary Financing Parties and the Agent
agree that, in the event any remedies under any Operative Agreement are
pursued, neither the Primary Financing Parties nor the Agent shall have
any recourse against any Exculpated Person, for any deficiency, loss or
Claim for monetary damages or otherwise resulting therefrom and recourse
shall be had solely and exclusively against the Lessor's Interest
(excluding Excepted Payments) and the Lessee (with respect to the Lessee's
obligations under the Operative Agreements); but nothing contained herein
shall be taken to prevent recourse against or the enforcement of remedies
against the Lessor's Interest (excluding Excepted Payments) in respect of
any and all liabilities, obligations and undertakings contained herein
and/or in any other Operative Agreement. Notwithstanding the provisions of
this Section, nothing in any Operative Agreement shall: (i) constitute a
waiver, release or discharge of any indebtedness or obligation evidenced
by the Notes arising under any Operative Agreement or secured by any
Operative Agreement, but the same shall continue until paid or discharged;
(ii) relieve any Exculpated Person from liability and responsibility for
(but only to the extent of the damages arising by reason of): active waste
knowingly committed by any Exculpated Person with respect to any Property,
any fraud, gross negligence or willful misconduct on the part of any
Exculpated Person; (iii) relieve any Exculpated Person from liability and
responsibility for (but only to the extent of the moneys misappropriated,
misapplied or not turned over) (A) except for Excepted Payments,
misappropriation or misapplication by the Lessor (i.e., application in a
manner contrary to any of the Operative Agreements) of any insurance
proceeds or condemnation award paid or delivered to the Lessor by any
Person other than the Agent, (B) except for Excepted Payments, any
deposits or any escrows or amounts owed by the Lessee held by the Lessor
or (C) except for Excepted Payments, any rent or other income or funds
received by the Lessor from the Lessee that is not turned over to the
Agent; or (iv) affect or in any way limit the Agent's rights and remedies
under any Operative Agreement with respect to the Rents and rights and
powers of the Agent under the Operative Agreements to obtain a judgment
against the Lessee's interest in any Property pursuant to the terms of the
Operative Agreements or the Agent's rights and powers to obtain a judgment
against the Lessor or the Lessee (provided, that no deficiency judgment or
other money judgment shall be enforced against any Exculpated Person
except to the extent of the Lessor's
interest in the Lessor's Interest (excluding Excepted Payments) or to the extent the Lessor may be liable as otherwise contemplated in clauses (ii) and (iii) of this Section 12.9(b)).
12.10. [Reserved].
12.11. Further Assurances.
The parties hereto shall promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of the Lessee, all such further acts, conveyances, documents and assurances as the other parties may from time to time reasonably request in order to carry out and effectuate the intent and purposes of this Participation Agreement, the other Operative Agreements and the transactions contemplated hereby and thereby (including without limitation the preparation, execution and filing of any and all Uniform Commercial Code financing statements, filings of Mortgage Instruments and other filings or registrations which the parties hereto may from time to time request to be filed or effected). The Lessee, at its own expense and without need of any prior request from any other party, shall, to the extent possible, take such action as may be necessary (including without limitation any action specified in the preceding sentence), or (if the Lessor shall so request) as so requested, in order to maintain and protect all security interests and the other interests of the parties provided for hereunder or under any other Operative Agreement. In addition, in connection with the sale or other disposition of any Property, any Collateral, or any portion thereof, the parties hereto, at the sole expense of the Lessee, agree to execute such instruments of conveyance, at the sole expense of the Lessee, as reasonably required pursuant to the Operative Agreements in connection therewith.
12.12. Calculations under Operative Agreements.
The parties hereto agree that all calculations and numerical determinations to be made under the Operative Agreements by the Lessor shall be made by the Agent and that such calculations and determinations shall be conclusive and binding on the parties hereto in the absence of manifest error.
12.13. Confidentiality.
Each Financing Party severally agrees to use reasonable efforts to keep confidential all non-public information pertaining to the Lessee or any of its Subsidiaries which is provided to it by the Lessee or any of its Subsidiaries and which an employee of the Lessee or any of its Subsidiaries has requested in writing be kept confidential, and shall not intentionally disclose such information to any Person except:
(a) to the extent such information is public when received by such Person or becomes public thereafter due to the act or omission of any party other than such Person;
(b) to the extent such information is lawfully and independently obtained from a source other than the Lessee or any of its Subsidiaries and such information from such source is not, to such Person's knowledge, subject to an obligation of confidentiality or, if
such information is subject to an obligation of confidentiality, that disclosure of such information is permitted;
(c) to counsel, auditors or accountants retained by any such Person or any Affiliates of any such Person (if such Affiliates are permitted to receive such information pursuant to clause (f) or (g) below), provided they agree to keep such information confidential as if such Person or Affiliate were party to this Agreement and to financial institution regulators, including examiners of any Financing Party or any Affiliate thereof in the course of examinations of such Persons;
(d) in connection with any litigation or the enforcement or preservation of the rights of any Financing Party under the Operative Agreements;
(e) to the extent required by any applicable statute, rule or regulation or court order (including without limitation, by way of subpoena) or pursuant to the request of any regulatory or Governmental Authority having jurisdiction over any such Person (including, but not limited to, the National Association of Insurance Commissioners); provided, however, that such Person shall endeavor (if not otherwise prohibited by Law) to notify the Lessee prior to any disclosure made pursuant to this clause (e), except that no such Person shall be subject to any liability whatsoever for any failure to so notify the Lessee;
(f) any Financing Party may disclose such information to another Financing Party or to any Affiliate of a Financing Party that is a direct or indirect owner of any Financing Party (provided, in each case that such Affiliate has agreed to maintain confidentiality as if it were such Financing Party);
(g) any Financing Party may disclose such information to an Affiliate of any Financing Party to the extent required in connection with the transactions contemplated hereby or to the extent such Affiliate is involved in, or provides advice or assistance to such Person with respect to, such transactions (provided, in each case that such Affiliate has agreed to maintain confidentiality as if it were such Financing Party); or
(h) in connection with any proposed or actual assignment or grant of a participation by any of the Credit Lenders or Mortgage Lenders of interests in the Credit Note Loan Agreement, the Mortgage Note Loan Agreement or any Note to such other financial institution who such Lenders believes would be a permitted transferee of such Lender's rights under the Operative Agreements (who shall in turn agree in writing to maintain confidentiality as if it were a Credit Lender or Mortgage Lender originally party to this Agreement);
(i) any Financing Party may disclose the Operative Agreements to any rating Agency requesting the same.
Subject to the terms of Sections 12.13(a)-12.13(i), under the terms of any one or more of which circumstances disclosure shall be permitted, each Financing Party severally agrees to use
reasonable efforts to keep confidential all non-public information of the Lessee obtained pursuant to or in connection with the Operative Agreements or pertaining to the financing structure described in the unrecorded and undisclosed Operative Agreements and severally agrees to use reasonable efforts to notify the recipient of such confidential information that such information is confidential.
Notwithstanding anything herein to the contrary, "Information" shall not include, and the Financing Parties may disclose without limitation of any kind, any information with respect to the "tax treatment" and "tax structure" (in each case, within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and by the other Operative Agreements and all materials of any kind (including opinions or other tax analyses) that are provided to such Financing Party relating to such tax treatment and tax structure; provided that with respect to any document or similar item that in either case contains information concerning the tax treatment or tax structure of the transaction as well as other information, this sentence shall only apply to such portions of the document or similar item that relate to the tax treatment or tax structure of the transactions contemplated hereby and by the other Operative Agreements.
12.14. Financial Reporting/Tax Characterization.
Lessee agrees to obtain advice from its own accountants and tax counsel regarding the financial reporting treatment and the tax characterization of the transactions described in the Operative Agreements. Lessee further agrees that Lessee shall not rely upon any statement of any Financing Party or any of their respective Affiliates and/or Subsidiaries regarding any such financial reporting treatment and/or tax characterization.
[signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.
LESSEE: CYPRESS SEMICONDUCTOR CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(signature pages continue)
|
BORROWER AND LESSOR: WACHOVIA DEVELOPMENT CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(signature pages continue)
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AGENT: WACHOVIA BANK, NATIONAL
ASSOCIATION, as the Agent
By:
--------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(signature pages continue)
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CREDIT NOTE LENDER: WACHOVIA BANK, NATIONAL ASSOCIATION,
as a Credit Note Lender
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(signature pages continue)
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MORTGAGE NOTE LENDER: WACHOVIA BANK, NATIONAL ASSOCIATION,
as a Mortgage Note Lender
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
(signature pages end)
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Schedule 1
Credit Note Commitment
----------------------
Name and Address of Credit Lenders Amount Percentage
------ ----------
Wachovia Bank, National Association $43,470,000.00 100.00%
c/o Wachovia Securities, Inc.
301 South College Street
Charlotte, North Carolina 28288-0174
Attention: Gabrielle Braverman
Telephone: (704) 383-1967
Telecopy: (704) 383-8108
TOTAL $43,470,000.00 100.00%
|
Schedule 2
Mortgage Note Commitment
------------------------
Name and Address of Mortgage Lenders Amount Percentage
------ ----------
Wachovia Bank, National Association $15,750,000.00 100.00%
c/o Wachovia Securities, Inc.
301 South College Street
Charlotte, North Carolina 28288-0174
Attention: Gabrielle Braverman
Telephone: (704) 383-1967
Telecopy: (704) 383-8108
TOTAL $15,750,000.00 100.00%
|
Schedule 3
Excluded Equipment
Schedule 4
Maximum Residual Guarantee Amount for Each Property
San Jose, CA Improvements 85.05%
------
San Jose, CA Land 95.00%
------
Bloomington, MN Property 84.20%
------
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Schedule 6.2(d)
Schedule of Litigation
o On February 26, 1999, the Lemelson Partnership filed suit in the U.S. District Court for the District of Arizona against Cypress, alleging the infringement of multiple patents. Some of these patents are also at issue in a separate suit filed in Nevada against the Lemelson Partnership by other parties. The court's ruling in this matter is still pending.
o In January 2002, Cypress was contacted by Syndia Corporation, alleging that Cypress infringed patents on which Jerome Lemelson is named as the inventor. These patents are related to those in the Lemelson Partnership suit discussed above. No suit has been filed by Syndia.
o In February 2002, Cypress was contacted by an attorney for Mr. Peng Tan, alleging that Cypress infringed a patent owned by Mr. Tan. No suit has been filed by Mr. Tan.
o On October 17, 2002, Ms. Kelvyn Evans filed suit against Cypress in the Santa Clara County Superior Court, alleging conversion of not more than 85,000 shares of Cypress' stock. Arbitration in this matter is scheduled for August 14, 2003.
EXHIBIT A
REQUISITION FORM
(Pursuant to Sections 4.2, 5.2 and 5.3 of the Participation Agreement)
CYPRESS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company") hereby certifies as true and correct and delivers the following Requisition to WACHOVIA BANK, NATIONAL ASSOCIATION, as the agent for the Primary Financing Parties (hereinafter defined) and respecting the Security Documents, as the agent for the Secured Parties (the "Agent"):
Reference is made herein to that certain Participation Agreement dated as of June 27, 2003 (as amended, modified, extended, supplemented, restated and/or replaced from time to time, the "Participation Agreement") among the Company, in its capacity as the Lessee, Wachovia Development Corporation, as the lessor (the "Lessor"), the various financial institutions and other institutional investors which are parties thereto from time to time as lenders under the Credit Notes (the "Credit Lenders"), the various financial institutions and other institutional investors which are parties thereto from time to time as lenders under the Mortgage Notes (the "Mortgage Lenders"), and the Agent. Capitalized terms used herein but not otherwise defined herein shall have the meanings set forth therefor in the Participation Agreement and the rules of usage set forth therein shall apply herein.
____ INITIAL CLOSING DATE: _________________
(three (3) Business Days prior notice required for Advance, except to the extent such Advance will be based solely on the ABR)
____ PROPERTY CLOSING DATE: _________________
(three (3) Business Days prior notice required for Advance, except to the extent such Advance will be based solely on the ABR)
1. Transaction Expenses and other fees, expenses and disbursements under
Section 7.1(a) of the Participation Agreement and any and all other
amounts contemplated to be financed under the Participation Agreement
including without limitation any broker's fees, taxes, recording fees and
the like: See attached Schedule 1.
2. Description of Land (which shall be a legal description of the Land subject to the Lease whether owned or ground lease by Lessor): See attached Schedule 2.
3. Description of Equipment: See attached Schedule 3.
In connection with this Requisition, the Company hereby requests (a) that the Mortgage Lenders make Loans to the Lessor pursuant to the Mortgage Notes in the amount of $______________ (b) that the Credit Lenders make Loans to the Lessor pursuant to the Credit Notes in the amount of $________________ and (c) that the Lessor make a Lessor Advance in the amount of $_____________. The Company hereby certifies that (i) each of the provisions of
the Participation Agreement applicable to the making of the Advance requested hereunder have been complied with as of the date of this Requisition or will be complied with by the Initial Closing Date or the applicable Property Closing Date, (ii) prior to the delivery of this Requisition, the Lessee has deposited in the Cash Collateral Balance amounts necessary to make the balance therein equal or exceed the Required Cash Collateral Balance calculated to include the Requested Funds, (iii) the balance of the Cash Collateral Account as of the date of the Initial Closing Date or the applicable Property Closing Date is not less than $____________, (iv) the Credit Lenders' portion of the Requested Funds, calculated pursuant to Section 5 of the Participation Agreement, does not exceed the Credit Note Commitments less all Loans (without giving effect to any prepayments) pursuant to the Credit Note Loan Agreement, (v) the Mortgage Lenders' portion of the Requested Funds, calculated pursuant to Section 5 of the Participation Agreement, does not exceed the Mortgage Note Commitments less all Loans (without giving effect to any prepayments) pursuant to the Mortgage Note Loan Agreement and (vi) the Lessor's portion of the Requested Funds, calculated pursuant to Section 5 of the Participation Agreement, does not exceed the Lessor Commitment less all Lessor Advances (without giving effect to any prepayments).
The Company requests the Loans be allocated as follows:
$______________ ABR Loans
$______________ Eurodollar Loans
The Company requests the Lessor Advance be allocated as follows:
$______________ Amount of Lessor
Advance to be based on
the ABR
$______________ Amount of Lessor
Advance to be based on
the Eurodollar Rate
|
4. Each and every representation and warranty of the Lessee contained in the Operative Agreements to which it is a party is true and correct on and as of the date hereof (except to the extent any such representation or warranty relates to an earlier date, in which case such representation or warranty shall have been true and correct as of such earlier date).
5. No Lease Default or Lease Event of Default has occurred and is continuing under any Operative Agreement, and no Lease Default or Lease Event of Default will occur under any of the Operative Agreements as a result of, or after giving effect to, the Advance requested hereby on the date of such Advance.
6. Each Operative Agreement to which the Lessee is a party is in full force and effect with respect to it, except as the same may be limited by applicable bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium or other similar laws
relating to or affecting creditors' or lessors' rights generally and general principles of equity.
7. The Lessee is in compliance with all covenants, agreements and conditions contained in the Participation Agreement or in any Operative Agreement required to be performed or complied with by it on the date hereof.
The Company has caused this Requisition to be executed by its duly authorized officer as of this _____ day of __________, ______.
CYPRESS SEMICONDUCTOR CORPORATION
Schedule 1
[Schedule of Transaction Expenses and other Fees]
Schedule 2
Description of Land
(Legal Description and Street Address)
Schedule 3
Description of Equipment
EXHIBIT B
[Form of opinion to be revised.]
[Outside Counsel Opinion for the Lessee]
(Pursuant to Section 5.3(j) of the Participation Agreement)
June 27, 2003
TO THOSE ON THE ATTACHED DISTRIBUTION LIST
Re: Synthetic Lease Financing Provided in favor of Cypress Semiconductor Corporation
Dear Ladies and Gentlemen:
We have acted as special counsel to Cypress Semiconductor Corporation, a Delaware corporation (the "Lessee") in connection with certain transactions contemplated by the Participation Agreement dated as of June 27, 2003 (the "Participation Agreement"), among the Lessee, Wachovia Development Corporation, a North Carolina corporation as the lessor (the "Lessor"), the various financial institutions and other institutional investors which are parties thereto from time to time as credit lenders (the "Credit Lenders"), the various financial institutions and other institutional investors which are parties thereto from time to time as mortgage lenders (the "Mortgage Lenders")and Wachovia Bank, National Association, as agent for the Primary Financing Parties and respecting the Security Documents, as Agent for the Secured Parties (the "Agent"). This opinion is delivered pursuant to Section 5.3(j) of the Participation Agreement. All capitalized terms used herein, and not otherwise defined herein, shall have the meanings assigned thereto in Appendix A to the Participation Agreement.
In connection with the foregoing, we have examined originals, or copies certified to our satisfaction, of [identify the applicable Operative Agreements, including each Mortgage Instrument, related UCC fixture filings, Additional UCCs (hereinafter defined), Deeds and Memoranda of Lease] and such other corporate documents and records of the Lessee, certificates of public officials and representatives of the Lessee as to certain factual matters, and such other instruments and documents which we have deemed necessary or advisable to examine for the purpose of this opinion. With respect to such examination, we have assumed (i) the statements of fact made in all such certificates, documents and instruments are true, accurate and complete; (ii) the due authorization, execution and delivery of the Operative Agreements by the parties thereto; (iii) the genuineness of all signatures, the authenticity and completeness of all documents, certificates, instruments, records and corporate records submitted to us as originals and the conformity to the original instruments of all documents submitted to us as copies, and the authenticity and completeness of the originals of such copies; (iv) that all parties have all requisite corporate power and authority to execute, deliver and perform the Operative
Agreements; and (v) except as to the Lessee, the enforceability of the Mortgage Instrument, the Memorandum of Lease and the UCC financing statements against all parties thereto.
Based on the foregoing, and having due regard for such legal considerations as we deem relevant, and subject to the limitations and assumptions set forth herein, including without limitation the matters set forth in the last two (2) paragraphs hereof, we are of the opinion that:
(a) The Mortgage Instrument and Memorandum of Lease are enforceable in accordance with their respective terms, except as limited by laws generally affecting the enforcement of creditors' rights, which laws will not materially prevent the realization of the benefits intended by such documents.
(b) Each form of Mortgage Instrument and UCC fixture filing relating thereto, attached hereto as Schedules 1 and 2, respectively, is in proper form for filing and recording with the offices of [identify the recording offices of the respective county clerks where the Properties are to be located]. Upon filing of each Mortgage Instrument and UCC fixture filing in [identify the recording offices of the respective county clerks where the Properties are to be located], the Agent will have a valid, perfected lien and security interest in that portion of the Collateral described in such Mortgage Instrument or UCC fixture filing to the extent such Collateral is comprised of real property and/or fixtures.
(c) The forms of UCC financing statements relating to the Security Documents, attached hereto as Schedule 3 (the "Additional UCCs"), are in proper form for filing and recording with the offices of [identify the Secretary of State where the Lessee is located for purposes of the UCC]. Upon filing of the Additional UCCs in [identify the Secretary of State where the Lessee is located for purposes of the UCC], the Agent will have a valid, perfected lien and security interest in that portion of the Collateral which can be perfected by filing UCC-1 financing statements under Article 9 of the UCC.
(d) Each form of Deed and Memorandum of Lease is in appropriate form for filing and recording with the [identify the recording offices of the respective county clerks for the counties where the Properties are to be located].
(e) Each Memorandum of Lease, when filed and recorded with the [identify the recording offices of the respective county clerks for the counties where the Properties are to be located], will have been filed and recorded in all public offices in the State of [__________] in which filing or recording is necessary to provide constructive notice of the Lease to third Persons and to establish of record the interest of the Lessor thereunder as to the Properties described in each such Memorandum of Lease.
(f) The execution and delivery by the Lessor of the Operative Agreements to which it is a party and compliance by the Lessor with all of the provisions thereof do not and will not contravene any law, rule or regulation of [identify the state].
(g) By reason of their participation in the transaction contemplated under the Operative Agreements, none of the Agent or any Primary Financing Party has to (a) qualify as a
foreign corporation in [identify the state], (b) file any application or any designation for service of process in [identify the state] or (c) pay any franchise, income, sales, excise, stamp or other taxes of any kind to [identify the state].
(h) The provisions in the Operative Agreements concerning Rent, interest,
fees, prepayment premiums and other similar charges do not violate the usury
laws or other similar laws regulating the use or forbearance of money of
[identify the state].
(i) If the transactions contemplated by the Operative Agreements are characterized as a lease transaction by a court of competent jurisdiction, the Lease and the applicable Lease Supplement shall demise to the Lessee a valid leasehold interest in the Properties described in such Lease Supplement.
(j) If the transactions contemplated by the Operative Agreements are characterized as a loan transaction by a court of competent jurisdiction, the combination of the Mortgage Instruments, the Deeds, the Lease and the applicable Lease Supplements (and the other Operative Agreements incorporated therein by reference) are sufficient to create a valid, perfected lien or security interest in the Properties therein described, enforceable as a mortgage in [identify the state].
This opinion is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters stated herein. This opinion is based on and is limited to the laws of the State of [___________] and the federal laws of the United States of America. Insofar as the foregoing opinion relates to matters of law other than the foregoing, no opinion is hereby given.
This opinion is for the sole benefit of the Lessee, the Primary Financing Parties, the Agent and their respective successors and assigns and may not be relied upon by any other person other than such parties and their respective successors and assigns without the express written consent of the undersigned. The opinions expressed herein are as of the date hereof and we make no undertaking to amend or supplement such opinions if facts come to our attention or changes in the current law of the jurisdictions mentioned herein occur which could affect such opinions.
Very truly yours,
[LESSEE'S OUTSIDE COUNSEL]
Distribution List
Wachovia Bank, National Association, as the Agent
The various financial institutions and other institutional investors which are parties which are parties to the Participation Agreement from time to time, as Credit Lenders
The various financial institutions and other institutional investors which are parties which are parties to the Participation Agreement from time to time, as Mortgage Lenders
Cypress Semiconductor Corporation, as the Lessee
Wachovia Development Corporation, as the Lessor
Schedule 1
Form of Mortgage Instrument
Schedule 2
Forms of UCC Fixture Filings
Schedule 3
Forms of UCC Financing Statements
EXHIBIT C
CYPRESS SEMICONDUCTOR CORPORATION
OFFICER'S CERTIFICATE
Pursuant to Section 5.3 (w) of the Participation Agreement, dated as of June 27, 2003, among Cypress Semiconductor Corporation, a Delaware corporation, as the Lessee (the "Company"), Wachovia Development Corporation, a North Carolina corporation, as the Lessor, the various financial institutions and other institutional investors which are parties thereto from time to time as Credit Lenders, the various financial institutions and other institutional investors which are parties thereto from time to time as Mortgage Lenders and Wachovia Bank, National Association, as Agent for the Primary Financing Parties and respecting the Security Documents, as Agent for the Secured Parties (the "Agreement") the undersigned, _______________, the _____________ of the Company, hereby certifies on behalf of the Company that, on and as of the date hereof:
1. Each and every representation and warranty of the Company contained in the Operative Agreements to which it is a party is true and correct on and as of the date hereof, except to the extent any such representation or warranty relates to an earlier date, in which case such representation or warranty shall have been true and correct as of such earlier date.
2. No Lease Default or Lease Event of Default has occurred and is continuing under any Operative Agreement and the Company is not aware of any other Default or Event of Default.
3. Each Operative Agreement to which the Company is a party is in full force and effect with respect to it, except as the same may be limited by applicable bankruptcy, insolvency, fraudulent transfer or conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' or lessors' rights generally and general principles of equity.
4. The Company is duly performing and in compliance with all covenants, agreements and conditions contained in the Agreement or in any Operative Agreement required to be performed or complied with by the Company on the date hereof.
Capitalized terms used in this Officer's Certificate and not otherwise defined herein have the respective meanings ascribed thereto in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Officer's Certificate to be duly executed and delivered as of this 27th day of June, 2003.
CYPRESS SEMICONDUCTOR CORPORATION
EXHIBIT D
CYPRESS SEMICONDUCTOR CORPORATION
SECRETARY'S CERTIFICATE
The undersigned, Secretary of Cypress Semiconductor Corporation, a Delaware corporation with offices at 3901 North Flint Street, San Jose, California (the "Company"), hereby certifies as follows:
1. Attached hereto as Schedule 1 is a true, correct and complete copy of the resolutions of the Board of Directors of the Company duly adopted by the Board of Directors of the Company on __________. Such resolutions have not been amended, modified or rescinded since their date of adoption and remain in full force and effect as of the date hereof.
2. Attached hereto as Schedule 2 is a true, correct and complete copy of the Certificate of Incorporation of the Company on file in the Office of the Secretary of State of __________. Such Certificate of Incorporation have not been amended, modified or rescinded since their date of adoption and were in full force and effect on the date of the resolutions referenced in paragraph 1 and remain in full force and effect as of the date hereof.
3. Attached hereto as Schedule 3 is a true, correct and complete copy of the Bylaws of the Company. Such Bylaws have not been amended, modified or rescinded since their date of adoption and remain in full force and effect as of the date hereof.
4. The persons named below now hold the offices set forth opposite their names, and the signatures opposite their names and titles are their true and correct signatures.
Name Office Signature
------------------- ----------------------- -------------------------
------------------- ----------------------- -------------------------
|
IN WITNESS WHEREOF, the Company has caused this Secretary's Certificate to be duly executed, the corporate seal to be affixed, and delivered as of this ____ day of _______, 2003.
CYPRESS SEMICONDUCTOR CORPORATION
[SEAL]
EXHIBIT E
WACHOVIA DEVELOPMENT CORPORATION
OFFICER'S CERTIFICATE
(Pursuant to Section 5.3(z) of the Participation Agreement)
WACHOVIA DEVELOPMENT CORPORATION, a North Carolina corporation (the "Lessor"), DOES HEREBY CERTIFY as follows:
1. Each and every representation and warranty of the Lessor contained in the Operative Agreements to which it is a party is true and correct on and as of the date hereof.
2. Each Operative Agreement to which the Lessor is a party is in full force and effect with respect to it.
3. The Lessor is duly performing and in compliance in all material respects with all covenants, agreements and conditions contained in the Participation Agreement (hereinafter defined) or in any Operative Agreement required to be performed or complied with by it on the date hereof, other than those conditions which have been expressly waived.
4. No Default or Event of Default attributable solely to the Lessor has occurred and is continuing under any Operative Agreement.
5. The Lessor is not an entity which (a) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; (b) is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or (c) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities, and owns or proposes to acquire "investment securities" having a value exceeding 40 per centum of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis. As used in this paragraph, "investment securities" includes all securities except (i) government securities, (ii) securities issued by employees' securities companies, and (iii) securities issued by majority-owned subsidiaries of the owner which are not investment companies. As used in this paragraph, "government securities" means any security issued or guaranteed as to principal or interest by the United States, or by a person controlled or supervised by and acting as an instrumentality of the Government of the United States pursuant to authority granted by the Congress of the United States; or any certificate of deposit for any of the foregoing.
Capitalized terms used in this Officer's Certificate and not otherwise defined herein have the respective meanings ascribed thereto in the Participation Agreement dated as of June 27, 2003 among Cypress Semiconductor Corporation, as the Lessee, the Lessor, the various financial institutions and other institutional investors which are parties thereto from time to time, as Credit Lenders (the "Credit Lenders"), the various financial institutions and other institutional investors which are parties thereto from time to time, as Mortgage Lenders (the "Mortgage Lenders"), Wachovia Bank, National Association, as the agent for the Primary Financing Parties and respecting the Security Documents, as the agent for the Secured Parties (the "Agent").
IN WITNESS WHEREOF, the Lessor has caused this Officer's Certificate to be duly executed and delivered as of this _____ day of __________________, ______.
WACHOVIA DEVELOPMENT CORPORATION
EXHIBIT F
WACHOVIA DEVELOPMENT CORPORATION
SECRETARY'S CERTIFICATE
(Pursuant to Section 5.3(aa) of the Participation Agreement)
CERTIFICATE OF [ASSISTANT] SECRETARY
I, ______________________, duly elected and qualified [Assistant] Secretary of Wachovia Development Corporation (the "Company"), hereby certify as follows:
1. Attached hereto as Schedule 1 is a true, correct and complete copy of the resolutions of the Board of Directors of the Company duly adopted by the Board of Directors of the Company on __________. Such resolutions have not been amended, modified or rescinded since their date of adoption and remain in full force and effect as of the date hereof.
2. Attached hereto as Schedule 2 is a true, correct and complete copy of the Articles of Incorporation of the Company on file in the Office of the Secretary of State of North Carolina. Such Articles of Incorporation have not been amended, modified or rescinded since their date of adoption and were in full force and effect on the date of the resolutions referenced in paragraph 1 and remain in full force and effect as of the date hereof.
3. Attached hereto as Schedule 3 is a true, correct and complete copy of the Bylaws of the Company. Such Bylaws have not been amended, modified or rescinded since their date of adoption and remain in full force and effect as of the date hereof.
4. The persons named below now hold the offices set forth opposite their names, and the signatures opposite their names and titles are their true and correct signatures.
Name Office Signature
------------------- ----------------------- -------------------------
------------------- ----------------------- -------------------------
|
IN WITNESS WHEREOF, the Company has caused this ________ Secretary's Certificate to be duly executed and delivered as of this _____ day of ___________, _____.
WACHOVIA DEVELOPMENT CORPORATION
EXHIBIT G
[Form of Officer's Cash Collateral Compliance Certificate]
I, ______________________, _____________________ of a CYPRESS SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Lessee") hereby certify that, with respect to that certain Participation Agreement dated as of June 27, 2003 (as amended, modified, extended, restated or supplemented from time to time, the "Participation Agreement") by and among the Lessee, Wachovia Development Corporation, a North Carolina corporation, as the Lessor, the various financial institutions and other institutional investors which are parties thereto from time to time as Credit Lenders, the various financial institutions and other institutional investors which are parties thereto from time to time as Mortgage Lenders and Wachovia Bank, National Association, as Agent for the Primary Financing Parties and respecting the Security Documents, as Agent for the Secured Parties; all of the defined terms in the Participation Agreement are incorporated herein by reference) among the Lessee, the Lessor, the Lenders and the Agent; and capitalized terms used herein but not defined herein shall have the meaning provided therefor in Appendix A to the Participation Agreement and the rules of usage set forth therein shall apply herein:
a. The copies of the investment account statements which accompany this Officer's Certificate are true and correct copies of the investment account statements relating to the Cash Collateral Account received by the Lessee from the Intermediary covering the monthly period beginning on _____________, 200__ and ending on __________, 200__;
b. Since ___________ (the date of the last similar certification, or, if none, the Initial Closing Date) no Lease Default or Lease Event of Default has occurred; and
Delivered herewith are detailed calculations demonstrating compliance by the Lessee with the provisions of Section 5.4 of the Participation Agreement as of the end of the period referred to above.
This ______ day of ___________, ______.
CYPRESS SEMICONDUCTOR CORPORATION
Attachment to Officer's Cash Collateral Compliance Certificate
Calculations Demonstrating Compliance with Section 5.4 of the Participation Agreement
(Attach copies of Cash Collateral Account Statements)
Exhibit H
Form of Officer's Financial Compliance Certificate
This Certificate is delivered in accordance with the provisions of Section 8A.9 of that certain Participation Agreement dated as of June 27, 2003 (as amended, modified, extended, supplemented and/or restated from time to time, the "Participation Agreement") among Cypress Semiconductor Corporation, a Delaware corporation (the "Lessee"), Wachovia Development Corporation, a North Carolina corporation, as the Lessor, the various financial institutions and other institutional investors which are parties thereto from time to time as Credit Lenders, the various financial institutions and other institutional investors which are parties thereto from time to time as Mortgage Lenders and Wachovia Bank, National Association, as Agent for the Primary Financing Parties and respecting the Security Documents, as Agent for the Secured Parties; all of the defined terms in the Participation Agreement are incorporated herein by reference) among the Lessee, the Lessor, the Lenders and the Agent; and capitalized terms used herein but not defined herein shall have the meaning provided therefor in Appendix A to the Participation Agreement and the rules of usage set forth therein shall apply herein.
The undersigned, being a Responsible Officer of Lessee hereby certifies, in my official capacity and not in my individual capacity, that:
(a) the financial statements accompanying this Certificate fairly present the financial condition of the parties covered by such financial statements in all material respects;
(b) the Current Ratio for the fiscal quarter ending ___________, 200_ is ___ : 1.00 and delivered herewith are detailed calculations demonstrating compliance by the Lessee with the provisions of Section 8A.9 of the Participation Agreement as of the end of the period referred to above;
(c) except as set forth in Schedule 1 to this Certificate, during the period covered by such financial statements, Lessee observed or performed all of their covenants and other agreements in the Operative Agreements in all material respects, and satisfied in all material respects every material condition, contained in the Operative Agreements to be observed, performed or satisfied by them; and
(d) except as set forth in Schedule 1 to this Certificate, since ___________, 200_ (the date of the last similar certification, or, if none, the Initial Closing Date) no Lease Default or Lease Event of Default has occurred.
This the _______________ day of ________________________, 200_.
CYPRESS SEMICONDUCTOR CORPORATION
Schedule 1
[Noncompliance with (c) or (d)]
Attachment to Officer's Financial Compliance Certificate
Calculations Demonstrating Compliance with Section 8A.9 of the Participation Agreement
EXHIBIT I
FORM OF LEGAL OPINION FOR OUTSIDE LESSEE'S COUNSEL
June 27, 2003
TO THOSE ON THE ATTACHED DISTRIBUTION LIST
Re: Lease Financing Provided in favor of Cypress Semiconductor Corporation
Dear Ladies and Gentlemen:
We have acted as special counsel to Cypress Semiconductor Corporation, a Delaware corporation (the "Lessee") in connection with certain transactions contemplated by the Participation Agreement dated as of June 27, 2003 (the "Participation Agreement"), among the Lessee, Wachovia Development Corporation, a North Carolina corporation as the lessor (the "Lessor"), the various financial institutions and other institutional investors which are parties thereto from time to time as credit lenders (the "Credit Lenders"), the various financial institutions and other institutional investors which are parties thereto from time to time as mortgage lenders (the "Mortgage Lenders")and Wachovia Bank, National Association, as agent for the Primary Financing Parties and respecting the Security Documents, as Agent for the Secured Parties (the "Agent"). This opinion is delivered pursuant to Section 5.3(cc) of the Participation Agreement. All capitalized terms used herein, and not otherwise defined herein, shall have the meanings assigned thereto in Appendix A to the Participation Agreement. All terms which are defined herein are subject to the rules of usage of such terms set forth in Appendix A to the Participation Agreement.
In connection with the foregoing, we have examined originals, or copies certified to our satisfaction, of the Operative Agreements, and such other corporate, partnership or limited liability company documents and records of the Lessee and the Ground Lessor, certificates of public officials and representatives of the Lessee and the Ground Lessor as to certain factual matters, and such other instruments and documents which we have deemed necessary or advisable to examine for the purpose of this opinion.
Based on the foregoing, and having due regard for such legal considerations as we deem relevant, and subject to the limitations and assumptions set forth herein, we are of the opinion that:
[Expand opinions to include the Ground Lessor]
(a) The Lessee is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and
authority to execute, deliver and perform its obligations under the Operative Agreements and to conduct its business as presently conducted.
(b) The execution, delivery and performance by the Lessee of the Operative Agreements to which it is a party have been duly authorized by all necessary corporate action on the part of the Lessee and the Operative Agreements to which the Lessee is a party have been duly executed and delivered by the Lessee.
(c) The Operative Agreements to which the Lessee is a party constitute valid and binding obligations of the Lessee enforceable against the Lessee in accordance with the terms thereof, subject to bankruptcy, insolvency, liquidation, reorganization, fraudulent conveyance, and similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law).
(d) The execution and delivery by the Lessee of the Operative Agreements to which it is a party and compliance by the Lessee with all of the provisions thereof do not and will not (i) contravene the provisions of, or result in any breach of or constitute any default under, or result in the creation of any Lien (other than Permitted Liens) upon any of its property under, its articles of incorporation or by-laws or any indenture, mortgage, chattel mortgage, deed of trust, lease, conditional sales contract, bank loan or credit agreement or other agreement or instrument to which the Lessee is a party or by which it or any of its property may be bound or affected, or (ii) contravene any Laws or any order of any Governmental Authority applicable to or binding on the Lessee.
(e) No Governmental Action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery or performance by the Lessee of any of the Operative Agreements to which it is a party or for the acquisition, ownership, construction and completion of the Property, except for those which have been obtained.
(f) Except as set forth on Schedule 1 hereto, there are no actions, suits or proceedings pending or to our knowledge, threatened against the Lessee in any court or before any Governmental Authority, that concern the Property or the Lessee's interest therein or that question the validity or enforceability of any Operative Agreement to which the Lessee is a party or the overall transaction described in the Operative Agreements to which the Lessee is a party.
(g) Neither the nature of the Property, nor any relationship between the Lessee and any other Person, nor any circumstance in connection with the execution, delivery and performance of the Operative Agreements to which the Lessee is a party is such as to require any approval of stockholders of, or approval or consent of any trustee or holders of indebtedness of, the Lessee, except for such approvals and consents which have been duly obtained and are in full force and effect.
(h) The Security Documents which have been executed and delivered as of the date of this opinion create, for the benefit of the Agent, the security interests in the Collateral described therein which by their terms such Security Documents purport to create. Upon filing of the UCC-1 financing statement (attached hereto as Schedule 2) relating to the Security Documents in the recording offices of ______________, the Agent will have a valid, perfected lien and security interest in that portion of the Collateral which can be perfected by the filing of UCC-1 financing statement under Article 9 of the UCC in the State of Delaware.
(i) The offer, issuance, sale and delivery of the Notes under the circumstances contemplated by the Participation Agreement do not, under existing law, require registration of the Notes being issued on the date hereof under the Securities Act of 1933, as amended.
(j) The Cash Collateral Agreement and Control Agreement are in a form sufficient to create in favor of the Agent for the benefit of the Secured Parties a valid, perfected security interest in all right, title and interest of the Lessee in the Cash Collateral delivered to the Intermediary and held in the Cash Collateral Account.
Very truly yours,
[LESSEE'S OUTSIDE COUNSEL]
Distribution List
Wachovia Bank, National Association, as the Agent
The various financial institutions and other institutional investors which are parties which are parties to the Participation Agreement from time to time, as Credit Lenders
The various financial institutions and other institutional investors which are parties which are parties to the Participation Agreement from time to time, as Mortgage Lenders
Cypress Semiconductor Corporation, as the Lessee
Wachovia Development Corporation, as the Lessor
Schedule 1
(Litigation)
Schedule 2
(UCC-1 Financing Statement)
I. Rules of Usage
The following rules of usage shall apply to this Appendix A and the Operative Agreements (and each appendix, schedule, Exhibit and annex to the foregoing) unless otherwise required by the context or unless otherwise defined therein:
(a) Except as otherwise expressly provided, any definitions set forth herein or in any other document shall be equally applicable to the singular and plural forms of the terms defined.
(b) Except as otherwise expressly provided, references in any document to articles, sections, paragraphs, clauses, annexes, appendices, schedules or exhibits are references to articles, sections, paragraphs, clauses, annexes, appendices, schedules or exhibits in or to such document.
(c) The headings, subheadings and table of contents used in any document are solely for convenience of reference and shall not constitute a part of any such document nor shall they affect the meaning, construction or effect of any provision thereof.
(d) References to any Person shall include such Person, its successors, permitted assigns and permitted transferees except as otherwise stated, whenever the term "Person" is used to refer to Lessee, "Person" in that context shall not include the Lessor, its successors and assigns, the Financing Parties, and/or their respective successors and assigns.
(e) Except as otherwise expressly provided, reference to any agreement means such agreement as amended, modified, extended, supplemented and/or restated from time to time in accordance with the applicable provisions thereof.
(f) Except as otherwise expressly provided, references to any law includes any amendment or modification to such law and any rules or regulations issued thereunder or any law enacted in substitution or replacement therefor.
(g) When used in any document, words such as "hereunder", "hereto", "hereof" and "herein" and other words of like import shall, unless the context clearly indicates to the contrary, refer to the whole of the applicable document (and if necessary, other Operative Agreements) and not to any particular article, section, subsection, paragraph or clause thereof.
(h) References to "including" means including without limiting the generality of any description preceding such term and for purposes hereof the rule of ejusdem generis shall not be
applicable to limit a general statement, followed by or referable to an enumeration of specific matters, to matters similar to those specifically mentioned.
(i) References herein to "attorney's fees", "legal fees", "costs of counsel" or other such references shall be deemed to include the allocated cost of in house counsel.
(j) Each of the parties to the Operative Agreements and their counsel have reviewed and revised, or requested revisions to, the Operative Agreements, and the usual rule of construction that any ambiguities are to be resolved against the drafting party shall be inapplicable in the construction and interpretation of the Operative Agreements and any amendments or exhibits thereto.
(k) Capitalized terms used in any Operative Agreements which are not defined in this Appendix A but are defined in another Operative Agreement shall have the meaning so ascribed to such term in the applicable Operative Agreement.
(l) In the case of a conflict caused by a term being defined more than once, unless the context otherwise requires, such term shall have the meaning specified in such agreement, or if not defined therein, in Appendix A to the Participation Agreement.
(m) In computing any period of time for purposes of any Operative Agreement, provided the applicable time of day deadline, if any, with respect to such day has been met, than the first day of the applicable period shall be the immediately following day (or if specified, Business Day) otherwise the first day of the applicable period shall be the day of such deadline. In all cases, unless a specific time of day deadline is specified and complied with, in which case the date of such compliance shall not be counted, the day upon which the required event occurs or is to occur shall be counted.
(n) Unless otherwise specified or permitted in the Operative Agreements, all accounting terms used shall be interpreted, all accounting determinations shall be made, and all financial statements required to be delivered shall be prepared in accordance with GAAP applied on a basis consistent with the most recent audited consolidated financial statements of the Lessee delivered to the Agent and the Primary Financing Parties; provided that, if the Lessee shall notify the Agent and the Primary Financing Parties that they wish to amend any covenant in Section 8A.9 to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Agent notifies the Lessee that the Primary Financing Parties wish to amend Section 8A.9 for such purpose), then the Lessee's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Lessee and the Primary Financing Parties.
(o) Unless the context otherwise requires, references in the Operative Agreements to the acquisition of a Property or Land or ownership of the Land by the Lessor shall, unless the context otherwise requires, be deemed to refer to the acquisition of title to such Property or Land or ownership of the Land by the Lessor or the acquisition of a ground lease interest therein pursuant to a Ground Lease, as indicated in the Lease Supplement applicable thereto.
II. Definitions
"ABR" shall mean, for any day, a rate per annum equal to the greater of
(a) the Prime Lending Rate in effect on such day, and (b) the Federal Funds
Effective Rate in effect on such day plus one-half of one percent (0.5%). For
use in the Operative Agreements: "Prime Lending Rate" shall mean the rate
announced by the Agent from time to time as its prime lending rate as in effect
from time to time. The Prime Lending Rate is a reference rate and is one of
several interest rate bases used by the Agent and does not necessarily represent
the lowest or most favorable rate offered by the Agent actually charged to any
customer. The Agent may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate. The Prime Lending Rate shall
change automatically and without notice from time to time as and when the prime
lending rate of the Agent changes. "Federal Funds Effective Rate" shall mean,
for any period, a fluctuating interest rate per annum equal for each day during
such period to the weighted average of the rates on overnight Federal funds
transactions with members or the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Agent from three (3) Federal funds brokers of recognized standing selected by
it. Any change in the ABR due to a change in the Prime Lending Rate or the
Federal Funds Effective Rate shall be effective as of the opening of business on
the effective day of such change in the Prime Lending Rate or the Federal Funds
Effective Rate, respectively.
"ABR Lessor Advances" shall mean Lessor Advances the rate of Yield applicable to which is based upon the ABR.
"ABR Loans" shall mean Loans the rate of interest applicable to which is based upon the ABR.
"Acceleration" shall have the meaning given to such term in Section 6 of the Mortgage Note Loan Agreement and/or Section 6 of the Credit Note Loan Agreement.
"Accounts" shall have the meaning given to such term in Section 1 of the Security Agreement.
"Accounts Receivable" shall mean calculated with respect to the Lessee and its Consolidated Subsidiaries accounts receivables excluding (a) receivables that have been sold, transferred, pledged or are subject to a Lien in conjunction with any securitization or any similar transaction and (b) receivables from employees under the Stock Purchase Assistance Plan.
"Advance" shall have the meaning given to such term in Section 5.3 of the Participation Agreement.
"Affiliate" shall mean, with respect to any Person, any Person or group that, directly or indirectly, controls or is controlled by or is under common control with such Person.
"After Tax Basis" shall mean, with respect to any payment to be received, the amount of such payment increased so that, after deduction of the amount of all taxes required to be paid by the recipient calculated at the then maximum marginal U.S. federal and applicable state and local tax rates generally applicable to Persons of the same type as the recipients with respect to the receipt by the recipient of such amounts (less any tax savings realized as a result of the payment of the indemnified amount), such increased payment (as so reduced) is equal to the payment otherwise required to be made.
"Agent" shall mean Wachovia Bank, National Association, in its capacity as agent for the Primary Financing Parties pursuant to each of the Participation Agreement, the Mortgage Note Loan Agreement and the Credit Note Loan Agreement, or any successor agent appointed to replace or succeed Wachovia Bank, National Association in accordance with the terms of the Participation Agreement, the Mortgage Note Loan Agreement and the Credit Note Loan Agreement and respecting the Lease, such party in its capacity as agent for the Lessor and the Secured Parties and respecting the other Security Documents, as agent for the Secured Parties.
"Applicable Percentage" shall mean (i) for Eurodollar Loans from a Credit Lender, one-half of a percent (0.50%), (ii) for Eurodollar Loans from the Wachovia Mortgage Lender, one-half of a percent (0.50%), (iii) for Eurodollar Loans from a Mortgage Lender other than the Wachovia Mortgage Lender, such percentage provided in the applicable Operative Agreements and (iv) for Eurodollar Lessor Advances, two and one-half percent (2.5%).
"Appraisal" shall mean an "as-built" appraisal to be delivered in connection with the Participation Agreement or in accordance with the terms of the Lease, in each case prepared by a reputable appraiser reasonably acceptable to the Agent, which in the reasonable judgment of counsel to the Agent, complies with all of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules and regulations adopted pursuant thereto, and all other applicable Legal Requirements.
"Appraisal Procedure" shall have the meaning given such term in Section 22.4 of the Lease.
"Approved State" shall mean California, Minnesota and any other state within the forty-eight contiguous states of the United States proposed by the Lessee and consented to in writing by the Agent.
"Appurtenant Rights" shall mean (a) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to the Land underlying the Improvements or the Improvements, including without limitation the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to the Land and (b) all permits, licenses and rights, whether or not of record, appurtenant to such Land or the Improvements.
"Assignment and Acceptance" shall mean the Assignment and Acceptance in the form attached to the Credit Note Loan Agreement as Exhibit B or the Assignment and Acceptance in the form attached to the Mortgage Note Loan Agreement as Exhibit B, as applicable.
"Available Credit Note Commitments" shall mean the aggregate Credit Note Commitments less the sum of (a) the aggregate amount of Credit Notes (without giving effect to any prepayments) and (b) the portion of Requested Funds to be funded by the Credit Lenders which is set forth in any pending Requisition.
"Available for Sale Securities" shall mean investments by the Lessee classified as short term or long term in accordance with GAAP and in compliance with the investment policy approved by the Lessee's Board of Directors, but in all cases excluding all Cash Equivalents (as defined with respect to calculating the Current Ratio).
"Available Lessor Commitment" shall mean the aggregate Lessor Commitments less the sum of (a) the aggregate amount of Lessor Advances (without giving effect to any prepayments) and (b) the portion of Requested Funds to be funded by the Lessor which is set forth in any pending Requisition.
"Available Mortgage Note Commitment" shall mean the aggregate Mortgage Note Commitments less the sum of (a) the aggregate amount of Mortgage Notes (without giving effect to any prepayments) and (b) the portion of Requested Funds to be funded by the Mortgage Lenders which is set forth in any pending Requisition.
"Balances" shall mean, on any determination date, the sum of (i) the aggregate of all Advances by Credit Lenders less the principal amounts repaid on such Credit Note, (ii) the Mortgage Note Advances of each Mortgage Lender less the principal amounts repaid on such Mortgage Note, and (iii) the Lessor Advance of the Lessor as set forth in Section 5B of the Participation Agreement less the principal amount of such Lessor Advance repaid.
"Bankruptcy Code" shall mean Title 11 of the U. S. Code entitled "Bankruptcy," as now or hereafter in effect or any successor thereto.
"Bankruptcy Event" means with respect to Lessor or the Lessee, any voluntary or involuntary dissolution, winding-up, total or partial liquidation or reorganization, or bankruptcy, insolvency, receivership or other statutory or common law proceedings or arrangements involving the Lessor or the Lessee or the readjustment of its liabilities or any assignment for the benefit of creditors or any marshalling of its assets or liabilities.
"Basic Documents" shall mean the following: the Participation Agreement, the Mortgage Note Loan Agreement, the Credit Note Loan Agreement, the Notes, the Lease, the Security Agreement, the Cash Collateral Agreement, the Control Agreement, each Lease Supplement, the Mortgage Instruments, the other Security Documents, the Intercreditor Agreement (if any), the Deeds, each Ground Lease, the Bills of Sale and the Cash Collateral Security Documents.
"Basic Rent" shall mean an amount equal to the interest and Lessor Yield due on any Interest Payment Date (but not including interest on any overdue amounts under Section 2.8(b) of the Mortgage Note Loan Agreement, Section 2.8(b) of the Credit Note Loan Agreement or otherwise, or any yield on overdue amounts calculated at the Lessor Overdue Rate) payable in accordance with the Lease or the Participation Agreement.
"Basic Term" shall have the meaning specified in Section 2.2 of the Lease.
"Basic Term Commencement Date" shall have the meaning specified in Section 2.2 of the Lease.
"Basic Term Expiration Date" shall have the meaning specified in Section 2.2 of the Lease.
"Benefitted Lender" shall have the meaning specified in Section 9.10(a) of the Credit Note Loan Agreement or Section 9.10(a) of the Mortgage Note Loan Agreement, as applicable.
"Bill of Sale" shall mean a Bill of Sale regarding Equipment in form and substance satisfactory to the Agent.
"Board" shall mean the Board of Governors of the Federal Reserve System of the United States (or any successor).
"Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in North Carolina, California or New York are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan or a Eurodollar Lessor Advance, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a Capitalized Lease.
"Capital Stock" shall mean any nonredeemable capital stock of the Lessee or any of its Subsidiaries or of any other applicable Person, whether common or preferred.
"Capitalized Lease" shall mean, as applied to any Person, any lease of property (whether real, personal, tangible, intangible or mixed of such Person) by such Person as the lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP.
"Cash Collateral" shall mean the Cash and Cash Equivalents constituting part of the Collateral pledged by the Lessee and maintained in the Cash Collateral Account, all as referenced in the Cash Collateral Agreement and with respect to the pledge of the Cash Collateral, shall have the meaning given to such term in Section 1.1 of the Cash Collateral Agreement.
"Cash Collateral Account" shall mean the cash collateral account
(including without limitation the deposits and securities held in such account)
which is the subject of the Cash Collateral Agreement and held at Wachovia Bank,
National Association as account number 7572001153.
"Cash Collateral Agreement" shall mean the Assignment of Cash Collateral Account dated as of the Initial Closing Date executed by the Lessee in favor of the Agent, on behalf of the Credit Lenders.
"Cash Collateral Compliance Date" shall have the meaning given to such term in Section 5.4(b) of the Participation Agreement.
"Cash Collateral Obligations" means the collective reference to all obligations, now existing or hereafter arising, owing by the Lessor and/or the Lessee and/or any of their affiliates to the Credit Lenders, the Wachovia Mortgage Lender or the Lessor (or the Agent, on behalf of the Credit Lenders, the Wachovia Mortgage Lender or the Lessor) under or pursuant to the Operative Agreements whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with the Participation Agreement, the Credit Note Loan Agreement, the Mortgage Note Loan Agreement, the Lease Agreement, the Credit Notes, the Mortgage Notes held by the Wachovia Mortgage Lender or any of the other Operative Agreements, whether on account of principal, advanced amounts, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all reasonable fees and disbursements of counsel to the Agent, to the Credit Lenders, the Wachovia Mortgage Lender or the Lessor) that are required to be paid by the Lessor and/or the Lessee pursuant to the terms of the Operative Agreements.
"Cash Collateral Security Documents" shall mean the Cash Collateral Agreement, the Control Agreement, all other security documents hereafter delivered to the Agent (for the benefit of the any of the Credit Lenders, the Wachovia Mortgage Lender or the Lessor) granting a Lien on the Cash Collateral or any other asset or assets of any Person to secure the Cash Collateral Obligations and the other provisions of the Operative Agreements regarding the Cash Collateral.
"Cash Equivalents", with respect to the Cash Collateral Account, shall mean Lessee's (a) U.S. dollar denominated time and demand deposits and certificates of deposit issued by the Agent, in each case with maturities of not more than 364 days from the date of initial deposit or acquisition, (b) securities issued or directly and fully guaranteed or insured by the United States of America or issued by any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than five (5) years from the date of initial deposit or acquisition and (c) mutual funds with investments limited to the type of investments set forth in (b) of this definition. "Cash Equivalents" for the purpose of calculating the Current Ratio shall mean Lessee's investments with maturities of less than 91 days from the date of acquisition or original issue date in accordance to GAAP and in compliance with the investment policy approved by the Lessee's Board of Directors.
"Casualty" shall mean any damage or destruction of all or any portion of any Property as a result of a fire or other casualty.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986.
"Chattel Paper" shall have the meaning given to such term in Section 1 of the Security Agreement.
"Claims" shall mean any and all obligations, liabilities, losses, actions, suits, penalties, claims, demands, costs and expenses (including without limitation reasonable attorney's fees and expenses) of any nature whatsoever.
"Class A Cash Collateral" shall mean Cash Collateral consisting of any of the following types:
(a) cash; and
(b) U.S. dollar denominated time and demand deposits and certificates of deposit of the Agent, in each case with maturities of not more than 364 days from the applicable date of determination.
"Class B Cash Collateral" shall mean Cash Collateral consisting of Cash Equivalents other than the Class A Cash Collateral.
"Closing Date" shall mean the Initial Closing Date or any Property Closing Date.
"Code" shall mean the Internal Revenue Code of 1986 together with rules and regulations promulgated thereunder, as amended from time to time, or any successor statute thereto.
"Collateral" shall mean all assets of the Lessor and the Lessee, now owned or hereafter acquired, upon which a Lien is created by one or more of the Security Documents.
"Commencement Date" shall mean with respect to a Property, the applicable Property Closing date for such Property.
"Commitments" shall mean the Credit Note Commitments of each Credit Lender as set forth in Schedule 1 to the Participation Agreement, as such Schedule 1 may be amended or replaced from time to time, the Mortgage Note Commitments of each Mortgage Lender as set forth in Schedule 2 to the Participation Agreement, as such Schedule 2 may be amended and replaced from time to time, and the Lessor Commitment of the Lessor as set forth in Section 5B of the Participation Agreement.
"Commitment Percentage" shall mean, as to any Primary Financing Party at any time, the percentage which such Primary Financing Party's Commitment then constitutes of the aggregate
Commitments (or, at any time after the Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Primary Financing Party's Balance then outstanding constitutes of the aggregate principal amount of all of the Balances then outstanding).
"Commitment Period" shall mean the Initial Closing Date.
"Condemnation" shall mean any taking or sale of the use, access, occupancy, easement rights or title to any Property or any part thereof, wholly or partially (temporarily or permanently), by or on account of any actual or threatened eminent domain proceeding or other taking of action by any Person having the power of eminent domain, including without limitation an action by a Governmental Authority to change the grade of, or widen the streets adjacent to, such Property or alter the pedestrian or vehicular traffic flow to such Property so as to result in a change in access to such Property, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action.
"Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Lessee in its consolidated financial statements prepared in accordance with GAAP if such statements were prepared as of such date.
"Control Agreement" shall mean that certain Control Agreement dated as of the Initial Closing Date among the Agent, the Lessor, the Lessee and the Intermediary.
"Controlled Group" shall mean all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Lessee, are treated as a single employer under Section 414 of the Code.
"Credit Documents" shall mean the Participation Agreement, the Mortgage Note Loan Agreement, the Credit Note Loan Agreement, the Notes, the Security Documents, Cash Collateral Security Documents and any other Operative Agreement which relates to or governs the relationship among the Agent, the Lenders and/or the Borrower.
"Credit Lender Mortgage Instruments" means each deed of trust, mortgage and any other instrument executed by the Lessor or the Lessee in favor of the Agent (for the benefit of the Credit Lenders and the Lessor) and evidencing a Lien on the Property or the other Collateral described therein, in form and substance reasonably acceptable to the Credit Lenders, the Lessee (if party thereto) and the Lessor.
"Credit Lenders" shall mean the various financial institutions and institutional investors from time to time party to the Credit Note Loan Agreement in accordance with the Participation Agreement that commit to make Loans to the Lessor thereunder or otherwise hold from time to time the Credit Notes in accordance with the Participation Agreement.
"Credit Note" shall have the meaning given to it in Section 2.2 of the Credit Note Loan Agreement.
"Credit Note Commitments" shall mean the obligation of the Credit Lenders to make Loans to the Lessor in an aggregate principal amount not to exceed the aggregate of the amounts set forth opposite each Credit Lender's name on Schedule 1 to the Participation Agreement; provided, no Credit Lender shall be obligated to make Loans to the Lessor in excess of such Credit Lender's share of the Credit Note Commitments as set forth adjacent to such Credit Lender's name on Schedule 1 to the Participation Agreement.
"Credit Note Loan" shall mean a Loan by a Credit Lender.
"Credit Note Loan Agreement" shall mean that certain Credit Note Loan Agreement dated as of the Closing Date among the Credit Lenders, the Lessor and the Agent.
"Credit Note Loan Agreement Default" shall mean any event or condition which, with the lapse of time or the giving of notice, or both, would constitute a Credit Note Loan Agreement Event of Default.
"Credit Note Loan Agreement Event of Default" shall mean an "Event of Default" as defined in Section 6 of the Credit Note Loan Agreement.
"Current Ratio" shall mean calculated with respect to the Lessee and its Consolidated Subsidiaries as of the date of determination, the ratio of (a) the sum of cash (excluding restricted cash), Cash Equivalents, Available for Sale Securities and Accounts Receivable to (b) current liabilities as defined in accordance with GAAP.
"Debt Rating" shall mean, as of any date of determination thereof and with respect to any Person, the ratings most recently published by the Rating Agencies relating to the unsecured, unsupported senior long-term debt obligations of such Person.
"Deed" shall mean a warranty deed (or such similar deed) regarding the Land and/or Improvements constituting the Property in form and substance satisfactory to the Agent.
"Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Credit Lender" shall have the meaning given to such term in
Section 12.4 of the Participation Agreement.
"Defaulting Mortgage Lender" shall have the meaning given to such term in
Section 12.4 of the Participation Agreement.
"Dispute" shall mean any claim or controversy arising out of, or relating to, the Operative Agreements between or among the parties thereto.
"Documents" shall have the meaning given to such term in Section 1 of the Security Agreement.
"Dollars" and "$" shall mean dollars in lawful currency of the United States of America.
"Domestic Subsidiary" shall mean, with respect to any Person, any Subsidiary of such Person which is incorporated or organized under the laws of any State of the United States or the District of Columbia.
"Election Date" shall have the meaning given to such term in Section 20.1 of the Lease.
"Election Notice" shall have the meaning given to such term in Section 20.1 of the Lease.
"Eligible Lessor" shall mean a Person (a) domiciled in the U.S., (b) with a minimum net worth of at least $350,000,000.00 and a Debt Rating of a Rating Agency of "A" or higher and (c) not a competitor of Lessee or its Affiliates.
"Environmental Claims" shall mean any investigation, notice, violation, demand, allegation, action, suit, injunction, judgment, order, consent decree, penalty, fine, lien, proceeding, or claim (whether administrative, judicial, or private in nature) relating to or affecting any Property arising (a) pursuant to, or in connection with, an actual or alleged violation of, any Environmental Law, (b) in connection with any Hazardous Substance, (c) from any abatement, removal, remedial, corrective, or other response action in connection with a Hazardous Substance, Environmental Law, or other order of a Tribunal with respect to a Hazardous Substance or an Environmental Law or (d) from any actual or alleged damage, injury, threat, or harm to the extent relating to health, safety, natural resources, or the environment.
"Environmental Laws" shall mean any Law, permit, consent, approval, license, award, or other authorization or requirement of any Tribunal relating to emissions, discharges, releases, threatened releases of any Hazardous Substance into ambient air, surface water, ground water, publicly owned treatment works, septic system, or land, or otherwise relating to the handling, storage, treatment, generation, use, or disposal of Hazardous Substances, pollution or to the protection of health or the environment, including without limitation CERCLA, the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901, et seq., and state statutes analogous thereto.
"Environmental Violation" shall mean any activity, occurrence or condition that violates or threatens (if the threat requires remediation under any Environmental Law and is not remediated during the period provided under such Environmental Law) to violate or results in or threatens (if the threat requires remediation under any Environmental Law and is not remediated during the period provided under such Environmental Law) to result in noncompliance with any Environmental Law relating to or affecting any Property.
"Equipment" shall mean (excluding Non Integral Equipment) equipment, apparatus, furnishings, fittings and personal property of every kind and nature whatsoever purchased, leased or otherwise acquired using the proceeds of any Advance and all Modifications (to the extent titled in Lessor's name or deemed to be Lessor's property) thereto and substitutions and replacements thereof, whether or not now owned or hereafter acquired or now or subsequently attached to, contained in or used or usable in any way in connection with any operation of any Improvements, including but without limiting the generality of the foregoing, all equipment
described in the Appraisal including without limitation all heating, electrical, and mechanical equipment, lighting fixtures, switchboards, plumbing, ventilation, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, elevators, loading and unloading equipment and systems, cleaning systems (including without limitation window cleaning apparatus), telephones, communications systems (including without limitation satellite dishes and antennae), televisions, computers, sprinkler systems and other fire prevention and extinguishing apparatus and materials, security systems, motors, engines, machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of every kind and description excluding the items of equipment set forth in Schedule 3 to the Participation Agreement to the extent such equipment was not (i) acquired using the proceeds of any Advance or any Proceeds, (ii) a substitution or replacement thereof or (iii) a Modification required by the Lease.
"Equipment Schedule" shall mean each Equipment Schedule attached to the applicable Lease Supplement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Lessee, are treated as a single employer under Section 414 of the Code.
"Eurocurrency Reserve Requirements" shall mean for any day as applied to a Loan or a Lessor Advance based on the Eurodollar Rate, the aggregate (without duplication) of the maximum rates (expressed as a decimal) of reserve requirements in effect on such day (including without limitation basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed on eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D) maintained by a member bank of the Federal Reserve System.
"Eurodollar Lessor Advances" shall mean Lessor Advances the rate of Lessor Yield applicable to which is based upon the Eurodollar Rate.
"Eurodollar Loans" shall mean Loans the rate of interest applicable to which is based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean for the Interest Period for any Eurodollar Loan or Lessor Advance based on the Eurodollar Rate (including without limitation conversions, extensions and renewals), a per annum interest rate equal to a fraction (a) expressed as a percentage (rounded upward to the nearest one sixteenth (1/16) of one percent (1%)) (i) with the numerator equal to a per annum interest rate determined by the Agent (each such determination to be conclusive and binding absent manifest error) on the basis of the offered rates for deposits in dollars for a period of time corresponding to such Interest Period (and commencing on the first day of such Interest Period), reported on Telerate page 3750 (or such other page as may replace Telerate page 3750 on that service or a successor service for the purpose of displaying London interbank offered
rates of major banks) as of 11:00 a.m. (London time) two (2) Business Days before the first day of such Interest Period and (ii) the denominator equal to 100% minus the Eurocurrency Reserve Requirements. In the event no such offered rates appear on Telerate page 3750 (or such other page as may replace Telerate page 3750 on that service or a successor service for the purpose of displaying London interbank offered rates of major banks), "Eurodollar Rate" shall mean for the Interest Period for any such Loan or Lessor Advance (including without limitation conversions, extensions and renewals), a per annum interest rate equal to a fraction (b) expressed as a percentage (rounded upward to the nearest one sixteenth (1/16) of one percent (1%)) (i) with the numerator equal to a per annum interest rate determined by the Agent (each such determination to be conclusive and binding absent manifest error) on the basis of the offered rates for deposits in dollars for a period of time corresponding to such Interest Period (and commencing on the first day of such Interest Period), which appear on the Reuters Screen LIBO Page (or such other page as may replace Telerate page 3750 on that service or a successor service for the purpose of displaying London interbank offered rates of major banks) as of 11:00 a.m. (London time) two (2) Business Days before the first day of such Interest Period (provided that if at least two (2) such offered rates appear on the Reuters Screen LIBO Page, the rate in respect of such Interest Period will be the arithmetic mean of such offered rates) and (ii) the denominator equal to 100% minus the Eurocurrency Reserve Requirements. As used in the Operative Agreements, "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service or a successor service for the purpose of displaying London interbank offered rates of major banks) ("RMMRS"). In the event the RMMRS is not then quoting such offered rates, "Eurodollar Rate" shall mean for the Interest Period for any such Loan or Lessor Advance (including without limitation conversions, extensions and renewals), a per annum interest rate equal to a fraction (c) expressed as a percentage (rounded upward to the nearest one-sixteenth (1/16) of one percent (1%)) (i) with the numerator equal to the average per annum rate of interest determined by the office of the Agent (each such determination to be conclusive and binding absent manifest error) as of two (2) Business Days prior to the first day of such Interest Period, as the effective rate at which deposits in immediately available funds in U.S. dollars are being, have been, or would be offered or quoted by the Agent to major banks in the applicable interbank market for Eurodollar deposits at any time during the Business Day which is the second Business Day immediately preceding the first day of such Interest Period, for a term comparable to such Interest Period and in the amount comparable to such Loan or Lessor Advance and (ii) the denominator equal to 100% minus the Eurocurrency Reserve Requirements. If no such offers or quotes are generally available for such amount, then the Agent shall be entitled to determine the Eurodollar Rate from another recognized service or interbank quotation, or by estimating in its reasonable judgment the per annum rate (as described above) that would be applicable if such quote or offers were generally available.
"Event of Default" shall mean a Lease Event of Default, a Mortgage Note Loan Agreement Event of Default, a Credit Note Loan Agreement Event of Default or a Cash Collateral Agreement Event of Default.
"Event of Loss" shall mean any Casualty, Condemnation or Environmental Violation that causes or results in the delivery of a Termination Notice by the Lessee in accordance with Section 16.1 of the Lease.
"Excepted Payments" shall mean:
(a) all indemnity payments (including without limitation indemnity payments made pursuant to Section 11 of the Participation Agreement), whether made by adjustment to Basic Rent or otherwise, to which any Financing Party or any of its Affiliates, agents, officers, directors or employees is entitled;
(b) any amounts (other than Basic Rent or Termination Value) payable under any Operative Agreement to reimburse any Financing Party or any of its Affiliates (including without limitation the reasonable expenses of any Financing Party incurred in connection with any such payment) for performing or complying with any of the obligations of the Lessee under and as permitted by any Operative Agreement;
(c) any amount payable to the Lessor or any other Primary Financing Party by a transferee permitted under the Operative Agreements of the Lessor or such other Primary Financing Party as the purchase price of the Lessor's interest in the Lessor's Interest (which amount other than the purchase price shall not include any amounts necessary to pay the principal, interest and Make-Whole Amount on the Notes or any other amount payable to the Agent or the Primary Financing Parties) or such Primary Financing Party's interest in the transactions contemplated by the Operative Agreements (or a portion thereof);
(d) any insurance proceeds (or payments with respect to risks self-insured or policy deductibles) under liability policies other than such proceeds or payments payable to any Financing Party;
(e) any insurance proceeds under policies maintained by the Lessor or any other Financing Party pursuant to or in accordance with the terms of the Operative Agreements;
(f) Transaction Expenses or other amounts, fees, disbursements or expenses paid or payable to or for the benefit of the Lessor or any other Financing Party;
(g) any payments in respect of interest to the extent attributable to payments referred to in clauses (a) through (f) above; and
(h) any rights of the Financing Parties to demand, collect, sue for or otherwise receive and enforce payment of any of the foregoing amounts, provided that such rights shall not include the right to terminate the Lease.
"Excess Proceeds" shall mean the excess, if any, of the aggregate of all Property Proceeds over the Termination Value for all Properties.
"Exculpated Persons" shall mean the Lessor (except with respect to the representations and warranties and the other obligations of the Lessor pursuant to the Operative Agreements
solely with regard to the provision of Lessor Advances), its respective successors, assigns, trustees, officers, directors, shareholders, partners, employees, agents and Affiliates.
"Exempt Payments" shall have the meaning specified in Section 11.2(e) of the Participation Agreement.
"Expiration Date" shall mean the last day of the Term; provided, in no event shall the Expiration Date be later than the fifth anniversary of the Initial Closing Date, unless a later date has been expressly agreed to in writing by each of the Lessor, the Lessee, the Agent, and each other Primary Financing Party in accordance with the terms and conditions set forth in Section 2.2 of the Lease, in which case the Expiration Date shall in no event be later than the twentieth anniversary of the Initial Closing Date.
"Fair Market Sales Value" shall mean, with respect to any Property or Collateral (other than Cash Collateral), the amount, which in any event, shall not be less than zero (0), that would be paid in cash in an arms-length transaction between an informed and willing purchaser and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, such Property or Collateral. Fair Market Sales Value of the applicable Property or Collateral (other than Cash Collateral) shall be determined based on the assumption that, except for purposes of Section 17 of the Lease, such Property or Collateral is in the condition and state of repair required under Section 10.1 of the Lease and the Lessee is in compliance with the other requirements of the Operative Agreements.
"Federal Funds Effective Rate" shall have the meaning given to such term in the definition of ABR.
"Fifty Percent FMV Event" shall have the meaning given to such term in
Section 8.2(f) of the Participation Agreement.
"Finance Agreements" shall mean the Participation Agreement, the Mortgage Note Loan Agreement, the Credit Note Loan Agreement, the Notes, the Security Documents, Cash Collateral Security Documents and any other Operative Agreement which relates to or governs the relationship among the Agent, the Lenders and/or the Lessor.
"Financing" shall mean the financing extended pursuant to the Mortgage Note Loan Agreement, the Credit Note Loan Agreement and the amount of the Lessor Advances.
"Financing Parties" shall mean the Agent and the Primary Financing Parties (each, a "Financing Party").
"Fixtures" shall mean all fixtures other than Non-Integral Equipment, including without limitation all components thereof, purchased, leased or otherwise acquired using the proceeds of any Advance, together with all replacements and substitutions thereto and all fixtures which become property of the Lessor pursuant to Articles X or XI of the Lease.
"Form W-8BEN" shall have the meaning specified in Section 11.2(e) of the Participation Agreement.
"Form W-8ECI" shall have the meaning specified in Section 11.2(e) of the Participation Agreement.
"GAAP" shall mean generally accepted accounting principles, consistently applied, set forth in the opinions and pronouncements of the accounting principles board of the American Institute of Certified Public Accountants, and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, that are applicable to the circumstances as of the date of determination.
"Governmental Action" shall mean 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 Legal Requirement, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use, operation and occupancy by Lessee of any Property and by the zoning of any Property.
"Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
"Ground Lease" shall mean that certain Amended and Restated Ground Lease
Agreement for the Property located in Hennipin County, Minnesota, dated as of
the Initial Closing Date and including amendments required by the Lessor or for
any other Property to be ground leased, a ground lease in form and substance and
on terms satisfactory to the Agent, in its sole discretion, provided, in each
case such ground lease shall include terms and conditions which comply with
Section 8.3(bb) of the Participation Agreement and the other terms and
conditions of the Operative Agreements.
"Hazardous Substance" shall mean any of the following: (a) any petroleum or petroleum product, explosives, radioactive materials, asbestos, formaldehyde, polychlorinated biphenyls, lead and radon gas; (b) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste, or pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic, harmful or hazardous to the environment or human health or safety as determined in accordance with any Environmental Law; or (c) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant that would support the assertion of any claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law.
"Impositions" shall mean any and all liabilities, losses, expenses, costs, charges and Liens of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever ("Taxes") including but not limited to (i) real and
personal property taxes, including without limitation personal property taxes on
any property covered by the Lease that is classified by Governmental Authorities
as personal property, and real estate or ad valorem taxes in the nature of
property taxes; (ii) sales taxes, use taxes and other similar taxes (including
rent taxes and intangibles taxes); (iii) excise taxes; (iv) real estate transfer
taxes, conveyance taxes, stamp taxes and documentary recording taxes and fees;
(v) taxes that are or are in the nature of franchise, income, value added,
privilege and doing business taxes, license and registration fees; (vi)
assessments on any Property, including without limitation all assessments for
public Improvements or benefits, whether or not such improvements are commenced
or completed within the Term; and (vii) taxes, Liens, assessments or charges
asserted, imposed or assessed by the Pension Benefit Guaranty Corp. or any
governmental authority succeeding to or performing functions similar to, the
PBGC; and all interest, additions to tax and penalties, which at any time prior
to, during or with respect to the Term or in respect of any period for which the
Lessee shall be obligated to pay Supplemental Rent, may be levied, assessed or
imposed by any Governmental Authority upon or with respect to (a) any
Indemnified Person, any Property or any part thereof or interest therein; (b)
the leasing, financing, refinancing, purchase, acceptance, rejection,
substitution, subleasing, assignment, control, condition, occupancy, servicing,
maintenance, repair, ownership, possession, activity conducted on or in,
delivery, insuring, use, rental, lease, operation, improvement, sale, transfer
of title, return or other disposition of any Property or any part thereof or
interest therein; (c) the Notes, other indebtedness with respect to any
Property, or any part thereof or interest therein; (d) the rentals, receipts or
earnings arising from any Property or any part thereof or interest therein; (e)
the Operative Agreements, the execution, performance or enforcement thereof, or
any payment made or accrued pursuant thereto; (f) the income or other proceeds
received with respect to any Property or any part thereof or interest therein
upon the sale or disposition thereof; (g) any contract relating to the
construction, acquisition or delivery of the Improvements or any part thereof or
interest therein; (h) the issuance of the Notes; (i) the Lessor or the Lessor's
Interest; or (j) otherwise in connection with the transactions contemplated by
the Operative Agreements.
"Improvements" shall mean, with respect to any Land, all buildings, structures, Fixtures, and other improvements of every kind existing at any time and from time to time on or under the Land purchased or otherwise acquired using the proceeds of the Advance, together with any and all appurtenances to such buildings, structures or improvements, including without limitation sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including without limitation all Modifications and other additions to or changes in the Improvements at any time, including without limitation (a) any Improvements existing as of the Closing Date as such Improvements may be referenced on the applicable Requisition and (b) any Improvements made subsequent to the Closing Date, provided, in all cases, "Improvements" shall exclude Non-Integral Equipment.
"Indebtedness" for any Person, means: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of
business so long as such trade accounts payable are payable within 90 days of
the date the respective goods are delivered or the respective services are
rendered; (c) Indebtedness of others secured by a Lien on the property of such
Person, whether or not the respective indebtedness so secured has been assumed
by such Person; (d) non-contingent obligations of such Person in respect of
letters of credit, bankers' acceptances or similar instruments issued or
accepted by banks and other financial institutions for account of such Person;
(e) Capital Lease Obligations of such Person; and (f) Indebtedness of others
guaranteed by such Person.
"Indemnified Person" shall mean the Agent, the Primary Financing Parties and their respective successors, permitted assigns, directors, trustees, shareholders, partners, officers, employees, agents and Affiliates.
"Indemnity Provider" shall mean the Lessee.
"Initial Closing Date" shall mean June 27, 2003.
"Instruments" shall have the meaning given to such term in Section 1 of the Security Agreement.
"Insurance Requirements" shall mean all terms and conditions of any insurance policy either required by the Lease to be maintained by the Lessee and all requirements of the issuer of any such policy and, regarding self insurance, any other requirements of the Lessee.
"Intercreditor Agreement" shall mean that certain Intercreditor and Lien Subordination Agreement, if any, dated after the Initial Closing Date among the Financing Parties, provided, Lessee's consent shall be required with respect to provisions therein that affect the Lessee.
"Interest Payment Date" shall mean (a) as to any payment of Lessor Yield on any Lessor Advance based on the Eurodollar Rate and any interest payment on any Eurodollar Loan, the last day of the Interest Period applicable to such Lessor Advance or Eurodollar Loan, as applicable or respecting any Lessor Advance based on the Eurodollar Rate and any Eurodollar Loan having an interest period of six (6) months, the three (3) month anniversary of such Interest Period, (b) as to any payment of Lessor Yield on any Lessor Advance based on the ABR and any interest payment pursuant to any ABR Loan, the first day of each month, unless such day is not a Business Day and in such case on the immediately preceding Business Day and (c) as to all Financings, the date of any voluntary or involuntary payment, prepayment, return or redemption, and the Expiration Date, as the case may be.
"Interest Period" shall mean as to any Loan or Lessor Advance based on the Eurodollar Rate (i) with respect to the initial Interest Period, the period beginning on the Initial Closing Date and ending one (1) month, three (3) months or to the extent available to the Lessor and all Lenders six (6) months thereafter, as selected in accordance with the applicable provisions of the Operative Agreements and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan or Eurodollar Lessor Advance and ending one (1) month, three (3) months or to the extent available to the Lessor and all Lenders six (6) months thereafter, as selected in accordance with the applicable provisions of the
Operative Agreements; provided, however, that all of the foregoing provisions relating to Interest Periods are subject to the following: (A) if any Interest Period would end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day (except that where the next succeeding Business Day falls in the next succeeding calendar month, then on the next preceding Business Day), (B) no Interest Period shall extend beyond the Expiration Date, (C) where an Interest Period begins on a day for which there is no numerically corresponding day in the calendar month in which the Interest Period is to end, such Interest Period shall end on the last Business Day of such calendar month and (D) there shall not be more than four (4) Interest Periods outstanding at any one time.
"Intermediary" shall mean Wachovia Bank, National Association.
"Investment Company Act" shall mean the Investment Company Act of 1940, as amended, together with the rules and regulations promulgated thereunder.
"Land" shall mean each parcel of real property described on (a) the Requisition issued by the Lessee on the applicable Property Closing Date and (b) the schedules to each applicable Lease Supplement executed and delivered in accordance with the requirements of Section 2.4 of the Lease, including without limitation, the Lease, together with all right, title and interest of such party in and to (1) all streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to such parcel of real property or any Improvements; (2) any strips or gores between such parcel of real property and abutting or adjacent properties; and (3) all water and water rights, timber, crops and mineral interests on or pertaining to such parcel of real property.
"Law" shall mean any statute, law, ordinance, regulation, rule, directive, order, writ, injunction or decree of any Tribunal.
"Lease" or "Lease Agreement" shall mean the Lease Agreement dated as of the Closing Date, between the Lessor and the Lessee, together with the Lease Supplement thereto.
"Lease Default" shall mean any event or condition which, with the lapse of time or the giving of notice, or both, would constitute a Lease Event of Default.
"Lease Event of Default" shall have the meaning specified in Section 17.1 of the Lease.
"Lease Supplement" shall mean the Lease Supplement substantially in the form of Exhibit A to the Lease, together with all attachments and schedules thereto.
"Legal Requirements" shall mean all foreign, federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting the Lessor, the Lessee, the Agent, any Primary Financing Party or any Collateral, Property, or any Land, Improvement, Equipment or the taxation, demolition, construction, use or alteration of such Property, Land, Improvements, or Equipment whether now or hereafter enacted and in force, including without limitation any that require repairs,
modifications or alterations in or to any Property or in any way limit the use and enjoyment thereof (including without limitation all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. ss. 12101 et. seq., and any other similar federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including without limitation all Environmental Laws), and all permits, certificates of occupancy, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to the Lessee affecting any Property or the Appurtenant Rights.
"Lender" shall mean, individually, any Credit Lender or any Mortgage Lender, and "Lenders" shall mean, collectively, all of the Credit Lenders and the Mortgage Lenders.
"Lessee" shall have the meaning set forth in the Lease.
"Lessee Secured Obligations" mean the collective reference to all obligations, now existing or hereafter arising, owing by the Lessee and/or any of its Affiliates to any Financing Party (unless specifically limited to certain Financing Parties) under or pursuant to the Operative Agreements (including without limitation all Cash Collateral Obligations and all Rent) whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with the Participation Agreement, the Lease Agreement, or any of the other Operative Agreements, whether on account of principal, advanced amounts, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all reasonable fees and disbursements of counsel to the Agent or to the Lessor) that are required to be paid by the Lessee pursuant to the terms of the Operative Agreements.
"Lessor" shall mean Wachovia Development Corporation, a North Carolina corporation, and any successor, replacement and/or additional lessor or lessor expressly permitted under the Operative Agreements.
"Lessor Advance" shall have the meaning given to such term in Section 5.2(c) of the Participation Agreement.
"Lessor Commitments" shall mean the obligation of the Lessor to make the Lessor Advance in an amount not to exceed $3,780,000.00.
"Lessor Default Enforcement Costs" shall mean the reasonable legal fees and expenses of the Financing Parties associated with their exercise of remedies with respect to a Limited Recourse Event of Default.
"Lessor Financing Statements" shall mean UCC financing statements and fixture filings appropriately completed and authorized for filing in the applicable jurisdictions in order to protect the Lessor's interest under the Lease to the extent the Lease is a security agreement or a mortgage.
"Lessor Lien" shall mean any Lien, true lease or sublease or disposition of title arising as a result of (a) any claim against the Lessor not resulting from the transactions contemplated by the Operative Agreements, (b) any act or omission of the Lessor which is not required by the Operative Agreements or is in violation of any of the terms of the Operative Agreements, (c) any claim against the Lessor with respect to Taxes or Transaction Expenses against which the Lessee is not required to indemnify the Lessor pursuant to Section 11 of the Participation Agreement or (d) any claim against the Lessor arising out of any transfer by the Lessor of all or any portion of the interest of the Lessor in any Property, the Collateral, the Lessor's Interest or the Operative Agreements other than the transfer of title to or possession of any Property or the Collateral by the Lessor pursuant to and in accordance with the Lease, the Credit Note Loan Agreement, the Mortgage Note Loan Agreement, the Security Agreement or the Participation Agreement, including without limitation, pursuant to the exercise of the remedies set forth in Article XVII of the Lease.
"Lessor Notice" shall have the meaning given to such term in Section 8.2(f) of the Participation Agreement.
"Lessor Overdue Rate" shall mean the lesser of (a) the then-current rate of Lessor Yield based on the ABR plus two percent (2%) and (b) the highest rate permitted by applicable Law.
"Lessor Yield" shall mean with respect to the Lessor Advance from time to
time either the Eurodollar Rate plus the Applicable Percentage or the ABR, as
elected by the Lessor; provided, however, (a) in the event the Agent is unable
to determine the Eurodollar Rate as provided in Section 5B.6(c) of the
Participation Agreement, the outstanding Lessor Advance shall bear a yield at
the ABR applicable from time to time from and after the dates and during the
periods specified in Section 5B.6(c) of the Participation Agreement, and (b)
upon the delivery by Lessor of the notice described in Section 11.3(d) of the
Participation Agreement, the Lessor Advance shall bear a yield at the ABR
applicable from time to time after the dates and during the periods specified in
Section 11.3(d) of the Participation Agreement.
"Lessor's Interest" shall mean the Lessor's rights in, to and under the Property, the Operative Agreements, any other property contributed on behalf of the Lessee, the Collateral and any and all other property or assets from time to time of the Lessor obtained with respect to the Operative Agreements, including, without limitation, Modifications to the extent Lessor has an interest therein, and all amounts of Rent, Property Proceeds, indemnity or other payments of any kind received by the Lessor pursuant to the Operative Agreements; provided, the term "Lessor's Interest" shall not include any Lessor Advance or Lessor Yield.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien, option or charge of any kind.
"Limited Recourse Amount" shall mean with respect to any Property, as of any Payment Date, an amount equal to the Termination Value with respect to such Property on each Payment Date, less the Maximum Residual Guarantee Amount as of such date with respect to such Property.
"Limited Recourse Event of Default" shall have the meaning given to such term in Section 17.12 of the Lease.
"Loans" shall mean the loans extended by the Lenders to the Lessor pursuant to the Credit Note Loan Agreement and/or the Mortgage Note Loan Agreement.
"LRED Period" shall have the meaning given to such term in Section 17.12 of the Lease.
"Majority Credit Lenders" shall mean at any time, Credit Lenders whose Credit Notes outstanding represent at least sixty-six and two/thirds percent (66 2/3%) of the aggregate Credit Notes outstanding.
"Majority Mortgage Lenders" shall mean at any time, Mortgage Lenders whose Mortgage Notes outstanding represent at least sixty-six and two/thirds percent (66 2/3%) of the aggregate Mortgage Notes outstanding.
"Majority Secured Parties" shall mean at any time, Primary Financing Parties whose Loans and/or Lessor Advances outstanding represent at least sixty-six and two/thirds percent (66 2/3%) of (a) the aggregate Financing outstanding or (b) to the extent there is no Financing outstanding, the aggregate of the Primary Financing Party Commitments.
"Make-Whole Amount" shall mean $0 with respect to the Wachovia Mortgage
Lender and with respect to any Mortgage Lenders, other than the Wachovia
Mortgage Lender, an amount equal to (a) from the Initial Closing Date through
and including the first anniversary of the Initial Closing Date, the product of
two percent (2%) and the aggregate amount of Mortgage Loans owed to such
Mortgage Lenders with respect to all Properties, as of the date of
determination, but calculated prior to payment of the Termination Value or any
other principal prepayments and (b) from, but excluding the first anniversary of
the Initial Closing Date through and including the second anniversary of the
Initial Closing Date, the product of one percent (1%) and the aggregate amount
of Mortgage Loans owed to such Mortgage Lenders with respect to all Properties,
as of the date of determination, but calculated prior to payment of the
Termination Value or any other principal prepayments; provided, in either (a) or
(b), if a Lease Event of Default occurring solely as a result of violation of
Section 8A.9 of the Participation Agreement has occurred and is continuing, then
during the continuance of such Event of Default, the Make-Whole Amount shall be
deemed to be $0.
"Marketing Period" shall mean, if the Lessee has given a Sale Notice in accordance with Section 20.1 of the Lease, the period commencing on the date such Sale Notice is given and ending on the Expiration Date.
"Material Adverse Effect" shall mean a material adverse effect on (a) the business, condition (financial or otherwise), assets, liabilities or operations of the Lessee, (b) the ability of the Lessee to perform its respective obligations under any Operative Agreement to which it is a party, (c) the validity or enforceability of any Operative Agreement or the rights and remedies of the Agent or the Primary Financing Parties thereunder, (d) the validity, priority or enforceability of any Lien on any Property or the Collateral created by any of the Operative Agreements, or (e)
the fair market value, utility or useful life of any Property or the use, or ability of the Lessee to use, any Property for the purpose for which it was intended.
"Material Plan" shall have the meaning given to such term in Section 17.1(n) of the Lease.
"Maximum Residual Guarantee Amount" shall mean for each Property (or as set forth in such Schedule 4 to the Participation Agreement the Land and Improvements on a separate basis) the amount set forth on Schedule 4 to the Participation Agreement.
"Memorandum of Lease" shall mean the Memorandum of Lease substantially in the form of Exhibit B to the Lease, together with all attachments and schedules thereto.
"Modifications" shall have the meaning specified in Section 11.1(a) of the Lease.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgage Instruments" shall mean each deed of trust, mortgage and any other instrument executed by the Lessor and the Lessee in favor of the Agent (for the benefit of the Secured Parties) and evidencing a Lien on any Property or other Collateral, in form and substance reasonably acceptable to the Agent, including without limitation the Credit Lender Mortgage Instruments and the Mortgage Lender Mortgage Instruments.
"Mortgage Lender Mortgage Instruments" means each deed of trust, mortgage and any other instrument executed by the Lessor and the Lessee in favor of the Agent (for the benefit of the Mortgage Lender) and evidencing a Lien on the Property or other Collateral described therein, in form and substance reasonably acceptable to the Mortgage Lender.
"Mortgage Lenders" shall mean the various financial institutions and institutional investors from time to time party to the Mortgage Note Loan Agreement in accordance with the Participation Agreement that commit to make Loans to the Lessor thereunder or otherwise hold from time to time the Mortgage Notes in accordance with the Participation Agreement.
"Mortgage Note" shall have the meaning given to it in Section 2.2 of the Mortgage Note Loan Agreement.
"Mortgage Note Commitments" shall mean the obligation of the Mortgage Lenders to make Loans to the Lessor in an aggregate principal amount at any one time outstanding not to exceed the aggregate of the amounts set forth opposite each Mortgage Lender's name on Schedule 2 to the Participation Agreement, as such amount may be increased or reduced from time to time in accordance with the provisions of the Operative Agreements; provided, no Mortgage Lender shall be obligated to make Loans to the Lessor in excess of such Mortgage Lender's share of the Mortgage Note Commitments as set forth adjacent to such Mortgage Lender's name on Schedule 2 to the Participation Agreement.
"Mortgage Note Loan" shall mean a Loan by a Mortgage Lender.
"Mortgage Note Loan Agreement" shall mean the Mortgage Note Loan Agreement, dated as of the Closing Date, among the Lessor, the Agent and the Mortgage Lenders, as specified therein.
"Mortgage Note Loan Agreement Default" shall mean any event or condition which, with the lapse of time or the giving of notice, or both, would constitute a Mortgage Note Loan Agreement Event of Default.
"Mortgage Note Loan Agreement Event of Default" shall mean any event or condition defined as an "Event of Default" in Section 6 of the Mortgage Note Loan Agreement.
"Mortgage Obligations" mean the collective reference to all obligations, now existing or hereafter arising, owing by the Lessee and/or any of its affiliates to the Lessor under or pursuant to the Operative Agreements whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with the Participation Agreement, the Lease Agreement, or any of the other Operative Agreements, whether on account of principal, advanced amounts, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all reasonable fees and disbursements of counsel to the Agent or to the Lessor) that are required to be paid by the Lessee pursuant to the terms of the Operative Agreements.
"Multiemployer Plan" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Lessee or
any ERISA Affiliate and that is covered by Title IV of ERISA.
"Non-Integral Equipment" shall mean Equipment which (a) is personal property that is severable and can be removed without causing material damage, after taking into account repairs which are actually completed or caused to be completed by Lessee, at no cost or expense to any Financing Party, at the time of such removal and (b) is not any of the following: (i) a Required Modification, (ii) financed by any Advance or Property Proceeds, or (iii) a replacement, renovation or substitution to any component of any Property or part thereof which was financed by Advances or Property Proceeds.
"Notes" shall mean those notes issued to the Primary Financing Parties pursuant to the Credit Note Loan Agreement or the Mortgage Note Loan Agreement and shall include both the Credit Notes and the Mortgage Notes.
"Obligations" shall have the meaning given to such term in Section 1 of the Security Agreement.
"Officer's Certificate" with respect to any person shall mean a certificate executed on behalf of such person by a Responsible Person who has made or caused to be made such examination or investigation as is necessary to enable such Responsible Person to express an informed opinion with respect to the subject matter of such Officer's Certificate.
"Operative Agreements" shall mean the following: the Participation Agreement, the Credit Note Loan Agreement, the Mortgage Note Loan Agreement, the Notes, the Lease, the Lease Supplements, the Security Agreement, the Intercreditor Agreement, the Mortgage Instruments, the other Security Documents, the Cash Collateral Agreement, the Control Agreement, the Deeds, each Ground Lease, the Bills of Sale and any and all other agreements, documents and instruments executed in connection with any of the foregoing.
"Original Executed Counterpart" shall have the meaning given to such term in Section 5 of Exhibit A to the Lease.
"Parent" means, with respect to any Primary Financing Party, any Person controlling such Primary Financing Party.
"Participant" shall have the meaning given to such term in Section 9.7 of the Credit Note Loan Agreement or Section 9.7 of the Mortgage Note Loan Agreement, as applicable.
"Participation Agreement" shall mean the Participation Agreement dated as of the Closing Date, among the Lessee, the Lessor, the Primary Financing Parties and the Agent.
"Payment Date" shall mean any Interest Payment Date, the Expiration Date and any other date on which interest in connection with a prepayment of principal on the Financing (including Lessor Yield in connection with a prepayment of the Lessor Advance) is due under the Mortgage Note Loan Agreement, the Credit Note Loan Agreement, the Notes or any other Operative Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation created by
Section 4002(a) of ERISA or any successor thereto.
"Pension Plan" shall mean a "pension plan", as such term is defined in
Section 3(2) of ERISA, which is subject to title IV of ERISA (other than a
Multiemployer Plan), and to which the Lessee or any ERISA Affiliate may have any
liability, including without limitation any liability by reason of having been a
substantial employer within the meaning of Section 4063 of ERISA at any time
during the preceding five (5) years, or by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA.
"Permitted Facility" shall mean the Properties identified in the Lease Supplements dated as of the Initial Closing Date and each additional parcel of real property (together with improvements existing or to be built thereon) selected by the Lessee and acceptable to the Agent, in its sole discretion, that comply with industry standards and are fit for their intended use as office, research and design facilities.
"Permitted Liens" shall mean, with respect to any Property and the other Collateral (excluding the Cash Collateral):
(a) the respective rights and interests of the parties to the Operative Agreements as provided in the Operative Agreements (including the Liens in favor of the
Secured Parties pursuant to the Security Documents and the Lien of the Lease in favor of the Lessor);
(b) the rights of any sublessee or assignee under a sublease or an assignment expressly permitted by the terms of the Lease for no longer than the duration of the Lease;
(c) Liens for Taxes that either are not yet due or are being contested in accordance with the provisions of Section 13.1 of the Lease;
(d) Liens arising by operation of law, materialmen's, mechanics', workmen's, repairmen's, employees', carriers', warehousemen's and other like Liens relating to the construction of the Improvements or in connection with any Modifications or arising in the ordinary course of business for amounts that either are not more than thirty (30) days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 13.1 of the Lease;
(e) Liens of any of the types referred to in clause (d) above that have been bonded for not less than the full amount in dispute (or as to which other security arrangements satisfactory to the Lessor and the Agent have been made), which bonding (or arrangements) shall comply with applicable Legal Requirements, and shall have effectively stayed any execution or enforcement of such Liens;
(f) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 13.1 of the Lease;
(g) Liens in favor of municipalities to the extent agreed to by the Lessor and the Agent;
(h) Liens that are expressly set forth as title exceptions on the title commitment or policy issued under Section 5.3(g) of the Participation Agreement;
(i) all encumbrances, exceptions, restrictions, easements, rights of way, servitudes, encroachments and irregularities in title, other than Liens which, in the reasonable assessment of the Agent, will have a Material Adverse Effect; and
(j) any other Lien expressly consented to or approved by the Agent.
"Person" shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, governmental authority or any other entity.
"Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (a) maintained by a member of the ERISA Group for employees of a member of the ERISA Group or (b) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions.
"Primary Financing Party Commitments" shall mean the Primary Financing Party Commitment of (i) each Credit Lender as set forth on Schedule 1 to the Participation Agreement, as such Schedule 1 may be amended and replaced from time to time and (ii) each Mortgage Lender as set forth in Schedule 2 to the Participation Agreement as such Schedule 2 may be amended and replaced from time to time and (iii) the Lessor Commitments.
"Primary Financing Parties" shall mean the Lessor, the Credit Lenders, the Mortgage Lenders and any other banks, financial institutions or other institutional investors which may be from time to time a Credit Lender or a Mortgage Lender to the Participation Agreement and either the Credit Note Loan Agreement or the Mortgage Note Loan Agreement pursuant to the terms thereof.
"Prime Lending Rate" shall have the meaning given to such term in the definition of ABR.
"Property" shall mean each Permitted Facility that is (or is to be) acquired pursuant to the terms of the Operative Agreements, the Land (whether owned by Lessor or ground leased by Lessor pursuant to a Ground Lease), the Appurtenant Rights related thereto and each item of Equipment and the various Improvements, in each case located on such Land or identified in the Lease Supplements and any Property Proceeds relating thereto.
"Property Closing Date" shall mean the date on which the Lessor purchases or ground leases a Property, which with respect to certain Properties may be the Initial Closing Date, or, with respect to the first Advance, the date on which the Lessor seeks reimbursement for Property previously purchased by the Lessor.
"Property Cost" shall mean, with respect to any Property at any date of determination, an amount equal to (a) the aggregate principal amount of the Advances made on or prior to such date and advanced to or for the benefit of the Lessee pursuant to and for the purposes set forth in Section 5.1 of the Participation Agreement with respect to such Property minus, to the extent not duplicative or otherwise credited, (b) the aggregate amount of prepayments or repayments as the case may be of the Credit Notes, the Mortgage Notes, or the Lessor Advance allocated to reduce the Property Cost of such Property.
"Property Proceeds" shall mean all sums payable pursuant to Section 15.1(e)(ii) of the Lease and any other proceeds with respect to the applicable Property or all Properties, as the context requires, from a Casualty, Condemnation or a Claim paid which relates to damage to a
Property which is not an Excepted Payment, Exempted Payment, payment of Supplemental Rent or the proceeds from any Financing Party's insurance policy.
"Purchase Option" shall have the meaning given to such term in Section 20.1 of the Lease.
"Purchasing Lender" shall have the meaning given to such term in Section 9.8(a) of the Credit Note Loan Agreement or Section 9.8(a) of the Mortgage Note Loan Agreement, as applicable.
"QPAM Exemption" shall mean Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor.
"Rating Agencies" shall mean Moody's, S&P and Fitch Investors Service, L.P. or, in each case, any successor nationally recognized statistical rating organization.
"Register" shall have the meaning given to such term in Section 9.9 of the Credit Note Loan Agreement or Section 9.9 of the Mortgage Note Loan Agreement, as applicable.
"Regulation D" shall mean Regulation D of the Board, as the same may be modified and supplemented and in effect from time to time.
"Regulation T" shall mean Regulation T of the Board, as the same may be modified and supplemented and in effect from time to time.
"Regulation U" shall mean Regulation U of the Board, as the same may be modified and supplemented and in effect from time to time.
"Regulation X" shall mean Regulation X of the Board, as the same may be modified and supplemented and in effect from time to time.
"Related Financing Party" shall have the meaning given to such term in
Section 3.12 of the Intercreditor Agreement.
"Release" shall mean any release, pumping, pouring, emptying, injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Substance.
"Remarketing Expense" shall mean any expense actually paid to any third party, including Lessor and Agent by Lessee in association with the remarketing of any property either at the Expiration Date or upon the occurrence of a Limited Recourse Event of Default, including, but not limited to, appraisal costs, Lessor Default Enforcement Costs, brokers' fees or transfer taxes on any sale of a Property.
"Renewal Term" shall have the meaning given to such term in Section 2.2 of the Lease.
"Rent" shall mean, collectively, the Basic Rent and the Supplemental Rent, in each case payable under the Lease.
"Requested Funds" shall mean any funds requested by the Lessee in accordance with Section 5 of the Participation Agreement.
"Required Cash Collateral Balance" shall mean the aggregate Property Cost for all Properties, as of the date of determination, less the outstanding amounts under Mortgage Notes owed to Mortgage Lenders other than the Wachovia Mortgage Lender.
"Required Modification" shall have the meaning specified in Section 11.1 of the Lease.
"Requirement of Law" shall mean, as to any Person, the Certificate of Incorporation and By-laws or other organizational or governing documents of such Person, and each law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
"Requisition" shall have the meaning specified in Section 4.2 of the Participation Agreement.
"Responsible Officer" shall mean the Chairman or Vice Chairman of the Board of Directors, the Chief Executive Officer, the President, any Senior Vice President or Executive Vice President, any Vice President, the Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer.
"Restoration" shall have the meaning given to such term in Section 15.1(e)(i) of the Lease.
"Rule 144A" shall mean Rule 144A of the Securities Act.
"S&P" shall mean Standard and Poor's Rating Group, a division of The McGraw-Hill Companies, Inc.
"Sale Date" shall have the meaning given to such term in Section 20.3(a) of the Lease.
"Sale Notice" shall mean a notice given to the Agent in connection with the election by the Lessee of its Sale Option.
"Sale Option" shall have the meaning given to such term in Section 20.1 of the Lease.
"Sale Proceeds Shortfall" shall mean the amount by which the proceeds of a sale described in Section 22.1 of the Lease are less than the Limited Recourse Amount with respect to the Property if it has been determined that the Fair Market Sales Value of the Property at the expiration of the term of the Lease has been impaired by greater than ordinary wear and tear during the Term of the Lease.
"Secured Parties" shall have the meaning given to such term in the Security Agreement.
"Secured Party Financing Statements" shall mean UCC financing statements and fixture filings appropriately completed and executed for filing in the applicable jurisdiction in order to procure a security interest in favor of the Agent in the Collateral subject to the Security Documents.
"Securities Act" shall mean the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.
"Security Agreement" shall mean the Security Agreement dated as of the Closing Date between the Lessor and the Agent, for the benefit of the Secured Parties, and accepted and agreed to by the Lessee.
"Security Assets" shall have the meaning given to such term in Section 2 of the Security Agreement.
"Security Documents" shall mean the collective reference to the Security Agreement, the Mortgage Instruments, (to the extent the Lease is construed as a security instrument) the Lease, the UCC Financing Statements, the Cash Collateral Security Documents and all other security documents hereafter delivered to the Agent granting a Lien on any asset or assets of any Person to secure the obligations and liabilities under the Lease, the Credit Note Loan Agreement, the Mortgage Note Loan Agreement and/or under any of the other Financing Agreements.
"Soft Costs" shall mean all costs which are ordinarily and reasonably incurred in relation to the acquisition of the Properties, including without limitation structuring fees, administrative fees, legal fees, upfront fees, fees and expenses related to appraisals, title examinations, title insurance, document recordation, surveys, environmental site assessments, geotechnical soil investigations and similar costs and professional fees customarily associated with a real estate closing, the fees and expenses of the Lessor payable or reimbursable under the Operative Agreements and costs and expenses incurred pursuant to Sections 7.3(a) and 7.3(b) of the Participation Agreement.
"Split Property" shall have the meaning given to such term in Section 8.7(b)(viii) of the Participation Agreement.
"Stock Purchase Assistance Plan" shall mean that certain shareholder-approved 2001 Employee Stock Purchase Assistance Plan and amendments and restatements thereof.
"Subsidiary" shall mean, as to any Person, any corporation of which at least a majority of the outstanding stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person, or by one (1) or more Subsidiaries, or by such Person and one (1) or more Subsidiaries.
"Supplemental Amounts" shall have the meaning given to such term in
Section 9.18 of the Credit Note Loan Agreement or Section 9.18 of the Mortgage
Note Loan Agreement, as applicable.
"Supplemental Rent" shall mean all amounts, liabilities and obligations (other than Basic Rent) which the Lessee assumes or agrees to pay to the Lessor, the Agent, the Primary Financing Parties or any other Person under the Lease or under any of the other Operative Agreements including without limitation payments of the Termination Value and the Maximum Residual Guarantee Amount and all indemnification amounts, liabilities and obligations.
"Taxes" shall have the meaning specified in the definition of "Impositions".
"Term" shall mean the Basic Term and each Renewal Term, if any, provided, in no event shall the Term extend beyond the twentieth anniversary of the Initial Closing Date.
"Termination Date" shall have the meaning specified in Section 16.2(a) of the Lease.
"Termination Notice" shall have the meaning specified in Section 16.1 of the Lease.
"Termination Value" shall mean on the applicable date of determination, as the context may require, the sum of (a) either (i) with respect to all Properties, an amount equal to the aggregate outstanding Property Cost for all the Properties, or (ii) with respect to a particular Property, an amount equal to the outstanding Property Cost allocable to such Property plus (b) respecting the amounts described in each of the foregoing subclause (i) or (ii), as applicable, any and all accrued but unpaid interest on the Loans, any and all Lessor Yield on the Lessor Advances related to the applicable Property Cost, any and all breakage costs and any and all Make-Whole Amounts plus (c) to the extent the same is not duplicative of the amounts payable under clause (b) above, all other Rent and other amounts then due and payable or accrued under the Operative Agreements (including without limitation amounts under Section 11.1 and 11.2 of the Participation Agreement and all costs and expenses referred to in Sections 22.1(a) and 22.3 of the Lease).
"Total Coverage Amount" shall mean on any date of determination the sum of
(a) the market value of the Class A Cash Collateral plus (b) the quotient of the
market value of Class B Cash Collateral divided by 1.05.
"Transaction Expenses" shall mean all Soft Costs and all other costs and
expenses incurred in connection with the preparation, execution and delivery of
the Operative Agreements and the transactions contemplated by the Operative
Agreements including without limitation all costs and expenses described in
Section 7 of the Participation Agreement and the following:
(a) the reasonable fees, out-of-pocket expenses and disbursements of Moore & Van Allen PLLC, as counsel to the Financing Parties, in negotiating the terms of the Operative Agreements and the other transaction documents, preparing for the closings under, and rendering opinions in connection with, such transactions and in rendering
other services customary for counsel representing parties to transactions of the types involved in the transactions contemplated by the Operative Agreements, but excluding in all cases the fees, expenses and disbursements of counsel to any individual Credit Lender or Mortgage Lender;
(b) the reasonable fees, out-of-pocket expenses and disbursements of accountants for the Lessee in connection with the transaction contemplated by the Operative Agreements;
(c) any and all other reasonable fees, charges or other amounts payable to the Primary Financing Parties, the Agent, the Lessor or any broker which arises under any of the Operative Agreements;
(d) any other reasonable fees, out-of-pocket expenses, disbursements or costs of any party to the Operative Agreements or any of the other transaction documents; and
(e) any and all Taxes and fees incurred in recording or filing any Operative Agreement or any other transaction document, any deed, declaration, mortgage, security agreement, notice or financing statement with any public office, registry or governmental agency in connection with the transactions contemplated by the Operative Agreements.
"Tribunal" shall mean any state, commonwealth, federal, foreign, territorial, or other court or government body, subdivision agency, department, commission, board, bureau or instrumentality of a governmental body.
"Type" shall mean, as to any Loan, whether it is an ABR Loan or a Eurodollar Loan.
"UCC Financing Statements" shall mean collectively the Secured Party Financing Statements and the Lessor Financing Statements.
"Unanimous Vote Matters" shall have the meaning given it in Section 12.4 of the Participation Agreement.
"Unfunded Liability" shall mean, with respect to any Plan, at any time, the amount (if any) by which (a) the present value of all accrued benefits under such Plan exceeds (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of the Lessee or any member of the Controlled Group to the PBGC or such Plan under Title IV of ERISA.
"Uniform Commercial Code" and "UCC" shall mean the Uniform Commercial Code as in effect in any applicable jurisdiction.
"U.S. Person" shall have the meaning specified in Section 11.2(e) of the Participation Agreement.
"U.S. Taxes" shall have the meaning specified in Section 11.2(e) of the Participation Agreement.
"Voting Stock" means outstanding shares of stock having voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power because of default in dividends or some other default.
"Wachovia Mortgage Lender" shall mean Wachovia Bank, National Association or any of its Affiliates solely in their capacity as a Mortgage Lender.
"Withdraw Liability" shall have the meaning given to such term under Part I of Subtitle E of Title IV of ERISA.
"Wholly-Owned Entity" shall mean a Person all of the shares of capital stock or other ownership interest of which are owned by a referent Person and/or one of such referent Person's wholly-owned Subsidiaries or other wholly-owned entities.
"Withholdings" shall have the meaning specified in Section 11.2(e) of the Participation Agreement.
Exhibit 10.4
ISSUER CALL SPREAD
May 29, 2003
Cypress Semiconductor Corporation
3901 North First Street
San Jose, CA 95134
Credit Suisse First Boston International
One Cabot Square
London E14 4QJ
England
Dear Sirs:
The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the Transaction entered into between Party A and Party B through the Agent on the Trade Date specified below (the "Transaction"). This Confirmation constitutes a "Confirmation" as referred to in the Agreement specified below.
1. The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the "Equity Definitions") and in the 2000 ISDA Definitions (the "Swap Definitions" and, together with the Equity Definitions, the "Definitions") (in each case as published by the International Swaps and Derivatives Association, Inc.) are incorporated into this Confirmation. In the event of any inconsistency between the Equity Definitions and the Swap Definitions, the Equity Definitions will govern, and between the Definitions and this Confirmation, this Confirmation will govern. References herein to a "Transaction" shall be deemed to be references to a "Share Option Transaction" for purposes of the Equity Definitions and an "Swap Transaction" for the purposes of the Swap Definitions.
This Confirmation shall supplement, form a part of, and be subject to an ISDA 1992 Master Agreement (the "Agreement"), as if, on the Trade Date, the parties hereto had executed that Agreement (without any Schedule thereto) and specified that (1) the Automatic Early Termination provisions contained in Section 6(a) of such Agreement would apply, (2) Second Method and Loss would apply, and (3) US Dollars ("$") were the Termination Currency.
The Agreement and each Confirmation thereunder will be governed by and construed in accordance with New York law without reference to choice of law doctrine and each party hereby submits to the jurisdiction of the Courts of the State of New York.
In this Confirmation, "Party A" means Credit Suisse First Boston International, "Party B" means Cypress Semiconductor Corporation, and "Agent" means Credit Suisse First Boston, acting through its New York branch and solely in its capacity as agent for Party A and Party B.
TCN:
ISSUER CALL SPREAD
2. The terms of the particular Transaction to which this Confirmation relates are as follows:
Trade Date: May 29, 2003
Option Style: European
Option Type: Call
Seller: Party A
Buyer: Party B
Issuer: Cypress Semiconductor Corporation
Shares: The shares of common stock of the Issuer,
par value USD 0.01 per Share (Bloomberg
ticker CY, ISIN US2328061096)
Number of Options: 32,000,000
Option Entitlement: One Share per Option
Multiple Exercise: Inapplicable
Strike Price: $15.00
Strike Price
Differential: The excess of the Settlement Price
over the Strike Price, where the
Settlement Price shall not exceed $24.50
per Share
Averaging: Applicable; 20 Exchange Business Days
beginning on July 1, 2004
Premium: $49,300,000
Premium Payment Date: June 3, 2003
Exchange: New York Stock Exchange
Clearance System: The Depository Trust Company
Calculation Agent: Party A. The definition of "Calculation
Agent" in the Equity Definitions shall be
amended by deleting the second sentence
thereof and replacing it the with
following: "Whenever a Calculation Agent
acts or makes a determination, it will do
so in good faith and in a reasonable
manner." Upon becoming or being made
aware of an error, the Calculation Agent
shall promptly correct error (but the
Calculation Agent shall not be liable for
any amounts other than the actual costs
of such error).
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TCN:
ISSUER CALL SPREAD
Procedure for Exercise:
Expiration Time: The close of trading on the Exchange
Expiration Date: July 15, 2004
Automatic Exercise: Applicable
Settlement Terms:
Cash Settlement: Applicable, provided, however, that Party
B may elect, by notice in writing to
Party A (given through the Agent) at
least three (3) Exchange Business Days
prior to first Averaging Date, that the
Transaction shall be settled via a "Net
Share Settlement", in which case Party A
shall deliver to Party B (through the
Agent) a number of Shares having a value
equal to the Cash Settlement Amount
Settlement Currency: USD
Failure to Deliver: Applicable
Adjustments:
Method of Adjustment: Calculation Agent Adjustment
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Extraordinary Events:
Consequences of Merger Events:
(a) Share-for-Share: Alternative Obligation
(b) Share-for-Other: Cancellation and Payment
(Calculation Agent Determination)
(c) Share-for-Combined: Component Adjustment
Delisting,
Nationalization
or Insolvency: Cancellation and Payment (Calculation
Agent Determination)
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3. If the transactions contemplated by the Purchase Agreement among Party B and U.S. Bankcorp Piper Jaffray Inc. and the other Initial Purchasers thereunder, dated as of May 29, 2003 (the "Purchase Agreement") relating to the purchase of Convertible Subordinated Notes due 2008 (the "Notes") of party B shall fail to close as a result of any breach by Party B of its obligations thereunder or as a result of any action, or failure to act, by Party B thereunder, in which case the entirety of this Transaction shall terminate automatically and Party B shall be the sole Affected Party and this Transaction shall be the sole Affected Transaction. If the transactions contemplated by the Purchase Agreement shall fail to close for any reason other than those set
ISSUER CALL SPREAD
forth in the previous sentence, then the entirety of this Transaction shall terminate automatically and no payments shall be required hereunder. For purposes of determining Loss in relation to a termination under the first sentence of this Section 3, it shall be assumed that all conditions to the exercise of these Options have occurred.
4. Additional Agreements, Representations and Covenants:
(a) Party B hereby represents and warrants to Party A, on each day from the Trade Date to and including the business day following the date on which Party A is able to initially complete a hedge of its position created by this Transaction, that Party B has publicly disclosed all material information necessary for Party B to be able to purchase or sell Shares in compliance with applicable federal securities laws and that it has publicly disclosed all material information with respect to its condition (financial or otherwise).
(b) Each of Party A and Party B hereby represents and warrants that (1)
it has all necessary corporate power and authority to execute,
deliver and perform its obligations in respect of this Transaction;
such execution, delivery and performance have been duly authorized
by all necessary corporate action on its part; and this Confirmation
has been duly and validly executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable
against it in accordance with the terms of this Confirmation; and
(2) neither the execution and delivery of this Confirmation nor the
incurrence or performance of obligations of it hereunder will
conflict with or result in a breach of, or require any consent
under, the certificate of incorporation or by-laws (or any
equivalent documents) of it, or any applicable law or regulation, or
any order, writ, injunction or decree of any court or governmental
authority or agency, or any agreement or instrument to which it or
any of its affiliates is a party or by which it or any of its
affiliates is bound or to which it or any of its affiliates is
subject, or constitute a default under, or result in the creation of
any lien under, any such agreement or instrument. (c) The parties
hereby agree that all documentation with respect to this Transaction
is intended to qualify this Transaction as an equity instrument for
purposes of EITF 00-19.
(d) Party A hereby agrees that from the Trade Date through the termination of the Averaging Period, it will:
(1) use its reasonable efforts to not become an "affiliate" of Party B as such term is defined in Regulation 144(a)(1) under the Securities Act;
(2) not vote any Shares, as to which it has the right to exercise a vote; and
(3) not permit any director, officer, employee, agent or affiliate to serve as a member of the board of directors of Party B.
(e) If Party B would be obligated to receive cash from Party A pursuant to the terms of this Agreement for any reason without having had the right (other than pursuant to this paragraph (d)) to elect to receive Shares in satisfaction of such payment obligation, then Party B may elect that Party A deliver to Party B a number of Shares having a cash value equal to the amount of such payment obligation (such number of Shares to be delivered to be determined by the Calculation Agent acting in a commercially reasonable manner to determine the number of Shares that could be purchased over a reasonable period of time
ISSUER CALL SPREAD
with the cash equivalent of such payment obligation). Settlement relating to any delivery of Shares pursuant to this paragraph (d) shall occur within a reasonable period of time.
5. Matters relating to the Agent:
(a) Credit Suisse First Boston, New York branch, in its capacity as
Agent will be responsible for (i) effecting this Transaction,
(ii) issuing all required confirmations and statements to Party A
and Party B, (iii) maintaining books and records relating to this
Transaction in accordance with its standard practices and
procedures and in accordance with applicable law and (iv) unless
otherwise requested by Party B, receiving, delivering, and
safeguarding Party B's funds and any securities in connection
with this Transaction, in accordance with its standard practices
and procedures and in accordance with applicable law.
(b) Agent is acting in connection with this Transaction solely in its capacity as Agent for Party A and Party B pursuant to instructions from Party A and Party B. Agent shall have no responsibility or personal liability to Party A or Party B arising from any failure by Party A or Party B to pay or perform any obligations hereunder, or to monitor or enforce compliance by Party A or Party B with any obligation hereunder, including, without limitation, any obligations to maintain collateral. Each of Party A and Party B agrees to proceed solely against the other to collect or recover any securities or monies owing to it in connection with or as a result of this Transaction. Agent shall otherwise have no liability in respect of this Transaction, except for its gross negligence or willful misconduct in performing its duties as Agent.
(c) Any and all notices, demands, or communications of any kind relating to this Transaction between Party A and Party B shall be transmitted exclusively through Agent at the following address:
Credit Suisse First Boston, New York branch Eleven Madison Avenue New York, NY 10010-3629
For payments and deliveries:
Facsimile No.: (212) 325 8175
Telephone No.: (212) 325 8678 / (212) 325 3213
For all other communications:
Facsimile No.: (212) 325 8173
Telephone No.: (212) 325 8676 / (212) 538 5306 /
(212) 538 1193 / (212) 538 6886
(d) The date and time of the Transaction evidenced hereby will be furnished by the Agent to Party A and Party B upon written request.
(e) The Agent will furnish to Party B upon written request a statement as to the source and amount of any remuneration received or to be received by the Agent in connection with the Transaction evidenced hereby.
(f) Party A and Party B each represents and agrees (i) that this Transaction is not unsuitable for it in the light of such party's financial situation, investment objectives and needs and
(ii) that it is entering into this Transaction in reliance upon such tax, accounting, regulatory, legal and financial advice as it deems necessary and not upon any view expressed by the other or the Agent.
6. Transfer:
(a) Notwithstanding Section 7 of the Agreement, Party B may transfer its rights and obligations under this Transaction at any time in its sole discretion (subject to any applicable federal or state laws, regulations or other requirements).
(b) Notwithstanding Section 7 of the Agreement, Party A may transfer its rights and obligations under this Transaction with the consent of Party B (such consent not to be unreasonably withheld).
(c) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. IN CONNECTION WITH ANY SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION, PARTY B MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO PARTY B THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
7. Account Details:
Payments to Agent: The Bank of New York
Swift: IRVTUS3N
A/C: Credit Suisse First Boston
A/C#: 8900374179
Payments to Party A: To be advised
Payments to Party B: To be advised
Deliveries to Party B: To be advised
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Credit Suisse First Boston International is regulated by The Financial Services Authority and has entered into this transaction as principal. The time at which the above transaction was executed will be notified to Party B (through the Agent) on request.
ISSUER CALL SPREAD
Please confirm that the foregoing correctly sets forth the terms of your agreement by signing and returning this Confirmation.
Yours faithfully,
CREDIT SUISSE FIRST BOSTON, acting through its New York branch and solely in its capacity as Agent
By: /s/ Thomas Decker
------------------------------------
Name: Thomas Decker
Title: Vice President
By: /s/Augustine Vargetto
------------------------------------
Name: Augustine Vargetto
Title: Director Operations
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Confirmed as of the date first written above:
CYPRESS SEMICONDUCTOR CORPORATION (Party B)
By: /s/ Emmanuel Hernandez
--------------------------------------
Name: Emmanuel Hernandez
Title: Executive Vice President, Finance and Administration
and Chief Financial Officer
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CREDIT SUISSE FIRST BOSTON INTERNATIONAL (Party A)
By: /s/ Edmond Curtin
--------------------------------------
Name: Edmond Curtin
Title: Managing Director - Legal and Compliance Department
By: /s/ Nick Hornsey
--------------------------------------
Name: Nick Hornsey
Title: Attorney-in-Fact
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Exhibit 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, T.J. Rodgers, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Cypress Semiconductor Corporation on Form 10-Q for the fiscal quarter ended June 29, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Cypress Semiconductor Corporation.
By: /s/ T.J Rodgers
-------------------------------------
Name: T.J Rodgers
Title: President and Chief Executive Officer
Date: August 11, 2003
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Exhibit 99.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Emmanuel T. Hernandez, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Quarterly Report of Cypress Semiconductor Corporation on Form 10-Q for the
fiscal quarter ended June 29, 2003 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that
information contained in such Quarterly Report on Form 10-Q fairly presents in
all material respects the financial condition and results of operations of
Cypress Semiconductor Corporation.
By: /s/ Emmanuel T. Hernandez
----------------------------------
Name: Emmanuel T. Hernandez
Title: Vice President, Finance and
Administration and Chief Financial
Officer
Date: August 11, 2003
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