UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NUMBER 1-8383
Mission West Properties, Inc.
(Exact name of registrant as specified in its charter)
Maryland 95-2635431
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10050 Bandley Drive
Cupertino, California 95014-2188
(Address of principal executive offices)
Registrant's telephone number, including area code is (408) 725-0700
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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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
17,467,329 shares outstanding as of August 13, 2002
- 1 -
Mission West Properties, Inc.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
INDEX
PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of June 30, 2002
and December 31, 2001 (unaudited)........................................................................3
Consolidated Statements of Operations for the three
and six months ended June 30, 2002 and 2001 (unaudited)..................................................4
Consolidated Statements of Cash Flows for the
six months ended June 30, 2002 and 2001 (unaudited)......................................................5
Notes to Consolidated Financial Statements...............................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk..............................................20
PART II OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders....................................................20
Item 6. Exhibits and Reports on Form 8-K.......................................................................21
SIGNATURES............................................................................................................21
- 2 -
PART I - FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS
MISSION WEST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
---------
June 30, 2002 December 31, 2001
---------------------- ----------------------
ASSETS
Real estate assets, at cost
Land $ 231,412 $ 218,058
Buildings 711,616 692,485
---------------------- ----------------------
943,028 910,543
Less accumulated depreciation (57,443) (49,608)
---------------------- ----------------------
Net real estate assets 885,585 860,935
Cash and cash equivalents 5,812 5,310
Restricted cash 2,721 15,435
Deferred rent 16,319 16,923
Other assets 10,781 11,652
---------------------- ----------------------
Total assets $ 921,218 $ 910,255
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit (related parties) $ 73,774 $ 79,887
Unsecured loan 20,000 -
Mortgage notes payable 126,413 127,416
Mortgage notes payable (related parties) 11,227 11,371
Interest payable 340 342
Security deposits 7,260 7,337
Prepaid rental income 16,129 12,470
Dividends/distributions payable 24,872 24,742
Refundable option payment - 18,836
Accounts payable and accrued expenses 5,329 4,367
---------------------- ----------------------
Total liabilities 285,344 286,768
Commitments and contingencies (Note 8)
Minority interest 525,092 515,063
Stockholders' equity:
Preferred stock, $.001 par value, 20,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.001 par value, 200,000,000 shares
authorized, 17,467,329 and 17,329,779 shares issued and
outstanding at June 30, 2002 and December 31, 2001,
respectively 17 17
Paid-in-capital 128,095 126,626
Accumulated deficit (17,330) (18,219)
---------------------- ----------------------
Total stockholders' equity 110,782 108,424
---------------------- ----------------------
Total liabilities and stockholders' equity $ 921,218 $ 910,255
====================== ======================
The accompanying notes are an integral part of these consolidated
financial statements.
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MISSION WEST PROPERTIES, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
---------
Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
-------------------- -------------------- -------------------- -------------------
Revenues:
Rental income from real estate $ 32,753 $ 31,654 $ 65,238 $ 61,333
Tenant reimbursements 4,875 3,756 10,201 7,245
Other income, including interest 278 825 774 1,340
-------------------- -------------------- -------------------- -------------------
Total revenues 37,906 36,235 76,213 69,918
-------------------- -------------------- -------------------- -------------------
Expenses:
Operating expenses 1,921 1,717 4,196 2,942
Real estate taxes 3,003 2,576 6,060 4,897
Depreciation of real estate 4,455 4,165 8,811 8,267
General and administrative 370 483 804 801
Interest 2,362 2,216 4,633 4,426
Interest (related parties) 899 1,163 1,909 2,463
-------------------- -------------------- -------------------- -------------------
Total expenses 13,010 12,320 26,413 23,796
-------------------- -------------------- -------------------- -------------------
Income before minority interest 24,896 23,915 49,800 46,122
Minority interest 20,823 19,932 41,591 38,439
-------------------- -------------------- -------------------- -------------------
Income from continuing operations 4,073 3,983 8,209 7,683
-------------------- -------------------- -------------------- -------------------
Discontinued operations:
Gain from disposal of discontinued operations - - 6,103 3,102
Gain from discontinued operations - - 287 -
-------------------- -------------------- -------------------- -------------------
Net gain from discontinued operations - - 6,390 3,102
-------------------- -------------------- -------------------- -------------------
Net income to minority interest $ 20,823 $ 19,932 $ 46,917 $ 41,022
==================== ==================== ==================== ===================
Net income to common stockholders $ 4,073 $ 3,983 $ 9,273 $ 8,202
==================== ==================== ==================== ===================
Income per share from continuing operations:
Basic $ 0.23 $ 0.23 $ 0.47 $ 0.45
==================== ==================== ==================== ===================
Diluted $ 0.23 $ 0.23 $ 0.46 $ 0.44
==================== ==================== ==================== ===================
Income per share from discontinued operations:
Basic - - - -
==================== ==================== ==================== ===================
Diluted - - - -
==================== ==================== ==================== ===================
Net income per share to common stockholders:
Basic $ 0.23 $ 0.23 $ 0.47 $ 0.45
==================== ==================== ==================== ===================
Diluted $ 0.23 $ 0.23 $ 0.46 $ 0.44
==================== ==================== ==================== ===================
Weighted average number of shares of
common stock outstanding (basic) 17,464,692 17,093,710 17,434,796 17,065,612
==================== ==================== ==================== ===================
Weighted average number of shares of
common stock outstanding (diluted) 17,902,853 17,308,601 17,878,483 17,293,484
==================== ==================== ==================== ===================
The accompanying notes are an integral part of these consolidated
financial statements.
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MISSION WEST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
---------
Six months ended June 30,
-------------------------------------
2002 2001
------------------ ------------------
Cash flows from operating activities:
Net income $ 9,273 $ 8,202
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest 46,917 41,022
Depreciation 8,857 8,267
Gain on sales of real estate (6,103) (3,102)
Other (19) 105
Changes in assets and liabilities:
Deferred rent 604 (4,327)
Other assets 870 (253)
Interest payable (2) (2)
Security deposits (77) 819
Prepaid rental income 3,659 650
Accounts payable and accrued expenses 690 93
------------------ ------------------
Net cash provided by operating activities 64,669 51,474
------------------ ------------------
Cash flows from investing activities:
Improvements to real estate assets (943) (324)
Refundable option payment (18,836) (1,000)
Real estate purchase (31,311) (23,130)
Proceeds from sales of real estate 18,591 23,130
Restricted cash 12,714 -
------------------ ------------------
Net cash used in investing activities (19,785) (1,324)
------------------ ------------------
Cash flows from financing activities:
Principal payments on mortgage notes payable (1,003) (3,671)
Principal payments on mortgage notes payable (related parties) (144) (133)
Net payments under line of credit (related parties) (13,613) (8,216)
Proceeds from unsecured loan 20,000 -
Financing costs (52) -
Proceeds from line of credit 5,000 -
Payment on line of credit (5,000) -
Proceeds from stock options exercised 151 457
Minority interest distributions (41,371) (31,078)
Dividends paid (8,350) (6,476)
------------------ ------------------
Net cash used in financing activities (44,382) (49,117)
------------------ ------------------
Net increase in cash and cash equivalents 502 1,033
Cash and cash equivalents, beginning 5,310 4,691
------------------ ------------------
Cash and cash equivalents, ending $ 5,812 $ 5,724
================== ==================
Supplemental information:
Cash paid for interest $ 6,379 $ 6,839
================== ==================
Supplemental schedule of non-cash investing and financing activities:
Debt incurred in connection with property acquisitions (related parties) $ 7,500 $ 22,973
================== ==================
Assumption of other liabilities in connection with property acquisitions $ 398 $ -
================== ==================
Issuance of operating partnership units in connection with property acquisitions $ 6,152 $ 17,442
================== ==================
The accompanying notes are an integral part of these consolidated
financial statements.
- 5 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share data)
(Unaudited)
---------
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Mission West Properties, Inc. and its controlled subsidiaries, including
the operating partnerships (the "Company"). All significant intercompany
balances have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Minority interest represents the separate private ownership of the
operating partnerships by the Berg Group (defined as Carl E. Berg, his
brother Clyde J. Berg, members of their respective immediate families, and
certain entities they control) and other non-affiliate interests. In total,
these interests account for approximately 83% of the ownership interests in
the real estate operations of the Company as of June 30, 2002. Minority
interest in earnings has been calculated by taking the net income of the
operating partnerships (on a stand-alone basis) multiplied by the
respective minority interest ownership percentage.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP")
applicable to interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion of
management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation have been included. The
Company presumes that users of the interim financial information have read
or have access to the audited financial statements for the preceding fiscal
year and that the adequacy of additional disclosure needed for a fair
presentation may be determined in that context. The results of operations
for the three and six months ended June 30, 2002 are not necessarily
indicative of the results to be expected for the entire year.
The Company adopted Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long Lived Assets" effective
January 1, 2002 (see note 9).
The Company has elected to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended. Accordingly,
no provision has been made for income taxes for the three and six months
ended June 30, 2002.
2. REAL ESTATE
BERG LAND HOLDINGS OPTION AGREEMENT
Under the terms of the Berg land holdings option agreement, the Company,
through the operating partnerships, has the option to acquire any future
Research & Development ("R&D"), office and industrial buildings developed
by the Berg Group on land currently owned, optioned, or acquired for these
purposes in the future, directly or indirectly by certain members of the
Berg Group. At present, there are approximately 284 acres of Silicon Valley
land, including land under development, owned directly or under 50% joint
venture entities, by certain members of the Berg Group that are subject to
the terms of the Berg land holdings option agreement. The owners of the
future R&D property developments may obtain cash or, at their option,
operating partnership interests ("O.P. Units") valued at the average
closing price of shares of common stock over the 30-trading-day period
preceding the acquisition date. As of June 30, 2002, the Company had
completed 17 acquisitions under the Berg land holdings option agreement
representing approximately 1,699,000 rentable square feet. Upon the
Company's exercise of an option to purchase any of the future R&D property
developments under the terms of the Berg land holdings option agreement,
the acquisition price will equal the sum of (a) the full construction cost
of the building; (b) 10% of the full construction cost of the building; (c)
the acquisition value of the parcel as defined in the agreement upon which
the improvements are constructed (currently ranging from $8.50 to $20.00
per square foot); (d) 10% per annum of the acquisition value of the parcel
for the period from January 1, 1998 to the close of escrow; and (e)
interest at LIBOR (London Interbank Offer Rate) plus 1.65% per annum on the
full construction costs of the building for the period from the date funds
were disbursed by the developer to the close of escrow; less (f) any debt
encumbering the property, or a lesser amount as approved by the members of
the independent directors committee of the Company's board of directors.
- 6 -
No estimate can be given at this time as to the total cost to the Company
to acquire projects under the Berg land holdings option agreement, or the
timing of the Company's acquisition of any of such projects. However, the
Berg Group currently has four properties under development with a total of
approximately 476,000 rentable square feet of R&D properties that the
Company has the right to acquire under this agreement. Of the four
properties, three are joint ventures in which the Berg Group holds
approximately a 50% interest. The joint venture properties prospectively
represent a total of approximately 311,000 rentable square feet. As of June
30, 2002, the estimated acquisition price to the operating partnerships for
these four projects would be approximately $54,600. The final acquisition
price of these four properties could differ significantly from this
estimate. In addition to projects currently under development, the Company
has the right to acquire future developments by the Berg Group on up to 250
additional acres of land currently controlled by the Berg Group, which
could support approximately 3.9 million square feet of new developments.
Under the Berg land holdings option agreement, as long as the Berg Group's
percentage ownership interest in the Company and the operating partnerships
taken as a whole is at least 65%, the Company also has an option to
purchase all land acquired, directly or indirectly, by Carl E. Berg or
Clyde J. Berg in the future which has not been improved with completed
buildings and which is zoned for, intended for or appropriate for research
and development, office and/or industrial development or use in the states
of California, Oregon and Washington.
PROPERTY DISPOSITION
On March 6, 2002, the Company completed the sale, in a tax-deferred
exchange, of a 72,400 square foot R&D property located at 2001 Logic Drive,
San Jose, California to Xilinx, Inc., which had exercised a purchase option
in the same month. The Company realized a gain of $6,103 on the total sale
price of approximately $18,503. At March 31, 2002, the proceeds from the
sale of this property were classified as restricted cash to be used in
tax-deferred property exchanges.
PROPERTY ACQUISITIONS
Effective January 1, 2002, the Company acquired an approximately 125,000
rentable square foot newly constructed R&D building located at 5345 Hellyer
Avenue in San Jose, California from the Berg Group under the Berg land
holdings option agreement. The total acquisition price for this property
was $13,652. The Company acquired this property by borrowing $7,500 under
the Berg Group line of credit and issuing 502,805 O.P. Units to various
members of the Berg Group.
Effective March 8, 2002, the Company acquired three R&D buildings totaling
approximately 206,500 rentable square foot located at 2610 and 2630 Orchard
Parkway and 55 West Trimble Road in San Jose, California from Silicon
Valley Properties, LLC in a tax-deferred exchange transaction involving the
Company's former R&D properties located at 2001 Logic Drive and 5713-5729
Fontanoso Way, San Jose, California. The total acquisition price for the
properties acquired from Silicon Valley Properties, LLC was approximately
$31,250.
3. RESTRICTED CASH
At June 30, 2002, restricted cash represents the remaining proceeds from a
property sale and interest income being held in a separate cash account at
a trust company in order to preserve the Company's option of receiving
replacement property on a tax-deferred basis.
4. STOCK TRANSACTIONS
During the six months ended June 30, 2002, stock options to purchase 33,550
shares of common stock were exercised at $4.50 per share. Total proceeds to
the Company were $151. Two limited partners of one of the operating
partnerships exchanged 104,000 O.P. Units for 104,000 shares of the
Company's common stock under the terms of the December 1998 exchange rights
agreement among the Company and all limited partners of the operating
partnerships.
5. NET INCOME PER SHARE
Basic operating net income per share is computed by dividing net income,
excluding gain on sale of real estate, by the weighted-average number of
common shares outstanding for the period. Diluted operating net income per
share is computed by dividing net income, excluding gain on sale of real
estate, by the sum of the weighted-average number of common shares
outstanding for the period plus the assumed exercise of all dilutive
securities.
The computation for weighted average shares is detailed below:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------- -------------------------------
2002 2001 2002 2001
-------------- ------------- -------------- -------------
Weighted average shares outstanding (basic) 17,464,692 17,093,710 17,434,796 17,065,612
Incremental shares from assumed option exercise 438,161 214,891 443,687 227,872
-------------- ------------- -------------- -------------
Weighted average shares outstanding (diluted) 17,902,853 17,308,601 17,878,483 17,293,484
============== ============= ============== =============
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The outstanding O.P. Units, which are exchangeable at the unit holder's
option, subject to certain conditions, for shares of common stock on a
one-for-one basis have been excluded from the diluted net income per share
calculation, as there would be no effect on the amounts because the
minority interests' share of income would also be added back to net income.
The total number of O.P. Units outstanding at June 30, 2002 and 2001 was
86,161,346 and 84,824,911, respectively.
6. RELATED PARTY TRANSACTIONS
As of June 30, 2002, the Berg Group owned 78,005,998 O.P. Units. Combined
with shares of the Company's common stock owned by the Berg Group, the Berg
Group's ownership as of June 30, 2002 represented approximately 75% of the
equity interests of the Company, assuming conversion of the 86,161,346 O.P.
Units outstanding into the Company's common stock.
As of June 30, 2002, debt in the amount of $73,774 was due the Berg Group
under the line of credit established March 1, 2000. The Berg Group $100
million line of credit is currently collateralized by nine properties,
bears interest at LIBOR plus 1.30%, and matures in March 2003. The Company
believes that the terms of the Berg Group line of credit are more favorable
than those available from commercial lenders. As of June 30, 2002, debt in
the amount of $11,227 was due the Berg Group under a mortgage note
established May 15, 2000 in connection with the acquisition of a 50%
interest in Hellyer Avenue Limited Partnership, the obligor under the
mortgage note. The mortgage note bears interest at 7.65%, and is due in 10
years with principal payments amortized over 20 years.
Carl E. Berg has a substantial financial interest in one company that
leases space from the operating partnerships. This company occupies 5,862
square feet at $2.30 per square foot per month. This lease was in effect
prior to the Company's acquisition of its general partnership interests in
July 1998. The lease expires in May 2003.
The Company currently leases office space owned by Berg & Berg Enterprises,
Inc., an affiliate of Carl E. Berg and Clyde J. Berg. Rental amounts and
overhead reimbursements paid to Berg & Berg Enterprises, Inc. were $23 and
$20 for the three month ended June 30, 2002 and 2001, respectively, and $45
and $43 for the six months ended June 30, 2002 and 2001, respectively.
7. SUBSEQUENT EVENTS
On July 12, 2002, the Company established a $40,000 unsecured revolving
line of credit (the "Revolving Line of Credit") with Cupertino National
Bank, Cupertino, California (the "Bank"). The Revolving Line of Credit is
guaranteed by the Company and two operating partnerships, which pledged
four properties, bears interest at LIBOR plus 2%, matures July 12, 2004,
and requires payment of an annual loan fee of $33. The Company will use the
proceeds from the Revolving Line of Credit to repay debt, complete
acquisitions and finance other working capital requirements. The Company
pledged four properties in accordance with the Revolving Line of Credit's
Non-Encumbrance Agreement. The Revolving Line of Credit as of August 12,
2002 had a zero outstanding balance.
The Non-Encumbrance Agreement provides that the Company will not encumber
the four properties while they are pledged in connection with the Revolving
Line of Credit.
The four properties were previously encumbered as collateral for the Berg
Group line of credit. As of July 12, 2002, the Company substituted two
additional properties as collateral for the Berg Group line of credit.
On July 11, 2002, the Company paid dividends of $0.24 per share of common
stock to all common stockholders of record as of June 28, 2002. On the same
date, the operating partnerships paid a distribution of $0.24 per O.P.
Unit.
8. COMMITMENTS AND CONTINGENCIES
The Company and the operating partnerships are or may become, from time to
time, parties to litigation arising out of the normal course of business.
Management is not aware of any litigation against the Company that would
have a material adverse effect on the consolidated financial position,
results of operations or cash flows of the Company.
Insurance policies currently maintained by the Company do not cover losses
from the consequence of terrorism or seismic activity, although they do
cover losses from fires after an earthquake.
9. DISCONTINUED OPERATIONS
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long Lived Assets" which addresses financial accounting and reporting for
the impairment and disposal of long-lived assets. In general, income or
loss attributable to the operations and sale of property, and the
- 8 -
operations related to property held for sale, are classified as
discontinued operations in the statements of operations. Prior period
statements of operations presented in this report have been reclassified to
reflect the income or loss related to properties that were sold and
presented as discontinued operations for the three and six month-periods
ended June 30, 2002. Additionally, all periods presented in this report
will likely require further reclassification in future periods if
additional property sales occur.
As of June 30, 2002, there were no properties under contract to be sold or
disposed of which would qualify as discontinued operations.
In March 2002, the Company sold one property for a gain of $6,103. Gain
from operation for this property was approximately $0 and $430 for the
three months ended June 30, 2002 and 2001, respectively. Condensed
operations for this property for the three and six months ended June 30,
2002 and 2001 are as follows:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------ -----------------------------------------
2002 2001 2002 2001
------------------- ------------------ ------------------ ------------------
(Dollars in thousands) (Dollars in thousands)
Rental income from real estate - $500 $333 $ 999
Tenant reimbursements - 23 293 47
------------------- ------------------ ------------------ ------------------
Total revenues - 523 626 1,046
Real estate taxes - 23 293 47
Depreciation - 70 46 139
------------------- ------------------ ------------------ ------------------
Total expenses - 93 339 186
------------------- ------------------ ------------------ ------------------
Net income - $430 $287 $ 860
=================== ================== ================== ==================
- 9 -
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying consolidated
financial statements and notes thereto contained herein and the Company's
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K as of and for the year ended December 31, 2001. The
results for the three and six months ended June 30, 2002 are not necessarily
indicative of the results to be expected for the entire fiscal year ending
December 31, 2002. The following discussion includes forward-looking statements,
including but not limited to, statements with respect to the Company's future
financial performance, operating results, plans and objectives. Actual results
may differ materially from those currently anticipated depending upon a variety
of factors, including those described below under the sub-heading,
"Forward-Looking Information."
OVERVIEW
Mission West Properties, Inc. (the "Company") acquires, markets, leases, and
manages R&D and office properties, primarily located in the Silicon Valley
portion of the San Francisco Bay Area. As of June 30, 2002, the Company owned
and managed 100 properties totaling approximately 7.0 million rentable square
feet through four limited partnerships, or operating partnerships, for which it
is the sole general partner. This class of property is designed for research and
development and office uses and, in some cases, includes space for light
manufacturing operations with loading docks. The Company believes that it has
one of the largest portfolios of R&D properties in the Silicon Valley. The four
tenants who lease the most square footage from the Company are Microsoft
Corporation, JDS Uniphase Corporation, Amdahl Corporation (a subsidiary of
Fujitsu Limited), and Apple Computer, Inc. For federal income tax purposes the
Company has operated as a self-managed, self-administered and fully integrated
real estate investment trust ("REIT") since fiscal 1999.
The Company's acquisition and growth strategy incorporates the following
elements:
- working with the Berg Group to take advantage of their abilities and
resources to pursue development opportunities which we have an option to
acquire, on pre-negotiated terms, upon completion and leasing;
- capitalizing on opportunistic acquisitions from third parties of
high-quality R&D and office properties that provide attractive initial
yields and significant potential for growth in cash-flow;
- focusing on general purpose, single-tenant Silicon Valley R&D and office
properties for information technology companies in order to maintain low
operating costs, reduce tenant turnover and capitalize on our relationships
with these companies and our extensive knowledge of their real estate
needs; and
- maintaining prudent financial management principles that emphasize current
cash flow while building long-term value, the acquisition of pre-leased
properties to reduce development and leasing risks and the maintenance of
sufficient liquidity to acquire and finance properties on desirable terms.
- 10 -
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 TO THE THREE AND SIX
MONTHS ENDED JUNE 30, 2001.
As of June 30, 2002, the Company, through its controlling interests in the
operating partnerships, owned 100 properties totaling approximately 7.0 million
square feet compared to 93 properties totaling approximately 6.4 million square
feet owned by the Company as of June 30, 2001. This represents a net increase of
approximately 9% in total rentable square footage from one year ago. Since June
30, 2001 the Company has acquired the properties listed below and disposed of
77,700 rentable square feet at 5713-5729 Fontanoso Way and 72,400 rentable
square feet at 2001 Logic Drive in San Jose, California.
Rentable Square
Date of Acquisition Address Footage
--------------------- ------------------------------------------ ---------------------
07/01 5906-65 Silver Creek Valley Rd. I (1) 247,500
08/01 5750 Hellyer Avenue 73,312
10/01 5905-65 Silver Creek Valley Rd. II 98,500
01/02 5345 Hellyer Avenue 125,000
03/02 2630 Orchard Parkway (2) 60,633
03/02 2610 Orchard Parkway (2) 54,093
03/02 55 West Trimble (2) 91,722
---------------------
750,760
=====================
(1) Three buildings were acquired at this location.
(2) Acquired in a tax-deferred exchange from the sale of R&D properties at
5713-5729 Fontanoso Way and 2001 Logic Drive, San Jose, California.
The following tables reflect the increase in the Company's rental revenues,
excluding rental revenues from discontinued operations, for the three and six
months ended June 30, 2002 over rental revenues for the comparable three and six
months in 2001:
Three Months Ended June 30,
---------------------------------
% Change by % of Total Net
2002 2001 $ Change Property Group Change
-------------- -------------- ---------------- --------------- -----------------
(Dollars in thousands)
Same Property (1) $25,750 $29,476 ($ 3,726) (12.6%) (11.7%)
2001 Acquisitions (2) 5,163 2,178 2,985 137.1% 9.4%
2002 Acquisitions 1,840 - 1,840 100.0% 5.8%
-------------- -------------- ---------------- -----------------
$32,753 $31,654 $ 1,099 3.5% 3.5%
============== ============== ================ =================
Six Months Ended June 30,
---------------------------------
% Change by % of Total Net
2002 2001 $ Change Property Group Change
-------------- -------------- ---------------- --------------- -----------------
(Dollars in thousands)
Same Property (1) $51,660 $57,719 ($ 6,059) (10.5%) (9.9%)
2001 Acquisitions (2) 10,698 3,614 7,084 196.0% 11.6%
2002 Acquisitions 2,880 - 2,880 100.0% 4.7%
-------------- -------------- ---------------- -----------------
$65,238 $61,333 $ 3,905 6.4% 6.4%
============== ============== ================ =================
(1) "Same Property" is defined as properties owned as of July 1, 1998 and
acquired in 1998, 1999 and 2000 and still owned as of June 30, 2002.
(2) The figures for "2001 Acquisitions" in year 2001 for some properties do not
reflect a full three and six months of rent due to the timing of the
acquisition of the properties during 2001.
RENTAL REVENUE FROM CONTINUING OPERATIONS
For the quarter ended June 30, 2002, rental revenues increased by $1.1 million
from $31.7 million for the three months ended June 30, 2001 to $32.8 million for
the same period of 2002. Of the $1.1 million increase in rental revenues, ($3.7)
million resulted from the Company's "Same Property" portfolio, $3.0 million
resulted from properties acquired in 2001, and $1.8 million resulted from
properties acquired in 2002. Rental revenues increased by $3.9 million from
$61.3 million for the six months ended June 30, 2001 to $65.2 million for the
same period of 2002, which included a decrease of $1.4 million straight-line
rent adjustment. Of the $3.9 million increase in rental revenues, ($6.1) million
resulted from the Company's "Same Property" portfolio, $7.1 million were
generated by properties acquired in 2001, and $2.9 million were generated by
properties acquired in 2002. Approximately $0.3 million in rental revenues were
generated from a discontinued operation for the six months ended June 30, 2002.
The decline in rental revenues from the "same property" portfolio was a result
from adverse market conditions and loss of several tenants due to their
bankruptcy or cessation of operations. The net increase in rental revenues was
primarily attributable to new acquisitions.
- 11 -
OTHER INCOME FROM CONTINUING OPERATIONS
Other income, including interest, was approximately $0.3 million and $0.8
million for the three months ended June 30, 2002 and 2001, respectively. Other
income, including interest, was approximately $0.8 million and $1.3 million for
the six months ended June 30, 2002 and 2001, respectively.
EXPENSES FROM CONTINUING OPERATIONS
Tenant reimbursements from continuing operations increased by $1.1 million, or
29%, from $3.8 million for the three months ended June 30, 2001 to $4.9 million
for the three months ended June 30, 2002. Operating expenses and real estate
taxes from continuing operations, on a combined basis, increased by $0.6
million, or 14%, from $4.3 million to $4.9 million for the three months ended
June 30, 2001 and 2002, respectively. Both tenant reimbursements and operating
expenses combined with real estate taxes from a discontinued operation were
approximately $0.3 million each for the six months ended June 30, 2002. The
increases in all categories resulted primarily from the increase in the total
rentable square footage since June 30, 2001.
Depreciation expense from continuing operations increased by $0.3 million from
$4.2 million to $4.5 million for the three months ended June 30, 2001 and 2002,
respectively. Depreciation expense from continuing operations increased by $0.5
million from $8.3 million to $8.8 million for the six months ended June 30, 2001
and 2002, respectively. Depreciation expense from a discontinued operation was
approximately $46,000 for the six months ended June 30, 2002. The increase was
attributable to the acquisition of nine R&D properties since June 30, 2001.
Interest expense increased by $0.14 million, or 6.3%, from $2.22 million for the
three months ended June 30, 2001 to $2.36 million for the three months ended
June 30, 2002 from additional debt that the Company incurred under a new $20.0
million unsecured loan obtained from Citicorp during the first quarter 2002.
Interest expense (related parties) decreased by $0.26 million, or 22.3%, from
$1.16 million for the three months ended June 30, 2001 to $0.90 million for the
three months ended June 30, 2002 due to lower interest rates and repayments on
the Berg Group line of credit. As a result, overall interest expense (including
amounts to related parties) for the quarter ended June 30, 2002 decreased by
$0.12 million compared to the same quarter a year ago. Interest expense
increased by $0.20 million, or 4.5%, from $4.43 million for the six months ended
June 30, 2001 to $4.63 million for the six months ended June 30, 2002. Interest
expense (related parties) decreased by $0.55 million, or 22.4%, from $2.46
million for the six months ended June 30, 2001 to $1.91 million for the six
months ended June 30, 2002. Overall interest expense for the six months ended
June 30, 2002 decreased by $0.35 million compared to the six months ended June
30, 2001 due largely to lower interest rates and repayments on the Berg Group
line of credit. The nine R&D property acquisitions increased total debt
outstanding, including amounts due related parties, by $24.62 million, or 11.9%,
from $206.79 million as of June 30, 2001 to $231.41 million as of June 30, 2002.
Management expects interest expense to increase as new debt is incurred in
connection with property acquisitions, as the Company draws on the Berg Group
line of credit, and as it seeks alternative sources of credit.
NET INCOME TO MINORITY INTEREST AND NET INCOME TO COMMON STOCKHOLDERS
The minority interest portion of income increased by $0.89 million, or 4.5%,
from $19.93 million for the three months ended June 30, 2001 to $20.82 million
for the three months ended June 30, 2002. Net income to stockholders increased
by $0.09 million, or 2.3%, from $3.98 million for the three months ended June
30, 2001 to $4.07 million for the same period in 2002. For the six months ended
June 30, 2002 and 2001, the minority interest portion of income was $46.92
million and $41.02 million, respectively, resulting in net income to
stockholders of $9.27 million and $8.20 million, respectively. Minority interest
represents the ownership interest of all limited partners in the operating
partnerships taken as a whole, which was approximately 83% as of June 30, 2002
and 2001.
RECENT RENTAL MARKET DEVELOPMENTS
All of the Company's properties are located in the Northern California area
known as Silicon Valley, which generally consists of portions of Santa Clara
County, Southwestern Alameda County, Southeastern San Mateo County and Eastern
Santa Cruz County. The Silicon Valley economy and business activity slowed
markedly in 2001 and in the first six months of 2002 after fast-paced growth in
1999 and 2000. The Silicon Valley R&D property market has historically
fluctuated with the local economy. According to a recent report by BT Commercial
Real Estate, vacancy rates for Silicon Valley R&D property increased from
approximately 14.8% in late 2001 to 18.9% at the end of the second quarter 2002.
Total vacant R&D square footage in Silicon Valley at the end of the second
quarter of 2002 amounted to 28.6 million square feet, of which 42%, or 12.0
million square feet, was being offered under subleases. Total negative net
absorption in 2001 amounted to approximately (15.6) million square feet. During
the first six months of 2002, there was total negative net absorption of
approximately (5.2) million square feet. The impact of this decline has not been
uniform throughout the area, however. The Silicon Valley R&D property market has
been characterized by a substantial number of submarkets, with rent and vacancy
rates varying considerably by submarket and location within each submarket. The
Company's average occupancy rate for the six-month period ended June 30, 2002
was 93% with approximately 476,000 rentable square feet expiring in 2002, which
is a significant decline from the occupancy rate of 99% at June 30, 2001, but
higher than the area's average occupancy rate. The Company believes that its
occupancy rate could decline in the next two quarters if more key tenants seek
the protection of the bankruptcy laws. For example, during the last nine months,
six tenants accounting for approximately 458,000 net rentable square feet of R&D
properties have either filed petitions under Chapter 11 of the Bankruptcy Code
or have discontinued operations. Under the bankruptcy laws, tenants may have the
right to reject their leases with us and our claim for rent will be limited
- 12 -
to the greater of one year's rent or 15% of the total amount of rent under the
leases upon default, but not to exceed three years of rent on the remaining term
of the lease following the earlier of the petition filing date or the date on
which we gained repossession of the property, as well as any rent that was
unpaid on the earlier of those dates. These properties may take anywhere from
six to twelve months or longer to re-lease. The Company anticipates its vacancy
rate to range between 14-15% by the end of 2002 and renewal rental rates to be
the same as or, perhaps, lower than current rents. The Company's operating
results and ability to pay dividends at current levels remain subject to a
number of material risks, as indicated under the caption "Forward-Looking
Information" below and in the section entitled "Risk Factors" in the Company's
most recent annual report on Form 10-K.
CHANGES IN FINANCIAL CONDITION
There were no significant changes in the Company's financial condition during
the three months ended June 30, 2002. The most significant changes during the
six months ended June 30, 2002 resulted from property acquisitions and
exchanges. In addition, debt increased from new acquisitions and stockholders'
equity increased from the exercise of stock options and the exchange of O.P.
Units for common stock.
At June 30, 2002, real estate assets increased by approximately $32.5 million
from December 31, 2001 taking into account new acquisitions, one disposition,
and some tenant improvements. During the first six months of 2002, the Company
acquired one additional property representing approximately 125,000 rentable
square feet of R&D property located in Silicon Valley. This property was
acquired from the Berg Group under the Berg land holdings option agreement. The
aggregate acquisition price for this property was approximately $13.7 million.
The Company financed this acquisition by borrowing $7.5 million under the Berg
Group line of credit and issuing 502,805 O.P. Units. In March 2002, the Company
acquired three R&D properties representing approximately 206,500 rentable square
feet for approximately $31.3 million as replacement properties in a tax-deferred
exchange in which the Company disposed of former R&D properties at 5713-5729
Fontanoso Way and 2001 Logic Drive in San Jose, California. Pending the purchase
of the replacement properties, the proceeds for the Fontanoso Way and Logic
Drive properties were classified as restricted cash of which approximately $2.7
million remained in restricted cash at June 30, 2002. No debt or O.P. Units were
issued for these acquisitions. The Company also realized a gain of $6.1 million
on the transaction.
At June 30, 2002, total liabilities decreased by approximately $1.4 million from
December 31, 2001 as a result of debt repayment.
At June 30, 2002, total stockholders' equity increased by approximately $2.4
million from December 31, 2001 from reduction of accumulated deficit, stock
option exercises and the exchange of O.P. Units for the Company's common stock.
During the six months ended June 30, 2002, stock options to purchase 33,550
shares of common stock were exercised at $4.50 per share. Total proceeds to the
Company were approximately $0.15 million. During the first half of 2002, two
limited partners of an operating partnership exchanged 104,000 O.P. Units for
104,000 shares of the Company's common stock under the exchange rights agreement
among the Company and the limited partners in the operating partnerships, which
represented additional paid in capital of approximately $1.3 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects its principal sources of liquidity for distributions to
stockholders and unit holders, debt service, leasing commissions and recurring
capital expenditures to come from Funds From Operations ("FFO") and/or the Berg
Group line of credit and other credit facilities that may be established by the
Company with third party financial institutions. The Company expects these
sources of liquidity to be adequate to meet projected distributions to
stockholders and other presently anticipated liquidity requirements in 2002. The
Company expects to meet its long-term liquidity requirements for the funding of
property development, property acquisitions and other material non-recurring
capital improvements through long-term secured and unsecured indebtedness and
the issuance of additional equity securities by the Company. The Company has the
ability to meet short-term obligations or other liquidity needs based on the
line of credit (related parties). Despite the current weakness in the economy,
the Company expects interest expense to increase, but not significantly, as it
incurs debt through acquisitions of new properties and as interest rates
increase.
The Company is continually evaluating alternative sources of credit to replace
the Berg Group $100 million line of credit, which expires in March 2003. The
Company believes that the terms of the Berg Group line of credit are more
favorable than those available from institutional lenders. There can be no
assurance that the Berg Group will continue to rollover and extend this line of
credit, as it has been doing since 1999, or the Company will be able to obtain a
line of credit with terms similar to the Berg Group line of credit. Thus, the
Company's cost of borrowing could increase substantially after 2002.
On March 1, 2002, the Company obtained a $20 million unsecured loan from
Citicorp USA, Inc. with an interest rate based on LIBOR. The loan, which matures
on March 1, 2003, bears a fixed LIBOR interest rate of 4.09% for the first six
months and LIBOR plus 2.0% thereafter. The Company paid a loan fee of $50,000
and expects to use the loan for acquiring new R&D properties.
- 13 -
At June 30, 2002, the Company had total indebtedness of $231.4 million,
including $126.4 million of fixed rate mortgage debt, $11.2 million under the
Berg Group mortgage note (related parties), $73.8 million under the Berg Group
line of credit (related parties), and $20.0 million under the Citicorp loan.
As of June 30, 2002, the Company's Debt to Total Market Capitalization ratio was
approximately 15.4%, based upon a Total Market Capitalization of approximately
$1.5 billion. The Company computed this ratio by dividing the Company's total
debt outstanding as of June 30, 2002 by the sum of this debt plus the market
value of common stock (based upon the closing price of $12.19 per share on June
28, 2002) on a fully diluted basis, taking into account the conversion of all
O.P. Units into common stock.
On July 11, 2002, the Company paid dividends of $0.24 per share of common stock
to all common stockholders of record as of June 28, 2002. On the same date, the
operating partnerships paid a distribution of $0.24 per O.P. Unit.
On July 12, 2002, the Company established a $40 million unsecured revolving line
of credit (the "Revolving Line of Credit") with Cupertino National Bank,
Cupertino, California (the "Bank"). The Revolving Line of Credit is guaranteed
by the Company and two operating partnerships, which pledged four properties,
bears interest at LIBOR plus 2%, and matures July 12, 2004. The Company pays an
annual loan fee of $33. The Company will use the proceeds from the Revolving
Line of Credit to repay debt, complete acquisitions and finance other working
capital requirements.
- 14 -
MORTGAGE DEBT
The following table sets forth information regarding debt outstanding as of
June 30, 2002:
Maturity Interest
Debt Description Collateral Properties Balance Date Rate
-------------------------------------------- ----------------------------------------------- ----------------- ---------- ----------
(Dollars in thousands)
LINE OF CREDIT:
Berg Group (related parties) 2033-2043 Samaritan Drive, San Jose, CA $ 73,774 3/03 (1)
2133 Samaritan Drive, San Jose, CA -----------------
2233-2243 Samaritan Drive, San Jose, CA
1310-1450 McCandless Drive, Milpitas, CA
1315-1375 McCandless Drive, Milpitas, CA
1650-1690 McCandless Drive, Milpitas, CA
1795-1845 McCandless Drive, Milpitas, CA
2251 Lawson Lane, Santa Clara, CA (4)
20605-20705 Valley Green Dr., Cupertino, CA (4)
MORTGAGE NOTES PAYABLE (RELATED PARTIES): 5300 & 5350 Hellyer Avenue, San Jose, CA 11,227 6/10 7.650%
-----------------
MORTGAGE NOTES PAYABLE:
Prudential Capital Group 20400 Mariani Avenue, Cupertino, CA 1,512 4/09 8.750%
New York Life Insurance Company 10440 Bubb Road, Cupertino, CA 330 9/09 9.625%
Home Savings & Loan Association 10460 Bubb Road, Cupertino, CA 331 12/06 9.500%
Prudential Insurance Company of America (2) 10300 Bubb Road, Cupertino, CA 124,240 10/08 6.560%
10500 N. DeAnza Blvd, Cupertino, CA
4050 Starboard Drive, Fremont, CA
45700 Northport Loop, Fremont, CA
45738 Northport Loop, Fremont, CA
450-460 National Avenue,Mountain View, CA
6311 San Ignacio Avenue, San Jose, CA
6321 San Ignacio Avenue, San Jose, CA
6325 San Ignacio Avenue, San Jose, CA
6331 San Ignacio Avenue, San Jose, CA
6341 San Ignacio Avenue, San Jose, CA
6351 San Ignacio Avenue, San Jose, CA
3236 Scott Blvd, Santa Clara, CA
3560 Bassett Street, Santa Clara, CA
3570 Bassett Street, Santa Clara, CA
3580 Bassett Street, Santa Clara, CA
1135 Kern Avenue, Sunnyvale, CA
1212 Bordeaux Lane, Sunnyvale, CA
1230 E. Arques, Sunnyvale, CA
1250 E. Arques, Sunnyvale, CA
1170 Morse Avenue, Sunnyvale, CA
1600 Memorex Drive, Santa Clara, CA
1688 Richard Avenue, Santa Clara, CA
1700 Richard Avenue, Santa Clara, CA
3540 Bassett Street, Santa Clara, CA
3542 Bassett Street, Santa Clara, CA
3544 Bassett Street, Santa Clara, CA
3550 Bassett Street, Santa Clara, CA
-----------------
Mortgage Notes Payable Subtotal 126,413
-----------------
UNSECURED LOAN:
Citicorp USA, Inc. Not Applicable 20,000 3/03 (3)
-----------------
TOTAL $231,414
=================
(1) The debt owed to the Berg Group under the line of credit carries a variable
interest rate equal to LIBOR plus 1.30% and is payable in full in March
2003. The interest rate at June 30, 2002 was 3.248%.
(2) John Kontrabecki, one of the limited partners, has guaranteed approximately
$12.0 million of this debt.
(3) The unsecured loan from Citicorp USA, Inc. carries a fixed LIBOR interest
rate equal to 4.09% for the first six months and LIBOR plus 2.0% thereafter
and is payable in full in March 2003.
(4) Substituted collateral properties for the Berg Group line of credit as
explained above in Note 7 to the consolidated financial statements.
- 15 -
CURRENT PROPERTIES SUBJECT TO OUR ACQUISITION AGREEMENT WITH THE BERG GROUP
The following table presents certain projected information at June 30, 2002
concerning projects for which the Company, through its interests in the
operating partnerships, has the right to acquire under the Berg land holdings
option agreement.
Approximate
Number of Rentable Area Anticipated Total Estimated
Property Buildings (Square Feet) Acquisition Date Acquisition Value (1)
------------------------------ ------------ -------------------- ------------------------- -------------------------
(Dollars in thousands)
BERG LAND HOLDINGS OPTION
UNDER DEVELOPMENT
Morgan Hill (JV I) (2) 2 160,000 4th Q 2002/Q1 2003 $17,500
Morgan Hill (JV II) (2) 1 151,242 4th Q 2002/Q1 2003 16,200
Piercy & Hellyer 1 165,000 3rd Q 2002 20,900
- ------- ------
SUBTOTAL 4 54,600
AVAILABLE LAND
Piercy & Hellyer 490,000
Morgan Hill (2) 368,025
King Ranch 207,000
Fremont & Cushing 387,000
Evergreen 2,480,000
---------
SUBTOTAL
TOTAL 4 4,408,267 $54,600
= ========= =======
(1) The estimated acquisition value represents the estimated cash price for
acquiring the projects under the terms of the Berg land holdings option
agreement, which may differ from the actual acquisition cost as determined
under GAAP, if O.P. Units or any other securities based on the market value
of the Company's common stock are issued in the transaction.
(2) The Company expects to own an approximate 50% interest in the partnership
through one of its operating partnerships. The property will be operated
and managed by the other partner in the entity. The rentable area and
estimated acquisition value shown above reflect both the Company's and the
other partner's combined interest in these properties.
Pursuant to the Berg land holdings option agreement between the Company and the
Berg Group, the Company currently has the option to acquire any future R&D,
office and industrial property developed by the Berg Group on land it currently
owns or has under option, or acquires for these purposes in the future, directly
or indirectly by certain members of the Berg Group.
The time required to complete the leasing of developments varies from project to
project. The acquisition dates and acquisition costs set forth in the table are
only estimates by management. Generally, the Company will not acquire any of the
above projects until they are fully completed and leased. There can be no
assurance that the acquisition date and final cost to the Company as indicated
above would be realized. No estimate can be given at this time as to the
Company's total cost to acquire projects under the Berg land holdings option
agreement, nor can we be certain of the period in which we will acquire any of
the projects.
Although the Company expects to acquire the new properties available to it under
the terms of the Berg land holdings option agreement, subsequent to the approval
by the independent directors committee, there can be no assurance that the
Company actually will consummate any intended transactions, including all of
those discussed above. Furthermore, the Company has not yet determined the means
by which it would acquire and pay for any such properties or the impact of any
of the acquisitions on its business, results of operations, financial condition,
FFO or available cash for distribution.
Leasing activity for new build-to-suit and vacated R&D properties has slowed
considerably during the past year and the first six months of 2002.
Consequently, the Company believes that the projected acquisition dates for
other development properties subject to the Berg land holdings option agreement,
with the exception of the project at Piercy and Hellyer for approximately
165,000 rentable square feet, may be delayed for the foreseeable future. Such
delays could reduce future growth in revenues, operating income and Funds
Available for Distribution ("FAD").
- 16 -
HISTORICAL CASH FLOWS
Net cash provided by operating activities for the six months ended June 30, 2002
was $64.7 million compared to $51.5 million for the same period in 2001, a 26%
increase. The change was a direct result of increased rent from newly acquired
properties.
Net cash used in investing activities was approximately $19.8 million and $1.3
million for the six months ended June 30, 2002 and 2001, respectively. Of the
$19.8 million net cash used in investing activities, $18.5 million represented
the return of a deposit furnished by Xilinx, Inc. relating to the purchase
option agreement between Xilinx and the Company, $1.0 million was used to
acquire new equipment and tenant improvements, and $0.3 million was applied to
Xilinx's monthly rent obligation prior to the execution of the purchase option
agreement.
Net cash used in financing activities was $44.4 million for the six months ended
June 30, 2002 compared to $49.1 million for the same period in 2001, a 10%
decrease. Of the $44.4 million net cash used in financing activities, $14.8
million was used to pay outstanding debt, $41.4 million for minority interest
distributions, $8.3 million for dividends, and the sum of which was offset by
$20.1 million received from the Citicorp unsecured loan and the proceeds of
exercised stock options. During the six months ended June 30, 2002, the Company
made payments on outstanding debt and distributions to holders of its common
stock and O.P. Units by utilizing cash generated from operating activities and
other borrowed funds.
CAPITAL EXPENDITURES
The Company's existing R&D properties require periodic investments of capital
for tenant-related capital expenditures and for general capital improvements.
For the years ended December 31, 1997 through December 31, 2001, the recurring
tenant improvement costs and leasing commissions incurred with respect to new
leases and lease renewals of the properties that were owned or controlled by
members of the Berg Group prior to July 1, 1998 averaged approximately $1.75
million annually. The Company expects that the average annual cost of recurring
tenant improvements and leasing commissions, related to the properties, will be
approximately $1.3 million during 2002. The Company believes it will recover
substantially all of these sums from the tenants under new or renewed leases
through increases in rental rates. The Company expects to meet its long-term
liquidity requirements for the funding of property development, property
acquisitions and other material non-recurring capital improvements through
long-term secured and unsecured indebtedness and the issuance of additional
equity securities by the Company.
FUNDS FROM OPERATIONS
As defined by the National Association of Real Estate Investment Trusts
("NAREIT"), FFO represents net income (loss) before minority interest of unit
holders (computed in accordance with GAAP), excluding gains (or losses) from
debt restructuring and sales of property, plus real estate related depreciation
and amortization (excluding amortization of deferred financing costs and
depreciation of non-real estate assets) and after adjustments for unconsolidated
partnerships and joint ventures. Management considers FFO an appropriate measure
of performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides investors
with an understanding of the Company's ability to incur and service debt, and
make capital expenditures. With the recent emphasis on the disclosure of
operating earnings per share, we will still continue to use FFO as a measure of
the Company's performance. FFO should not be considered as an alternative for
net income as a measure of profitability and it is not comparable to cash flows
provided by operating activities determined in accordance with GAAP, nor is FFO
necessarily indicative of funds available to meet the Company's cash needs,
including its need to make cash distributions to satisfy REIT requirements.
The Company's definition of FFO also assumes conversion at the beginning of the
period of all convertible securities, including minority interests that might be
exchanged for common stock. FFO does not represent the amount available for
management's discretionary use as such funds may be needed for capital
replacement or expansion, debt service obligations or other commitments and
uncertainties.
The minority interest in earnings for unrelated parties are deducted from total
minority interest in earnings in calculating FFO.
Furthermore, FFO is not comparable to similarly entitled items reported by other
REITs that do not define them exactly as the Company defines FFO. FFO for the
three and six months ended June 30, 2002 and 2001 are summarized in the tables
below:
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------------- ------------------------------------------
2002 2001 2002 2001
------------------ ------------------ ------------------- -------------------
(Dollars in thousands) (Dollars in thousands)
Net income $ 4,073 $ 3,983 $ 9,273 $ 8,202
Add:
Minority interest (1) 20,671 19,779 46,605 40,696
Depreciation 4,455 4,165 8,857 8,267
Less:
Gain on sale of assets - - 6,103 3,102
------------------ ------------------ ------------------- -------------------
FFO $29,199 $27,927 $58,632 $54,063
================== ================== =================== ===================
(1) The minority interest for unrelated parties was deducted from total
minority interest in calculating FFO.
- 17 -
DISTRIBUTION POLICY
The Company intends to pay distributions to stockholders and O.P. unit holders
based upon total Funds Available for Distribution ("FAD"), which is calculated
as FFO less adjustment for straight-line rents included in net income, leasing
commissions paid and capital expenditures made during the respective period. The
calculations of FAD for the three and six months ended June 30, 2002 and 2001
are as follows:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------ ------------------------------------------
2002 2001 2002 2001
------------------- ------------------- ------------------- -------------------
(Dollars in thousands) (Dollars in thousands)
FFO $29,199 $27,927 $58,632 $54,063
Less:
Straight-line rents 176 2,238 (605) 4,327
Leasing commissions 104 419 245 582
Capital expenditures 113 170 113 324
------------------- ------------------- ------------------- -------------------
FAD $28,806 $25,100 $58,879 $48,830
=================== =================== =================== ===================
The Company's board of directors will determine the amount and timing of
distributions to our stockholders. The board of directors will consider many
factors prior to making any distributions, including the following:
- the amount of cash available for distribution;
- the Company's financial condition;
- whether to reinvest funds rather than to distribute such funds;
- the Company's committed and projected capital expenditures;
- the effects of new property acquisitions, including acquisitions under
existing agreements with the Berg Group;
- the annual distribution requirements under the REIT provisions of the
federal income tax laws; and
- such other factors as the board of directors deems relevant.
We cannot assure you that the Company will be able to meet or maintain
management's cash distribution objectives.
- 18 -
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company does not believe recently issued accounting standards will
materially impact the Company's financial statements.
FORWARD-LOOKING INFORMATION
This quarterly report contains forward-looking statements within the meaning of
the federal securities laws. The Company intends such forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Reform Act of 1995, and is including this
statement for purposes of complying with these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identifiable by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project" or similar expressions. Additionally, all disclosures
under Part I., Item 3 constitute forward-looking statements. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain.
Factors that could have a material adverse effect on the operations and future
prospects of the Company include, but are not limited to, changes in:
- economic conditions generally and the real estate market specifically,
- legislative or regulatory provisions affecting the Company (including
changes to laws governing the taxation of REITs),
- availability of capital,
- interest rates,
- competition,
- supply of and demand for R&D, office and industrial properties in the
Company's current and proposed market areas,
- tenant defaults and bankruptcies, and
- general accounting principles, policies and guidelines applicable to REITs.
In addition, the actual timing of development, construction, and leasing on the
projects that the Company believes it may acquire in the future under the Berg
land holdings option agreement is unknown presently, and reliance should not be
placed on the estimates concerning these projects set forth under the caption,
"Current Properties Subject to Our Acquisition Agreement with the Berg Group,"
above. These risks and uncertainties, together with the other risks described
from time to time in the Company's reports and other documents filed with the
Securities and Exchange Commission, should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements.
- 19 -
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not generally hold market risk sensitive instruments for trading purposes.
We use fixed and variable rate debt to finance our operations. Our exposure to
market risk for changes in interest rates relates primarily to our current and
future debt obligations. We are vulnerable to significant fluctuations of
interest rates on our floating rate debt, and pricing on our future debt. We
manage our market risk by monitoring interest rates where we try to recognize
the unpredictability of the financial markets and seek to reduce potentially
adverse effect on the results of our operations. This takes frequent evaluation
of available lending rates and examination of opportunities to reduce interest
expense through new sources of debt financing. By attempting to match
anticipated cash inflow from our operating and financing activities with
anticipated cash outflow to fund debt payments, distributions to shareholders
and O.P. Unit holders, capital expenditures and other cash requirements, we
expect to minimize the effects on our future earnings and cash flow where
interest rate risk is most sensitive. Several factors affecting the interest
rate risk include governmental monetary and tax policies, domestic and
international economics and other factors that are beyond our control.
The primary market risk we face is the risk of interest rate fluctuations. The
Berg Group line of credit, which is tied to a LIBOR based interest rate, was
approximately $73.8 million, or 32%, of the total $231.4 million of outstanding
debt as of June 30, 2002. As a result, we pay lower rates of interest in periods
of decreasing interest rates and higher rates of interest in periods of
increasing interest rates. At June 30, 2002, we had no interest rate caps or
interest rate swap contracts.
The following discussion of market risk is based solely on a possible
hypothetical change in future market conditions related to our variable-rate
debt. It includes "forward-looking statements" regarding market risk, but we are
not forecasting the occurrence of these market changes. Based on the amount of
variable debt outstanding as of June 30, 2002, a 1% increase or decrease in
interest rates on our $73.8 million of floating rate debt would decrease or
increase, respectively, six months earnings and cash flows by approximately
$0.37 million, as a result of the increased or decreased interest expense
associated with the change in rate, and would not have an impact on the fair
value of the floating rate debt. This amount is determined by considering the
impact of hypothetical interest rates on our borrowing cost. Due to the
uncertainty of fluctuations in interest rates and the specific actions that
might be taken by us to mitigate of such fluctuations and their possible
effects, the foregoing sensitivity analysis assumes no changes on our financial
structure.
================================================================================
PART II - OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The annual meeting of stockholders of the Company was held on May 23, 2002
in which proxies representing 13,893,461 shares of common stocks, or 79.6%
of the total outstanding shares, voted.
b) At the annual meeting of stockholders, Carl E. Berg, John C. Bolger,
William A. Hasler, Lawrence B. Helzel, and Raymond V. Marino were elected
as directors for the ensuing year, all of whom were serving on the board of
directors at the time of the meeting.
c) The following proposals were voted upon at the meeting:
Proposal No. 1: Election of Directors
Total Vote for Each Total Vote Withheld Total Vote Against
Directors Director from Each Director Total Abstentions Each Director
---------------------------- ---------------------- ---------------------- ---------------------- ----------------------
Carl E. Berg 13,811,114 78 82,269 -
John C. Bolger 13,811,114 78 82,269 -
William A. Hasler 13,811,112 78 82,269 2
Lawrence B. Helzel 13,811,114 78 82,269 -
Raymond V. Marino 13,811,114 78 82,269 -
Proposal No. 2: Ratification of the selection of PricewaterhouseCoopers,
LLP as independent public accountants for the Company for the year ending
December 31, 2002. There were 13,837,752 votes in favor of the proposal,
35,042 votes against the proposal, and 20,667 abstentions.
- 20 -
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
10.29 Cupertino National Bank Revolving Credit Loan Agreement
10.30 Mission West Properties, LP Continuing Guaranty
10.31 Mission West Properties, LP II Continuing Guaranty
99.1 Certification of CEO and CFO
b. Reports on Form 8-K
None
================================================================================
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Mission West Properties, Inc.
(Registrant)
Date: August 13, 2002 By:/s/ Wayne N. Pham
--------------------------------------
Wayne N. Pham
Vice President of Finance and Controller
(Principal Accounting Officer and Duly
Authorized Officer)
- 21 -
EXHIBIT 10.29
CUPERTINO NATIONAL BANK
REVOLVING CREDIT LOAN AGREEMENT
THIS REVOLVING CREDIT LOAN AGREEMENT (this "Agreement") is made and
delivered this 12th day of July 2002, by and between Mission West Properties,
Inc., a Maryland corporation ("Borrower") and Cupertino National Bank (the
"Bank").
WITNESSETH
WHEREAS, the Borrower desires to borrow up to Forty Million Dollars
($40,000,000.00) from the Bank from time to time to meet the working capital
needs of the Borrower; and
WHEREAS, the Bank is willing to supply such financing subject to the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained and in reliance upon Borrower's representations and warranties
set forth herein, the Borrower and the Bank agree as follows:
1. Definitions.
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following respective meanings:
"Affiliate" shall mean, when used with respect to any person, any other
person which, directly or indirectly, controls or is controlled by or is under
common control with such person. For purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), with respect to any person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities or by contract or otherwise.
"Agreement" is defined in the first paragraph of this Agreement.
"Annual Gross Rental Income" shall mean with respect to any of the MWP Pool
Properties and any of the MWP II Pool Properties, the annual gross rental income
received by MWP or MWP II from each of their respective properties, except that,
for purposes of determining Annual Gross Rental Income hereunder, income shall
be calculated on a stabilized basis and shall not include security or other
deposits or letters of credit, late fees, lease termination or other similar
charges, delinquent rent recoveries unless previously reflected in reserves, or
proceeds of insurance or any other items of a non-recurring nature.
"Automatic Loan Calculation Time" is defined in Section 2.4.1 of this
Agreement.
"Automatic Loan Repayment Time" is defined in Section 2.4.2 of this
Agreement.
- 1 -
"Automatic Variable Rate Loan" is defined in Section 2.4.1 of this
Agreement.
"Bank" is defined in the first paragraph of this Agreement.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as
amended, or any successor act or code.
"Borrower" is defined in the first paragraph of this Agreement.
"Borrower's Deposit Account" is defined in Section 6.12 of this Agreement.
"Business Day" shall mean a day on which the Bank is open to carry on its
normal commercial lending business.
"Commitment" shall mean the Bank's agreement to lend to Borrower in
accordance with and subject to the terms of this Agreement.
"Commitment Amount" shall mean, as of any applicable date of determination,
Forty Million Dollars and no cents ($40,000,000.00).
"Consolidated" or "consolidated" shall mean, when used with reference to
any financial term in this Agreement, the aggregate for two or more persons of
the amounts signified by such term for all such persons determined on a
consolidated basis in accordance with GAAP as defined below. Unless otherwise
specified herein, reference to "consolidated" financial statements or data of
the Borrower includes consolidation with its Subsidiaries in accordance with
GAAP.
"Debt" shall mean, as of any applicable date of determination, all items of
indebtedness, obligation or liability of a person, whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, joint or
several, that should be classified as liabilities in accordance with GAAP.
"Debt Service Coverage Ratio" shall mean, as of any applicable date of
determination, the ratio of: (1) the sum of Borrower's net income, plus interest
(related parties), plus all other interest (including but not limited to any
interest paid to any other party), plus minority interest distributions paid by
Borrower (as set forth in Borrower's Consolidated Statement of Cash Flows), plus
dividends paid by Borrower (as set forth in Borrower's Consolidated Statement of
Cash Flows), plus depreciation, minus deferred rent (as set forth in Borrower's
Consolidated Statement of Cash Flows), and minus Borrower's gains on sale of
real estate; to (2) the sum of interest (related parties), plus all other
interest (including but not limited to any interest paid to any other party),
plus the current portion of Borrower's long term debt. The Debt Service Coverage
Ratio shall be determined by the Bank as of each Fiscal Quarter (as defined
below) and on the basis of the preceding twelve (12) month period (actual or
based on annualized quarters) as follows: (i) as to each Fiscal Quarter ending
on March 31, June 30, and September 30, from Borrower's SEC Form 10-Q filed with
the Securities and Exchange Commission
- 2 -
relating to such quarter, with such quarter results annualized; and (ii) as to
each Fiscal Quarter ending on December 31, from Borrower's SEC Form 10-K
relating to the year ending on such date. Notwithstanding the foregoing, the
Bank may also rely on other information that Borrower is obligated to provide to
the Bank pursuant to Section 6.1 of this Agreement. Exhibit E hereto includes an
example of the calculation of Debt Service Coverage Ratio as defined herein from
Borrower's SEC Form 10-K for the period ending December 31, 2001, and is
provided for example purposes only.
"Default" shall mean a condition or event which, with the giving of notice
or the passage of time, or both, would become an Event of Default as defined
below.
"Default Rate" shall mean, as of the applicable date or time of
determination, LIBOR as defined below plus nine percent (9%).
"Deposit Account Excess Amount" is defined in Section 2.4.2 of this
Agreement.
"Deposit Account Shortfall Amount" is defined in Section 2.4.1 of this
Agreement.
"Effective Date" shall mean the date this Agreement becomes effective as
set forth in Section 9.1 herein.
"Election" shall mean that election referred to in Section 2.3.2.2.2.1 of
this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, or any successor act or code.
"Event of Default" shall mean any of those conditions or events listed in
Section 8.1 of this Agreement.
"Financial Statements" shall mean all those consolidated balance sheets,
consolidated earnings statements and other consolidated financial data which
have been furnished to the Bank for the purposes of, or in connection with, this
Agreement and the transactions contemplated hereby, including without limit the
following: the "Proposed Pool Of Assets - Multi-Tenant" provided by Borrower to
the Bank, Borrower's SEC Form 10-K for the periods ending December 31, 2000, and
December 31, 2001, Borrower's SEC Form 10-Q dated November 12, 2001 for the
period ending September 30, 2001, and Borrower's SEC Form 10-Q dated May 14,
2002 for the period ending March 31, 2002.
"Fiscal Quarter" shall mean each three-month period ending on March 31,
June 30, September 30, and December 31 of each year.
"Funding Date" shall mean, with respect to any Revolving Loan made by the
Bank hereunder, the date of the funding of such Revolving Loan by Bank.
"GAAP" shall mean, as of any applicable date of determination, generally
accepted accounting principles consistently applied in the United States.
- 3 -
"Guarantor" shall mean Mission West Properties, L.P., a Delaware limited
partnership, and Mission West Properties, L.P. II, a Delaware limited
partnership, and any other person who may execute a Guaranty of all or part of
the Indebtedness, jointly and severally.
"Guaranty" shall mean a guaranty (or separate guaranties) in the form and
content of Exhibit A to this Agreement pursuant to which the Guarantors (jointly
and severally) unconditionally guarantee repayment to the Bank of all the
Indebtedness and other obligations as provided therein.
"Indebtedness" shall mean all loans, advances, indebtedness, obligations
and liabilities of Borrower to the Bank under this Agreement, together with all
other indebtedness, obligations and liabilities whatsoever of the Borrower to
the Bank, whether matured or unmatured, liquidated or unliquidated, direct or
indirect, absolute or contingent, joint or several, due or to become due, now
existing or hereafter arising.
"Initial LIBOR Period" shall mean, as to each LIBOR Loan as defined below,
the LIBOR Period selected by Borrower in its Notice of Borrowing applicable to
such LIBOR Loan.
"Initial LIBOR Rate" shall mean, as to each LIBOR Loan as defined below,
the interest rate payable for such LIBOR Loan in accordance with Section
2.3.2.2.1 herein as of the first day of the Initial LIBOR Period for such LIBOR
Loan.
"Interest Coverage Ratio" shall mean, as of any applicable date of
determination, the ratio of: (1) the sum of Borrower's net income, plus interest
(related parties), plus all other interest (including but not limited to any
interest paid to any other party), plus minority interest distributions paid by
Borrower (as set forth in the Consolidated Statement of Cash Flows), plus
dividends paid by Borrower (as set forth in the Consolidated Statement of Cash
Flows), plus depreciation, minus deferred rent (as set forth in Borrower's
Consolidated Statement of Cash Flows), and minus Borrower's gains on sale of
real estate; to (2) the sum of interest (related parties), plus all other
interest (including but not limited to any interest paid to any other party).
The Interest Coverage Ratio shall be determined by the Bank as of each Fiscal
Quarter (as defined below) and on the basis of the preceding twelve (12) month
period (actual or based on annualized quarters) as follows: (i) as to each
Fiscal Quarter ending on March 31, June 30, and September 30, from Borrower's
SEC Form 10-Q filed with the Securities and Exchange Commission relating to such
quarter, with such quarter results annualized; and (ii) as to each Fiscal
Quarter ending on December 31, from Borrower's SEC Form 10-K relating to the
year ending on such date. Notwithstanding the foregoing, the Bank may also rely
on other information that Borrower is obligated to provide to the Bank pursuant
to Section 6.1 of this Agreement. Exhibit F hereto includes an example of the
calculation of Interest Coverage Ratio as defined herein from Borrower's SEC
Form 10-K for the period ending December 31, 2001, and is provided for example
purposes only.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and hereafter, and any successor statute.
"Legal Rate" shall mean the maximum interest rate allowed by law to be paid
by the Borrower or received by the Bank with respect to the Indebtedness
represented by the Note.
- 4 -
"Lender" shall mean any bank, financial institution, finance company,
insurance or other financial institution or any other person who extends or has
extended any credit or loan or line of credit to any other person.
"LIBOR" shall mean the London Inter-Bank Offered Rate, rounded up, if
necessary, to the nearest whole 1/100 of 1%.
"LIBOR Loan" shall mean a Revolving Loan as to which, pursuant to Sections
2.3.1, 2.3.2, and 2.3.4, Borrower has selected an interest rate based on a
thirty (30), sixty (60), or ninety (90) day LIBOR Period.
"LIBOR Period" shall mean the period beginning on and including the Funding
Date and ending on (but excluding) the day which numerically corresponds to such
date thirty (30), sixty (60) or ninety (90) days thereafter, in each case as
Borrower may select in its relevant Notice of Borrowing pursuant to Section
2.3.4.1 herein or in its Election pursuant to Section 2.3.2.2.2.1 herein (except
that if the LIBOR Period would otherwise end on a day which is not a Business
Day, then such LIBOR Period shall end on the next following Business Day and
except that no LIBOR Period may end later than the Termination Date as defined
below).
"Loan" shall mean the Revolving Loans.
"Loan Documents" shall mean this Agreement, the Note, each Guaranty, the
Non-Encumbrance Agreement and all other agreements, instruments and documents
(together with all amendments and supplements thereto and replacements thereof)
now or hereafter executed by Borrower or Guarantor that evidence, guaranty or
secure all or any portion of the Indebtedness or Borrower's obligations
hereunder.
"Material Adverse Effect" or "Materially Adverse Effect" shall mean, with
respect to a Person, a material adverse effect upon the condition (financial or
otherwise), operations, performance or properties or assets of such Person.
"Minimum Tangible Net Worth" shall be calculated each Fiscal Quarter and
shall mean, as of any applicable date of determination, Total Stockholders'
Equity (but not including Minority Interest) as stated in the Consolidated
Balance Sheet of Borrower in Borrower's SEC Form 10-Q or, as applicable, SEC
Form 10-K (or other financial information that Bank may obtain regarding
Borrower or that may be provided by Borrower to Bank in accordance with), less
intangibles calculated in accordance with GAAP.
"MWP" shall mean Mission West Properties, L.P., a Delaware limited
partnership, and its successors and assigns.
"MWP II" shall mean Mission West Properties, L.P. II, a Delaware limited
partnership, and its successors and assigns.
"MWP Pool Properties" shall mean those real estate properties identified in
Schedule 1 to the Non-Encumbrance Agreement as defined below including any
"Replacement Properties" as defined in such agreement.
- 5 -
"MWP II Pool Properties" shall mean those real estate properties identified
in Schedule 2 to the Non-Encumbrance Agreement as defined below including any
"Replacement Properties" as defined in such agreement.
"Non-Encumbrance Agreement" shall mean a non-encumbrance agreement between
Bank, Borrower, MWP and MWP II in the form and content of Exhibit C to this
Agreement pursuant to which Borrower, MWP and MWP II (jointly and severally)
agree not to encumber the MWP Pool Properties and the MWP II Pool Properties in
accordance with the terms therein.
"Note" shall mean the Revolving Credit Note.
"Notice of Borrowing" shall mean, with respect to a proposed Revolving Loan
pursuant to Section 2.3 of this Agreement, a notice substantially in the form of
Exhibit D hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any person
succeeding to the present powers and functions of the Pension Benefit Guaranty
Corporation.
"Person" or "person" shall mean any individual, corporation, partnership,
joint venture, association, trust, unincorporated association, joint stock
company, government, municipality, political subdivision or agency, or other
entity.
"Prepayment Date" is defined in Section 2.3.2.3 of this Agreement.
"Prepayment Penalty" is defined in Section 2.3.2.3 of this Agreement.
"Prime Variable Rate" shall mean that variable rate of interest equal to
the Prime Rate as published in the Wall Street Journal minus 3/4 percent (3/4%),
per annum, with the interest rate to be initially calculated by the Bank as of
approximately 10:00 a.m. San Jose, California time on the date on which the Bank
exercises its option under Section 2.16 if such option date is the first day of
the month, or, if not, as of approximately 10:00 a.m. San Jose, California time
as the first day of the month during which such option date occurs, and with the
interest rate to thereafter fluctuate with changes in such Prime Rate with such
fluctuations to be effective, and the interest rate to be adjusted, on the first
day of each month.
"Revolving Credit Note" shall mean a promissory note conforming to Section
2.5 of this Agreement and in the form and content of Exhibit B to this
Agreement.
"Revolving Loan" shall mean advances or loans made by the Bank to the
Borrower under this Agreement.
"Section" when used to refer to a portion of this Agreement shall mean the
section to which reference is made plus all subparts and subsections thereof.
"Solvent" shall mean, as to any person at the time of determination, that
such person (a) owns property and assets the value of which (both at fair
valuation and at present fair salable value) is greater than the amount required
to pay all of such person's liabilities (including contingent liabilities and
debts); (b) is able to pay all of its debts as such debts mature; and (c)
- 6 -
has capital sufficient to carry on its business and transactions and all
business and transactions in which it is about to engage.
"Subsidiary" shall mean any corporation (whether now existing or hereafter
organized or acquired) in which more than fifty percent (50%) of the outstanding
securities having ordinary voting power for the election of directors, as of any
applicable date of determination, shall be owned directly, or indirectly through
one or more Subsidiaries, by the Borrower.
"Termination Date" shall mean July 12, 2004.
"Total Loans of Borrower" shall mean, as of the date of any such
determination, the sum of the total outstanding principal balance of all secured
loans to Borrower from any Lender plus the total amount of all the balances and
the credit commitments under any and all unsecured loans, unsecured lines of
credit, unsecured credit facilities of any kind (including but not limited to
the Commitment Amount), and any other commitments evidencing any extension of
unsecured debt to Borrower by any Lender.
"Value" as to each and any of the MWP Pool Properties and each and any of
the MWP II Pool Properties shall be based upon the Annual Gross Rental Income
from each such property less a fifteen percent reserve for vacancy and expenses,
and using a ten percent income capitalization rate, and shall mean at any time
an amount equal to (i) the Annual Gross Rental Income from such property for the
preceding twelve month period multiplied by 0.85, and (ii) which amount shall be
divided by 0.10, illustrated as follows:
(Annual Gross Rental Income x 0.85) / 0.10 = Value of subject property
"Value (Borrower Aggregate)" shall be determined as of each Fiscal Quarter
and shall mean, as of the applicable date of determination, the sum of total
quarterly rental revenue as reported by Borrower in its SEC Form 10-Q filed with
the Securities Exchange Commission (or as determined by Bank from such other
financial information as Bank may reasonably request and Borrower may provide in
accordance with Section 6.1 herein or as Bank may obtain) multiplied by four
(which sum shall be referred to as "Annualized Quarterly Rental Revenue"),
multiplied by 0.85, and which amount shall be divided by 0.10, illustrated as
follows:
"Quarterly Rental Revenue x 4 = Annualized Quarterly Rental Revenue
(Annualized Quarterly Rental Revenue x 0.85) / 0.10 = Value
(Borrower Aggregate)"
"UCC" shall mean Uniform Commercial Code of the State of California
(approved June 8, 1968) as amended.
"Variable Rate" shall mean that variable rate of interest equal to the sum
of LIBOR applicable to funds borrowed for a thirty (30) day period plus two
percent (2%), per annum, the interest rate to be initially calculated by the
Bank as of approximately 10:00 a.m. San Jose, California time on the Funding
Date if the Funding Date is the first day of a month, or, if not, as of
approximately 10:00 a.m. San Jose, California time on the first day of the month
during which the Funding Date occurs, and with the interest rate to thereafter
fluctuate with changes in such
- 7 -
LIBOR with such fluctuations to be effective, and the interest rate to be
adjusted, on the first day of each month.
"Variable Rate Loan" shall mean a Revolving Loan as to which Borrower has
selected a Variable Rate pursuant to Sections 2.3.1, 2.3.3, and 2.3.4, any LIBOR
Loan that has converted to a Variable Rate Loan pursuant to Section 2.3.2.2.2.2
or Section 2.13.2; and/or an Automatic Variable Rate Loan under Section 2.4.1.
"Variable Rate Loans Outstanding Amount" is defined in Section 2.4.2 of
this Agreement.
1.2 Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be construed in accordance with ----------------
GAAP.
1.3 Singular and Plural. Where the context herein requires, the singular
number shall be deemed to include the plural, the masculine gender
shall include the feminine and neuter genders, and vice versa.
2. Commitment, Procedures, Interest and Fees.
2.1 Revolving Credit Commitment. Subject to the terms and conditions of
this Agreement and at any time from the Effective Date until the
earlier of (a) the Termination Date, (b) such earlier date on which,
pursuant to the terms of this Agreement and a result of acceleration
or otherwise, the Indebtedness is fully due and payable, or (c) the
termination of the Bank's Commitment pursuant to Section 8.2 of this
Agreement or otherwise, the Bank agrees to make Revolving Loans to the
Borrower on a revolving basis up to an aggregate principal amount
outstanding at any time not to exceed the Commitment Amount.
Notwithstanding the foregoing, the Bank shall not be obligated to make
the Revolving Loan if: (i) any of the conditions precedent set forth
in Section 4 of this Agreement shall not have been satisfied or waived
by the Bank in accordance with Section 9.4 of this Agreement, or (ii)
such proposed Revolving Loan would cause the aggregate unpaid
principal amount of the Revolving Loans outstanding under this
Agreement to exceed the Commitment Amount on the Funding Date.
2.2 Revolving Loans Made Pursuant to Notice of Borrowing and Automatic
Loans. Pursuant to the terms of this Agreement, Revolving Loans shall
be made pursuant to a Notice of Borrowing pursuant to Section 2.3 or
automatically pursuant to Section 2.4.
2.3 Revolving Loans Made Pursuant to Notice of Borrowing.
2.3.1Borrower's Selection of Loan Type. Pursuant to the procedures set
forth in Section 2.3.4 and as to each Revolving Loan made
pursuant to a Notice of Borrowing, Borrower shall select whether
the Loan shall be a LIBOR Loan or a Variable Rate Loan, and, if a
LIBOR Loan, the applicable LIBOR Period (whether 30-day, 60-day,
or 90-day). Borrower may select a LIBOR Loan only if there is
sufficient time for the selected LIBOR Period to commence and end
prior to the Termination Date.
2.3.2LIBOR Loans. The following provisions apply to each LIBOR Loan:
- 8 -
2.3.2.1 Maximum Number of LIBOR Loans; Revolving Loan Amount. At
any one time, there shall not be more than eight (8)
outstanding LIBOR Loans. The amount of each LIBOR Loan must
be in the amount of One Million Dollars ($1,000,000.00) or
integral multiples of One Million Dollars ($1,000,000.00).
2.3.2.2 Interest Rate. Except as otherwise provided herein
(including without limitation Section 2.6 relating to the
Default Rate), each LIBOR Loan will bear interest as
follows:
2.3.2.2.1 Initial LIBOR Rate. During the Initial LIBOR
Period, the LIBOR Loan shall bear interest on the
unpaid principal amount thereof at a rate per annum
equal to the sum of LIBOR applicable to the Initial
LIBOR Period calculated by the Bank as of approximately
10:00 a.m. San Jose, California time on the first day
of the Initial LIBOR Period plus two percent (2%) (the
"Initial LIBOR Rate").
2.3.2.2.2 Subsequent Rates. Upon expiration of the Initial
LIBOR Period, the LIBOR Loan shall bear interest as
follows:
2.3.2.2.2.1 Borrower's Timely Election of Additional
LIBOR Period(s). Borrower may elect to continue
the LIBOR Loan after e xpiration of the Initial
LIBOR Period for additional, successive LIBOR
Periods as long as, (i) there is sufficient time
for the additional LIBOR Period to commence and
end prior to the Termination Date; (ii) there is
no Default or Event of Default; and (iii) not less
than two (2) nor more than five (5) Business Days
prior to the expiration of each LIBOR Period,
Borrower provides to the Bank at 20230 Stevens
Creek Boulevard, Cupertino, California 95014,
Attention Michael Zukin, or to such other persons
or entities as the Bank may designate, a written
election (the "Election") to continue the LIBOR
Loan for an additional LIBOR Period. The Election
shall specify the additional LIBOR Period (whether
30-day, 60-day, or 90-day). During each additional
LIBOR Period, the LIBOR Loan shall bear interest
on the unpaid principal amount thereof at a rate
per annum equal to the sum of LIBOR applicable to
such additional LIBOR Period calculated by the
Bank as of approximately 10:00 a.m. on the first
Business Day immediately following expiration of
the Initial LIBOR Period plus two percent (2%).
2.3.2.2.2.2 Borrower's Failure to Make a Timely
Election of Additional LIBOR Period(s) or
Insufficient Time Left Prior to Termination Date.
If, during any LIBOR Period, (i) Borrower fails to
provide the Election in accordance with Section
2.3.2.2.2.1, or (ii) there is insufficient time
for an additional LIBOR Period to commence and end
prior to the Termination Date, then upon the
expiration of such LIBOR Period, the LIBOR Loan
will convert automatically to a Variable Rate Loan
and shall bear interest on the unpaid principal
amount thereof at the Variable Rate.
2.3.2.3 Prepayment Penalty. Borrower acknowledges that prepayment
or acceleration of a LIBOR Loan during a LIBOR Period may
result in the Bank incurring additional costs, expenses
and/or liabilities and that it is extremely difficult
andimpractical to ascertain the extent of such costs,
expenses and/or liabilities. Therefore, on a date a LIBOR
Loan is so prepaid or so accelerated (the "Prepayment
Date"), Borrower will pay to the Bank (in addition to all
other sums then owing) an amount (a "Prepayment Penalty")
equal to the following: (i) the present value as of the
Prepayment Date of the amount of interest that would
- 9 -
have accrued on the LIBOR Loan for the remainder of the
LIBOR Period at the rate applicable to such LIBOR Loan, less
(ii) the present value as of the Prepayment Date of the
amount of interest that would accrue on the same LIBOR Loan
for the same period if LIBOR were set on the Prepayment
Date. The present value shall be calculated by using as a
discount rate LIBOR quoted on the Prepayment Date. Upon
notice to Borrower by the Bank, Borrower shall immediately
pay to the Bank the Prepayment Penalty as calculated by the
Bank. Exhibit G hereto includes an example of a prepayment
calculation and is provided for example purposes only.
2.3.3Variable Rate Loans. The following provisions apply to each
Variable Rate Loan:
2.3.3.1 Interest Rate. Except as otherwise provided herein
(including without limitation Section 2.6 relating to the
Default Rate), each Variable Rate Loan will bear interest on
the unpaid principal amount thereof at the Variable Rate.
2.3.4Borrowing Procedures for Revolving Loans Made Pursuant to Notice
of Borrowing.
2.3.4.1 Notice of Borrowing. Whenever Borrower desires to Borrow
under Section 2.3, Borrower shall provide to the Bank at
20230 Stevens Creek Boulevard, Cupertino, California 95014,
Attention Michael Zukin, or to such other persons or
entities as Bank may designate, an original Notice of
Borrowing. Such Notice of Borrowing shall be provided by no
later than 11:00 A.M. (San Jose, California time) for each
Revolving Loan requested and not less than two (2) nor more
than five (5) Business Days prior to the noticed Funding
Date of each such Revolving Loan. Each Notice of Borrowing
shall specify (A) the Funding Date (which shall be a
Business Day) in respect of the Revolving Loan, (B) the
amount of the proposed Revolving Loan, (C) whether the
Borrower selects a LIBOR Loan or a Variable Rate Loan and,
if a LIBOR Loan, the applicable LIBOR Period, (D) the
deposit account number of Borrower with Bank to which the
funds are to be directed, and (E) the proposed use of such
Revolving Loan. Any Notice of Borrowing shall be
irrevocable. At the time of execution of this Agreement and
as a condition to the Bank's obligations hereunder, Borrower
shall provide the Bank with written documentation
satisfactory to the Bank specifying the names of those
employees, officers or agents of Borrower authorized by
Borrower to execute and submit Notices of Borrowing to the
Bank ("Authorized Agent") and a signature exemplar of each
such Authorized Agent, and the Bank shall be entitled to
rely on such documentation until notified in writing by
Borrower of any change(s) of the persons so authorized.
Borrower agrees to indemnify, defend and hold the Bank
harmless from and against any and all liabilities, costs
(including but not limited to attorneys' fees), claims,
damages and demands arising from or related to Bank's
acceptance of instructions in any Notice of Borrowing
executed and submitted an Authorized Agent, unless caused by
the gross negligence or willful misconduct of the Person to
be indemnified.
2.3.4.2 Bank Obligations. Subject to the terms and conditions of
this Agreement including without limitation Section 2.1 and
subject to Borrower's performance of and compliance with the
terms hereof including without limitation Section 2.3.4.1
herein, the Bank agrees to make the Revolving Loan pursuant
to a Notice of Borrowing on the Funding
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Date established by the Notice of Borrowing by crediting the
deposit account of the Borrower with the Bank specified in
the Notice of Borrowing in the amount of such Revolving
Loan.
2.4 Automatic Variable Rate Loans and Automatic Repayments. Subject to the
terms and conditions of this Agreement including without limitation
Section 2.1, the Bank is hereby authorized and shall, without the need
for any Notice of Borrowing or other authorization, make Automatic
Variable Rate Loans to Borrower and make automatic repayments toward
Variable Rate Loans as follows:
2.4.1Automatic Variable Rate Loans. If, after close of business on any
Business Day (the "Automatic Loan Calculation Time"), the amount
on deposit in the Borrower's Deposit Account as defined in
Section 6.12 is less than One Million Dollars ($1,000,000.00),
then the Bank shall calculate the amount of the shortfall (the
"Deposit Account Shortfall Amount") as of the Automatic Loan
Calculation Time, and, by no later than the end of the next
Business Day, shall make a Revolving Loan (an "Automatic Variable
Rate Loan") in the Deposit Account Shortfall Amount by depositing
such amount into the Borrower's Deposit Account. Except as
otherwise provided in this Agreement (including without
limitation Section 2.6 relating to Default Rate), the Automatic
Variable Rate Loan will bear interest at the Variable Rate.
2.4.2Automatic Repayment of Automatic Variable Rate Loans. If, after
close of business on any Business Day (the "Automatic Loan
Repayment Time"), the amount on deposit in the Borrower's Deposit
Account as defined in Section 6.12 is more than One Million
Dollars ($1,000,000.00) and there is an amount outstanding on the
Variable Rate Loans (the "Variable Rate Loans Outstanding
Amount"), then the Bank shall calculate, as of the Automatic Loan
Repayment Time, the amount of the excess (the "Deposit Account
Excess Amount") and the Variable Rate Loans Outstanding Amount,
and, by no later than the end of the next Business Day, the Bank
shall transfer the Deposit Account Excess Amount, or such lesser
amount as may be necessary, from the Borrower's Deposit Account
and apply such amount toward repayment of the Variable Rate Loans
Outstanding Amount.
2.5 Revolving Credit Note. The Revolving Loans shall be evidenced by the
Revolving Credit Note, executed by the Borrower, dated the date of
this Agreement, payable to the Bank on the Termination Date (or such
earlier date as the Indebtedness is due under the terms of this
Agreement whether by reason of acceleration or otherwise), and in the
principal amount of the original Commitment Amount. The date and
amount of each Revolving Loan made by the Bank and of each repayment
of principal thereon received by the Bank shall be recorded by the
Bank in its records. The aggregate unpaid principal amount so recorded
by the Bank shall constitute the best evidence of the principal amount
owing and unpaid on the Revolving Credit Note, provided, however, that
the failure by the Bank so to record any such amount or any error in
so recording any such amount shall not limit or otherwise affect the
obligations of the Borrower under this Agreement or the Revolving
Credit Note to repay the principal amount of all the Revolving Loans
together with all interest accrued or accruing thereon.
2.6 Default Interest. Upon the occurrence of an Event of Default, all
amounts due and owing by Borrower to the Bank shall bear interest at
the Default Rate.
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2.7 Interest Payments. Interest shall be payable by Borrower to the extent
then accrued on the first day of each consecutive calendar month
beginning on August 1, 2002, with all remaining interest due and
payable on the Termination Date (or such earlier date as the
Indebtedness is due under the terms of this Agreement whether by
reason of acceleration or otherwise). Any interest not paid when due
shall become part of the principal and bear interest as provided in
this Agreement.
2.8 Maximum Rate. At no time shall the rate of interest payable on the
Revolving Loans or pursuant to the Revolving Credit Note pursuant to
the terms of this Agreement be deemed to exceed the Legal Rate. In the
event any interest is charged or received by the Bank in excess of the
Legal Rate, the Borrower acknowledges that any such excess interest
shall be the result of an accidental and bona fide error, and such
excess shall first be applied to reduce the principal then unpaid
hereunder (in inverse order of their maturities if principal amounts
are due in installments); second, applied to reduce any obligation for
other indebtedness of the Borrower to the Bank; and third, any
remaining excess returned to the Borrower.
2.9 Term. The Indebtedness and the outstanding balance of all Revolving
Loans and all other accrued and unpaid interest, charges and expenses
hereunder and under the Note shall be payable in full on the
Termination Date or such earlier date as the Indebtedness is due under
the terms of this Agreement whether by reason of acceleration pursuant
to Section 8.2 or otherwise.
2.10 Fees. Borrower shall pay to Bank the fees described in this Section
2.10. All fees described herein are earned as of the date they are
accrued.
2.10.1 Minimum Annual Fee. The Borrower shall pay to the Bank a
minimum annual fee of Thirty Three Thousand Three Hundred Thirty
Three Dollars and no cents ($33,333.00) (the "Minimum Annual
Fee"). The Minimum Annual Fee paid by Borrower shall be credited
towards Borrower's payment of the Non-Utilization Fee as required
by Section 2.10.2 below. The Minimum Annual Fee shall be payable
in advance, in the manner provided in Section 2.14 herein, on the
Effective Date for the first year hereunder, and on each
anniversary of the Effective Date for each subsequent year.
2.10.2 Non-Utilization Fee. From and after the Effective Date and
until (i) the Indebtedness is paid in full or (ii) the
Termination Date, whichever is later, Borrower shall pay to the
Bank a fee (the "Non-Utilization Fee") each Fiscal Quarter which
shall accrue as follows:
(i) If the sum of the Commitment Amount minus the average daily
principal balance of all Revolving Loans as determined for
each Fiscal Quarter (the "Average Line Non-Utilization
Amount") is greater than Twenty Million Dollars and no cents
($20,000,000.00), then the Non-Utilization Fee for such
Fiscal Quarter shall equal the sum of the Average Line
Non-Utilization Amount multiplied by 0.000375.
(ii) If the Average Line Non-Utilization Amount is less than or
equal to Twenty Million Dollars and no cents
($20,000,000.00), then the Non-Utilization Fee for such
Fiscal Quarter shall equal the sum of the Average Line
Non-Utilization Amount multiplied by 0.000625.
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The Non-Utilization Fee shall be payable, in the manner provided
in Section 2.14 herein, in arrears on the first Business Day in
each Fiscal Quarter, beginning with the end of the first Fiscal
Quarter after the Effective Date. Exhibit H hereto includes
examples of the calculation of the Non-Utilization Fee under
Sections 2.10.2 (i) and 2.10.2 (ii), and is provided for example
purposes only.
2.10.3 No Fee After Termination of Bank Obligations. Notwithstanding
Sections 2.10.1 and 2.10.2, the Borrower shall not be obligated
to pay any Minimum Annual Fee or any Non-Utilization Fee earned
by the Bank after the date which is ten (10) days after Borrower
has: (i) given written notice to the Bank terminating the Bank's
Commitment and any further obligation by the Bank under this
Agreement; and (ii) paid the Indebtedness in full.
2.11 Preparation Fees. Simultaneously with the execution of this Agreement
and as a condition to the Bank's obligations hereunder, the Borrower
shall pay to the Bank the amount of the expenses (including without
limit attorneys' fees, whether of inside or outside counsel, and
disbursements) incurred by the Bank in connection with the preparation
of this Agreement and the Loan Documents in the amount of Fifteen
Thousand Dollars ($15,000.00).
2.12 Basis of Computation. The amount of all interest and fees hereunder
shall be computed for the actual number of days elapsed in the period
in which interest accrues on the basis of a year consisting of three
hundred sixty (360) days.
2.13 Mandatory Payments and Prepayments.
2.13.1 Mandatory Payments. In addition to all other payments required
to be made under the Loan Documents, Borrower shall pay to the
Bank the amount, if any, by which the aggregate unpaid principal
amount of all Revolving Loans from time to time exceeds the
Commitment Amount, together with all interest accrued and unpaid
on the amount of such excess. Such payment shall be immediately
due and owing without notice or demand upon the occurrence of any
such excess, provided, however, that any mandatory payment made
under this Section 2.13.1 shall not reduce the Commitment Amount.
2.13.2 Optional Prepayments and Conversions. The Borrower, at any time
and from time to time, may prepay the unpaid principal amount of
the Variable Rate Loans, including without limitation the
Automatic Variable Rate Loans. In addition, the Borrower, at any
time and from time to time, may convert all or any portion of the
outstanding Variable Rate Loans into LIBOR Loans upon and subject
to the terms, conditions, and procedures set forth in Sections
2.3.2 and 2.3.4 applicable to LIBOR Loans made thereunder in
which case the Notice of Borrowing shall be modified to request
the conversion of a specified amount of the Variable Rate Loans
to be converted to a LIBOR Loan (rather than the disbursement of
proceeds), to specify the date on which the conversion is to be
made (rather than a Funding Date), and to delete the requirements
in Schedule 1 relating to wire instructions, proposed use of
funds, and deposit account. In addition, the Borrower, at any
time and from time to time, upon at least one (1) Business Day's
prior written notice received by the Bank and subject to the
Prepayment Penalty in Section 2.3.2.3 herein, may prepay the
unpaid principal amount of the LIBOR Loans in whole or in part,
provided, however, as follows: (i) any such optional prepayment
under this Section 2.13.2 shall be made in integral multiples of
One Hundred Thousand Dollars
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($100,000.00); (ii) to the extent that such optional prepayment
repays part but not all of any LIBOR Loan, such LIBOR Loan shall
immediately convert to a Variable Rate Loan (but Borrower shall
still be liable for the Prepayment Penalty in Section 2.3.2.3
herein); and (iii) any optional prepayment made under this
Section 2.13.2 shall not reduce the Commitment Amount.
2.14 Basis of Payments. All sums payable by the Borrower to the Bank under
this Agreement or the Loan Documents shall be paid immediately by
Borrower when due directly to the Bank at its principal office set
forth in Section 9.12 hereof in immediately available United States
funds, without condition, set off, deduction or counterclaim. In its
sole discretion, the Bank may charge any and all deposit or other
accounts (including without limit an account evidenced by a
certificate of deposit) of the Borrower with the Bank for all or a
part of any Indebtedness when due; provided, however, that this
authorization shall not affect the Borrower's obligation to pay, when
due, any Indebtedness whether or not account balances are sufficient
to pay amounts due. Whenever any payment to be made by Borrower
hereunder shall be stated to be due on a day which is not a Business
Day, payments shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the
payment of interest hereunder and of any of the fees specified in
Sections 2.3.2.3 and 2.10, as the case may be. Borrower acknowledges
and agrees that the fees described in Section 2.10 represent
compensation for services rendered and to be rendered separate and
apart from the lending of money or the provision of credit and do not
constitute compensation for the use, detention or forbearance of
money, and the obligation of Borrower to pay the fees described herein
shall be in addition to, and not in lieu of, the obligation of
Borrower to pay interest, other fees and expenses otherwise described
in this Agreement. If Borrower fails to make any payment of fees or
expenses specified or referred to in this Agreement owing to Bank,
including without limitation those referred to in Section 2.10, or
otherwise under this Agreement, or any separate fee agreement between
Borrower or Bank relating to this Agreement, when due, the amount
shall bear interest until paid at the Default Rate.
2.15 Receipt of Payments. Any payment of the Indebtedness made by mail will
be deemed tendered and received only upon actual receipt by the Bank
at the address designated for such payment, whether or not the Bank
has authorized payment by mail or any other manner, and shall not be
deemed to have been made in a timely manner unless received on the
date due for such payment, time being of the essence. Borrower
expressly assumes all risks of loss or liability resulting from
non-delivery or delay of delivery of any item of payment transmitted
by mail or in any other manner. Acceptance by the Bank of any payment
in an amount less than the amount then due shall be deemed an
acceptance on account only, and the failure to pay the entire amount
then due shall be and continue to be a Default or Event of Default as
provided in Section 8.1, and at any time thereafter and until the
entire amount then due has been paid, the Bank shall be entitled to
exercise any and all rights conferred upon it herein upon the
occurrence of a Default or Event of Default as provided in Section
8.1. Borrower waives the right to direct the application of any and
all payments at any time or times hereafter received by the Bank from
or on behalf of the Borrower. Borrower agrees that the Bank shall have
the continuing exclusive right to apply and to reapply any and all
payments received at any time or times hereafter against the
Indebtedness in such manner as the Bank may deem advisable,
notwithstanding any entry by the Bank upon any of its books and
records. Borrower expressly agrees that to the extent that the Bank
receives any payment of benefit and such payment or benefit, or any
part thereof, is subsequently invalidated, declared to be fraudulent
or preferential, set aside or is required to be repaid to a trustee,
receiver, or any other party under any bankruptcy act, state or
federal law,
- 14 -
common law or equitable cause, then to the extent of such payment or
benefit, the Indebtedness or part thereof intended to be satisfied
shall be revived and continued in full force and effect as if such
payment or benefit had not been made and, further any such repayment
by the Bank, to the extent that the Bank did not directly receive a
corresponding cash payment, shall be added to and be additional
Indebtedness payable upon demand by the Bank.
2.16 LIBOR Unlawful or Unavailable. Should the Bank in its sole discretion
binding on Borrower determine that the introduction of or any change
in any law or the interpretation of any law makes it unlawful for the
Bank to make or maintain Revolving Loans bearing interest based on
LIBOR or that LIBOR has become unavailable as an index, then, at the
Bank's option and upon its exercise of such option: (i) the interest
rate on any outstanding Revolving Loans shall thenceforth bear
interest at the Prime Variable Rate; and (ii) all additional Revolving
Loans shall be Variable Rate Loans except that they shall bear
interest at the Prime Variable Rate.
3. Guaranty.
To guaranty full and timely performance of the Borrower's covenants
set out in this Agreement and to secure the repayment of the Revolving
Credit Note and all other Indebtedness, the Borrower shall have caused to
be executed and delivered to the Bank the Guaranty.
4. Conditions to Obligations of Bank.
4.1 Conditions Precedent to First Disbursement. The obligations of the
Bank under this Agreement to make the first Revolving Loan are subject
to the occurrence, prior to or simultaneously with the Funding Date
first occurring, of each of the following conditions:
4.1.1Borrower Documents Executed and Filed and Fees Paid. The Borrower
shall have executed (or caused to be executed) and delivered to
the Bank the following in form and substance acceptable to Bank:
(a) This Agreement;
(b) The Revolving Credit Note;
(c) The Non-Encumbrance Agreement;
(d) Copy of Borrower's Bylaws, including all amendments thereto
and restatements thereof, which shall have been certified by
the Secretary or Assistant Secretary of the Borrower as of
the Funding Date first occurring as being complete, accurate
and in effect; and
(e) A copy of resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance
of this Agreement, the borrowing hereunder, the Revolving
Credit Note and any other documents contemplated by this
Agreement, which shall have been certified by the Secretary
or Assistant Secretary of the Borrower as of the Funding
Date first occurring as being complete, accurate and in
effect.
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4.1.2Payment of Fees. Borrower shall have paid the Minimum Annual Fee
and the Preparation Fees in accordance with Sections 2.10.1 and
2.11.
4.1.3Guarantor Documents Executed and Filed. Each Guarantor shall have
executed and delivered (or caused to be delivered) to Bank each
of the following, in form and substance acceptable to Bank:
(a) A Guaranty;
(b) Partnership agreements of each Guarantor and all amendments
and modifications thereto, certified as complete, accurate
and in effect by the general partner of each Guarantor;
(c) Bank shall have received preliminary title reports
disclosing no notice of any liens or encumbrances filed
against any of the properties set forth in the
Non-Encumbrance Agreement.
Upon its execution of this Agreement, the Bank acknowledges that
it has received the documents described in Sections 4.1.1(d),
4.1.3(b), and 4.1.3(c) above.
4.1.4Other Documents Executed and Filed. The Borrower shall have
caused to be executed and delivered to the Bank the
Non-Encumbrance Agreement dated as of the date of this Agreement
between and among Bank, Borrower, MWP, and MWP II.
4.1.5Casualty Insurance. The Borrower shall have furnished to the
Bank, in form, content and amounts and with companies
satisfactory to the Bank, casualty insurance policies with loss
payable clauses in favor of the Bank, relating to the assets and
properties of Borrower and relating to the MWP Pool Properties
and the MWP II Pool Properties. Upon its execution of this
Agreement, Borrower represents, and upon its execution of this
Agreement, the Bank acknowledges that Borrower has provided to
Bank the foregoing insurance policies.
4.1.6Environmental Audit. The Borrower shall have provided to the Bank
environmental reports satisfactory in form and content to Bank,
covering all of the MWP Pool Properties and the MWP II Pool
Properties. Upon its execution of this Agreement, Borrower
represents, and upon its execution of this Agreement, the Bank
acknowledges that Borrower has provided to Bank such
environmental reports. Borrower agrees that the Bank may disclose
the contents of such reports to such governmental agencies and
entities as the Bank deems necessary under applicable law, and
the Borrower shall deliver to the Bank the written consent to
such disclosure from the environmental consultant and MWP and MWP
II.
4.1.7Approval of Bank Counsel. All actions, proceedings, instruments
and documents required to carry out the transactions contemplated
by this Agreement or incidental thereto and all other related
legal matters shall have been satisfactory to and approved by
legal counsel for the Bank, and said counsel shall have been
furnished with such certified copies of actions and proceedings
and such other instruments and documents as they shall have
reasonably requested.
- 16 -
4.2 Conditions Precedent to All Disbursements. The obligations of the Bank
to make any Revolving Loan on any Funding Date, including, but not
limited to, the Funding Date first occurring, are subject to the
occurrence, prior to or on the Funding Date related to such Revolving
Loan, of each of the following conditions:
4.2.1Certificate. The Bank shall have received a certificate, executed
by the chief executive or chief financial officer of Borrower,
certified as of the initial Funding Date, and thereafter as the
Bank may from time to time require on such date, that:
(a) No Default or Event of Default has occurred and is
continuing;
(b) The warranties and representations set forth in Section 5 of
this Agreement are true and correct on and as of such date;
and
(c) Borrower is Solvent.
4.2.2Bank Satisfaction. The Bank shall not know or have any reason to
believe that, as of such Funding Date:
(a) Any Default or Event of Default has occurred and is
continuing;
(b) Any warranty or representation set forth in Section 5 of
this Agreement shall not be true and correct; or
(c) Any provision of law, any order of any court or any
regulation, rule or interpretation thereof shall have had
any Material Adverse Effect on Borrower's financial
condition or on any Guarantor's financial condition, or on
the validity or enforceability of this Agreement, the
Revolving Credit Note, the Guaranty, the Non-Encumbrance
Agreement or any other Loan Document.
4.2.3Maximum Borrower Aggregate Loan-To-Value. The Total Loans of
Borrower shall not exceed fifty percent (50%) of Value (Borrower
Aggregate).
4.2.4Loan-To-Value of MWP Pool Properties and MWP II Pool Properties.
The Commitment Amount shall not exceed fifty percent (50%) of the
total combined Value of the MWP Pool Properties and the MWP II
Pool Properties.
4.3 Other Documents to be Provided by Borrower. No later than thirty (30)
days after the Effective Date, Borrower shall provide to Bank the
following documents:
(a) Copy of Borrower's Articles of Incorporation including all
amendments thereto and restatements thereof, and all other
charter documents of the Borrower, all of which shall have been
certified by the Maryland Department of Corporations or similar
governmental authority in the state in which Borrower is
organized and incorporated, as of a date within thirty days of
the Funding Date first occurring;
- 17 -
(b) Certified copy of Borrower's Good Standing certificate from the
California Secretary of State, dated as of a date within thirty
days of the Funding Date first occurring;
(c) A copy of the Certificate of Limited Partnership of each
Guarantor required to be filed to create a limited partnership,
including all amendments thereto and restatements thereof, all of
which shall have been certified by the Delaware Department of
Corporations or other appropriate filing office as of a date
within thirty days of the Funding Date first occurring; and
(d) Good Standing Certificate for each Guarantor from the Secretary
of State of the state in which such Guarantor is formed, dated as
of a date within thirty days of the Funding Date first occurring.
5. Warranties and Representations.
On a continuing basis from the date of this Agreement until the later of
(a) the Termination Date or (b) the date on which the Indebtedness is paid
in full and the Borrower has performed all of its other obligations
hereunder, Borrower represents and warrants to the Bank that:
5.1 Corporate Existence and Power. (a) Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Maryland and in good standing under the laws of, and is
authorized to do business in, the State of California, (b) Each
Guarantor is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of Delaware and is
authorized to do business in the State of California, (c) Borrower and
the Guarantors each has the power and authority to own its properties
and assets and to carry out its business as now being conducted and is
qualified to do business and in good standing in every jurisdiction
wherein such qualification is necessary, (d) Borrower has the power
and authority to execute, deliver and perform this Agreement, to
borrow money in accordance with its terms, to execute, deliver and
perform the Revolving Credit Note and other documents contemplated
hereby, and to do any and all other things required of it hereunder
(e) each Guarantor has the power and authority to execute, deliver and
perform its Guaranty in accordance with its terms, (f) MWP and MWP II
each has the power and authority to execute, deliver and perform the
Non-Encumbrance Agreement in accordance with its terms; (g) Borrower
is a qualified real estate investment trust as defined in Section 856
of the Internal Revenue Code (or any successor provision thereto) and
has no knowledge of any circumstance that is likely to lead to its
failure to qualify as such a real estate investment trust; (h) the
execution, delivery and performance of the Loan Documents will not
result in Borrower being disqualified as such a real estate investment
trust; and (i) Borrower has made and will timely make all filings with
and obtained all consents of the Securities and Exchange Commission
required under the Securities Act of 1933 (as amended from time to
time) or the Security Exchange Act of 1934 (as amended from time to
time) in connection with the execution, delivery and performance by
Borrower of the Loan Documents.
5.2 Authorization and Approvals. The execution, delivery and performance
of this Agreement, the borrowings hereunder and the execution,
delivery and performance of the Revolving Credit Note, the Guaranty,
the Non-Encumbrance Agreement, and other documents
- 18 -
contemplated hereby (a) have been duly authorized by all requisite
corporate action of the Borrower and all partnership action of each
Guarantor and MWP and MWP II, (b) do not require registration with or
consent or approval of, or other action by, any federal, state or
other governmental authority or regulatory body, or, if such
registration, consent or approval is required, the same has been
obtained and disclosed in writing to the Bank, (c) will not violate
any provision of law, any order of any court or other agency of
government, the Articles of Incorporation and Bylaws of Borrower, the
partnership certificates and partnership agreements of each Guarantor,
any provision of any indenture, note, agreement or other instrument to
which the Borrower is a party, or by which it or any of its properties
or assets are bound, (d) will not be in conflict with, result in a
breach of or constitute (with or without notice or passage of time) a
default under any such indenture, note, agreement or other instrument,
and (e) will not result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Borrower (other than in favor of the Bank
and as contemplated hereby) or upon the MWP Pool Properties or the MWP
II Pool Properties. Reference to the "Borrower" in this Section 5.2
shall instead be deemed to be references to each Guarantor with
respect to the Guaranty.
5.3 Valid and Binding Agreement. This Agreement is, and the Revolving
Credit Note, and all other documents contemplated hereby will be, when
delivered, valid, binding, and enforceable obligations of the
Borrower, and the Guaranty and the Non-Encumbrance Agreement will be,
when delivered, valid, binding, and enforceable obligations of the
Guarantors and of MWP and MWP II, respectively, in accordance with
their terms.
5.4 Actions, Suits or Proceedings. There are no actions, suits or
proceedings, at law or in equity, and no proceedings before any
arbitrator or by or before any governmental commission, board, bureau,
or other administrative agency, pending, or, to the best knowledge of
the Borrower, threatened against or affecting the Borrower, any of its
Subsidiaries or the Guarantors or any properties or rights of the
Borrower, any of its Subsidiaries or the Guarantors, which, if
adversely determined, could materially impair the right of the
Borrower, any of its Subsidiaries or the Guarantor to carry on
business substantially as now conducted or could have a Material
Adverse Effect upon the financial condition of the Borrower, any of
its Subsidiaries or the Guarantors.
5.5 Accounting Principles. All consolidated and consolidating balance
sheets, earnings statements and other financial data furnished to the
Bank for the purposes of, or in connection with, this Agreement and
the transactions contemplated by this Agreement, have been prepared in
accordance with GAAP, and do or will fairly present the financial
condition of the Borrower, its Subsidiaries and the Guarantors, as of
the dates, and the results of their operations for the periods, for
which the same are furnished to the Bank. Without limiting the
generality of the foregoing, the Financial Statements have been
prepared in accordance with GAAP (except as disclosed therein) and
fairly present the financial condition of the Borrower, its
Subsidiaries and, if relevant, the Guarantor as of the dates, and the
results of its operations for the fiscal periods, for which the same
are furnished to the Bank. The Borrower has no material contingent
obligations, liabilities for taxes, long-term leases or unusual
forward or long-term commitments not disclosed by, or reserved against
in, the Financial Statements.
5.6 Financial Condition. The Borrower and the Guarantors is each solvent,
able to pay its debts as they mature, has capital sufficient to carry
on its business and has assets the fair
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market value of which exceed its liabilities, and neither the Borrower
nor either of the Guarantors will be rendered insolvent,
under-capitalized or unable to pay maturing debts by the execution or
performance of this Agreement, the Guaranty, the Non-Encumbrance
Agreement or the other documents contemplated hereby. There has been
no material adverse change in the business, properties or condition
(financial or otherwise) of the Borrower, any of its Subsidiaries or
the Guarantor since the date of the latest Financial Statements.
5.7 Conditions Precedent. As of each Funding Date, all appropriate
conditions precedent referred to in Section 4 hereof have been
satisfied or, alternatively, have been waived in writing by the Bank.
5.8 Taxes. Borrower, its Subsidiaries and the Guarantors has each filed by
the due date therefor (including any extensions) all federal, state
and local tax returns and other reports it is required by law to file,
has paid or caused to be paid all taxes, assessments and other
governmental charges that are shown to be due and payable under such
returns, and has made adequate provision for the payment of such
taxes, assessments or other governmental charges which have accrued
but are not yet payable. The Borrower has no knowledge of any material
deficiency or assessment in connection with any taxes, assessments or
other governmental charges not adequately disclosed in the Financial
Statements.
5.9 Compliance with Laws. Borrower, its Subsidiaries and the Guarantors
has each complied with all applicable laws, to the extent that failure
to comply would materially interfere with the conduct of the business
of the Borrower, any of its Subsidiaries or the Guarantor.
5.10 Indebtedness. Except as disclosed in the Financial Statements or other
public filings, neither Borrower nor any of its Subsidiaries has any
indebtedness for money borrowed or any direct or indirect obligations
under any leases (whether or not required to be capitalized under
GAAP) or any agreements of guarantee or surety except for the
endorsement of negotiable instruments by the Borrower and its
Subsidiaries in the ordinary course of business for deposit or
collection.
5.11 Material Agreements. Except as disclosed in the Financial Statements
or other public filings, neither the Borrower, any of its Subsidiaries
nor the Guarantor has any material leases, contracts or commitments of
any kind (including, without limitation, employment agreements,
collective bargaining agreements, powers of attorney, distribution
contracts, patent or trademark licenses, contracts for future purchase
or delivery of goods or rendering of services, bonus, pension and
retirement plans, or accrued vacation pay, insurance and welfare
agreements); to the best knowledge of Borrower, all parties to such
agreements have complied with the provisions of such leases, contracts
or commitments; and to the best knowledge of the Borrower, no party to
such agreements is in default thereunder, nor has there occurred any
event which with notice or the passage of time, or both, would
constitute such a default.
5.12 Margin Stock. Neither the Borrower nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying
any "margin stock" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, and no part of the proceeds
of any loan hereunder will be used, directly or indirectly, to
purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock or for any
other
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purpose which might violate the provisions of Regulation G, T, U or X
of the said Board of Governors. The Borrower does not own any margin
stock.
5.13 Pension Funding. Neither the Borrower, any of its Subsidiaries nor the
Guarantor has incurred any accumulated funding deficiency within the
meaning of ERISA or incurred any liability to the PBGC in connection
with any employee benefit plan established or maintained by the
Borrower, any of its Subsidiaries or the Guarantors and no reportable
event or prohibited transaction, as defined in ERISA, has occurred
with respect to such plans.
5.14 Misrepresentation. No warranty or representation by the Borrower
contained herein or in any certificate or other document furnished by
the Borrower pursuant hereto contains any untrue statement of material
fact or omits to state a material fact necessary to make such warranty
or representation not misleading in light of the circumstances under
which it was made. There is no fact which the Borrower has not
disclosed to the Bank in writing which materially and adversely
affects nor, so far as the Borrower can now foresee, is likely to
prove to affect materially and adversely the business, operations,
properties, prospects, profits or condition (financial or otherwise)
of the Borrower, any of its Subsidiaries or the Guarantor or ability
of the Borrower to perform this Agreement or the ability of the
Guarantor to perform the Guaranty.
5.15 Shares and Shareholders. As of May 14, 2002 the Borrower's entire
issued and outstanding capital stock consists of 17,463,329 shares of
common stock, $.001 par value. All currently owned Subsidiaries, if
any, are set forth in Exhibit 21 in Borrower's SEC Form 10-K dated
March 25, 2002 along with the percentage of the outstanding voting
stock owned by the Borrower or by a Subsidiary (and identifying that
Subsidiary).
5.16 No Conflicting Agreements. Neither the Borrower, any of its
Subsidiaries nor the Guarantors is in default under any shareholder
agreement, preferred stock agreement or any other agreement to which
it is a party or by which it or any of its property is bound, the
effect of which might have a Material Adverse Effect on the business
or operations of the Borrower, any of its Subsidiaries or the
Guarantor. No provision of the Certificate of Incorporation, Articles
of Incorporation, By-Laws or preferred stock, if any, of the Borrower,
and no provision of any existing mortgage, indenture, note, contract,
agreement, statute (including, without limitation, any applicable
usury or similar law), rule, regulation, judgment, decree or order
binding on the Borrower or affecting the property of the Borrower
conflicts with, or requires any consent under, or would in any way
prevent the execution, delivery or carrying out of the terms of, this
Agreement and the documents contemplated hereby, and the taking of any
such action will not constitute a default under, or result in the
creation or imposition of, or obligation to create any lien upon the
property of the Borrower pursuant to the terms of any such mortgage,
indenture, note, contract or agreement.
5.17 Hazardous Materials.
(a) The Borrower has not used Hazardous Materials (as defined
hereinafter) on or affecting any of the MWP I Pool Properties or
MWP II Pool Properties (collectively and singly the "premises")
in any manner which violates federal, state or local laws,
ordinances, statutes, rules, regulations or judgments governing
the use, storage, treatment, handling, manufacture,
transportation, or disposal of Hazardous Materials
("Environmental Laws"), and
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that, to the best of the Borrower's knowledge, no prior owner of
the premises or any current or prior occupant has used Hazardous
Materials on or affecting the premises in any manner which
violates Environmental Laws. The Borrower covenants and agrees
that it shall not use, introduce or maintain and shall use its
best efforts to ensure that any occupant shall not use, introduce
or maintain Hazardous Materials on the premises in any manner
unless done in strict compliance with all Environmental Laws.
(b) The Borrower shall conduct and complete all investigations,
studies, sampling and testing, and al remedial, removal and other
actions necessary to clean up and remove all Hazardous Materials
on or affecting the premises, whether caused by the Borrower or a
third party, in accordance with all Environmental Laws and as
required by orders and directives of all federal, state, and
local governmental authorities. Additionally, the Borrower shall
defend, indemnify and hold harmless the Bank, its employees,
agents, officers and directors, from and against any and all
claims, demands, penalties, fines, liabilities, settlements,
damages, costs or expenses of whatever kind or nature arising out
of or related to (1) the presence, disposal, release or
threatened release of any Hazardous Materials on, from or
affecting the premises or the soil, water, vegetation, buildings,
personal property, persons or animals thereon, (2) any personal
injury (including wrongful death) or property damage (real or
personal) arising out of or related to such Hazardous Materials,
(3) any lawsuit brought or threatened, settlement reached or
governmental order relating to such Hazardous Materials, (4) the
cost of removal of all such Hazardous Materials from all or any
portions of the premises, (5) taking necessary precautions to
protect against the release of Hazardous Materials on or
affecting the premises, (6) complying with all Environmental Laws
and/or (7) any violation of Environmental Laws, which are based
upon or in any way related to such Hazardous Materials including,
without limitation, attorney's and consultant's fees (said
attorneys and consultants to be selected by the Bank),
investigation and laboratory fees, environmental studies required
by the Bank (whether prior to foreclosure or otherwise), court
costs and litigation expenses.
(c) To the best of its knowledge, the Borrower has never received any
notice ("Environmental Complaint") of any violations of
Environmental Laws (and, within five days of receipt of any
Environmental Complaint the Borrower shall give the Bank a copy
thereof), and to the best of the Borrower's knowledge, there have
been no actions commenced or threatened by any party for
noncompliance with any Environmental Laws.
(d) Upon ten (10) days' notice to the Borrower (except in an
emergency), without limiting the Bank's other rights under this
Agreement or elsewhere, the Bank shall have the right, but not
the obligation, to enter on the premises or to take such other
actions as it deems appropriate to clean up, remove, resolve or
minimize the impact of any Hazardous Material or Environmental
Complaint upon the Bank's receipt of any notice from any
governmental or reliable source asserting the existence of any
Hazardous Material or an Environmental Complaint pertaining to
the premises which, if true, could result in an order, suit or
other action against the Borrower and/or any part of the premises
which, in the sole opinion of the Bank, could jeopardize its
rights under this Agreement or any related document. The Bank
agrees that, if, prior to the expiration of the ten (10) days'
notice given by the Bank under this subsection, Borrower gives
notice to the Bank of its desire to replace the property as to
which notice was given with other property pursuant to and
subject to the terms of the Non-Encumbrance Agreement, the Bank
agrees (except in an emergency) to wait an additional thirty (30)
days after expiration of any such ten (10) day period to take the
actions authorized by this subsection. All
- 22 -
reasonable costs and expenses incurred by the Bank in the
exercise of any such rights shall be payable by the Borrower to
Bank upon demand.
(e) The provisions of this section shall be in addition to any and
all other obligations and liabilities the Borrower may have to
the Bank at common law or pursuant to any other agreement and,
notwithstanding anything in Section 9.15 hereof to the contrary,
shall survive (i) the repayment of all sums due under the Note
and the other loan documents executed in connection herewith and
the repayment of all other Indebtedness, and (ii) the
satisfaction of all of the other obligations of the Borrower
hereunder and under the other loan documents.
(f) "Hazardous Materials" including, without limitation, any
flammable explosives, radioactive materials, hazardous materials,
hazardous wastes, hazardous or toxic substances or related
materials defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C.
Sections 9601, et seq.). the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Section 1801, et seq.), the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Sections
6901, et seq.) and in the regulations adopted and publications
promulgated pursuant thereto, or any other federal, state or
local governmental law, ordinance, rule, or regulation.
6. Affirmative Covenants. On a continuing basis from the date of this
Agreement until the later of (a) the Termination Date or (b) the date on
which the Indebtedness is paid in full and the Borrower has performed all
of its other obligations hereunder, the Borrower covenants and agrees that
it will:
6.1 Financial and Other Information. Borrower shall maintain or cause to
be maintained a system of accounting established and administered in
accordance with sound business practices and consistent with past
practice to permit preparation of quarterly and annual financial
statements in conformity with GAAP, and Borrower shall deliver or
cause to be delivered to Bank the following information and/or
documents:
6.1.1Annual Financial Reports. As soon as practicable and in any event
within ninety (90) days after the close of each fiscal year of
the Borrower, furnish to the Bank a copy of Borrower's SEC Form
10-K filed or to be filed by Borrower with the Securities and
Exchange Commission or, if such statement is not available for
any reason, financial statements of the Borrower on a
consolidated basis containing the balance sheet of the Borrower
as of the close of such fiscal year, statements of income and
retained earnings and a statement of cash flows for each such
fiscal year, and such other comments and financial details as are
usually included in SEC Form 10-K and certified by Borrower's
chief financial officer or chief accounting officer. Such reports
shall be prepared in accordance with GAAP by independent
certified public accountants of recognized standing selected by
the Borrower and shall contain unqualified opinions as to the
fairness of the statements therein contained. 1.1.1
6.1.2Quarterly Financial Statements. As soon as practicable and in any
event within forty-five (45) days after the close of each Fiscal
Quarter of each fiscal year of the Borrower, furnish to Bank a
copy of Borrower's SEC Form 10-Q filed or to be filed by Borrower
with the Securities and Exchange Commission or, if such statement
is not available for any reason, financial statements of the
Borrower on a consolidated basis containing the balance sheet of
the Borrower as of the end of each such period, statements of
income and retained earnings of
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the Borrower and a statement of cash flows of the Borrower for
the portion of the fiscal year up to the end of such period, and
such other comments and financial details as are usually included
in SEC Form 10-Q and certified by Borrower's chief financial
officer or chief accounting officer. These statements shall be
prepared in accordance with GAAP and shall be in such detail as
the Bank may reasonably require, and the accuracy of the
statements shall be certified by the chief executive or financial
officer of the Borrower.
6.1.3Adverse Events; Litigation. Promptly inform the Bank of the
occurrence of any Default or Event of Default, or of any other
occurrence which has or could reasonably be expected to have a
Materially Adverse Effect upon the Borrower or any Guarantor, or
upon any of Borrower's Subsidiaries, or upon the Borrower's
ability to comply with its obligations hereunder. Borrower shall
promptly inform Bank in writing upon obtaining knowledge of (i)
the institution of, or threat of, any material action,
proceeding, governmental investigation or arbitration against or
affecting Borrower or any Guarantor not previously disclosed by
Borrower in writing to Bank, including but not limited to any
eminent domain or other condemnation proceedings affecting any of
the MWP Pool Properties or any of the MWP II Pool Properties, or
(ii) any material development in any action, suit, proceeding,
governmental investigation or arbitration already disclosed,
which has a Material Adverse Affect on Borrower or any Guarantor
or any of the MWP Pool Properties or the MWP II Pool Properties,
and shall provide such information as Bank may reasonably request
to enable Bank and its counsel to evaluate such matters.
6.1.4Shareholder Reports. Promptly furnish to the Bank upon becoming
available a copy of all financial statements, reports, notices,
proxy statements and other communications sent by the Borrower or
any of its Subsidiaries to their stockholders, and all regular
and periodic reports filed by the Borrower or any of its
Subsidiaries with any securities exchange, the Securities and
Exchange Commission, the Corporations and Securities Bureau of
the Department of Corporations of the State of California or like
agency for the State of Maryland or any governmental authorities
succeeding to any or all of the functions of such Commission or
Bureau.
6.1.5Management Letters. Furnish to the Bank, promptly upon receipt
thereof, copies of all management letters and other reports of
substance submitted to the Borrower or any of its Subsidiaries by
independent certified public accountants in connection with any
annual or interim audit of the financial records of the Borrower
or any of its Subsidiaries.
6.1.6Other Information As Requested. Promptly furnish to the Bank such
other information regarding the operations, business affairs and
financial condition of the Borrower and its Subsidiaries as the
Bank may reasonably request from time to time including but not
limited to all such information necessary to determine Value and
Value (Borrower Aggregate) as those terms are defined herein, and
permit the Bank, its employees, attorneys and agents, to inspect
all of the books, records and properties of the Borrower and its
Subsidiaries at any reasonable time.
6.2 Insurance. Keep its insurable properties and the insurable properties
of its Subsidiaries adequately insured and maintain (a) insurance
against fire and other risks customarily insured against under an
"all-risk" policy and such additional risks customarily insured
against by companies engaged in the same or a similar business to that
of the Borrower or its Subsidiaries, as the case may be, (b) necessary
worker's compensation insurance,
- 24 -
(c) public liability and product liability insurance, and (d) such
other insurance as may be required by law or as may be reasonably
required in writing by the Bank, all of which insurance shall be in
such amounts, containing such terms, in such form, for such purposes,
prepaid for such time period, and written by such companies as may be
satisfactory to the Bank. Notwithstanding anything to the contrary
herein, Borrower is not required, unless otherwise required by
applicable law, to maintain earthquake or flood or terrorist
insurance. All such policies shall contain a provision whereby they
may not be canceled or amended except upon thirty (30) days' prior
written notice to the Bank. The Borrower will promptly deliver to the
Bank, at the Bank's request, evidence satisfactory to the Bank that
such insurance has been so procured and, with respect to casualty
insurance relating to the MWP Pool Properties or MWP II Pool
Properties, made payable to the Bank. If the Borrower fails to
maintain satisfactory insurance as herein provided, the Bank shall
have the option to do so, and the Borrower agrees to repay the Bank
upon demand, with interest at the Variable Rate, all amounts so
expended by the Bank. As to the MWP Pool Properties and/or MWP II Pool
Properties, the Borrower hereby appoints the Bank or any employee or
agent of the Bank as the Borrower's attorney-in-fact, which
appointment is coupled with an interest and irrevocable, and
authorizes the Bank or any employee or agent of the Bank, on behalf of
the Borrower, to adjust and compromise any loss under said insurance
and to endorse any check or draft payable to the Borrower in
connection with returned or unearned premiums on said insurance or the
proceeds of said insurance, and any amount so collected may be applied
toward satisfaction of the Indebtedness, provided, however, that the
Bank shall not be required hereunder so to act.
6.3 Taxes. Pay promptly and within the time that they can be paid without
late charge, penalty or interest all taxes, assessments and similar
imposts and charges of every kind and nature lawfully levied, assessed
or imposed upon the Borrower or its Subsidiaries, and their property,
except to the extent being contested in good faith and, if requested
by the Bank, bonded in an amount and manner satisfactory to the Bank.
If, as to the MWP Pool Properties and/or MWP II Pool Properties, the
Borrower shall fail to pay such taxes and assessments within the time
they can be paid without penalty, late charge or interest the Bank
shall have the option to do so, and the Borrower agrees to repay the
Bank upon demand, with interest at the Variable Rate, all amounts so
expended by the Bank.
6.4 Maintain Corporation and Business. Do or cause to be done all things
necessary to preserve and keep in full force and effect the Borrower's
and each of its Subsidiaries' corporate existence, rights and
franchises and comply with all applicable laws; maintain its good
standing in all states and jurisdictions in which it is currently
authorized to conduct business; continue to conduct and operate its
and each of its Subsidiaries' business substantially as conducted and
operated during the present and preceding calendar year; at all times
maintain, preserve and protect all franchises and trade names and
preserve all the remainder of its and its Subsidiaries' property and
keep the same in good repair, working order and condition; and from
time to time make, or cause to be made, all needed and proper repairs,
renewals, replacements, betterments and improvements thereto so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times.
6.5 Continued Status as a REIT; Prohibited Transactions. Borrower will:
(i) continue to be a real estate investment trust as defined in
Section 856 of the Internal Revenue Code (or any successor provision
thereto), (ii) will not revoke its election to be a real estate
investment trust; (iii) will not engage in any "prohibited
transactions" as defined in Section 857(b) of the
- 25 -
Internal Revenue Code (or any successor provision thereto) that the
Bank reasonably believes could lead to Borrower's disqualification as
a real estate investment trust as defined in Section 856 of the
Internal Revenue Code (or any successor provision thereto); (iv) will
continue to be entitled to a dividend paid deduction meeting the
requirements of Section 857 of the Internal Revenue Code; and will
otherwise comply with all provisions and requirements of Internal
Revenue Code Sections 856 and 857 to maintain its real estate
investment trust status under Section 856.
6.6 Failure of Borrower to Qualify as Real Estate Investment Trust.
Borrower shall promptly inform Bank in writing, and in any event
within forty eight (48) hours after Borrower has actual knowledge, of
the following circumstances or occurrences: (i) Borrower failing to
continue to qualify as a real estate investment trust as defined in
Section 856 of the Internal Revenue Code (or any successor provision
thereof); (ii) any act by Borrower causing or which will cause its
election to be taxed as a real estate investment trust to be
terminated; (iii) any act causing Borrower to be subject to the taxes
imposed by Section 857(b)(6) of the Internal Revenue Code (or any
successor provision thereto), or (iv) Borrower failing to be entitled
to a dividends paid deduction which meets the requirements of Section
857 of the Internal Revenue Code.
6.7 AMEX Listed Company. The common stock of Borrower shall at all times
be listed for trading and be traded on the American Stock Exchange or
any alternative recognized stock exchange.
6.8 Compliance With Securities Laws. Borrower shall comply in all material
respects with all rules and regulations with the Securities Exchange
Commission and file all reports required by the Securities Exchange
Commission relating to Borrower's publicly held securities.
6.9 Maintain Minimum Tangible Net Worth. On a consolidated basis, Borrower
shall maintain a Minimum Tangible Net Worth of not less than Eighty
Million Dollars ($80,000,000.00), not including minority interests.
6.10 Maintain Debt Service Coverage Ratio. On a consolidated basis,
maintain a Debt Service Coverage Ratio of at least 2.90 to 1.00.
6.11 Maintain Interest Coverage Ratio. On a consolidated basis, maintain an
Interest Coverage Ratio of at least 3.35 to 1.00.
6.12 Maintain Operating Accounts and Minimum Balance in Deposit Accounts.
Borrower shall maintain all of its operating accounts with Bank. At
all times hereunder, there shall be a combined average daily minimum
balance of at least One Million Dollars ($1,000,000.00) in the
non-interest bearing deposit account of Borrower (Cupertino National
Bank account no. 1141422) (the "Borrower's Deposit Account").
6.13 ERISA. (a) At all times meet and cause each of the Subsidiaries to
meet the minimum funding requirements of ERISA with respect to the
Borrower's and Subsidiaries' employee benefit plans subject to ERISA;
(b) promptly after the Borrower knows or has reason to know (i) of the
occurrence of any event, which would constitute a reportable event
instituted or will institute proceedings to terminate an employee
pension plan, deliver to the Bank a
- 26 -
certificate of the chief financial officer of the Borrower setting
forth details as to such event or proceedings and the action which the
Borrower proposes to take with respect thereto, together with a copy
of any notice of such event which may be required to be filed with the
PBGC; and (c) furnish to the Bank (or cause the plan administrator to
furnish the Bank) a copy of the annual return (including all schedules
and attachments) for each plan covered by ERISA, and filed with the
Internal Revenue Service by the Borrower not later than ten (10) days
after such report has been so filed.
6.14 Use of Loan Proceeds. Use the proceeds of the Revolving Loans
hereunder only for the purposes set forth in the recitals to this
Agreement and, as to each Revolving Loan made pursuant to a Notice of
Borrowing, as set forth in such Notice of Borrowing.
7. Negative Covenants.
On a continuing basis from the date of this Agreement until the later of
(a) the Termination Date or (b) the date on which the Indebtedness is paid
in full and the Borrower has performed all of its other obligations
hereunder, the Borrower covenants and agrees that it will not, and will not
permit any Subsidiary to:
7.1 Stock Acquisition. Purchase, redeem, retire or otherwise acquire any
of the shares of its capital stock, or make any commitment to do so.
7.2 Indebtedness (Maximum Borrower Aggregate Loan-to-Value) and
Loan-to-Value of MWP Pool Properties and MWP II Pool Properties.
Permit the Total Loans of Borrower to exceed fifty percent (50%) of
Value (Borrower Aggregate) or permit the Commitment Amount to exceed
fifty percent (50%) of the total combined Value of the MWP Pool
Properties and the MWP II Pool Properties
7.3 Extension of Credit. Make loans, advances or extensions of credit to
any Person, except for sales on open account and otherwise in the
ordinary course of business.
7.4 Subordinate Indebtedness. Subordinate any indebtedness due to Borrower
from a Person to indebtedness or other creditors of such Person.
7.5 Property Transfer, Merger or Lease-Back. (a) Sell, transfer or
otherwise dispose of properties and assets having an aggregate book
value of more than Three Hundred Fifty Million Dollars
($350,000,000.00) (whether in one transaction or in a series of
transactions) except as to the sale of inventory in the ordinary
course of business; (b) change its name, consolidate with or merge
into any other corporation or entity, permit another corporation or
entity to merge into it, enter into any reorganization or
recapitalization or reclassify its capital stock, or (c) enter into
any sale-leaseback transaction where Borrower is lessee.
7.6 Pension Plan. (a) Allow any fact, condition or event to occur or exist
with respect to any employee pension or profit sharing plans
established or maintained by it which might constitute grounds for
termination of any such plan or for the court appointment of a trustee
to administer any such plan, or (b) permit any such plan to be the
subject of termination proceedings (whether voluntary or involuntary)
from which termination proceedings there may result a liability of the
Borrower or any of its Subsidiaries to the PBGC which, in the opinion
of
- 27 -
the Bank, will have a materially adverse effect upon the operations,
business, property, assets, financial condition or credit of the
Borrower or any of its Subsidiaries.
7.7 Misrepresentation. Furnish the Bank with any certificate or other
document that contains any untrue statement of a material fact or
omits to state a material fact necessary to make such certificate or
document not misleading in light of the circumstances under which it
was furnished.
7.8 Margin Stock. Apply any of the proceeds of the Note or of any loan in
any manner which might cause the extension of credit or the
application of such proceeds to violate Regulation G, U or X (or any
regulations, interpretations or rulings thereunder) or any other
regulation of the Federal Reserve Board or to violate the Securities
Exchange Act of 1934 (as amended to the date hereof and from time to
time hereafter) or the Securities Act of 1933 (as amended to the date
hereof and from time to time hereafter).
7.9 Amendment of Constituent Documents. Amend or re-state its articles of
incorporation or by-laws without the prior written consent of Bank,
except (i) to increase authorized capital, (ii) as required by
applicable law or applicable tax requirements, or (iii) as prudent to
maintain qualification as a real estate investment trust as defined in
Section 856 of the Internal Revenue Code or any successor provision
thereto.
7.10 Organization of Borrower. Cease to remain a Maryland corporation or
cease to maintain its position, interests and status as General
Partner of MWP and MWP II.
8. Events of Default, Enforcement, Application of Proceeds
8.1 Events of Default. The occurrence of any of the following conditions
or events shall constitute an Event of Default hereunder if either:
(i) the condition or event is continuing for more than ten (10) days
after the Bank sends written notice thereof, or (ii) the condition or
event is reasonably deemed by the Bank to require immediate action to
protect its rights hereunder:
8.1.1Failure to Pay Monies Due. If the Borrower shall fail to pay,
when due, any principal or interest or other sums due under the
Revolving Credit Note or this Agreement or any taxes, insurance
or other amount payable by the Borrower under this Agreement or
if the Borrower, any of its Subsidiaries or the Guarantor shall
fail to pay, when due, any indebtedness, obligation or liability
whatsoever of the Borrower, any of its Subsidiaries or the
Guarantor to the Bank.
8.1.2Breach of Covenants. If Borrower shall fail to satisfy or
perform any of the covenants in this Agreement including without
limitation Section 6 and Section 7.
8.1.3Defaults Under the Guaranty. If Guarantors or either of them
shall fail to perform or observe or purport to revoke or
terminate any agreement, covenant, or obligation under the
Guaranty; or any representation or warranty made or deemed to be
made by any such Guarantor in any Loan Document or in any
statement, certificate or financial statement or information of
any kind at any time given by such Guarantor pursuant to any Loan
Document to Bank, shall be false, incorrect or misleading in any
material respect as of the date made.
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8.1.4Defaults Under the Non-Encumbrance Agreement. If Borrower, MWP
or MWP II or either of them shall fail to perform or observe any
agreement, covenant, or obligation under the Non-Encumbrance
Agreement; or any representation or warranty made or deemed to be
made by Borrower, MWP or MWP II in any Loan Document or in any
statement, certificate or financial statement or information of
any kind at any time given by MWP or MWP II pursuant to any Loan
Document to Bank, shall be false, incorrect or misleading in any
material respect as of the date made.
8.1.5Misrepresentation. If any warranty or representation of the
Borrower in connection with or contained in this Agreement or any
Loan Document, or if any financial data or other information now
or hereafter furnished to the Bank by or on behalf of the
Borrower, shall prove to be false, incorrect or misleading in any
material respect.
8.1.6Solvency; Material Adverse Change. If Borrower or any Guarantor
shall cease to be Solvent, or there shall have occurred any
Material Adverse Effect in the business, operations, properties,
assets or condition (financial or otherwise) of Borrower or any
Guarantor.
8.1.7Other Defaults. If the Borrower, any of its Subsidiaries or the
Guarantor shall default in the payment when due of any of its
indebtedness (other than to the Bank) or in the observance or
performance of any term, covenant or condition in any agreement
or instrument evidencing, securing or relating to such
indebtedness, and such default be continued for a period
sufficient to permit acceleration of the indebtedness,
irrespective of whether there has been acceleration by the holder
thereof. Notwithstanding the foregoing, such a default shall not
constitute an Event of Default hereunder if all persons to whom
the indebtedness is owed has fully and completely and in writing
waived the default. In addition, if a default occurs and
continues to exist on an indebtedness of the Borrower that is
secured by real property and is fully non-recourse to the
Borrower, such default may not represent a default under this
agreement if Bank, it its sole discretion, determines that
Borrower is in compliance and can maintain compliance going
forward with all the financial covenants of this Agreement.
8.1.8Judgments. If there shall be rendered against the Borrower, any
of its Subsidiaries or the Guarantor one or more judgments or
decrees involving an aggregate liability of Five Million Dollars
($5,000,000.00) or more, which has or have become non-appealable
and shall remain undischarged, unsatisfied by insurance and
unstayed for more than thirty (30) days, whether or not
consecutive; or if a writ of attachment or garnishment against
the property of the Borrower, any of its Subsidiaries or the
Guarantor shall be issued and levied in an action claiming Five
Million Dollars ($5,000,000.00) or more and not released or
appealed and bonded in an amount and manner satisfactory to the
Bank within twenty-five (25) days after such issuance and levy.
8.1.9Business Suspension, Bankruptcy, Etc. If the Borrower, any of its
Subsidiaries or the Guarantor shall voluntarily suspend
transaction of its business; or if the Borrower, any of its
Subsidiaries or the Guarantor shall not pay its debts as they
mature or shall make a general assignment for the benefit of
creditors, or proceedings in bankruptcy, or for reorganization or
liquidation of the Borrower, any of its Subsidiaries or the
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Guarantor under the Bankruptcy Code or under any other state or
federal law for the relief of debtors shall be commenced or shall
be commenced against the Borrower, any of its Subsidiaries or the
Guarantor and shall not be discharged within twenty-five (25)
days of commencement; or a receiver, trustee or custodian shall
be appointed for the Borrower, any of its Subsidiaries or the
Guarantor or for any substantial portion of their respective
properties or assets.
8.1.10Change of Management or Ownership. If the Borrower or a
controlling portion of its voting stock or a substantial portion
of its assets comes under the practical, beneficial or effective
control of one or more persons other than Carl Berg, whether by
reason of death, merger, consolidation, sale or purchase of stock
or assets or otherwise; and Ray Marino, who is the President and
COO of the Borrower, shall no longer remain in such offices,
whether by reason of death, resignation or otherwise; and any
such change of control or office holder may adversely affect, in
the sole judgment of the Bank, the ability of the Borrower to
carry on its business as conducted before such change.
8.1.11Inadequate Funding or Termination of Employee Benefit Plan(s).
If the Borrower, any of its Subsidiaries or the Guarantor shall
fail to meet its minimum funding requirements under ERISA with
respect to any employee benefit plan established or maintained by
it, or if any such plan shall be subject of termination
proceedings (whether voluntary or involuntary) and there shall
result from such termination proceedings a liability of Borrower,
any of its Subsidiaries or the guarantor to the PBGC which in the
opinion of the Bank will have a materially adverse effect upon
the operations, business, property, assets financial condition or
credit of the Borrower, any of its Subsidiaries or the Guarantor,
as the case may be.
8.1.12Occurrence of Certain Reportable Events. If there shall occur,
with respect to any pension plan maintained by the Borrower, any
of its Subsidiaries or the Guarantor any reportable event (within
the meaning of Section 4043(b) of ERISA) which the Bank shall
determine constitutes a ground for the termination of any such
plan, and if such event continues for thirty (30) days after the
Bank gives written notice to the Borrower, provided that
termination of such plan or appointment of such trustee would, in
the opinion of the Bank, have a materially adverse effect upon
the operations, business, property, assets, financial condition
or credit of the Borrower, any of its Subsidiaries or the
Guarantor, as the case may be.
8.2 Acceleration of Indebtedness; Remedies. Upon the occurrence of an
Event of Default, at the Bank's option, the Bank shall have no further
obligation to advance funds to Borrower and the Commitment shall
terminate. Upon the occurrence of an Event of Default, all
Indebtedness shall be due and payable in full immediately at the
option of the Bank without presentation, demand, protest, notice of
dishonor or other notice of any kind, all of which are hereby
expressly waived. Upon the occurrence of an Event of Default, the Bank
shall have and may exercise any one or more of the rights and remedies
for which provision is made hereunder or under any other document
contemplated hereby or for which provision is provided by law or in
equity, including, without limitation, the right to set off against
the Indebtedness any amount owing by the Bank to the Borrower and/or
any property of the Borrower in possession of the Bank. Any amounts
collected by the Bank after an Event of Default may be applied, at the
Bank's option and in any order against outstanding principal,
interest, fees and/or costs.
8.3 Cumulative Remedies. The remedies provided for herein are cumulative
to the remedies for collection of the Indebtedness as provided by law,
in equity or by any document contemplated hereby. Nothing herein
contained is intended, nor shall it be construed, to
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preclude the Bank from pursuing any other remedy for the recovery of
any other sum to which the Bank may be or become entitled for the
breach of this Agreement by the Borrower.
9. Miscellaneous.
9.1 Effectiveness. This Agreement shall become effective when Borrower and
Bank have duly executed and delivered signature pages of this
Agreement to each other, and Borrower has delivered a Guaranty
executed by each Guarantor, and the Non-Encumbrance Agreement executed
by MWP and MWP II.
9.2 Independent Rights. No single or partial exercise of any right, power
or privilege hereunder, or any delay in the exercise thereof, shall
preclude other or further exercise of the rights of the parties to
this Agreement.
9.3 Covenant Independence. Each covenant in this Agreement shall be deemed
to be independent of any other covenant, and an exception or
illegality of one covenant shall not create an exception or illegality
in another covenant.
9.4 Waivers and Amendments. No forbearance, delay or omission on the part
of the Bank in enforcing any of its rights under this Agreement or any
of the Loan Documents, nor any renewal, extension or rearrangement of
any payment or covenant to be made or performed by the Borrower
hereunder, shall constitute or be construed as a waiver of any of the
terms of, or remedies of Bank under, this Agreement or any of the Loan
Documents or of any such right. No Default or Event of Default shall
be waived by the Bank except in a writing signed and delivered by an
officer of the Bank, and no waiver of any other Default or Event of
Default shall operate as a waiver of any Default or Event of Default
or of the same Default or Event of Default on a future occasion. No
other amendment, modification or waiver of, or consent with respect
to, any provision of this Agreement or the Note or any other Loan
Documents contemplated hereby shall be effective unless the same shall
be in writing and signed and delivered by a duly authorized officer of
the Bank and the President and CEO of the Borrower.
9.5 Governing Law. This Agreement, and each and every term and provision
hereof, shall be governed by and construed in accordance with the
internal law of the State of California. If any provisions of this
Agreement shall for any reason be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provision
hereof, but this Agreement shall be construed as if such invalid or
unenforceable provisions had never been contained herein.
9.6 Survival of Warranties, Etc. All of the Borrower's covenants,
agreements, representations and warranties made in connection with
this Agreement and any document contemplated hereby shall survive the
borrowing and the delivery of the Note hereunder and shall be deemed
to have been relied upon by the Bank, notwithstanding any
investigation heretofore or hereafter made by the Bank. All statements
contained in any certificate or other document delivered to the Bank
at any time by or on behalf of the Borrower pursuant hereto or in
connection with the transactions contemplated hereby shall constitute
representations and warranties by the Borrower in connection with this
Agreement.
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9.7 Costs and Expenses. The Borrower agrees that it will reimburse the
Bank, upon demand, for all reasonable fees and out-of-pocket costs
incurred by the Bank in connection with (i) collecting or attempting
to collect the Indebtedness or any part thereof, (ii) maintaining or
defending the Bank's security interests or liens, if any (or the
priority thereof), (iii) the enforcement of the Bank's rights or
remedies under this Agreement or the other documents contemplated
hereby, (iv) the preparation or making of any amendments,
modifications, waivers or consents with respect to this Agreement or
the other documents contemplated hereby, and/or (v) any other matters
or proceedings arising out of or in connection with any lending
arrangement between the Bank and the Borrower, which costs and
expensesinclude without limit payments made by the Bank for taxes,
insurance, assessments, or other costs or expenses which the Borrower
is required to pay under this Agreement or the other documents
contemplated hereby; audit expenses; court costs and reasonable
attorneys' fees (whether in-house or outside counsel is used, whether
legal assistants are used, and whether such costs are incurred in
formal or informal collection actions, federal bankruptcy proceedings,
of Borrower or Guarantor or affecting any collateral or rights of
Bank, whether an involuntary or voluntary bankruptcy case, including,
without limitation, all attorneys' fees and costs incurred in
connection with motions for relief from stay, cash collateral motions,
nondischargeability motions, preferential liability motions,
fraudulent conveyance liability motions, fraudulent transfer liability
motions and all other motions brought by Borrower, Guarantor, Bank or
third parties in any way relating to Bank's rights with respect to
such Borrower, Guarantor, or third party and/or affecting any
collateral securing any obligation owed to Bank by Borrower,
Guarantor, or any third party, probate proceedings, on appeal or
otherwise); and all other costs and expenses of the Bank incurred in
connection with any of the foregoing.
9.8 Attorneys' Fees and Costs. Bank may hire or pay someone else to help
collect the Note if Borrower does not pay. In such event, Borrower
agrees to pay all reasonable fees and out-of-pocket costs incurred by
Bank in connection with collecting the Note. In addition, the
prevailing party (the "Prevailing Party") in any litigation,
arbitration, bankruptcy proceeding, or other formal or informal
resolution (collectively, a "Proceeding") brought by Bank or any party
to this Agreement of any claims brought to enforce the terms of this
Agreement or any of the Loan Documents based upon, arising from, or in
any way related to this Agreement or the transactions contemplated
herein, including without limitation contract claims, tort claims,
breach of duty claims, and all other common law or statutory claims
(collectively, the "Claims"), shall be entitled to recover from such
other party all its fees and costs incurred in connection with the
Proceeding, including without limitation all its attorneys' fees and
costs, whether incurred by in-house counsel or outside counsel, all
its expert witness and/or consultant's fees and costs, all its
paralegal fees and costs, and all its other costs and expenses,
regardless of whether such costs are otherwise statutorily recoverable
(collectively, the "Fees and Costs"), and including without limitation
all the Fees and Costs incurred by the Prevailing Party in connection
with proceedings in bankruptcy for relief from and/or modification of
automatic stay, for orders of nondischargeability, and/or regarding
use of cash collateral, claims, and/or plans. The Prevailing Party
shall also be entitled to recover from such other party all its costs
incurred in enforcing the judgment or award giving rise to the
Prevailing Party's status as the Prevailing Party. Each party hereto
acknowledges that it is on notice that, in the event that the other
party retain the services of one or more experts in connection with
the Proceeding, such other party will seek to recover the fees and
costs of such expert or experts hereunder, and that, if such party
becomes the Prevailing Party in the Proceeding, such party shall be
entitled to recover such fees and costs hereunder, whether such fees
and costs are sought before trial, during trial, or by post-
- 32 -
trial motion or memorandum of costs. The parties to this Agreement
waive the provisions of Civil Code section 1717(b)(2), and agree that,
in the event of a unilateral voluntary dismissal, the dismissed party
shall be deemed the Prevailing Party entitled to the recovery of all
of its Fees and Costs.
9.9 Payments on Saturdays, Etc. Whenever any payment to be made hereunder
shall be stated to be due on a Saturday, Sunday or any other day which
is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension, if any, shall be included in
computing interest in connection with such payment.
9.10 Binding Effect. This Agreement shall inure to the benefit of and shall
be binding upon the parties hereto and their respective successors and
assigns; provided, however, that the Borrower may not assign or
transfer its rights or obligations hereunder without the prior written
consent of the Bank. Borrower authorizes Bank, without notice or
demand and without affecting Borrower's liability hereunder, to
assign, without notice, the Loan Documents or the Indebtedness in
whole or in part and Bank's rights thereunder to anyone at any time or
to transfer one or more participation interests in the Loan Documents
or the Indebtedness in whole or in part to one or more purchasers and
provide information to prospective purchasers relating to Borrower.
The Bank agrees, upon written request by Borrower, to provide the
identity of any current participants.
9.11 Maintenance of Records. The Borrower will keep all of its records
concerning its business operations and accounting at its principal
place of business. The Borrower will give the Bank prompt written
notice of any change in its principal place of business, or in the
location of its records.
9.12 Notices. All notices and communications provided for herein or in any
document contemplated hereby or required by law to be given shall be
in writing and shall be served (i) personally in which case the notice
or communication is effective immediately, (ii) by overnight mail by a
national, reputable carrier, in which case the notice or communication
is effective upon deposit with such carrier, (ii) by certified mail in
which case the notice or communication is effective upon mailing, or
(iv) by first class mail, postage prepaid in which case the notice or
communication is effective two (2) days after mailing, with all
notices or communications to be delivered, mailed, or sent as
aforesaid as follows: (a) If the Borrower, to: Mission West
Properties, Inc., 10050 Bandley Drive, Cupertino, CA 95014, and (b) if
to the Bank, to: Cupertino National Bank, 20230 Stevens Creek
Boulevard, Cupertino, CA 95014, Attention Mr. Michael Zukin, or to
such other address as a party shall have designated to the other in
writing in accordance with this section.
9.13 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures were upon the
same instrument.
9.14 Headings. Article and section headings in this Agreement are included
for the convenience of reference only and shall not constitute a part
of this Agreement for any purpose.
9.15 Release and Discharge. Upon full payment of the Indebtedness and
performance by the Borrower of all its other obligations hereunder,
except as otherwise provided in this Agreement including without
limitation in Sections 2.15 and 5.17(e), the parties shall thereupon
- 33 -
automatically each be fully, finally and forever released and
discharged from any claim, liability or obligation in connection with
this Agreement and the Loan Documents.
9.16 Waiver of Jury Trial. BANK AND BORROWER EACH HEREBY ACKNOWLEDGES THAT
THE RIGHT TO TRIAL BY JURY MAY BE WAIVED. AFTER CONSULTING (OR HAVING
HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, EACH
PARTY HERETO KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT,
WAIVE ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING
THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS
AGREEMENT OR ANY LOAN DOCUMENT.
EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO READ
AND REVIEW WITH ITS COUNSEL THIS AGREEMENT, AND EACH PARTY
ACKNOWLEDGES HAVING READ AND UNDERSTOOD THE MEANING AND EFFECT OF THIS
DOCUMENT BEFORE SIGNING IT.
9.17 Further Assurances. Immediately following reasonable request by the
Bank, the Borrower shall provide to the Bank such further documents,
instruments, and assurances as may be requested from time to time by
Bank in connection with this Agreement or any documents executed in
connection herewith.
9.18 Integrated Agreement. This is an integrated agreement. Except as set
forth specifically otherwise herein and except for the Loan Documents,
it supersedes all prior representations and agreements, if any,
between the parties to this Agreement and other respective legal
counsel relating to the subject matter hereof. This Agreement and the
exhibits hereto and the other Loan Documents when executed contain the
entire and only understanding between the parties, and may not be
altered, amended or extinguished, except by a writing which expressly
refers to this instrument and is signed subsequent to the execution of
this instrument by the parties to this Agreement.
- 34 -
IN WITNESS WHEREOF, the Borrower and the Bank have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first written above.
MISSION WEST PROPERTIES, INC.
A Maryland corporation
By: /s/ Carl E. Berg
--------------------------------------------
Its: Chairman & CEO
By: /s/ Raymond V. Marino
--------------------------------------------
Its: President & COO
CUPERTINO NATIONAL BANK
By: /s/ Michael Zukin
--------------------------------------------
Its: Vice President
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EXHIBIT 10.30
CONTINUING GUARANTY
July 12, 2002
Cupertino National Bank
20230 Stevens Creek Boulevard
Cupertino, CA 95014
TO: Cupertino National Bank
For good and valuable consideration the receipt of which is hereby
acknowledged, and in order to induce Cupertino National Bank (the "Bank"), to
extend and/or continue to extend financial accommodations to Mission West
Properties, Inc., a Maryland corporation ("Borrower"), pursuant to the terms and
conditions of that certain Revolving Credit Loan Agreement and Revolving Credit
Note (individually and collectively, the "Agreement"), dated July 12, 2002,
evidencing and otherwise relating to a revolving loan by Bank to Borrower up to
the total principal amount of Forty Million Dollars ($40,000,000.00) (the
"Loan") Mission West Properties, L.P., a Delaware limited partnership
("Guarantor"), whose address is 10050 Bandley Drive, Cupertino, California
95014, hereby, jointly and severally, guarantees, promises, represents,
warrants, covenants and undertakes to Bank and its successors and assigns as
follows:
1. Guarantor unconditionally, absolutely and irrevocably guarantees and
promises to pay to Bank, or order, on demand, in lawful money of the United
States, any and all indebtedness and/or obligations of Borrower to Bank and the
payment to Bank of all sums which may be presently due and owing and of all sums
which shall in the future become due and owing to Bank from Borrower under the
Agreement. The terms "indebtedness" and "obligations" (hereinafter collectively
referred to as the "Obligations") are used herein in their most comprehensive
sense and include, without limitation, the Loan and any and all advances to, or
debts, obligations, and liabilities of Borrower, heretofore, now, or hereafter
made, incurred, or created, whether voluntarily or involuntarily, and however
arising, including, without limitation, (i) indebtedness owing by Borrower to
third parties who have granted Bank a security interest in the accounts, chattel
paper and/or general intangibles of said third party; (ii) any and all
attorneys' fees, expenses, costs, premiums, charges and/or interest owed by
Borrower to Bank, whether under the Agreement, or otherwise, whether due or not
due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, whether Borrower may be liable individually or jointly with
others, whether recovery upon such indebtedness may be or hereafter becomes
barred by any statute of limitations or whether such indebtedness may be or
hereafter becomes otherwise unenforceable, and includes Borrower's prompt, full
and faithful performance, observance and discharge or each and every term,
condition, agreement, representation, warranty undertaking and provision to be
performed by Borrower under the Agreement; (iii) any and all obligations or
liabilities of Borrower to Bank arising out of any other agreement by Borrower
including without limitation any agreement to indemnify Bank for environmental
liability or to clean up hazardous waste; (iv) any and all indebtedness,
obligations or liabilities for which Borrower would otherwise be liable to Bank
were it not for the invalidity, irregularity or unenforceability of them by
reason of any bankruptcy, insolvency or other law or order of any kind,
including from and after the filing by or against Borrower of a bankruptcy
petition, whether an involuntary or voluntary bankruptcy case, and all
attorneys' fees related thereto; and (v) any and all amendments, modifications,
renewals and/or extensions of any of the above, including without limit
amendments, modifications, renewals and/or extensions which are evidenced by new
or additional instruments, documents or agreements.
- 36 -
2. This Guaranty ("Guaranty") is a continuing guaranty which shall remain
effective until full satisfaction of all of the Obligations to the Bank
(including without limitation those which arise under successive transactions
under the Agreement), full satisfaction by Guarantor of its obligations under
this Guaranty, and the termination of the Bank's obligations under the
Agreement.
3. Guarantor agrees that it is directly and primarily liable to Bank, that
the obligations hereunder are independent of the obligations of Borrower, and
that a separate action or actions may be brought and prosecuted against
Guarantor irrespective of whether Borrower is joined in any such action or
actions. Guarantor agrees that any releases which may be given by Bank to
Borrower or any other guarantor or endorser shall not release it from this
Guaranty.
4. In the event that any bankruptcy, insolvency, receivership or similar
proceeding is instituted by or against Guarantor and/or Borrower or in the event
that either Guarantor or Borrower become insolvent, make an assignment for the
benefit of creditors, or attempts to effect a composition with creditors, or if
there be any default under the Agreement (whether declared or not), then, at
Bank's election, without notice or demand, the obligations of Guarantor created
hereunder shall become due, payable and enforceable against Guarantor whether or
not the Obligations are then due and payable.
5. Guarantor agrees to defend, indemnify and hold Bank harmless from and
against all obligations, demands, judgments, claims and liabilities, by
whomsoever asserted and against all losses, fees, expenses and costs in any way
suffered, incurred, or paid by Bank as a result of or in any way arising out of,
following, or consequential to Bank's or Guarantor's transactions with Borrower
under the Agreement, and also agrees that this Guaranty shall not be impaired by
any modification, supplement, extension, or amendment of any contract or
agreement to which Bank and Borrower may hereafter agree, nor by any
modification, release, or other alteration of any of the Obligations hereby
guaranteed or of any security therefor, nor by any agreements or arrangements
whatsoever with Borrower or anyone else.
6. Guarantor hereby authorizes Bank, without notice or demand and without
affecting its liability hereunder, from time to time to: (a) renew, compromise,
extend, accelerate, or otherwise change the interest rate, time for payment, or
the other terms of the Agreement or of any of the Obligations guaranteed hereby,
and exchange, enforce, waive, and release any security therefor; (b) apply any
such security and direct the order or manner of sale thereof as Bank in its
discretion may determine; (c) release or substitute any one or more endorser(s)
or guarantor(s); and (d) assign, without notice, this Guaranty or the
Indebtedness in whole or in part and/or Bank's rights thereunder to anyone at
any time and/or transfer one or more participation interests in the Obligations
or any of them and this Guaranty to one or more purchasers and provide
information to prospective purchasers relating to Borrower or Guarantor. The
Bank agrees, upon written request by Guarantor, to provide the identity of any
current participants. Guarantor agrees that Bank may do any or all of the
foregoing in such manner, upon such terms, and at such times as Bank, in its
discretion, deems advisable, without, in any way or respect, impairing,
affecting, reducing or releasing Guarantor from its undertakings hereunder and
Guarantor hereby consents to each and all of the foregoing acts, events and/or
occurrences.
7. Guarantor hereby waives any right to assert against Bank as a defense,
counterclaim, set-off or cross-claim, any defense (legal or equitable), set-off,
counterclaim, and/or claim which Guarantor may now or at any time hereafter have
against Borrower and/or any other party liable to Bank in any way or manner.
8. Guarantor hereby waives all defenses, counterclaims and off-sets of any
kind or nature, arising directly or indirectly from the present or future lack
of perfection, sufficiency, validity and/or enforceability of the Agreement, or
any security interest granted in connection therewith.
9. Guarantor hereby waives any defense arising by reason of any claim or
defense based upon an election of remedies by Bank that in any manner impairs,
affects, reduces, releases, destroys and/or
- 37 -
extinguishes Guarantor's subrogation rights, rights to proceed against Borrower
or any other person for subrogation, reimbursement, exoneration, contribution,
indemnification or participation in any claim, right or remedy against Borrower
or any other person for any security which Bank now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law or otherwise, and/or any rights of Guarantor to
proceed against Borrower or against any other person or security, including, but
not limited to, any defense based upon an election of remedies by Bank.
Guarantor expressly waives all benefits which might otherwise be available to
Guarantor under California Civil Code Sections 2809, 2810, 2815, 2819, 2822,
2839, 2845, 2847, 2848, 2849, 2850, and 3433 and California Code of Civil
Procedure Sections 580a, 580b, 580d and 726, as those statutory provisions are
now in effect and hereafter amended, and under any other similar statutes now
and hereafter in effect deemed applicable to this Guaranty and its enforcement.
Guarantor acknowledges that neither the Indebtedness nor the obligations
hereunder are secured by an interest in real property, but to the extent that it
should ever be determined that either the Indebtedness or the obligations
hereunder are so secured or should the Indebtedness or the obligations hereunder
be so secured in the future, Guarantor agrees to the following:
The guarantor waives all rights and defenses that the guarantor may have
because the debtor's debt is secured by real property. This means, among
other things:
(1) A creditor may collect from the guarantor without first
foreclosing on any real or personal property collateral pledged
by the debtor;
(2) If a creditor forecloses on any real property collateral pledged
by the debtor:
(A) The amount of the debt may be reduced only by the price for
which that collateral is sold at the foreclosure sale, even
if the collateral is worth more than the sale price,
(B) The creditor may collect from the guarantor even if the
creditor, by foreclosing on the real property collateral,
has destroyed any right the guarantor may have to collect
from the debtor.
This is an unconditional and irrevocable waiver of any rights and defenses the
Guarantor may have because the Borrower's debt is or may be secured by real
property. These rights and defenses include, but are not limited to, any rights
or defenses based upon Section 580a, 6580b, 580d, or 726 of the California Code
of Civil Procedure.
The undersigned further understands that, absent this waiver, California law,
including without limitation the laws cited above, could afford the undersigned
one or more affirmative defenses to any action maintained by Bank against the
undersigned on this Guaranty. Notwithstanding any foreclosure of the lien of any
security instrument, with respect to any or all property secured thereby,
whether by the exercise of the power of sale contained therein, by an action for
judicial foreclosure, or by an acceptance of a deed in lieu of foreclosure,
Guarantor shall remain bound under this Guaranty. Without limiting the
generality of the foregoing, Guarantor acknowledges that, but for the waiver of
such rights in this Guaranty, Guarantor has or may have rights of subrogation or
reimbursement against Borrower arising from Guarantor's status as surety and
guarantor of Borrower's obligations to Bank. Therefore, in addition to the above
waivers, Guarantor hereby agrees that if now or hereafter Borrower is or shall
become insolvent and the Indebtedness or Obligations shall not at all times be
fully secured by collateral pledged by Borrower, Guarantor hereby forever waives
and gives up in favor of Bank and Borrower, and Bank's and Borrower's respective
successors and assigns, any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or otherwise, so that
at no time shall Guarantor be or become a "creditor" of Borrower within the
meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal
bankruptcy laws.
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Guarantor acknowledges that Guarantor has been provided the opportunity to
discuss with Guarantor's counsel the effect and meaning of the waivers set forth
in this paragraph. Nothing within this paragraph is to be construed to limit the
generality of any other term or provision within this Guaranty.
10. Guarantor waives all presentments, demands for performance, notices of
non-performance, protests, notices of protest, notices of dishonor, notices of
default, notices of intent to accelerate or demand payment of any kind,
diligence in collecting any Obligations, notices of acceptance of this Guaranty,
notices of the existence, creation, or incurring of new or additional
indebtedness, notices respecting the terms, time and place of any public or
private sale of personal property security held from Borrower or any other
person, and all other notices or formalities to which Guarantor may be entitled.
Bank may modify the terms of the Agreement or of any Obligations, compromise,
extend, increase, accelerate, renew or forbear to enforce payment of any or all
Obligations or other sums due under the Agreement, or permit Borrower to incur
additional Obligations, all without notice to Guarantor and without affecting in
any manner the unconditional obligation of Guarantor under this Guaranty.
Guarantor further waives any and all other notices to which Guarantor might
otherwise be entitled. Guarantor acknowledges and agrees that the liabilities
created by this Guaranty are direct and are not conditioned upon pursuit by Bank
of any remedy Bank may have against Borrower or any other person or any
security. No invalidity, irregularity or unenforceability of any part or all of
the Agreement or any other Obligations or any documents evidencing the same, by
reason of any bankruptcy, insolvency or other law or order of any kind or for
any other reason, and no defense or setoff available at any time to Borrower,
shall impair, affect or be a defense or setoff to the obligations of Guarantor
under this Guaranty.
11. Any and all present and future debts and obligations of Borrower to
Guarantor are hereby postponed in favor of and subordinated to the full payment
and performance of all present and future debts and obligations of Borrower to
Bank. All monies or other property of Guarantor at any time in Bank's possession
may be held by Bank as security for any and all obligations of Guarantor to Bank
no matter how or when arising, whether absolute or contingent, whether due or to
become due, and whether under this Guaranty or otherwise. Guarantor also agrees
that Bank's books and records showing the account between Bank and Borrower
shall be admissible in any action or proceeding and shall be binding upon
Guarantor for the purpose of establishing the terms set forth therein and shall
constitute prima facie proof thereof.
12. Based solely on its own independent investigation and not upon any
information provided by Bank, Guarantor acknowledges and represents and warrants
that it is presently informed of the financial condition of Borrower and of all
other circumstances which a diligent inquiry would reveal and which bear upon
the risk of nonpayment of the Obligations or non-performance of the Agreement.
Guarantor hereby covenants that it will continue to keep itself informed of
Borrower's financial condition and of all other circumstances which bear upon
the risk of nonpayment. Guarantor hereby waives its rights, if any, to require
the disclosure of, and Bank is relieved of any obligation or duty to disclose to
Guarantor, any information which Bank may now or hereafter acquire concerning
such condition or circumstances. Guarantor agrees that it is not relying upon
nor expecting Bank to disclose to Guarantor any fact now or later known by Bank,
whether relating to the operations or condition of Borrower, the existence,
liabilities or financial condition of any co-guarantor of the Obligations, the
occurrence of any default with respect to the Obligations including but not
limited to under the Agreement, or otherwise, notwithstanding any effect these
facts may have upon Guarantor's risk under this Guaranty or Guarantor's rights
against Borrower. Guarantor knowingly accepts the full range of risk encompassed
in this Guaranty, which risk includes without limit the possibility that
Borrower may incur Obligations to Bank after the financial condition of
Borrower, or its ability to pay its debts as they mature, has deteriorated.
13. On a continuing basis from the date of this Guaranty and at all times
during its effectiveness, Guarantor hereby represents and warrants to Bank as
follows: (a) Guarantor is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of Delaware and in good
standing under the laws of, and is authorized to do business in, the State of
California, (b) Guarantor has the power and authority to own its properties and
assets and to carry out its business as now being conducted and is
- 39 -
qualified to do business and in good standing in every jurisdiction wherein such
qualification is necessary, (c) Guarantor has the power and authority to
execute, deliver and perform this Guaranty in accordance with its terms, and to
do any and all other things required of it hereunder, (d) the execution,
delivery and performance of this Guaranty have been duly authorized by all
requisite partnership action and will not violate any provision of Guarantor's
partnership or other constituency agreements or partnership certificates or any
provision of any indenture, note, agreement or other instrument to which the
Guarantor is a party, or by which it or any of Guarantor's properties or assets
are bound, (e) there are no actions, suits or proceedings, at law or in equity,
and no proceedings before any arbitrator or by or before any governmental
commission, board, bureau, or other administrative agency, pending, or, to the
best knowledge of the Guarantor, threatened against or affecting Guarantor
which, if adversely determined, could materially impair the right of Guarantor
to carry on business substantially as now conducted or could have a material
adverse effect upon the financial condition of Guarantors, (f) upon the Bank's
request and Borrower's failure to timely provide to the Bank, Guarantor will
provide to the Bank financial and credit information in form acceptable to the
Bank, and such information and all consolidated and consolidating balance
sheets, earnings statements and other financial data furnished to the Bank for
the purposes of, or in connection with, the Agreement and this Guaranty do or
will fairly present the financial condition of Guarantor, as of their dates, and
the results of Guarantor's operations for the periods, for which the same are
furnished to the Bank, and Guarantor has no material contingent obligations,
liabilities for taxes, long-term leases or unusual forward or long-term
commitments not disclosed by, or reserved against in, all such financial
information provided to Bank, and (g) Guarantor is solvent, able to pay its
debts as they mature, has capital sufficient to carry on its business and has
assets the fair market value of which exceed its liabilities.
14. Guarantor covenants and agrees that, at all times during the
effectiveness of this Guaranty, Guarantor will do or cause to be done all things
necessary to preserve and keep in full force and effect Guarantor's partnership
existence, rights and franchises and comply with all applicable laws; maintain
its good standing in all states and jurisdictions in which it is currently
authorized to conduct business; continue to conduct and operate its business
substantially as conducted and operated during the present and preceding
calendar year; at all times maintain, preserve and protect all franchises, trade
names and preserve all the remainder of its property and keep the same in good
repair, working order and condition; and from time to time make, or cause to be
made, all needed and proper repairs, renewals, replacements, betterments and
improvements thereto so that the business carried on in connection therewith may
be properly and advantageously conducted at all times.
15. Guarantor covenants and agrees that, at all times during the
effectiveness of this Guaranty, it will not transfer all or substantially all of
its assets and that it will not dissolve or wind-up its affairs or otherwise
cease doing business or transfer its assets in such a way as to impair
Guarantor's ability to perform its obligations under this Guaranty.
16. Notwithstanding any prior revocation, termination, surrender or
discharge of this Guaranty in whole or part, this Guaranty shall continue in
full force and effect until Borrower's Obligations including but not limited to
under the Agreement are fully paid, performed and discharged and Bank gives
Guarantor written notice of that fact. Borrower's Obligations shall not be
considered fully paid, performed and discharged unless and until all payments by
Borrower to Bank are no longer subject to any right on the part of any person
whomsoever including but not limited to Borrower, Borrower as a
debtor-in-possession, and/or any trustee or receiver in bankruptcy, to set aside
such payments or seek to recoup the amount of such payments, or any part
thereof. In the event that any such payments by Borrower to Bank or on account
of Borrower to Bank are set aside after the making thereof, in whole or in part,
or settled without litigation, to the extent of such settlement, all of which is
within Bank's discretion, Guarantor shall be liable for the full amount Bank is
required to repay plus costs, interest, attorneys' fees and any and all expenses
which Bank paid or incurred in connection therewith. The foregoing shall
include, by way of example and not by way of limitation, all rights to recover
preferences voidable under the United States Bankruptcy Code and any liability
imposed, or sought to be imposed, against Bank relating to the environmental
condition of, or the presence of hazardous or toxic substances on, in or about,
any of Borrower's property. For purposes of this Guaranty, "environmental
condition" includes, without
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limitation, conditions existing with respect to the surface or ground water,
drinking water supply, land surface or subsurface and the air; and "hazardous or
toxic substances" shall include all substances now or subsequently determined by
any federal, state or local authority to be hazardous or toxic, or otherwise
regulated by any of these authorities.
17. This Guaranty shall be binding upon the successors and assigns of
Guarantor and shall inure to the benefit of Bank's successors and assigns.
Guarantor's rights and liability shall not be affected by any changes in the
name of Borrower or in the event Borrower merges with or into any other
corporation or entity or in the event Borrower transfers, assigns or sells its
assets and liabilities to any person.
18. All notices, demands and other communications which Guarantor or Bank
may desire, or may be required, to give to the other shall be in writing and
shall be sent via registered or certified mail, nationally recognized overnight
courier, or personally delivered and shall be addressed to the party at the
addresses set forth in the preamble of this Guaranty. Any such notice, demand or
communication shall be deemed given when received if personally delivered or
sent by overnight courier, or deposited in the United States mail, postage
prepaid, if sent by registered or certified mail. The address of either
Guarantor or Bank may be changed by notice given in accordance with this
paragraph.
19. This is an integrated agreement and is the sole and final agreement
with respect to the subject matter hereof, and supersedes all prior negotiations
and agreements. No modification of this Guaranty shall be effective for any
purpose unless it is in writing and executed by Guarantor and an officer of Bank
authorized to do so.
20. Guarantor agrees to pay all costs and fees, including without
limitation all reasonable attorneys' fees and out-of-pocket costs, incurred by
Bank in enforcing the Agreement or this Guaranty. In addition, the prevailing
party (the "Prevailing Party") in any litigation, arbitration, bankruptcy
proceeding, or other formal or informal resolution (collectively, a
"Proceeding") brought by Bank or any party to this Guaranty of any claims
brought to enforce the terms of this Guaranty based upon, arising from, or in
any way related to this Guaranty or the transactions contemplated herein,
including without limitation contract claims, tort claims, breach of duty
claims, and all other common law or statutory claims (collectively, the
"Claims"), shall be entitled to recover from such other party all its fees and
costs incurred in connection with the Proceeding, including without limitation
all its attorneys' fees and costs, whether incurred by in-house counsel or
outside counsel, all its expert witness and/or consultant's fees and costs, all
its paralegal fees and costs, and all its other costs and expenses, regardless
of whether such costs are otherwise statutorily recoverable (collectively, the
"Fees and Costs"), and including without limitation all the Fees and Costs
incurred by the Prevailing Party in connection with proceedings in bankruptcy
for relief from and/or modification of automatic stay, for orders of
nondischargeability, and/or regarding use of cash collateral, claims, and/or
plans. The Prevailing Party shall also be entitled to recover from such other
party all its costs incurred in enforcing the judgment or award giving rise to
the Prevailing Party's status as the Prevailing Party. Guarantor acknowledges
that it is on notice that, in the event that the other party retain the services
of one or more experts in connection with the Proceeding, such other party will
seek to recover the fees and costs of such expert or experts hereunder, and
that, if such party becomes the Prevailing Party in the Proceeding, such party
shall be entitled to recover such fees and costs hereunder, whether such fees
and costs are sought before trial, during trial, or by post-trial motion or
memorandum of costs.
21. In all cases where the word "Guarantor" is used in this Guaranty, it
shall mean and apply equally to each of and all of the entities which have
executed this Guaranty. If any Obligation is guaranteed by two or more
guarantors, the obligation of Guarantor shall be several and also joint, each
with all and also each with any one or more of the others, and may be enforced
at the option of Bank against each severally, any two or more jointly, or some
severally and some jointly.
- 41 -
22. The term "Borrower" includes any debtor-in-possession or trustee in
bankruptcy or court-appointed receiver which succeeds to the interests of
Borrower.
23. This Guaranty and all acts and transactions hereunder and the rights
and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of California, without
regard to choice of law principles.
24. GUARANTOR ACKNOWLEDGES THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED. AFTER CONSULTING (OR HAVING HAD
THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, GUARANTOR AND BANK
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVE ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS GUARANTY OR THE OBLIGATIONS.
GUARANTOR ACKNOWLEDGES THAT GUARANTOR HAS HAD THE OPPORTUNITY TO READ AND
REVIEW WITH GUARANTOR'S COUNSEL THIS GUARANTY, AND GUARANTOR ACKNOWLEDGES HAVING
READ AND UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT BEFORE SIGNING IT.
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IN WITNESS WHEREOF, the undersigned has/have executed this Guaranty as
of the date set forth above.
MISSION WEST PROPERTIES, L.P.
A Delaware limited partnership
By Mission West Properties, Inc.,
A Maryland corporation,
Its General Partner
By: /s/ Carl E. Berg
------------------------------
Its: Chairman & CEO
By: /s/ Raymond V. Marino
------------------------------
Its: President & COO
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EXHIBIT 10.31
CONTINUING GUARANTY
July 12, 2002
Cupertino National Bank
20230 Stevens Creek Boulevard
Cupertino, CA 95014
TO: Cupertino National Bank
For good and valuable consideration the receipt of which is hereby
acknowledged, and in order to induce Cupertino National Bank (the "Bank"), to
extend and/or continue to extend financial accommodations to Mission West
Properties, Inc., a Maryland corporation ("Borrower"), pursuant to the terms and
conditions of that certain Revolving Credit Loan Agreement and Revolving Credit
Note (individually and collectively, the "Agreement"), dated July 12, 2002,
evidencing and otherwise relating to a revolving loan by Bank to Borrower up to
the total principal amount of Forty Million Dollars ($40,000,000.00) (the
"Loan") Mission West Properties, L.P. II, a Delaware limited partnership
("Guarantor"), whose address is 10050 Bandley Drive, Cupertino, California
95014, hereby, jointly and severally, guarantees, promises, represents,
warrants, covenants and undertakes to Bank and its successors and assigns as
follows:
1. Guarantor unconditionally, absolutely and irrevocably guarantees and
promises to pay to Bank, or order, on demand, in lawful money of the United
States, any and all indebtedness and/or obligations of Borrower to Bank and the
payment to Bank of all sums which may be presently due and owing and of all sums
which shall in the future become due and owing to Bank from Borrower under the
Agreement. The terms "indebtedness" and "obligations" (hereinafter collectively
referred to as the "Obligations") are used herein in their most comprehensive
sense and include, without limitation, the Loan and any and all advances to, or
debts, obligations, and liabilities of Borrower, heretofore, now, or hereafter
made, incurred, or created, whether voluntarily or involuntarily, and however
arising, including, without limitation, (i) indebtedness owing by Borrower to
third parties who have granted Bank a security interest in the accounts, chattel
paper and/or general intangibles of said third party; (ii) any and all
attorneys' fees, expenses, costs, premiums, charges and/or interest owed by
Borrower to Bank, whether under the Agreement, or otherwise, whether due or not
due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, whether Borrower may be liable individually or jointly with
others, whether recovery upon such indebtedness may be or hereafter becomes
barred by any statute of limitations or whether such indebtedness may be or
hereafter becomes otherwise unenforceable, and includes Borrower's prompt, full
and faithful performance, observance and discharge or each and every term,
condition, agreement, representation, warranty undertaking and provision to be
performed by Borrower under the Agreement; (iii) any and all obligations or
liabilities of Borrower to Bank arising out of any other agreement by Borrower
including without limitation any agreement to indemnify Bank for environmental
liability or to clean up hazardous waste; (iv) any and all indebtedness,
obligations or liabilities for which Borrower would otherwise be liable to Bank
were it not for the invalidity, irregularity or unenforceability of them by
reason of any bankruptcy, insolvency or other law or order of any kind,
including from and after the filing by or against Borrower of a bankruptcy
petition, whether an involuntary or voluntary bankruptcy case, and all
attorneys' fees related thereto; and (v) any and all amendments, modifications,
renewals and/or extensions of any of the above, including without limit
amendments, modifications, renewals and/or extensions which are evidenced by new
or additional instruments, documents or agreements.
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2. This Guaranty ("Guaranty") is a continuing guaranty which shall remain
effective until full satisfaction of all of the Obligations to the Bank
(including without limitation those which arise under successive transactions
under the Agreement), full satisfaction by Guarantor of its obligations under
this Guaranty, and the termination of the Bank's obligations under the
Agreement.
3. Guarantor agrees that it is directly and primarily liable to Bank, that
the obligations hereunder are independent of the obligations of Borrower, and
that a separate action or actions may be brought and prosecuted against
Guarantor irrespective of whether Borrower is joined in any such action or
actions. Guarantor agrees that any releases which may be given by Bank to
Borrower or any other guarantor or endorser shall not release it from this
Guaranty.
4. In the event that any bankruptcy, insolvency, receivership or similar
proceeding is instituted by or against Guarantor and/or Borrower or in the event
that either Guarantor or Borrower become insolvent, make an assignment for the
benefit of creditors, or attempts to effect a composition with creditors, or if
there be any default under the Agreement (whether declared or not), then, at
Bank's election, without notice or demand, the obligations of Guarantor created
hereunder shall become due, payable and enforceable against Guarantor whether or
not the Obligations are then due and payable.
5. Guarantor agrees to defend, indemnify and hold Bank harmless from and
against all obligations, demands, judgments, claims and liabilities, by
whomsoever asserted and against all losses, fees, expenses and costs in any way
suffered, incurred, or paid by Bank as a result of or in any way arising out of,
following, or consequential to Bank's or Guarantor's transactions with Borrower
under the Agreement, and also agrees that this Guaranty shall not be impaired by
any modification, supplement, extension, or amendment of any contract or
agreement to which Bank and Borrower may hereafter agree, nor by any
modification, release, or other alteration of any of the Obligations hereby
guaranteed or of any security therefor, nor by any agreements or arrangements
whatsoever with Borrower or anyone else.
6. Guarantor hereby authorizes Bank, without notice or demand and without
affecting its liability hereunder, from time to time to: (a) renew, compromise,
extend, accelerate, or otherwise change the interest rate, time for payment, or
the other terms of the Agreement or of any of the Obligations guaranteed hereby,
and exchange, enforce, waive, and release any security therefor; (b) apply any
such security and direct the order or manner of sale thereof as Bank in its
discretion may determine; (c) release or substitute any one or more endorser(s)
or guarantor(s); and (d) assign, without notice, this Guaranty or the
Indebtedness in whole or in part and/or Bank's rights thereunder to anyone at
any time and/or transfer one or more participation interests in the Obligations
or any of them and this Guaranty to one or more purchasers and provide
information to prospective purchasers relating to Borrower or Guarantor. The
Bank agrees, upon written request by Guarantor, to provide the identity of any
current participants. Guarantor agrees that Bank may do any or all of the
foregoing in such manner, upon such terms, and at such times as Bank, in its
discretion, deems advisable, without, in any way or respect, impairing,
affecting, reducing or releasing Guarantor from its undertakings hereunder and
Guarantor hereby consents to each and all of the foregoing acts, events and/or
occurrences.
7. Guarantor hereby waives any right to assert against Bank as a defense,
counterclaim, set-off or cross-claim, any defense (legal or equitable), set-off,
counterclaim, and/or claim which Guarantor may now or at any time hereafter have
against Borrower and/or any other party liable to Bank in any way or manner.
8. Guarantor hereby waives all defenses, counterclaims and off-sets of any
kind or nature, arising directly or indirectly from the present or future lack
of perfection, sufficiency, validity and/or enforceability of the Agreement, or
any security interest granted in connection therewith.
- 45 -
9. Guarantor hereby waives any defense arising by reason of any claim or
defense based upon an election of remedies by Bank that in any manner impairs,
affects, reduces, releases, destroys and/or extinguishes Guarantor's subrogation
rights, rights to proceed against Borrower or any other person for subrogation,
reimbursement, exoneration, contribution, indemnification or participation in
any claim, right or remedy against Borrower or any other person for any security
which Bank now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity, under contract, by statute, under common law or
otherwise, and/or any rights of Guarantor to proceed against Borrower or against
any other person or security, including, but not limited to, any defense based
upon an election of remedies by Bank. Guarantor expressly waives all benefits
which might otherwise be available to Guarantor under California Civil Code
Sections 2809, 2810, 2815, 2819, 2822, 2839, 2845, 2847, 2848, 2849, 2850, and
3433 and California Code of Civil Procedure Sections 580a, 580b, 580d and 726,
as those statutory provisions are now in effect and hereafter amended, and under
any other similar statutes now and hereafter in effect deemed applicable to this
Guaranty and its enforcement.
Guarantor acknowledges that neither the Indebtedness nor the obligations
hereunder are secured by an interest in real property, but to the extent that it
should ever be determined that either the Indebtedness or the obligations
hereunder are so secured or should the Indebtedness or the obligations hereunder
be so secured in the future, Guarantor agrees to the following:
The guarantor waives all rights and defenses that the guarantor may have
because the debtor's debt is secured by real property. This means, among
other things:
(1) A creditor may collect from the guarantor without first
foreclosing on any real or personal property collateral pledged
by the debtor;
(2) If a creditor forecloses on any real property collateral pledged
by the debtor:
(A) The amount of the debt may be reduced only by the price for
which that collateral is sold at the foreclosure sale, even
if the collateral is worth more than the sale price,
(B) The creditor may collect from the guarantor even if the
creditor, by foreclosing on the real property collateral,
has destroyed any right the guarantor may have to collect
from the debtor.
This is an unconditional and irrevocable waiver of any rights and defenses the
Guarantor may have because the Borrower's debt is or may be secured by real
property. These rights and defenses include, but are not limited to, any rights
or defenses based upon Section 580a, 6580b, 580d, or 726 of the California Code
of Civil Procedure.
The undersigned further understands that, absent this waiver, California law,
including without limitation the laws cited above, could afford the undersigned
one or more affirmative defenses to any action maintained by Bank against the
undersigned on this Guaranty. Notwithstanding any foreclosure of the lien of any
security instrument, with respect to any or all property secured thereby,
whether by the exercise of the power of sale contained therein, by an action for
judicial foreclosure, or by an acceptance of a deed in lieu of foreclosure,
Guarantor shall remain bound under this Guaranty. Without limiting the
generality of the foregoing, Guarantor acknowledges that, but for the waiver of
such rights in this Guaranty, Guarantor has or may have rights of subrogation or
reimbursement against Borrower arising from Guarantor's status as surety and
guarantor of Borrower's obligations to Bank. Therefore, in addition to the above
waivers, Guarantor hereby agrees that if now or hereafter Borrower is or shall
become insolvent and the Indebtedness or Obligations shall not at all times be
- 46 -
fully secured by collateral pledged by Borrower, Guarantor hereby forever waives
and gives up in favor of Bank and Borrower, and Bank's and Borrower's respective
successors and assigns, any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or otherwise, so that
at no time shall Guarantor be or become a "creditor" of Borrower within the
meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal
bankruptcy laws.
Guarantor acknowledges that Guarantor has been provided the opportunity to
discuss with Guarantor's counsel the effect and meaning of the waivers set forth
in this paragraph. Nothing within this paragraph is to be construed to limit the
generality of any other term or provision within this Guaranty.
10. Guarantor waives all presentments, demands for performance, notices of
non-performance, protests, notices of protest, notices of dishonor, notices of
default, notices of intent to accelerate or demand payment of any kind,
diligence in collecting any Obligations, notices of acceptance of this Guaranty,
notices of the existence, creation, or incurring of new or additional
indebtedness, notices respecting the terms, time and place of any public or
private sale of personal property security held from Borrower or any other
person, and all other notices or formalities to which Guarantor may be entitled.
Bank may modify the terms of the Agreement or of any Obligations, compromise,
extend, increase, accelerate, renew or forbear to enforce payment of any or all
Obligations or other sums due under the Agreement, or permit Borrower to incur
additional Obligations, all without notice to Guarantor and without affecting in
any manner the unconditional obligation of Guarantor under this Guaranty.
Guarantor further waives any and all other notices to which Guarantor might
otherwise be entitled. Guarantor acknowledges and agrees that the liabilities
created by this Guaranty are direct and are not conditioned upon pursuit by Bank
of any remedy Bank may have against Borrower or any other person or any
security. No invalidity, irregularity or unenforceability of any part or all of
the Agreement or any other Obligations or any documents evidencing the same, by
reason of any bankruptcy, insolvency or other law or order of any kind or for
any other reason, and no defense or setoff available at any time to Borrower,
shall impair, affect or be a defense or setoff to the obligations of Guarantor
under this Guaranty.
11. Any and all present and future debts and obligations of Borrower to
Guarantor are hereby postponed in favor of and subordinated to the full payment
and performance of all present and future debts and obligations of Borrower to
Bank. All monies or other property of Guarantor at any time in Bank's possession
may be held by Bank as security for any and all obligations of Guarantor to Bank
no matter how or when arising, whether absolute or contingent, whether due or to
become due, and whether under this Guaranty or otherwise. Guarantor also agrees
that Bank's books and records showing the account between Bank and Borrower
shall be admissible in any action or proceeding and shall be binding upon
Guarantor for the purpose of establishing the terms set forth therein and shall
constitute prima facie proof thereof.
12. Based solely on its own independent investigation and not upon any
information provided by Bank, Guarantor acknowledges and represents and warrants
that it is presently informed of the financial condition of Borrower and of all
other circumstances which a diligent inquiry would reveal and which bear upon
the risk of nonpayment of the Obligations or non-performance of the Agreement.
Guarantor hereby covenants that it will continue to keep itself informed of
Borrower's financial condition and of all other circumstances which bear upon
the risk of nonpayment. Guarantor hereby waives its rights, if any, to require
the disclosure of, and Bank is relieved of any obligation or duty to disclose to
Guarantor, any information which Bank may now or hereafter acquire concerning
such condition or circumstances. Guarantor agrees that it is not relying upon
nor expecting Bank to disclose to Guarantor any fact now or later known by Bank,
whether relating to the operations or condition of Borrower, the existence,
liabilities or financial condition of any co-guarantor of the Obligations, the
occurrence of any default with respect to the Obligations including but not
limited to under the Agreement, or otherwise, notwithstanding any effect these
facts may have upon Guarantor's risk under this Guaranty or
- 47 -
Guarantor's rights against Borrower. Guarantor knowingly accepts the full range
of risk encompassed in this Guaranty, which risk includes without limit the
possibility that Borrower may incur Obligations to Bank after the financial
condition of Borrower, or its ability to pay its debts as they mature, has
deteriorated.
13. On a continuing basis from the date of this Guaranty and at all times
during its effectiveness, Guarantor hereby represents and warrants to Bank as
follows: (a) Guarantor is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of Delaware and in good
standing under the laws of, and is authorized to do business in, the State of
California, (b) Guarantor has the power and authority to own its properties and
assets and to carry out its business as now being conducted and is qualified to
do business and in good standing in every jurisdiction wherein such
qualification is necessary, (c) Guarantor has the power and authority to
execute, deliver and perform this Guaranty in accordance with its terms, and to
do any and all other things required of it hereunder, (d) the execution,
delivery and performance of this Guaranty have been duly authorized by all
requisite partnership action and will not violate any provision of Guarantor's
partnership or other constituency agreements or partnership certificates or any
provision of any indenture, note, agreement or other instrument to which the
Guarantor is a party, or by which it or any of Guarantor's properties or assets
are bound, (e) there are no actions, suits or proceedings, at law or in equity,
and no proceedings before any arbitrator or by or before any governmental
commission, board, bureau, or other administrative agency, pending, or, to the
best knowledge of the Guarantor, threatened against or affecting Guarantor
which, if adversely determined, could materially impair the right of Guarantor
to carry on business substantially as now conducted or could have a material
adverse effect upon the financial condition of Guarantors, (f) upon the Bank's
request and Borrower's failure to timely provide to the Bank, Guarantor will
provide to the Bank financial and credit information in form acceptable to the
Bank, and such information and all consolidated and consolidating balance
sheets, earnings statements and other financial data furnished to the Bank for
the purposes of, or in connection with, the Agreement and this Guaranty do or
will fairly present the financial condition of Guarantor, as of their dates, and
the results of Guarantor's operations for the periods, for which the same are
furnished to the Bank, and Guarantor has no material contingent obligations,
liabilities for taxes, long-term leases or unusual forward or long-term
commitments not disclosed by, or reserved against in, all such financial
information provided to Bank, and (g) Guarantor is solvent, able to pay its
debts as they mature, has capital sufficient to carry on its business and has
assets the fair market value of which exceed its liabilities.
14. Guarantor covenants and agrees that, at all times during the
effectiveness of this Guaranty, Guarantor will do or cause to be done all things
necessary to preserve and keep in full force and effect Guarantor's partnership
existence, rights and franchises and comply with all applicable laws; maintain
its good standing in all states and jurisdictions in which it is currently
authorized to conduct business; continue to conduct and operate its business
substantially as conducted and operated during the present and preceding
calendar year; at all times maintain, preserve and protect all franchises, trade
names and preserve all the remainder of its property and keep the same in good
repair, working order and condition; and from time to time make, or cause to be
made, all needed and proper repairs, renewals, replacements, betterments and
improvements thereto so that the business carried on in connection therewith may
be properly and advantageously conducted at all times.
15. Guarantor covenants and agrees that, at all times during the
effectiveness of this Guaranty, it will not transfer all or substantially all of
its assets and that it will not dissolve or wind-up its affairs or otherwise
cease doing business or transfer its assets in such a way as to impair
Guarantor's ability to perform its obligations under this Guaranty.
16. Notwithstanding any prior revocation, termination, surrender or
discharge of this Guaranty in whole or part, this Guaranty shall continue in
full force and effect until Borrower's Obligations including but not limited to
under the Agreement are fully paid, performed and discharged and Bank gives
Guarantor written
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notice of that fact. Borrower's Obligations shall not be considered fully paid,
performed and discharged unless and until all payments by Borrower to Bank are
no longer subject to any right on the part of any person whomsoever including
but not limited to Borrower, Borrower as a debtor-in-possession, and/or any
trustee or receiver in bankruptcy, to set aside such payments or seek to recoup
the amount of such payments, or any part thereof. In the event that any such
payments by Borrower to Bank or on account of Borrower to Bank are set aside
after the making thereof, in whole or in part, or settled without litigation, to
the extent of such settlement, all of which is within Bank's discretion,
Guarantor shall be liable for the full amount Bank is required to repay plus
costs, interest, attorneys' fees and any and all expenses which Bank paid or
incurred in connection therewith. The foregoing shall include, by way of example
and not by way of limitation, all rights to recover preferences voidable under
the United States Bankruptcy Code and any liability imposed, or sought to be
imposed, against Bank relating to the environmental condition of, or the
presence of hazardous or toxic substances on, in or about, any of Borrower's
property. For purposes of this Guaranty, "environmental condition" includes,
without limitation, conditions existing with respect to the surface or ground
water, drinking water supply, land surface or subsurface and the air; and
"hazardous or toxic substances" shall include all substances now or subsequently
determined by any federal, state or local authority to be hazardous or toxic, or
otherwise regulated by any of these authorities.
17. This Guaranty shall be binding upon the successors and assigns of
Guarantor and shall inure to the benefit of Bank's successors and assigns.
Guarantor's rights and liability shall not be affected by any changes in the
name of Borrower or in the event Borrower merges with or into any other
corporation or entity or in the event Borrower transfers, assigns or sells its
assets and liabilities to any person.
18. All notices, demands and other communications which Guarantor or Bank
may desire, or may be required, to give to the other shall be in writing and
shall be sent via registered or certified mail, nationally recognized overnight
courier, or personally delivered and shall be addressed to the party at the
addresses set forth in the preamble of this Guaranty. Any such notice, demand or
communication shall be deemed given when received if personally delivered or
sent by overnight courier, or deposited in the United States mail, postage
prepaid, if sent by registered or certified mail. The address of either
Guarantor or Bank may be changed by notice given in accordance with this
paragraph.
19. This is an integrated agreement and is the sole and final agreement
with respect to the subject matter hereof, and supersedes all prior negotiations
and agreements. No modification of this Guaranty shall be effective for any
purpose unless it is in writing and executed by Guarantor and an officer of Bank
authorized to do so.
20. Guarantor agrees to pay all costs and fees, including without
limitation all reasonable attorneys' fees and out-of-pocket costs, incurred by
Bank in enforcing the Agreement or this Guaranty. In addition, the prevailing
party (the "Prevailing Party") in any litigation, arbitration, bankruptcy
proceeding, or other formal or informal resolution (collectively, a
"Proceeding") brought by Bank or any party to this Guaranty of any claims
brought to enforce the terms of this Guaranty based upon, arising from, or in
any way related to this Guaranty or the transactions contemplated herein,
including without limitation contract claims, tort claims, breach of duty
claims, and all other common law or statutory claims (collectively, the
"Claims"), shall be entitled to recover from such other party all its fees and
costs incurred in connection with the Proceeding, including without limitation
all its attorneys' fees and costs, whether incurred by in-house counsel or
outside counsel, all its expert witness and/or consultant's fees and costs, all
its paralegal fees and costs, and all its other costs and expenses, regardless
of whether such costs are otherwise statutorily recoverable (collectively, the
"Fees and Costs"), and including without limitation all the Fees and Costs
incurred by the Prevailing Party in connection with proceedings in bankruptcy
for relief from and/or modification of automatic stay, for orders of
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nondischargeability, and/or regarding use of cash collateral, claims, and/or
plans. The Prevailing Party shall also be entitled to recover from such other
party all its costs incurred in enforcing the judgment or award giving rise to
the Prevailing Party's status as the Prevailing Party. Guarantor acknowledges
that it is on notice that, in the event that the other party retain the services
of one or more experts in connection with the Proceeding, such other party will
seek to recover the fees and costs of such expert or experts hereunder, and
that, if such party becomes the Prevailing Party in the Proceeding, such party
shall be entitled to recover such fees and costs hereunder, whether such fees
and costs are sought before trial, during trial, or by post-trial motion or
memorandum of costs.
21. In all cases where the word "Guarantor" is used in this Guaranty, it
shall mean and apply equally to each of and all of the entities which have
executed this Guaranty. If any Obligation is guaranteed by two or more
guarantors, the obligation of Guarantor shall be several and also joint, each
with all and also each with any one or more of the others, and may be enforced
at the option of Bank against each severally, any two or more jointly, or some
severally and some jointly.
22. The term "Borrower" includes any debtor-in-possession or trustee in
bankruptcy or court-appointed receiver which succeeds to the interests of
Borrower.
23. This Guaranty and all acts and transactions hereunder and the rights
and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of California, without
regard to choice of law principles.
24. GUARANTOR ACKNOWLEDGES THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED. AFTER CONSULTING (OR HAVING HAD
THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, GUARANTOR AND BANK
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVE ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS GUARANTY OR THE OBLIGATIONS.
GUARANTOR ACKNOWLEDGES THAT GUARANTOR HAS HAD THE OPPORTUNITY TO READ AND
REVIEW WITH GUARANTOR'S COUNSEL THIS GUARANTY, AND GUARANTOR ACKNOWLEDGES HAVING
READ AND UNDERSTOOD THE MEANING AND EFFECT OF THIS DOCUMENT BEFORE SIGNING IT.
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IN WITNESS WHEREOF, the undersigned has/have executed this Guaranty as
of the date set forth above.
MISSION WEST PROPERTIES, L.P. II
A Delaware limited partnership
By Mission West Properties, Inc.,
A Maryland corporation,
Its General Partner
By: /s/ Carl E. Berg
-------------------------------
Its: Chairman & CEO
By: /s/ Raymond V. Marino
-------------------------------
Its: President & COO
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EXHIBIT 99.1
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
ss. 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Mission West
Properties, Inc. (the "Company") for the quarterly period ended June 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), each of Carl E. Berg, Chairman of the Board and Chief Executive
Officer of the Company, and Wayne N. Pham, Vice President of Finance and
Controller of the Company, hereby certify, pursuant to 18 U.S.C. ss. 1350, as
adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to the best of
his knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
================================================================================
Carl E. Berg
Chairman of the Board and Chief Executive Officer
August 13, 2002
================================================================================
Wayne N. Pham
Vice President of Finance and Controller
August 13, 2002
This certification accompanies this Report pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, or otherwise required, be deemed filed by the
Company for purposes of ss. 18 of the Securities Exchange Act of 1934, as
amended.
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