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<SEC-DOCUMENT>0000950149-95-000673.txt : 19951027
<SEC-HEADER>0000950149-95-000673.hdr.sgml : 19951027
ACCESSION NUMBER: 0000950149-95-000673
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 22
CONFORMED PERIOD OF REPORT: 19951026
FILED AS OF DATE: 19951026
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CISCO SYSTEMS INC
CENTRAL INDEX KEY: 0000858877
STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577]
IRS NUMBER: 770059951
STATE OF INCORPORATION: CA
FISCAL YEAR END: 0731
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-18225
FILM NUMBER: 95584449
BUSINESS ADDRESS:
STREET 1: 170 W TASMAN DR
CITY: SAN JOSE
STATE: CA
ZIP: 95134
BUSINESS PHONE: 4085264000
MAIL ADDRESS:
STREET 1: 170 WEST TASMAN DRIVE
CITY: SAN JOSE
STATE: CA
ZIP: 95134-1706
</SEC-HEADER>
<DOCUMENT>
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<TEXT>
<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended July 30,1995
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 0-18225
CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
California 77-0059951
- ---------------------------------------- --------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
170 West Tasman Drive
San Jose, California 95134
- ---------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 526-4000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- ----------------------
<S> <C>
None Nasdaq National Market
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
- --------------------------------------------------------------------------------
(Title of class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
/ /
As of October 2, 1995, the approximate aggregate market value of voting stock
held by non-affiliates of the registrant was $16,746,720,000 (based upon the
closing price for shares of the Registrant's Common Stock as reported by the
National Market System of the National Association of Securities Dealers
Automated Quotation System on that date). Shares of Common Stock held by each
officer, director, and holder of 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of October 2, 1995, 273,931,124 shares of registrant's common stock were
outstanding.
Designated portions of the Cisco Systems, Inc. Proxy Statement for the 1995
Annual Meeting of Shareholders to be held on November 14, 1995, are incorporated
by reference into Part III of this Annual Report on Form 10-K where indicated.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Cisco Systems, Inc. develops, manufactures, markets and supports
high-performance, multiprotocol internetworking systems that link geographically
dispersed local-area and wide-area networks (LANs and WANs) to form a single,
seamless information infrastructure. Cisco products include a wide range of
routers, LAN and Asynchronous Transfer Mode (ATM) switches, dial-up access
servers, and network management software solutions. The common thread running
through these products is the Cisco Internetwork Operating System (Cisco
IOS(TM)) software, which today provides the native intelligence for more than
450,000 installed Cisco units and is an integral part of the products of more
than two dozen global partners.
When Cisco shipped its first commercial multiprotocol router in 1986, it created
a new part of the information technology industry - internetworking. Since then
the market has changed greatly, and Cisco has kept pace with that change. In
addition to enhancing its core business of routers, the Company has developed or
acquired technology and products in all major categories of internetworking,
including LAN switching, ATM, and network access for remote offices and mobile
workers, incorporating the Cisco IOS software across all product lines. These
changes have allowed Cisco to continue to grow at or above the rate of the
overall market and to maintain leading market share in all the segments in which
it participates.
The Cisco IOS software is a sophisticated suite of networking capabilities that
provides network connectivity, security and interoperability for all of today's
standard data protocols, media access methods and products from leading
Information Service vendors. This software resides at the heart of Cisco's
internetworking products and within the hardware of more than two dozen vendor
partners including Alcatel, Cabletron Systems, Compaq Computers, LanOptics, NEC,
Northern Telecom and Sun Microsystems. Cisco's modular hardware and software
architecture allows products to be configured in a wide variety of ways to suit
customers' specific needs.
The Company expanded the Cisco IOS feature set by moving aggressively into new
markets and technologies. These include a range of remote access products, as
well as switching products. In 1994 the Company introduced the CiscoFusion(TM)
architecture, which blends the capabilities of today's routed internetworks with
the emerging technologies of ATM, LAN workgroup switches and virtual LANs.
Cisco sells its products in approximately 75 countries through a combination of
direct sales, distributors, and direct and indirect resellers. Cisco's worldwide
Original Equipment Manufacturer (OEM) customers and resellers include Alcatel,
AT&T, British Telecom, Cabletron Systems, Digital Equipment Corporation,
Ericsson, Hewlett-Packard, MCI, NEC Corporation, Olivetti, Siemens, Sprint,
Unisys and US West. Cisco has established technology partnerships with a number
of companies to address specialized segments of the internetworking marketplace,
and has partnered with leading WAN technology and service providers to offer
flexible options to customers. The Company offers customer service and support
through Technical Assistance Centers in California, North Carolina, Australia
and Belgium, and provides onsite hardware maintenance on a worldwide basis
through IBM, AT&T, and Hewlett-Packard.
2
<PAGE> 3
Beginning in fiscal year 1994, Cisco began entering new markets and broadening
its product offerings through a series of acquisitions. The following
acquisitions have been, or soon will be, integrated into the ATM, Access, or
Workgroup business units, which are more fully described later in the "Products"
section of this report.
In September 1993, the Company acquired Crescendo Communications, Inc.
("Crescendo"), a privately held networking company that provides
high-performance workgroup solutions. The Company issued approximately 3,400,000
shares of common stock for all the outstanding stock of Crescendo in a
transaction accounted for as a pooling of interests. The Company also assumed
options and warrants to purchase Crescendo stock of which the options remain
outstanding to purchase approximately 280,000 shares of the Company's common
stock.
In August 1994, the Company purchased Newport Systems Solutions(TM), Inc.
("Newport"), a privately held networking company providing software-based
routers for remote network sites. The Company issued approximately 3,300,000
shares of common stock for all the outstanding stock of Newport in a transaction
also accounted for as a pooling of interests. In addition, the Company assumed
options to purchase Newport stock that remain outstanding as options to purchase
approximately 190,000 shares of the Company's common stock.
In December 1994, the Company acquired Kalpana(R), Inc. ("Kalpana"), a privately
held manufacturer of Ethernet switches. Under the terms of the agreement, the
Company issued approximately 6,800,000 shares of common stock for all the
outstanding stock of Kalpana in a transaction also accounted for as a pooling of
interests. In connection with this transaction, the Company assumed options to
purchase Kalpana stock that remain outstanding as options to purchase
approximately 500,000 shares of the Company's common stock.
In January 1995, the Company acquired substantially all of the assets and
assumed the liabilities of LightStream(R) Corporation ("LightStream") for
$120,000,000 in cash and related acquisition costs of approximately $500,000.
LightStream was a developer of enterprise-class ATM switching technology. This
acquisition was accounted for as a purchase.
In September 1995, the Company acquired Combinet Inc. ("Combinet"), a privately
held manufacturer of remote access networking products. The Company issued
approximately 1,750,000 shares of common stock for all the outstanding stock of
Combinet in a transaction also accounted for as a pooling of interests. In
addition, the Company assumed options and warrants to purchase Combinet stock
that remain outstanding as options to purchase approximately 250,000 shares of
the Company's common stock.
Additionally, in September 1995, the Company acquired Internet Junction, Inc., a
developer of Internet gateway software that connects desktop users with the
Internet. The Company issued 81,000 shares of stock for the net assets of
Internet Junction in a transaction accounted for as a purchase.
On September 27, 1995, the Company entered into an agreement to acquire Grand
Junction Networks, Inc., a privately held manufacturer and the inventor of Fast
Ethernet (100BaseT) and Ethernet desktop switching products. The agreement calls
for the Company to issue approximately 5,000,000 shares to acquire all the
equity of Grand Junction, including outstanding options and warrants. The
transaction is subject to several closing conditions and, if consummated, will
be accounted for as a pooling of interests.
3
<PAGE> 4
The Company expects to make future acquisitions where it believes that it can
acquire new products and channels of distribution or otherwise rapidly enter new
or emerging markets. Mergers and acquisitions of high-technology companies are
inherently risky, and no assurance can be given that the foregoing or any future
acquisitions will be successful and will not adversely affect the Company's
financial condition or results of operations.
Cisco was incorporated in California in December 1984. The Company's executive
offices are located at 170 West Tasman Drive, San Jose, California 95134, and
its telephone number at that location is (408)526-4000. As used in this Form
10-K, the terms "Cisco" and "the Company" refer to Cisco Systems, Inc., and its
subsidiaries.
PRODUCTS
Cisco's breadth of product offerings and modular system design enable the
Company to configure media interfaces, protocol software and port capacity to
match customer needs for networks of varying sizes and complexity. Many of the
Company's products, particularly its core products, are expandable, offering
customers the option to upgrade their internetworks with existing equipment as
their needs grow.
In May 1995, Cisco created five internal business units that reflect the
Company's major product groups. Each of the five business units - Core, ATM
Enterprise, Access, Workgroup and InterWorks - has its own marketing and
engineering staffs. The Cisco IOS software and network management products
support all five business units, serving as the foundation upon which Cisco's
internetworking solutions are built.
CORE
Cisco's core routing strength is provided by the Cisco 7000 family, which
includes the high-end Cisco 7500 series, the Cisco 7000 and the compact Cisco
7010. The Cisco 7000 family offers users connectivity to ATM networks,
channelized T1/E1 connections, mainframe attachment, and a unique
packet-switching architecture that easily handles the demands of large
internetworks running many diverse protocols and applications. With the March
1995 introduction of a new Fast Ethernet Interface Processor (FEIP), the Cisco
7000 became the industry's only router family to support all three of the key
high-bandwidth networking technologies on the market. The Cisco 7000 series has
supported 100-Mbps Fiber Distributed Data Interface (FDDI) since early 1993 and
155-Mbps ATM since June 1994.
ATM
ATM has gained wide acceptance by customers as the strategic technology of
choice for long-term networking decisions. Cisco Systems is the first
internetworking vendor to offer a complete, end-to-end ATM solution, including
enterprise ATM switches, workgroup/campus ATM switches, ATM interface cards for
internetwork routers and LAN switches, and ATM adapters for desktop systems and
servers. The LightStream 2020 enterprise ATM multiservice switch provides LAN
and WAN internetworking for campus environments or global networks. The
LightStream 100 workgroup/campus ATM switch supports up to 16 155-Mbps ATM
interfaces.
ACCESS
Cisco's access routers are designed to improve productivity by extending the
enterprise network beyond the boundaries of corporate headquarters to regional
sales groups, small satellite offices and individual telecommuters.
4
<PAGE> 5
The Cisco 4000 series delivers a high-performance, modular solution that can
expand to meet the needs of large offices and regional sites. The Cisco 2500
series is available in 13 models customized for the needs of small branch
offices. The Cisco 1000 series provides low-cost remote LAN attachment to
corporate networks or Internet services for small offices and home offices. The
AS5100 dial-up access server enables the large-scale deployment of telecommuting
over standard telephone lines, integrating routing and modem-based technologies.
All Cisco access products can be centrally configured and managed from
headquarters, reducing the need for internetworking expertise in the field.
WORKGROUP
Cisco's LAN switching products include the Catalyst(TM) and Kalpana families.
Cisco's Catalyst family of LAN switches link network resources with maximum
modularity, performance and flexibility in LAN switching, and include embedded
Cisco IOS functionality to meet future needs as switched internetworks evolve.
The newest member of the Catalyst family, the Catalyst 5000, delivers dedicated
bandwidth to users through multiple-media switching options such as 10-Mbps
Ethernet, 100-Mbps Ethernet, and ATM with future capability for switched FDDI
and switched Token Ring. The Kalpana EtherSwitch family is a high-performance
stackable switching platform. The Kalpana ProStack, also announced this year,
consists of the EtherSwitch Pro16 and ProStack Matrix, and allows users to
expand network capacity as bandwidth demands dictate. High-speed connectivity to
routers or other switches is achieved with Fast Ethernet and ATM modules. Switch
management is achieved through the CiscoWorks(TM) software, a comprehensive
suite of network management applications.
INTERWORKS
A major area of market opportunity is the integration of legacy networks built
around large-scale IBM computers and their networking framework called Systems
Network Architecture (SNA). To address this market, Cisco has a separate
business unit, InterWorks, which focuses on integrating the large number of
SNA-based computing environments with newer multiprotocol networks. Cisco has a
comprehensive suite of capabilities for this market, including TCP/IP
encapsulation of SNA data; integrated Synchronous Data Link Control (SDLC)
support; mixed-media bridging, translation and conversion; enhanced data link
switching; Frame Relay connectivity; Token Ring router interfaces and switching;
Advanced Peer-to-Peer Networking (APPN); and direct channel attachment of Cisco
7000 routers to IBM mainframes.
The CiscoWorks Blue network management support enables operators visibility into
and control over Cisco routers from either IBM NetView operator consoles or
Simple Network Management Protocol (SNMP) network management stations.
NETWORK MANAGEMENT
The CiscoWorks software is a suite of standards-based applications that allow
users to manage their Cisco devices from a single integrated console. CiscoWorks
software provides applications for internetworking products in three major
areas: monitoring and diagnostics; troubleshooting and administration tasks; and
a management series for implementation and change to administration tasks and
planning and optimization for offline analysis of network traffic patterns and
trends. CiscoWorks supports the HP OpenView, NetView AIX, SunNet Manager and
Microsoft Windows platforms.
5
<PAGE> 6
CUSTOMERS AND MARKETS
Cisco's customers include corporations of all sizes, utilities, educational and
research institutions, and government agencies. Internetworking needs are
influenced most strongly by the size and complexity of a customer's information
systems, and therefore Cisco's business is not concentrated in any particular
industry.
An important trend influencing demand for the Company's products is the
worldwide phenomenon of the Internet. The Internet is a network of networks,
consisting of thousands of subnetworks and computer resources linked together.
Cisco's high-performance routers are widely used in the "backbone"
infrastructure of the Internet, and the Company believes that 80 percent or more
of all routers on the Internet are its products. In addition, the demand by
companies, institutions and individuals for access to the Internet is spurring
demand for remote access, switching and routing products of all kinds. The
Company also benefits from the Internet phenomenon through its alliance
relationships with numerous Internet service providers.
Another significant factor affecting internetworking is the global trend toward
deregulated telecommunications and the resulting increase in use of
higher-performance telecommunications services. Cisco has alliance relationships
with a majority of the world's telecommunications carriers.
Cisco is the first U.S.-based manufacturer to receive self-certification
approval from the British Approvals Board for Telecommunications, which allows
Cisco to more quickly bring products to the European Union.
The Company markets its internetworking products in the United States primarily
through its direct sales force and resellers, and internationally, through
distributors, Value-Added Resellers ("VARs"), OEMs, resellers, and its direct
sales force in subsidiary companies. In addition, the Company sells to system
integrators, both domestic and international, who resell the Company's
internetworking products along with other computer and communications equipment.
This multiple-channel approach allows customers to select the one that addresses
their specific needs and provides the Company with broad coverage of worldwide
markets.
At September 25, 1994, the Company's worldwide direct sales organization
consisted of 1375 individuals, including managers, sales representatives, and
technical support personnel. The Company has approximately 69 field sales
offices providing coverage in the following metropolitan areas: Atlanta, Boston,
Chicago, Cincinnati, Cleveland, Dallas, Denver, Durham, Honolulu, Houston,
Indianapolis, Los Angeles, Miami, New Orleans, New York, Orlando, Phoenix,
Pittsburgh, Portland (Oregon), Princeton, Salt Lake City, San Antonio, San
Diego, San Francisco, San Jose, Seattle, St. Louis, and Washington, D.C., among
others.
The Company's international sales are currently being made through multiple
channels including approximately 75 international distributors and resellers in
Africa, Asia, Australia, Canada, Europe, Latin America, Mexico and South
America. The international distributors provide system installation, technical
support, and follow-on service to local customers. Generally, the Company's
international distributors have nonexclusive, country-wide agreements.
International sales through the various channels, including the Company's
subsidiaries, accounted for approximately 39.0% of total sales in fiscal 1993,
41.9% in fiscal 1994, and 42.4% in fiscal 1995. Sales to international customers
and distributors generally have been made in United States dollars.
6
<PAGE> 7
The Company has sales support subsidiaries worldwide. New subsidiaries formed in
fiscal 1995 include Brazil, Korea, South Africa, Sweden, Switzerland, and
Venezuela. No individual subsidiary has had direct sales that have been material
to date.
Patterns of both revenue growth and types of products sold are affected by
various conditions in geographic regions. As a general rule, adoption of
internetworking technology in Europe tends to be 1 to 2 years behind the United
States, while Japan follows another 1 to 2 years later. Less-developed economies
tend to lag even farther in technology adoption, although the Company has noted
a recent tendency in some newly opened Eastern European economies to leapfrog
intermediate technologies and purchase products with the most advanced
technology. In November 1994, Cisco announced a joint venture with 13 leading
Japanese technology companies to expand the internetworking market in Japan.
BACKLOG
The Company's backlog on September 24, 1995, was approximately $278,800,000
compared with an approximate backlog of $88,200,000 at September 25, 1994. The
Company includes in its backlog only orders confirmed with a purchase order for
products to be shipped within six months to customers with approved credit
status. Because of the generally short cycle between order and shipment, and
occasional customer changes in delivery schedules or cancellation of orders
(which are made without significant penalty), the Company does not believe that
its backlog as of any particular date is necessarily indicative of actual net
sales for any future period.
COMPETITION
The networking market is characterized by rapid growth, technological change,
and a convergence of technologies. These market factors represent both an
opportunity and at the same time a competitive threat to Cisco.
The Company faces competition from customers it licenses technology to and
suppliers that it transfers technology from. The inherent nature of networking
is such that Cisco must compete, and at the same time, co-operate with these
companies. At a minimum these relationships exist to achieve interoperability.
Optimally, these relationships are synergistic and mutually beneficial,
resulting in growth for the industry.
3Com, Alantec, Ascend, Bay Networks, Cabletron, Fore, IBM, and Shiva exemplify
companies that compete with Cisco. Some companies compete across all of Cisco's
product lines, while others do not offer as wide a breadth of networking
solutions.
Cisco estimates that it competes with over 70 vendors in Access, over 40 vendors
in Core, over 50 vendors in Workgroup, over 30 vendors in ATM, and over 40
vendors in InterWorks. Cisco expects that the overall number of vendors will
grow in these markets because of its attractive growth opportunities. The
Company also expects that overall increases to the number of competitors will be
partially offset by mergers and acquisitions, as companies seek synergies and
market presence.
Over the past year, the networking industry has experienced some consolidation.
This has primarily been achieved through mergers and acquisitions, and to a
lesser extent, through joint technology agreements. Remaining competitors are
broadening their product offerings and attempting to strengthen their positions
in emerging and high-growth markets including remote access, high-speed
switching, and ATM technologies.
7
<PAGE> 8
The principal competitive factors in the market for internetworking products are
performance, price, value-added features, reliability, conformance to industry
standards, service, and market presence. The Company promotes its CiscoFusion
architecture and Cisco IOS software as providing the premier internetworking
solutions in the industry. These solutions offer many competitive advantages in
the areas described above. Cisco believes that it will continue to provide
solutions that offer competitive advantages and exceed end-users' buying
criteria in the computer networking market.
RESEARCH AND DEVELOPMENT
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards, and frequent new product introductions.
Management believes that the Company's future success depends in large part upon
its ability to continue to enhance its existing products and to develop new
products that maintain technological competitiveness. The Company closely
monitors, through electronic mail and onsite visits by engineering personnel,
customers' needs for additional products, and works actively with innovators of
internetworking products, including universities, laboratories, and
corporations. The Company intends to remain dedicated to industry standards and
to continue to support important protocol standards as they emerge.
The Company is focusing development efforts around its five internal business
units in the following areas: high-speed switching and ATM technologies, remote
access and ISDN connectivity, improving overall system performance, expanding
its network management capabilities, and IBM and WAN services connectivity.
Cisco's development efforts continue to be guided by its CiscoFusion
architecture announced in 1994, with the Cisco IOS software serving as the
underlying common thread. There can be no assurance, however, that the Company's
product development efforts will result in commercially successful products, or
that the Company's products will not be rendered obsolete by changing technology
or new product announcements by others. The Company has announced several new
products, including a wide range of remote access products and a new line of
high-end routers. Although the Company has announced its expected shipment dates
for some of these products, schedules for high-technology products are
inherently difficult to predict, and there can be no assurance that the Company
will achieve its expected initial shipments dates of these or any other new or
enhanced products developed by the Company. Because timely availability of new
and enhanced products and their acceptance by customers are critical to the
success of the Company, delays in availability of these products or lack of
market acceptance of such products could have a material adverse effect on the
Company.
In fiscal 1995, 1994, and 1993, the Company's research and development
expenditures were $164,819,000, $88,753,000, and $44,254,000, respectively. All
of the Company's expenditures for research and development costs, including
purchased research and development of $95,760,000 in fiscal 1995, have been
expensed as incurred.
MANUFACTURING
The Company's manufacturing operations consist primarily of quality assurance of
materials, components and subassemblies, final assembly, and test. The Company
presently uses a variety of independent third-party contract assembly companies
to perform printed circuit board assembly, in circuit test, and product repair.
The Company installs its proprietary software on electronically programmable
memory chips installed in its systems in order to configure products to customer
needs and to maintain quality control and security. The manufacturing process
enables the
8
<PAGE> 9
Company to configure the hardware and software in unique combinations to meet a
wide variety of individual customer requirements. The Company uses automated
testing equipment and "burn-in" procedures, as well as comprehensive inspection,
testing, and statistical process control to assure the quality and reliability
of its products. The Company's manufacturing processes and procedures are ISO
9001 certified. To date, the Company has not experienced significant customer
returns of its products.
PATENTS, INTELLECTUAL PROPERTY AND LICENSING
The Company generally relies upon patents, copyright, trademark, and trade
secret laws to establish and maintain its proprietary rights in its technology
and products. However, it may be technologically possible for competitors to
reverse-engineer the Company's products. Because the internetworking industry is
characterized by rapid technological change, the Company believes that its
success is more dependent upon its expertise in internetworking than its
proprietary rights.
The Company has, from time to time, established strategic distribution and
technology transfer relationships with other companies involved in the computer
and communications industries. The Company intends to continue to explore
strategic relationships and expects to enter into other such relationships in
the future.
The Company has a program to file applications for and obtain patents in the
United States and in selected foreign countries where a potential market for the
Company's products exists. The Company has been issued several patents; other
patent applications are currently pending.
There can be no assurance that any of these patents would be upheld as valid if
litigated or that any patent applications will result in issued patents. While
the Company believes that its patents and applications have value, it also
believes that its competitive position depends primarily on the innovative
skills, technological expertise and management abilities of its employees.
Many of the Company's products are designed to include software or other
intellectual property licensed from third parties. From time to time, the
Company receives notices from third parties regarding patent claims. While it
may be necessary in the future to seek or renew licenses relating to various
aspects of its products, the Company believes that based upon past experience
and standard industry practice, such licenses generally could be obtained on
commercially reasonable terms.
Because of the existence of a large number of patents in the networking field
and the rapid rate of issuance of new patents, it is not economically practical
to determine in advance whether a product or any of its components infringe
patent rights of others. In the event of any infringement, the Company believes
that based upon industry practice, any necessary license or rights under such
patents may be obtained on terms that would not have a material adverse effect
on the Company's financial condition or its results of operations. However,
there can be no assurance in this regard.
OTHER RISK FACTORS
The Company's business and stock is subject to a number of risks. Some of those
risks are described below. Other risks are presented elsewhere in this report.
See, in particular, the last four paragraphs of "Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations - Comparison of
1994 and 1995."
9
<PAGE> 10
Potential Fluctuations in Quarterly Results
The Company's operating results may be subject to quarterly fluctuations as a
result of a number of factors. These factors include the integration of people,
operations, and products from acquired businesses and technologies; increased
competition, which the company expects; the introductions and market acceptance
of new products, including high-speed switching and ATM technologies; variations
in sales channels, product costs, or mix of products sold; the timing of orders
and manufacturing lead times; and changes in general economic conditions, any of
which could have an adverse impact on operations and financial results. For
example, in the second quarter of fiscal 1995, the Company acquired
substantially all of the assets of LightStream and incurred an expense of
approximately $95 million associated with purchased research and development,
which resulted in net income being significantly lower than in the prior
quarter. Additionally, the dollar amount of large orders for the Company's
products have been increasing, and therefore the operating results for a quarter
could be materially adversely affected if a number of large orders are either
not received or are delayed, due for example, to cancellations, delays or
deferrals by customers. Further, the Company's expense levels are required, in
part, to generate future revenues. If revenue levels are below expectations,
operating results are likely to be adversely affected. Net income may be
disproportionately affected by a reduction in revenues because a proportionately
smaller amount of the Company's expenses varies with its revenues.
Dependence on New Product Development; Rapid Technological and Market Change
The markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards, frequent new product introductions and
evolving methods of building and operating networks. The Company's operating
results will depend to a significant extent on its ability to continue to
successfully introduce new products on a timely basis and to reduce costs of
existing products. In particular, in August 1992, the Company broadened its
product line by introducing its first network access product. Since that time,
sales of these products, which are generally lower priced and carry lower
margins than the Company's core products, have increased more rapidly than sales
of the core products. In addition, in 1994, Cisco announced its CiscoFusion
architecture, that provides a method of merging router-based networks with
emerging technologies such as Asynchronous Transfer Mode and LAN switches. While
some elements of the CiscoFusion architecture have been introduced, others are
still in development. The success of these and other new products is dependent
on several factors, including proper new product definition, product cost,
timely completion and introduction of new products, differentiation of new
products from those of the Company's competitors and market acceptance of these
products. The Company has addressed the need to develop new products through its
internal development efforts and through joint developments with other companies
and through acquisitions. Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, technologies and products of
the acquired companies, the diversion of management's attention from other
business concerns, risks of entering markets in which the Company has no or
limited direct prior experience and where competitors in such markets have
stronger market positions, and the potential loss of key employees of the
acquired company. There can be no assurance that the Company will successfully
identify new product opportunities and develop and bring new products to market
in a timely manner, or that products or technologies developed by others will
not render the Company's products or technologies obsolete or noncompetitive.
The failure of the Company's new product development efforts could have a
10
<PAGE> 11
material adverse effect on the Company's business and results of operations.
Manufacturing Risks
Although the Company generally uses standard parts and components for its
products, certain components are presently available only from a single source
or limited sources. The Company has generally been able to obtain adequate
supplies of all components in a timely manner from existing sources, or where
necessary, from alternative sources of supply. A reduction or interruption in
supply or a significant increase in the price of one or more components would
adversely affect the Company's operating results and could damage customer
relationships. For example, recent shortages in the supply of semiconductors has
resulted in price increases and has limited the Company's ability to obtain
price reductions with respect to such components. These developments could
result in lower gross margins. The Company expects that it will continue to be
dependent on single or limited source supplier relationships in the future.
Volatility of Stock Price
The Company's Common Stock has experienced substantial price volatility,
particularly as a result of variations between the Company's actual or
anticipated financial results and the published expectations of analysts and as
a result of announcements by the Company and its competitors. In addition, the
stock market has experienced extreme price and volume fluctuations that have
affected the market price of many technology companies in particular and that
have often been unrelated to the operating performance of these companies. These
broad market fluctuations, as well as general economic and political conditions,
may adversely affect the market price of the Company's Common Stock.
EMPLOYEES
As of September 24, 1995, the Company employed 4086 persons, including 427 in
manufacturing, 1092 in domestic sales and marketing, 525 in customer service,
1016 in engineering, 405 in finance and administration, and 621 employees in
international locations. The Company also employs a number of temporary and
contract employees, and during fiscal 1995 the Company employed between 473 and
742 such people at any one time.
None of the employees is represented by a labor union, and the Company considers
its relations with its employees to be positive. The Company has experienced no
work stoppages.
Competition for technical personnel in the Company's industry is intense. To
date, the Company believes that it has been successful in recruiting qualified
employees, but there is no assurance that it will continue to be as successful
in the future. The Company believes that its future success depends in part on
its continued ability to hire, assimilate, and retain qualified personnel.
ITEM 2. PROPERTIES
The Company's principal corporate offices are located at sites in Santa Clara
and San Jose, California. The Santa Clara facilities are leased through December
1996 and have approximately 120,000 square feet of office space. The Company's
main headquarters are situated on 46 acres of leased land in San Jose,
California. Eight buildings are located at this site, one of which is the
Company's manufacturing facility. The San Jose headquarters consist of
approximately 825,000 square feet of leased office space at the
11
<PAGE> 12
present time. To meet its anticipated needs at its main headquarters, the
Company has leased an additional 36 acres of land at two nearby sites where it
will eventually lease facilities to be constructed on each site. Construction
has started at one of the sites on a series of office buildings which, when
completed, will have approximately 575,000 square feet. Occupancy is expected
to begin prior to the end of calendar 1996.
In addition to the California facilities, the Company leases approximately 45
acres of land in Research Triangle Park, North Carolina, where the InterWorks
Business Unit, as well as a Technical Assistance Center, telesales, and various
other support functions, are located. One building of approximately 80,000
square feet has been constructed and is currently occupied under a lease that
expires in July 1999. A 120,000-square-foot building at this location is
currently under construction and should be occupied before the end of the 1996
fiscal year. This site can accommodate one additional building.
The Company's ATM Business Unit occupies approximately 50,000 square feet of
leased office space in Billerica, Massachusetts.
The Company also leases various small offices throughout the U.S. and on a
worldwide basis. See Note 6 to the Consolidated Financial Statements for
additional information regarding the Company's obligations under leases.
Management believes that suitable additional space will be available to
accommodate expansion of the Company's operations on commercially reasonable
terms.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
<TABLE>
<CAPTION>
POSITION
NAME AGE POSITION HELD SINCE
- ----------------------- --- ------------------------------------------------------- ----------
<S> <C> <C> <C>
Larry R. Carter 52 Vice President, Finance and Administration, Chief 1995
Financial Officer, and Secretary
Mr. Carter joined the Company in January 1995 in his
present position. From July 1992 to January 1995, he was
Vice President and Corporate Controller for Advanced
Micro Devices. Prior to that, he was with V.L.S.I.
Technology, Inc. for four years where he held the
position of Vice President, Finance and Chief Financial
Officer.
John T. Chambers 46 President, Chief Executive Officer and Director 1995
(1)(4)(5) Mr. Chambers has been a member of the Board of Directors
since November 1993. He joined the Company as Senior
Vice President in January 1991 and became Executive Vice
President in June 1994. Mr. Chambers became President
and Chief Executive Officer of the Company as of January
31, 1995. Prior to that, he was with Wang Laboratories
for eight years, most recently as Senior Vice President
of U.S. Operations.
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
POSITION
NAME AGE POSITION HELD SINCE
- ----------------------- --- ------------------------------------------------------- ----------
<S> <C> <C> <C>
Dr. Michael S. Frankel 49 Director 1992
(2)(3)(5) Dr. Frankel has been a member of the Board of Directors
since May 1992. He has been Vice President and Division
Director of SRI International since January 1989 and became
Center Director of SRI International in 1986.
Dr. James F. Gibbons 64 Director 1992
(2)(4)(5) Dr. Gibbons has been a member of the Board of Directors
since May 1992. He has been Dean of the Stanford
University School of Engineering since September 1984.
Dr. Gibbons also currently serves on the Board of
Directors of Lockheed Martin Corporation, Raychem
Corporation, Centigram Corporation, and El Paso Natural
Gas.
Edward R. Kozel 40 Vice President, Business Development, and Chief 1995
Technical Officer
Mr. Kozel joined the Company in March 1989 as Market
Development Manager. From 1992-1993 he was Director
of Field Operations/Business Development. In February
1993 he became Vice President of Business Development
and in May 1995 also became Chief Technical Officer.
Donald A. LeBeau 48 Senior Vice President, Worldwide Sales 1994
Mr. LeBeau joined the Company as Vice President of
North American Sales in July 1992 and became Senior
Vice President of Worldwide Sales in August 1994. From
May 1989 to July 1992, he was Vice President of Western
Operations at Wang Laboratories. From August 1985 to
May 1989 he was with United Research Company, most
recently as Senior Vice President.
Frank J. Marshall 48 Vice President and General Manager, Core Business Unit 1995
Mr. Marshall joined the Company as Vice President of
Engineering in April 1992 and became Vice President and
General Manager of the Core Business Unit in May 1995.
Prior to that, he was at Convex Computer Corporation
for 10 years, most recently as Senior Vice President of
Engineering.
John P. Morgridge 62 Chairman of the Board of Directors 1995
(1)(5) Mr. Morgridge joined the Company as President and Chief
Executive Officer and was elected to the Board of
Directors in October 1988. Mr. Morgridge became Chairman
of the Board on January 31, 1995. From 1986 to 1988 he
was President and Chief Operating Officer at GRiD
Systems, a manufacturer of laptop computer systems.
Robert L. Puette 53 Director 1991
(2)(3)(4) Mr. Puette has been a member of the Board of Directors
since January 1991. He has been President, Chief
Executive Officer and on the Board of Directors of
NetFRAME Systems, Inc. since January 1995. He was a
consultant from November 1993 to December 1994. Prior
to that, he was Senior Vice President of Apple
Computer, Inc. and President of Apple USA Division from
June 1990 to October 1993. Mr. Puette also currently
serves on the Board of Directors of Quality
Semiconductor.
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
POSITION
NAME AGE POSITION HELD SINCE
- ----------------------- --- ------------------------------------------------------- ----------
<S> <C> <C> <C>
Carl Redfield 48 Vice President, Manufacturing 1993
Mr. Redfield joined the Company in August 1993 as
Director, Supply/Demand of Manufacturing and became
Vice President of Manufacturing in September 1993.
Prior to joining Cisco, he spent eighteen years at
Digital Equipment Company, most recently as Group
Manufacturing and Logistics Manager of the PC Group.
Masayoshi Son 38 Director 1995
Mr. Son has been a member of the Board of Directors
since July 1995. He has been the President and Chief
Executive Officer of SOFTBANK Corporation for more than
fifteen years.
Donald T. Valentine 63 Vice Chairman of the Board of Directors 1995
(1)(5) Mr. Valentine has been a member of the Board of
Directors of the Company since December 1987, and was
elected Chairman of the Board of Directors in December
1988. He became Vice Chairman of the Board on January 31,
1995. He has been a general partner of Sequoia Capital, a
venture capital firm that was an investor in the Company,
since 1974. Mr. Valentine currently serves as Chairman
of the Board of Directors of C-Cube Microsystems, Inc., a
semiconductor video compression company, and
serves on the Board of Directors of Sierra
Semiconductor, Inc., a communications semiconductor
company.
</TABLE>
- -------
(1) Member of the Executive Committee
(2) Member of the Compensation/Stock Option Committee
(3) Member of the Audit Committee
(4) Member of the Nomination Committee
(5) Member of the Acquisition Committee
TRANSFER AGENT AND REGISTRAR INDEPENDENT ACCOUNTANTS
Bank of Boston Coopers & Lybrand L.L.P.
50 Royal Street Ten Almaden Boulevard
Canton, MA 92021 San Jose, CA 95113
LEGAL COUNSEL
Brobeck, Phleger & Harrison
2200 Geng Road
Palo Alto, CA 94303
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK MARKET INFORMATION
Price range of the Company's common stock that reflects the two-for-one splits
effective March 1993 and March 1994:
<TABLE>
<CAPTION>
1995 1994 1993
High Low High Low High Low
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 30.00 $ 20.87 $ 29.37 $ 20.87 $ 14.78 $ 11.25
Second Quarter 36.62 30.12 35.37 24.75 23.12 14.62
Third Quarter 40.75 32.56 40.37 29.00 23.94 20.22
Fourth Quarter 58.62 39.37 32.50 19.06 28.12 20.19
</TABLE>
Cisco Systems' common stock (Nasdaq symbol CSCO) is traded on the Nasdaq
National Market. The table above reflects the range of high and low closing
prices for each period indicated. The Company has never paid cash dividends on
the common stock and has no present plans to do so. There were approximately
4917 shareholders of record on October 2, 1995.
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEARS ENDED JULY 30, 1995
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $1,978,916 $ 1,242,975 $ 649,035 $ 339,623 $183,184
========== =========== =========== =========== ========
Net income $ 421,008 $ 314,867 $ 171,955 $ 84,386 $ 43,189
========== =========== =========== =========== ========
Net income per common share $ 1.52 $ 1.19 $ .67 $ .33 $ .17
========== =========== =========== =========== ========
Shares used in per-share
calculation 277,298 265,051 258,133 254,072 250,320
========== =========== =========== =========== ========
Total assets $1,757,279 $ 1,053,694 $ 595,213 $ 323,933 $154,145
========== =========== =========== =========== ========
</TABLE>
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of 1994 and 1995:
Net sales grew from $1,243.0 million in 1994 to $1,978.9 million in 1995. The
59.2% increase in net sales during the year was primarily a result of increasing
unit sales of the Cisco 7010, the Cisco 7000, and the Cisco 2500 product family,
sales of new products including the Cisco 4500, as well as the initial market
acceptance of the Company's high-speed switching products. These increases were
partially offset by decreasing unit sales of the Company's older product lines,
comprising the AGS+ as well as the Cisco 2000 and Cisco 3000 product families.
Sales to international customers were 42.4% of net sales in 1995 compared with
41.9% in 1994. This moderate increase reflects the Company's continued expansion
into new geographic markets.
Gross margins increased from 66.8% of net sales in 1994 to 67.4% in 1995. Gross
margins have improved as a result of several factors, including lower material
costs achieved through volume and prompt payment discounts, certain
manufacturing overhead efficiencies, and a decrease in warranty expenses from
2.0% of net sales in 1994 to 1.5% in 1995. This was partially offset by the
continued shift in revenue mix to the Company's lower-margin remote access
products. In the future, the Company expects its gross margins to decrease,
because it believes that the market for lower-margin remote access and
high-speed switching products will continue to increase at a faster rate than
the market for the Company's higher- margin router products. The Company is
attempting to improve manufacturing efficiencies, but there can be no assurance
that it will be able to do so, or that any efficiencies attained will be
sufficient to maintain gross margins.
Research and development expenses increased $76.1 million from 1994 to 1995, an
increase from 7.1% of net sales in 1994 to 8.3% in 1995. The increase reflects
the Company's ongoing research and development efforts, including the further
development of its CiscoFusion architecture, as well as the acquisition of
technologies to bring a broad range of products to market in a timely fashion. A
significant portion of the increase was due to the addition of new personnel,
primarily from hiring and to a lesser extent through acquisitions, as well as
higher material costs for prototypes and depreciation on new equipment. All of
the Company's research and development costs are expensed as incurred. The
Company is primarily developing new technologies internally, and because of
this, research and development as a percentage of sales is expected to increase.
When appropriate, the Company may acquire other businesses or license technology
from other businesses as an alternative to internal research and development.
Sales and marketing expenses increased $148.9 million in 1995, an increase from
16.6% to 17.9% of net sales. The increase in these expenses resulted from an
increase in the size of the Company's direct sales force and its commissions,
additional marketing programs to support the launch of new products, the entry
into new markets both domestic and international, and expansion of distribution
channels.
General and administrative expenses rose $29.0 million from 1994 to 1995 which
represents an increase from 3.8% of net sales in 1994 to 3.9% in 1995. The
increase in these expenses reflects increased personnel costs, implementation of
the Company's new information system, and the amortization of goodwill since the
date of the acquisition of the assets and assumption of the liabilities of
LightStream (see note 2).
16
<PAGE> 17
The amount expensed to purchased research and development arose from the
acquisition of the assets and assumption of the liabilities of LightStream (see
note 2).
Interest and other income, net, was $21.4 million in 1994 and $36.1 million in
1995. Interest income rose as a result of additional investment income on the
Company's increasing investment balances.
During March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which requires the Company to review for impairment
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In certain situations, an
impairment loss would be recognized. Statement No. 121 will be effective for the
Company's fiscal year 1997. The Company has studied the implications of the
statement, and based on its initial evaluation, does not expect it to have a
material impact on the Company's financial condition or results of operations.
Future Growth Subject to Risks
The Company's growth is dependent upon market growth and its ability to enhance
its existing products and introduce new products on a timely basis. The Company
must also maintain its ability to manage any such growth effectively. In this
regard, in May 1995 the Company completed an internal reorganization, which it
believes will better enable it to address its markets. No assurance can be given
that this reorganization will achieve its objectives. Failure to manage growth
effectively could materially and adversely affect the Company's business and
operating results. The Company's growth and ability to meet customer demand also
depend, in part, on its ability to have stable supplies of parts from its
suppliers. Many of these parts, particularly semiconductor parts, may be in
short supply. An inability to obtain these parts could have a material and
adverse affect on the Company's growth.
The Company expects that in the future, its net sales will grow at a slower rate
than was experienced in previous periods and that on a quarter-to-quarter basis,
the Company's growth in net sales may be significantly lower than its historical
quarterly growth rate. The Company has been experiencing longer sales cycles for
its core products resulting from larger order sizes and believes that some
customers may be deferring purchases in order to complete detailed reviews of
their overall network plans. In addition, in response to customer demand, the
Company has, from time to time, reduced its product manufacturing lead times and
its backlog of orders. To the extent that backlog is reduced during any
particular period, it would result in more variability and less predictability
in the Company's quarter-to-quarter net sales and operating results.
The Company also expects that gross margins may be adversely affected by
increases in material or labor costs, heightened price competition, and by
changes in channels of distribution or in the mix of products sold. In
particular, the Company broadened its product line by introducing its first
network access product in August 1992. Since that time, sales of these products,
which are generally lower-priced and carry lower gross margins than the
Company's core products, have increased more rapidly than the sales of the core
products.
The Company also expects that its operating margins may decrease as it continues
to hire additional personnel and to increase other operating
17
<PAGE> 18
expenses to support its business. The results of operations for 1995 are not
necessarily indicative of results to be expected in future periods, and the
Company's operating results may be subject to quarterly fluctuations as a result
of a number of factors. These factors include the integration of people,
operations, and products from acquired businesses and technologies; increased
competition, which the Company expects; the introduction and market acceptance
of new products, including high-speed switching and ATM technologies; variations
in sales channels, product costs, or mix of products sold; the timing of orders
and manufacturing lead times; and changes in general economic conditions, any of
which could have an adverse impact on operations and financial results.
Comparison of 1993 and 1994:
Net sales grew from $649.0 million in 1993 to $1,243.0 million in 1994. The
91.5% increase in net sales during the year was primarily a result of increasing
unit sales of the Cisco 3000, the Cisco 4000, and the Cisco 7000, sales of new
products including the Cisco 2500 and the Cisco 7010, and growth in sales of
add-on boards, which provide increased functionality. Sales to international
customers were 41.9% of net sales in 1994, compared with 39.0% in 1993. This
increase reflects the Company's continued expansion into new geographic markets.
Gross margins decreased from 67.6% of net sales in 1993 to 66.8% in 1994. Gross
margins decreased as a result of the increasing unit sales of lower-margin
products, principally the Cisco 3000 and the Cisco 4000, and from the sales of
new products, primarily the Cisco 2500. Warranty expenses increased slightly
from 1.7% of net sales in 1993 to 2.0% in 1994, reflecting the new product
introductions. In the future, the Company expects its gross margins to decrease,
because the Company believes that the market for lower-margin remote access and
high-speed switching products will increase at a faster rate than the market for
the Company's higher-margin router products. Decreases could be partially
offset by various measures employed to lower the cost of raw materials
purchased.
Research and development expenses increased $44.5 million from 1993 to 1994,
primarily as a result of additions to engineering personnel, including Crescendo
Communications personnel, depreciation on new engineering equipment, material
costs for prototypes, and increased facilities expenses. These expenses
increased from 6.8% of net sales in 1993 to 7.1% in 1994. All of the Company's
research and development costs are expensed as incurred. The Company is
primarily developing new technologies internally, and because of this, research
and development as a percentage of sales is expected to increase. When
appropriate, the Company may acquire other businesses or license technology from
other businesses as an alternative to internal research and development.
Sales and marketing expenses increased $96.1 million in 1994 as a result of
increased marketing and sales personnel and support costs, including
commissions, in both the U.S. and the Company's international subsidiaries.
Sales and marketing expenses decreased slightly as a percentage of net sales,
from 16.9% in 1993 to 16.6% in 1994. However, management expects sales
expenditures to increase as a percentage of net sales as the Company penetrates
new markets.
General and administrative expenses rose $26.5 million from 1993 to 1994, which
represents an increase from 3.2% of net sales in 1993 to 3.8% in 1994. The
increase in these expenses was due primarily to increased personnel costs, legal
and tax fees as the Company expands internationally, costs associated with the
Crescendo acquisition, and charitable contributions.
18
<PAGE> 19
Interest and other income, net, was $11.6 million in 1993 and $21.4 million in
1994. Interest income rose as a result of additional investment income on the
Company's increasing investment balances.
International operating income as a percentage of net international sales
decreased from 4.8% in 1993 to 1.5% in 1994. International operating income
consists of net operating income of the Company's international subsidiaries,
which have various distribution arrangements with the Company. The decrease from
1993 to 1994, in percentage terms, can be attributed to a shifting mix of
intercompany arrangements and higher organizational expenditures associated with
expanding international operations through new and existing entities.
LIQUIDITY AND CAPITAL RESOURCES
Cash, short-term investments, and investments increased by $289.1 million from
1994 to 1995, primarily as a result of cash generated by operations, cash
received in connection with the exercise of employee stock options, and proceeds
received from minority shareholders in the Company's Japanese subsidiary (see
note 7). The increase was partially offset by the cash paid to acquire the
assets and assume the liabilities of LightStream (see note 2) and repurchases of
the Company's common stock.
Accounts receivable rose 61.7% from 1994 to 1995, while sales grew by 59.2%.
Days sales outstanding in receivables were 56 days at the end of the year,
versus 59 days at July 31, 1994. Inventories increased 155.1% from 1994 to 1995
because of production planning associated with higher sales levels. In addition,
inventory levels were unusually low at July 31, 1994 because of the planned
delay in raw material receipts to accommodate the manufacturing operations move
to the Company's new headquarters. As a result, inventory turnover decreased
from 16.1 turns at July 31, 1994 to 13.0 turns at July 30, 1995.
Accounts payable increased 42.6% from 1994 to 1995 because of increases in
capital expenditures, operating expenses, and material purchases to support the
growth in net sales. The 82.8% increase in accrued payroll and related expenses
is primarily a result of personnel additions made during the year. Other accrued
liabilities increased by 61.2% from 1994 to 1995, primarily because of increases
in the warranty accrual and deferred service contracts.
At July 30, 1995, the Company had a line of credit totaling $100.0 million,
which expires April 1998. There have been no borrowings under this agreement.
The Company has entered into certain lease arrangements in San Jose, California,
and Research Triangle Park, North Carolina, where it has established its
headquarters operations and certain research and development and customer
support activities. In connection with these transactions, the Company pledged
$173.1 million of its investments as collateral for certain obligations of the
leases. The restricted investments balance will continue to increase as the
Company phases in operations at these lease sites.
Under the Company's ongoing stock repurchase program, shares have been purchased
periodically and retired. During the year ended July 30, 1995, the Company
purchased and retired approximately 2.1 million shares for an aggregate price of
$69.9 million. As of July 30, 1995, the Company was authorized to repurchase up
to an additional 4.9 million shares of its common stock in the open market or
through privately negotiated transactions.
19
<PAGE> 20
The Company's management believes that its current cash and equivalents,
short-term investments, line of credit, and cash generated from operations will
satisfy its expected working capital and capital expenditure requirements
through 1996.
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CISCO SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
July 30, July 31,
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 204,846 $ 53,567
Short-term investments 234,681 129,219
Accounts receivable, net of allowance for doubtful
accounts of $13,305 in 1995 and $8,077 in 1994 384,242 237,570
Inventories 71,160 27,896
Deferred income taxes 75,297 46,739
Prepaid expenses and other current assets 25,743 12,686
---------- ----------
Total current assets 995,969 507,677
Investments 403,855 371,494
Restricted investments 173,073 85,900
Property and equipment, net 136,635 77,449
Other assets 47,747 11,174
---------- ----------
Total assets $1,757,279 $1,053,694
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,205 $ 31,708
Income taxes payable 71,583 42,958
Accrued payroll and related expenses 84,695 46,334
Other accrued liabilities 136,273 84,512
---------- ----------
Total current liabilities 337,756 205,512
Commitments (Note 6)
Minority interest 40,792
Shareholders' equity:
Preferred stock, no par value, 5,000 shares authorized:
none issued or outstanding in 1995 and 1994
Common stock, no par value, 320,000 shares authorized:
272,246 shares issued and outstanding in 1995 and
257,697 shares in 1994 362,292 227,835
Retained earnings 959,657 620,135
Unrealized gain on marketable securities 50,933
Cumulative translation adjustments 5,849 212
---------- ----------
Total shareholders' equity 1,378,731 848,182
---------- ----------
Total liabilities and shareholders' equity $1,757,279 $1,053,694
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
Years Ended
---------------------------------------
July 30, July 31, July 25,
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Net sales $1,978,916 $1,242,975 $649,035
Cost of sales 644,152 412,824 210,528
---------- ---------- --------
Gross margin 1,334,764 830,151 438,507
Expenses:
Research and development 164,819 88,753 44,254
Sales and marketing 354,722 205,797 109,717
General and administrative 76,524 47,485 20,965
Purchased research and development 95,760
---------- ---------- --------
Total operating expenses 691,825 342,035 174,936
---------- ---------- --------
Operating income 642,939 488,116 263,571
Interest and other income, net 36,107 21,377 11,557
---------- ---------- --------
Income before provision for income taxes 679,046 509,493 275,128
Provision for income taxes 258,038 194,626 103,173
---------- ---------- --------
Net income $ 421,008 $ 314,867 $171,955
========== ========== ========
Net income per common share $ 1.52 $ 1.19 $ .67
========== ========== ========
Shares used in per-share calculation 277,298 265,051 258,133
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------
Unrealized Total
Number gain on Cumulative Share-
of Retained marketable translation holders'
Shares Amount Earnings securities adjustments Equity
------- -------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, July 26, 1992 240,444 $ 98,940 $146,168 $ 502 $ 245,610
Issuance of common stock
under stock option and
purchase plans 6,972 18,621 18,621
Tax benefits related to
disqualifying
dispositions of stock
options 39,622 39,622
Amortization of deferred
compensation resulting
from stock options
issued 296 296
Net income 171,955 171,955
Translation adjustments (923) (923)
------- -------- -------- -------- ------ ----------
Balances, July 25, 1993 247,416 157,479 318,123 (421) 475,181
Issuance of common stock
under stock option and
purchase plans 6,885 23,407 23,407
Tax benefits related to
disqualifying
dispositions of stock
options 35,654 35,654
Pooling-of-interests with
Crescendo
Communications, Inc. 3,396 11,295 (12,855) (1,560)
Net income 314,867 314,867
Translation adjustments 633 633
------- -------- -------- -------- ------ ----------
Balances, July 31, 1994 257,697 227,835 620,135 212 848,182
Issuance of common stock
under stock option
and purchase plans 6,560 47,401 47,401
Tax benefits related to
disqualifying
dispositions of
stock options 55,756 55,756
Common stock repurchases (2,094) (2,073) (67,808) (69,881)
Pooling-of-interests with
Newport Systems
Solutions, Inc. 3,262 6,805 1,603 8,408
Pooling-of-interests with
Kalpana, Inc. 6,821 26,568 (15,281) 11,287
Unrealized gain on
marketable securities $ 50,933 50,933
Net income 421,008 421,008
Translation adjustments 5,637 5,637
------- -------- -------- -------- ------ ----------
Balances, July 30, 1995 272,246 $362,292 $959,657 $ 50,933 $5,849 $1,378,731
======= ======== ======== ======== ====== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
CISCO SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended
---------------------------------------
July 30, July 31, July 25,
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 421,008 $ 314,867 $ 171,955
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 58,510 30,812 13,583
Provision for doubtful accounts 10,429 4,562 6,421
Provision for inventory allowances 42,482 14,608 3,900
Deferred income taxes (65,665) (30,715) (6,645)
Change in operating assets and liabilities:
Accounts receivable (154,324) (113,023) (74,272)
Inventories (85,662) (19,004) (18,258)
Prepaid expenses and other current
assets (13,040) (5,705) (2,005)
Accounts payable 12,186 6,964 8,482
Income taxes payable 84,381 60,816 42,310
Accrued payroll and related expenses 38,361 19,878 9,227
Other accrued liabilities 47,089 33,476 21,312
--------- --------- ---------
Total adjustments (25,253) 2,669 4,055
--------- --------- ---------
Net cash provided by operating
activities 395,755 317,536 176,010
Cash flows from investing activities:
Purchases of short-term investments (276,463) (135,186) (139,606)
Proceeds from sales of short-term investments 153,032 71,787 148,448
Maturities of short-term investments 89,147 46,753 71,753
Purchases of investments (277,239) (560,090) (280,563)
Proceeds from sales of investments 228,680 348,123 66,213
Purchases of restricted investments (160,396) (74,343) (70,800)
Proceeds from sales of restricted investments 55,619 52,341 31,900
Maturities of restricted investments 44,853
Acquisition of property and equipment (111,922) (59,589) (33,942)
Acquisition of business, net of cash acquired
and purchased research and development (17,920)
Other 4,428 (5,052) 181
--------- --------- ---------
Net cash used by investing activities (268,181) (315,256) (206,416)
--------- --------- ---------
Cash flows from financing activities:
Issuance of common stock 47,401 23,407 18,621
Common stock repurchases (69,881)
Proceeds from sale of subsidiary stock 40,548
Other 5,637 633 (923)
--------- --------- ---------
Net cash provided by financing
activities 23,705 24,040 17,698
--------- --------- ---------
Net increase (decrease) in cash and
equivalents 151,279 26,320 (12,708)
Cash and equivalents, beginning of period 53,567 27,247 39,955
--------- --------- ---------
Cash and equivalents, end of period $ 204,846 $ 53,567 $ 27,247
========= ========= =========
Non-cash investing and financing activities in fiscal year 1995:
Transfers of securities to restricted investments $27,249
Unrealized gain on marketable securities 82,689
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The Company's fiscal year is the 52 or 53 weeks ending on the
last Sunday in July. The fiscal years ended July 30, 1995, July 31, 1994, and
July 25, 1993 comprised 52, 53, and 52 weeks, respectively.
Principles of Consolidation. The consolidated financial statements include
the accounts of Cisco Systems, Inc. and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Cash and Equivalents. The Company considers all highly liquid investments
purchased with a maturity of less than three months to be cash equivalents.
Substantially all of its cash and equivalents are maintained with two major
financial institutions.
Short-Term Investments. The Company's short-term investments comprise
U.S., state, and municipal government obligations, and foreign and corporate
obligations. These investments are carried at market value and have maximum
maturities of one year. Prior to adoption of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", in fiscal year 1995, the Company's short-term investments were
carried at cost, which approximated market value at July 31, 1994. Nearly all
short-term investments are held in the Company's name and maintained with one
large financial institution.
Inventories. Inventories are stated at the lower of cost or market. Cost
is computed using standard cost, which approximates actual cost on a first-in,
first-out basis.
Investments. Investments consist of U.S., state, and municipal government
obligations, foreign and corporate obligations, and corporate securities with
maturities of more than one year. These investments are carried at market value.
Prior to adoption of Statement No. 115 in fiscal year 1995, the Company's
investments were carried at cost, which approximated market value at July 31,
1994. Investments are held in the Company's name and maintained with one large
financial institution.
Restricted Investments. Restricted investments consist of U.S.
governmental obligations with maturities of more than one year. These
investments are carried at market value at July 30, 1995 and are restricted as
to withdrawal (see Note 6). Prior to adoption of Statement No. 115 in fiscal
year 1995, the Company's restricted investments were carried at cost, which
approximated market value at July 31, 1994. Restricted investments are held in
the Company's name and maintained with one large financial institution.
Revenue Recognition. The Company recognizes product revenue upon shipment
of product. Revenue from service obligations is deferred and recognized over the
lives of the contracts.
Depreciation and Amortization. Property and equipment are stated at cost
and depreciated on a straight-line basis over the estimated useful lives of the
assets. Such lives vary from two and one-half to five years.
25
<PAGE> 26
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
Income Taxes. The Company accounts for income taxes using the liability
method to calculate deferred income taxes. The realization of deferred tax
assets is based on historical tax positions and expectations about future
taxable income.
Computation of Net Income Per Common Share. Net income per common share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Dilutive common equivalent
shares consist of stock options.
Foreign Currency Translation. The Company's international subsidiaries use
their local currencies as their functional currencies. Assets and liabilities
are translated at exchange rates in effect at the balance sheet date and income
and expense accounts at average exchange rates during the year. Resulting
translation adjustments are recorded directly to a separate component of
shareholders' equity.
Forward Exchange Contracts. The Company enters into forward exchange
contracts to minimize the short-term impact of foreign currency fluctuations on
the asset and liability positions of its international subsidiaries. Gains and
losses on these contracts are recognized in net income in the period in which
exchange rate changes occur.
Recent Accounting Pronouncements. During March 1995, the Financial
Accounting Standards Board issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which requires the Company to review for impairment long-lived assets, certain
identifiable intangibles, and goodwill related to those assets whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In certain situations, an impairment loss would be
recognized. Statement No. 121 will be effective for the Company's fiscal year
1997. The Company has studied the implications of the statement, and, based on
its initial evaluation, does not expect it to have a material impact on the
Company's financial condition or results of operations.
26
<PAGE> 27
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
2. BUSINESS COMBINATIONS
In September 1993, the Company acquired Crescendo Communications, Inc., a
networking company that provides high-performance workgroup solutions. The
Company issued approximately 3400 shares of common stock for all the outstanding
stock of Crescendo in a transaction that was accounted for as a pooling of
interests. The Company also assumed options and warrants to purchase Crescendo
stock of which the options remain outstanding to purchase approximately 280
shares of the Company's common stock.
On August 8, 1994, the Company acquired Newport Systems Solutions, Inc., a
privately held networking company providing software-based routers for remote
network sites. The Company issued approximately 3300 shares of common stock for
all the outstanding stock of Newport in a transaction also accounted for as a
pooling of interests. The Company also assumed options to purchase Newport stock
that remain outstanding as options to purchase approximately 190 shares of the
Company's common stock.
On December 6, 1994, the Company acquired Kalpana, Inc., a privately held
manufacturer of Ethernet switches. Under the terms of the agreement, the Company
issued approximately 6800 shares of common stock for all the outstanding stock
of Kalpana in a transaction also accounted for as a pooling of interests. In
connection with this transaction, the Company assumed options to purchase
Kalpana stock that remain outstanding as options to purchase approximately 500
shares of the Company's common stock.
The aggregated historical operations of Crescendo, Newport and Kalpana are not
material to the Company's consolidated operations and financial position.
Therefore, prior period statements have not been restated.
Effective January 11, 1995, the Company acquired substantially all of the assets
and assumed the liabilities of LightStream Corporation for $120,000 in cash and
related acquisition costs of approximately $500. LightStream was a developer of
enterprise-class Asynchronous Transfer Mode (ATM) switching technology.
The acquisition was accounted for as a purchase. Accordingly, the results of
operations of the acquired business and the fair market values of the acquired
assets and assumed liabilities were included in the Company's financial
statements as of the effective date.
The purchase price was allocated to the acquired assets and assumed liabilities
based on fair market values as follows:
<TABLE>
<S> <C>
Cash $ 6,320
Accounts receivable 2,777
Other current assets 101
Property and equipment 1,815
Purchased research and development 95,760
Goodwill 19,710
Current liabilities (5,983)
----------
$ 120,500
==========
</TABLE>
27
<PAGE> 28
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
The amount allocated to purchased research and development was determined
through known valuation techniques in the high-technology communications
industry. Amounts allocated to goodwill will be amortized on a straight-line
basis over periods ranging from two to five years.
The following summary, prepared on a pro forma basis, combines the results of
operations as if LightStream had been acquired as of the beginning of the
periods presented. The summary includes the impact of certain adjustments such
as goodwill amortization and estimated changes in interest income due to cash
outlays associated with the transaction and the related income tax effects (in
thousands, except per-share amounts):
<TABLE>
<CAPTION>
Twelve months ended
-----------------------------
July 30, July 31,
1995 1994
---------- ----------
(Unaudited)
<S> <C> <C>
Sales $1,987,310 $1,244,863
Net income $ 410,456 $ 299,676
Net income per share $ 1.48 $ 1.13
</TABLE>
The pro forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the entire periods presented.
In addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from the combined operations.
28
<PAGE> 29
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
3. BALANCE SHEET DETAIL
Inventories:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Raw materials $ 33,555 $ 13,724
Work in process 16,913 8,649
Finished goods 9,373 2,090
Demonstration systems 11,319 3,433
--------- ---------
Total $ 71,160 $ 27,896
========= =========
Property and equipment, net:
Leasehold improvements $ 16,170 $ 11,154
Computer equipment and related software 126,331 71,281
Production and engineering equipment 49,695 25,067
Office equipment, furniture,
fixtures, and other 50,682 24,297
--------- ---------
242,878 131,799
Less accumulated depreciation and
amortization (106,243) (54,350)
--------- ---------
Total $ 136,635 $ 77,449
========= =========
Accrued payroll and related expenses:
Accrued wages, paid time off, and related
expenses $ 56,623 $ 32,020
Accrued bonuses 28,072 14,314
--------- ---------
Total $ 84,695 $ 46,334
========= =========
Other accrued liabilities:
Deferred revenue $ 55,984 $ 30,981
Accrued warranties 38,731 22,962
Other liabilities 41,558 30,569
--------- ---------
Total $ 136,273 $ 84,512
========= =========
</TABLE>
29
<PAGE> 30
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
4. INVESTMENTS
Effective August 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This statement requires the Company to classify debt and equity
securities into one of three categories: held-to-maturity, trading, or
available-for-sale. At July 30, 1995, substantially all of the Company's
investments were classified as available-for-sale, and the difference between
the cost and fair market value of those securities, net of the tax effect, is
shown as a separate component of shareholders' equity.
The following table summarizes the Company's securities at July 30, 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Issue Cost Gains (Losses) Value
- ------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. government notes and bonds $200,902 $ 665 $ (2,963) $198,604
State, municipal, and county
government notes and bonds 425,225 1,599 (4,995) 421,829
Foreign government notes and
bonds 38,841 433 39,274
Corporate notes and bonds 61,052 77 (242) 60,887
Corporate equity securities 2,900 88,115 91,015
-------- -------- --------- --------
$728,920 $ 90,889 $ (8,200) $811,609
======== ======== ========= ========
</TABLE>
Gross realized gains and losses on the sale of securities are calculated using
the specific identification method and were not material to the Company's
consolidated results of operations.
5. LINE OF CREDIT
On May 22, 1995, the Company entered into a syndicated credit agreement under
the terms of which a syndication of banks has committed a maximum of $100,000 on
an unsecured basis for cash borrowings and letters of credit. The commitments
made under this agreement expire on April 30, 1998. During the commitment
period, the Company is obligated to pay annual fees of approximately $150.
Outstanding borrowings under these arrangements bear interest at the London
Interbank Offered Rate plus .31%, or other alternative rates. The agreement
specifies various financial covenants, including a variable floor on tangible
net worth, all of which the Company has met. There have been no borrowings under
this agreement.
6. COMMITMENTS
LEASES
The Company leases office space for its U.S. and international sales offices.
The Company also leases buildings at its headquarters in Santa Clara and San
Jose, California. The Santa Clara lease expires December 1996.
30
<PAGE> 31
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
In February 1993, the Company entered into an agreement to lease 46 acres of
land located in San Jose, California, where it has established its headquarters
operations. In July 1994, the Company entered into an agreement to lease 45
acres of land located in Research Triangle Park, North Carolina, where it
expanded certain research and development and customer support activities. In
February and April 1995, the Company entered into agreements to lease an
additional 36 acres of land in San Jose, California, where it will further
expand its headquarters operations. All of the leases have initial terms of five
years and options to renew for an additional five years, subject to certain
conditions.
At any time during the terms of these land leases, the Company may purchase the
land. If the Company elects not to purchase the land at the ends of the leases,
the Company has guaranteed a residual value of approximately $55.9 million.
In May 1993, August 1994, and May 1995, the Company entered into agreements to
lease certain buildings to be constructed on the land described above. The
lessors of the buildings have committed to fund up to a maximum of $114.0
million (subject to reductions based on certain conditions in the lease) for the
construction of the buildings, with the portion of the committed amount actually
utilized to be determined by the Company. Rent obligations for the buildings
will commence on varying dates and will expire at the same time as the land
leases. The Company has an option to renew the building leases for an additional
five years, subject to certain conditions.
The Company may, at its option, purchase the buildings during the terms of the
leases at approximately the amount expended by the lessors to construct the
buildings. If the Company does not exercise the purchase options at the ends of
the leases, the Company will guarantee a residual value of the buildings as
determined at the lease inception date of each agreement (approximately $69.3
million at July 30, 1995).
As part of the above lease transactions, the Company restricted $173.1 million
of its securities as collateral for specified obligations of the lessor under
the leases. These securities will be restricted as to withdrawal and will be
managed by the Company subject to certain limitations, under its investment
policy. In addition, the Company must maintain a minimum consolidated tangible
net worth of $750.0 million.
Future annual minimum lease payments under all noncancelable operating leases as
of July 30, 1995, are as follows:
<TABLE>
<S> <C>
1996 $18,887
1997 14,365
1998 8,901
1999 4,522
2000 2,028
Thereafter 1,468
-------
Total minimum lease payments $50,171
=======
</TABLE>
31
<PAGE> 32
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
Rent expense totaled $19,157, $12,399, and $7,243 for 1995, 1994, and 1993,
respectively.
FORWARD EXCHANGE CONTRACTS
The Company enters into forward exchange contracts to reduce its exposure to
potentially adverse changes in foreign currency exchange rates. The contracts
hedge certain balance sheet exposures and intercompany balances against future
movements in foreign exchange rates. The Company does not hold these financial
instruments for trading purposes. Foreign exchange contracts outstanding,
primarily in European, Canadian, and Australian currencies, amounted to $44.5
million and $21.8 million at July 30, 1995 and July 31, 1994, respectively.
Gains and losses on the contracts are included in other income, which offset
foreign exchange gains or losses from revaluation of intercompany balances. The
maturity dates of the contracts outstanding at July 30, 1995 extended to
approximately one month.
The Company's forward exchange contracts contain an element of risk that the
other parties may be unable to meet the terms of the agreements. However, the
Company minimizes such risk exposure by limiting the other parties to major
financial institutions. In addition, the amount of agreements entered into with
any one party is also monitored. Management does not expect any significant
losses as a result of default by the other parties.
7. MINORITY INTEREST
In October 1994, the Company's Japanese subsidiary, Nihon Cisco Systems, K.K.,
completed the sale of preferred stock to a group of outside investors in a
private placement. Aggregate proceeds to Nihon Cisco Systems, K.K. were
approximately $40.5 million. The investors received 26.8% of the voting rights.
The Company retains ownership of all issued and outstanding common stock of its
subsidiary, amounting to 73.2% of the voting rights. Each share of preferred
stock is convertible into one share of common stock at any time, at the option
of the holder.
8. SHAREHOLDERS' EQUITY
The Company's common stock was split two-for-one on March 5, 1993 and March 4,
1994. All applicable share and per-share data in these financial statements have
been restated to give effect to these stock splits.
Under the terms of the Company's Articles of Incorporation, the Board of
Directors may determine the rights, preferences, and terms of the Company's
authorized preferred stock.
32
<PAGE> 33
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
9. EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan (the Purchase Plan) under which
4800 shares of common stock have been reserved for issuance. Eligible employees
may designate not more than 10% of their cash compensation to be deducted each
pay period for the purchase of common stock under the Purchase Plan, and
participants may purchase not more than $25 worth of common stock in any one
calendar year. On the last business day of each calendar quarter, shares of
common stock are purchased with the employees' payroll deductions over six
months, at a price per share of 85% of the lesser of the market price of the
common stock on the purchase date or the market price on the first day of the
period. The Purchase Plan will terminate no later than January 3, 2000. In 1995,
1994, and 1993, 579, 387, and 344 shares were issued under the Purchase Plan,
respectively. At July 30, 1995, 2142 shares were available for issuance under
the Purchase Plan.
10. STOCK OPTION PLANS
The Company established a Stock Option Plan in 1987 under which it has reserved
a total of 91,640 shares of common stock for issuance to employees, officers,
directors, consultants, and independent contractors. Both incentive and
nonqualified stock options have been granted at prices not less than fair market
value at the date of grant as determined by the Board of Directors. Although the
Board has the authority to set other terms, the options are generally 25%
exercisable one year from the date of grant and then ratably over the following
36 months.
A summary of option activity follows:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------------------------
Options
Available Exercise
for Grant Options Prices Amount
---------------- ----------------- ------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances, July 26, 1992 3,388 25,196 $ .01 $12.12 87,522
Options granted (3,234) 3,234 12.87 - 26.87 67,869
Options exercised (6,628) .01 - 12.12 (14,375)
Options canceled 376 (376) .01 - 26.87 (2,218)
Additional shares reserved 4,000
---------------- ----------------- -------------- -------------- -----------------
Balances, July 25, 1993 4,530 21,426 .01 - 26.87 138,798
Options granted (4,779) 4,779 20.12 - 37.00 113,641
Options exercised (6,498) .01 - 22.69 (14,836)
Options canceled 684 (684) .16 - 37.00 (9,762)
Additional shares reserved 4,000
---------------- ----------------- -------------- -------------- -----------------
Balances, July 31, 1994 4,435 19,023 .01 - 37.00 227,841
Options granted and assumed (15,265) 15,265 8.15 - 57.75 557,523
Options exercised (5,981) .01 - 37.00 (33,567)
Options canceled 1,067 (1,067) .16 - 43.00 (25,651)
Additional shares reserved 6,237
---------------- ----------------- -------------- -------------- -----------------
Balances, July 30, 1995 (3,526) 27,240 $ .01 - $57.75 $726,146
================ ================= ============== ============== =================
</TABLE>
At July 30, 1995, approximately 9287 outstanding options were exercisable.
Options granted for approximately 4000 shares reflected in the 1995 fiscal year
are subject to shareholder approval of a 19,000 increase to the number of shares
made available for issuance under the plan.
33
<PAGE> 34
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
The Company has, in connection with the acquisition of Crescendo, Newport, and
Kalpana, assumed the stock option plans of each acquired company. A total of
2,237 shares of the Company's common stock has been reserved for issuance under
those assumed plans.
11. EMPLOYEE BENEFIT PLAN
The Company has adopted a plan to provide retirement and incidental benefits for
its employees, known as the Cisco Systems, Inc. 401(k) Plan (the Plan). As
allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax
deferred salary deductions for eligible employees.
Employees may contribute from 1% to 15% of their annual compensation to the
Plan, limited to a maximum amount as set by the Internal Revenue Service. The
Company matches employee contributions dollar for dollar, up to a maximum of
$1.5 per year. In addition, the Plan provides for discretionary contributions as
determined by the Board of Directors. Such contributions to the Plan are
allocated among eligible participants in the proportion of their salaries to the
total salaries of all participants. Company matching contributions to the Plan
totaled $3,456 in 1995, $1,796 in 1994, and $1,015 in 1993. No discretionary
contributions were made in 1995, 1994, or 1993.
12. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Federal:
Currently payable $ 260,874 $ 176,314 $ 85,125
Deferred (54,955) (24,084) (5,387)
-------------------- -------------------- --------------------
205,919 152,230 79,738
State:
Currently payable 56,108 44,718 22,444
Deferred (9,132) (4,909) (1,258)
-------------------- -------------------- --------------------
46,976 39,809 21,186
Foreign:
Currently payable 6,721 4,309 2,249
Deferred (1,578) (1,722)
-------------------- -------------------- --------------------
5,143 2,587 2,249
-------------------- -------------------- --------------------
$ 258,038 $ 194,626 $ 103,173
==================== ==================== ====================
</TABLE>
The Company paid income taxes of $240.7 million, $164.3 million, and $63.3
million, in 1995, 1994, and 1993, respectively.
34
<PAGE> 35
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
The items accounting for the difference between income taxes computed at the
federal statutory rate and the provision for income taxes follow:
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 34.0%
Effect of:
State rates, net of federal benefits 4.4 4.7 4.9
Foreign Sales Corporation benefit (2.6) (2.5) (2.0)
Tax-exempt interest (0.8) (1.1) (1.0)
Tax credits (0.8) (0.6)
Other 2.8 2.7 1.6
------------------ ------------------ ------------------
38.0% 38.2% 37.5%
================== ================== ==================
</TABLE>
The components of the deferred income tax provision are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>
Purchased research and development $(36,310)
Inventory allowances and capitalization (12,145) $ (5,640) $ (2,677)
Warranty accruals 1,446 (3,764) (883)
Accrued state franchise tax (3,816) (3,395)
Allowance for doubtful accounts and returns 101 (2,783) (874)
Depreciation (1,486) (3,034) (88)
Deferred revenue (2,141) (857) (339)
Royalty accruals (499) (746) (689)
Other nondeductible accruals (10,815) (10,496) (1,095)
------------------ ------------------ ------------------
$(65,665) $(30,715) $ (6,645)
================== ================== ==================
</TABLE>
The components of the deferred income tax assets follow:
<TABLE>
<CAPTION>
1995 1994
----------------- ------------------
<S> <C> <C>
Purchased research and development $ 36,310
Unrealized gain on marketable securities (31,756)
Inventory allowances and capitalization 25,114 $ 13,273
Warranty accruals 7,429 9,651
Accrued state franchise tax 7,211 3,395
Allowance for doubtful accounts and returns 7,020 5,913
Depreciation 4,882 4,392
Deferred revenue 3,800 1,800
Royalty accruals 2,414 1,690
Other nondeductible accruals 24,278 12,679
----------------- ------------------
$ 86,702 $ 52,793
================= ==================
</TABLE>
The noncurrent portion of the deferred income tax assets, which totaled
$11,405 at July 30, 1995, and $6,054 at July 31, 1994, is included in other
assets.
The Company's income taxes currently payable for both federal and state purposes
have been reduced by the tax benefit derived from the disqualifying dispositions
of incentive and nonqualified stock options. This benefit, which totaled $55,756
in 1995 and $35,654 in 1994, was credited directly to common stock.
35
<PAGE> 36
CISCO SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except exercise prices and percentages)
13. GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company operates in a single industry segment encompassing the design,
development, manufacture, marketing, and technical support of internetworking
products and services.
In 1995, 1994, and 1993, no customers accounted for 10% or more of the Company's
net sales.
International sales, primarily in Europe, the Pacific region, and Canada, were
$838.3 million in 1995, $520.5 million in 1994, and $252.9 million in 1993.
Export sales, primarily to these regions, were $661.6 million in 1995, $376.2
million in 1994, and $166.3 million in 1993.
Summarized financial information by geographic region for 1995, 1994, and 1993
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ -------------------- -------------------
<S> <C> <C> <C>
Net sales:
United States $1,948,098 $1,240,585 $ 629,747
International 176,715 144,277 86,600
Eliminations (145,897) (141,887) (67,312)
------------------------ -------------------- -------------------
Total $1,978,916 $1,242,975 $ 649,035
======================== ==================== ===================
Operating income:
United States $ 638,167 $ 489,659 $ 260,131
International 2,515 2,231 4,122
Eliminations 2,257 (3,774) (682)
------------------------ -------------------- -------------------
Total $ 642,939 $ 488,116 $ 263,571
======================== ==================== ===================
Identifiable assets:
United States $1,638,984 $1,009,243
International 141,280 61,027
Eliminations (22,985) (16,576)
------------------------ --------------------
Total $1,757,279 $1,053,694
======================== ====================
</TABLE>
14. SUBSEQUENT EVENT
On August 10, 1995, the Company entered into an agreement to acquire Combinet
Inc., a privately held manufacturer of remote access networking products. The
agreement calls for the Company to issue approximately 2000 shares to acquire
all the equity of Combinet, including outstanding options and warrants. The
transaction is subject to several closing conditions and, if consummated, will
be accounted for as a pooling of interests.
36
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Cisco Systems, Inc.
San Jose, California
We have audited the accompanying consolidated balance sheets of Cisco Systems,
Inc. and its subsidiaries as of July 30, 1995 and July 31, 1994 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended July 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cisco Systems,
Inc. and its subsidiaries as of July 30, 1995 and July 31, 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended July 30, 1995 in conformity with generally
accepted accounting principles.
/s/Coopers & Lybrand L.L.P.
San Jose, California
August 15, 1995
37
<PAGE> 38
SUPPLEMENTARY FINANCIAL DATA
1995 AND 1994 BY QUARTER
(Unaudited) (in thousands, except per-share amounts)
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
July 30, Apr. 30, Jan. 29, Oct. 30, July 31, May 1, Jan. 30, Oct. 24,
1995 1995 1995 1994 1994 1994 1994 1993
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $621,184 $509,910 $454,897 $392,925 $361,159 $331,193 $302,166 $248,457
Gross margin 418,727 344,388 306,693 264,956 242,755 222,052 200,644 164,700
Operating income 222,076 190,876 78,316 151,671 138,718 131,587 119,924 97,887
Income before provision for
income taxes 231,812 201,661 86,266 159,307 144,929 136,479 125,359 102,726
Net income $143,723 $125,030 $ 53,485 $ 98,770 $ 89,566 $ 84,344 $ 77,472 $ 63,485
Net income
per common share $ .51 $ .45 $ .19 $ .37 $ .34 $ .32 $ .29 $ .24
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding Directors appearing under the caption "Election of
Directors" in the Company's proxy statement to be mailed to Shareholders on or
before October 2, 1995, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing at the end of Part I and under the caption "Executive
Compensation" in the Company's proxy statement to be mailed to Shareholders on
or before October 2, 1995, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the captions "Election of Directors" and
"Ownership of Securities" in the Company's proxy statement to be mailed to
Shareholders on or before October 2, 1995, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Ownership of Securities" and
"Certain Relationships and Related Transactions" in the Company's proxy
statement to be mailed to Shareholders on or before October 2, 1995, is
incorporated herein by reference.
38
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in Item 14(a) are filed as part of
this annual report.
2. Financial Statement Schedules
The financial statement schedules listed in Item 14(a) are filed as
part of this annual report.
3. Exhibits
The exhibits listed in the accompanying Index to Exhibits are filed or
incorporated by reference as part of this annual report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal
1995.
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California on this 17th day of October, 1995.
Cisco Systems, Inc.
/s/ John T. Chambers
-------------------------------------
(John T. Chambers, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Report on Form
10-K has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
President and Chief
Executive Officer
/s/ John T. Chambers (Principal Executive October 17, 1995
- ------------------------------------------- Officer and Director)
John T. Chambers
Vice President, Finance and
Administration, Chief
Financial Officer and
/s/ Larry R. Carter Secretary October 17, 1995
- ------------------------------------------- (Principal Financial and
Larry R. Carter Accounting Officer)
/s/ John Morgridge Chairman of the October 17, 1995
- ------------------------------------------- Board and Director
John P. Morgridge
Vice Chairman of the
- ------------------------------------------- Board and Director
Donald T. Valentine
/s/ Michael S. Frankel Director October 17, 1995
- -------------------------------------------
Dr. Michael S. Frankel
/s/ James F. Gibbons Director October 17, 1995
- -------------------------------------------
Dr. James F. Gibbons
/s/ Robert L. Puette Director October 17, 1995
- -------------------------------------------
Robert L. Puette
/s/ Masayoshi Son Director October 17, 1995
- -------------------------------------------
Masayoshi Son
</TABLE>
40
<PAGE> 41
CISCO SYSTEMS, INC.
-------------
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEM 14(A)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated balance sheets at July 30, 1995 and July 31, 1994 ................. 21
Consolidated statements of operations for each of the three years in the period
ended July 30, 1995........................................................... 22
Consolidated statements of shareholders' equity for each of the three years in
the period ended July 30, 1995................................................ 23
Consolidated statements of cash flows for each of the three years in the period
ended July 30, 1995........................................................... 24
Notes to consolidated financial statements...................................... 25
Report of Independent Accountants............................................... 37
Supplementary financial data:
Fiscal years 1995 and 1994 by quarter (unaudited)............................. 38
Report of Independent Accountants............................................... 42
Schedule:
II Valuation and qualifying accounts 43
</TABLE>
All other schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedules, or because
the information required is included in the consolidated financial statements or
notes thereto.
41
<PAGE> 42
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Cisco Systems, Inc. and
its subsidiaries is included on page 37 of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 41 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
San Jose, California
August 15, 1995
42
<PAGE> 43
CISCO SYSTEMS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Charged to End of
of Period Expenses Deductions Period
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Year ended July 25, 1993:
Allowance for doubtful accounts $ 2,905 $ 6,421 $ 4,412 $ 4,914
Allowance for excess and obsolete
inventory 3,590 3,900 2,965(1) 4,525
Year ended July 31, 1994:
Allowance for doubtful accounts 4,914 4,562 1,399 8,077
Allowance for excess and obsolete
inventory 4,525 14,608 2,027(1) 17,106
Year ended July 30, 1995:
Allowance for doubtful accounts 8,077 10,429 5,201 13,305
Allowance for excess and obsolete 17,106 42,482 21,779(1) 37,809
inventory
</TABLE>
(1) Deductions principally relate to charges for standards changes.
43
<PAGE> 44
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Table
- ------- -------------
<S> <C>
2.01** Agreement and Plan of Reorganization dated as of September 20, 1993
among the Company, Crescendo Communications Inc., and Co
Acquisition Corporation
2.02** Agreement of Merger among the Company, Crescendo Communications Inc.,
and Co Acquisition Corporation
2.03# Agreement and Plan of Reorganization dated as of July 11, 1994 among
the Company, Newport Systems Solutions, Inc. and New Acquisition
Corporation
2.04+ Agreement and Plan of Reorganization dated as of October 21, 1994
among the Company, Kalpana, Inc. and Pan Acquisition Corporation
2.05++ Asset Purchase Agreement dated as of December 8, 1994 among the
Company and LightStream Corporation
3.01* The Company's Restated Articles of Incorporation, as currently in
effect
3.02* The Company's Bylaws, as currently in effect
4.01## The Company's 1987 Stock Option Plan, as currently in effect
4.02* Form of Incentive Stock Option Agreement for granting incentive stock
options under the Company's 1987 Stock Option Plan
4.03* Series A Preferred Stock Purchase Agreement between the Company and
certain investors dated December 22, 1987, as amended
10.05* Form of Restricted Stock Purchase Agreement for sales of Common Stock
to employees, officers, directors and consultants
10.10* License Agreement between the Company and Network Equipment
Technologies Inc dated February 14, 1989
10.12* License Agreement between the Company and The Board of Trustees of
Leland Stanford Junior University dated April 15, 1987, as amended
10.13* 1989 Employee Stock Purchase Plan
10.14 Fiscal Year 1995 Management Incentive Plan
10.16* Agreement between the Company and American Telephone and Telegraph
Company dated February 1, 1990
10.19* Letter of Employment between the Company and John T. Chambers dated
January 9, 1991
10.20* Letter of Employment between the Company and John P. Morgridge dated
October 17, 1988
10.21* Letter of Employment between the Company and Donald A. LeBeau dated
July 15, 1992
10.22* Letter of Employment between the Company and Frank J. Marshall dated
March 31, 1992
10.23* Lease Agreement between the Company and SGA Development Partnership,
Ltd., dated February 19, 1993, for the Company's site in San Jose,
California
10.24* Lease Agreement between the Company and Sumitomo Bank Leasing and
Finance, Inc., dated May 13, 1993 for the Company's facilities in
San Jose, California
10.25* Lease Agreement between the Company and SGA Development Partnership,
Ltd., dated February 19, 1993, for the Company's site in San Jose,
California
10.26* Lease Agreement between the Company and the State of California
Public Employees' Retirement System dated March 11, 1993, for the
Company's facilities at 3100 Smoketree Court
10.27* Lease Agreement between the Company and Sumitomo Bank Leasing and
Finance, Inc., dated July 11, 1994 for the Company's site in Wake
County, North Carolina
10.28* Lease Agreement between the Company and Sumitomo Bank Leasing and
Finance, Inc., dated August 12, 1994 for the Company's facilities
in Wake County, North Carolina
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Table
- ------- -------------
<S> <C>
10.29 Lease (Buildings "I" and "J") by and between Sumitomo Bank of New
York Trust Company ("SBNYTC"), as trustee under that certain Trust
Agreement dated May 22, 1995 between Sumitomo Bank Leasing and
Finance, Inc. and SBNYTC ("SB Trust"), as Landlord, and the
Company, as tenant, dated May 22, 1995
10.30 First Amendment to Lease (Buildings "I" and "J") between SB Trust and
the Company, dated July 18, 1995
10.31 Lease (Buildings "K" and "L") by and between SB Trust and the
Company, dated May 22, 1995
10.32 First Amendment to Lease (Buildings "K" and "L") between SB Trust and
the Company, dated July 18, 1995
10.33 Lease (Improvements Phase "C") by and between SB Trust and the
Company, dated May 22, 1995
10.34 First Amendment to Lease (Improvements Phase "C") between SB Trust
and the Company, dated July 18, 1995
10.35 Ground Lease (Parcel 2 and Lot 54) by and between Irish Leasing
Corporation ("Irish"), as Landlord, and the Company, as Tenant,
dated February 28, 1995 for the Company's site in San Jose,
California
10.36 First Amendment to Lease (Parcel 2 and Lot 54) by and between Irish
and the Company dated as of May 1, 1995
10.37 Second Amendment to Lease (Parcel 2 and Lot 54) by and between Irish
and the Company dated as of May 22, 1995
10.38 Ground Lease (Lots 58 and 59) by and between Irish and the Company
dated February 28, 1995 for the Company's site in San Jose,
California
10.39 First Amendment to Lease (Lots 58 and 59) by and between Irish and
the Company dated as of May 1, 1995
10.40 Second Amendment to Lease (Lots 58 and 59) by and between Irish and
the Company dated as of May 22, 1995
10.41 Ground Lease (Tasman Phase C) by and between Irish and the Company
dated April 12, 1995 for the Company's site in San Jose, California
10.42 First Amendment to Lease (Tasman Phase C) by and between Irish and
the Company dated as of May 1, 1995
10.43 Second Amendment to Lease (Tasman Phase C) by and between Irish and
the Company dated as of May 22, 1995
10.44 Credit Agreement between the Company, the Banks Listed Herein,
Bank of America National Trust and Savings Association, as
Administrative Agent, Morgan Guaranty Trust Company of New York, as
Documentation Agent and Bank of America National Trust and Savings
Association, as Issuing Bank dated as of May 22, 1995
11.01 Statement Regarding Computation of Net Income Per Share
21.01 Subsidiaries of the Company
23.02 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
(b) The following financial statement schedules are filed herewith
<TABLE>
<CAPTION>
Schedule
- --------
<S> <C>
II Valuation and qualifying accounts
</TABLE>
- --------------
* Previously filed with registrant's registration statements (File
#33-32778)
** Previously filed with registrant's Form 8-K dated October 8, 1993
+ Previously filed with registrant's Form 8-K dated December 9, 1994
++ Previously filed with registrant's Form 8-K dated January 25, 1995
# Previously filed with registrant's Form 8-K dated August 19, 1994
## Previously filed with registrant's Proxy statement dated October 2,
1995
45
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>2
<DESCRIPTION>MANAGEMENT INCENTIVE PLAN
<TEXT>
<PAGE> 1
CISCO SYSTEMS, INC.
MANAGEMENT BONUS PLAN---LEVELS A - D
FY 1995
I. INTRODUCTION
A. THE OBJECTIVE OF THE MANAGEMENT BONUS PLAN is to financially reward
Senior Managers for their contributions to the success of Cisco
Systems, Inc.
B. PARTICIPANTS: This plan applies to Cisco Systems, Inc. senior
management staff in the following positions with the respective
levels:
LEVEL POSITION
----- --------
A President
B Vice Presidents
C All Directors
D Managers, Grade 12 and above
Any exceptions to the above will need to be approved by the
President. Participation requires that the manager be employed on or
before the first day of the last fiscal quarter. Participants in the
Plan with less than one year of service will be eligible for a
prorated bonus amount. Participants in this Plan are not eligible for
Company Performance Awards.
C. EFFECTIVE DATE: The Plan is effective for the Fiscal Year 1995,
beginning August 1, 1994 through July 30, 1995.
D. CHANGES IN PLAN: The Company presently has no plan to change the
Management Bonus Plan during the fiscal year. The Company reserves
the right to modify the Management Bonus Plan in total or in part, at
any time. Any such change must be in writing and signed by the
President.
E. ENTIRE AGREEMENT: This Plan and attachments are the entire agreement
between Cisco Systems, Inc. and the employee regarding the subject
matter of this Plan and supersede all prior compensation or incentive
plans or any written or verbal representations regarding the subject
matter of this Plan.
II. BONUS PLAN ELEMENTS
A. BASE SALARY is determined by the participant's manager. The annual
Base Salary in effect at the end of the fiscal year represents the
basis for the bonus calculation.
B. BONUS BASIS PERCENTAGE is a percentage level of Base Salary
determined by the position.
<TABLE>
<CAPTION>
LEVEL POSITION BONUS %
----- -------- -------
<S> <C> <C>
A President 45%
B Vice President 40%
C All Directors 35%
D Managers, Grade 12 and above 30%
CISCO CONFIDENTIAL
</TABLE>
<PAGE> 2
Management Bonus Plan Page 2 of 4
C. COMPANY PERFORMANCE FACTOR consists of two elements: 50% based upon
achieving an established Revenue target and 50% based upon achieving
a Profit Before Interest and Tax (PBIT) target per the current plan.
80% of each objective must be achieved for any bonus to be paid.
COMPANY PERFORMANCE FACTOR
<TABLE>
<CAPTION>
REVENUE PBIT
------- ----
<S> <C> <C>
Less than 80% 0 Less than 80%
80 - 100% 80 - 100% 80 - 100%
Greater than 100% 2% for each 1% Greater than 100
above 100%
</TABLE>
COMPANY PERFORMANCE FACTOR = (REVENUE + PBIT ) / 2
Example:
Actual Revenue Performance is 110% of goal
Actual PBIT Performance is 120% of goal
REVENUE PBIT
------- ----
100% 100%
+20% +40%
120% 140%
COMPANY PERFORMANCE FACTOR: (120 + 140) / 2 = 130%
D. INDIVIDUAL PERFORMANCE FACTOR is based upon individual goal
achievement for the fiscal year and is determined by the
participant's manager. This factor may range from 1.00-1.20 with the
following guidelines used:
<TABLE>
<CAPTION>
FISCAL YEAR '95 INDIVIDUAL
PERFORMANCE EVALUATION PERFORMANCE FACTOR
<S> <C>
5 1.16 - 1.20
4 1.11 - 1.15
3 1.00 - 1.10
</TABLE>
Employees who are on a Written Warning and/or are performing at a
level of 1 or 2 at the end of the fiscal year are not eligible to
receive a bonus. Any exceptions to this must be in writing and
approved by the President.
E. CUSTOMER SATISFACTION FACTOR is based upon a comparison of the
current fiscal year customer satisfaction survey rating to last
fiscal year's rating. This factor may range from 1.00 -1.10.
<TABLE>
<CAPTION>
COMPARISON FACTOR
---------- ------
<S> <C> <C>
Current rating as compared Decrease 1.00
to last year's rating No Change 1.05
Increase 1.10
</TABLE>
CISCO CONFIDENTIAL
<PAGE> 3
Management Bonus Plan Page 3 of 4
F. PRORATION FACTOR accounts for the number of calendar days during the
fiscal year that the employee was in the bonus-eligible position. For
example, the Proration Factor for an employee who has been on the
Plan the entire year will be "1.00". For an employee who has been on
the plan for 6 months, this factor will be ".50". Employees in the
following situations will have a Proration Factor of less than
"1.00":
- Participants in the Plan who transferred to a new position not
governed by any incentive plan.
- Employees who transferred from one bonus-eligible position to
another bonus-eligible position. Employees in this situation
will have their bonus prorated based on length of time in each
position.
- Employees who have been on the Plan less than 12 months (such as
a new hire).
- Employees who have been on a leave of absence greater than 14
calendar days.
- Employees who have been on the Plan, terminated their
employment, and returned to a bonus-eligible position all in the
same fiscal year.
G. BONUS FORMULA AND CALCULATION EXAMPLE: Assume a level C participant
with a Base Salary of $105,000 at the 35% level, a Company
Performance Factor of 1.30, an Individual Performance Factor of 1.15,
a Customer Satisfaction Factor of 1.10 and a Proration Factor of
1.00.
SAMPLE CALCULATION:
<TABLE>
<CAPTION>
BONUS COMPANY INDIVIDUAL CUSTOMER
BASE BASIS PERFORMANCE PERFORMANCE SATISFACTION PRORATION TOTAL
SALARY PERCENTAGE FACTOR FACTOR FACTOR FACTOR BONUS
------ ---------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
$105,000 x .35 x 1.30 x 1.15 x 1.10 x 1.00 = $60,435.38
</TABLE>
In this example, the Total Bonus equals approximately 58% of Base
Salary.
III. PROCEDURES AND PRACTICES
A. PROCEDURE:
1. A list of eligible employees will be sent by Human Resources to
the Executive Staff for review at the beginning of the fiscal
year. Additions, deletions or other changes to the list will be
made and the approved list will be returned to Human Resources.
2. Once the list is confirmed, a copy of the Plan will be sent to
each participant.
3. Each eligible new hire and employees promoted into eligible
positions will receive a copy of the plan during the fiscal
year.
4. A month before fiscal year end, a list of eligible employees
with all changes made during the year will again be sent to the
Executive Staff for final review and approval.
CISCO CONFIDENTIAL
<PAGE> 4
Management Bonus Plan Page 4 of 4
5. Following year-end, Human Resources will distribute bonus
worksheets to management and the Executive Staff will review and
approve the final bonus amounts.
6. Human Resources will review bonus recommendations and transfer
relevant information to Payroll to process the bonus checks. The
checks will be sent to the appropriate Vice President for
distribution, generally within 30 days following the end of the
fiscal year.
B. BUSINESS CONDUCT: It is the established policy of Cisco Systems, Inc.
to conduct business with the highest standards of business ethics.
Cisco employees may not offer, give, solicit or receive any payment
that could appear to be a bribe, kickback or other irregular type of
payment from anyone involved in any way with an actual or potential
business transaction. Gifts, favors and entertainment are allowed
such that they are consistent with our business practice, do not
violate any applicable laws, are of limited value ($50.00 or less)
and would not embarrass Cisco if publicly disclosed.
C. TRANSFERS AND TERMINATIONS: Employees who are participants in the
Management Bonus Plan and who transfer to a new position not governed
by this Plan will be eligible on a pro-rata basis for the applicable
period and paid as defined by the Plan. Any exceptions to the Plan
must be designated in writing and approved by the President.
A participant must be employed as of the last day of the fiscal year
to be eligible for the bonus. If an employee terminates during the
fiscal year, the employee is not eligible for the bonus.
D. EMPLOYMENT AT WILL: The employment of all Plan participants at Cisco
Systems, Inc. is for an indefinite period of time and is terminable
at any time, with or without cause being shown or advance notice by
either party. This Plan shall not be construed to create a contract
of employment for a specified period of time between Cisco Systems,
Inc. and any Plan participant.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.29
<SEQUENCE>3
<DESCRIPTION>LEASE, I AND J 5/22/95
<TEXT>
<PAGE> 1
LEASE
(BUILDINGS "I" AND "J")
By and Between
SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"),
AS TRUSTEE
UNDER THAT CERTAIN TRUST AGREEMENT
DATED MAY 22, 1995
BETWEEN
SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC
as Landlord
and
CISCO SYSTEMS, INC.,
A CALIFORNIA CORPORATION
as Tenant
for
Premises located in
San Jose, California
THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE
FOR INCOME TAX PURPOSES. SEE SECTION 21.2
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 BASIC LEASE PROVISIONS............................................................................. 1
1.1 Date of Lease...................................................................................... 1
1.2 Landlord........................................................................................... 1
1.3 Tenant............................................................................................. 1
1.4 Land............................................................................................... 1
1.5 Premises........................................................................................... 1
1.6 Term............................................................................................... 2
1.7 Rent Commencement Date............................................................................. 2
1.8 Base Rent.......................................................................................... 3
1.9 Addresses for Notices.............................................................................. 3
1.10 Address for Rent Payments.......................................................................... 3
ARTICLE 2 DEFINITIONS........................................................................................ 4
2.1 Additional Rent.................................................................................... 4
2.2 Advance............................................................................................ 5
2.3 Approval Plans..................................................................................... 5
2.4 Authorized Loan.................................................................................... 5
2.5 Authorized Plans................................................................................... 5
2.6 Base Rent.......................................................................................... 5
2.7 Building........................................................................................... 5
2.8 Building Leases.................................................................................... 5
2.9 Capitalized Interest............................................................................... 5
2.10 Collateral......................................................................................... 5
2.11 Construction Period................................................................................ 5
2.12 Contractor......................................................................................... 5
2.13 Coverage Test...................................................................................... 6
2.14 Default............................................................................................ 6
2.15 Default Rate....................................................................................... 6
2.16 Entity............................................................................................. 6
2.17 Equity Contribution................................................................................ 6
2.18 Equity Funded Amount............................................................................... 6
2.19 Equity Rent Component.............................................................................. 6
2.20 Event of Major Default............................................................................. 7
2.21 Extension Fee...................................................................................... 7
2.22 Extension Term..................................................................................... 7
2.23 Fee Mortgage....................................................................................... 7
2.24 Funded Amount...................................................................................... 7
2.25 Guaranteed Residual Value.......................................................................... 7
2.26 HSBC............................................................................................... 8
2.27 Improvements....................................................................................... 8
2.28 Improvements Loan.................................................................................. 8
2.29 Initial Term....................................................................................... 8
2.30 ILC................................................................................................ 8
2.31 Land............................................................................................... 8
2.32 Land Lease......................................................................................... 8
2.33 Land Lease Deed of Trust........................................................................... 8
2.34 Land Loan.......................................................................................... 9
2.35 Landlord Affiliate................................................................................. 9
2.36 Landlord Deed of Trust............................................................................. 9
2.37 Lease Inception Date............................................................................... 9
</TABLE>
i.
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<TABLE>
<S> <C> <C>
2.38 Legal Requirements................................................................................. 9
2.39 Lenders............................................................................................ 9
2.40 Lenders Deed of Trust.............................................................................. 9
2.41 LIBOR Business Day................................................................................. 9
2.42 LIBOR Rate. ...................................................................................... 10
2.43 Monthly Calculation................................................................................ 10
2.44 Mortgage........................................................................................... 10
2.45 Mortgagee.......................................................................................... 10
2.46 New Loan........................................................................................... 10
2.47 Nominal Rate....................................................................................... 10
2.48 Notes.............................................................................................. 10
2.49 Notice............................................................................................. 10
2.50 Official Records................................................................................... 10
2.51 Permitted Exceptions............................................................................... 10
2.52 Premises........................................................................................... 11
2.53 Real Estate Taxes.................................................................................. 11
2.54 Rent............................................................................................... 11
2.55 Rent Commencement Date............................................................................. 11
2.56 Rent Payment Date.................................................................................. 11
2.57 Rent Period........................................................................................ 11
2.58 Required Permits................................................................................... 11
2.59 SBNYTC............................................................................................. 11
2.60 Security Deposit................................................................................... 11
2.61 Senior Funded Amount............................................................................... 11
2.62 Senior Rent Component.............................................................................. 11
2.63 Site Plan.......................................................................................... 12
2.64 Sumitomo........................................................................................... 12
2.65 Taking............................................................................................. 12
2.66 Tenant Deed of Trust............................................................................... 12
2.67 Term............................................................................................... 12
ARTICLE 3 DEMISE............................................................................................. 12
3.1 Premises........................................................................................... 12
ARTICLE 4 TERM............................................................................................... 12
4.1 Initial Term....................................................................................... 12
4.2 Extension Term..................................................................................... 12
4.3 Holding Over....................................................................................... 13
ARTICLE 5 RENT............................................................................................... 13
5.1 Base Rent.......................................................................................... 13
5.2 Proration.......................................................................................... 16
5.3 No Abatement of Rent............................................................................... 16
5.4 Delinquent Rent.................................................................................... 16
5.5 Equity Funding..................................................................................... 16
5.6 Exhibits Reflecting Initial Advance and Rent
Commencement Date.................................................................................. 17
5.7 Security Deposit................................................................................... 18
5.8 Additional Rent.................................................................................... 19
ARTICLE 6 TAXES.............................................................................................. 19
6.1 Real Estate Taxes.................................................................................. 19
6.2 Personal Property Taxes............................................................................ 20
6.3 Right to Contest................................................................................... 20
</TABLE>
ii.
<PAGE> 4
<TABLE>
<S> <C> <C>
6.4 Withholding Taxes.................................................................................. 21
6.5 Additional Provisions Relating to Taxes............................................................ 21
ARTICLE 7 INSURANCE.......................................................................................... 22
7.1 Liability Insurance................................................................................ 22
7.2 Builders' Risk Insurance........................................................................... 23
7.3 All-Risk Insurance................................................................................. 23
7.4 General Requirements............................................................................... 23
7.5 Waiver of Subrogation.............................................................................. 24
7.6 Indemnity.......................................................................................... 24
ARTICLE 8 USE................................................................................................ 25
8.1 Use................................................................................................ 25
8.2 Contest of Legal Requirements...................................................................... 28
8.3 Indemnification.................................................................................... 28
ARTICLE 9 UTILITIES AND SERVICES............................................................................. 29
9.1 Services to the Premises........................................................................... 29
ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES................................................. 29
10.1 Tenant Obligations................................................................................. 29
10.2 Surrender of the Premises.......................................................................... 29
ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS....................................................................... 30
11.1 Tenant's Rights to Construct Improvements.......................................................... 30
11.2 Request for Construction Funding; Landlord
Obligation to Fund................................................................................. 30
11.3 Conditions Precedent to Landlord's Obligation to
Fund Initial Advances.............................................................................. 30
11.4 Conditions Precedent to Landlord's Obligation to
Fund Subsequent Advances........................................................................... 33
11.5 Conditions Precedent to Landlord's Obligation to
Fund Final Advance................................................................................. 34
11.6 Additional Provisions Regarding Advances........................................................... 34
11.7 Required Permits, Easements, etc................................................................... 35
11.8 Alterations........................................................................................ 35
11.9 Title to and Nature of Improvements................................................................ 35
11.10 Tenant as Landlord's Construction Agent............................................................ 36
11.11 Tenant's Release of Funding Commitment............................................................. 36
ARTICLE 12 LIENS.............................................................................................. 36
ARTICLE 13 ASSIGNMENT BY LANDLORD............................................................................. 36
13.1 Further Mortgages or Encumbrances by Landlord;
Authorized Loans................................................................................... 36
13.2 Landlord's Right to Sell........................................................................... 39
13.3 Transfer of Funds and Property..................................................................... 39
ARTICLE 14 ASSIGNMENT AND SUBLEASING.......................................................................... 40
14.1 Right to Assign.................................................................................... 40
14.2 Right to Sublet.................................................................................... 40
14.3 Tenant's Right to Mortgage......................................................................... 41
</TABLE>
iii.
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLF 15 EMINENT DOMAIN..................................................................................... 41
15.1 Total or Substantial Taking........................................................................ 41
15.2 Partial Taking..................................................................................... 41
15.3 Temporary Taking................................................................................... 41
15.4 Damages............................................................................................ 42
15.5 Notice and Execution............................................................................... 42
ARTICLE 16 DAMAGE OR DESTRUCTION.............................................................................. 42
16.1 Casualty........................................................................................... 42
16.2 Termination of Lease............................................................................... 42
16.3 Insurance Proceeds................................................................................. 43
ARTICLE 17 DEFAULT............................................................................................ 45
17.1 Default............................................................................................ 45
17.2 Event of Major Default............................................................................. 45
17.3 Contest by Tenant.................................................................................. 47
17.4 Remedies........................................................................................... 47
17.5 No Waiver.......................................................................................... 48
17.6 Effect of Assignment............................................................................... 48
17.7 Landlord Cure Right................................................................................ 49
17.8 Landlord's Default................................................................................. 49
ARTICLE 18 QUIET ENJOYMENT.................................................................................... 50
ARTICLE 19 TENANT'S OPTION TO PURCHASE........................................................................ 51
19.1 Option To Purchase Premises........................................................................ 51
19.2 Mandatory Purchase/Sale of Premises................................................................ 53
19.3 Survival........................................................................................... 55
ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD................................................................... 55
20.1 Title and Subdivision.............................................................................. 55
20.2 Land Use........................................................................................... 55
20.3 Transfer of Property Interests..................................................................... 56
20.4 Trust Equity; No Other Asset....................................................................... 56
20.5 Default Under Authorized Loan...................................................................... 56
ARTICLE 21 MISCELLANEOUS...................................................................................... 57
21.1 Relationship....................................................................................... 57
21.2 Form of Transaction; Certain Tax Matters........................................................... 57
21.3 Notices............................................................................................ 58
21.4 Severability of Provisions......................................................................... 58
21.5 Entire Agreement; Amendment........................................................................ 58
21.6 Approvals and Consents............................................................................. 58
21.7 Terminology........................................................................................ 59
21.8 Memorandum of Lease................................................................................ 59
21.9 Successors and Assigns............................................................................. 59
21.10 Commissions........................................................................................ 59
21.11 Attorneys' Fees.................................................................................... 60
21.12 Governing Law...................................................................................... 60
21.13 Counterparts....................................................................................... 60
21.14 Time Is of the Essence............................................................................. 60
21.15 No Third Party Beneficiaries....................................................................... 60
21.16 Limitations on Recourse............................................................................ 60
21.17 Estoppel Certificates.............................................................................. 60
</TABLE>
iv.
<PAGE> 6
<TABLE>
<S> <C> <C>
21.18 Collateral......................................................................................... 61
21.19 Landlord's Continuing Obligation to Sell........................................................... 61
21.20 As-Is Lease........................................................................................ 62
21.21 Net Lease.......................................................................................... 62
21.22 Representations and Warranties..................................................................... 62
21.23 Appraisal Procedure................................................................................ 62
21.24 Financial Reporting................................................................................ 64
21.25 Appraisal.......................................................................................... 64
</TABLE>
List of Exhibits
Exhibit A Description of Land
Exhibit B Permitted Exceptions
Exhibit C Site Plan
Exhibit D Pre-Approved Approval Plans
Exhibit E Memorandum of Lease
Exhibit F Form of Contractor's Certificate
Exhibit G Initial Advance Memorandum
Exhibit H Rent Commencement Date Memorandum
Exhibit I Draw Request Form
Exhibit J Closing Costs and Fees to be Included in Funded
Amount
Exhibit K Notice of Interest Rate Period Selection
Exhibit L Description of Additional Property Owned by Landlord
v.
<PAGE> 7
LEASE
THIS LEASE ("Lease") by and between SUMITOMO BANK OF NEW YORK
TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED
MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC., AND SBNYTC
("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"), is
entered into as of the date set forth in Article 1 and shall be effective and
binding upon the parties hereto as of such date. Capitalized terms used in this
Lease shall have the definitions set forth in Article 2 or in the text of this
Lease.
In consideration of the Base Rent reserved herein, and the
terms, covenants and conditions set forth below, Landlord and Tenant hereby
agree as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
1.1 DATE OF LEASE: May 22, 1995.
1.2 LANDLORD: Sumitomo Bank of New York Trust
Company, ("SBNYTC"), as trustee
under that certain trust agreement
dated May 22, 1995 between Sumitomo
Bank Leasing and Finance, Inc. and
SBNYTC.
1.3 TENANT: Cisco Systems, Inc., a California
corporation.
1.4 LAND: That certain tract of land located
in the City of San Jose, Santa Clara
County, California, consisting of
two (2) parcels and more
particularly described on Exhibit A
attached hereto, together with all
easements, rights of way,
appurtenances and other rights and
benefits belonging or pertaining to
such land. The Land does not include
the Improvements. Landlord makes no
representations as to the accuracy
of the description of the Land.
1.5 PREMISES:
The Improvements which Tenant may
elect to construct, as agent for
Landlord, on the Land pursuant to
the terms of this Lease. The
Premises does not include any
portion of the Land itself.
1.
<PAGE> 8
1.6 TERM: The initial term ("Initial Term") of
this Lease shall commence on the
Date of Lease set forth in Section
1.1 above and shall expire on May
21, 2000. Subject to the Extension
Conditions contained in Section 4.2,
upon at least ninety (90) days'
prior written notice to Landlord,
Tenant may extend the Initial Term
for one (1) additional period of
five (5) years ("Extension Term").
The Initial Term and (if exercised
by Tenant) the Extension Term shall
be referred to collectively herein
as the "Term." The Term shall cease
upon, and shall not refer to any
period of time after, termination of
this Lease (whether pursuant to the
terms of the Lease, by operation of
law, or otherwise).
1.7 RENT COMMENCEMENT
DATE: Tenant's obligation to pay Base Rent
shall commence on a
Building-by-Building basis. With
respect to any particular Building,
the rent commencement date ("Rent
Commencement Date") shall be the
first LIBOR Business Day of the next
calendar month which commences
immediately following the earlier to
occur of: (a) the date Tenant
receives from the applicable
governmental authority a final
Certificate of Occupancy for the
Building in question; or (b)
eighteen (18) months following the
first Advance by Landlord for the
foundation for the Building in
question. If Tenant shall elect to
construct certain Improvements in a
phase of Buildings, then on or
before the Lease Inception Date for
such phase of Buildings, Landlord
and Tenant shall execute a
memorandum of understanding that
construction is taking place on a
phased basis, and in that event, the
Rent Commencement Date for such
phase of Buildings shall be the
first LIBOR Business Day of the next
calendar month which commences
immediately following the earlier to
occur of: (i) the date Tenant
receives a final Certificate of
Occupancy for the phase in question
from the applicable governmental
authority; or
2.
<PAGE> 9
(ii) eighteen (18) months after the
first Advance by Landlord for the
foundation for the phase in
question.
1.8 BASE RENT: As described in Section 2.6.
1.9 ADDRESSES FOR
NOTICES:
LANDLORD: TENANT:
Sumitomo Bank of New York Cisco Systems, Inc.
Trust Company Treasury Department
277 Park Avenue 3535 Garrett Drive
New York, NY 10172 Santa Clara, CA 95054
Attn: Corporate Trust Attention: Eugene Hill
Department
With a copy to: With a copy to:
Landels, Ripley & Diamond Cisco Systems, Inc.
Hills Plaza 3535 Garrett Drive
350 Steuart Street Santa Clara, CA 95054
San Francisco, CA 94105 Attention: Nancy Bareilles
Attn: Bruce W. Hyman, Esq.
and
Todd J. Anson, Esq.
Brobeck, Phleger & Harrison
550 West C Street
Suite 1300
San Diego, CA 92101
1.10 ADDRESS FOR RENT
PAYMENTS:
Equity Rent Component: Sumitomo Bank of New York Trust
Company
277 Park Avenue
New York, NY 10172
Attn: Corporate Trust Department
3.
<PAGE> 10
Senior Rent
Component: One half (1/2) of the Senior Rent Component
(as defined in Section 2.62) shall be
payable at the following address:
The Hongkong and Shanghai
Banking Corporation Limited
160 Sansome Street
San Francisco, CA 94104
Attn: Loan Administration
Department
and one half (1/2) of the Senior Rent Component
(as defined in Section 2.62) shall be payable at
the following address:
The Sumitomo Bank, Limited
555 California Street
Suite 3350
San Francisco, CA 94104
Attn: Mr. Dave Kubiak
This Article 1 is intended to supplement and/or summarize the
provisions set forth in the balance of this Lease. If there is any conflict
between any provisions contained in this Article 1 and the balance of this
Lease, the balance of this Lease shall control.
ARTICLE 2
DEFINITIONS
For purposes of this Lease, the following defined terms shall
have the meanings set forth in this Article 2.
2.1 ADDITIONAL RENT. "Additional Rent" shall mean any amounts
other than Base Rent payable by Tenant to Landlord or to other Entities on
Landlord's behalf as required under this Lease, including, without limitation,
interest accrued on past due Base Rent and on other past due Additional Rent
amounts owing to Landlord hereunder (including interest on the past due amounts
payable by Landlord to Lenders under the Improvements Loan, as described in
Section 21.21, excluding interest on interest) at the Default Rate (to be
compounded annually), costs and expenses to be paid or reimbursed by Tenant
hereunder (including any amounts which Tenant owes to Landlord pursuant to the
terms of Section 17.7 or Section 21.21), any charges, fees or other amounts due
under the Improvements Loan and any other Authorized Loan, amounts due pursuant
to Tenant's indemnity obligations hereunder, Real Estate Taxes, Tenant's
obligation to pay condemnation proceeds to Landlord pursuant to Section 15.4,
Tenant's obligation to pay insurance proceeds to Landlord pursuant to Section
16.3, Tenant's obligation to pay the Purchase Price under Section 19.2, and
Tenant's obligation, if any, to pay the "Margin Increase" (as defined in that
certain side letter regarding "Management of Collateral
4.
<PAGE> 11
Account" between Tenant and HSBC, of even date herewith). Except as provided in
this Section, Additional Rent shall not include interest charged on interest.
2.2 ADVANCE. "Advance" shall mean any payment by Landlord for
Improvements which has been requested by Tenant and paid pursuant to the terms
of Article 11.
2.3 APPROVAL PLANS. "Approval Plans" shall have the meaning set
forth in Section 11.3(c).
2.4 AUTHORIZED LOAN. "Authorized Loan" shall have the meaning
set forth in Section 13.1(b).
2.5 AUTHORIZED PLANS. "Authorized Plans" shall have the meaning
set forth in Section 11.3(c).
2.6 BASE RENT. "Base Rent" shall mean, as of a Rent Payment
Date, the sum of the following for any Building for which the Rent Commencement
Date has occurred: (1) the Senior Rent Component; and (2) the Equity Rent
Component.
2.7 BUILDING. "Building" shall mean any individual building
which constitutes an Improvement.
2.8 BUILDING LEASES. "Building Leases" shall mean this Lease
and those two (2) certain lease agreements by and between Landlord and Tenant
for premises located in San Jose, California, dated the date hereof,
collectively.
2.9 CAPITALIZED INTEREST. "Capitalized Interest" shall mean:
(1) the Senior Rent Component incurred by Landlord to Lenders under the Notes on
Advances during the construction of any Building or phase prior to the Rent
Commencement Date for such Building or phase; and (2) the Equity Rent Component
as a result of Advances made by Landlord pursuant to Section 5.5 during the
construction of any Building or phase prior to the Rent Commencement Date for
such Building or phase.
2.10 COLLATERAL. "Collateral" shall have the meaning set forth
in Section 21.18.
2.11 CONSTRUCTION PERIOD. "Construction Period" for each
Building or phase shall mean that period beginning on the date of the first
Advance for the foundation of the Building or phase and ending on the Rent
Commencement Date for the Building or phase.
2.12 CONTRACTOR. "Contractor" shall mean the general contractor
hired to construct any Improvements, which contractor shall be selected by
Tenant in Tenant's capacity as agent for Landlord, and shall be subject to
Landlord's approval, which shall not be unreasonably withheld or delayed.
Landlord hereby approves Devcon Construction, Inc.
5.
<PAGE> 12
2.13 COVERAGE TEST. "Coverage Test" shall mean a requirement,
wherever referenced in the Lease, that the fair market value of the Land and the
Improvements together be at least three (3) times Equity Funded Amount.
2.14 DEFAULT. "Default" shall have the meaning set forth in
Section 17.1.
2.15 DEFAULT RATE. "Default Rate" means that weighted average
of the interest rates of (i) the Senior Rent Component as set forth in Section
2.62 and (ii) the Equity Rent Component set forth in Section 2.19, plus two
percent (2.0%), or the highest rate permitted by applicable law (if any),
whichever is less. Mathematically, the Default Rate shall be:
(3/86 x Equity Rent Component rate) + (83/86 x Senior Rent Component rate) + 2%
Each change in the Default Rate due to a change in such interest rates under the
Notes shall take effect simultaneously with such change in such interest rates,
without Notice to either party. Notwithstanding the foregoing, in the event that
the foregoing Default Rate shall be in violation of any usury or similar law,
then the Default Rate shall be reduced to the extent necessary to cause the
Default Rate to comply with any usury or similar law.
2.16 ENTITY. "Entity" shall mean any person,
corporation, partnership (general or limited), joint venture,
association, joint stock company, trust or other business entity or
organization.
2.17 EQUITY CONTRIBUTION. "Equity Contribution" shall mean that
portion of the Funded Amount equal to three percent (3%) of the Funded Amount,
which Landlord has paid as Landlord's equity contribution to the Funded Amount
(subject, however, to Tenant's adjusted Base Rent payments in the forty-ninth
(49th) and fiftieth (50th) months of the Term, as set forth in Section 5.1(a)
below).
2.18 EQUITY FUNDED AMOUNT. "Equity Funded Amount" shall mean
that portion of the Funded Amount equal to the amount which Landlord has paid
pursuant to the terms of Section 5.5. The Equity Funded Amount shall be the sum
of the Equity Contribution plus the Security Deposit. In no event shall the
Equity Funded Amount exceed the difference between the Funded Amount minus the
aggregate Guaranteed Residual Value. In no event shall the aggregate of the
Equity Funded Amounts of the Building Leases exceed Nineteen Million Three
Hundred Eighty Thousand Dollars ($19,380,000).
2.19 EQUITY RENT COMPONENT. "Equity Rent Component"
shall mean the quotient equal to the product of the Equity
Contribution (at the time of the relevant calculation of the Equity
Rent Component) multiplied by the LIBOR Rate plus 4.05%, divided by
6.
<PAGE> 13
the Monthly Calculation. Mathematically, the Equity Rent Component
shall be:
[(Equity Contribution) x (LIBOR Rate + 4.05%)]
[ Monthly Calculation ]
2.20 EVENT OF MAJOR DEFAULT. "Event of Major Default" shall
have the meaning set forth in Section 17.2.
2.21 EXTENSION FEE. "Extension Fee" shall have the meaning set
forth in the Section 4.2.
2.22 EXTENSION TERM. "Extension Term" shall have the meaning
set forth in the Basic Lease Provisions.
2.23 FEE MORTGAGE. "Fee Mortgage" shall mean any Mortgage,
other than the Improvements Loan, at any time given by Landlord, and remaining
uncancelled on the Official Records, encumbering all or any portion of
Landlord's right, title and estate in Improvements.
2.24 FUNDED AMOUNT. "Funded Amount" shall mean the aggregate
amount of any Advances requested and actually paid by Landlord pursuant to the
terms of Section 11 (including Capitalized Interest) and the closing costs and
fees set forth in Exhibit J attached hereto (which shall be attributable to the
first Building or phase of the Lease), less any reductions in the principal
amount of the Improvements Loan or any New Loan or in the Equity Funded Amount,
whether such principal reduction or reduction in the Equity Funded Amount is
accomplished by payment to Lenders or the holder of a New Loan, the application
of the Collateral or other collateral by Lenders or the holder of a New Loan,
the payment of insurance proceeds, condemnation awards, or otherwise (subject,
however, to Tenant's obligation to adjust its Base Rent payments in the
forty-ninth (49th) and fiftieth (50th) months of the Term, as set forth in
Section 5.1(a) below).
2.25 GUARANTEED RESIDUAL VALUE. "Guaranteed Residual Value"
shall be calculated on each Building or phase, and shall mean that amount
necessary to cause the present value of the Minimum Lease Payments under this
Lease, including the present value of the Guaranteed Residual Value, to
approximately equal, but not exceed, eighty nine and 9/10 percent (89.9%) of the
estimated Funded Amount, computed at the Lease Inception Date and discounted to
present value as of the expected Rent Commencement Date using the interest rate
implicit in the Lease (or Tenant's best available incremental borrowing rate as
communicated by Tenant to Landlord, if lower), all as calculated and determined
pursuant to Statement of Financial Accounting Standards Number 13. "Minimum
Lease Payments" shall mean the Base Rent payable over the Initial Term and the
Extension Term, plus imputed interest on the Security Deposit imputed at the one
month LIBOR rate of interest, plus the Guaranteed Residual Value, plus the
following to the extent paid in cash: the fees listed on Exhibit J, the
Extension Fee and
7.
<PAGE> 14
reimbursed costs of Landlord paid by Tenant deemed to meet the definition of
Minimum Lease Payments under SFAS No. 13. During the Construction Period for
each Building, the Guaranteed Residual Value shall not exceed an amount
determined by multiplying the then existing Funded Amount for such Building by a
fraction, the numerator of which is the estimated Guaranteed Residual Value to
be allocated to such Building as of the Rent Commencement Date for such Building
and the denominator of which is the estimated Funded Amount to be allocated to
such Building as of such Rent Commencement Date. If, at any time prior to the
determination of the Guaranteed Residual Value for any Building or phase, the
Financial Accounting Standards Board, Emerging Issues Task Force, or the
Securities Exchange Commission, releases any pronouncements which modify FAS 13,
paragraph 7(d) which outlines the criteria for the determination of the
Guaranteed Residual Value, this Section 2.25 shall be modified to insure
compliance with the new standards.
2.26 HSBC. "HSBC" shall mean The Hongkong and Shanghai Banking
Corporation Limited, a Hong Kong banking corporation, acting through its San
Francisco branch.
2.27 IMPROVEMENTS. "Improvements" shall mean any and all
improvements which Tenant may elect, as construction agent for Landlord, to
erect, construct or situate upon the Land or any part thereof during the Term
under and pursuant to the terms of, and using funding provided by or through
Landlord pursuant to Article 11 of this Lease. Any improvements constructed,
erected or situated on the Land which are not funded by or through Landlord
pursuant to the terms of Article 11 of this Lease shall be and remain the
property of Tenant, and shall not be subject to the terms of this Lease.
2.28 IMPROVEMENTS LOAN. "Improvements Loan" shall have the
meaning set forth in Section 13.1(b).
2.29 INITIAL TERM. "Initial Term" shall have the meaning set
forth in the Basic Lease Provisions.
2.30 ILC. "ILC" shall mean Irish Leasing Corporation, a Texas
corporation, or a successor landlord under the Land Lease.
2.31 LAND. "Land" shall have the meaning set forth in the Basic
Lease Provisions.
2.32 LAND LEASE. "Land Lease" shall mean that certain Ground
Lease dated as of February 28, 1995 by and between Tenant and ILC, by which
Tenant leases the Land from ILC.
2.33 LAND LEASE DEED OF TRUST. "Land Lease Deed of Trust" shall
mean that certain fourth priority deed of trust, junior only to the lien of the
Lenders Deed of Trust, the Landlord Deed of Trust and the Tenant Deed of Trust,
by ILC, as trustor, in favor of Tenant, as beneficiary, dated May 1, 1995 and
recorded on
8.
<PAGE> 15
May 1, 1995 in the Official Records as Instrument No. 12877066, and
as more fully described in Section 13.1(g).
2.34 LAND LOAN. "Land Loan" shall mean that loan funded by
Union Bank of Switzerland, a Swiss banking corporation, acting through its Los
Angeles branch, or any other loan authorized pursuant to the terms of the Land
Lease for purposes of ILC's purchase of the Land, as more particularly described
in the Land Lease.
2.35 LANDLORD AFFILIATE. "Landlord Affiliate" shall mean
any Entity which controls or is controlled by or is under the common control of
Landlord or its beneficiary.
2.36 LANDLORD DEED OF TRUST. "Landlord Deed of Trust" shall
mean that certain second priority deed of trust, securing Tenant's obligations
under this Lease, and junior only to the lien of the Lenders Deed of Trust, to
be executed by Tenant in favor of Landlord and recorded in the Official Records
as of the Date of Lease, as more fully described in Section 13.1(e).
2.37 LEASE INCEPTION DATE. "Lease Inception Date" shall mean,
for the first Building or phase constructed (i.e., Building "J" as depicted in
the Site Plan attached hereto as Exhibit C), the date of this Lease. For
subsequent Buildings or phases, "Lease Inception Date" shall be that date when
Tenant's Approval Plans for such Building or phase are approved by Landlord
pursuant to Section 11.3(c).
2.38 LEGAL REQUIREMENTS. "Legal Requirements" shall mean all
statutes, codes, laws, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, permits, licenses, authorizations, directions
and requirements of all federal, state, county, municipal and other governments,
departments, commissions, boards, courts, authorities, officials and officers,
which now or at any time hereafter are applicable to Tenant or this Lease or
applicable to and enforceable against the Premises, the Improvements or any part
thereof, as applicable.
2.39 LENDERS. "Lenders" shall mean HSBC and Sumitomo,
collectively. Individually, the Lenders are sometimes hereinafter referred to as
a Lender.
2.40 LENDERS DEED OF TRUST. "Lenders Deed of Trust" shall mean
that certain first priority deed of trust to be executed by Landlord and Tenant
in favor of HSBC and Sumitomo jointly and recorded in the Official Records as of
the Date of Lease, as more fully described in Section 13.1(d).
2.41 LIBOR BUSINESS DAY. "LIBOR Business Day" shall have the
same meaning as "Business Day" is defined in the Notes or other Authorized Loan.
9.
<PAGE> 16
2.42 LIBOR RATE. "LIBOR Rate" shall mean the LIBOR Rate as
defined in the Notes, or a subsequent Authorized Loan, as selected in accordance
with Section 5.1(d).
2.43 MONTHLY CALCULATION. "Monthly Calculation" shall mean the
quotient resulting from dividing three hundred sixty (360) by the number of days
in any applicable calendar month. The applicable calendar month shall be the
month for which the calculation involving this Monthly Calculation is being
done.
2.44 MORTGAGE. "Mortgage" shall mean any mortgage, deed of
trust, or other instrument in the nature thereof at any time and from time to
time constituting a lien, charge or encumbrance upon any interest or estate of
Tenant or Landlord in the Premises or in this Lease.
2.45 MORTGAGEE. "Mortgagee" shall mean the record holder (as
reflected in the Official Records) from time to time of, or the record
beneficiary (as reflected in the Official Records) from time to time under, a
Mortgage.
2.46 NEW LOAN. "New Loan" shall have the meaning set forth in
Section 13.1(b).
2.47 NOMINAL RATE. "Nominal Rate" shall mean the operative and
relevant rate (or rates) of interest under the Notes from time to time, or if
the Improvements Loan has been replaced by an Authorized Loan, then the relevant
rate of interest under the promissory note evidencing such Authorized Loan, all
subject to the terms of Section 13.1(b).
2.48 NOTES. "Notes" shall have the meaning set forth in Section
13.1(b).
2.49 NOTICE. "Notice" shall mean a written advice, request,
demand or notification required or permitted by this Lease, as more particularly
provided in Section 21.3.
2.50 OFFICIAL RECORDS. "Official Records" shall mean the
official records of Santa Clara County, California.
2.51 PERMITTED EXCEPTIONS. "Permitted Exceptions" shall mean
the following: (1) the exceptions set forth in Exhibit B; (2) any exceptions
created or caused by Tenant or to which Tenant consents in writing; (3) taxes
and assessments not yet due and payable; (4) the Lenders Deed of Trust (or, if
the Lenders Deed of Trust has been reconveyed and removed from title, then a
deed of trust that secures an Authorized Loan); (5) the Landlord Deed of Trust;
(6) the Tenant Deed of Trust; (7) the Land Lease Deed of Trust; (8) all title
defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way, and
restrictive covenants and conditions affecting the Land unless any of the
foregoing arise as a result of Landlord's actions or with Landlord's written
consent (unless such
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actions taken or consent given by Landlord are requested in writing by Tenant);
and (9) this Lease.
2.52 PREMISES. "Premises" shall have the meaning set forth in
the Basic Lease Provisions. It is the intention of the parties that the Premises
consist only of the Improvements, and in no event shall the Premises consist of
any portion of the Land.
2.53 REAL ESTATE TAXES. "Real Estate Taxes" shall have the
meaning set forth in Section 6.1(b).
2.54 RENT. "Rent" shall mean Base Rent and Additional Rent.
2.55 RENT COMMENCEMENT DATE. "Rent Commencement Date" shall
have the meaning set forth in the Basic Lease Provisions.
2.56 RENT PAYMENT DATE. "Rent Payment Date" shall have the
meaning set forth in Section 5.1.
2.57 RENT PERIOD. "Rent Period" shall mean each period equal to
one calendar month occurring during the Term hereof, except that the first Rent
Period shall be a partial calendar month commencing on the Rent Commencement
Date and ending on the last day of such calendar month and the last Rent Period
shall be a partial calendar month commencing on the first LIBOR Business Day of
the last calendar month of the Term and ending on the last day of the Term.
2.58 REQUIRED PERMITS. "Required Permits" shall mean each and
every building and development permit including, without limitation, demolition
permits, site permits and addenda thereto (including, without limitation,
foundation permits and structural permits), temporary and final occupancy
permits and any other governmental or quasi-governmental approvals which must be
issued by any governmental authority, department, commission, board, official or
officer as a condition precedent to construction and occupancy of any
Improvements.
2.59 SBNYTC. "SBNYTC" shall mean Sumitomo Bank of New York
Trust Company.
2.60 SECURITY DEPOSIT. "Security Deposit" shall have the
meaning set forth in Section 5.7.
2.61 SENIOR FUNDED AMOUNT. "Senior Funded Amount" of this Lease
shall mean that amount equal to the Funded Amount minus the Equity Funded
Amount, which amount shall not exceed the Guaranteed Residual Value.
2.62 SENIOR RENT COMPONENT. "Senior Rent Component" shall mean
the quotient equal to the product of the Senior Funded Amount (at the time of
the relevant calculation of the Senior Rent
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Component) multiplied by the Nominal Rate, divided by the Monthly
Calculation. Mathematically, the Senior Rent Component shall be:
[ Senior Funded Amount x Nominal Rate ]
[ Monthly Calculation ]
2.63 SITE PLAN. "Site Plan" shall mean the Site Plan attached
hereto as Exhibit C.
2.64 SUMITOMO. "Sumitomo" shall mean The Sumitomo Bank,
Limited, a Japanese banking corporation, acting through its San Francisco
branch.
2.65 TAKING. "Taking" shall have the meaning set forth in
Section 15.1.
2.66 TENANT DEED OF TRUST. "Tenant Deed of Trust" shall mean
that certain third priority deed of trust, securing (i) Landlord's obligation to
return Tenant's Security Deposit under this Lease and (ii) Landlord's obligation
to convey the Premises to Tenant pursuant to Article 19 of this Lease, and shall
be junior only to the liens of the Lenders Deed of Trust and the Landlord Deed
of Trust, to be executed by Landlord, as trustor, in favor of Tenant, as
beneficiary, and recorded in the Official Records as of the Date of Lease, as
more fully described in Section 13.1(f).
2.67 TERM. "Term" shall have the meaning set forth in the Basic
Lease Provisions.
ARTICLE 3
DEMISE
3.1 PREMISES. Subject to the terms, covenants and conditions
contained herein, Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, the Premises, together with all rights, privileges, easements and
appurtenances relating to the Premises.
ARTICLE 4
TERM
The Term of this Lease shall consist of the Initial Term, and
if exercised by Tenant, the Extension Term, as follows:
4.1 INITIAL TERM. The Initial Term of this Lease is specified
in Article 1.
4.2 EXTENSION TERM. Upon Notice of the extension given to
Landlord in accordance with Article 1, so long as the "Extension Conditions"
(defined below) are satisfied at the time of such Notice of extension, Tenant
may extend the Term for the Extension Term specified in Article 1. All
provisions of this Lease shall
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remain in full force and effect for the Extension Term, including, without
limitation, the Base Rent payable hereunder, except that Tenant shall have no
further right to extend the Term of this Lease, and except that the Base Rent
during the Extension Term may be adjusted only to reflect any actual change in
the rate of interest (that is, the spread over LIBOR) charged pursuant to the
Authorized Loan. The "Extension Conditions" shall consist of the following: (1)
Tenant shall satisfy the "Financial Tests" (defined below) at the time of such
Notice and as of the expiration of the Initial Term; (2) Tenant shall pay to
Landlord no later than thirty (30) days before the first day of the Extension
Term an amount equal to the product of the outstanding Funded Amount as of the
end of the fifty-seventh (57th) full calendar month of the Initial Term times
0.25% ("Extension Fee"); (3) there shall exist no ongoing and uncured Event of
Major Default at the time of such Notice and as of the expiration of the Initial
Term; (4) the Improvements Loan shall have been refinanced or repaid as of the
commencement of the Extension Term (the refinancing or repayment of which shall
be subject to the terms of Section 13.1(c)) and (5) the Land and the
Improvements shall satisfy the Coverage Test at the time of the Notice and as of
the expiration of the Initial Term. The "Financial Tests" shall consist of the
following: (a) Tenant shall have a minimum tangible net worth (total assets
minus intangible assets minus total liabilities, as calculated in accordance
with generally accepted accounting principles) ("Tangible Net Worth") of not
less than Seven Hundred Fifty Million Dollars ($750,000,000); (b) Tenant's
leverage (the ratio of funded debt to Tangible Net Worth) shall not exceed a
ratio of 1:1; and (3) Tenant shall not have incurred any net losses in excess of
Ten Million Dollars ($10,000,000) per year during the two complete fiscal years
immediately preceding such Notice of extension.
4.3 HOLDING OVER. If Tenant remains in possession of the
Premises after the expiration of the Term without executing a new lease, such
holding over shall be construed as a tenancy from month-to-month, subject to all
terms, covenants and conditions herein contained, and at the Base Rent required
to be paid by Tenant pursuant to the terms hereof during the last month of the
Term.
ARTICLE 5
RENT
5.1 BASE RENT.
(a) PAYMENT. Base Rent shall accrue in the manner set forth
below commencing on the Rent Commencement Date. Tenant's obligation to pay Base
Rent, with respect to any Building, shall commence accruing on the Rent
Commencement Date for such Building, and shall be payable monthly in arrears
thereafter on the first LIBOR Business Day of each successive month, except that
the last installment of Base Rent shall be payable on the last day of the last
month during the Term (each such date shall be a "Rent Payment
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Date"). Tenant's obligation to pay Base Rent on account of Advances made for any
Building shall not commence accruing until the Rent Commencement Date for that
Building. No sooner than thirty (30) days prior to the due date for any
installment of Base Rent hereunder, Landlord shall deliver to Tenant a Notice
indicating the exact dollar amount of the Base Rent that is due on such due date
("Invoice"). The Base Rent payment due on the first LIBOR Business Day of the
forty-ninth (49th) month of the Term shall be deemed paid entirely to Landlord
to be applied first to the Equity Rent Component then due and the balance to be
applied to the reduction of the Equity Funded Amount. The amount of the Senior
Rent Component that would otherwise have been due but for the preceding sentence
shall be added to the Senior Funded Amount. The Base Rent payment due on the
first LIBOR Business Day of the fiftieth (50th) month of the Term shall be
deemed paid entirely to Lenders under the Improvements Loan to the extent of the
Senior Rent Component for the immediately preceding month and the balance shall
be applied to the reduction of the Senior Funded Amount (excluding any
prepayment premium thereon).
Tenant shall pay Base Rent as follows: The Senior Rent
Component shall be paid to Lenders as set forth in the Basic Lease Provisions,
and the Equity Rent Component shall be paid to Landlord at the Address for Rent
set forth in the Basic Lease Provisions (or, if the Improvements Loan has been
replaced by a New Loan or Replacement Loan, then the Senior Rent Component shall
be paid directly to the holder of such New Loan or Replacement Loan) or at such
other place as Landlord and Tenant may from time to time mutually agree upon, in
their respective sole and absolute discretion. With the exception of payments
made pursuant to the Clearinghouse Debit Account and Clearinghouse Credit
Account, established by Tenant in accordance with the requirements of this
Section 5.1(b) and (c), as set forth below, Tenant shall pay Base Rent by wire
transfer or by check. Landlord, Lenders or such other holder of a New Loan or
Replacement Loan, as the case may be, shall supply Tenant with such bank account
information as Tenant shall require to enable payment by wire transfer. The
parties agree that Tenant is paying the Senior Rent Component of Base Rent
directly to Lenders for the convenience of the parties in order to satisfy
Landlord's obligations to pay interest under the Improvements Loan for the
period of time corresponding to the Term of this Lease; all Base Rent payments
shall be deemed payments to Landlord to the extent of the Equity Rent Component
and payments of the interest due to Lenders under the Improvements Loan to the
extent of the Senior Rent Component.
(b) CLEARINGHOUSE CREDIT ACCOUNT.At any time, and from time to
time, during the Term of the Lease, Tenant shall have the right to request in
writing that a Lender designate a clearinghouse credit account at a financial
institution legally authorized to receive funds on behalf of the Lender
("Clearinghouse Credit Account") for Tenant's payment of the Senior Rent
Component due and payable to the Lender (as set forth in the Basic Lease
Provisions) on a Rent Payment Date. At any time, and from time to
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<PAGE> 21
time, after a Lender's designation of a Clearinghouse Credit Account, Tenant
may, but shall not be obligated to, deposit funds on a Rent Payment Date in the
exact amount of the Senior Rent Component due and payable to the Lender who has
established such a Clearinghouse Credit Account and any payment by Tenant of a
portion of the Senior Rent Component due a Lender by payment directly into a
Lender's Clearinghouse Credit Account shall not prevent Tenant from making
future payments of rent by any other means permitted in this Section 5.1. A
Lender's designation of a Clearinghouse Credit Account for deposit of Tenant's
payment of the Lender's portion of the Senior Rent Component shall be deemed
that Lender's approval of Tenant's payment of the Lender's Senior Rent Component
into the Clearinghouse Credit Account. Tenant's ability to deposit a Lender's
portion of the Senior Rent Component into a Clearinghouse Credit Account shall
not alleviate Landlord's obligation to deliver to Tenant an Invoice as set forth
above.
(c) CLEARINGHOUSE DEBIT ACCOUNT. At any time, and from time to
time, during the Term of the Lease, Tenant and HSBC may agree that Tenant's
payment of HSBC's portion of the Senior Rent Component as set forth in the Basic
Lease Provisions shall be paid to HSBC by funds available to HSBC in a
clearinghouse debit account at a financial institution reasonably acceptable to
HSBC ("Clearinghouse Debit Account"). If Tenant and HSBC agree to payment of
HSBC's portion of the Senior Rent Component through a Clearinghouse Debit
Account, Tenant shall provide written notice of such agreement to Landlord, and
shall indicate the account number and location of the Clearinghouse Debit
Account. The Clearinghouse Debit Account shall be terminable by Tenant at will,
without advance notice to Landlord or HSBC. During any portion of the Term in
which the Clearinghouse Debit Account is available for and contains sufficient
funds to cover the amount of HSBC's portion of the Senior Rent Component due and
payable to HSBC on a Rent Payment Date, interest shall not accrue on (nor shall
Tenant be deemed in default hereunder for failure to pay) any of HSBC's portion
of the Senior Rent Component due hereunder which is not collected on a Rent
Payment Date due to any failure by HSBC to collect its portion of the Senior
Rent Component in a timely manner. HSBC's ability to collect its portion of the
Senior Rent Component from the Clearinghouse Debit Account shall not alleviate
Landlord's obligation to deliver to Tenant an Invoice as set forth above.
Notwithstanding anything to the contrary in this Lease, the Clearinghouse Debit
Account shall not be used for the payment of any amounts (whether or not payable
under the Lease) other than HSBC's portion of the Senior Rent Component as set
forth in the Basic Lease Provisions and which are due and payable on the
then-current Rent Payment Date.
(d) INTEREST RATE SELECTION. The parties acknowledge that the
interest rate applicable under the Improvements Loan (or other Authorized Loan)
and the Equity Rent Component shall affect the amount of Base Rent payable by
Tenant hereunder. Therefore, Tenant shall have the right, by written notice to
Landlord in the form of Exhibit K (which notice may be
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<PAGE> 22
transmitted to Landlord by facsimile), to designate the interest period to be
selected from time to time by Landlord pursuant to the terms of the Notes (or
other Authorized Loan) as the interest period then in effect for interest rate
of the Improvements Loan (or other Authorized Loan) and the Equity Rent
Component. Tenant acknowledges that the rates available to be selected as the
LIBOR Rate after the first partial calendar month of the Term are 1, 3, 6, 9 or
12-month LIBOR rates. In the event that Tenant fails to give such written notice
to Landlord prior to the applicable deadline for selection of such interest
period pursuant to the terms of the Notes (or other Authorized Loan), Landlord
shall select the same interest period then in effect for the Improvements Loan
(or other Authorized Loan) and for the Equity Rent Component. Notwithstanding
the foregoing, the interest rate applicable during the Construction Period for
each Building or phase shall be the one-month LIBOR rate.
5.2 PRORATION. If the Term expires or is otherwise terminated
on a day other than the day before the first LIBOR Business Day of a calendar
month, then Base Rent for such Rent Period shall be prorated on the basis of
actual days elapsed on the basis of a thirty (30) day month.
5.3 NO ABATEMENT OF RENT. Except as a consequence of a
reduction in the Funded Amount or the terms of Section 15 (Taking), Tenant shall
not be entitled to any abatement, diminution, reduction, setoff or postponement
of Base Rent as a consequence of any inconvenience to, interruption of,
cessation of or loss of Tenant's use or enjoyment of the Premises or as a result
of any reason whatsoever.
5.4 DELINQUENT RENT. Any Base Rent not paid on the due date
shall accrue interest at the Default Rate from the date such Base Rent was
originally due until the date such Base Rent is paid. All interest accrued on
past due Base Rent shall be due and payable to Landlord at the time the Base
Rent is paid, or upon demand by Landlord, if earlier.
5.5 EQUITY FUNDING.
(a) For each Building (as such term is defined in Section
5.6 for purposes of this Section 5.5), after the appraisal described in Section
21.25 has been received by Landlord, Landlord shall itself fund any Advances on
a proportionate basis based upon a fraction of the total amount of the Advance,
the numerator of which is the difference between the total estimated Funded
Amount (as of completion of construction, as reasonably estimated by Tenant) for
the Building or phase less the Guaranteed Residual Value for such Building, and
the denominator of which is the total estimated Funded Amount (as of completion)
for such Building or phase; provided that the Equity Funded Amount of Advances
for a Building shall be deemed to be paid on a proportionate basis out of those
funds held by Landlord as Tenant's Security Deposit and out of Landlord's Equity
Contribution. In no event shall Landlord be
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required to do any of the following: (a) pay the Equity Funded Amount of
Advances for a Building resulting in such payment exceeding the difference
between the Funded Amount for such Building minus the Guaranteed Residual Value
for such Building; (b) make Advances such that the aggregate Funded Amounts of
the Building Leases exceeds One Hundred Fourteen Million Dollars ($114,000,000)
or the aggregate Equity Funded Amounts of the Building Leases exceeds Nineteen
Million Three Hundred Eighty Thousand Dollars ($19,380,000); or (c) make
Advances such that the Funded Amount under this Lease exceeds Thirty Two Million
Dollars ($32,000,000).
(b) Notwithstanding the foregoing, in the event: (1)
Contractor fails to complete any Building or phase on account of either the
insolvency or bankruptcy of the Contractor or a dispute with the Contractor
concerning an alleged default by the Contractor; and (2) Tenant elects to have
Landlord enter into a construction contract with another contractor for the
purpose of completing such Building or phase; and (3) completion of such
incomplete Building or phase by another contractor requires funds in excess of
the funds that would have been required had Contractor not become insolvent or
bankrupt or had such dispute not existed (excluding change orders), then
Landlord's obligation for funding for such Building or phase under this Section
5.5 shall be equal to the amount that Landlord would have been required to fund
under this Section 5.5 absent such insolvency, bankruptcy or dispute plus the
amount of any change orders. At least two (2) days prior to making such equity
Advance to Tenant, Landlord shall submit to Tenant and shall have obtained
Tenant's prior written approval of the amount of such payment and the basis upon
which such amount has been calculated. Tenant may withhold Tenant's consent to
such payment if Tenant's accountant in good faith disagrees with such amount or
the manner in which it was calculated.
5.6 EXHIBITS REFLECTING INITIAL ADVANCE AND RENT COMMENCEMENT
DATE. Within thirty (30) days after the initial Advance for the foundation for
any Building and within thirty (30) days after the initial Advance under this
Lease, Landlord and Tenant shall execute the "Initial Advance Memorandum" in the
form attached hereto as Exhibit G. With respect to the initial Advance under
this Lease, the Initial Advance Memorandum shall also indicate to which Building
such Advance applies. Within thirty (30) days after the Rent Commencement Date
for any Building under this Lease, Landlord and Tenant shall execute the "Rent
Commencement Date Memorandum" in the form attached hereto as Exhibit H. If the
Rent Commencement Date for any Building under this Lease occurs prior to the
completion or occupancy of such Building, then the parties shall, within thirty
(30) days after the completion or occupancy of such Building, enter into a
memorandum, which shall reflect the Guaranteed Residual Value for such Building
(the parties acknowledge that, except as provided in Section 19.2, they will not
reflect the Guaranteed Residual Value for any Building until such Building has
been completed or occupied). Guaranteed Residual Value for any Building during
construction and
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after construction shall be determined by multiplying the Guaranteed Residual
Value percentage, calculated pursuant to Section 2.25, by the Funded Amount for
any Building at the date of calculation. Whenever the term "Building" is used in
this Lease in connection with the calculation of the Guaranteed Residual Value
during a construction period, in connection with Landlord's equity funding under
Section 5.5 or in connection with Tenant's Security Deposit funding under
Section 5.7, such term shall mean a particular construction phase of the
Improvements.
5.7 SECURITY DEPOSIT. On the date of initial Advance for a
Building, Tenant shall deliver to Landlord a security deposit ("Security
Deposit") in an amount equal to fourteen percent (14%) of the estimated Funded
Amount for the Building as stated in the Initial Advance Memorandum for the
Building in the form attached hereto as Exhibit G. Landlord may use and
commingle the Security Deposit with other funds of Landlord and the Security
Deposit shall not bear interest. On the Rent Commencement Date, the amount of
the Security Deposit shall be increased or decreased to an amount equal to the
difference between the Funded Amount minus the sum of the Landlord's Equity
Contribution and the Guaranteed Residual Value (as of such date, as determined
pursuant to the Rent Commencement Date Memorandum for the Building in the form
attached hereto as Exhibit H). Mathematically, the Security Deposit as of the
Rent Commencement Date shall be:
Funded Amount - (Guaranteed Residual Value + Equity Contribution)
The Security Deposit shall be held by Landlord as security solely for the
payment of Base Rent and Additional Rent by Tenant pursuant to this Lease. If at
any time during the Term any Base Rent shall be overdue, then Landlord may at
its election (but shall not be required to) appropriate and apply any portion of
the Security Deposit to the payment of any such overdue Base Rent. Should the
entire Security Deposit, or any portion thereof, be appropriated and applied by
Landlord as provided herein, then Tenant shall immediately, after receipt of
written demand by Landlord, pay to Landlord a sufficient sum in cash to restore
the Security Deposit to the amount of the Security Deposit as of the Rent
Commencement Date. In the event that the Equity Funded Amount is reduced for any
reason, including without limitation by reason of a sale of any portion of the
Premises or the application of the proceeds of a condemnation award to reduce
the Equity Funded Amount (it being understood that the Equity Funded Amount will
only be reduced in the event and to the extent that the net proceeds of such
condemnation award exceeds the Senior Funded Amount, with such award proceeds to
be applied first to the Senior Funded Amount pursuant to Section 15.4 hereof),
the amount of the Security Deposit required hereunder shall be reduced by a like
amount, and any such excess funds held by Landlord shall immediately be returned
to Tenant. The entire Security Deposit (other than amounts withheld against Base
Rent and Additional Rent due hereunder) shall be returned to Tenant at the end
of the Term.
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5.8 ADDITIONAL RENT. Tenant agrees to pay all Additional Rent
when it becomes due and payable under this Lease.
ARTICLE 6
TAXES
6.1 REAL ESTATE TAXES.
(a) From and after the Rent Commencement Date Tenant shall
pay directly to the appropriate taxing authority all Real Estate Taxes. If the
Rent Commencement Date occurs or the Term expires or otherwise terminates at any
time other than the beginning or end of a taxable year, Tenant's obligation to
pay Real Estate Taxes shall be prorated on the basis of a 365-day year, so as to
include only that portion of the taxable year which is a part of the Term.
Unless a termination of the Lease results from a purchase of the Land pursuant
to Article 19, any Real Estate Taxes levied against the Land which accrue during
the Term of this Lease but which would not be due and payable to the appropriate
taxing authority until after the expiration of the Term of this Lease (as the
same may be extended) shall be paid by Tenant to Landlord upon such termination.
Landlord shall pay such amounts to the appropriate taxing authority on a timely
basis.
(b) Except to the extent that Real Estate Tax bills and
statements are sent directly to Tenant by the taxing authority, upon receipt by
Landlord of the tax bills or statements, Landlord will use reasonable efforts to
promptly advise Tenant in writing of all Real Estate Taxes and shall deliver
copies of all applicable tax bills or statements to Tenant. Tenant shall pay
directly to the taxing authority all Real Estate Taxes prior to the later of (i)
thirty (30) days after receipt by Tenant from Landlord of a copy of such bills
and statements referred to above, or (ii) five (5) days prior to delinquency. As
used herein, the term "Real Estate Taxes" shall mean any and all taxes,
governmental fees and similar charges or assessments levied or assessed against
the Improvements and/or the Land including, without limitation, ad valorem taxes
and special assessments applicable to real property; provided, however, that
Real Estate Taxes shall not include any Landlord Income Taxes. Real Estate Taxes
shall also include any and all documentary, transfer, sales, mortgage, recording
or similar taxes imposed on Landlord or Tenant in connection with (i) the
original acquisition of the Premises by Landlord, (ii) any transfer of the
Premises to Tenant pursuant to the terms of this Lease, or (iii) any sale of the
Premises to a third party pursuant to the terms of this Lease. As used herein,
the term "Landlord Income Taxes" shall mean any and all income, franchise,
gains, gift, succession, excess profits, gross receipts, revenue, estate,
rental, or similar taxes or taxes in lieu thereof imposed upon Landlord or any
party other than Tenant (or an affiliate thereof) and any withholding tax
imposed as a collection device for, in lieu of, or otherwise related to any of
the foregoing without regard to whether such tax is required to be collected by
Tenant and without
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regard to whether Tenant would be liable for such withholding tax in the event
it failed to so withhold. For purposes of the foregoing, an income tax shall
include, without limitation, any tax imposed under the United States Internal
Revenue Code or the California Bank and Corporation Tax Law as well as any tax
which could qualify as an "income tax" under United States Treasury Regulation
Section 1.901-2 (except to the extent any such statute or regulation is
subsequently modified to include a tax or other governmental charge of a
materially different type and nature from the taxes currently described therein)
and any income tax which may be payable under the laws of any jurisdiction
either now or in the future. Real Estate Taxes for any given tax year shall
exclude assessment installments that are not due and payable during such tax
year.
6.2 PERSONAL PROPERTY TAXES. Tenant shall pay directly to the
appropriate taxing authorities prior to delinquency any and all taxes and
assessments levied or assessed during the Term upon or against Tenant's
furniture, equipment, trade fixtures and any other personal property in the
Premises.
6.3 RIGHT TO CONTEST. Tenant shall not be required to pay any
Real Estate Taxes or any other taxes for which Tenant is liable hereunder
(including, without limitation, any taxes for which Tenant is required to
indemnify Landlord under Section 6.5) (including penalties and interest), so
long as (i) Tenant shall contest the same or the validity thereof by appropriate
legal proceedings in such a manner to prevent the tax sale of any portion of the
Premises and (ii) the position to be taken by Tenant pursuant to such contest
would have a realistic possibility of success if litigated. For purposes of this
Lease, Tenant may conclusively establish that a position to be taken in a
contest would have a realistic possibility of success if litigated by providing
to Landlord a letter from counsel stating an opinion to such effect. In the
event of any such contest, Tenant shall, within thirty (30) days after the final
determination thereof, pay and discharge the amounts determined to be due in
accordance therewith and with the provisions of this Lease, together with any
penalties, fines, interest, costs and expenses that may have accrued thereon or
that may have resulted from Tenant's contest. Tenant also shall have a right to
contest any taxes for which it is liable hereunder, but with regard to which the
position to be taken pursuant to such contest would not have a realistic
possibility of success if litigated, provided that Tenant pays such taxes on or
prior to the date upon which such taxes are asserted to be due by the relevant
governmental authority. Notwithstanding the foregoing provisions of this Section
6.3, Tenant shall have an unconditional right to contest (without prior payment)
any taxes imposed by law upon Tenant rather than upon Landlord. Tenant's
decision to pay any taxes prior to contesting its or another party's underlying
liability therefore shall not be deemed to imply or suggest that the position to
be taken in such contest would not have a realistic possibility of success if
litigated. Landlord shall cooperate fully with Tenant in connection with the
exercise of Tenant's right
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of contest contained herein, and in the event that applicable law shall require
that Landlord, rather than Tenant, pursue legal proceedings for such contest,
Landlord will initiate and pursue such contest upon Tenant's request and in
accordance with Tenant's instructions (including, without limitation, Tenant's
instructions as to the selection of legal counsel and matters of strategy or
settlement); provided, however, that Landlord shall not be subject to any
liability for the payment of any costs or expenses in connection with any such
contest or proceedings, and Tenant will indemnify and save harmless Landlord
from any such costs and expenses (including, without limitation, reasonable
attorneys' fees, costs of court and appraisal costs), reimbursing Landlord
therefor upon demand (or paying such costs and expenses directly when due, all
as directed by Landlord). Tenant shall be entitled to any refund of any taxes
and penalties or interest from any governmental authority to the extent the
refund represents monies paid to the governmental authority by Tenant or paid by
Landlord and reimbursed by Tenant.
6.4 WITHHOLDING TAXES. Subject to Section 6.5, but
notwithstanding any other provision of this Lease to the contrary, Tenant may
withhold from any payments under this Lease any Landlord Income Taxes, without
obligation to gross-up, indemnify or otherwise increase payments in consequence
thereof, to the extent required by applicable law. Upon the date hereof or upon
the date a party becomes a Landlord or a transferee of any portion of the
Landlord's interest in the Premises or this Lease, and within thirty (30) days
following the first day of each calendar year or if otherwise requested from
time to time by Tenant, Landlord and each transferee, if organized under the
laws of a jurisdiction outside the United States, shall provide Tenant with
three counterparts of each of the forms prescribed by the Internal Revenue
Service of the United States (Form 1001 or 4224, or successor form(s), as the
case may be) certifying as to Landlord's or such transferee's status for
purposes of determining exemption from United States withholding taxes with
respect to all payments to be made to such person. Without limitation upon the
foregoing, unless Tenant has received such forms or other documents reasonably
satisfactory to it indicating that payments under this Lease are not subject to
withholding tax, Tenant is authorized to and shall withhold taxes from such
payments at the applicable statutory rate. Subject to Section 6.5, but
notwithstanding any other provision of this Lease to the contrary, any
withholding by Tenant under the preceding sentence shall not give rise to any
gross-up, indemnification or other payment obligation on the part of Tenant.
Landlord and each transferee, if organized under the laws of the United States
or any State thereof, shall timely provide Tenant with duplicate documents
conforming to the requirements of Treasury Regulation 1.1441-5(b) or any
successor thereto (which statement may be made on a Form W-9).
6.5 ADDITIONAL PROVISIONS RELATING TO TAXES. Notwithstanding
anything in this Section 6 to the contrary, Tenant shall protect and defend
Landlord from and against all criminal
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prosecution regarding and shall indemnify and hold Landlord harmless from and
against any and all losses, costs, liabilities or damages (including reasonable
attorneys' fees and disbursements and court costs) arising by reason of:
(a) Any and all U.S. Federal, state or local income taxes
imposed upon Landlord in consequence of Landlord being treated as the owner or
lessor of the Premises (or any part thereof) for such tax purposes (provided
that Landlord has fully complied with its obligations under Section 21.2(b));
(b) Any and all taxes imposed upon Tenant (except to the
extent that such taxes are imposed upon Tenant as a result of Landlord's failure
to comply with its obligations under this Lease);
(c) Any and all taxes required to be withheld from payments
made by Tenant to a third party not related to or affiliated with Landlord, HSBC
or Sumitomo;
(d) Any and all Real Estate Taxes;
(e) Any and all taxes owed by Landlord as a result of
payment made by Tenant to Landlord pursuant to Tenant's indemnity obligations
under this Section 6.5; and
(f) Any and all costs, liabilities or damages (including
reasonable attorneys' fees) incurred by Landlord in obtaining indemnification
payments from Tenant under the provisions of this Section 6.5.
Tenant's obligation to reimburse or indemnify Landlord for any
taxes, governmental fees, penalties, interest or other supplemental tax charges
under this Lease shall be reduced by the value of any related or offsetting tax
benefits derived or realized by Landlord. Tenant's duty to indemnify Landlord
under this Section 6.5 shall apply only to taxes arising during the Term
(whether or not due and payable at the conclusion of the Term), but shall
otherwise survive the expiration or earlier termination of this Lease.
ARTICLE 7
INSURANCE
7.1 LIABILITY INSURANCE. At all times during the Term, Tenant
shall obtain at Tenant's sole cost and expense a policy or policies of
comprehensive general liability insurance on an "occurrence" basis against
claims for "personal injury" liability, including bodily injury, death or
property damage liability. The liability insurance policy shall contain coverage
limits no less than the following: (1) Three Million Dollars ($3,000,000) per
person; (2) Five Million Dollars ($5,000,000) per incident; and (3) One Million
Dollars ($1,000,000) for property damage.
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7.2 BUILDERS' RISK INSURANCE. With respect to any Improvements
which may be under construction and not yet covered by insurance under the terms
of Section 7.3, Tenant shall maintain or cause to be maintained a policy or
policies of builders' risk insurance in an amount equal to the value upon
completion of the work (exclusive of land, foundation, excavation, grading,
landscaping, architectural and development fees and other items customarily
excluded from such coverage), insuring against the risks customarily insured
against under such insurance, including fire, vandalism, malicious mischief,
sprinkler leakage, lightning, and windstorm.
7.3 ALL-RISK INSURANCE. With respect to any completed
Improvements, prior to the termination of the builders' risk insurance required
by Section 7.2, and at all times thereafter, Tenant shall, at Tenant's sole cost
and expense, obtain and maintain, or cause to be obtained and maintained: (a) a
policy or policies of all-risk insurance covering the Improvements, providing
coverage against loss or damage by fire, vandalism, malicious mischief,
sprinkler leakage, lightning, windstorm and other insurable perils, as, under
good insurance practice, from time to time are insured against under all-risk
coverage for properties of similar character, age and location in an amount or
amounts not less than one hundred percent (100%) of the then actual replacement
cost (exclusive of land, foundation, excavations, grading, landscaping,
architectural and development fees and other items customarily excluded from
such coverage and without any deduction for depreciation); and (b) a policy or
policies of difference in conditions insurance covering the Improvements,
providing coverage against loss or damage by earthquake and flood as, under good
insurance practice, from time to time are insured against under earthquake
coverage for properties of similar character, age and location in an amount or
amounts not less than the lesser of (i) one hundred percent (100%) of the then
actual replacement cost (exclusive of land, foundation, excavations, grading,
landscaping, architectural and development fees and other items customarily
excluded from such coverage and without any deduction for depreciation) or (ii)
the amount of the Equity Funded Amount.
7.4 GENERAL REQUIREMENTS. The insurance required under this
Article 7 may be furnished under a "primary" policy and an "umbrella" policy or
policies. Landlord and the holder of any Authorized Loan shall be named as an
additional insured under Tenant's policy of insurance required under Section
7.1; Landlord, Tenant and the holder of any Authorized Loan shall each be named
as the loss payees under the policies of insurance required under Sections 7.2
and 7.3; and such policies shall contain an endorsement for cross-liability
coverage. Tenant shall furnish Landlord with certificates from Tenant's insurers
with respect to the insurance required to be carried hereunder on or before the
date such insurance is required to be carried. The certificates shall state that
such insurance is in full force and effect and that coverage will not be reduced
in any amount or otherwise limited or cancelled without twenty (20) days' prior
written notice
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to Landlord. Renewal certificates shall be furnished to Landlord not less than
thirty (30) days prior to the expiration of each such policy. Any blanket
insurance policy or policies that insure Tenant against the risks and for the
amounts herein specified shall be deemed to satisfy the obligation of Tenant
hereunder, provided that any such policy of blanket insurance shall specify the
amount of the total insurance allocated to the risks required to be insured
hereunder and such allocated amount meets the requirements of this Article 7.
All insurance required by this Article 7 shall be with an insurance company
licensed to do business in the State of California, with a general
policyholder's rating, as rated by the most current available "Bests" Insurance
Reports, no less than A-III,and shall be primary and non-contributing.
7.5 WAIVER OF SUBROGATION. Notwithstanding anything to the
contrary contained herein, to the extent permitted by law and so long as any
insurance coverage maintained by Tenant is not diminished by reason thereof,
Tenant hereby (a) releases and waives any rights it may have against Landlord
and its officers, agents and employees on account of any loss or damages
occasioned to Tenant, its property or the Premises, and arising from any risk
covered by any fire and extended coverage insurance maintained by Tenant,
whether or not due to the negligence of Landlord, its agents, employees,
contractors, licensees, invitees or other persons, and (b) waives on behalf of
any insurer providing such insurance to Tenant any right of subrogation that any
such insurer may have or acquire against Landlord or such persons by virtue of
payment of any loss under such insurance. Tenant shall use its best efforts to
cause its insurance policies to contain a waiver of subrogation clauses in
accordance with the foregoing.
7.6 INDEMNITY. Tenant shall protect, defend, indemnify, hold
and save Landlord harmless from and against any and all losses, costs,
liabilities or damages (including reasonable attorneys' fees and disbursements
and court costs) arising by reason of: (i) any and all injury or death of
persons or damage to property against which Tenant is obligated to maintain
insurance for the benefit of Landlord pursuant to this Article 7; (ii) the
failure to obtain the waiver of subrogation clause required by Section 7.5
hereof where such clause could have been obtained through the exercise of
Tenant's best efforts; or (iii) the invalidation of such insurance policy
required to be obtained by Tenant hereunder by Tenant's insurer. Tenant's duty
to indemnify Landlord under this Section 7.6 shall survive the expiration or
earlier termination of this Lease with respect to events occurring during the
Term.
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ARTICLE 8
USE
8.1 USE.
(a) PERMITTED USES. Tenant may use the Premises for any
lawful purpose.
(b) ENVIRONMENTAL COMPLIANCE.
(i) DEFINED TERMS. The term "Applicable
Environmental Laws" shall mean any applicable laws, regulations or ordinances
pertaining to health or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986 or
otherwise (as amended, hereinafter called "CERCLA"), the Resource Conservation
and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act Amendments of 1980, the Hazardous and Solid Waste
Amendments of 1984 or otherwise (as amended, hereinafter called "RCRA"), and
California Health & Safety Code Section 25501(j). The terms "hazardous
substance" and "release" as used in this Lease shall have the meanings specified
in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have
the meanings specified in RCRA; provided, in the event either CERCLA or RCRA is
amended or superseded by other laws so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply subsequent to the effective
date of such amendment or other laws; and, provided further, to the extent that
the laws of the State of California establish a meaning for "hazardous
substance", "release", "solid waste", or "disposal" which is broader than that
specified in either CERCLA or RCRA, such broader meaning shall apply. The term
"Pre-existing Agricultural Contamination" means concentrations of any chemical,
compound or substance existing in soil and groundwater on the Land as disclosed
in that certain Phase I Preliminary Environmental Site Assessment and Phase II
Soil and Ground Water Quality Evaluation for Vista Montana and Tasman Drive
Parcels, San Jose, California, performed by Lowney Associates and dated February
1995.
(ii) TENANT'S COVENANTS. Tenant will not
cause or permit the Premises or the Improvements to be in violation of, or do
anything or permit anything to be done which subjects Landlord, Tenant or the
Premises to any remedial obligations under or which creates a claim or cause of
action under, any Applicable Environmental Laws, including, without limitation,
CERCLA, RCRA, and the California Health & Safety Code ss. 25501(j), assuming
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to the Premises and the
Improvements, and Tenant will promptly notify Landlord in writing of any
existing, pending or threatened investigation, claim or inquiry of which Tenant
has knowledge by any governmental authority in connection with any Applicable
Environmental Laws. Tenant shall obtain any permits, licenses or
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similar authorizations to construct, occupy, operate or use any Improvements,
fixtures and equipment at any time located on the Premises by reason of any
Applicable Environmental Laws. Tenant will not use the Premises or the
Improvements in a manner which will result in the unlawful disposal or other
unlawful release of any hazardous substance or solid waste on or to the Premises
or the Improvements and covenants and agrees to keep or cause the Premises and
the Improvements to be kept free of any unlawful hazardous substance, unlawful
solid waste or unlawful environmental contaminants (including, without
limitation, friable asbestos and any substance containing asbestos deemed
hazardous and unlawful by any Applicable Environmental Law) and to remove the
unlawful amounts of the same (or if removal is prohibited by law, to take
whatever action is required by law) promptly upon discovery at Tenant's sole
expense. Tenant shall promptly notify Landlord in writing of any unlawful
disposal or other unlawful release of any hazardous substance, environmental
contaminants or solid wastes on or to the Premises or the Improvements.
Notwithstanding the foregoing, Landlord and Tenant acknowledge that Pre-existing
Agricultural Contamination exists on the Land due to agricultural operations of
prior owners and that Tenant has no further obligation to notify Landlord
regarding such Pre-existing Agricultural Contamination. In the event Tenant
fails to comply with or perform any of the foregoing covenants and obligations,
after thirty (30) days' prior written Notice to Tenant, Landlord may, but shall
be under no obligation to, cause the Premises and the Improvements to be freed
from the unlawful hazardous substance, unlawful solid waste or unlawful
environmental contaminants (or if removal is prohibited by law, to take whatever
action is required by law) and the reasonable cost of the removal or such other
action shall be a demand obligation owing by Tenant to Landlord pursuant to this
Lease; provided, however, that this sentence shall not apply to Pre-existing
Agricultural Contamination. Notwithstanding the foregoing, Landlord shall have
no right to cause the removal of such materials so long as Tenant both: (1) is
diligently and in good faith proceeding to comply with Tenant's obligation to
remove the unlawful amounts of such materials; and (2) has the financial ability
to so comply. Subject to the foregoing, Tenant grants to Landlord and Landlord's
agents and employees access to the Premises and the Improvements, and the
license to remove the unlawful hazardous substance, unlawful solid waste or
unlawful environmental contaminants (or if removal is prohibited by law, to take
whatever action is required by law), and agrees to indemnify and save Landlord
harmless from all reasonable costs and expenses involved and from all claims
(including consequential damages) asserted or proven against Landlord by any
party in connection therewith. Upon Landlord's reasonable request for "good
cause" (defined below), at any time and from time to time during the Term,
Tenant will provide at Tenant's sole expense an inspection or audit of the
Premises and the Improvements from an engineering or consulting firm approved by
Landlord, indicating the presence or absence of any hazardous substance, solid
waste or environmental contaminants located on the Premises; provided, however
that this provision shall not apply to Pre-existing Agricultural Contamination.
If Tenant fails to
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provide same after sixty (60) days' notice, Landlord may order same, and Tenant
grants to Landlord and Landlord's employees and agents access to the Premises
and the Improvements and a license to undertake any testing reasonably required
to obtain such inspection or audit. The reasonable cost of obtaining such
inspection or audit and any expenses incurred by Landlord in connection
therewith, shall be a demand obligation owing by Tenant to Landlord pursuant to
this Lease. For purposes of this Section 8.1(b)(ii), "good cause" shall mean
that Landlord shall have reasonable grounds to believe that an unlawful release
or unlawful disposal of hazardous substances or solid wastes has occurred on the
Premises or the Improvements, but shall not include Pre-existing Agricultural
Contamination.
(iii) TENANT'S INDEMNITY. Tenant agrees to
indemnify and hold Landlord harmless from and against, and to reimburse Landlord
with respect to, any and all claims, demands, causes of action, losses, damages,
liabilities, costs and expenses (including attorneys' fees and court costs),
fines and/or penalties of any and every kind or character, known or unknown,
fixed or contingent, asserted or potentially asserted against or incurred by
Landlord at any time and from time to time by reason of, in connection with or
arising out of (A) the failure of Tenant to perform any obligation herein
required to be performed by Tenant regarding Applicable Environmental Laws, (B)
any violation of any Applicable Environmental Law by Tenant or with respect to
the Premises or the Improvements, or any disposal or other release by Tenant or
with respect to the Premises or the Improvements of any hazardous substance,
environmental contaminants or solid waste on or to the Premises or the
Improvements, whether or not resulting in a violation of any Applicable
Environmental Law, (C) any act, omission, event or circumstance by Tenant or
with respect to the Premises or the Improvements which constitutes or has
constituted a violation of any Applicable Environmental Law with respect to the
Premises or the Improvements, regardless of whether the act, omission, event or
circumstance constituted a violation of any Applicable Environmental Law at the
time of its existence or occurrence, and (D) any and all claims or proceedings
(whether brought by private party or governmental agencies) for bodily injury,
property damage, abatement or remediation, environmental damage or impairment or
any other injury or damage resulting from or relating to any hazardous or toxic
substance or contaminated material located upon or migrating into, from or
through the Premises or the Improvements (whether or not the release of such
materials was caused by Tenant, a subtenant, or prior owner of the Premises, or
any other Entity) which Landlord may incur. Tenant's duty to indemnify Landlord
under this Section 8.1 shall survive the expiration or earlier termination of
the Lease with respect to events occurring during, or prior to the Term or after
the Term while Landlord has record title to and Tenant is occupying the
Premises.
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(c) COMPLIANCE WITH LEGAL REQUIREMENTS. Tenant
shall at all times comply with all material Legal Requirements
applicable to the Land or the Improvements and/or the use thereof.
8.2 CONTEST OF LEGAL REQUIREMENTS. Tenant shall have the right
at its sole cost and expense to contest the validity of any Legal Requirements
applicable to the Premises by appropriate proceedings diligently conducted in
good faith; and upon the request of Tenant and at Tenant's sole cost and
expense, Landlord will join and cooperate with Tenant in such proceedings.
Subject to Section 6.3, any other provision of this Lease to the contrary
notwithstanding, Tenant's right to contest Legal Requirements must be exercised
in such a manner as to avoid any exposure of the Premises or any part thereof to
foreclosure or execution sale or exposure of Landlord to civil or criminal
penalties arising from Tenant's non-compliance with such Legal Requirements.
Tenant shall defend and indemnify Landlord against, and hold Landlord harmless
from, any and all liability, loss, cost, damage, injury or expense (including,
without limitation, attorneys' fees and costs) which Landlord may sustain or
suffer by reason of Tenant's failure or delay in complying with, or Tenant's
contest of, any such Legal Requirements (or Landlord's contest, if requested in
writing by Tenant), and Tenant's duty to indemnify Landlord under this Section
8.2 shall survive the expiration or earlier termination of this Lease.
8.3 INDEMNIFICATION. Tenant will defend, protect, indemnify and
save harmless Landlord from and against all liabilities, obligations, claims,
damages, causes of action, costs and expenses, imposed upon or incurred by
Landlord by reason of the occurrence or existence of any of the following during
the Term, except to the extent caused by the willful misconduct, gross
negligence, or willful breach of contract of Landlord or its agents or
contractors (but excluding from the term contractors the Contractor and any
subcontractors of the Contractor): (1) any accident, injury to or death of
persons or loss of or damage to property occurring on or about the Premises or
Improvements; (2) performance of any labor or services or the furnishing of any
materials or other property in respect of the Premises or the Improvements; (3)
the negligence or willful misconduct on the part of Tenant or any of its agents,
invitees, employees or contractors or any other persons entering onto the
Premises or the Improvements at the request, behest or with the permission of
Tenant; (4) the construction, use or occupancy of the Improvements which Tenant
may elect to construct; (5) the use of the Land; or (6) any breach by the
"Owner" under the construction contracts entered into by Tenant as Landlord's
agent pursuant to the terms of Section 11.10. Tenant's duty to indemnify
Landlord under this Section 8.3 shall survive the expiration or earlier
termination of this Lease with respect to events occurring during the Term or
after the Term while Landlord has record title to and Tenant is occupying the
Premises.
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ARTICLE 9
UTILITIES AND SERVICES
9.1 SERVICES TO THE PREMISES. At Tenant's sole cost and
expense, Tenant shall make its own arrangements for the provision of all
utilities and services to be provided to or consumed on the Premises, including,
without limitation, air conditioning, ventilation, heating, electric power,
telephone, water (both domestic and fire protection), sanitary sewer, storm
drain, natural gas and janitorial services, including for the installation,
maintenance and repair of service lines and meters to measure Tenant's
consumption of such utilities.
ARTICLE 10
MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES
10.1 TENANT OBLIGATIONS. Except as otherwise provided in this
Lease, Tenant shall maintain the Premises and the Improvements in good repair,
normal wear and tear, casualty and Takings (as defined in Section 15.1)
excepted. All maintenance that Tenant is obligated to perform under this Section
10.1 shall be at the sole expense of Tenant, except to the extent that repairs
are made necessary because of the gross negligence or willful misconduct of
Landlord, its agents, employees or contractors (but excluding from the term
contractor the Contractor and any subcontractors of the Contractor).
10.2 SURRENDER OF THE PREMISES. Except as provided in Section
19, upon the expiration or earlier termination of the Term, Tenant shall
surrender the Premises to Landlord in its then "AS-IS" condition, including,
without limitation, any condition resulting from: (i) wear and tear; (ii)
obsolescence and damage by fire or other casualty, act of God or the elements
(subject to the terms of Article 16); (iii) damage that is caused by Landlord,
its agents, employees or contractors; (iv) Takings; and (v) any improvements,
alterations, additions, repairs, replacements, or decorations in, to or of the
Premises or on the Land which are not Improvements but which Tenant may elect to
remain on the Land or the Premises. Title to all improvements, furniture,
furnishings, fixtures, trade fixtures and personal property of Tenant which have
not been funded by Landlord pursuant to the terms of Article 11 and located in
or upon the Premises or the Land, whether or not affixed to the realty, shall be
and remain in Tenant throughout the Term, and at any time during the Term of
this Lease, the same may be removed by Tenant, or, at Tenant's election,
surrendered with the Premises, in which event title to such surrendered property
shall, if Landlord so elects in Landlord's sole discretion, be deemed
transferred to Landlord. Any of such property that is not removed from the
Premises or the Improvements on or prior to the expiration or earlier
termination of this Lease shall be considered abandoned and Landlord may deal
with it as Landlord elects.
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ARTICLE 11
CONSTRUCTION OF IMPROVEMENTS
11.1 TENANT'S RIGHTS TO CONSTRUCT IMPROVEMENTS. As of the date
of this Lease, no improvements exist on the Land. Tenant shall be under no
obligation whatsoever to construct any Improvements. Tenant shall have the
right, in Tenant's sole discretion, to construct on the Land with Tenant's own
funds, improvements, buildings, and/or alterations to Improvements, without the
necessity of obtaining any approval from Landlord. In addition, Tenant shall
have the right, in Tenant's sole discretion, subject to the terms of this
Article 11, to require Landlord to pay for the construction of the Improvements
which Tenant desires. With respect to any construction which Tenant may elect to
have performed in accordance with this Article 11, Landlord hereby irrevocably
appoints Tenant as Landlord's construction agent. Landlord shall have no right
to construct any improvements, buildings, and/or alterations on the Land unless
Tenant specifically requests that such be constructed, and then only in
accordance with the terms and conditions of this Article 11.
11.2 REQUEST FOR CONSTRUCTION FUNDING; LANDLORD OBLIGATION TO
FUND. At any time during the first forty-eight (48) months of the Initial Term,
Tenant may request Landlord to provide funding for the construction of
Improvements, which may consist of one or more Buildings or phases, or for the
alteration of any existing Buildings. Each such request shall be in writing and
shall generally describe the nature of the Improvements. Landlord shall fund
amounts for: (1) the costs of construction or alteration of the Improvements
pursuant to the terms and conditions set forth in this Article 11; (2)
architectural, engineering, testing, permitting, professional fees and any other
soft costs relating to such Buildings; (3) any Capitalized Interest; and (4) the
amounts described in Exhibit J. If Tenant reduces the Funded Amount by making
payment to Landlord or the holder of any Authorized Loan, except as provided in
Articles 15 and 16, the amount so paid shall not later be available to Tenant in
the form of Advances for construction work. Landlord shall have no obligation to
make Advances to a Mortgagee of Tenant's interest under this Lease, if any,
which Mortgagee has foreclosed on Tenant's interest under this Lease and is then
the "Tenant" under this Lease. Landlord shall have no obligation to make
Advances for any Building or phase after the last day of the twenty-fourth
(24th) month after the initial Advance for such Building or phase.
11.3 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND
INITIAL ADVANCES. The obligation of Landlord to make an initial Advance
hereunder in respect of each Building shall be subject to the following
conditions precedent:
(a) NO EVENT OF MAJOR DEFAULT. No Event of Major
Default shall exist and be continuing at the time of the initial Advance.
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(b) APPRAISAL. Landlord shall have approved the
appraisal delivered pursuant to Section 21.25 hereof.
(c) LANDLORD APPROVAL OF APPROVAL PLANS. Landlord
shall have approved in accordance with the terms of this Section 11.3(c) (except
as otherwise permitted or already approved pursuant to Section 11.1), Tenant's
proposed site plans (showing the locations and orientations of any proposed
buildings) and exterior shell plans (showing exterior building sections)
(collectively, "Approval Plans") of the Building(s) which Tenant may elect to
construct. Tenant shall deliver a letter to Landlord along with any submitted
Approval Plans in which Tenant states that the submitted Approval Plans do not
violate any Legal Requirements. Landlord may only withhold Landlord's approval
to any such Approval Plans to the extent that the Approval Plans violate any
material Legal Requirements, and Landlord may not withhold its consent on any
other ground. At the option of Tenant, the foregoing documentation may be
submitted to Landlord for approval in stages as Tenant completes it. Landlord
shall have a period of ten (10) days from the date of receipt of each component
of the documentation within which to approve or reject it. The Approval Plans,
as approved from time to time by Landlord pursuant to this Section 11.3(c) shall
constitute the "Authorized Plans." Tenant shall immediately reimburse Landlord
on demand for all reasonable out-of-pocket costs and expenses incurred by
Landlord in connection with the review and approval of any Approval Plans (not
to exceed One Thousand Dollars ($1,000) per approval). Tenant hereby certifies
to Landlord that the Approval Plans attached hereto as Exhibit C and Exhibit D
do not violate any Legal Requirements. Landlord hereby approves the Approval
Plans attached hereto as Exhibit C and Exhibit D. Landlord's approval of any
Authorized Plans does not constitute any representation or warranty by Landlord
with respect to such Authorized Plans, and Landlord hereby specifically
disclaims any such representations and warranties.
(i) FURTHER APPROVALS; PROPOSED CHANGES.
Subsequent to Landlord's approval of any Authorized Plans pursuant to Section
11.3(c), Tenant shall only be obligated to submit to Landlord for approval
documentation showing any proposed material change to the Authorized Plans (but
no approval shall be required with respect to construction or design matters
that are not contained in or addressed by the Authorized Plans), and only to the
extent such change is materially inconsistent with the Authorized Plans.
Landlord shall have a period of ten (10) days from receipt of each material
change within which to approve or reject it. Tenant shall immediately reimburse
Landlord on demand for all reasonable out-of-pocket costs and expenses incurred
by Landlord in connection with the review and approval of any such changes (not
to exceed One Thousand Dollars ($1,000) per approval). Tenant shall have the
right, without further approval of Landlord, to construct Improvements not
materially inconsistent with the Authorized Plans together with such changes
thereto as may be requested or required to comply with Legal Requirements.
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(II) FAILURE TO DISAPPROVE. The failure
by Landlord to disapprove any portion of the proposed Approval Plans submitted
pursuant to this Section 11.3(c) within the specified approval period shall be
deemed to constitute approval thereof as submitted, and such Approval Plans
shall thereupon become Authorized Plans. Any disapproval by Landlord of any
portion of the proposed Approval Plans shall be in writing and shall specify
with particularity the basis for the disapproval.
(d) LANDLORD APPROVAL OF CONSTRUCTION AGREEMENT.
Landlord shall have approved in accordance with the terms of this Section
11.3(d) (except as otherwise permitted or already approved pursuant to Section
11.1), Tenant's proposed construction agreement with Contractor (collectively,
"Construction Agreement") of the Building(s) which Tenant may elect to
construct. Landlord may only withhold Landlord's approval to any such
Construction Agreement to the extent that the Construction Agreement violates
any material Legal Requirements or is not a form of agreement which includes a
guaranteed maximum price and a date certain of completion of the Improvements,
and Landlord may not withhold its consent on any other ground. Landlord shall
have a period of ten (10) days from the date of receipt of the Construction
Agreement within which to approve or reject it. Tenant shall immediately
reimburse Landlord on demand for all reasonable out-of-pocket costs and expenses
incurred by Landlord in connection with the review and approval of the
Construction Agreement (not to exceed One Thousand Dollars ($1,000) per
approval). Landlord acknowledges that Landlord has received and approved the
Construction Agreement between Tenant and Contractor for the Improvements to be
constructed pursuant to this Lease. Landlord's approval of any Construction
Agreement does not constitute any representation or warranty by Landlord with
respect to such Construction Agreement, and Landlord hereby specifically
disclaims any such representations and warranties.
(e) DRAW REQUEST. Landlord shall have received a
written request from Tenant or its agent requesting the Advance ("Draw Request")
in the form attached hereto as Exhibit I. The submission of a Draw Request by
Tenant shall be deemed to be Tenant's approval of the Capitalized Interest which
is to be included in the Funded Amount during the period covered by such Draw
Request pursuant to the terms of Section 2.24.
(f) PLANS AND SPECIFICATIONS. Landlord shall have
received a copy of the plans and specifications for the Building in question.
Landlord acknowledges that Landlord's only approval right with respect to the
plans and specifications is as specified in Section 11.3 (c) above.
(g) CONSTRUCTION AGREEMENT. Landlord shall have
received a copy of Tenant's construction agreement with Contractor for the
Building or phase in question. Landlord acknowledges that Landlord's only
approval right with respect to the plans and specifications is as specified in
Section 11.3(d) above.
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(h) BUILDING PERMITS. With respect to any portion
of an Advance going toward hard costs for any Building, Landlord shall have
received a copy of all building permits and approvals then required for the
construction of the subject Building.
(i) CONTRACTOR'S CERTIFICATE. With respect to any
portion of an Advance going toward hard costs for any Building, Landlord shall
have received a certificate from the Contractor in the form attached hereto as
Exhibit F for the Advance in question ("Contractor's Certificate").
11.4 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND
SUBSEQUENT ADVANCES. Landlord's obligation to make any Advance for a Building
after the initial Advance for such Improvement shall be subject to the
satisfaction of the following conditions:
(a) NO EVENT OF MAJOR DEFAULT. No Event of Major
Default shall exist and be continuing at the time of such subsequent Advance,
and no "major and material" violations of code or law shall exist with respect
to the portions of such Building which have been constructed as of the date of
the Advance in question. For purposes of this Section 11.4(a), the term "major
and material" shall mean a violation that presents a material risk to the health
and safety of the occupants of the Building in question.
(b) DRAW REQUEST. With respect to any portion of
an Advance going toward hard costs for any Building, Landlord shall have
received a Draw Request for the Advance in question.
(c) CONTRACTOR'S CERTIFICATE. With respect to any
portion of an Advance going toward hard costs for any Building, Landlord shall
have received a Contractor's Certificate for the Advance in question in the form
attached hereto as Exhibit F.
(d) LIEN WAIVERS. Landlord shall have received
conditional lien waivers and releases upon progress payment from Contractor and
any "Major Subcontractor" (defined below) scheduled to receive payment from such
Advance. The term "Major Subcontractor" shall mean any subcontractor which has
executed a subcontract calling for aggregate payments to the subcontractor in
excess of Two Hundred Fifty Thousand Dollars ($250,000).
(e) CHANGES TO AUTHORIZED PLANS. Landlord shall
have approved any material change to the Authorized Plans pursuant to Section
11.3(c)(i)
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11.5 CONDITIONS PRECEDENT TO LANDLORD'S OBLIGATION TO FUND
FINAL ADVANCE. Landlord's obligation to make the final Advance for a Building
shall be subject to the satisfaction of the following conditions:
(a) SECTION 11.4 CONDITIONS. All of the conditions
precedent set forth in Section 11.4 shall have been satisfied with respect to
the final Advance in question.
(b) CERTIFICATE OF OCCUPANCY. Landlord shall have
received a copy of the certificate of occupancy or its equivalent issued by the
appropriate governmental authority for the Building in question.
11.6 ADDITIONAL PROVISIONS REGARDING ADVANCES.
(a) TIMING AND METHOD OF DISBURSEMENT. Advances to
be made hereunder shall not be made more frequently than monthly. For any
calendar month during which Tenant desires to receive an Advance, Tenant shall
submit a Draw Request on or before the date that is five (5) days prior to the
first LIBOR Business Day of such month, and if Tenant submits such Draw Request
by such date, then Landlord shall make the Advance as requested in such Draw
Request to the party(ies) designated by Tenant on the first LIBOR Business Day
of such month (subject to the conditions to funding described in Sections 11.3,
11.4 and 11.5). The Advances shall be made to parties identified by Tenant,
which parties may include Tenant. At the option of Tenant, Landlord shall make
such Advances to one (1) or more parties.
(b) RETAINAGE. Disbursements for construction
costs shall be subject to a ten percent (10%) retainage. The retainage shall be
paid to Tenant or to any Entities designated by Tenant along with the payment of
the Final Advance with respect to any Building. Notwithstanding the foregoing,
Tenant may require Landlord to pay any retainage on account of particular
subcontractors prior to the payment of a final Advance if: (1) Tenant is able to
achieve cost savings as a result of such early payment; and (2) Contractor
delivers to Landlord a letter of credit in the amount of the retainage to be
paid out prematurely. The parties will enter into an agreement with respect to
the letter of credit, which agreement shall reflect the parties' agreement that:
(a) Landlord shall only be entitled to draw on the letter of credit if and to
the extent necessary to complete the work that the subcontractor receiving the
early payment of the retainage was required to perform and failed to perform;
and (b) the letter of credit be returned to Tenant at the time that the
retainage would have been paid pursuant to the second sentence of this Section
11.6(b). The total retainage shall be reduced by the amount of such retainage
paid early pursuant to the terms of the preceding sentence.
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11.7 REQUIRED PERMITS, EASEMENTS, ETC. From time to time, upon
request of Tenant, Landlord (as holder of record of title to the Improvements)
shall execute such reasonable documents, petitions, applications and
authorizations, easements and rights of way (which have been prepared at
Tenant's expense) and shall appear at and participate in such public hearings,
staff meetings and similar gatherings, in each case as may in the reasonable and
good-faith opinion of Tenant be necessary or appropriate for the purpose of
obtaining any Required Permits or private easements or rights of way or utility
services for the Improvements or to remove any title encumbrances on the Land
which may interfere with Tenant's construction of the Improvements. Tenant shall
immediately reimburse Landlord on demand (or pay directly) for all reasonable
out-of-pocket costs and expenses incurred by Landlord in complying with
Landlord's obligations under this Section 11.7.
11.8 ALTERATIONS. Tenant shall notify Landlord in writing in
advance of any alteration to the Improvements which would either cost more than
Five Hundred Thousand Dollars ($500,000), or cause the Land and the Improvements
to fail the Coverage Test. At any time and from time to time, and without the
necessity for obtaining Landlord's approval or giving Notice thereof to Landlord
(except as otherwise specifically provided in this Section 11.8), Tenant shall
have the right, at its expense, to make any improvements, alterations,
additions, repairs, replacements or decorations in, to or of the Premises which
do not materially change the exterior design scope of the Improvements as
previously approved by Landlord pursuant to any Authorized Plans. In
constructing any such improvements, alterations, additions, repairs,
replacements or decorations, Tenant shall do so in a manner which does not
violate any applicable and material Legal Requirements. If, in connection with
any alterations which Tenant may desire to construct, either: (1) the
performance of such alterations would cause the Land and Improvements together
to fail the Coverage Test; or (2) such alterations would materially change the
exterior design scope of the Improvements as previously approved by Landlord
pursuant to Authorized Plans, then such alterations shall be subject to the
prior written approval of Landlord, which shall not be unreasonably withheld or
delayed. In the event that the parties disagree as to whether or not performing
such alterations would cause the Land and the Improvements to fail the Coverage
Test, such matter shall be subject to the appraisal provision contained in
Section 21.23.
11.9 TITLE TO AND NATURE OF IMPROVEMENTS. By virtue of
Tenant's rights under the Land Lease, Tenant hereby grants to Landlord the right
to own and construct the Improvements which Tenant elects to cause to be
constructed with Landlord's funds under this Article 11, and Tenant hereby
grants, conveys and transfers to Landlord all of Tenant's right, title and
interest in and to the Improvements (whether now existing or hereafter
constructed), and Tenant agrees that any and all Improvements of whatever nature
at any time constructed, placed or maintained upon any part of the Land shall be
and remain the property of Landlord,
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subject to Tenant's rights under Section 19 and elsewhere in this Lease. Any
improvements on the Land other than the Improvements shall be and remain the
property of Tenant, subject to the terms of Section 10.2. The severance of fee
title to the Land and Improvements shall not change the character of the
Improvements as real property.
11.10 TENANT AS LANDLORD'S CONSTRUCTION AGENT. Tenant shall
function as Landlord's agent for purposes of the construction of any
Improvements. In this role, Tenant shall have the authority, on Landlord's
behalf, to oversee and direct the construction of all Improvements, including
but not limited to, approval of building, site and other plans, obtaining
building and other permits, negotiating construction contracts, monitoring
construction and making periodic inspections, approval of Contractor's invoice
for payment, and submission of Draw Requests. Within a reasonable time after
Tenant's request, Landlord shall execute construction contracts negotiated by
Tenant for the construction of Improvements on the Land; Landlord shall not
amend, modify or terminate any such construction contract without the prior
written approval of Tenant, which may be withheld in Tenant's sole discretion.
Landlord's appointment of Tenant as Landlord's agent under this Section 11.10
shall be irrevocable unless this Lease is terminated pursuant to the terms of
Section 17.4(b) in connection with an Event of Major Default.
11.11 TENANT'S RELEASE OF FUNDING COMMITMENT. At any time
during the term, Tenant may elect in its sole discretion to release Landlord
from its obligation to fund construction of all or any portion of the
Improvements by written notice to Landlord and Lenders; provided, however, that
Tenant has substantially completed construction of each Building on which
construction has commenced.
ARTICLE 12
LIENS
Except for claims that Tenant is contesting in good faith in
such manner as to avoid any exposure of the Premises or any part thereof to
foreclosure or execution sale, Tenant shall promptly pay and discharge all
claims for work or labor done, supplies furnished or services rendered to the
Premises, and shall keep the Premises free and clear of all mechanics' and
materialmen's liens in connection therewith.
ARTICLE 13
ASSIGNMENT BY LANDLORD
13.1 FURTHER MORTGAGES OR ENCUMBRANCES BY LANDLORD; AUTHORIZED
LOANS.
(a) PROHIBITION. Except for the Lenders Deed of
Trust, the Landlord Deed of Trust, the Tenant Deed of Trust and the
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Land Lease Deed of Trust (which are hereby approved by Tenant) and as
specifically permitted in Section 11.7 or 13.1(b) or 20, Landlord shall not
cause or create any mortgages, deeds of trust, encumbrances or other exceptions
to title (collectively, "New Encumbrances") to exist with respect to the
Premises at any time, and any such encumbrance not authorized in writing by
Tenant shall be null and void. The term "New Encumbrances" shall also include
any bonds or assessments affecting the Premises to which Landlord consents in
writing without the prior written approval of Tenant (which may be withheld in
Tenant's sole and absolute discretion). Without the prior written consent of
Tenant (which may be withheld in Tenant's sole and absolute discretion),
Landlord shall not make or join in an application or other document which
requests or authorizes any bonds or assessments to affect the Premises. Landlord
recognizes that any New Encumbrance may irreparably harm Tenant in connection
with one or more of the following: (1) construction which Tenant may desire to
perform; (2) the use of the Premises; (3) Tenant's rights pursuant to the
Purchase Option in Section 19; (4) the amount of assessments which Tenant is
required to pay; or (5) other matters.
(b) AUTHORIZED LOAN. Tenant has approved the loans to
Landlord ("Improvements Loan") from Lenders which is evidenced by that certain
Promissory Note dated as of the Date of Lease by Landlord in favor of HSBC and
that certain Promissory Note dated as of the Date of Lease by Landlord in favor
of Sumitomo (collectively, the "Notes"), and further evidenced and/or secured by
(a) that certain Pledge Agreement made by Tenant in favor of Lenders, as it may
be amended and supplemented from time to time ("Pledge Agreement"), dated as of
the Date of Lease; (b) the Lenders Deed of Trust (c) that certain Loan
Disbursement Agreement dated as of the Date of Lease; (d) that certain Absolute
Assignment of Leases dated as of the Date of Lease; (e) that certain UCC
Financing Statement; and (f) that certain Environmental Indemnity Agreement
dated as of the Date of Lease. In addition, upon the maturity or prepayment of
the Improvements Loan (whether by its terms, by acceleration or otherwise),
Landlord may (but, subject to the terms of Section 13.1(c), shall not be
obligated to) enter into a new loan (such authorized loan shall be the "New
Loan"), provided Landlord first obtains Tenant's written consent (which consent
shall not be unreasonably withheld), and so long as: (i) the Improvements Loan
is paid off with the proceeds of such New Loan and all documents securing or
reflecting the Improvements Loan are assigned to the lender who makes the New
Loan or are released and satisfied; (ii) the principal amount of the New Loan
does not exceed the principal amount of the Improvements Loan existing at the
time the Improvements Loan is repaid; (iii) the interest rate and payment
provisions under the New Loan would not result in higher monthly payments than
the method under the Improvements Loan, and all such monthly payments shall be
interest only; and (iv) the New Loan documents do not contain terms and
conditions which differ from the Improvements Loan documents in any material
respect (including provisions relating to the Collateral as defined in Section
21.18). The Improvements Loan and the New Loan
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authorized pursuant to the preceding sentence and the Replacement Loan described
in Section 13.1(c) below shall be the "Authorized Loan"; provided that only one
Authorized Loan may exist at any one point in time. Landlord may not modify the
terms of an Authorized Loan without the prior written consent of Tenant, which
Tenant shall not unreasonably withhold (but may be withheld in Tenant's sole and
absolute discretion based upon any of the matters identified in subitems (i)
through (v) above in this Section 13.1(b)).
(c) REPLACEMENT LOAN. Subject to Landlord's prior
written consent (which consent shall not be unreasonably withheld or delayed),
at the request of Tenant, Landlord shall execute loan documents evidencing
and/or securing a new loan to Landlord, the proceeds of which would be used to
retire the Improvements Loan (such loan requested by Tenant shall be a
"Replacement Loan"). Landlord shall only be entitled to refuse to consent to
such new loan if (1) the maturity date of the Replacement Loan is a date on or
after the expiration date of the Extension Term; (2) the principal amount of the
Replacement Loan exceeds the principal amount of the Improvements Loan plus any
accrued interest and fees payable at the time the Improvements Loan is repaid;
(3) the interest rate structure under the Replacement Loan is materially higher
than market conditions would justify at the time; (4) there are prepayment
prohibitions, penalties or other restrictions which would limit rights to retire
the Replacement Loan or require additional payment to do so; or (5) the
Replacement Loan documents contain terms and conditions which differ from the
Improvements Loan documents in any material respect (including provisions
relating to the Collateral as defined in Section 21.18). If Tenant requests and
provides the funds, Landlord shall make all arrangements necessary for, and
shall pay down any Authorized Loan in the amount requested by Tenant, and shall
arrange for all documentation reasonably requested by Tenant to reflect the
reduction or elimination of such Authorized Loan.
(d) LENDERS DEED OF TRUST. On the Date of Lease,
Landlord and Tenant shall execute, acknowledge, and cause to be recorded in the
Official Records, a deed of trust in form acceptable to Lenders and Tenant
("Lenders Deed of Trust"). The Lenders Deed of Trust shall be a first priority
lien against the premises (as defined in the Lenders Deed of Trust).
(e) LANDLORD DEED OF TRUST. On the Date of Lease,
Tenant shall execute, acknowledge, and cause to be recorded in the Official
Records, a deed of trust in form acceptable to Landlord ("Landlord Deed of
Trust"), which Landlord Deed of Trust shall secure Tenant's obligations under
this Lease. The Landlord Deed of Trust shall be junior only to the Lenders Deed
of Trust as a second priority lien against the premises (as defined in the
Landlord Deed of Trust).
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(f) TENANT DEED OF TRUST. On the Date of Lease,
Landlord shall execute, acknowledge, and cause to be recorded in the Official
Records, a deed of trust in form acceptable to Tenant ("Tenant Deed of Trust"),
which Tenant Deed of Trust shall secure Landlord's obligations under this Lease
(i) to return the Security Deposit pursuant to the terms of this Lease and (ii)
to convey the Premises to Tenant as required pursuant to Article 19 hereof. The
Tenant Deed of Trust shall be junior only to the Lenders Deed of Trust and the
Tenant Deed of Trust as a third priority lien against the premises (as defined
in the Tenant Deed of Trust).
(g) LAND LEASE DEED OF TRUST. The Land Lease Deed
of Trust secures ILC's obligations under the Land Lease (i) to return the
security deposits set forth in the Land Lease pursuant to the terms of the Land
Lease, (ii) to convey the Premises to Tenant as required pursuant to Article 19
thereof, and (iii) to comply with Sections 20.3, 20.4 and 20.5 of the Land
Lease. The Tenant Deed of Trust shall be junior only to the Lenders Deed of
Trust, the Landlord Deed of Trust and the Tenant Deed of Trust and shall be a
fourth priority lien against the premises (as defined in the Land Lease Deed of
Trust).
13.2 LANDLORD'S RIGHT TO SELL. Subject to Tenant's Purchase
Option and the mandatory purchase set forth in Article 19 and the terms of
Section 13.1 and Article 20, nothing contained in this Lease shall be deemed in
any way to limit, restrict or otherwise affect the right of Landlord at any time
and from time to time to sell or transfer all or any portion of its right, title
and estate in the Premises to: (1) a financial institution with a capitalization
in excess of One Hundred Million Dollars ($100,000,000) and investments in other
leased assets of at least Twenty Five Million Dollars ($25,000,000); (2) a trust
established by such an institution; or (3) if an Event of Major Default has
occurred and is continuing at the time of such sale or transfer, to any Entity;
provided, however, that such Entity shall assume, in a manner consistent with
Landlord's obligations under this Lease and the Improvements Loan documents, the
Improvements Loan or any other Authorized Loan concurrently with acquisition of
the Premises, after first obtaining Lenders' written consent thereto. Landlord
shall give Tenant prior written notice of any sale or transfer pursuant to this
Section 13.2 together with written evidence of compliance with the terms hereof.
Any sale or transfer by Landlord whatsoever shall by its express terms recognize
and confirm the right of possession of Tenant to the Premises and Tenant's other
rights arising out of this Lease shall not be affected or disturbed in any way
by any such sale, transfer, assignment or conveyance (except for any disturbance
resulting from a foreclosure sale conducted pursuant to the laws of the State of
California at which independent third party bids were permitted, pursuant to the
Lenders Deed of Trust, all subject to the terms of Section 19.2).
13.3 TRANSFER OF FUNDS AND PROPERTY. At each time Landlord
sells, assigns, transfers or conveys the entire right, title and estate of
Landlord in the Premises and in this Lease,
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Landlord shall turn over to the transferee any funds or other property then held
by Landlord under this Lease and thereupon all the liabilities and obligations
on the part of the Landlord under this Lease arising after the effective date of
such sale, assignment, transfer or conveyance shall terminate as to the
transferor and be binding upon the transferee.
ARTICLE 14
ASSIGNMENT AND SUBLEASING
14.1 RIGHT TO ASSIGN.
(a) TENANT'S RIGHT. Tenant shall have the right,
at any time and from time to time during the Term, to assign all or any portion
of its right, title and estate in the Premises and in this Lease without
approval by Landlord. Any such assignee, immediate or remote, shall have the
same right of assignment. Any such assignment shall be evidenced by a written
instrument, properly executed and acknowledged by all parties thereto and, at
Tenant's election, duly recorded in the Official Records, wherein and whereby
the assignee assumes all of the obligations of Tenant under this Lease.
Notwithstanding any such assignment and assumption or any sublease permitted
under Section 14.2 hereof, Tenant shall remain primarily liable for all
obligations and liabilities on the part of Tenant theretofore or thereafter
arising under this Lease.
(b) NOTICE. Tenant shall, promptly after execution
of each assignment, notify Landlord of the name and mailing address of the
assignee and shall, on demand, permit Landlord to examine and copy the
assignment agreement.
14.2 RIGHT TO SUBLET.
(a) TENANT'S RIGHT. Tenant shall have the right,
at any time and from time to time during the Term, to sublet all or any portion
of the Premises and to extend, modify or renew any sublease without the approval
of Landlord.
(b) NOTICE. Tenant shall, promptly after execution
of each sublease, notify Landlord of the name and mailing address of the
subtenant and shall, on demand, permit Landlord to examine and copy the
sublease.
(c) NON-DISTURBANCE AGREEMENT. Upon Tenant's
request, Landlord shall enter into a "landlord agreement" with any subtenant of
Tenant. Such agreement shall provide that Landlord shall recognize the sublease
and not disturb the subtenant's possession thereunder so long as such subtenant
shall not be in default under its sublease, and an Event of Major Default is not
then in existence and continuing under this Lease. Tenant shall immediately
reimburse Landlord on demand for all reasonable out-of-
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pocket costs and expenses incurred by Landlord in complying with Landlord's
obligations under this Section 14.2(c).
14.3 TENANT'S RIGHT TO MORTGAGE.
(a) RIGHT OF TENANT. Tenant shall have the right
from time to time and at any time, without obtaining the approval of Landlord,
to mortgage, pledge or otherwise encumber all or any portion of the right, title
and estate of Tenant in the Premises or in this Lease.
(b) NOTICE. Tenant shall, promptly after execution
of any Mortgage, notify Landlord of the name and mailing address of the
Mortgagee thereunder and shall, on demand, permit Landlord to examine and copy
the Mortgage.
ARTICLE 15
EMINENT DOMAIN
15.1 TOTAL OR SUBSTANTIAL TAKING. If title or access is taken
for any public or quasi-public use, or under any statute or by right of
condemnation or eminent domain, or by sale in lieu thereof (a "Taking") with
respect to all of the Premises, or if title to so much of the Premises or access
thereto is Taken, or if the Premises or access thereto is damaged, blocked or
impaired by the Taking, so that, in Tenant's sole discretion, the Premises or
access thereto, even after a reasonable amount of reconstruction thereof, will
no longer be suitable for Tenant's (and/or Tenant's subtenants') continued
occupancy for the conduct of Tenant's (and/or Tenant's subtenants') business in
a manner consistent with the conduct of such business prior to such Taking, then
in any such event, this Lease shall terminate on the date of such Taking.
15.2 PARTIAL TAKING. If any part of the Premises, or access
thereto, shall be Taken, and the Premises or the remaining part thereof and
access thereto will be, in Tenant's sole discretion, suitable for Tenant's
(and/or Tenant's subtenants') continued occupancy for the conduct of Tenant's
(and/or Tenant's subtenants') business in a manner consistent with the conduct
of such business prior to such Taking, all of the terms, covenants and
conditions of this Lease shall continue, except that Base Rent shall be adjusted
to reflect the decreased Funded Amount remaining after application thereto of
the award made to Landlord for such Taking.
15.3 TEMPORARY TAKING. If the whole or any part of the
Premises is Taken for temporary use or occupancy, this Lease shall not terminate
by reason thereof and Tenant shall continue to pay, in the manner and at the
times herein specified, the full amount of the Base Rent payable by Tenant
hereunder, and, except only to the extent that Tenant may be prevented from so
doing by reason of such Taking, Tenant shall continue to perform and observe all
of the other terms, covenants and conditions hereof on the part of Tenant
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to be performed and observed, as though the Taking had not occurred. In the
event of any such temporary Taking, Tenant shall be entitled to receive the
entire amount of the award made for the Taking, whether paid by way of damages,
rent or otherwise. If the temporary Taking is for a term in excess of thirty
(30) days, then the Taking shall be treated as a permanent Taking and be
governed by Section 15.1 or 15.2, as applicable.
15.4 DAMAGES. The compensation attributable to the
Improvements (in each case the compensation or value shall be determined as of
the date of the Taking) awarded or paid upon any Taking (other than a temporary
Taking, which shall be governed by Section 15.3), whether awarded to Landlord,
Tenant, or both of them, shall be held by the Escrow Agent described in Section
16.3(b) and distributed in the same manner as insurance proceeds pursuant to
Section 16.3. For purposes of this Section 15.4, references to the term
"casualty" or similar terms in Section 16.3 shall be deemed to refer to
"Taking."
15.5 NOTICE AND EXECUTION. Immediately upon service of process
upon Landlord or Tenant in connection with any Taking relating to the Premises
or any portion thereof or access thereto, each party shall give the other Notice
thereof. Each party agrees to execute and deliver to the other all instruments
that may be required to effectuate the provisions of this Article 15. Tenant
reserves the right to appear in and to contest any proceedings in connection
with any such Taking. Tenant shall immediately reimburse Landlord on demand for
all reasonable out-of-pocket costs and expenses incurred by Landlord in
complying with Landlord's obligations under this Section 15.5.
ARTICLE 16
DAMAGE OR DESTRUCTION
16.1 CASUALTY. If any Improvements are damaged or destroyed by
fire or other casualty (including, but not limited to earthquake), except as
provided to the contrary in Section 16.2, this Lease shall continue in full
force and effect without any abatement or reduction in Base Rent, and Tenant, at
Tenant's election, shall either (a) restore the Improvements substantially to
their condition prior to the damage or destruction, or such other condition as
Tenant shall elect in its sole and absolute discretion, subject to Landlord's
approval rights set forth in Section 11.3(c), or (b) not restore the
Improvements, but perform, or cause to be performed, at Tenant's sole cost and
expense, any work or service required by any Legal Requirement for the
protection of persons or property from any risk, or for the abatement of any
nuisance, created by or arising from the casualty or the damage or destruction
caused thereby.
16.2 TERMINATION OF LEASE. In the case of: (a) any damage or
casualty of any Building or Buildings, which in the good faith judgment of
Tenant's Board of Directors would render such
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Building either unsuitable or uneconomic for restoration or continued use by
Tenant; (b) the damage or destruction of all or substantially all (as determined
in good faith by Tenant's Board of Directors) of any Building or Buildings; or
(c) the damage or destruction of any Building or Buildings where restoration
cannot (as determined in good faith by Tenant's Board of Directors) reasonably
be completed either within 365 days or prior to the expiration of the Initial
Term or the Extension Term, then Tenant may elect to terminate this Lease either
as to the Building(s) in question or as to the Lease in its entirety. In the
event Tenant terminates the Lease pursuant to the preceding sentence, Tenant
shall purchase Landlord's interest in the Building(s) in question for a purchase
price equal to the Purchase Price for the Building(s) in question, as such
Purchase Price is defined in Section 19.1. The purchase of Landlord's interest
in such Building(s) shall be pursuant to the terms of Section 19.1, as
applicable to such Building(s). Upon the completion of such purchase, this Lease
and all obligations hereunder in respect of such Building(s) shall terminate.
This Lease shall remain in full force and effect with respect to all remaining
Buildings which Tenant does not elect to purchase pursuant to this Section 16.2,
and such remaining Building(s) shall constitute the "Improvements" for purposes
of this Lease.
16.3 INSURANCE PROCEEDS. In the event of any fire or other
casualty, the proceeds of any insurance policies maintained by Tenant pursuant
to Section 7.2 or 7.3 shall be held, applied and dealt with as follows:
(a) Any proceeds (per occurrence) of such policies
attributable to the Improvements below the amount of Five Hundred Thousand
Dollars ($500,000) shall be paid directly to Tenant and applied and used as
Tenant may direct in its sole discretion for any construction, restoration or
reconstruction purposes in connection with any improvements located on the Land
which were destroyed, damaged or affected by such casualty. Any portion of such
proceeds which Tenant does not want to use (subject to the terms of Section
16.3(d)) for any construction, restoration or reconstruction shall be paid as
follows (the order of payment as set forth below shall be the "Distribution
Formula"): (1) to Lenders, or to any other holder of an Authorized Loan, and to
Landlord, pro rata in proportion to the ratio that the then-existing Senior
Funded Amount bears to the then-existing Funded Amount as compared to the ratio
that the then-existing Equity Funded Amount bears to the then-existing Funded
Amount (provided, however, that in no event shall the amount paid to Landlord
exceed the difference between the Funded Amount and the Guaranteed Residual
Value); and (2) with any remaining excess to be paid to Tenant.
(b) Any proceeds (per occurrence) of such policies
attributable to the Improvements greater than Five Hundred Thousand Dollars
($500,000) shall be paid to an escrow agent ("Escrow Agent") mutually agreeable
to the parties (but such escrow agent
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shall not be a party which is related to or affiliated with either of the
parties to this Lease). Such proceeds shall be invested by the Escrow Agent as
Tenant may direct; provided, however, that such proceeds shall not be invested
in the stock or obligations of Tenant. Such proceeds shall be paid by the Escrow
Agent to Tenant (or to third parties as Tenant may direct), as Tenant may direct
from time to time as restoration, construction or rebuilding progresses to pay
the cost of any restoration, construction or rebuilding which Tenant elects to
take place on the Land or any Improvements located upon the Land, but only upon
the written request of Tenant, and so long as Landlord reasonably determines
that the following conditions are satisfied at the time of such request for
payment by Tenant: (i) the sum requested has been paid or is then due and
payable or will become due and payable within thirty (30) days; (ii) Tenant has
the financial ability (taking into account the insurance proceeds held by the
Escrow Agent) to complete the restoration, construction or rebuilding which
Tenant has elected to perform; (iii) Landlord has approved the Approval Plans,
if any, relating to the restoration of Improvements, pursuant to the terms of
Article 11; and (iv) in Landlord's reasonable judgment, such restoration work
which Tenant desires to perform in connection with the Improvements can be
completed prior to the expiration of the Initial Term (or, if Tenant has
exercised, or within one hundred twenty (120) days after reaching final written
settlement with all insurance companies regarding the amount of proceeds to be
paid for the casualty in question, exercises its right to extend for the
Extension Term, then prior to the expiration of the Extension Term). Landlord
shall promptly upon request instruct the Escrow Agent to make the payments
requested by Tenant unless one of the conditions described above is not
satisfied at the time of such request. Any excess insurance proceeds existing
after either Tenant's completion of the restoration, construction or rebuilding
which Tenant elects to perform or Tenant's failure to comply with the funding
condition described in subitems (ii), (iii) and (iv) immediately above in this
Section 16.3(b), shall be paid pursuant to the Distribution Formula. If Tenant
elects to terminate this Lease as to one or more Buildings, Tenant may use any
insurance proceeds to pay the purchase price described in Section 16.2, and all
rights of Landlord in insurance proceeds not used to pay the purchase price
shall be assigned to Tenant by Landlord at the time Tenant purchases Landlord's
interest in any such Building(s).
(c) Any proceeds of such policies attributable to
improvements or buildings on the Land other than the Improvements shall promptly
be paid directly to Tenant.
(d) If either: (1) Tenant has not delivered
written notice to Landlord within one hundred twenty (120) days after reaching
final written settlement with all insurance companies regarding the amount of
proceeds to be paid for the casualty in question, pursuant to which notice
Tenant elects to either exercise some or all of its termination rights under
Section 16.2 and/or to fully or partially repair or restore
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pursuant to Section 16.1; or (2) Landlord reasonably believes that Tenant has
abandoned reconstruction or restoration work which Tenant may have elected to
perform (and Tenant shall have failed to diligently recommence reconstruction or
restoration work which Tenant is then able to perform within thirty (30) days
after Tenant's receipt from Landlord of a Notice of Landlord's belief of
Tenant's abandonment of the reconstruction or restoration work); then, in either
case, the proceeds attributable to the Improvements shall be paid pursuant to
the Distribution Formula.
(e) Any insurance proceeds paid to Landlord, Lenders
or holder of any Authorized Loan under this Article 16 shall automatically
reduce the Funded Amount by a like amount.
ARTICLE 17
DEFAULT
17.1 DEFAULT. The following event shall constitute a default
("Default") by Tenant:
(a) DEFAULT OTHER THAN EVENT OF MAJOR DEFAULT.
Tenant's failure to perform or comply with any of the terms, covenants or
conditions contained in this Lease other than those referred to in Section 17.2,
where such failure shall continue for a period of thirty (30) days after Notice
thereof from Landlord to Tenant, or in the case of a failure which cannot with
due diligence be cured within the period of thirty (30) days, Tenant's failure
to proceed promptly and with due diligence to cure the failure and thereafter to
prosecute the curing of the failure with all due diligence, it being intended
that in connection with a failure not susceptible of being cured with due
diligence within thirty (30) days, the time of Tenant within which to cure the
failure shall be extended for such period as may be reasonably necessary to
complete the cure with all due diligence.
17.2 EVENT OF MAJOR DEFAULT. Each of the following events
shall constitute an event of major default ("Event of Major Default") by Tenant:
(a) FAILURE TO PAY BASE RENT. Tenant's failure to
pay any Base Rent within ten (10) days after the later to occur of the due date
or Tenant's receipt from Landlord of the Invoice required pursuant to Section
5.1;
(b) FAILURE TO PAY ADDITIONAL RENT. Tenant's
failure to pay any Additional Rent which is due to Landlord within the later to
occur of the due date under this Lease or ten (10) days after Tenant's receipt
of Notice thereof from Landlord that such Additional Rent is due;
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(c) FAILURE TO COMPLY WITH PURCHASE OBLIGATION
UNDER SECTION 19.2. Tenant's failure to comply with Tenant's obligation to
purchase the Premises pursuant to Section 19.2 within the period required in
Section 19.2;
(d) FAILURE TO CARRY INSURANCE. Tenant's failure
to carry the insurance required by Article 7, if such failure continues ten (10)
days after Tenant's receipt of Notice thereof from Landlord that Tenant is not
carrying such required insurance (provided, however, that it shall not be an
Event of Major Default under this Section 17.2 if Tenant is carrying when
required the basic form policies required by Article 7 with respect to the
perils addressed therein and in the amounts required by Article 7,
notwithstanding some other noncompliance);
(e) INSOLVENCY. Subject to Section 17.3, the
occurrence of: (i) an assignment by Tenant for the benefit of creditors
generally; or (ii) the filing of a voluntary or involuntary petition by or
against Tenant under any present or future applicable federal, state or other
statute or law having for its purpose the adjudication of Tenant as a bankrupt;
(iii) the appointment of a receiver, liquidator or trustee for all or a
substantial portion of the Premises by reason of the insolvency or alleged
insolvency of Tenant; or (iv) the taking of possession by any department of
city, county, state or federal government, or any officer thereof duly
authorized, of all or a substantial portion of the Premises by reason of the
insolvency or alleged insolvency of Tenant; and Tenant's failure to timely give
any Notice it is permitted to give pursuant to Section 17.3 (or, in the event
Tenant gives timely Notice and pursues a contest under Section 17.3, Tenant's
failure to finally prevail in the contest).
(f) FAILURE TO REPLENISH UNDER PLEDGE AGREEMENT.
Tenant's failure to replenish the collateral account as required under the
Pledge Agreement (as defined in Section 13.1(b)) after the notice and cure
periods provided in Pledge Agreement;
(g) FAILURE TO REFINANCE THE IMPROVEMENT LOAN.
Tenant's failure to refinance, or repay, the Improvement Loan prior
to the Extension Term;
(h) DEFAULT UNDER OTHER CREDIT FACILITY. Tenant's
suffering or permitting any of the following defaults: (i) A payment default
(after applicable notice and cure periods) under any credit facility of Tenant
which equals or exceeds Twenty Million Dollars ($20,000,000); (ii) An Event of
Major Default (after applicable notice and cure periods) under that certain
lease agreement by and between SGA Development Partnership, Ltd., a Texas
limited partnership, and Tenant, for premises located in San Jose, California,
dated February 25, 1993, as amended; (iii) An Event of Major Default (after
applicable notice and cure periods) under that certain lease agreement by and
between Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation
("SBLF"), and Tenant, for premises located in San Jose, California, dated May
20, 1993, as
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amended; (iv) An Event of Major Default (after applicable notice and cure
periods) under that certain lease agreement by and between SBLF and Tenant for
premises located in Raleigh, North Carolina, dated July 11, 1994, as amended; or
(v) An Event of Major Default (after applicable notice and cure periods) under
that certain lease agreement by and between SBLF and Tenant for premises located
in Raleigh, North Carolina, dated August 12, 1994; or (vi) An Event of Major
Default (after applicable notice and cure periods) under any of the Building
Leases;
(i) TANGIBLE NET WORTH. Tenant's Tangible Net Worth
shall fall below Seven Hundred Fifty Million Dollars ($750,000,000.00);
(j) FRAUD/INTENTIONAL MISREPRESENTATION. Fraud or
intentional misrepresentation by Tenant in connection with the representations
and warranties set forth in Section 21.22 hereof; or
(k) DEFAULT UNDER LAND LEASE. An Event of Major
Default under the Land Lease.
17.3 CONTEST BY TENANT. If upon the filing of any involuntary
petition of the type described in Section 17.2(e) or upon the appointment of a
receiver, other than a receiver appointed in any voluntary proceeding referred
to in Section 17.2(e), or the taking of possession of all or a substantial
portion of the Premises by any department of the city, county, state or federal
government, or any officer thereof duly authorized, by reason of the alleged
insolvency of Tenant without the consent or over the objection of Tenant, should
Tenant desire to contest the same in good faith, Tenant shall, within ninety
(90) days after the filing of the petition or after the appointment or taking of
possession, give Notice to Landlord that Tenant proposes to make the contest,
and the same shall not constitute an Event of Major Default so long as Tenant
shall prosecute the proceedings with due diligence and no part of the Premises
shall be exposed to sale by reason of the continuance of the contest.
17.4 REMEDIES. Landlord shall have the remedies specified
below, the parties hereby acknowledging that the remedies described in Section
17.4(b) may be exercised by Landlord only upon the occurrence of an Event of
Major Default. Tenant shall at all times have the right to exercise and carry
out the terms of the Purchase Option in Section 19.1, notwithstanding the
occurrence or existence of any Default or Event of Major Default under this
Lease, and Landlord shall have the obligation to comply with Landlord's
obligations under Section 19.1 notwithstanding any Default or Event of Major
Default.
(a) CONTINUE LEASE. In connection with a Default
or an Event of Major Default, Landlord shall have the right to enforce, by suit
or otherwise, all other covenants and conditions hereof to be performed or
complied with by Tenant and to exercise
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all other remedies permitted by Section 1951.4 of the California Civil Code, or
any amendments thereof or any successor laws which replace such Section 1951.4.
Landlord has the remedy described in California Civil Code Section 1951.4
(Landlord may continue the Lease in effect after Tenant's breach and abandonment
and recover Base Rent as it becomes due, if Tenant has the right to sublet or
assign, subject only to reasonable limitation). Upon application by Landlord, a
receiver may be appointed to take possession of the Premises and exercise all
rights granted to Landlord as set forth in this Section 17.4(a); and
(b) TERMINATE LEASE. In connection with an Event
of Major Default (but not a Default), Landlord shall have the right to terminate
this Lease, by giving Tenant Notice thereof, at any time after the occurrence of
such Event of Major Default and whether or not Landlord has also exercised any
right under Section 17.4(a). In such event, Tenant shall, within thirty (30)
days after receipt of Notice from Landlord, purchase the Premises pursuant to
Section 19.2. Landlord shall also have its other remedies at law (including its
rights under the Landlord Deed of Trust), provided, however, that Tenant's right
to purchase the Improvements pursuant to Section 19.1 shall survive any
termination of this Lease up through the date of foreclosure sale under the
Lenders Deed of Trust, the Landlord Deed of Trust or any deed of trust securing
an Authorized Loan.
17.5 NO WAIVER. No failure by Landlord or Tenant to insist
upon the strict performance of any term, covenant or condition of this Lease or
to exercise any right or remedy consequent upon a breach thereof and no
acceptance of full or partial Rent during the continuance of any breach shall
constitute a waiver of any such breach or of the term, covenant, or condition.
No term, covenant or condition of this Lease to be performed or complied with by
Tenant or Landlord, and no breach thereof, shall be waived, terminated, altered
or modified except by a written instrument executed by Landlord and Tenant. No
waiver of any breach shall affect or alter this Lease, but each and every term,
covenant, and condition of this Lease shall continue in full force and effect
with respect to any other then existing subsequent breach thereof.
17.6 EFFECT OF ASSIGNMENT. Notwithstanding an Entity's prior
assignment or transfer of its interest as Tenant under this Lease, so long as
Landlord has been given Notice of such assignment pursuant to Sections 14.1(b)
and 21.3, Landlord shall give such Entity copies of all Notices required by this
Article 17 in connection with any Default or Event of Major Default, and such
Entity shall have the period granted hereunder to Tenant to cure such Default or
Event of Major Default, unless such Entity shall have been released from all
obligations arising under this Lease. Landlord may not assert any rights against
such Entity in the absence of such Notice and opportunity to cure, so long as
Landlord has been given Notice of such assignment pursuant to Sections 14.1(b)
and 21.3.
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17.7 LANDLORD CURE RIGHT. If Tenant fails to perform any
covenant or agreement to be performed by Tenant under this Lease, and if the
failure or default continues for thirty (30) days after Notice to Tenant and to
any Mortgagee who has requested in writing notice thereof from Landlord (except
for emergencies and except for payment of any lien or encumbrance threatening
the imminent sale of the Premises or any portion thereof, in which case payment
or cure may be made as soon as necessary to minimize the damage to person or
property caused by such emergency or to prevent any such sale), Landlord may,
but shall have no obligation to, pay the same and cure such default on behalf of
and at the expense of Tenant and do all reasonably necessary work and make all
reasonably necessary payments in connection therewith including, but not limited
to, the payment of reasonable attorneys' fees and disbursements incurred by
Landlord. Notwithstanding the foregoing, Landlord shall have no right to cure
any such failure to perform by Tenant so long as Tenant both: (1) is diligently
and in good faith attempting to cure such matter; and (2) has the financial
ability to so comply, unless Tenant has failed to substantially cure such matter
within ninety (90) days after Tenant's receipt of Notice thereof from Landlord,
in which case Landlord may commence in a reasonable and customary manner and in
good faith to attempt to cure such matter (except that Landlord shall not have a
right to attempt to cure matters addressed in Section 8.1(b) unless specifically
authorized to do so pursuant to Section 8.1(b)). Notwithstanding anything to the
contrary in this Lease, in no event shall Landlord have a right to cure any
matters relating to the Improvements unless Landlord reasonably believes that
the failure to cure such matter could lead to criminal prosecution against
Landlord (except as specifically permitted in Section 8.1(b)). Upon demand,
Tenant shall reimburse Landlord for the reasonable amount so paid, together with
interest at the Default Rate from the date incurred until the date repaid.
Tenant shall defend, indemnify, and hold Landlord harmless from and against any
and all losses, costs, expenses, liabilities, claims, causes of action and
damages of all kinds that may result to Landlord, including reasonable
attorneys' fees and disbursements incurred by Landlord, arising because of any
failure by Tenant to perform any of its obligations under this Lease. Tenant's
duty to indemnify Landlord under this Section 17.7 shall survive the expiration
or earlier termination of this Lease.
17.8 LANDLORD'S DEFAULT.
(a) LANDLORD'S FAILURE TO PERFORM. If Landlord
fails to perform any covenant or agreement to be performed by Landlord under
Article 11, Section 13.1, Section 15.4, Article 20, or Section 21.10 of this
Lease (including, but not limited to, Landlord's failure to keep the Premises
free of any and all liens created by or through Landlord except as approved by
Tenant in writing), and if the failure or default continues for thirty (30) days
after Notice to Landlord and to any holder of an Authorized Loan who has
requested in writing notice thereof from Tenant (except for emergencies, a
default under Section 20.5 or payment of
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any lien or encumbrance threatening the imminent sale of the Premises or any
portion thereof, in which case payment or cure may be made as soon as necessary
to minimize the damage to person or property caused by such emergency, to
prevent foreclosure on the Collateral or to prevent any such sale), Tenant may,
but shall have no obligation to, pay the same and cure such default on behalf of
and, so long as such failure to perform arises due to Landlord's gross
negligence, willful misconduct, or willful breach of this Lease, at the expense
of Landlord and do all reasonably necessary work and make all reasonably
necessary payments in connection therewith including, but not limited to, the
payment of reasonable attorneys' fees and disbursements incurred by Tenant.
Notwithstanding the foregoing, Tenant shall have no right to cure any such
failure to perform by Landlord so long as Landlord both: (1) is diligently and
in good faith attempting to cure such matter; and (2) has the financial ability
to so comply. To the extent that Landlord's failure to perform arises due to its
gross negligence, willful misconduct or willful breach of this Lease, upon
demand, Landlord shall reimburse Tenant for the reasonable amount so paid,
together with interest at the Default Rate from the date incurred until the date
repaid. To the extent that Landlord's failure to perform arises due to its gross
negligence, willful misconduct or willful breach of this Lease, Landlord shall
defend, protect, indemnify, and hold Tenant harmless from and against any and
all losses, costs, expenses, liabilities, claims, causes of action and damages
of all kinds that may result to Tenant, including reasonable attorneys' fees and
disbursements incurred by Tenant, arising because of any failure by Landlord to
perform any of its obligations under Article 11, Section 13.1, Section 15.4,
Article 20 or Section 21.10 of this Lease. Landlord's duty to indemnify Tenant
under this Section 17.8 shall survive the expiration or earlier termination of
this Lease.
(b) DEFAULT UNDER CERTAIN PROVISIONS. In addition
to Tenant's rights set forth in Section (a) above, in the event of a default by
Landlord under Section 20.5, Tenant shall have the right to cure such default on
behalf of and at Landlord's expense, without prior notice to Landlord. In
addition, in the event of any default by Landlord under Section 20.3, 20.4 or
20.5, Tenant shall have the right to exercise its Purchase Option pursuant to
Section 19.1 hereof.
ARTICLE 18
QUIET ENJOYMENT
Landlord covenants to secure to Tenant the quiet possession of
the Premises for the full Term against all persons claiming the same, subject to
Landlord's rights and remedies under Section 17 upon a Default or an Event of
Major Default by Tenant. The existence of any Permitted Exceptions shall not be
deemed to constitute a breach of Landlord's obligations hereunder. Tenant shall,
immediately upon demand, reimburse Landlord for all reasonable costs, expenses
and damages incurred or paid by Landlord
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in the performance of Landlord's obligations under this Article 18 (except for
any costs, expenses or damages arising from Landlord's willful breach of this
Lease).
ARTICLE 19
TENANT'S OPTION TO PURCHASE
19.1 OPTION TO PURCHASE PREMISES.
(a) PURCHASE OPTION. Tenant shall have the option
("Purchase Option") to purchase all or part of the Premises at any time during
the Term; provided that Tenant shall be entitled to purchase less than all of
the Premises only if the portion being purchased is released from any existing
Fee Mortgage and if the portion of the Premises not purchased shall constitute
one or more Buildings or phases after closing of the purchase and shall be
viable as a separate Building or phase as determined in Landlord's sole
discretion. The purchase price ("Purchase Price") for the Building or phase
which Tenant elects to purchase shall be (i) the then-existing Funded Amount for
the Building or phase which Tenant elects to purchase, as the same may be
reduced from time to time, plus (ii) the amount of any prepayment premium and
all other fees, costs, expenses and any accrued but unpaid interest or rent due
to any holder of an Authorized Loan in connection with such loan (to the extent
not already paid pursuant to Section 21.21 (including late charges arising from
Tenant's late payment of Base Rent hereunder and the annual servicing fee
attributable to this Lease) hereof). Tenant shall be entitled to a credit
against the Purchase Price in an amount equal to the sum of (i) the principal
balance(s) of any Fee Mortgage existing immediately prior to the closing under
this Purchase Option if such Fee Mortgage is not fully repaid and all documents
reflecting the same are not cancelled and removed from the public records on or
prior to the closing under this Purchase Option, plus (ii) the amount of the
Security Deposit (or, in the event of a purchase of a portion of the Premises, a
pro rata portion of the Security Deposit), and, upon closing under this Purchase
Option, Landlord shall be released from Landlord's obligation to return the
Security Deposit set forth in Section 5.7 hereof. If Tenant purchases less than
all of the then-existing Premises, then the credit pursuant to the preceding
sentence shall be calculated on a pro rata basis, based upon the ratio of the
area of the Premises being purchased compared to the area of the then-existing
Premises. In lieu of payment of the Purchase Price, Tenant shall have the right
(1) to assume the Improvements Loan or any other Authorized Loan or (2) to cause
Landlord to assign the Authorized Loan and this Lease (including the existing
Security Deposit) to a third party acceptable to the holder of such Authorized
Loan (which third party shall expressly assume such obligations in writing),
provided that Landlord is released from all obligations under the Authorized
Loan and Landlord is paid an amount equal to the Equity Contribution. Landlord
shall execute any and all documents necessary to effect such assumption and
assignment upon Tenant's request, provided that Tenant shall
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reimburse Landlord for all reasonable costs and expenses related thereto.
(b) PURCHASE OPTION EXERCISE NOTICE. If Tenant
desires to exercise the Purchase Option, Tenant shall deliver to Landlord a
written notice ("Purchase Option Exercise Notice") of Tenant's election;
provided, however, that in the event of an assignment by Landlord for the
benefit of creditors generally, the filing of a voluntary or involuntary
bankruptcy petition by or against Landlord or the appointment of a receiver,
liquidator or trustee for all or a substantial portion of the Premises by reason
of Landlord's insolvency or alleged insolvency, the Purchase Option shall be
deemed exercised with respect to the entire Premises as of the calendar day
immediately preceding such assignment, filing or appointment.
(c) TRANSFER. If Tenant exercises the Purchase
Option, the purchase and sale of the Premises shall be consummated as follows.
In the event of a purchase of a portion of the Premises, the term "Premises" as
used in this Section 19.1(c) shall be deemed to mean that portion of the
Premises then to be purchased pursuant to the Purchase Option.
(i) Landlord shall grant and convey the
Premises to Tenant, its authorized agent or assignee, pursuant to a duly
executed and acknowledged grant deed ("Grant Deed"), free and clear of all title
defects, liens, encumbrances, deeds of trust, mortgages, rights-of-way and
restrictive covenants or conditions, except for the Permitted Exceptions;
(ii) The Purchase Price shall be paid upon
delivery of the Grant Deed and any other documents reasonably requested by
Tenant to evidence the transfer of the Premises or to release all liens of
Landlord, including without limitation, any and all reconveyances of mortgages
or other recorded documents as requested by Tenant ("Additional Documents"). In
the event that Tenant elects to assign the Purchase Option pursuant to Section
19.1(d) below, and Tenant's assignee pays an amount less than the Purchase Price
for the Premises, Tenant shall pay to Landlord any excess of the Purchase Price
over the amount paid by such assignee. Landlord shall deliver the Grant Deed and
the Additional Documents to Tenant on the date for closing specified by Tenant
in the Purchase Option Exercise Notice (which date shall be no sooner than ten
(10) days after the date of the Purchase Option Exercise Notice and no later
than the last day of the Term, as the same may be extended). The closing shall
take place at the location and in the manner reasonably set forth by Tenant in
the Purchase Option Exercise Notice;
(iii) If Landlord shall fail to cause title
to be in the condition required in Section 19.1(c)(i) above within the time
herein prescribed for the delivery of the Grant Deed, then Tenant shall have the
right, in addition to all other rights provided by law, by a written notice to
Landlord: (1) to extend
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the time in which Landlord shall clear title and deliver the Grant Deed and
Additional Documents, during which extension this Lease shall remain in full
force and effect, except Tenant shall be released from its obligation to pay
Base Rent during the extension; (2) to accept delivery of the Grant Deed and
Additional Documents subject to such title defects, liens, encumbrances, deeds
of trust, mortgages, rights-of-way and restrictive covenants or conditions
specified and set forth in the Grant Deed and not cleared by Landlord (but
without waiving any rights or remedies available to Tenant on account of such
title exceptions); (3) to rescind, by notice to Landlord and without any penalty
or liability therefor, any and all obligations Tenant may have under and by
virtue of the Purchase Option or the exercise thereof, whereupon this Lease
shall remain in full force and effect; (4) if the title exception is curable by
the payment of money, Tenant may make such payment and such payment shall be a
credit against the Purchase Price in favor of Tenant.
(iv) Refusal of a title company to issue a
standard form of owner's title insurance policy insuring title to the Premises
in the condition specified in subparagraph (c)(i) shall be sufficient evidence
of Landlord's failure to convey clear title and shall entitle Tenant to exercise
any of the rights specified in subparagraph (c)(iii).
(v) Base Rent shall be prorated and paid and
all unpaid Additional Rent shall be paid as of the date title to the Premises is
vested of record in Tenant. Tenant shall pay the escrow fees; the recorder's fee
for recording the Grant Deed; the premium for the title insurance policy; all
documentary transfer taxes; Tenant's attorneys' fees; Landlord's reasonable
attorneys' fees; all other costs and expenses incurred by Tenant in consummating
the transfer of the Premises; and all reasonable expenses (except as specified
in the next sentence) incurred by Landlord in consummating the transfer of the
Premises pursuant to this Section 19.1. Landlord shall pay the costs and
expenses of clearing title as required by Section 19.1(c)(i). In the event of a
purchase by Tenant under this Article 19, Landlord shall have no obligation to
return the Security Deposit to Tenant to the extent the Security Deposit has
been credited against the purchase price to be paid by Tenant pursuant to
Section 19.1(a).
(d) ASSIGNMENT. Tenant shall have the right on
one or more occasions, without Landlord's consent, to assign this purchase
option, in whole or in part, to any Entity at any time, whether or not Tenant
also assigns its interest in the Lease. Tenant shall give prior written notice
to Landlord of any such assignment.
19.2 MANDATORY PURCHASE/SALE OF PREMISES. Notwithstanding
anything to the contrary herein, upon either: (1) the occurrence of an Event of
Major Default or the expiration of the Term of this Lease or upon the occurrence
of any other event terminating this Lease; or (2) the occurrence of any event
which
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causes the Funded Amount to be reduced to zero (0); or (3) Tenant's exercise of
the Purchase Option pursuant to Section 19.1 or 19.2 of the Land Lease, within
thirty (30) days after Tenant's receipt of written Notice of the foregoing and
of Tenant's purchase obligation under this Section 19.2 (except in the case of a
purchase obligation arising on account of the expiration of the Term of this
Lease or exercise of the Purchase Option under the Land Lease; in either such
case no prior Notice shall be required, but Tenant shall have twenty (20) days
after expiration of the Term or exercise of the Purchase Option under the Land
Lease to conclude the purchase), Tenant shall purchase or cause another Entity
to purchase, and Landlord shall sell, the Premises in the same manner as if
Tenant had exercised the Purchase Option on such date. The Purchase Price shall
be the same as if Tenant had exercised the Purchase Option, without regard to
the physical state or condition of the Premises or any Improvements (but Tenant
shall have the rights set forth in Section 19.1, including without limitation,
the terms of Sections 19.1(c)(iii) and (iv)). In the event Tenant fails to
purchase (or to cause another Entity to purchase) the Premises pursuant to its
obligation under this Section 19.2, and if Landlord does not foreclose under the
Landlord Deed of Trust, Landlord (to the extent required under Section 21.19)
shall use commercially reasonable efforts to sell the Premises to an unrelated
third party, and, as applicable, (i) Tenant shall be obligated to pay to
Landlord, immediately upon demand, any shortfall between the Purchase Price and
the amount realized by Landlord in connection with such sale, or (ii) Landlord
shall be obligated to pay to Tenant, immediately upon demand, any excess of the
amount realized by Landlord in connection with such sale over the Purchase
Price. For purposes of the preceding sentence, the amount realized by Landlord
upon a sale of the Premises shall be net of Landlord's reasonable sale expenses
and other expenses incurred by Landlord but required to be paid by Tenant
pursuant to Section 19.1(c)(v). Landlord's obligation to pay such excess to
Tenant shall survive any termination of this Lease. Landlord and Tenant agree
that any and all cash proceeds payable at any foreclosure sale under the
Landlord Deed of Trust shall, after payment of all obligations secured by the
Landlord Deed of Trust, be paid to Tenant or to any other person claiming
through Tenant entitled thereto by applicable law. The aggregate of the
obligations under an Authorized Loan and the obligations secured by the Landlord
Deed of Trust shall not exceed the Purchase Price. Notwithstanding anything to
the contrary in this Lease, in the event of default, breach or violation by
Tenant of any of Tenant's obligations under this Section 19.2, Tenant shall have
no liability to Landlord or any other party in excess of an amount equal to the
then-existing Guaranteed Residual Value, less a credit equal to the sum of (a)
any of the Collateral (including the pledged Security Deposit) which Lenders or
any other holder of an Authorized Loan has used, applied, or otherwise come into
possession of, plus (b) any of the Security Deposit retained by Landlord, and
Landlord shall have no recourse, claim or counterclaim whatsoever against Tenant
in excess of such amount on account of such default, breach or violation. If the
Guaranteed Residual Value has not previously
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been determined as of the date Tenant's liability under this Section 19.2 has
been established, then the Guaranteed Residual Value shall be determined as of
the date Tenant's liability hereunder is established.
19.3 SURVIVAL. The obligations of Landlord and Tenant under
this Article 19 shall survive the expiration or earlier termination of this
Lease.
ARTICLE 20
ADDITIONAL COVENANTS OF LANDLORD
20.1 TITLE AND SUBDIVISION. In the event Tenant so requests in
writing (and so long as either Tenant agrees to indemnify Landlord from any
liabilities or obligations in connection therewith, or Landlord does not incur
any liabilities or obligations in connection therewith), Landlord shall execute
all documents, instruments and agreements reasonably requested by Tenant in
order to accomplish any of the following in the manner reasonably requested by
Tenant and within the time parameters reasonably requested by Tenant: (1) remove
exceptions to title to or affecting the Premises; (2) create exceptions to title
(including, without limitation, easements and rights of way) to or affecting the
Premises (but not including any Mortgage); (3) modify any then-existing
exception to title; or (4) subdivide the Land into two or more separate parcels.
Tenant shall promptly reimburse Landlord for, or at Landlord's request, pay
directly in advance, all reasonable costs, expenses and other amounts incurred
or required to be expended by Landlord in order to comply with Tenant's requests
made in accordance with the preceding sentence, and the failure of Tenant to
reimburse or pay any such amounts shall result in the suspension of Landlord's
obligations under such sentence with respect to that particular request until
the amounts required to be paid by Tenant under this sentence have been paid.
Landlord acknowledges that it is critical to Tenant's ability to construct
improvements on the Premises to have the ability and flexibility to accomplish
the foregoing, and that the parties therefore agree that Landlord shall not be
entitled to withhold Landlord's consent to any of the foregoing requests by
Tenant, except as set forth in the preceding sentence.
20.2 LAND USE. Except where requested by Tenant pursuant to
this Section 20.2, Landlord shall not cause or give its written consent to any
land use or zoning change affecting the Premises or any changes of street grade.
In the event Tenant so requests in writing (and so long as either Tenant agrees
to indemnify Landlord from any liabilities or obligations in connection
therewith, or Landlord does not incur any liabilities or obligations in
connection therewith), Landlord shall execute all documents, instruments and
agreements reasonably requested by Tenant in order to accomplish any of the
following in the manner reasonably requested by Tenant and within the time
parameters reasonably requested by Tenant: (1) cause a change in any land use
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restriction or law affecting the Premises; (2) cause a change in the zoning
affecting the Premises; or (3) cause a change in the street grade with respect
to any street in the vicinity of the Premises. Tenant shall promptly reimburse
Landlord for, or at Landlord's request, pay directly in advance, all reasonable
costs, expenses and other amounts incurred or required to be expended by
Landlord in order to comply with Tenant's requests made in accordance with the
preceding sentence, and the failure of Tenant to reimburse or pay any such
amounts shall result in the suspension of Landlord's obligations under such
sentence with respect to that particular request until the amounts required to
be paid by Tenant under this sentence have been paid. Landlord acknowledges that
it is critical to Tenant's ability to construct improvements on the Premises to
have the ability and flexibility to accomplish the foregoing, and that the
parties therefore agree that Landlord shall not be entitled to withhold
Landlord's request to any of the foregoing requests by Tenant.
20.3 TRANSFER OF PROPERTY INTERESTS. Except as requested by
Tenant pursuant to Section 11.7 or 20.1, Landlord shall not transfer to any
third party any rights inuring to or benefits associated with the Premises
(including, without limitation, zoning rights, development rights, air space
rights, mineral, oil, gas or water rights). Nothing in this Section 20.3 shall
limit Landlord's rights pursuant to Section 13.2; provided that any purchaser of
Landlord's interest in the Premises shall be bound by the terms of this Lease,
including without limitation, the terms of this Section 20.3.
20.4 TRUST EQUITY; NO OTHER ASSET. Landlord covenants and
agrees that during the Term of the Lease, Landlord shall maintain a residual
equity capital investment of at least three percent (3%) of total assets of
Landlord, including assets acquired by this equity investment. In addition,
Landlord shall not, without the prior written consent of Tenant, which consent
may be withheld at Tenant's sole discretion, acquire any significant assets
other than (i) the Land, (ii) the Premises and (iii) the land and any
Improvements thereon, which Improvements are subject to certain leases between
Landlord and Tenant executed concurrently herewith, and which land is described
on Exhibit L attached hereto.
20.5 DEFAULT UNDER AUTHORIZED LOAN. Landlord shall not,
without Tenant's express prior written consent, default under any Authorized
Loan, or any loan documents relating to such Authorized Loan, where such default
does not arise from an Event of Major Default by Tenant under this Lease. Any
such default shall constitute a material default under this Lease, subject to
the limitations on liability of Section 17.8 hereof.
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ARTICLE 21
MISCELLANEOUS
21.1 RELATIONSHIP. Neither this Lease nor any agreements or
transactions contemplated hereby shall in any respect be interpreted, deemed or
construed as constituting Landlord and Tenant as partners or joint venturers,
one with the other, or as creating any partnership, joint venture, association
or, except as set forth in Section 21.2 below, any other relationship other than
that of landlord and tenant; and, except as set forth in Section 21.2 below,
both Landlord and Tenant agree not to make any contrary assertion, contention,
claim or counterclaim in any action, suit or other legal proceeding involving
either Landlord or Tenant or the subject matter of this Lease.
21.2 FORM OF TRANSACTION; CERTAIN TAX MATTERS.
(a) Landlord and Tenant hereby agree and declare
that the transactions contemplated by this Lease are intended to constitute,
both as to matters of form and substance:
(i) an operating lease for financial
accounting and securities regulatory purposes, and
(ii) a financing arrangement (and not a
"true lease") for Federal, state and local income taxes, property tax valuation
or other tax purposes.
Accordingly, and notwithstanding any other provision of this Lease to the
contrary, Landlord and Tenant agree and declare that (A) the transactions
contemplated hereby are intended to have a dual, rather than single, form and
(B) all references in this Lease to the "Lease" of the Premises which fail to
reference such dual form do so as a matter of convenience only and do not
reflect the intent of Landlord and Tenant as to the true form of such
arrangements.
(b) Landlord and Tenant agree that, in accordance
with their intentions and the substance of the transactions contemplated hereby,
Tenant (and not Landlord) shall be treated as the owner of the Premises for
Federal, state, and local income tax and property tax valuation purposes and
this Lease shall be treated as a financing arrangement. Tenant shall be entitled
to take any deduction, credit allowance or other reporting, filing or other tax
position consistent with such characterizations. Landlord shall not file any
Federal, state or local income or property tax returns, reports or other
statements in a manner which is inconsistent with the foregoing provisions of
this Section 21.2.
(c) Each party acknowledges that it has retained
accounting, tax and legal advisors to assist it in structuring this Lease and
neither party is relying on any representations of the other regarding the
proper treatment of this transaction for accounting, income tax, property tax or
any other purpose.
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21.3 NOTICES. Each Notice shall be in writing and shall be
sent by personal delivery, overnight courier (charges prepaid or billed to the
sender) or by the deposit of such with the United States Postal Service, or any
official successor thereto, designated as registered or certified mail, return
receipt requested, bearing adequate postage and in each case addressed as
provided in the Basic Lease Provisions. Each Notice shall be effective upon
being personally delivered or actually received. The time period in which a
response to any such Notice must be given or any action taken with respect
thereto shall commence to run from the date of personal delivery or receipt of
the Notice by the addressee thereof, as reflected on the return receipt of the
Notice. Rejection or other refusal to accept shall be deemed to be receipt of
the Notice sent. By giving to the other party at least thirty (30) days' prior
Notice thereof, either party to this Lease (as well as any Mortgagee) shall have
the right from time to time during the Term of this Lease to change the
address(es) thereof and to specify as the address(es) thereof any other
address(es) within the continental United States of America.
21.4 SEVERABILITY OF PROVISIONS. If any term, covenant or
condition of this Lease, or the application thereof to any Entity or
circumstance, shall be invalid or unenforceable, the remainder of this Lease, or
the application of such term, covenant or condition to Entities or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby.
21.5 ENTIRE AGREEMENT; AMENDMENT. This Lease constitutes the
entire agreement of Landlord and Tenant with respect to the subject matter
hereof. Neither this Lease nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
21.6 APPROVALS AND CONSENTS. Except as expressly provided in
this Lease, whenever any provision of this Lease requires an approval or consent
to be given by one of the parties hereto, the approval or consent shall not be
unreasonably withheld or delayed. Whenever this Lease grants either party the
right to take action, exercise discretion, establish rules and regulations, or
make an allocation or other determination, except as otherwise provided, such
party shall act reasonably and in good faith and take no action which might
result in the frustration of the other party's reasonable expectations
concerning the benefits to be enjoyed under this Lease. If either party
withholds its consent or approval, unless by the express terms of this Lease
such consent or approval may be withheld in such party's sole discretion, such
party shall, upon request, promptly deliver to the other party a written
statement specifying in detail the reason or reasons why such consent or
approval was withheld or refused. If neither approval nor rejection is given by
Landlord within the time specified in Article 11 as to any particular approval
requested by
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Tenant under Article 11 (or, if no such time is specified, then within thirty
(30) days after request for approval is given by a Notice), then the approval
thus specifically requested in writing by Tenant shall be conclusively and
irrevocably deemed to have been given by Landlord.
21.7 TERMINOLOGY. All personal pronouns used in this Lease
shall include all other genders. The singular shall include the plural and the
plural shall include the singular. Titles of Articles, Sections and Subsections
in this Lease are for convenience only and neither limit nor amplify the
provisions of this Lease, and all references in this Lease to Articles, Sections
or Subsections shall refer to the corresponding Article, Section or Subsection
of this Lease unless specific reference is made to the articles, sections or
other subdivisions of another document or instrument. The word "days" as used
herein shall mean business days (i.e., excluding holidays when banks in the
State of California or New York are generally closed for business and weekends)
unless otherwise expressly stated.
21.8 MEMORANDUM OF LEASE. Neither party shall record this
Lease. However, concurrently with the execution of this Lease, Landlord and
Tenant have executed a Memorandum of Lease in the form attached hereto as
Exhibit E and by this reference made a part hereof, which Memorandum of Lease
shall be promptly recorded in the Official Records.
21.9 SUCCESSORS AND ASSIGNS. Subject to Articles 13 and 14,
this Lease shall inure to the benefit of and be binding upon Landlord and Tenant
and their respective heirs, executors, legal representatives, successors and
assigns. Whenever in this Lease a reference to any Entity is made, such
reference shall be deemed to include a reference to the heirs, executors, legal
representatives, successors and assigns of such Entity.
21.10 COMMISSIONS. Landlord and Tenant each represent and
warrant that neither has dealt with any broker in connection with this
transaction and that no real estate broker, salesperson or finder has the right
to claim a real estate brokerage, salesperson's commission or finder's fee by
reason of contact between the parties brought about by such broker, salesperson
or finder. Each party shall hold and save the other harmless of and from any and
all loss, cost, damage, injury or expense arising out of or in any way related
to claims for real estate broker's or salesperson's commissions or fees based
upon allegations made by the claimant that it is entitled to such a fee from the
indemnified party arising out of contact with the indemnifying party or alleged
introductions of the indemnifying party to the indemnified party. In addition to
the foregoing, Tenant shall hold and save Landlord harmless of and from any and
all loss, cost, damages, injury or expense arising out of or in any way related
to claims for real estate broker's or salesperson's commissions relating to
Landlord's acquisition of the Premises or fees by The Staubach Company in
connection with this Lease.
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21.11 ATTORNEYS' FEES. In the event any action is brought by
Landlord or Tenant against the other to enforce or for the breach of any of the
terms, covenants or conditions contained in this Lease, the prevailing party
shall be entitled to recover reasonable attorneys' fees to be fixed by the
court, together with costs of suit therein incurred. Tenant shall pay the
reasonable attorneys' fees incurred by Landlord for the review and negotiation
of this Lease and the Improvements Loan documents.
21.12 GOVERNING LAW. This Lease and the obligations of the
parties hereunder shall be governed by and interpreted, construed and enforced
in accordance with the laws of the State of California.
21.13 COUNTERPARTS. This Lease may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall comprise but a single instrument.
21.14 TIME IS OF THE ESSENCE. Time is of the essence of this
Lease, and of each provision hereof.
21.15 NO THIRD PARTY BENEFICIARIES. This Lease is entered into
by Landlord and Tenant for the sole benefit of Landlord and Tenant. There are no
third party beneficiaries to this Lease.
21.16 LIMITATIONS ON RECOURSE. The obligations of Tenant and
Landlord under this Lease shall be without recourse to any partner, officer,
trustee, beneficiary, shareholder, director or employee of Tenant or Landlord.
There shall be no limitation on Landlord's liability with respect to any willful
misconduct, bad faith breach of this Lease, or gross negligence by Landlord
("Identified Matters"). Except for any Identified Matter, Landlord's liability
to Tenant for any default by Landlord under this Lease: (1) shall be limited to
the greater of the Equity Funded Amount less any repayment to Tenant of the
Security Deposit or Landlord's interest in the Premises; and (2) shall extend to
any actual damages of Tenant, but shall not extend to any foreseeable and
unforeseeable consequential damages.
21.17 ESTOPPEL CERTIFICATES. Within thirty (30) days after
request therefor by either party, the non-requesting party shall deliver, in
recordable form, a certificate to any proposed mortgagee, purchaser, sublessee
or assignee and to the requesting party, certifying (if such be the case) that
this Lease is in full force and effect, the date of Tenant's most recent payment
of Rent, that, to the best of its knowledge, the non-requesting party has no
defenses or offsets outstanding, or stating those claimed, and any other
information reasonably requested. Failure to deliver said statement in time
shall be conclusive upon the non-requesting party that: (a) this Lease is in
full force and effect, without modification except as may be represented by the
requesting party; (b) there are no uncured defaults in the requesting party's
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performance and the non-requesting party has no right of offset, counterclaim or
deduction against the non-requesting party's obligations hereunder; (c) no more
than one month's Base Rent has been paid in advance; and (d) any other matters
reasonably requested in such certificate.
21.18 COLLATERAL. The parties acknowledge that Tenant has
pledged certain collateral ("Collateral") to Lenders to secure Landlord's
obligations under the terms of the Note. If the holder of an Authorized Loan
applies any of the Collateral to satisfy an obligation under any Authorized Loan
documents, such application shall be deemed to reduce the Senior Funded Amount
under this Lease on a dollar-for-dollar basis. Tenant shall have no claims,
rights or causes of action against Landlord arising from any application of the
Collateral to satisfy an obligation under the Authorized Loan documents.
21.19 LANDLORD'S CONTINUING OBLIGATION TO SELL. Except in the
case of a foreclosure under the Landlord Deed of Trust, and subject to the
rights of any holder of an Authorized Loan, in the event Landlord obtains
possession of the Premises pursuant to the terms of this Lease (including,
without limitation, upon the expiration or earlier termination of this Lease
where Tenant has defaulted in its obligation to purchase the Premises pursuant
to Section 19.2), Landlord shall be under a continuing obligation to use its
commercially reasonable efforts to sell the Premises to Tenant or to one or more
unrelated third parties; provided, however, that Landlord shall not be required
to sell or attempt to sell any portion of the Premises (i) in a manner, or under
circumstances, that could materially impair Landlord's ability to enforce any of
its rights or remedies under this Lease (as determined in Landlord's sole
discretion exercised in good faith), (ii) at a time when market conditions
render it inadvisable to sell or attempt to sell the Premises (as determined in
Landlord's sole discretion exercised in good faith). Nothing contained in this
paragraph shall be binding upon any holder of an Authorized Loan acquiring title
through foreclosure, to any person acquiring title at any such foreclosure or to
their successors in interest. Upon the occurrence of any such sale Landlord
shall be obligated to pay to Tenant any excess of the amount realized by
Landlord in connection with such sale over the Purchase Price. For purposes of
the preceding sentence, the amount realized by Landlord upon a sale of the
Premises shall be net of Landlord's reasonable sale expenses and other expenses
incurred by Landlord but required to be paid by Tenant pursuant to Section
19.1(c)(v). Landlord's obligation to pay such excess to Tenant shall survive any
termination of this Lease. Landlord shall not deliver to any Mortgagee a deed in
lieu of foreclosure under any circumstances without Tenant's prior written
approval, which may be withheld in Tenant's sole and absolute discretion.
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21.20 AS-IS LEASE. Landlord makes no representations or
warranties concerning the condition, suitability or any other matters relating
to the Premises, and Tenant hereby acknowledges that Tenant leases the Premises
from Landlord on an "as is" basis.
21.21 NET LEASE. Except as otherwise provided in this Lease,
Tenant agrees that this Lease is an absolute net Lease, and the Base Rent called
for hereunder shall be paid as required net of all expenses associated with the
Premises, including without limitation, Real Estate Taxes and insurance premiums
for the insurance required to be carried hereunder, and all other reasonable and
customary costs and expenses incurred by Landlord in connection with the
Premises or this Lease, all of which shall be paid or reimbursed by Tenant
unless otherwise specifically provided herein. Tenant agrees to reimburse
Landlord, within five (5) business days following receipt of any written demand
therefor, for all reasonable and customary fees (including the pro rata portion
of the $3,000 annual servicing fee payable to SBNYTC attributable to this
Lease), late charges, title endorsement and other costs and expenses charged to
Landlord by Lenders pursuant to the terms and conditions of the Note.
21.22 REPRESENTATIONS AND WARRANTIES. Tenant and Landlord each
hereby represents and warrants to the other that: (i) such party is duly
organized and existing under the laws of the jurisdiction in which it is formed;
(ii) such party has the full right and authority to enter into this Lease,
consummate the sale, transfers and assignments contemplated herein and otherwise
perform its obligations under this Lease; (iii) the person or persons signatory
to this Lease and any document executed pursuant hereto on behalf of such party
have full power and authority to bind such party; and (iv) the execution and
delivery of this Lease and the performance of such party's obligations hereunder
do not and shall not result in the violation of its organizational documents or
any contract or agreement to which such party may be a party.
21.23 APPRAISAL PROCEDURE.
(a) If this Lease calls for an appraisal under this
Section 21.23 with respect to the Coverage Test, Landlord and Tenant shall have
thirty (30) days after either party delivers Notice to the other party of a
desire to utilize the appraisal procedure under this Section 21.23 in connection
with the Coverage Test in which to agree on whether the Coverage Test is
satisfied as of the time required under the relevant provision of this Lease. In
determining the Coverage Test, the fair market value of the Land and
Improvements ("Fair Market Value") shall be calculated together, taking into
consideration the quality, size, design and location of the Land and
Improvements, and the value of comparable property in the general locality of
the Land, and any other factors which customarily are evaluated in appraising
land or buildings. If either party elects to utilize the terms of this Section
21.23 and Landlord and Tenant agree on the Fair Market Value during such
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thirty (30) day period, they shall immediately execute a letter agreement
reflecting such agreement.
(b) If Landlord and Tenant are unable to agree on
the Fair Market Value within such thirty (30) day period, then within ten (10)
days after the expiration of the thirty (30) day period, Landlord and Tenant
each, at its cost and by giving notice to the other party, shall appoint a
competent and disinterested real estate appraiser with at least five (5) years'
full-time commercial appraisal experience in the geographical area of the
Building to appraise and set the Fair Market Value. If either Landlord or Tenant
does not appoint an appraiser within ten 10 days after the other party has given
notice of the name of its appraiser, the single appraiser appointed shall be the
sole appraiser and shall set the Fair Market Value. If two (2) appraisers are
appointed by Landlord and Tenant as stated in this Section, they shall meet
promptly and attempt to set the Fair Market Value.
(c) If the two (2) appraisers are unable to agree
on the Fair Market Value within thirty (30) days after the second appraiser has
been appointed, they shall attempt to select a third appraiser meeting the
qualifications stated in this Section within ten (10) days after the last day
the two (2) appraisers are given to set the Fair Market Value. If they are
unable to agree on the third appraiser, either Landlord or Tenant, by giving ten
(10) days' notice to the other party, can apply to the then president of the
real estate board of the county in which the Land is located, or to the
Presiding Judge of the Superior Court of the county in which the Land is
located, for the selection of a third appraiser who meets the qualifications
stated in this Section. Landlord and Tenant each shall bear one-half (l/2) of
the cost of appointing the third appraiser and of paying the third appraiser's
fee. The third appraiser, however selected, shall be a person who has not
previously acted in any capacity for either Landlord or Tenant. Within thirty
(30) days after the selection of the third appraiser, a majority of the
appraisers shall set the Fair Market Value. If a majority of the appraisers is
unable to set the Fair Market Value within the stipulated period of time, the
third appraiser shall arrange for simultaneous exchange of written appraisals
from each of the appraisers and the three (3) appraisals shall be added together
and their total divided by three (3); the resulting quotient shall be the Fair
Market Value. If, however, the low appraisal and/or the high appraisal are/is
more than ten percent (10%) lower and/or higher than the middle appraisal, the
low appraisal and/or the high appraisal shall be disregarded. If only one (1)
appraisal is disregarded, the remaining two (2) appraisals shall be added
together and their total divided by two (2); the resulting quotient shall be the
Fair Market Value. If both the low appraisal and the high appraisal are
disregarded as stated in this Section, the middle appraisal shall be the Fair
Market Value.
(d) After the Fair Market Value has been set, the
appraisers shall immediately notify Landlord and Tenant, and
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Landlord and Tenant shall immediately execute a letter agreement reflecting the
Fair Market Value.
21.24 FINANCIAL REPORTING. Tenant shall provide to Landlord
and Lenders: (1) annually, within one hundred twenty (120) days after the end of
each of Tenant's fiscal years during the Term, an annual report on Form 10-K for
such fiscal years as filed with the Securities and Exchange Commission; (2)
quarterly, within forty five (45) days after the end of each of Tenant's fiscal
quarters during the Term, quarterly reports on Form 10-Q as filed with the
Securities and Exchange Commission; and (3) within thirty (30) days after filing
with the Securities and Exchange Commission, any other reports, proxy
statements, registration statements or prospectuses filed during the Term with
the Securities and Exchange Commission.
21.25 APPRAISAL. Prior to Landlord's making the Initial
Advance pursuant to Section 11.3 hereof, Landlord shall have received an
appraisal conforming to FIRREA guidelines prepared by an appraiser reasonably
satisfactory to Landlord indicating that the current fair market value on an
as-completed basis of the buildings as designed as of the date of such appraisal
which Tenant may desire to have constructed on the Land (based upon a
theoretical current build-out on the Land on the basis of the Site Plan attached
hereto as Exhibit C) is not less than ninety percent (90%) of the estimated cost
of construction of the buildings which Tenant may desire to have constructed on
the Land. The appraisal shall be based upon Tenant's current construction
budget, specifications and intended use (both parties hereby recognizing that
such items are subject to change, and in no event shall Tenant have any
obligation to construct any or all of such buildings). Tenant hereby approves
Landlord's use of either Cushman & Wakefield or CB Commercial Real Estate Group
as the appraiser under this Section 21.25. Landlord hereby acknowledges that the
current fair market value on an as-completed basis of the buildings as designed
as of the date of such appraisal which Tenant proposes to have constructed on
the Land is not less than ninety percent (90%) of the estimated cost of
construction of said buildings.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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[SIGNATURE PAGE TO BUILDING LEASE]
IN WITNESS WHEREOF, the parties hereto have duly executed this
Lease as of the day and year first above written.
"LANDLORD"
SUMITOMO BANK OF NEW YORK TRUST
COMPANY ("SBNYTC"), AS TRUSTEE
UNDER THAT CERTAIN TRUST AGREEMENT
DATED MAY 22, 1995 BETWEEN
SUMITOMO BANK LEASING AND FINANCE,
INC. AND SBNYTC
By: [JOHN McFADDEN]
------------------------------
Name: [JOHN F. McFADDEN]
------------------------------
Its: [VICE PRESIDENT AND
TREASURER]
------------------------------
[Remainder of This Page Intentionally Left Blank]
<PAGE> 72
[SIGNATURE PAGE TO BUILDING LEASE]
"TENANT"
CISCO SYSTEMS, INC.,
A CALIFORNIA CORPORATION
By: [JOHN T. CHAMBERS]
------------------------------------------------
Name: [JOHN T. CHAMBERS]
----------------------------------------
Its: [PRESIDENT AND CHIEF EXECUTIVE OFFICER]
----------------------------------------
By: [LARRY R. CARTER]
------------------------------------------------
Name: [LARRY R. CARTER]
----------------------------------------
Its: [CHIEF FINANCIAL OFFICER]
----------------------------------------
<PAGE> 73
EXHIBIT A
LEGAL DESCRIPTION OF LAND
REAL PROPERTY in the City of San Jose, County of Santa Clara, State of
California, described as follows:
All of Parcel 2, as shown on that certain Map filed for record in the office of
the Recorder of the County of Santa Clara, State of California on July 13, 1983,
in Book 514 of Maps page(s) 47 and 48.
APN: 97-53-14
All of Lot 54 as shown upon that certain Map entitled, "Tract No. 7559", which
Map was filed for record in the Office of the Recorder of the County of Santa
Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49
and 50.
APN: 97-53-23
<PAGE> 74
EXHIBIT B
PERMITTED EXCEPTIONS
The following exceptions from coverage of Landlord's title
insurance which affect "Parcel Two" and "Parcel Three":
1. PROPERTY TAXES, including any assessments collected with taxes, for
the fiscal year 1995-1996, a lien not yet due or payable.
2. a) Bond for City of San Jose, Reassessment District No. 93-210 1993
Consolidated Refunding
Bond No. : 24J
Assessment No. : 42V
Balance of principal : $88,186.00
Balance of interest
through maturity : $16,532.60
The above Amount excludes $12,279.07 principal, $5,140.46 interest
and $277.29 handling charge spread on the 1994-1995 tax roll, which
amounts cannot be prepaid.
Said matter affects Lot 59 of Parcel One.
b) Bond for City of San Jose, Reassessment District No. 93-210 1993
Consolidated Refunding
Bond No. : 24J
Assessment No. : 46V
Balance of principal : $100,217.00
Balance of interest
through maturity : $18,788.10
The above Amount excludes $13,954.27 principal, $5,841.76 interest
and $312.93 handling charge spread on the 1994-1995 tax roll, which
amounts cannot be prepaid.
Said matter affects Lot 58 of Parcel One.
c) Bond for Reassessment District #93-210 Consolidated Refunding, as
follows:
Bond No. : 24J
Assessment No. : 48V
Balance of principal : $113,800.32
Balance of interest : $21,334.61
The above Amount to pay in full excludes $15,845.61 principal,
$6,633.65 interest and $353.18 handling charge spread on the 1994-
1995 tax roll, which amounts cannot be prepaid.
Said matter affects Parcel Two.
<PAGE> 75
2. Continued
d) Bond for Reassessment District #93-210 Consolidated Refunding, as
follows:
Bond No. : 24J
Assessment No. : 47V
Balance of principal : $123,177.11
Balance of interest : $23,092.52
The above Amount to pay in full excludes $17,151.24 principal,
$7,180.13 interest and $380.97 handling charge spread on the 1994-
1995 tax roll, which amounts cannot be prepaid.
Said matter affects Parcel Three.
e) Bond for Reassessment District #93-210 Consolidated Refunding
Bond No. : 24J
Assessment No. : 8V
Balance of principal : $63,238.68
Balance of interest
through maturity : $11,855.62
The above Amount excludes $8,806.39 principal, $3,686.25 interest
and $203.36 handling charge spread on the 1994-1995 tax roll, which
amounts cannot be prepaid.
Said matter affects Parcels Four and Five.
f) Bond for Reassessment District #93-210 Consolidated Refunding
Bond No. : 24J
Assessment No. : 1V
Balance of principal : $429.87
Balance of interest
through maturity : $80.61
The above Amount excludes $59.86 principal, $25.02 interest and
$1.32 handling charge spread on the 1994-1995 tax roll, which
amounts cannot be prepaid.
Said matter affects a portion of Parcel Six.
g) Bond for Reassessment District #93-210 Consolidated Refunding
Bond No. : 24J
Assessment No. : 2V
Balance of principal : $91,559.14
Balance of interest
through maturity : $17,164.97
The above Amount excludes $12,748.74 principal, $5,337.09 interest
and $280.03 handling charge spread on the 1994- 1995 tax roll, which
amounts cannot be prepaid.
Said matter affects a portion of Parcel Six.
<PAGE> 76
2. Continued
h) Bond for Reassessment District #93-210 Consolidated Refunding
Bond No. : 24J
Assessment No. : 9V
Balance of principal : $75,028.33
Balance of interest
through maturity : $14,065.87
The above Amount excludes $10,446.98 principal, $4,373.49 interest
and $229.47 handling charge spread on the 1994-1995 tax roll, which
amounts cannot be prepaid.
Said matter affects a portion of Parcel Six.
i) Bond for Reassessment District #93-210 Consolidated Refunding
Bond No. : 24J
Assessment No. : 10V
Balance of principal : $360.71
Balance of interest
through maturity : $67.62
The above Amount excludes $50.23 principal, $21.03 interest and
$1.10 handling charge spread on the 1994-1995 tax roll, which
amounts cannot be prepaid.
Said matter affects a portion of Parcel Six.
3. THE LIEN of supplemental taxes, if any, assessed as a result of
transfer of interest and/or new construction, said supplemented
taxes being assessed pursuant to Chapter 3.5 commencing with Section
75 of the California Revenue and Taxation Code, for which no Notice
of Assessment has been issued, as of the date herein.
4. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Right to excavate for, install, replace
(of initial or any other size), maintain
and use for conveying gas such pipe line
or lines as shall from time to time
elect, with necessary values and other
appliances
Granted to : Pacific Gas and Electric Company, a
California corporation
Recorded : July 6, 1944 in Book 1206, page 154,
Official Records
Affects : as follows:
By a Relocation Agreement between Oakmead Associates, a California
general partnership and Pacific Gas and Electric Company, a
California corporation
Recorded : April 5, 1989 in Book K903, page 1344,
Official Records
the easement was relocated as follows:
A strip of land of the uniform width of 15 feet extending from the
Northerly boundary line of said Lot 5, said Northerly boundary line
being the Southerly boundary line of the city street known as Tasman
Drive (128 feet wide), said Tasman Drive is shown on said map,
Southwesterly to the Westerly boundary line of said Lot 5, said
Westerly boundary line being the Easterly boundary line of the
street known as Rio Robles (56 feet wide), said street Rio Robles is
also shown on said map, and lying 7.5 feet on each side of the line
described as follows:
<PAGE> 77
4. Continued
Beginning at a point in the Northerly boundary line of said Lot 5
and running (1) S. 0 degrees 23.5 minutes E. 12.4 feet to a point
which bears, S. 66 degrees 35.0 minutes W. 579.2 feet distant from
the found 5/8 inch brass pin set in concrete accepted as marking the
Southwesterly terminus of a course in the center line of said Tasman
Drive, which course as shown on said map has a bearing of, N. 59
degrees 28 minutes 40 seconds E. and a length of 700.88 feet; thence
(2) S. 29 degrees 04.3 minutes W. 187.8 feet; thence (3) S. 57
degrees 38.6 minutes W. 10.8 feet to a point in the Westerly
boundary line of said Lot 5. Said line being a survey traverse made
by second party in September, 1983. The bearings used in the
foregoing description are based on solar observations made by second
party.
Covenants, conditions and restrictions in the above mentioned
instruments.
Said matter affects Parcel Six.
5. TERMS and conditions as contained in the Grant Deed executed by
Masami Ezaki and Kaoru Ezaki, his wife in favor of the City and
County of San Francisco, a municipal corporation recorded December
8, 1950 in Book 2111, page 319, Official Records.
Said matter affect Parcels Five and Seven and portions of Parcels
Four and Six.
6. THE EFFECT of the Rincon de los Esteros Project Redevelopment Plan
and Ordinances Nos. 17306, 19686, 19835, 20677, 20958, 21417, 21496,
21903, 22660, 22412, 22761, 22761.1 and 22961, 23703, 23732, 23761
and 23934 of the City of San Jose as recorded and as disclosed by
documents recorded July 11, 1975 in Book B502, Page 711; August 6,
1979 in Book E699, Page 245; August 6, 1979 in Book E699, Page 277;
December 21, 1979 in Book F37, Page 585; October 8, 1981 in Book
G382, Page 605; July 28, 1982 in Book G929, Page 703; September 14,
1983 in Book H892, Page 200; January 10, 1984 in Book I220, Page
271; January 6, 1992 in Book L996, Page 508, all of Official
Records, and as disclosed by information provided by the
Redevelopment Agency of the City of San Jose.
7. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Any and all public service facilities,
including, but not limited to, poles, wires,
conduits and vaults, storm sewers, sanitary
sewers, and gas, water, electrical and
communication mains and all appurtenances
thereto
Granted to : City of San Jose, a municipal corporation of the
State of California
Recorded : September 14, 1981 in Book G330, page 497,
Official Records
Affects : That portion of said land as shown upon the map
herein referred to, more particularly described
as follows:
All that certain real property situated in the City of San Jose,
County of Santa Clara, State of California, being a portion of the
parcel of land described and designated as Parcel 1 in the deed to
River Oaks Associates #2, dated November 17, 1979, recorded in Book
E962 of Official Records, at page 145, Santa Clara County Records,
more particularly described as follows:
<PAGE> 78
7. Continued
Beginning at a point in the centerline of North First Street
(formerly San Jose-Alviso Road) as said centerline is described in
said deed at the most Northerly corner of said parcel; thence along
the Northwesterly boundary line of said parcel, S. 59 degrees 28
minutes 40 seconds W. (S. 59 degrees 30 minutes W. per deed), 114.98
feet; thence leaving said line, S. 30 degrees 31 minutes 20 seconds
E. 34.00 feet to the true point of beginning; thence along a
non-tangent curve to the right having a radius of 50.00 feet; whose
radius point bears along the continuation of the last described
course, S. 30 degrees 31 minutes 20 seconds E. through a central
angle of 89 degrees 59 minutes 11 seconds for an arc length of 78.53
feet to a point in a line which is parallel with and 65.00 feet
Southwesterly of said centerline; thence along said parallel line,
S. 30 degrees 32 minutes 09 seconds E. 254.64 feet to a point in the
Northwesterly boundary line of the strip of land described in the
deed to the City of County of San Francisco, dated October 20, 1950;
recorded in Book 2111 of Official Records, at page 319, Santa Clara
County Records; thence along said Northwesterly line, S. 65 degrees
09 minutes 27 seconds W. 10.05 feet to a point in a line that is
parallel with and 75.00 feet Southwesterly from said centerline;
thence along said parallel line, N. 30 degrees 32 minutes 09 seconds
W. 253.64 feet; thence along a curve to the left, having a radius of
40.00 feet, through a central angle of 89 degrees 59 minutes 11
seconds for an arc length of 62.82 feet; thence N. 30 degrees 31
minutes 20 seconds W. 10.00 feet to the true point of beginning; the
bearing of, S. 30 degrees 32 minutes 09 seconds E. of the monument
line of North First Street, as shown on the Parcel Map recorded in
Book 460 of Maps, at page 1, Santa Clara County Records, was used as
the basis of bearings for this description.
Said matter affects Parcel Six.
8. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Landscape Easement
Granted to : City of San Jose, a municipal corporation
Recorded : September 14, 1981 in Book G330, page
504, Official Records
Affects : The Northeasterly 20 feet of Parcel Six.
9. LICENSE for the purposes stated herein and incidents thereto
Purpose : To construct, install, maintain, repair,
renew, replace, operate and use an
interim storm sewer pipe line or lines
and appurtenances of any size of
material, and/or a surface drainage
release
Granted to : City of San Jose, a municipal corporation
of the State of California
Recorded : September 14, 1981 in Book G330, page
511, Official Records
Affects : that portion of said land as shown upon
the map herein referred to, more
particularly described as follows:
All that certain real property situate in the City of San Jose,
County of Santa Clara, State of California, being a portion of the
parcel of land described and designated as Parcel 1 in the deed to
River Oaks Associates #2, dated November 17, 1979, recorded in Book
E962 of Official Records, at page 145, Santa Clara County Records,
more particularly described as follows:
Beginning at a point in the centerline of North First Street
(formerly San Jose-Alviso Road) as said centerline is described in
said deed at the most Northerly corner of said parcel; thence along
the Northwesterly boundary line of said parcel, S. 59 degrees 29
minutes 40 seconds W. (S. 59 degrees 30 minutes W. per deed), 114.98
feet; thence leaving said boundary line, S. 30 degrees 31 minutes 20
seconds E. 34.00; thence along a non-tangent curve to the right
having a radius of 50.00 feet whose radius point bears along the
continuation of the last described course, S. 30 degrees 31 minutes
20 seconds E. through a central angle of 17 degrees 26 minutes 39
seconds for an arc length of 15.22 feet to the point of beginning;
thence continuing along said curve
<PAGE> 79
9. Continued
to the right having a radius of 50.00 feet, through a central angle
of 19 degrees 24 minutes 44 seconds for an arc length 16.94 feet to
a point in a line that is parallel with and 85.00 feet Southwesterly
of said centerline; thence along said parallel line S. 30 degrees 32
minutes 09 seconds E. 292.64 feet to a point in the Northwesterly
boundary line of the strip of land described in the deed to the City
and County of San Francisco, dated October 20, 1950, recorded in
Book 2111 of Official Records, at page 319, Santa Clara County
Records; thence along said Northwesterly boundary line, S. 65
degrees 09 minutes 27 seconds W. (S. 65 degrees 08 minutes 00
seconds W. per deed), 15.07 feet to a point in a line which is
parallel with and 100.00 feet Southwesterly of said centerline;
thence along said parallel line, N. 30 degrees 32 minutes 09 seconds
W. 298.84 feet to the true point of beginning.
Said matter affects Parcel Six.
10. AN EASEMENT affecting the portion of said land and for the purpose
stated herein and incidental purposes, shown or dedicated by the map
of Tract 7408 filed in Book 506 of Maps, pages 24, 25 and 26.
Purpose : Public Service Easement
Affects : The Southwesterly 10 feet of Parcels One,
Two and Three; the Northwesterly 8 feet
of Parcel Two; the Southwesterly 8 feet
of Parcel Four; the Northeasterly and
Northwesterly 10 feet of Parcel Six; and
the Southwesterly 8 feet of Parcel Six.
11. EASEMENT as shown on the filed map of Tract 7408 filed in Book 506
of Maps, pages 24-26 and incidents thereto
Purpose : Landscape Easement
Affects : The Southwesterly 20 feet of Parcel One,
Two and Three; the Northwesterly 18 feet
of Parcel Two; the Southwesterly 18 feet
of Parcel Four; the Northeasterly and
Northwesterly 20 feet of Parcel Six; and
the Southwesterly 18 feet of Parcel Six.
12. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Public Service Easement
Granted to : City of San Jose
Recorded : November 19, 1982 in Book H156, page 275,
Official Records
Affects : The Northwesterly 25 feet of Parcel Four
13. EASEMENT for the purposes stated herein and incidents thereto
Purpose : The installation, maintenance and
operation of all landscaping plant forms,
irrigation systems, retaining walls, and
decorative walkway paving now existing or
hereinafter to be constructed
Granted to : City of San Jose, a municipal corporation
of the State of California
Recorded : May 27, 1983 in Book H590, page 649,
Official Records
Affects : The Southwesterly 20 feet of Parcel One,
Two and Three; the Northwesterly 18 feet
of Parcel Two; the Southwesterly 18 feet
of Parcel Four; the Northeasterly and
Northwesterly 20 feet of Parcel Six; and
the Southwesterly 18 feet of Parcel Six.
<PAGE> 80
14. EASEMENT for the purposes stated herein and incidents thereto
Purpose : The installation, maintenance and
operation of all landscaping plant forms,
irrigation systems, retaining walls, and
decorative walkway paving now existing or
hereinafter to be constructed
Granted to : City of San Jose, a municipal corporation
of the State of California
Recorded : May 27, 1983 in Book H590, page 652,
Official Records
Affects : The Westerly corner of Parcel Two and the
Northerly and Westerly corner of Parcel
Six
15. AGREEMENT on the terms and conditions contained therein,
For : The installation and maintenance of
landscape improvements
Between : City of San Jose, a municipal corporation
And : Oakmead-San Jose, a California general
partnership and Oakmead-San Jose Sign and
Landscape Maintenance Association, a
California non-profit mutual benefit
corporation
Recorded : May 27, 1983 in Book H590, page 662,
Official Records
Reference is hereby made to the record for further particulars.
16. EASEMENT for the purposes stated herein and incidents thereto
Purpose : The construction, installation, repair
and maintenance of interlocking pavers,
retaining walls and signs, and for
pedestrian and vehicular access as
necessary or desirable thereto, but
subject to the obligation of the
association of the association, its
successors and assigns, to promptly
repair any damage to said improvements
lying within the Sign and Landscape
Easements resulting from the
Association's activities thereon
Granted to : Oakmead-San Jose Sign and Landscape
Maintenance Association, a non-profit
mutual benefit corporation
Recorded : June 3, 1983 in Book H604, page 322,
Official Records
Affects : The Westerly corner of Parcel Two and the
Northerly and Westerly corner of Parcel
Six
17. LIMITATIONS, covenants, conditions, restrictions, reservations,
exceptions, terms, liens or charges, but deleting restrictions, if
any, based on race, color, religion or national origin contained in
the document recorded June 3, 1983 in Book H604, page 334, Official
Records.
CONTAINS mortgagee protection clause.
MODIFICATION thereof recorded January 26, 1984 in Book I257, page
252, Official Records.
A Notice of Amendment of Design Guidelines
Executed by : Oakmead-San Jose, a California general
partnership
Recorded : June 21, 1984 in Book I649, page 543,
Official Records
An instrument entitled, "Designation of Approving Agent," whereby
Kimball Small Properties, a California corporation was designated
approving agent under the CC&R's and Design Guidelines.
Recorded : April 29, 1988 in Book K517, page 940,
Official Records
MODIFICATION thereof recorded October 18, 1988 in Book K721, page
265, Official Records.
<PAGE> 81
17. Continued
Said Assignment affects Parcel One.
An instrument entitled, "Assignment and Assumption of Certain Rights
under Declaration of Covenants, Conditions and Restrictions for
Oakmead-San Jose,"
Dated : May 1, 1995
Between : CROCKER PROPERTIES, INC., a California
corporation and IRISH LEASING
CORPORATION, a Texas corporation
Recorded : May 1, 1995 as Instrument No. 12877064,
Official Records
Said Assignment affects Parcels Two and Three
An Instrument entitled, "Assignment and Assumption of Certain Rights
under Declaration of Covenants, Conditions and Restrictions for
Oakmead-San Jose,"
Dated : May 8, 1995
Between : AMDAHL CORPORATION, a Delaware
corporation and IRISH LEASING
CORPORATION, a Texas corporation
Recorded : May 8, 1995 as Instrument No. 12882481,
Official Records
Said Assignment affects Parcels Four, Five and Six
18. LIMITATIONS, covenants, conditions, restrictions, reservations,
exceptions, terms, liens or charges, but deleting restrictions, if
any, based on race, color, religion or national origin contained in
the document recorded June 3, 1983 in Book H604, page 505, Official
Records.
Said instrument also provides for the levy of assessments, the lien
of which are stated to be subordinate to the lien of a First
Mortgage of First Deed of Trust made in good faith and for value.
MODIFICATION thereof recorded January 26, 1984 in Book I257, page
248, Official Records.
An instrument entitled, "Assignment of Grantor's Rights under
Declaration of Covenants, Conditions and Restrictions for
Oakmead-San Jose and Removal of Approving Agent,"
Dated : October 18, 1988
Between : Oakmead-San Jose, a California general
partnership and Oakmead Associates, a
California general partnership
Recorded : October 18, 1988 in Book K721, page 295,
Official Records
Said Assignment affects Parcels One, Four, Five and Six
An instrument entitled, "Assignment of Grantor's Rights under
Declaration of Covenants, Conditions and Restrictions for
Oakmead-San Jose and Removal of Approving Agent,"
Dated: : April 20, 1989
Between : Oakmead Associates, a California general
partnership and Amdahl Corporation, a
Delaware corporation
Recorded : April 20, 1989 in Book K927, page 332,
Official Records
Said Assignment affects Parcels Four and Five
<PAGE> 82
18. Continued
An instrument entitled, "Assignment of Grantor's Rights under
Declaration of Covenants, Conditions and Restrictions for
Oakmead-San Jose,"
Dated : July 12, 1989
Between : Oakmead Associates, a California general
partnership and Amdahl Corporation, a
Delaware corporation
Recorded : July 12, 1989 in Book L017, page 1927,
Official Records
Said Assignment affects Parcel Six
MODIFICATION thereof recorded July 19, 1989 in Book L024, page 587,
Official Records
An instrument entitled "Assignment and Assumption of Certain Rights
under Declaration of Covenants, Conditions and Restrictions for
Oakmead-San Jose"
Between : Oakmead-San Jose, a California general
partnership and Crocker Properties, Inc.,
a California corporation
Recorded : August 10, 1989 in Book L052, page 1001
and page 1011, Official Records.
Said Assignment affects Parcels Two and Three
An instrument entitled, "Assignment of Grantor's Rights under
Declaration of Covenants, Conditions and Restrictions for
Oakmead-San Jose,"
Dated : May 1, 1995
Between : OAKMEAD ASSOCIATES, a California general
partnership and IRISH LEASING
CORPORATION, a Texas corporation
Recorded : May 1, 1995 as Instrument No. 12877061,
Official Records
Said Assignment affects Parcel One.
An instrument entitled, "Assignment and Assumption of Certain Rights
under Declaration of Covenants, Conditions and Restrictions for
Oakmead-San Jose,"
Dated : May 1, 1995
Between : CROCKER PROPERTIES, INC., a California
corporation and IRISH LEASING
CORPORATION, a Texas corporation
Recorded : May 1, 1995 as Instrument No. 12877064,
Official Records
Said Assignment affects Parcels Two and Three
An instrument entitled, "Assignment and Assumption of Certain Rights
under Declaration of Covenants, Conditions and Restrictions for
Oakmead-San Jose,"
Dated : May 8, 1995
Between : AMDAHL CORPORATION, a Delaware
corporation and IRISH LEASING
CORPORATION, a Texas corporation
Recorded : May 8, 1995 as Instrument No. 12882481,
Official Records
Said Assignment affects Parcels Four, Five and Six
<PAGE> 83
19. EASEMENT as shown on the filed map of Tract 7559 filed in Book 522
of Maps, pages 49 ad 50.
Purpose : Public Service Easement
Affects : The Northwesterly 8 Feet and the Westerly
corner of Lot 59 of Parcel One
20. EASEMENT as shown on the filed map of Tract 7559 filed in Book 522
of Maps, pages 49 and 50.
Purpose : Landscape Easement
Affects : The Southeasterly 18 feet and the
Southerly corner of Lot 58 of Parcel One;
and the Northwesterly 18 feet and the
Westerly corner of Lot 59 of Parcel One
21. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Communication facilities
Granted to : Pacific Bell
Recorded : February 21, 1984 in Book I319, page 486,
Official Records
Affects : The Southwesterly 10 feet of Lot 58 of
Parcel One; the Southwesterly 10 feet,
the Northwesterly 8 feet and the Westerly
corner of Lot 59 of Parcel One; and the
Southwesterly 10 Feet of Parcel Three
22. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Underground and above ground
communication facilities
Granted to : Pacific Bell
Recorded : May 17, 1984 in Book 1552, page 624,
Official Records
Affects : The Southwesterly 10 feet of Parcel Four
23. AGREEMENT on the terms and conditions contained therein,
For : Gas and electric service
Between : Pacific Gas and Electric Company, City of
San Jose
And : Oakmead-San Jose
As disclosed by a Memorandum of Agreement
Recorded : February 25, 1985 in Book J271, page 37,
Official Records.
Reference is hereby made to the record for further particulars.
24. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Emergency overland storm drainage release
Granted to : Amdahl Corporation, a Delaware
corporation
Recorded : August 8, 1990, in Book L443, page 754,
Official Records
Affects : The Northwesterly 10 feet of the
Southeasterly 30 feet and the
Northeasterly 10 feet of the
Northwesterly 100 feet of the
Southeasterly 130 feet of Parcel Four.
Terms and conditions contained in the document hereinabove referred
to.
25. TERMS AND CONDITIONS of that certain Site Development Permit
File No. : HSH 90-09-104
Disclosed By : A Notice of Granting of a Site
Development Permit
Recorded : January 24, 1991 in Book L600, page 1242,
Official Records
<PAGE> 84
25. Continued
Said matter affects Parcels Four, Five and Six.
Reference is hereby made to the record for particulars.
26. TERMS AND CONDITIONS of that certain Site Development Permit
File No. : HSH 92-02-011
Disclosed By : A Notice of Granting of a Site
Development Permit
Recorded : August 21, 1992 in Book M340, page 824,
Official Records
Said matter affects Parcel Six.
27. TERMS AND CONDITIONS of that certain Site Development Permit
File No. : H94-07-041
Disclosed By : A Notice of Granting of a Site
Development Permit
Recorded : October 19, 1994 in Book N638, page 215,
Official Records
Said matter affects Parcel Six.
Reference is hereby made to the record for particulars.
29. ANY RIGHTS, interests, or claims adverse to those of the vestee
herein which may exist or arise by reason of the following facts
shown on a survey plat entitled "A.L.T.A./A.C.S.M. Land Title
Survey", dated April 14, 1995, prepared by Kier & Wright, Job. No.
92160-16.
a) The fact that a concrete sign extends across the Northwesterly
boundary of Parcel Six.
30. UNRECORDED LEASE for the term and upon the terms and conditions
contained therein
Dated : February 28, 1995
Lessor : IRISH LEASING CORPORATION, a Texas
corporation
Lessee : CISCO SYSTEMS, INC., a California
corporation
Term : 5 Years
Disclosed by : Memorandum of Land Lease, recorded May 1,
1995, as Instrument No., 12877062,
Official Records.
Affects the fee to Parcel One.
31. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded
May 1, 1995 as Instrument No. 12877062, Official Records
Affects the fee to Parcel One.
32. UNRECORDED LEASE for the term and upon the terms and conditions
contained therein
Dated : February 28, 1995
Lessor : IRISH LEASING CORPORATION, a Texas
corporation
Lessee : CISCO SYSTEMS, INC., a California
corporation
Term : 5 Years
Disclosed by : Memorandum of Land Lease, recorded May 1,
1995, as Instrument No. 12677065,
Official Records.
Affects the fee to Parcels Two and Three.
<PAGE> 85
33. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded
May 1, 1995 as Instrument No. 12877065, Official Records
Affects the fee to Parcels Two and Three.
34. A DEED OF TRUST to secure an indebtedness in the original principal
sum shown below and any other amounts and/or obligations secured
thereby
Amount : $2,700,000.00
Dated : May 1, 1995
Trustor : IRISH LEASING CORPORATION, a Texas
corporation
Trustee : FIRST AMERICAN TITLE INSURANCE COMPANY, a
California corporation
Beneficiary : CISCO SYSTEMS, INC., a California
corporation
Recorded : May 1, 1995, under Series No. 12877066,
Official Records.
Affects the fee to Parcels One, Two and Three.
35. UNRECORDED LEASE for the term and upon the terms and conditions
contained therein
Dated : April 12, 1995
Lessor : IRISH LEASING CORPORATION, a Texas
corporation
Leesee : CISCO SYSTEMS, INC., a California
corporation
Term : 5 years
Disclosed by : Memorandum of Land Lease, recorded May 8,
1995, as Instrument No. 12882482,
Official Records.
Affects the fee to Parcels Four, Five, Six and Seven.
36. OPTION TO PURCHASE as disclosed in the Memorandum of Lease recorded
May 8, 1995 as Instrument No. 12482482, Official Records
Affects the fee to Parcels Four, Five, Six and Seven.
37. A DEED OF TRUST to secure an indebtedness in the original principal
sum shown below and any other amounts and/or obligations secured
thereby
Amount : $1,500,000.00
Dated : May 1, 1995
Trustor : IRISH LEASING CORPORATION, a Texas
corporation
Trustee : FIRST AMERICAN TITLE INSURANCE COMPANY, a
California corporation
Beneficiary : CISCO SYSTEMS, INC., a California
corporation
Recorded : May 8, 1995, under Series No. 12882483,
Official Records.
Affects the fee to Parcels Four, Five, Six and Seven.
<PAGE> 86
EXHIBIT C
(SITE PLAN)
EXHIBIT C
1.
<PAGE> 87
[AERIAL RENDERING SITE PLAN BUILDING "X"]
<PAGE> 88
[AERIAL RENDERING SITE PLAN BUILDING "J"]
<PAGE> 89
EXHIBIT D
(PRE-APPROVED APPROVAL PLANS)
EXHIBIT D
1.
<PAGE> 90
[ARCHITECTURAL RENDERING EXTERIOR ELEVATIONS BUILDING "I"]
<PAGE> 91
[ARCHITECTURAL RENDERING SITE PLAN BUILDING "I"]
<PAGE> 92
[ARCHITECTURAL RENDERING SITE PLAN BUILDING "J"]
<PAGE> 93
[ARCHITECTURAL RENDERING SITE PLAN BUILDING "J"]
<PAGE> 94
EXHIBIT E
MEMORANDUM OF LEASE
RECORDING REQUESTED BY, AND
WHEN RECORDED, RETURN TO:
Brobeck, Phleger & Harrison
550 West C Street, Suite 1300
San Diego, California 92101
Attention: Todd J. Anson, Esq.
THIS MEMORANDUM OF LEASE ("Memorandum of Lease") is executed as of May
___, 1995, by and between SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"), AS
TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN SUMITOMO
BANK LEASING AND FINANCE, INC. AND SBNYTC ("Landlord"), and CISCO SYSTEMS, INC.,
a California corporation ("Tenant").
RECITALS
WHEREAS, Landlord and Tenant have executed that certain lease ("Lease")
dated as of May ___, 1995, covering certain improvements ("Premises") which may
come to be located on the real property located in the County of Santa Clara,
State of California and more particularly described in Schedule 1 attached
hereto and incorporated herein by this reference ("Land"); and
WHEREAS, Landlord and Tenant desire to record notice of the Lease in
the real estate records of Santa Clara County, California;
NOW, THEREFORE, in consideration of the foregoing, Landlord and Tenant
hereby declare as follows:
1. DEMISE. Landlord hereby leases the Premises to Tenant and Tenant
hereby leases the Premises from Landlord, subject to the terms, covenants and
conditions contained in the Lease. The Premises leased to Tenant pursuant to the
Lease consists of the Improvements described in Paragraph 5 below, and does not
include the Land.
2. EXPIRATION DATE. The term of the Lease ("Term") shall commence on
May ___, 1995 and shall expire five (5) years thereafter, subject to Tenant's
option to extend the Term pursuant to Section 4.2 of the Lease for one (1)
period of five (5) years.
EXHIBIT E
1.
<PAGE> 95
3. OPTION TO PURCHASE. Tenant has an option to purchase the Premises,
as more particularly described in the Lease, during the Term, as it may be
extended.
4. RESTRICTIONS ON ENCUMBRANCES. Landlord is prohibited from recording
against the Premises liens (including, without limitation, deeds of trust),
encumbrances, and other matters that would constitute exceptions to title, and
from amending or modifying any of the foregoing that may exist now or during the
Term, as more particularly described in the Lease, and any such encumbrance or
modification of an encumbrance not authorized in writing by Tenant shall be null
and void.
5. OWNERSHIP OF CERTAIN IMPROVEMENTS. By virtue of Tenant's rights
under that certain Ground Lease between Tenant and Irish Leasing Corporation, a
Texas corporation, dated February 28, 1995, Tenant hereby grants to Landlord the
right to own and construct the improvements which Tenant may elect, as
construction agent for Landlord, to erect, construct or situate upon the Land or
any part thereof during the Term under and pursuant to the terms of, and using
funding provided by or through Landlord pursuant to Article 11 of the Lease
("Improvements"), and Tenant hereby grants, conveys and transfers to Landlord
all of Tenant's right, title and interest in and to the Improvements (whether
now existing or hereafter constructed), and Tenant agrees that any and all such
Improvements shall be and remain the property of Landlord, subject to Tenant's
rights to purchase the Improvements under Section 19 of the Lease (with
Landlord's agreement that Tenant's purchase rights contemplated under Section 19
of the Lease reflect the primary intent of the parties to the Lease is to treat
the Lease as an operating Lease for financial accounting and securities
regulatory purposes and as a financing arrangement for all federal, state and
local income tax, property tax valuation and other tax purposes).
6. COUNTERPARTS. This Memorandum of Lease may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall comprise but a single instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
EXHIBIT E
2.
<PAGE> 96
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum
of Lease as of the date and year first written above.
"LANDLORD"
SUMITOMO BANK OF NEW YORK TRUST COMPANY
("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN
TRUST AGREEMENT DATED MAY 22, 1995 BETWEEN
SUMITOMO BANK LEASING AND FINANCE, INC.
AND SBNYTC
By: ___________________________
Name:___________________________
Its: ___________________________
STATE OF __________________ )
) ss
COUNTY OF _________________ )
On _____________, before me, ______________________, Notary Public, personally
appeared _______________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
_________________________________
Signature
[SEAL]
[SIGNATURES CONTINUED ON NEXT PAGE]
EXHIBIT E
3.
<PAGE> 97
"TENANT"
CISCO SYSTEMS, INC.
A CALIFORNIA CORPORATION
By: ______________________________
Name:_________________________
Its: _________________________
STATE OF __________________ )
) ss
COUNTY OF _________________ )
On _____________, before me, ______________________, Notary Public, personally
appeared _______________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
___________________________________
Signature
[SEAL]
EXHIBIT E
4.
<PAGE> 98
SCHEDULE 1 TO EXHIBIT E
LEGAL DESCRIPTION
The Premises are described as follows:
REAL PROPERTY in the City of San Jose, County of Santa Clara, State of
California, described as follows:
All of Parcel 2, as shown on that certain Map filed for record in the office of
the Recorder of the County of Santa Clara, State of California on July 13, 1983,
in Book 514 of Maps page(s) 47 and 48.
APN: 97-53-14
All of Lot 54 as shown upon that certain Map entitled, "Tract No. 7559", which
Map was filed for record in the Office of the Recorder of the County of Santa
Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages 49
and 50.
APN: 97-53-23
SCHEDULE 1 TO EXHIBIT E
<PAGE> 99
EXHIBIT F
FORM OF CONTRACTOR'S CERTIFICATE
EXHIBIT F
1.
<PAGE> 100
APPLICATION AND CERTIFICATE FOR PAYMENT
AIA DOCUMENT G702 (Instructions on reverse side) PAGE ONE OF PAGES
- --------------------------------------------------------------------------------
TO OWNER: PROJECT: APPLICATION NO: Distribution to:
PERIOD TO: / / OWNER
PROJECT NOS.: / / ARCHITECT
/ / CONTRACTOR
FROM CONTRACTOR: VIA ARCHITECT: CONTRACT DATE: / /
/ /
CONTRACT FOR:
- --------------------------------------------------------------------------------
CONTRACTOR'S APPLICATION FOR PAYMENT
Application is made for payment, as shown below, in connection with the
Contract. Continuation Sheet, AIA Document G703, is attached.
<TABLE>
<S> <C> <C>
1. ORIGINAL CONTRACT SUM..................................... $
---------------
2. NET CHANGE BY CHANGE ORDERS............................... $
---------------
3. CONTRACT SUM TO DATE (Line 1 plus or minus 2)............. $
---------------
4. TOTAL COMPLETED & STORED TO DATE.......................... $
(Column G on G703) ---------------
5. RETAINAGE:
a % of Completed Work (Columns D plus E on G703) $
-------- ---------------
b % of Stored Material (Column F on G703) $
-------- ---------------
Total Retainage
(Line 5a plus 5b or Total in Column 1 of G703)............ $
---------------
6. TOTAL EARNED LESS RETAINAGE............................... $
(Line 4 less Line 5 Total) ---------------
7. LESS PREVIOUS CERTIFICATES FOR PAYMENT
(Line 6 from prior Certificate)........................... $
---------------
8. CURRENT PAYMENT DUE....................................... $
===============
9. BALANCE TO FINISH, INCLUDING RETAINAGE
(Line 3 less Line 6) $
---------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CHANGE ORDER SUMMARY ADDITIONS DEDUCTIONS
- --------------------------------------------------------------------------------
<S> <C> <C>
Total changes approved in
previous months by Owner
- --------------------------------------------------------------------------------
Total approved this Month
- --------------------------------------------------------------------------------
TOTALS
- --------------------------------------------------------------------------------
NET CHANGES by Change Order
- --------------------------------------------------------------------------------
</TABLE>
The undersigned Contractor certifies that to the best of the Contractor's
knowledge, information and belief the Work covered by this Application for
Payment has been completed in accordance with the Contract Documents, that all
amounts have been paid by the Contractor for Work for which previous
Certificates for Payment were issued and payments received from the Owner, and
that current payment shown herein is now due.
CONTRACTOR:
By: Date:
------------------------------ --------------------------------
State of:
County of:
Subscribed and sworn to before me this day of
Notary Public:
My Commission expires:
- --------------------------------------------------------------------------------
ARCHITECT'S CERTIFICATE FOR PAYMENT
In accordance with the Contract Documents, based on on-site observations and the
data comprising this application, the Architect certifies to the Owner that to
the best of the Architect's knowledge, information and belief the Work has
progressed as indicated, the quality of the Work is in accordance with the
Contract Documents, and the Contractor is entitled to payment of the AMOUNT
CERTIFIED.
AMOUNT CERTIFIED................................... $
-----------------------
(Attach explanation if amount certified differs from the amount applied for.
Initial all figures on this Application and on the Continuation Sheet that are
changed to conform to the amount certified.)
ARCHITECT:
By: Date:
------------------------------ --------------------------------
This Certificate is not negotiable. The AMOUNT CERTIFIED is payable only to the
Contractor named herein. Issuance, payment and acceptance of payment are
without prejudice to any rights of the Owner or Contractor under this Contract.
- --------------------------------------------------------------------------------
AIA DOCUMENT G702
APPLICATION AND CERTIFICATE FOR PAYMENT
1992 EDITION
AIA(R)
Copyright 1992
AMERICAN INSTITUTE OF ARCHITECTS
1735 NEW YORK AVENUE, N.W.
WASHINGTON, D.C. 20006-5292
WARNING: UNLICENSED PHOTOCOPYING VIOLATES U.S. COPYRIGHT LAWS AND WILL SUBJECT
THE VIOLATOR TO LEGAL PROSECUTION.
G702/92
<PAGE> 101
EXHIBIT G
INITIAL ADVANCE MEMORANDUM
THIS INITIAL ADVANCE MEMORANDUM ("Memorandum") is entered into
this ___ day of __________, 199_, by and between SUMITOMO BANK OF NEW YORK
TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED
MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC
("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant")
concerning that certain Lease ("Lease") between Landlord and Tenant dated May
22, 1995. Any capitalized terms not defined in this Memorandum shall have the
meaning as defined in the Lease.
1. Pursuant to Section 5.6 of the Lease, Landlord and
Tenant are required to enter into this Memorandum within thirty (30) days after
the initial Advance for the foundation of any Building and within thirty (30)
days after the initial Advance under the Lease.
2. Landlord and Tenant agree that this Memorandum reflects
initial Advances that were made for the following Building(s): ________________
_______________________________________________.
3. Landlord and Tenant agree that the amount(s) of the
initial Advances is (are) as follows (allocated on a Building-by-Building
basis, if this Memorandum reflects Advances for more than one Building): ______
__________________________________________________________________.
4. Landlord and Tenant agree that the Guaranteed Residual
Value for the Building(s) described in Paragraph 2 is _____% of
___________________ (the total Funded Amount for the Building(s)).
5. Landlord and Tenant agree that the estimated Funded
Amount, determined by Tenant pursuant to Section 5.5 of the Lease, is
$______________________.
6. Landlord and Tenant agree that, pursuant to Section 5.7
of the Lease, the Security Deposit to be held by Landlord pursuant to the Lease
is $______________________.
[Remainder of This Page Intentionally Left Blank]
EXHIBIT G
1.
<PAGE> 102
[SIGNATURE PAGE TO INITIAL ADVANCE MEMORANDUM]
IN WITNESS WHEREOF, the parties have executed this Memorandum as
of the date and year first above written.
"LANDLORD"
SUMITOMO BANK OF NEW YORK TRUST COMPANY
("SBNYTC"), AS TRUSTEE UNDER THAT
CERTAIN TRUST AGREEMENT DATED MAY 22,
1995 BETWEEN SUMITOMO BANK LEASING AND
FINANCE, INC. AND SBNYTC
By: __________________________________
Name:__________________________________
Its: __________________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
EXHIBIT G
2.
<PAGE> 103
[SIGNATURE PAGE TO INITIAL ADVANCE MEMORANDUM]
"TENANT"
CISCO SYSTEMS, INC.,
a California corporation
By:___________________________
Name:_________________________
Its: _________________________
EXHIBIT G
3.
<PAGE> 104
EXHIBIT H
RENT COMMENCEMENT DATE MEMORANDUM
THIS RENT COMMENCEMENT DATE MEMORANDUM ("Memorandum") is entered
into this ___ day of _______, 199_, by and between SUMITOMO BANK OF NEW YORK
TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED
MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC
("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant")
concerning that certain Lease (Buildings "I" and "J") ("Lease") between
Landlord and Tenant dated May 22, 1995. Any capitalized terms not defined in
this Memorandum shall have their meaning as defined in the Lease.
1. Pursuant to Section 5.6 of the Lease, Landlord and
Tenant are required to enter into this Memorandum within thirty (30) days after
the Rent Commencement Date for any Building.
2. Landlord and Tenant agree the that Rent Commencement
Date for the Building described as follows _______________________, is
___________ ___, 199_.
3. The dollar value of the Funded Amount (defined in
Section 2.24 of the Lease) for the Building described in paragraph 2 is
$______________________.
4. The dollar value of the Landlord's Equity Contribution
(defined in Section 2.17 of the Lease) for the Building described in paragraph
2 above is _____% of $___________________________, (i.e., $__________________).
5. The dollar value of the Guaranteed Residual Value
(defined in Section 2.25 of the Lease) for the Building described in paragraph
2 above is ____% of $_____________________ (i.e. $____________________________).
6. Landlord and Tenant agree that, pursuant to Section 5.7
of the Lease, the Security Deposit held by Landlord pursuant to the Lease shall
be in the amount of $______________________ as of the Rent Commencement Date.
[Remainder of This Page Intentionally Left Blank]
EXHIBIT H
1.
<PAGE> 105
IN WITNESS WHEREOF, the parties have executed this Memorandum as
of the date and year first above written.
"LANDLORD"
SUMITOMO BANK OF NEW YORK TRUST COMPANY
("SBNYTC"), AS TRUSTEE UNDER THAT
CERTAIN TRUST AGREEMENT DATED MAY 22,
1995 BETWEEN SUMITOMO BANK LEASING AND
FINANCE, INC. AND SBNYTC
By: _________________________________
Name:_________________________________
Its: _________________________________
[SIGNATURES CONTINUED ON NEXT PAGE]
EXHIBIT H
<PAGE> 106
[SIGNATURE PAGE TO RENT COMMENCEMENT DATE MEMORANDUM]
"TENANT"
CISCO SYSTEMS, INC.,
A CALIFORNIA CORPORATION
By: ___________________________
Name:___________________________
Its: ___________________________
EXHIBIT H
<PAGE> 107
EXHIBIT I
DRAW REQUEST FORM
THIS DRAW REQUEST ("Draw Request") is submitted by CISCO
SYSTEMS, INC., a California corporation ("Tenant") to SUMITOMO BANK OF NEW YORK
TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED
MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC
("Landlord"), pursuant to Article 11 of that certain Lease (Buildings "I" and
"J") between Landlord and Tenant dated May 22, 1995. Any capitalized terms not
defined in this Draw Request shall have their meaning as defined in the Lease.
Pursuant to the terms of Article 11 of the Lease, Tenant hereby
makes a Draw Request for an Advance from Landlord. The Aggregate of the amount
of the Advance requested by Tenant pursuant to this Draw Request is
$_________________________.
Tenant hereby instructs Landlord to make this Advance to the
parties and in the amounts described below:
<TABLE>
<CAPTION>
Name of Entity Amount
-------------- ------
<S> <C>
</TABLE>
[ADD ADDITIONAL SHEET, IF NECESSARY, TO DESCRIBE ALL
ENTITIES TO RECEIVE A PORTION OF THIS ADVANCE AND THE AMOUNT TO BE PAID TO EACH
SUCH ENTITY.]
IN WITNESS WHEREOF, Tenant has executed this Draw Request as of
the date and year first above written.
"TENANT"
CISCO SYSTEMS, INC.,
a California corporation
By: _______________________
Name:_______________________
Its: _______________________
EXHIBIT I
1.
<PAGE> 108
EXHIBIT J
CLOSING COSTS AND FEES TO BE
INCLUDED IN FUNDED AMOUNT
The following items shall be included in the definition of the
Funded Amount under Section 2.24 of the Lease:
Fees and costs which are
specifically authorized
by Tenant in writing to be
included in the Funded Amount
EXHIBIT J
1.
<PAGE> 109
EXHIBIT K
NOTICE OF INTEREST RATE PERIOD SELECTION
Pursuant to Section 5.1(d) of those certain Leases by and
between Sumitomo Bank of New York Trust Company, ("SBNYTC"), as trustee under
that certain trust agreement dated May 22, 1995 between Sumitomo Bank Leasing
and Finance, Inc. and SBNYTC ("SB Trust"), as Landlord, and Cisco Systems,
Inc., a California corporation ("Cisco"), as Tenant, dated as of May 22, 1995,
Cisco hereby gives notice to SB Trust of its designation of the Loan interest
period as set forth below:
Effective Date Interest Period
-------------- ---------------
_____________, ____ _____ month(s)
This Notice of Borrowing is dated this ___ day of _______,
_____, and may be executed in multiple copies, each of which shall be deemed an
original, and all of which together shall be but a single Notice.
"CISCO"
CISCO SYSTEMS, INC.,
a California corporation
By:_________________________
Title:______________________
By:_________________________
Title:______________________
EXHIBIT K
<PAGE> 110
EXHIBIT L
DESCRIPTION OF ADDITIONAL PROPERTY OWNED BY LANDLORD
REAL PROPERTY in the City of San Jose, County of Santa Clara, State of
California, described as follows:
Lots 58 and 59, as shown upon that certain map entitled, "Tract No. 7559",
which Map was filed for record in the office of the Recorder of the County of
Santa Clara, on December 21, 1983 in Book 522 of Maps, at pages 49 and 50.
APN: 97-53-18,22
Lot 50, as shown on that certain Map entitled, "Tract No. 7560," which Map was
filed for record in the office of the Recorder of the County of Santa Clara,
State of California on December 21, 1983 in Book 522 of Maps, pages 51 and 52.
Reserving therefrom a perpetual right and easement to construct, install,
maintain, repair, renew, replace, operate and use a surface drainage release to
benefit Lot 49 of Tract 7560, as contained in that certain Grant of Easement
recorded August 8, 1990 in Book L443, page 0754, Official Records, and
described as follows:
The Northwesterly 10.00 feet of the Southeasterly 30.00 feet and the
Northwesterly 100.00 feet of the Southeasterly 130.00 feet of the Northeasterly
10.00 feet of Lot 50.
That portion of Lot 51, as shown on that certain Map entitled, "Tract No.
7560," which Map was filed for record in the office of the Recorder of the
County of Santa Clara, State of California on December 21, 1983 in Book 522 of
Maps, pages 51 and 52, being more particularly described as follows:
Beginning at the Southeasterly corner of said Lot 51; thence along the
Southerly line of said Lot 51, S. 59 degrees 27 minutes 51 seconds W. 77.00
feet; thence N. 14 degrees 27 minutes 48 seconds E. 108.90 feet to the
Northeasterly line of said Lot 51; thence along said Northeasterly line S.
30 degrees 32 minutes 09 seconds E. 77.00 feet to the point of beginning, as
provided for in that certain Lot Line Adjustment granted by the Director of
Planning of the City of San Jose, a copy of which was recorded March 28, 1984
in the office of the Recorder of the County of Santa Clara in Book I410, page
712 of Official Records.
Lot 5 and 6, as shown on that certain Map of Tract No. 7408, which map was
filed for record in the office of the Recorder of the County of Santa Clara,
State of California on November 19, 1982 in Book 506 of Maps, pages 24, 25 and
26 and a portion of that certain parcel of land described in the deed recorded
December 22, 1972 in Book 0167, page 623, all as approved by that Lot
Combination recorded September 16, 1992 in Book M381 of Maps, page(s) 0081,
Official Records, more particularly described as follows:
EXHIBIT L
<PAGE> 111
Beginning at a point on the Northeasterly line of Rio Robles, as shown upon
said map, at the most Southerly corner of said Lot 5; thence along said
Northeasterly line of Rio Robles, N. 30 degrees 32 minutes 09 seconds
W. 105.50 feet; thence on a tangent curve to the right, having a radius of
367.00 feet, through a central angle of 36 degrees 30 minutes 00 seconds an
arc distance of 233.80 feet; thence on a curve to the right, tangent to the
previous curve, having a radius of 50.00 feet, through a central angle of
86 degrees 01 minutes 50 seconds an arc distance of 75.08 feet to the Southerly
line of Tasman Drive as shown upon said map; thence along said line on a curve
to the left, tangent to the previous curve, having a radius of 1149.00 feet,
through a central angle of 32 degrees 31 minutes 01 seconds an arc distance of
652.09 feet; thence N. 59 degrees 28 minutes 40 seconds E. 600.40 feet; thence
on a tangent curve to the right, having a radius of 33.00 feet, through a
central angle of 89 degrees 51 minutes 11 seconds an arc distance of
51.83 feet to the Southwesterly line of First Street, as shown upon said map;
thence along said line, S. 30 degrees 32 minutes 09 seconds E. 261.38 feet to
the Northwesterly line of the lands of the City and County of San Francisco,
as shown upon said map; thence along said line of the lands of the City and
the County of San Francisco, S. 65 degrees 09 minutes 27 seconds W.
1396.95 feet to the point of beginning.
Those rights as contained in that certain Grant Deed executed by Masami Ezaki
and Kaoru Ezaki, his wife in favor of the City and County of San Francisco, a
municipal corporation recorded December 8, 1950 in Book 2111, page 319,
Official Records.
A strip of land 80 feet wide, lying 40 feet either side of the following
described line and extensions thereto, across that certain parcel of land
conveyed by Charles Nelson, et ux, to Masami Ezaki by Grant Deed dated February
27, 1936 and recorded March 11, 1936, in Volume No. 765, at page 262, Official
Records, Santa Clara County, hereinafter referred to as the Ezaki Parcel, said
line being more particularly described as commencing at a point in the Westerly
boundary of the existing San Jose-Alviso Road, said point being distant along
said boundary South 30 degrees 32 minutes 30 seconds East 381.31 feet from its
intersection with the Northerly boundary of the above mentioned Ezaki Parcel;
thence, from said point of commencement, South 65 degrees 08 minutes 00 seconds
West 1459.03 feet to a point in the common boundary between the above mentioned
Ezaki Parcel and that certain parcel of land conveyed by Lena Lindgren, et al,
to James A. Pankoski, et ux, by Joint Tenancy Deed dated November 13, 1944
and recorded November 17, 1944 in Volume No. 1227 at Page 327, Official
Records, Santa Clara County, hereinafter referred to as the Pankoski Parcel,
said point being distant along said common boundary South 30 degrees 32 minutes
30 seconds East 237.04 feet from the most Westerly corner of the above
mentioned Ezaki Parcel; the Easterly end of said strip being the above
mentioned Westerly boundary of the San Jose-Alviso Road, and the Westerly
end of said strip being the above mentioned common boundary between the
Pankoski and Ezaki Parcels.
EXHIBIT L
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.30
<SEQUENCE>4
<DESCRIPTION>FIRST AMENDMENT TO LEASE I AND J
<TEXT>
<PAGE> 1
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered
into as of this 18th day of July, 1995, by and between SUMITOMO BANK OF NEW
YORK TRUST COMPANY, ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT
DATED MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC
("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant").
THIS FIRST AMENDMENT IS ENTERED INTO upon the basis of the following
facts, understandings and intentions.
RECITALS
A. Landlord and Tenant entered into that certain Lease (Buildings
"I" and "J") dated May 22, 1995 ("Lease"), pursuant to which Landlord is
leasing to Tenant the improvements which Tenant may elect to construct
("Premises"), as agent for Landlord, on that certain land located in San Jose,
California, as more particularly described in the Lease and on Exhibit A
attached hereto and incorporated herein by this reference. Any capitalized
terms used but not defined in this First Amendment which are defined in the
Lease shall have the meaning ascribed in the Lease.
B. Landlord and Tenant now desire to amend the terms of the
Lease, as more particularly described in this First Amendment.
NOW THEREFORE, the parties hereto agree as follows:
1. Capitalized Interest. Section 2.9 of the Lease is hereby
amended to add the following sentence at the end of the Section:
During the Construction Period for a Building or phase of
Buildings, Capitalized Interest for such Building or phase of
Buildings shall be calculated using the Construction Period
Monthly Calculation set forth in Section 2.43.
2. Monthly Calculation. Section 2.43 of the Lease is hereby
amended to add the following sentence at the end of the Section:
During the Construction Period for a Building or phase of
Buildings, "Monthly Calculation" shall mean the quotient
resulting from dividing three hundred sixty (360) by the
number of days in the applicable Rent Period. The applicable
Rent Period shall begin on the twentieth day of the calendar
month for which this Construction Period Monthly Calculation
is being calculated and shall be for a period equal to the
number of days in such calendar month.
<PAGE> 2
3. Rent Period. Section 2.57 of the Lease is hereby deleted, and
is replaced with the following:
2.57 Rent Period. "Rent Period" shall mean each period
equal to one calendar month occurring during the Term hereof,
except that: (a) the first Rent Period shall be a partial
calendar month commencing on the date of disbursement of the
initial proceeds hereof and ending on July 2, 1995, (b) the
second Rent Period shall be a partial calendar month
commencing on July 3, 1995 and ending on July 19, 1995; (c)
Commencing July 20, 1995 and ending on the nineteenth day of
the last calendar month of the Construction Period, the Rent
Period shall commence on the twentieth day of each calendar
month and end on the nineteenth day of the subsequent calendar
month; (d) the Rent Period preceding the Rent Commencement
Date shall be a partial calendar month commencing on the
twentieth day of the last calendar month of the Construction
Period and ending on the last day of such calendar month; and
(e) the last Rent Period shall be a partial calendar month
commencing on the first LIBOR Business Day of the last
calendar month of the Term and ending on the last day of the
Term.
4. Timing and Method of Disbursement. Section 11.6(a) of the
Lease is hereby deleted, and is replaced with the following:
(a) Timing and Method of Disbursement. Advances
to be made hereunder shall not be made more frequently than
monthly. For any calendar month during which Tenant desires
to receive an Advance, Tenant shall submit a Draw Request on
or before the fifteenth day of such month, and if Tenant
submits such Draw Request by such date, then Landlord shall,
subject to the conditions to funding described in Sections
11.3, 11.4 and 11.5, make the Advance as requested in such
Draw Request to the party(ies) designated by Tenant on the
twentieth day of such month, or the next LIBOR Business Day if
the twentieth day of such month is not a LIBOR Business Day
("Advance Date"). The Advances shall be made to parties
identified by Tenant, which parties may include Tenant. At
the option of Tenant, Landlord shall make such Advances to one
(1) or more parties.
5. Counterparts. This First Amendment may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall comprise but a single instrument.
6. Existing Lease. Except to the extent specifically amended
hereby, all terms and conditions of the Lease remain in full force and effect.
-2-
<PAGE> 3
[SIGNATURE PAGE TO FIRST AMENDMENT TO LEASE]
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the date and year first above written.
"LANDLORD"
SUMITOMO BANK OF NEW YORK TRUST
COMPANY ("SBNYTC"), AS TRUSTEE UNDER
THAT CERTAIN TRUST AGREEMENT DATED
MAY 22, 1995 BETWEEN SUMITOMO BANK
LEASING AND FINANCE, INC. AND SBNYTC
By: [LARRY McFADDEN]
-------------------------------
Name: [LARRY F. McFADDEN]
-------------------------------
Its: [VICE PRESIDENT AND TREASURER]
-------------------------------
[SIGNATURES CONTINUED ON NEXT PAGE]
-3-
<PAGE> 4
[SIGNATURE PAGE TO RENT FIRST AMENDMENT TO LEASE]
"TENANT"
CISCO SYSTEMS, INC.,
A CALIFORNIA CORPORATION
By: [NANCY BAREILLES]
-----------------------------
Name: [NANCY BAREILLES]
----------------------------
By:
----------------------------
Name:
----------------------
Its:
----------------------
-4-
<PAGE> 5
EXHIBIT A
DESCRIPTION OF LAND
REAL PROPERTY in the City of San Jose, County of Santa Clara, State of
California, described as follows:
All of Parcel 2, as shown on that certain Map filed for record in the office of
the Recorder of the County of Santa Clara, State of California on July 13,
1983, in Book 514 of Maps page(s) 47 and 48.
APN: 97-53-14
All of Lot 54 as shown upon that certain Map entitled, "Tract No. 7559", which
Map was filed for record in the Office of the Recorder of the County of Santa
Clara, State of California on December 21, 1983 in Book 522 of Maps, at pages
49 and 50.
APN: 97-53-23
EXHIBIT A
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.31
<SEQUENCE>5
<DESCRIPTION>LEASE K AND L 5/22/95
<TEXT>
<PAGE> 1
LEASE
(BUILDINGS "K" AND "L")
By and Between
SUMITOMO BANK OF NEW YORK TRUST COMPANY ("SBNYTC"),
AS TRUSTEE
UNDER THAT CERTAIN TRUST AGREEMENT
DATED MAY 22, 1995
BETWEEN
SUMITOMO BANK LEASING AND FINANCE, INC. AND SBNYTC
as Landlord
and
CISCO SYSTEMS, INC.,
A CALIFORNIA CORPORATION
as Tenant
for
Premises located in
San Jose, California
THIS LEASE IS NOT INTENDED TO CONSTITUTE A TRUE LEASE
FOR INCOME TAX PURPOSES. SEE SECTION 21.2
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Date of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 Addresses for Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 Address for Rent Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Approval Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Authorized Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Authorized Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Building Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Capitalized Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Construction Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Coverage Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.15 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.16 Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.17 Equity Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.18 Equity Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.19 Equity Rent Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.20 Event of Major Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.21 Extension Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.22 Extension Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.23 Fee Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.24 Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.25 Guaranteed Residual Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.26 HSBC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.27 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.28 Improvements Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.29 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.30 ILC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.31 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.32 Land Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.33 Land Lease Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.34 Land Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.35 Landlord Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.36 Landlord Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.37 Lease Inception Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i.
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<TABLE>
<S> <C>
2.38 Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.39 Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.40 Lenders Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.41 LIBOR Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.42 LIBOR Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.43 Monthly Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.44 Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.45 Mortgagee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.46 New Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.47 Nominal Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.48 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.49 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.50 Official Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.51 Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.52 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.53 Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.54 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.55 Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.56 Rent Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.57 Rent Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.58 Required Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.59 SBNYTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.60 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.61 Senior Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.62 Senior Rent Component . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.63 Site Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.64 Sumitomo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.65 Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.66 Tenant Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.67 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 3 DEMISE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 4 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Initial Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Extension Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 5 RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Proration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.3 No Abatement of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.4 Delinquent Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Equity Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Exhibits Reflecting Initial Advance and Rent Commencement Date . . . . . . . . . . . . . . . . . . . . . 17
5.7 Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.8 Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 6 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Real Estate Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Personal Property Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Right to Contest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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6.4 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.5 Additional Provisions Relating to Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 7 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2 Builders' Risk Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.3 All-Risk Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.4 General Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.5 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.6 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 8 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.1 Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.2 Contest of Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 9 UTILITIES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.1 Services to the Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 10 MAINTENANCE AND REPAIRS; SURRENDER OF THE PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.1 Tenant Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.2 Surrender of the Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 11 CONSTRUCTION OF IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1 Tenant's Rights to Construct Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.2 Request for Construction Funding; Landlord Obligation to Fund . . . . . . . . . . . . . . . . . . . . . . 30
11.3 Conditions Precedent to Landlord's Obligation to Fund Initial Advances . . . . . . . . . . . . . . . . . 30
11.4 Conditions Precedent to Landlord's Obligation to Fund Subsequent Advances . . . . . . . . . . . . . . . . 33
11.5 Conditions Precedent to Landlord's Obligation to Fund Final Advance . . . . . . . . . . . . . . . . . . . 34
11.6 Additional Provisions Regarding Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.7 Required Permits, Easements, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.8 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.9 Title to and Nature of Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.10 Tenant as Landlord's Construction Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.11 Tenant's Release of Funding Commitment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 12 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 13 ASSIGNMENT BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
13.1 Further Mortgages or Encumbrances by Landlord; Authorized Loans . . . . . . . . . . . . . . . . . . . . . 36
13.2 Landlord's Right to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
13.3 Transfer of Funds and Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 14 ASSIGNMENT AND SUBLEASING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
14.1 Right to Assign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
14.2 Right to Sublet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
14.3 Tenant's Right to Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
iii.
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<TABLE>
<S> <C>
ARTICLE 15 EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
15.1 Total or Substantial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
15.2 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
15.3 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
15.4 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
15.5 Notice and Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 16 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.1 Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.2 Termination of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.3 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 17 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
17.1 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
17.2 Event of Major Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
17.3 Contest by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
17.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
17.5 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.6 Effect of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
17.7 Landlord Cure Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.8 Landlord's Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 18 QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE 19 TENANT'S OPTION TO PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
19.1 Option To Purchase Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
19.2 Mandatory Purchase/Sale of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
19.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE 20 ADDITIONAL COVENANTS OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
20.1 Title and Subdivision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
20.2 Land Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
20.3 Transfer of Property Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
20.4 Trust Equity; No Other Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
20.5 Default Under Authorized Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 21 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
21.1 Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
21.2 Form of Transaction; Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
21.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
21.4 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
21.5 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
21.6 Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
21.7 Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
21.8 Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
21.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
21.10 Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
21.11 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
21.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
21.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
21.14 Time Is of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
21.15 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
21.16 Limitations on Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
21.17 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
iv.
<PAGE> 6
<TABLE>
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21.18 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
21.19 Landlord's Continuing Obligation to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
21.20 As-Is Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
21.21 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
21.22 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
21.23 Appraisal Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
21.24 Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
21.25 Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
List of Exhibits
<TABLE>
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Exhibit A Description of Land
Exhibit B Permitted Exceptions
Exhibit C Site Plan
Exhibit D Pre-Approved Approval Plans
Exhibit E Memorandum of Lease
Exhibit F Form of Contractor's Certificate
Exhibit G Initial Advance Memorandum
Exhibit H Rent Commencement Date Memorandum
Exhibit I Draw Request Form
Exhibit J Closing Costs and Fees to be Included in Funded Amount
Exhibit K Notice of Interest Rate Period Selection
Exhibit L Description of Additional Property Owned by Landlord
</TABLE>
v.
<PAGE> 7
LEASE
THIS LEASE ("Lease") by and between SUMITOMO BANK OF NEW YORK
TRUST COMPANY ("SBNYTC"), AS TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT DATED
MAY 22, 1995 BETWEEN SUMITOMO BANK LEASING AND FINANCE, INC., AND SBNYTC
("Landlord"), and CISCO SYSTEMS, INC., a California corporation ("Tenant"), is
entered into as of the date set forth in Article 1 and shall be effective and
binding upon the parties hereto as of such date. Capitalized terms used in
this Lease shall have the definitions set forth in Article 2 or in the text of
this Lease.
In consideration of the Base Rent reserved herein, and the
terms, covenants and conditions set forth below, Landlord and Tenant hereby
agree as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
1.1 DATE OF LEASE: May 22, 1995.
1.2 LANDLORD: Sumitomo Bank of New York Trust Company, ("SBNYTC"),
as trustee under that certain trust agreement dated
May 22, 1995 between Sumitomo Bank Leasing and
Finance, Inc. and SBNYTC.
1.3 TENANT: Cisco Systems, Inc., a California corporation.
1.4 LAND: That certain tract of land located in the City of
San Jose, Santa Clara County, California, consisting
of two (2) parcels and more particularly described
on Exhibit A attached hereto, together with all
easements, rights of way, appurtenances and other
rights and benefits belonging or pertaining to such
land. The Land does not include the Improvements.
Landlord makes no representations as to the accuracy
of the description of the Land.
1.5 PREMISES: The Improvements which Tenant may elect to
construct, as agent for Landlord, on the Land
pursuant to the terms of this Lease. The Premises
does not include any portion of the Land itself.
1.
<PAGE> 8
1.6 TERM: The initial term ("Initial Term") of this Lease
shall commence on the Date of Lease set forth in
Section 1.1 above and shall expire on May 21, 2000.
Subject to the Extension Conditions contained in
Section 4.2, upon at least ninety (90) days' prior
written notice to Landlord, Tenant may extend the
Initial Term for one (1) additional period of five
(5) years ("Extension Term"). The Initial Term and
(if exercised by Tenant) the Extension Term shall be
referred to collectively herein as the "Term." The
Term shall cease upon, and shall not refer to any
period of time after, termination of this Lease
(whether pursuant to the terms of the Lease, by
operation of law, or otherwise).
1.7 RENT COMMENCEMENT
DATE: Tenant's obligation to pay Base Rent shall commence
on a Building-by-Building basis. With respect to
any particular Building, the rent commencement date
("Rent Commencement Date") shall be the first LIBOR
Business Day of the next calendar month which
commences immediately following the earlier to occur
of: (a) the date Tenant receives from the
applicable governmental authority a final
Certificate of Occupancy for the Building in
question; or (b) eighteen (18) months following the
first Advance by Landlord for the foundation for the
Building in question. If Tenant shall elect to
construct certain Improvements in a phase of
Buildings, then on or before the Lease Inception
Date for such phase of Buildings, Landlord and
Tenant shall execute a memorandum of understanding
that construction is taking place on a phased basis,
and in that event, the Rent Commencement Date for
such phase of Buildings shall be the first LIBOR
Business Day of the next calendar month which
commences immediately following the earlier to occur
of: (i) the date Tenant receives a final Certificate
of Occupancy for the phase in question from the
applicable governmental authority; or
2.
<PAGE> 9
(ii) eighteen (18) months after the first Advance by
Landlord for the foundation for the phase in
question.
1.8 BASE RENT: As described in Section 2.6.
1.9 ADDRESSES FOR
NOTICES:
LANDLORD: TENANT:
Sumitomo Bank of New York Cisco Systems, Inc.
Trust Company Treasury Department
277 Park Avenue 3535 Garrett Drive
New York, NY 10172 Santa Clara, CA 95054
Attn: Corporate Trust Attention: Eugene Hill
Department
With a copy to: With a copy to:
Landels, Ripley & Diamond Cisco Systems, Inc.
Hills Plaza 3535 Garrett Drive
350 Steuart Street Santa Clara, CA 95054
San Francisco, CA 94105 Attention: Nancy Bareilles
Attn: Bruce W. Hyman, Esq.
and
Todd J. Anson, Esq.
Brobeck, Phleger & Harrison
550 West C Street
Suite 1300
San Diego, CA 92101
1.10 ADDRESS FOR RENT
PAYMENTS:
Equity Rent Component: Sumitomo Bank of New York
Trust Company
277 Park Avenue
New York, NY10172
Attn: Corporate Trust
Department
3.
<PAGE> 10
Senior Rent
Component: One half (1/2) of the Senior Rent Component (as
defined in Section 2.62) shall be payable at the
following address:
The Hongkong and Shanghai
Banking Corporation Limited
160 Sansome Street
San Francisco, CA 94104
Attn: Loan Administration
Department
and one half (1/2) of the Senior Rent Component (as
defined in Section 2.62) shall be payable at the
following address:
The Sumitomo Bank, Limited
555 California Street
Suite 3350
San Francisco, CA 94104
Attn: Mr. Dave Kubiak
This Article 1 is intended to supplement and/or summarize the
provisions set forth in the balance of this Lease. If there is any conflict
between any provisions contained in this Article 1 and the balance of this
Lease, the balance of this Lease shall control.
ARTICLE 2
DEFINITIONS
For purposes of this Lease, the following defined terms shall
have the meanings set forth in this Article 2.
2.1 ADDITIONAL RENT. "Additional Rent" shall mean any
amounts other than Base Rent payable by Tenant to Landlord or to other Entities
on Landlord's behalf as required under this Lease, including, without
limitation, interest accrued on past due Base Rent and on other past due
Additional Rent amounts owing to Landlord hereunder (including interest on the
past due amounts payable by Landlord to Lenders under the Improvements Loan, as
described in Section 21.21, excluding interest on interest) at the Default Rate
(to be compounded annually), costs and expenses to be paid or reimbursed by
Tenant hereunder (including any amounts which Tenant owes to Landlord pursuant
to the terms of Section 17.7 or Section 21.21), any charges, fees or other
amounts due under the Improvements Loan and any other Authorized Loan, amounts
due pursuant to Tenant's indemnity obligations hereunder, Real Estate Taxes,
Tenant's obligation to pay condemnation proceeds to Landlord pursuant to
Section 15.4, Tenant's obligation to pay insurance proceeds to Landlord
pursuant to Section 16.3, Tenant's obligation to pay the Purchase Price under
Section 19.2, and Tenant's obligation, if any, to pay the "Margin Increase" (as
defined in that certain side letter regarding "Management of Collateral
4.
<PAGE> 11
Account" between Tenant and HSBC, of even date herewith). Except as provided
in this Section, Additional Rent shall not include interest charged on
interest.
2.2 ADVANCE. "Advance" shall mean any payment by
Landlord for Improvements which has been requested by Tenant and paid pursuant
to the terms of Article 11.
2.3 APPROVAL PLANS. "Approval Plans" shall have the
meaning set forth in Section 11.3(c).
2.4 AUTHORIZED LOAN. "Authorized Loan" shall have the
meaning set forth in Section 13.1(b).
2.5 AUTHORIZED PLANS. "Authorized Plans" shall have the
meaning set forth in Section 11.3(c).
2.6 BASE RENT. "Base Rent" shall mean, as of a Rent
Payment Date, the sum of the following for any Building for which the Rent
Commencement Date has occurred: (1) the Senior Rent Component; and (2) the
Equity Rent Component.
2.7 BUILDING. "Building" shall mean any individual
building which constitutes an Improvement.
2.8 BUILDING LEASES. "Building Leases" shall mean this
Lease and those two (2) certain lease agreements by and between Landlord and
Tenant for premises located in San Jose, California, dated the date hereof,
collectively.
2.9 CAPITALIZED INTEREST. "Capitalized Interest" shall
mean: (1) the Senior Rent Component incurred by Landlord to Lenders under the
Notes on Advances during the construction of any Building or phase prior to the
Rent Commencement Date for such Building or phase; and (2) the Equity Rent
Component as a result of Advances made by Landlord pursuant to Section 5.5
during the construction of any Building or phase prior to the Rent Commencement
Date for such Building or phase.
2.10 COLLATERAL. "Collateral" shall have the meaning set
forth in Section 21.18.
2.11 CONSTRUCTION PERIOD. "Construction Period" for each
Building or phase shall mean that period beginning on the date of the first
Advance for the foundation of the Building or phase and ending on the Rent
Commencement Date for the Building or phase.
2.12 CONTRACTOR. "Contractor" shall mean the general
contractor hired to construct any Improvements, which contractor shall be
selected by Tenant in Tenant's capacity as agent for Landlord, and shall be
subject to Landlord's approval, which shall not be unreasonably withheld or
delayed. Landlord hereby approves Devcon Construction, Inc.
5.
<PAGE> 12
2.13 COVERAGE TEST. "Coverage Test" shall mean a
requirement, wherever referenced in the Lease, that the fair market value of
the Land and the Improvements together be at least three (3) times the Equity
Funded Amount.
2.14 DEFAULT. "Default" shall have the meaning set forth
in Section 17.1.
2.15 DEFAULT RATE. "Default Rate" means that weighted
average of the interest rates of (i) the Senior Rent Component as set forth in
Section 2.62 and (ii) the Equity Rent Component set forth in Section 2.19, plus
two percent (2.0%), or the highest rate permitted by applicable law (if any),
whichever is less. Mathematically, the Default Rate shall be:
(3/86 X Equity Rent Component rate) + (83/86 X Senior Rent Component rate)+ 2%
Each change in the Default Rate due to a change in such interest rates under
the Notes shall take effect simultaneously with such change in such interest
rates, without Notice to either party. Notwithstanding the foregoing, in the
event that the foregoing Default Rate shall be in violation of any usury or
similar law, then the Default Rate shall be reduced to the extent necessary to
cause the Default Rate to comply with any usury or similar law.
2.16 ENTITY. "Entity" shall mean any person, corporation,
partnership (general or limited), joint venture, association, joint stock
company, trust or other business entity or organization.
2.17 EQUITY CONTRIBUTION. "Equity Contribution" shall
mean that portion of the Funded Amount equal to three percent (3%) of the
Funded Amount, which Landlord has paid as Landlord's equity contribution to the
Funded Amount (subject, however, to Tenant's adjusted Base Rent payments in the
forty-ninth (49th) and fiftieth (50th) months of the Term, as set forth in
Section 5.1(a) below).
2.18 EQUITY FUNDED AMOUNT. "Equity Funded Amount" shall
mean that portion of the Funded Amount equal to the amount which Landlord has
paid pursuant to the terms of Section 5.5. The Equity Funded Amount shall be
the sum of the Equity Contribution plus the Security Deposit. In no event
shall the Equity Funded Amount exceed the difference between the Funded Amount
minus the aggregate Guaranteed Residual Value. In no event shall the aggregate
of the Equity Funded Amounts of the Building Leases exceed Nineteen Million
Three Hundred Eighty Thousand Dollars ($19,380,000).
2.19 EQUITY RENT COMPONENT. "Equity Rent Component" shall
mean the quotient equal to the product of the Equity Contribution (at the time