SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Fiscal Year Ended: December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-8383
MISSION WEST PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 95-2635431
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
10050 Bandley Drive, Cupertino CA 95014
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (408) 725-0700
---------------
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value American Stock Exchange
$.001 per share Pacific Exchange, Inc.
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of the Common Stock on June
30, 2002, as reported on the American Stock Exchange, was approximately
$212,926,741. As of March 25, 2003 there were 17,653,691 shares of the
Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 2003 Annual
Meeting of Stockholders to be held May 21, 2003, and to be filed pursuant to
Regulation 14A are incorporated by reference in Part III of this Form 10-K to
the extent stated herein.
Forward Looking Information
This annual report contains forward-looking statements within the meaning of the
federal securities laws. We intend such forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and are 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 us, are generally identifiable by
use of the words "believe," "expect," "intend," "anticipate," "estimate,"
"project" or similar expressions. Our ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which
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 Real Estate Investment Trusts ("REITs")), availability of capital,
interest rates, competition, supply of and demand for office and industrial
properties in our 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. These risks and uncertainties, together with the other risks
described from time to time in our reports and 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. See Part I, Item 1, "Risk Factors."
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MISSION WEST PROPERTIES, INC.
2002 FORM 10-K ANNUAL REPORT
Table of Contents
PART I
Page No.
Item 1. Business 1
Item 2. Properties 15
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 22
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 42
Item 8. Financial Statements and Supplementary Data 43
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 69
PART III
Item 10. Directors and Executive Officers of the Registrant 70
Item 11. Executive Compensation 70
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters 70
Item 13. Certain Relationships and Related Transactions 70
Item 14. Controls and Procedures 70
PART IV
Item 15. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K 71
Signatures 73
Rule 13a-14 Certifications 74
- ii -
PART I
ITEM 1. BUSINESS
ORGANIZATION AND GENERAL BUSINESS DESCRIPTION
Mission West Properties, Inc. (the "Company") acquires, markets, leases,
and manages Research and Development ("R&D") properties, primarily located
in the Silicon Valley portion of the San Francisco Bay Area. As of December
31, 2002, we owned and managed 101 properties totaling approximately 7.2
million rentable square feet of R&D properties through four limited
partnerships, or operating partnerships, for which we are the sole general
partner. R&D property is designed for research and development and office
uses and, in some cases, includes space for light manufacturing operations
with loading docks. We believe that we have one of the largest portfolios
of R&D properties in the Silicon Valley. The four tenants who lease the
most square footage from us are Microsoft Corporation, JDS Uniphase
Corporation, Amdahl Corporation (a subsidiary of Fujitsu Limited), and
Apple Computer, Inc. For federal income tax purposes we have operated as a
self-managed, self-administered and fully integrated Real Estate Investment
Trust ("REIT") since fiscal 1999.
Prior to July 1, 1998, most of our properties were under the ownership or
control of Carl E. Berg, his brother Clyde J. Berg, the members of their
respective immediate families, and certain entities in which Carl E. Berg
and/or Clyde J. Berg held controlling or other ownership interests (the
"Berg Group"). We acquired these properties as of July 1, 1998 by becoming
the general partner of each of the four operating partnerships in an UPREIT
transaction. At that time, we also acquired ten properties comprising
approximately 560,000 rentable square feet from entities controlled by
third parties in which the Berg Group members were significant owners.
Through various property acquisition agreements with the Berg Group, we
have the right to purchase, on pre-negotiated terms, R&D and other types of
office and light industrial properties that the Berg Group develops in the
future. With in-house development, architectural and construction
personnel, the Berg Group continues to focus on a full range of land
acquisition, development and construction activities for R&D properties,
often built-to-suit, to meet the demands of Silicon Valley information
technology companies. As the developer, the Berg Group takes on the risks
of purchasing the land, obtaining regulatory approvals and permits,
financing construction and leasing the properties. Since September 1998, we
have acquired approximately 2,879,000 additional rentable square feet of
R&D properties from the Berg Group under these agreements.
OUR RELATIONSHIP WITH THE BERG GROUP
Through a series of transactions occurring between May 1997 and December
1998, we have become the vehicle for substantially all of the Silicon
Valley R&D property operating activities of the Berg Group. We are the
general partner pursuant to the partnership agreements of the operating
partnerships and, along with members of the Berg Group and other
individuals, are party to an Exchange Rights Agreement and the Berg Land
Holdings Option Agreement. Each agreement defines the material rights and
obligations among us, the Berg Group members, and other parties to those
agreements. Among other things, these agreements give us rights to:
- control the operating partnerships;
- acquire, on pre-negotiated terms, all future R&D properties developed
by the Berg Group on land currently owned or acquired in the future;
and
- acquire R&D, office and industrial properties identified by the Berg
Group in California, Oregon and Washington.
Under these agreements, our charter or our bylaws, the Berg Group has the
right to:
- designate two of five nominees for director to be elected by our
stockholders, subject to the Berg Group's maintenance of certain
ownership interests;
- participate in our securities offerings;
- exchange their operating partnership interests ("O.P. Units") for our
common stock;
- vote on major transactions, subject to its maintenance of certain
ownership interests; and
- prevent us from selling properties when the sale will have adverse tax
consequences to the Berg Group members.
- 1 -
To comply with REIT requirements that restrict the percentage of the total
value of our stock that may be owned by five or fewer individuals to 50% or
less, our charter generally prohibits the direct or indirect ownership of
more than 9% of our common stock by any stockholder. This limit excludes
the Berg Group, which has an aggregate ownership limit of 20%. Currently,
the Berg Group members collectively own less than 1% of the outstanding
shares of our common stock.
Carl E. Berg, the Company's Chairman of the Board of Directors and Chief
Executive Officer and the controlling member of the Berg Group, has been
engaged in the development and long-term ownership of Silicon Valley real
estate for approximately 30 years, most recently through Berg & Berg
Developers ("Berg & Berg"), a general partnership of Carl E. Berg and Clyde
J. Berg. In 1969, Mr. Berg foresaw the rising demand for efficient,
multi-purpose facilities for the rapidly growing information technology
industry in the Silicon Valley. Since 1972, in addition to his real estate
activities, Mr. Berg also has been actively involved in venture capital
investments in many information technology companies in the Silicon Valley,
including such companies as Amdahl Corporation, Sun Microsystems, Inc., and
Integrated Device Technologies, Inc. He serves on the boards of directors
of numerous information technology companies. These activities have helped
Mr. Berg develop a detailed understanding of the real estate requirements
of information technology companies, acquire valuable market information
and increase his name recognition within the venture capital and
entrepreneurial communities. These activities also manifest his commitment
to the growth and success of Silicon Valley companies. We believe that Mr.
Berg's substantial knowledge of and contacts in the information technology
industry provide a significant benefit to the Company.
BUSINESS STRATEGY
Our acquisition, growth and operating 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 properties that provide attractive initial yields and
significant potential for growth in cash-flow;
- focusing on general purpose, single-tenant Silicon Valley R&D
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.
ACQUIRING PROPERTIES DEVELOPED BY THE BERG GROUP
We anticipate that most of our growth, if any, in rentable square footage
in the foreseeable future will come from the acquisition of new R&D
properties that are either currently under development or to be developed
in the future by the Berg Group. For example, in early 2003 we acquired an
approximate 50% interest in a joint venture, TBI-Mission West, LLC, which
consists of four R&D properties totaling approximately 593,000 rentable
square feet from the Berg Group. In addition to this project, the Berg Land
Holdings Option Agreement gives us the right to acquire future R&D property
developments by the Berg Group on up to 250 additional acres of land
currently controlled by the Berg Group, which could support approximately
3.93 million square feet of new developments. Nevertheless, at this time we
do not anticipate acquiring any additional newly constructed R&D properties
from the Berg Group for several years because of current market conditions
in the Silicon Valley.
We also have an option under the Berg Land Holdings Option Agreement to
purchase all land acquired, directly or indirectly, by Carl E. Berg or
Clyde J. Berg that has not been approved with completed buildings and which
is zoned for, intended for or appropriate for R&D, office and/or industrial
development or use in the states of California, Oregon and Washington. In
addition, Carl E. Berg has agreed not to directly or indirectly acquire or
develop any real property zoned for office, industrial or R&D use in the
states of California, Oregon and Washington without first disclosing and
making the acquisition opportunity available to us. Our independent
directors committee will decide whether we will pursue the opportunity
presented to us by Mr. Berg. This restriction will expire when there is no
Berg Group nominee on our board of directors and the Berg Group's fully
diluted ownership percentage, which is calculated based on all outstanding
shares of common stock and all shares of common stock that could be
acquired upon the exercise of all outstanding options to acquire our voting
stock, as well as all shares of common stock issuable upon exchange of all
O.P. Units ("Fully Diluted"), falls below 25%.
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BERG LAND HOLDINGS OPTION AGREEMENT. We believe that control of high
quality, developable land is an important strategic factor for continued
success in the Silicon Valley market. In December 1998, we entered into the
Berg Land Holdings Option Agreement under which we have the option to
acquire any future R&D, office and industrial property developed by the
Berg Group on land currently owned, optioned, or acquired for these
purposes in the future, directly or indirectly, by Carl E. Berg or Clyde J.
Berg. As of December 31, 2002, we had acquired 18 leased R&D properties
totaling approximately 1,864,000 rentable square feet under this agreement
at a cost of approximately $192.2 million, for which we issued 7,583,686
O.P. Units and assumed debt of approximately $109 million. The principal
terms of the agreement include the following:
- So long as the Berg Group members and their affiliates own or have the
right to acquire shares representing at least 65% of our common stock
on a Fully Diluted basis, we will have the option to acquire any
building developed by any member of the Berg Group on the land subject
to the Berg Land Holdings Option Agreement at such time as the
building has been leased. Upon our exercise of the option, the option
price will equal the sum of the following or a lesser amount as
approved by the independent directors committee:
1. the full construction cost of the building; plus
2. 10% of the full construction cost of the building; plus
3. interest at LIBOR plus 1.65%, on the amount of the full
construction cost of the building for the period from the date funds
were disbursed by the developer to the close of escrow; plus
4. the original acquisition cost of the parcel on which the
improvements will be constructed, which range from $8.50 to $20.00 per
square foot for land currently owned or under option; plus
5. 10% per annum of the amount of the original acquisition cost of the
parcel from the later of January 1, 1998 and the seller's acquisition
date, to the close of escrow; minus
6. the aggregate principal amount of all debt encumbering the acquired
property.
- The acquisition cost, net of any debt, will be payable in cash, or
O.P. Units valued at the average closing price of our common stock
over the 30-trading-day period preceding the acquisition or, in cash,
at the option of the Berg Group.
- We also must assume all property tax assessments.
- If we elect not to exercise the option with respect to any property,
the Berg Group may hold and lease the property for its own account, or
may sell it to a third party.
- All action taken by us under the Berg Land Holdings Option Agreement,
including any variations from stated terms outlined above, must be
approved by a majority of the members of the independent directors
committee of our board of directors.
The following table presents certain information concerning currently
identified land, projects, and joint venture interests projected for R&D
property development that we have the right to acquire under the Berg Land
Holdings Option Agreement.
Approximate
Rentable Area Anticipated Total Estimated
Property Net Acres (Square Feet) Acquisition Date Acquisition Cost (1)
------------------------------ -------------------- ------------------- --------------------------- ---------------------
Under Development: (dollars in thousands)
TBI-Mission West JV (2) 37 593,000 Q1 2003 $1,800
Approximate
Rentable Area
Property Net Acres (Square Feet)
------------------------------ -------------------- -------------------
Available Land:
Piercy & Hellyer 30 490,000
Morgan Hill (2) 24 368,025
King Ranch 12 207,000
Fremont & Cushing 24 387,000
Evergreen (3) 160 2,480,000
-------------------- -------------------
Subtotal 250 3,932.025
-------------------- -------------------
TOTAL 287 4,525,025
==================== ===================
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(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 accounting principles generally accepted in the United States of
America ("GAAP"), if O.P. Units or any other securities based on the market
value of our common stock are issued in the transaction.
(2) We expect to own an approximate 50% interest in the partnership through one
of our operating partnerships. The property will be operated and managed by
the other joint venture partner in the entity. The rentable area shown
above reflects both the Company's and the other partner's combined interest
in this joint venture. Our net investment in this joint venture will be
shown as investments on the 2003 consolidated balance sheets.
(3) The Berg Group is attempting to rezone all or part of this land for
residential use and if successful, it would no longer be available to the
Company for purchase.
The time required to complete the leasing of developments varies from
property to property. The acquisition dates and acquisition costs set forth
in the table are only estimates by management. Generally, we 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 will be realized. No estimate can be
given at this time as to our 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.
The Berg Group currently is seeking government approval of a proposed
rezoning of the 250-acre Evergreen site to permit residential development
on a substantial portion of the site. If the Berg Group obtains the
requested rezoning, it will ask the independent directors committee to
approve the removal of the rezoned portions of this property from the Berg
Land Holdings Option Agreement.
Although we expect to acquire the new properties or joint ventures
available to us 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 we actually will consummate any of the intended
transactions, including those discussed above. Furthermore, we have not yet
determined the means by which we would acquire and pay for any such
properties or the impact of any of the acquisitions on our business,
results of operations, financial condition, Funds From Operation ("FFO") or
available cash for distribution. See Item 1., "Risk Factors - Our
contractual business relationships with the Berg Group present additional
conflicts of interest which may result in the realization of economic
benefits or the deferral of tax liabilities by the Berg Group without
equivalent benefits to our stockholders."
Given the recent economic downturn in the Silicon Valley, we may not be
able to maintain historical levels of growth from acquisitions of new
developments in the future.
OPPORTUNISTIC ACQUISITIONS
In addition to our principal opportunities under the Berg Land Holdings
Option Agreement, we believe our acquisitions experience, established
network of real estate and information technology professionals, and
overall financial condition will continue to provide opportunities for
external growth. In general, we will seek opportunistic acquisitions of
high quality, well located Silicon Valley R&D properties in situations
where illiquidity or inadequate management permit their acquisition at
favorable prices, and where our management skills and knowledge of Silicon
Valley submarkets may facilitate increases in cash flow and asset value.
Furthermore, our use of the operating partnership structure allows us to
offer prospective sellers the opportunity to contribute properties on a
tax-deferred basis in exchange for O.P. Units. Although we have not
consummated any transactions like this since our July 1, 1998 acquisition
of the Berg Group properties, this capacity to complete tax-deferred
transactions with sellers of real property further enhances our ability to
acquire additional properties.
FOCUS ON SINGLE TENANT SILICON VALLEY R&D PROPERTIES
We intend to continue to emphasize the acquisition of single-tenant rather
than multi-tenant properties, a practice that has contributed to the
relatively low turnover and high occupancy rates on our properties. We
believe that the relatively small number of tenants (84) occupying our 101
properties, mostly under the triple net lease structure, allows us to
efficiently manage the properties and to serve our tenants' needs without
extensive in-house staff or the assistance of a third-party property
management organization. In addition, this emphasis allows us to incur less
expense for tenant improvements and leasing commissions than multi-tenant,
high turnover property owners. This strategy also reduces the time and
expense associated with obtaining building permits and other governmental
approvals. We believe that the relatively stable, extended relationships
that we have developed with our key tenants are valuable in the expansion
of our business.
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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 have slowed markedly during 2001 and 2002 after fast-paced growth
in 1999 and 2000. In the past several years, the Silicon Valley R&D
property market has 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
21.9% at the end of 2002. Total vacant R&D square footage in Silicon Valley
at the end of the fourth quarter of 2002 amounted to 33.6 million square
feet, of which 38.7%, or 13 million square feet, was sublease space. Total
negative net absorption in 2001 amounted to approximately (15.6) million
square feet. For the year 2002, there was a total negative net absorption
of approximately (10.9) 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 by submarket and location
within each submarket. For the years ended December 31, 2002 and 2001,
average occupancy in the Company's stabilized portfolio was 90% and 98%,
respectively. Prior to the first quarter of 2002, we had achieved
historical average occupancy levels of above 98% since 1999. We believe
that maintaining average occupancy levels above 98% will not be sustainable
given the current economic environment, as evidenced by our occupancy level
of 84% at December 31, 2002. Although we have stringent lease underwriting
standards and continually evaluate the financial capacity of both our
prospective and existing tenants to proactively manage portfolio credit
risk, a downturn in tenants' businesses may weaken tenants' financial
conditions and could result in defaults under their lease obligations. We
believe that the average 2003 renewal rental rates for our properties will
be approximately equal to, or perhaps, below current rents. In addition,
leasing activity for new build-to-suit and vacated R&D properties has
slowed considerably during the past year. Leases representing approximately
527,000 square feet, or 6.3% of the Company's 2003 annualized base rent,
are scheduled to expire during 2003. If we are unable to lease a
significant portion of any vacant space or space scheduled to expire; if we
experience significant tenant defaults as a result of the current economic
downturn; or if we are not able to lease space at or above current market
rates, our results of operations and cash flows will be adversely affected.
OPERATIONS
We operate as a self-administered, self-advised and self-managed REIT with
our own employees. Generally, as the sole general partner of the operating
partnerships, we control the business and assets of the operating
partnerships and have full and complete authority, discretion and
responsibility with respect to the operating partnerships' operations and
transactions, including, without limitation, acquiring additional
properties, borrowing funds, raising new capital, leasing buildings and
selecting and supervising all agents of the operating partnerships.
Although most of our leases are triple net and building maintenance and
tenant improvements are the responsibility of the tenants, from time to
time we may be required to undertake construction and repair work at our
properties. We will bid all major work competitively to subcontractors.
Members of the Berg Group may participate in the competitive bidding for
the work.
We generally will market the properties and negotiate leases with tenants
ourselves. We make the availability of our properties known to the
brokerage community to garner their assistance in locating prospective
tenants. As a result, we expect to retain our policy of paying fixed
commissions to tenants' brokers.
We believe that our business practices provide us with competitive
advantages, including -
- EXTERNAL DEVELOPMENT AFFILIATE. We have the option to purchase all
future R&D, office, industrial property developments of the Berg Group
under the Berg Land Holdings Option Agreement on land currently held
or acquired directly or indirectly by Carl E. Berg or Clyde J. Berg
that is zoned for those purposes and located in California, Oregon and
Washington following completion and lease-up of the property. Our
option will terminate when the Berg Group's ownership percentage falls
below 65% of our common stock calculated on a Fully Diluted basis.
Carl E. Berg has agreed to refer to us, and not acquire through the
Berg Group, all opportunities to acquire the same kinds of real
property in these states that he identifies in the future, until such
time as the Berg Group's Fully Diluted ownership percentage falls
below 25% and there is no Berg Group nominee on our board of
directors. The acquisition terms and conditions for the existing and
identified projects have been pre-negotiated and are documented under
the Berg Land Holdings Option Agreement. This relationship provides us
with the economic benefits of development while eliminating
development and initial lease-up risks. It also provides us with
access to one of the most experienced development teams in the Silicon
Valley without the expense of maintaining development personnel.
- 5 -
- LEAN ORGANIZATION, EXPERIENCED TEAM. In part because of our primary
focus on Silicon Valley, our experience with the special real estate
requirements of information technology tenants and the long-term
triple-net structure of our leases, we are able to conduct and expand
our business with a small management team comprised of highly
qualified and experienced professionals working within a relatively
flat organizational structure. We believe that the leanness of our
organization and our experience will enable us to rapidly assess and
respond to market opportunities and tenant needs, control operating
expenses and develop and maintain excellent relationships with
tenants. We further believe that these advantages translate into
significantly lower costs for operations and give us the ability,
along with the Berg Group, to compete favorably with other R&D
property developers in Silicon Valley, especially for build-to-suit
projects subject to competitive bidding. Furthermore, we believe this
lower cost structure allows us to generate better returns from
properties whose value can be increased through appropriate remodeling
and efficient property management.
- SOUND PROPERTY MANAGEMENT PRACTICES. For each property, the management
team, along with the Berg Group staff, develops a specific marketing
and property management program. We select vendors and subcontractors
on a competitive bid basis from a select group of highly qualified
firms with whom we maintain ongoing relationships and carefully
supervise their work.
OPERATING PARTNERSHIP AGREEMENTS
MANAGEMENT
The operating partnerships consist of four separate limited partnerships
engaged in the combined operation and ownership of all our properties. The
operating partnership agreements are identical in all material respects for
all four of the limited partnerships. Pursuant to operating partnership
agreements, we act as the sole general partner of the operating
partnerships, in which capacity we have exclusive control of the business
and assets of the operating partnerships and generally have full and
complete authority, discretion and responsibility with respect to the
operating partnerships' operations and transactions, including, without
limitation, acquisitions of additional properties, borrowing funds, raising
new capital, leasing buildings, as well as selecting and supervising all
employees and agents of the operating partnerships. Through our authority
to manage our business and affairs, our board of directors directs the
business of the operating partnerships.
Notwithstanding our effective control of the operating partnerships, the
Berg Group holds a substantial majority of the outstanding O.P. Units and
the consent of the limited partners holding a majority of the outstanding
O.P. Units is required with respect to certain extraordinary actions
involving the operating partnerships, including:
- the amendment, modification or termination of the operating
partnership agreements;
- a general assignment for the benefit of creditors or the appointment
of a custodian, receiver or trustee for any of the assets of the
operating partnerships;
- the institution of any proceeding for bankruptcy of the operating
partnerships;
- the transfer of any general partnership interests in the operating
partnerships, including, with certain exceptions, transfers attendant
to any merger, consolidation or liquidation of our corporation;
- the admission of any additional or substitute general partner in the
operating partnerships; and
- a change of control of the operating partnerships.
In addition, until the ownership interest of the Berg Group and its
affiliates is less than 15% of the common stock on a Fully Diluted basis,
the consent of the limited partners holding a majority of the outstanding
O.P. Units is also required with respect to:
- the liquidation of the operating partnerships;
- the sale or other transfer of all or substantially all of the assets
of the operating partnerships and certain mergers and business
combinations resulting in the complete disposition of all O.P. Units;
and
- the issuance of limited partnership interests having seniority as to
distributions, assets and voting over the O.P. Units.
- 6 -
TRANSFERABILITY OF O.P. UNITS
The operating partnership agreements provide that the limited partners may
transfer their O.P. Units, subject to certain limitations. Except for
certain transfers by the limited partners to or from certain of their
affiliates, however, all transfers may be made only with our prior written
consent as the sole general partner of the operating partnerships.
In addition, no transfer of O.P. Units by the limited partners may be made
in violation of certain regulatory and other restrictions set forth in the
operating partnership agreements. Except in the case of certain permitted
transfers to or from certain affiliates of the limited partners, the
exchange rights, the put rights, rights to participate in future equity
financings and provisions requiring the approval of certain limited
partners for certain matters will no longer be applicable to O.P. Units so
transferred, and the transferee will not have any rights to nominate
persons to our board of directors.
ADDITIONAL CAPITAL CONTRIBUTIONS AND LOANS
Each operating partnership agreement provides that, if the operating
partnership requires additional funds to pursue its investment objectives,
we may fund such investments by raising additional equity capital and
making a capital contribution to the operating partnerships or by borrowing
such funds and lending the net proceeds of such loans to the operating
partnerships. If we intend to provide additional funds through a
contribution to capital and purchase of units of general partnership
interest, the limited partners will have the right to participate in such
funding on a pro rata, pari passu basis and to acquire additional O.P.
Units. If the limited partners do not participate in such financing, we
will acquire additional units of general partnership interest. In either
case, the number of additional units of partnership interest will be
increased based upon the amount of the additional capital contributions and
the value of the operating partnerships as of the date such contributions
are made.
In addition, as general partner of the operating partnerships, we have the
ability to cause the operating partnerships to issue additional O.P. Units.
In the event that the operating partnerships issue new O.P. Units for cash
but not property, the limited partners will have the right to purchase new
O.P. Units at the price we offer in the transaction giving rise to such
participation right in order, and to the extent necessary, to maintain
their respective percentage interests in the operating partnerships.
EXCHANGE RIGHTS, PUT RIGHTS AND REGISTRATION RIGHTS
Under the Exchange Rights Agreement between us and the limited partners,
the limited partners have exchange rights that generally became exercisable
on December 29, 1999. The Exchange Rights Agreement permits every limited
partner to tender O.P. Units to us, and, at our election, to receive common
stock on a one-for-one basis at then-current market value, an equivalent
amount of cash, or a combination of cash and common stock in exchange for
the O.P. Units tendered, subject to the 9% overall ownership limit imposed
on non-Berg Group stockholders under our charter document, or the overall
20% Berg Group ownership limit, as the case may be. For more information,
please refer to this Item 1., "Risk Factors - Failure to satisfy federal
income tax requirements for REITs could reduce our distributions, reduce
our income and cause our stock price to fall." This exchange ratio is
subject to adjustment for stock splits, stock dividends, recapitalizations
of our common stock and similar types of corporate actions. In addition,
once in each 12-month period beginning each December 29, the limited
partners, other than Carl E. Berg and Clyde J. Berg, may exercise a put
right to sell their O.P. Units to the operating partnerships at a price
equal to the average market price of the common stock for the 10-trading
day period immediately preceding the date of tender. Upon any exercise of
the put rights, we will have the opportunity for a period of 15 days to
elect to fund the purchase of the O.P. Units and purchase additional
general partner interests in the operating partnerships for cash, unless
the purchase price exceeds $1 million in the aggregate for all tendering
limited partners, in which case, the operating partnerships or we will be
entitled to reduce proportionally the number of O.P. Units to be acquired
from each tendering limited partner so that the total purchase price is not
more than $1 million.
The shares of our common stock issuable in exchange for the O.P. Units
outstanding at July 1, 1998 and the O.P. Units issued pursuant to the
Pending Projects Acquisition Agreement were registered under the Securities
Act and generally may be sold without restriction if they are acquired by
limited partners that are not affiliates, as defined under SEC Rule 144.
For more information please refer to this Item 1., "Risk Factors - Shares
eligible for future sale could affect the market price of our stock." The
Exchange Rights Agreement gives the holders of O.P. Units the right to
participate in any registered public offering of the common stock initiated
by us to the extent of 25% of the total shares sold in the offering upon
converting O.P. Units to shares of common stock, but subject to the
underwriters' unlimited right to reduce the participation of all selling
stockholders. The holders of O.P. Units will be able to request resale
registrations of shares of common stock acquired on exchange of O.P. Units
on a Form S-3, or any equivalent form of registration statement. We are
obligated to effect no more than two such registrations in any 12-month
period. We are obligated to assist the O.P. Unit holders in obtaining a
firm commitment underwriting agreement for such resale from a qualified
investment-banking firm. If registration on Form S-3, or an equivalent
form, is not available for any reason, we will be obligated to effect a
registration of the shares to be acquired on exercise of the exchange
rights on Form S-11, or an equivalent form, in an underwritten public
offering, upon demand by the holders of no fewer than 500,000 O.P. Units.
All holders of O.P. Units will be entitled to participate in such
registration. We
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will bear all costs of such registrations other than selling expenses,
including commissions and separate counsels' fees of the O.P. Unit holders.
We will not be required to effect any registration for resale on Form S-3,
or equivalent form of common stock shares issuable to the holder of O.P.
Units if the request is for less than 250,000 shares.
OTHER MATTERS
The operating partnership agreements require that the operating
partnerships be operated in a manner that will enable us to satisfy the
requirements for being classified as a REIT and to avoid any federal income
or excise tax liability.
The operating partnership agreements provide that the combined net
operating cash flow from all the operating partnerships, as well as net
sales and refinancing proceeds, will be distributed from time to time as
determined by our board of directors, but not less frequently than
quarterly, pro rata in accordance with the partners' percentage interests
in the operating partnerships, taken as a whole. This provision is intended
to cause the periodic distributions per O.P. Unit and per share of our
common stock to be equal. As a consequence of this provision, the capital
interest of a partner in each of the operating partnerships, including our
capital interests, might at times differ significantly from the partner's
percentage interest in the net income and cash flow of that operating
partnership. We do not believe that such differences would have a material
impact on our business, financial condition or Funds Available for
Distributions ("FAD"), however.
Pursuant to the operating partnership agreements, the operating
partnerships will also assume and pay when due, or reimburse us for payment
of, certain costs and expenses relating to our continuity of existence and
operations.
The operating partnership agreements provide that, upon the exercise of an
outstanding option under the 1997 Stock Option Plan, we may purchase
additional general partner interests in the operating partnerships by
contributing the exercise proceeds to the operating partnerships. Our
increased interest shall be equal to the percentage of outstanding shares
of common stock and O.P. Units on an as-converted basis represented by the
shares acquired upon exercise of the option.
TERM
The operating partnerships will continue in full force and effect until
December 31, 2048 or until sooner dissolved pursuant to the terms of the
operating partnership agreements.
EMPLOYEES
As of March 25, 2003, we employed five people, all of whom work at our
executive offices at 10050 Bandley Drive, Cupertino, California, 95014.
FACILITIES
We sublease office space at 10050 Bandley Drive, Cupertino, California from
Berg & Berg Enterprises, Inc. and share clerical staff and other overhead
on what we consider to be very favorable terms. The total monthly rent
payable by us to Berg & Berg Enterprises, Inc. is $7,520.
RISK FACTORS
You should carefully consider the following risks, together with the other
information contained elsewhere in this Form 10-K. The following risks
relate principally to our business and the industry in which we operate.
The risks and uncertainties classified below are not the only ones we face.
WE ARE DEPENDENT ON CARL E. BERG, AND IF WE LOSE HIS SERVICES OUR BUSINESS
MAY BE HARMED AND OUR STOCK PRICE COULD FALL.
We are substantially dependent upon the leadership of Carl E. Berg, our
Chairman and Chief Executive Officer. Losing Mr. Berg's knowledge and
abilities could have a material adverse effect on our business and the
value of our common stock. Mr. Berg manages our day-to-day operations and
devotes a significant portion of his time to our affairs, but he has a
number of other business interests as well. These other activities reduce
Mr. Berg's attention to our business.
MR. BERG AND HIS AFFILIATES EFFECTIVELY CONTROL OUR CORPORATION AND THE
OPERATING PARTNERSHIPS AND MAY ACT IN WAYS THAT ARE DISADVANTAGEOUS TO
OTHER STOCKHOLDERS.
SPECIAL BOARD VOTING PROVISIONS. Our governing corporate documents, which
are our articles of amendment and restatement, or charter, and our bylaws,
provide substantial control rights for the Berg Group. The Berg Group's
control of our corporation
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means that the value and returns from an investment in the Company's common
stock are subject to the Berg Group's exercise of its rights. These rights
include a requirement that Mr. Berg or his designee as director approve
certain fundamental corporate actions, including amendments to our charter
and bylaws and any merger, consolidation or sale of all or substantially
all of our assets. In addition, our bylaws provide that a quorum necessary
to hold a valid meeting of the board of directors must include Mr. Berg or
his designee. The rights described in the two preceding sentences apply
only as long as the Berg Group members and their affiliates, other than us
and the operating partnerships, beneficially own, in the aggregate, at
least 15% of our outstanding shares of common stock on a Fully Diluted
basis. Also, directors representing more than 75% of the entire board of
directors must approve other significant transactions, such as incurring
debt above certain amounts and conducting business other than through the
operating partnerships. Without the approval of Mr. Berg or his designee,
board of directors approval that we may need for actions that might result
in a sale of your stock at a premium or raising additional capital when
needed could be difficult or impossible to obtain.
BOARD OF DIRECTORS REPRESENTATION. The Berg Group members have the right to
designate two of the director nominees submitted by our board of directors
to stockholders for election, as long as the Berg Group members and their
affiliates, other than us and the operating partnerships, beneficially own,
in the aggregate, at least 15% of our outstanding shares of common stock
calculated on a Fully Diluted basis. If the Fully Diluted ownership of the
Berg Group members and their affiliates, other than us and the operating
partnerships, is less than 15% but is at least 10% of the common stock, the
Berg Group members have the right to designate one of the director nominees
submitted by our board of directors to stockholders for election. Its right
to designate director nominees affords the Berg Group substantial control
and influence over the management and direction of our corporation. The
Berg Group's interests could conflict with the interests of our
stockholders, and could adversely affect the price of our common stock.
SUBSTANTIAL OWNERSHIP INTEREST. The Berg Group currently owns O.P. Units
representing approximately 75.4% of the equity interests in the operating
partnerships and approximately 75.2% of our equity interests on a Fully
Diluted basis. The O.P. Units may be converted into shares of common stock,
subject to limitations set forth in our charter and other agreements with
the Berg Group, and upon conversion would represent voting control of our
corporation. The Berg Group's ability to exchange its O.P. Units for common
stock permits it to exert substantial influence over the management and
direction of our corporation. This influence increases our dependence on
the Berg Group.
LIMITED PARTNER APPROVAL RIGHTS. Mr. Berg and other limited partners,
including other members of the Berg Group, may restrict our operations and
activities through rights provided under the terms of the amended and
restated agreement of limited partnership which governs each of the
operating partnerships and our legal relationship to each operating
partnership as its general partner. Matters requiring approval of the
holders of a majority of the O.P. Units, which necessarily would include
the Berg Group, include the following:
- the amendment, modification or termination of any of the operating
partnership agreements;
- the transfer of any general partnership interest in the operating
partnerships, including, with certain exceptions, transfers attendant
to any merger, consolidation or liquidation of our corporation;
- the admission of any additional or substitute general partners in the
operating partnerships;
- any other change of control of the operating partnerships;
- a general assignment for the benefit of creditors or the appointment
of a custodian, receiver or trustee for any of the assets of the
operating partnerships; and
- the institution of any bankruptcy proceeding for any operating
partnership.
In addition, as long as the Berg Group members and their affiliates, other
than us and the operating partnerships, beneficially own, in the aggregate,
at least 15% of the outstanding shares of common stock on a Fully Diluted
basis, the consent of the limited partners holding the right to vote a
majority of the total number of O.P. Units outstanding is also required
with respect to:
- the sale or other transfer of all or substantially all of the assets
of the operating partnerships and certain mergers and business
combinations resulting in the complete disposition of all O.P. Units;
- the issuance of limited partnership interests senior to the O.P. Units
as to distributions, assets and voting; and
- the liquidation of the operating partnerships.
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The liquidity of an investment in the Company's common stock, including our
ability to respond to acquisition offers, will be subject to the exercise
of these rights.
OUR CONTRACTUAL BUSINESS RELATIONSHIPS WITH THE BERG GROUP PRESENT
ADDITIONAL CONFLICTS OF INTEREST, WHICH MAY RESULT IN THE REALIZATION OF
ECONOMIC BENEFITS OR THE DEFERRAL OF TAX LIABILITIES BY THE BERG GROUP
WITHOUT EQUIVALENT BENEFITS TO OUR STOCKHOLDERS.
Our contracts with the Berg Group provide it with interests that could
conflict with those of our other stockholders, including the following:
- our headquarters are leased from an entity owned by the Berg Group, to
whom we pay rent of $7,520 per month;
- the Berg Group is permitted to conduct real estate and business
activities other than our business;
- if we decline an opportunity that has been offered to us, the Berg
Group may pursue it, which would reduce the amount of time that Mr.
Berg could devote to our affairs and could result in the Berg Group's
development of properties that compete with our properties for
tenants;
- in general, we have agreed to limit the liability of the Berg Group to
our corporation and our stockholders arising from the Berg Group's
pursuit of these other opportunities;
- we acquired most of our properties from the Berg Group on terms that
were not negotiated at arm's length and without many customary
representations and warranties that we would have sought in an
acquisition from an unrelated party; and
- we have assumed liability for debt to the Berg Group and debt for
which the Berg Group was liable.
The Berg Group has agreed that the independent directors committee of our
board of directors must approve all new transactions between us and any of
its members, or between us and any entity in which it directly or
indirectly owns 5% or more of the equity interests, including the operating
partnerships for this purpose. This committee currently consists of three
directors who are independent of the Berg Group.
EXCLUDED PROPERTIES. With our prior knowledge, the Berg Group retained two
R&D properties in Scotts Valley, Santa Cruz County, California, in which
the operating partnerships and we have no ownership interest. Efforts of
the Berg Group to lease these other properties could interfere with similar
efforts on our behalf.
BERG LAND HOLDINGS. The Berg Group owns several parcels of unimproved land
in the Silicon Valley that the operating partnerships and we have the right
to acquire under the terms of the Berg Land Holdings Option Agreement. We
have agreed to pay an amount based on pre-negotiated terms for any of the
properties that we do acquire. We must pay the acquisition price in cash
unless the Berg Group elects, in its discretion, to receive O.P. Units
valued at the average market price of a share of common stock during the
30-trading-day period preceding the acquisition date. At the time of
acquisition, which is subject to the approval of the independent directors
committee of our board of directors, these properties may be encumbered by
debt that we or the operating partnerships will be required to assume or
repay. The use of our cash or an increase in our indebtedness to acquire
these properties could have a material adverse effect on our financial
condition, results of operations and ability to make cash distributions to
our stockholders.
TAX CONSEQUENCES OF SALE OF PROPERTIES. Because many of our properties have
unrealized taxable gain, a sale of those properties could create adverse
income tax consequences for limited partners of the operating partnerships.
We have agreed with Carl E. Berg, Clyde J. Berg and John Kontrabecki, a
limited partner in two of the operating partnerships, that prior to
December 29, 2008, each of them may prevent us and the operating
partnerships from selling or transferring any of the properties that were
acquired from them in our July 1998 UPREIT acquisition if the proposed sale
or other transfer will be a taxable transaction. As a result, our
opportunities to sell these properties may be limited. If we need to sell
any of these properties to raise cash to service our debt, acquire new
properties, pay cash distributions to stockholders or for other working
capital purposes, we may be unable to do so. These restrictions could harm
our business and cause our stock price to fall.
TERMS OF TRANSFERS: ENFORCEMENT OF AGREEMENT OF LIMITED PARTNERSHIP. The
terms of the Pending Projects Acquisition Agreement, the Berg Land Holdings
Option Agreement, the partnership agreement of each operating partnership
and other material agreements through which we have acquired our interests
in the operating partnerships and the properties formerly controlled by the
Berg Group were not determined through arm's-length negotiations and could
be less favorable to us than
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those obtained from an unrelated party. In addition, Mr. Berg and
representatives of the Berg Group sitting on our board of directors may be
subject to conflicts of interests with respect to their obligations as our
directors to enforce the terms of the partnership agreement of each
operating partnership when such terms conflict with their personal
interests. The terms of our charter and bylaws also were not determined
through arm's-length negotiations. Some of these terms, including
representations and warranties applicable to acquired properties, are not
as favorable as those that we would have sought through arm's-length
negotiations with unrelated parties. As a result, an investment in our
common stock may involve risks not found in businesses in which the terms
of material agreements have been negotiated at arm's length.
RELATED PARTY DEBT. As of December 31, 2002, we had borrowed approximately
$58.8 million under our $100 million line of credit with the Berg Group,
which is collateralized by ten of our properties and expires March 2004.
Currently, there is no debt outstanding under this line of credit, but we
have the right to draw on the line of credit and are liable for repayment
of all amounts owing under the line of credit. The line of credit bears
interest at an annual rate of LIBOR plus 1.30%. The Berg Group has no
obligation to renew this line of credit when it expires in 2004, and we may
be unable to obtain a similar credit facility on comparable terms. We are
also liable for a mortgage loan of $11.1 million that we assumed in
connection with our acquisition of a property that we acquired in May 2000
under the Berg Land Holdings Option Agreement. If we are unable to repay
our debts to the Berg Group when due, the Berg Group could take action to
enforce our payment obligations. They could result in a reduction in the
amount of cash distributions to our stockholders. In turn, if we fail to
meet the minimum distributions test because of a loan default or another
reason, we could lose our REIT classification for federal income tax
purposes. For more information please refer to Item 1., "Risk Factors -
Failure to satisfy federal income tax requirements for REITs could reduce
our distributions, reduce our income and cause our stock price to fall."
OUR OPTION TO ACQUIRE R&D PROPERTIES DEVELOPED ON EXISTING LAND AND LAND
ACQUIRED IN THE FUTURE BY THE BERG GROUP WILL TERMINATE WHEN THE BERG
GROUP'S OWNERSHIP INTEREST HAS BEEN REDUCED.
The Berg Land Holdings Option Agreement, as amended, which provides us with
significant benefits and opportunities to acquire additional R&D properties
from the Berg Group, will expire when the Berg Group and their affiliates
(excluding us and the operating partnerships) own less than 65% of our
common stock on a Fully Diluted basis. Termination of the Berg Land
Holdings Option Agreement could result in limitation of our growth, which
could cause our stock price to fall.
WE MAY CHANGE OUR INVESTMENT AND FINANCING POLICIES AND INCREASE YOUR RISK
WITHOUT STOCKHOLDER APPROVAL.
Our board of directors determines the investment and financing policies of
the operating partnerships and our policies with respect to certain other
activities, including our business growth, debt capitalization,
distribution and operating policies. Our board of directors may amend these
policies at any time without a vote of the stockholders. Changes in these
policies could materially adversely affect our financial condition, results
of operations and ability to make cash distributions to our stockholders,
which could harm our business and cause our stock price to fall. For more
information please refer to Item 7., "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Policies with Respect to
Certain Activities."
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER COULD PREVENT ACQUISITIONS OF OUR
STOCK AT A SUBSTANTIAL PREMIUM.
Provisions of our charter and our bylaws could delay, defer or prevent a
transaction or a change in control of our corporation, or a similar
transaction, that might involve a premium price for our shares of common
stock or otherwise be in the best interests of our stockholders. Provisions
of the Maryland general corporation law, which would apply to potential
business combinations with acquirers other than the Berg Group or
stockholders who invested in us in December 1998, also could prevent the
acquisition of our stock for a premium, as discussed in "Certain Provisions
of Maryland Law and of our Charter and Bylaws."
AN INVESTMENT IN OUR STOCK INVOLVES RISKS RELATED TO REAL ESTATE
INVESTMENTS THAT COULD HARM OUR BUSINESS AND CAUSE OUR STOCK PRICE TO FALL.
RENTAL INCOME VARIES. Real property investments are subject to varying
degrees of risk. Investment returns available from equity investments in
real estate depend in large part on the amount of income earned and capital
appreciation, which our properties generate, as well as our related
expenses incurred. If our properties do not generate revenues sufficient to
meet operating expenses, debt service and capital expenditures, our income
and ability to make distributions to our stockholders will be adversely
affected. Income from our properties may also be adversely affected by
general economic conditions, local economic conditions such as oversupply
of commercial real estate, the attractiveness of our properties to tenants
and prospective tenants, competition from other available rental property,
our ability to provide adequate maintenance and insurance, the cost of
tenant improvements, leasing commissions and tenant inducements and the
potential of increased operating costs, including real estate taxes.
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EXPENDITURES FOR PROPERTY OWNERSHIP ARE FIXED. Income from properties and
real estate values are also affected by a variety of other factors, such as
governmental regulations and applicable laws, including real estate, zoning
and tax laws, interest rate levels and the availability of financing.
Various significant expenditures associated with an investment in real
estate, such as mortgage payments, real estate taxes and maintenance
expenses, generally are not reduced when circumstances cause a reduction in
revenue from the investment. Thus, our operating results and our cash flow
may decline materially if our rental income is reduced.
ILLIQUIDITY. Real estate investments are relatively illiquid, which limits
our ability to restructure our portfolio in response to changes in economic
or other conditions.
GEOGRAPHIC CONCENTRATION. All of our properties are located in the southern
portion of the San Francisco Bay Area commonly referred to as the "Silicon
Valley." The Silicon Valley economy has been weakening for the past two
years, and future increases in values and rents for our properties depend
to a significant extent on the recovery of this region's economy.
LOSS OF KEY TENANTS. Single tenants, many of whom are large, publicly
traded information technology companies, occupy most of our properties. For
example, we may lose tenants when existing leases expire because it may be
difficult to re-lease the same property due to substantial overcapacity of
R&D properties in the Silicon Valley at present. Losing a key tenant could
adversely affect our operating results and our ability to make
distributions to stockholders if we are unable to obtain replacement
tenants promptly. Moreover, to retain key tenants upon the expiration of
existing leases we may need to reduce rents, which also could adversely
affect our operating results and ability to make distributions.
TENANT BANKRUPTCIES. Key tenants could seek the protection of the
bankruptcy laws, which could result in the rejection and termination of
their leases, thereby causing a reduction in our rental income. Under the
bankruptcy laws, these tenants may have the right to reject their leases
with us and our claim for rent will be limited to the greater of one year
or 15% of the total amount giving under the leases upon default, but not to
exceed three years of 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.
OUR SUBSTANTIAL INDEBTEDNESS. Our properties are subject to substantial
indebtedness. If we are unable to make required mortgage payments, we could
sustain a loss as a result of foreclosure on our properties by the
mortgagor. When the Berg Group line of credit expires in March 2004, we
cannot assure you that we will be able to obtain a replacement line of
credit with terms similar to the Berg Group line of credit, or at all. Our
cost of borrowing funds could increase substantially after the Berg Group
line of credit expires. Under our mortgage loan agreements with
Northwestern Mutual Life Insurance Company, the payments of all $100
million outstanding could be accelerated upon the sale or certain other
transfers of more than 51% of the total number of O.P. Units and common
stocks of the Company held by the members of the Berg Group. We have no
reason to expect such a sale or transfer in the foreseeable future, but the
members of the Berg Group have no obligation to us to refrain from any such
sale or other transfer. We have adopted a policy of maintaining a
consolidated ratio of debt to total market capitalization, which includes
for this purpose the market value of all shares of common stock for which
outstanding O.P. Units are exchangeable, of less than 50%. This ratio may
not be exceeded without the approval of more than 75% of our entire board
of directors. Our board of directors may vote to change this policy,
however, and we could become more highly leveraged, resulting in an
increased risk of default on our obligations and an increase in debt
service requirements that could adversely affect our financial condition,
our operating results and our ability to make distributions to our
stockholders.
ENVIRONMENTAL CLEAN-UP LIABILITIES. Our properties may expose us to
liabilities under applicable environmental and health and safety laws. If
these liabilities are material, our financial condition and ability to pay
cash distributions may be affected adversely, which would cause our stock
price to fall.
UNINSURED LOSSES. We may sustain uninsured losses with respect to some of
our properties. If these losses are material, our financial condition, our
operating results and our ability to make distributions to our stockholders
may be affected adversely.
EARTHQUAKE DAMAGES ARE UNINSURED. All of our properties are located in
areas that are subject to earthquake activity. Our insurance policies do
not cover damage caused by seismic activity, although they do cover losses
from fires after an earthquake. We generally do not consider such insurance
coverage to be economical. If an earthquake occurs and results in
substantial damage to our properties, we could lose our investment in those
properties, which loss would have a material adverse effect on our
financial condition, our operating results and our ability to make
distributions to our stockholders.
FAILURE TO SATISFY FEDERAL INCOME TAX REQUIREMENTS FOR REITS COULD REDUCE
OUR DISTRIBUTIONS, REDUCE OUR INCOME AND CAUSE OUR STOCK PRICE TO FALL.
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FAILURE TO QUALIFY AS A REIT. Although we currently operate in a manner
designed to enable us to qualify and maintain our REIT status, it is
possible that economic, market, legal, tax or other considerations may
cause us to fail to qualify as a REIT or may cause our board of directors
either to refrain from making the REIT election or to revoke that election
once made. To maintain REIT status, we must meet certain tests for income,
assets, distributions to stockholders, ownership interests, and other
significant conditions. If we fail to qualify as a REIT in any taxable
year, we will not be allowed a deduction for distributions to our
stockholders in computing our taxable income and would be subject to
federal income tax, including any applicable alternative minimum tax, on
our taxable income at regular corporate rates. Moreover, unless we were
entitled to relief under certain provisions of the tax laws, we would be
disqualified from treatment as a REIT for the four taxable years following
the year in which our qualification was lost. As a result, fund available
for distribution, or FAD, to our stockholders would be reduced for each of
the years involved and, in addition, we would no longer be required to make
distributions to our stockholders.
REIT DISTRIBUTION REQUIREMENTS. To maintain REIT status, we must distribute
as a dividend to our stockholders at least 90% of our otherwise taxable
income, after certain adjustments, with respect to each tax year. We may
also be subject to a 4% non-deductible excise tax in the event our
distributions to stockholders fail to meet certain other requirements.
Failure to comply with these requirements could result in our income being
subject to tax at regular corporate rates and could cause us to be liable
for the excise tax.
OWNERSHIP LIMIT NECESSARY TO MAINTAIN REIT QUALIFICATION. As a REIT, the
federal tax laws restrict the percentage of the total value of our stock
that may be owned by five or fewer individuals to 50% or less. Our charter
generally prohibits the direct or indirect ownership of more than 9% of our
common stock by any stockholder. This limit excludes the Berg Group, which
has an aggregate ownership limit of 20%. In addition, as permitted by our
charter, our board of directors has authorized an exception to two other
stockholders that permits them to collectively own, directly or indirectly,
up to 18.5% of our common stock on an aggregate basis, subject to the terms
of an ownership limit exemption agreement. In general, our charter
prohibits the transfer of shares that result in a loss of our REIT
qualification and provides that any such transfer or any other transfer
that causes a stockholder to exceed the ownership limit will result in the
shares being automatically transferred to a trust for the benefit of a
charitable beneficiary. Accordingly, in the event that either the Berg
Group or the two stockholders increase their stock ownership in our
corporation, a stockholder who acquires shares of our common stock, even
though his, her or its aggregate ownership may be less than 9%, may be
required to transfer a portion of that stockholder's shares to such a trust
in order to preserve our status as a REIT.
STOCKHOLDERS ARE NOT ASSURED OF RECEIVING CASH DISTRIBUTIONS FROM US.
Our income will consist primarily of our share of the income of the
operating partnerships, and our cash flow will consist primarily of our
share of distributions from the operating partnerships. Differences in
timing between the receipt of income and the payment of expenses in
arriving at our taxable income or the taxable income of the operating
partnerships and the effect of required debt amortization payments could
require us to borrow funds, directly or through the operating partnerships,
on a short-term basis to meet our intended distribution policy.
Our board of directors will determine the amount and timing of
distributions by the operating partnerships and of distributions to our
stockholders. Our board of directors will consider many factors prior to
making any distributions, including the following:
- the amount of cash available for distribution;
- the operating partnerships' financial condition;
- whether to reinvest funds rather than to distribute such funds;
- the operating partnerships' capital expenditures;
- the effects of new property acquisitions, including acquisitions under
our 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 our board of directors deems relevant.
We cannot assure you that we will be able to meet or maintain our cash
distribution objectives.
- 13 -
OUR PROPERTIES COULD BE SUBJECT TO PROPERTY TAX REASSESSMENTS.
We do not believe that the acquisition of any of our interests in the
operating partnerships has resulted in a statutory change in ownership that
could give rise to a reassessment of any of our properties for California
property tax purposes. We cannot assure you, however, that county assessors
or other tax administrative agencies in California will not attempt to
assert that such a change occurred as a result of these transactions.
Although we believe that such a challenge would not be successful
ultimately, we cannot assure you regarding the outcome of any related
dispute or proceeding. A reassessment could result in increased real estate
taxes on our properties that, as a practical matter, we may be unable to
pass through to our tenants in full. This could reduce our net income and
our FAD and cause our stock price to fall.
OUR OBLIGATION TO PURCHASE TENDERED O.P. UNITS COULD REDUCE OUR CASH
DISTRIBUTIONS.
Each of the limited partners of the operating partnerships, other than Carl
E. Berg and Clyde J. Berg, has the annual right to cause the operating
partnerships to purchase the limited partner's O.P. Units at a purchase
price based on the average market value of the common stock for the
ten-trading-day period immediately preceding the date of tender. Upon a
limited partner's exercise of any such right, we will have the option to
purchase the tendered O.P. Units with available cash, borrowed funds or the
proceeds of an offering of newly issued shares of common stock. These put
rights became exercisable on December 29, 1999, and are available once
during a 12-month period. If the total purchase price of the O.P. Units
tendered by all of the eligible limited partners in one year exceeds $1
million, the operating partnerships or we will be entitled to reduce
proportionately the number of O.P. Units to be acquired from each tendering
limited partner so that the total purchase price does not exceed $1
million. The exercise of these put rights may reduce the amount of cash
that we have available to distribute to our stockholders and could cause
our stock price to fall.
In addition, after December 1999, all O.P. Unit holders may tender their
O.P. Units to us in exchange for shares of common stock on a one-for-one
basis at then-current market value or an equivalent amount in cash, at our
election. If we elect to pay cash for the O.P. Units, our liquidity may be
reduced and we may lack sufficient funds to continue paying the amount of
our anticipated or historical cash distributions. This could cause our
stock price to fall.
SHARES ELIGIBLE FOR FUTURE SALE COULD AFFECT THE MARKET PRICE OF OUR STOCK.
We cannot predict the effect, if any, that future sales of shares of common
stock, or the availability of shares for future sale, could have on the
market price of the common stock. As of December 31, 2002, all outstanding
shares of our common stock, other than shares controlled by affiliates,
were eligible for sale in the public market without resale restrictions
under the federal securities laws. Sales of substantial amounts of common
stock, including shares issued in connection with the exercise of the
exchange rights held by the limited partners of the operating partnerships,
or the perception that such sales could occur, could adversely affect
prevailing market prices for the common stock. Additional shares of common
stock may be issued to limited partners, subject to the applicable REIT
qualification ownership limit, if they exchange their O.P. Units for shares
of common stock pursuant to their exchange rights, or may be sold by us to
raise funds required to purchase such O.P. Units if eligible limited
partners elect to tender O.P. Units to us using their put rights. Shares of
stock controlled by our affiliates may be sold subject to Rule 144,
including the limitation under Rule 144(e) on the number of shares that may
be sold within a three-month period.
MARKET INTEREST RATES MAY REDUCE THE VALUE OF THE COMMON STOCK.
One of the factors that investors consider important in deciding whether to
buy or sell shares of a REIT is the distribution rate on such shares, as a
percentage of the price of such shares, relative to market interest rates.
If market interest rates go up, prospective purchasers of REIT shares may
expect a higher distribution rate. Higher interest rates would not,
however, increase the funds available for us to distribute, and, in fact,
would likely increase our borrowing costs and decrease FAD. Thus, higher
market interest rates could cause the price of our common stock to fall.
- 14 -
ITEM 2. PROPERTIES
GEOGRAPHIC AND TENANT FOCUS
We focus principally on the facility requirements of information technology
companies in the Silicon Valley, which include space for office, R&D, light
manufacturing and assembly. With the Silicon Valley's highly educated and
skilled work force, history of numerous successful start-up companies and
large contingent of venture capital firms, we believe that this region will
continue to spawn successful new high-growth industries and entrepreneurial
businesses to an extent matched nowhere else in the United States. We
believe that our focus and thorough understanding of the Silicon Valley
real estate market enables us to:
- anticipate trends in the market;
- identify and concentrate our efforts on the most favorably located
sub-markets;
- take advantage of our experience and extensive contacts and
relationships with local government agencies, real estate brokers and
subcontractors, as well as with tenants and prospective tenants; and
- identify strong tenants.
All of our properties are general-purpose R&D properties located in
desirable sub-markets of the Silicon Valley. Many of our properties have
been developed for or leased to single tenants, many of whom are large,
publicly traded information technology companies. Most of our major tenants
have occupied our properties for many years under triple-net leases that
require the tenant to pay substantially all operating costs, including
property insurance, real estate taxes and general operating costs.
LEASING
The current leases for the properties typically have terms ranging from
three to ten years. Most of the leases provide for fixed periodic rental
increases. Substantially all of the leases are triple-net leases pursuant
to which the tenant is required to pay substantially all of the operating
expenses of the property, property taxes and insurance, including all
maintenance and repairs, excluding only certain structural repairs to the
building shell. Most of the leases contain renewal options that allow the
tenant to extend the lease based on adjustments to then prevailing market
rates, or based on fixed rental adjustments, which may be below market
rates.
PROPERTY PORTFOLIO
All of our properties are R&D properties. Generally, these properties are
one- to four-story buildings of tilt-up concrete construction, have 3.5 or
more parking spaces per thousand rentable square feet, clear ceiling
heights of less than 18 feet, and range in size from 6,000 to 515,000
rentable square feet. Most of the office space is open and suitable for
configuration to meet the tenants' requirements with the use of movable
dividers.
The following table sets forth certain information relating to our
properties as of December 31, 2002:
Major Tenants'
Total Percentage Rentable
No. of Rentable Leased as of Average 2002 Sq. Ft. at 2002 Annual
Location Properties Sq. Ft. Dec. 31, 2002 Occupancy Major Tenants 12/31/02 Base Rents (1)
- ------------------------------------------------------------------------------------------------------------------------------------
5300-5350 Hellyer Avenue (3) 2 160,000 100% 100% Tyco International, Inc. 160,000 $ 3,219,530
10401-10411 Bubb Road (3) 1 20,330 100% 100% Celerity Systems, Inc. 20,330 501,009
45365 Northport Loop West 1 64,218 51% 79% JNI Corporation 19,727 967,167
45700 Northport Loop East 1 47,570 100% 100% Philips Electronics 47,570 789,180
45738 Northport Loop West 1 44,256 100% 100% EIC Corporation 44,256 582,033
4050 Starboard Drive 1 52,232 100% 100% Flash Electronics, Inc. 52,232 814,819
3501 W. Warren Avenue & 1 67,864 100% 100% Storage Way, Inc. 51,864 1,431,433
46600 Fremont Blvd.
- 15 -
Major Tenants'
Total Percentage Rentable
No. of Rentable Leased as of Average 2002 Sq. Ft. at 2002 Annual
Location Properties Sq. Ft. Dec. 31, 2002 Occupancy Major Tenants 12/31/02 Base Rents (1)
- ------------------------------------------------------------------------------------------------------------------------------------
48800 Milmont Drive 1 53,000 100% 100% Zhone Technologies, Inc. 53,000 637,185
4750 Patrick Henry Drive 1 65,780 0% 75% Vacant 1,184,608
Triangle Technology Park (3) 7 416,927 100% 100% JDS Uniphase Corporation 152,362 7,721,587
Intevac Corporation 119,583
Xicom Technology, Inc. 47,480
Solid Data Systems, Inc. 34,248
Diligent Software Systems 25,350
Corp.
5850-5870 Hellyer Avenue 1 109,715 0% 67% Vacant 1,265,350
5750 Hellyer Avenue 1 73,312 0% 67% Vacant 988,017
800 Branham Lane East 1 239,000 0% 16% Vacant 740,716
5500-5550 Hellyer Avenue 2 196,534 23% 68% ACT Electronics, Inc. 46,120 2,534,974
5400 Hellyer Avenue 1 77,184 100% 100% Jetstream Communications, 77,184 1,334,446
Inc.
5325-5345 Hellyer Ave. (2)(4) 2 256,500 100% 100% Celestica Asia, Inc. 256,500 4,526,052
5905-5965 Silver Creek 4 346,000 100% 100% CIENA Corporation 346,000 7,538,370
855 Branham Lane East 1 67,912 100% 100% Lynuxworks, Inc. 67,912 2,289,056
1065 La Avenida Street 5 515,700 100% 100% Microsoft Corporation 515,700 20,337,815
1750 Automation Parkway 1 80,641 100% 100% JDS Uniphase Corporation 80,641 1,776,512
1756 Automation Parkway 1 80,640 100% 100% JDS Uniphase Corporation 80,640 1,855,040
1762 Automation Parkway 1 61,100 100% 100% JDS Uniphase Corporation 61,100 2,139,108
1768 Automation Parkway 1 110,592 100% 100% JDS Uniphase Corporation 110,592 3,189,564
255 Caspian Drive 1 98,500 0% 33% Vacant 673,320
245 Caspian Drive 1 - 0% 33% Vacant 742,560
5900 Optical Court (2) 1 165,000 100% 100% Stryker Endoscopy 165,000 2,128,500
2610 Orchard Parkway (2) 1 54,093 100% 100% Cadence Design Systems, Inc. 54,093 924,507
2630 Orchard Parkway (2) 1 60,633 0% 75% Vacant 896,703
55 West Trimble Road (2) 1 91,722 100% 100% Cadence Design Systems, Inc. 91,722 1,567,564
2251 Lawson Lane 1 125,000 100% 100% Amdahl Corporation 125,000 1,431,032
1230 East Arques 1 60,000 100% 100% Amdahl Corporation 60,000 323,503
1250 East Arques 4 200,000 100% 100% Amdahl Corporation 200,000 755,923
3120 Scott Blvd. 1 75,000 100% 100% Amdahl Corporation 75,000 1,238,081
20400 Mariani Avenue 1 105,000 100% 100% Dade Behring, Inc. 105,000 1,096,200
10500 De Anza Blvd. 1 211,000 100% 100% Apple Computer, Inc. 211,000 4,845,038
20605-705 Valley Green Dr. 2 142,000 100% 100% Apple Computer, Inc. 142,000 1,975,382
10300 Bubb Road 1 23,400 100% 100% Apple Computer, Inc. 23,400 423,540
10440 Bubb Road 1 19,500 100% 100% Luminous Networks, Inc. 19,500 647,400
10460 Bubb Road 1 45,460 100% 100% Luminous Networks, Inc. 45,460 1,330,184
1135 Kern Avenue 1 18,300 100% 100% Broadmedia, Inc. 18,300 322,761
- 16 -
Major Tenants'
Total Percentage Rentable
No. of Rentable Leased as of Average 2002 Sq. Ft. at 2002 Annual
Location Properties Sq. Ft. Dec. 31, 2002 Occupancy Major Tenants 12/31/02 Base Rents (1)
- ------------------------------------------------------------------------------------------------------------------------------------
1190 Morse Avenue & 1 28,350 66% 89% Coptech West 18,750 312,796
405 Tasman Avenue
450 National Avenue 1 36,100 100% 100% ePeople, Inc. 36,100 1,216,540
3301 Olcott Street 1 64,500 0% 16% Vacant 196,007
2800 Bayview Avenue 1 59,736 100% 100% Mattson Technology, Inc. 59,736 695,059
6850 Santa Teresa Blvd. 1 30,000 59% 62% Indala 17,650 336,508
6810 Santa Teresa Blvd. 1 54,996 100% 100% Polaris Networks, Inc. 54,996 1,674,695
140-150 Great Oaks Blvd. 2 105,300 81% 84% Atcor Corporation 31,750 1,645,348
& 6781 Via Del Oro Amtech Corporation 31,500
Saint Gobain 21,800
6540-6541 Via Del Oro & 2 66,600 100% 100% Exsil, Inc. 20,076 1,105,702
6385-6387 San Ignacio Ave. Alcatel USA, Inc. 17,400
Modutek Corporation 17,400
6311-6351 San Ignacio Ave. 5 362,767 100% 100% On Command Corporation 131,320 5,710,364
Saint-Gobain 82,875
Avnet, Inc. 53,494
Photon Dynamics, Inc. 52,000
Teledex Corporation 30,000
6320-6360 San Ignacio Ave. 1 157,292 84% 91% Nortel Networks Corp. 92,692 3,963,975
Quantum 3D 19,600
75 East Trimble Road & 2 170,810 100% 100% Comerica Bank 93,984 2,590,311
2610 North First Street County of Santa Clara 76,826
2033-2243 Samaritan Drive 3 235,122 36% 36% Texas Instruments 48,677 3,352,550
State Farm Insurance 23,801
1170 Morse Avenue 1 39,231 100% 100% CA Parkinsons Foundation 39,231 296,840
3236 Scott Blvd. 1 54,672 100% 100% Celeritek, Inc. 54,672 1,030,842
1212 Bordeaux Lane 1 71,800 100% 100% TRW, Inc. 71,800 1,350,225
McCandless Technology Park 14 705,956 91% 92% Larscom, Inc. 118,708
Arrow Electronics, Inc. 92,862 11,893,698
SDRC 50,768
Chartered Semiconductor 45,312
Panasonic Industrial Co. 40,970
K-TEC Corporation. 39,800
1600 Memorex Drive 1 107,500 100% 100% Sasco Electric 107,500 781,299
1688 Richard Avenue 1 52,800 100% 100% NWE Technology, Inc. 52,800 763,717
1700 Richard Avenue 1 58,783 100% 100% Broadwing, Inc. 58,783 649,555
---------------------- -------------
TOTAL 101 7,163,930 $129,251,800
====================== =============
(1) Annual cash rents do not include any effect for recognition of rental
income on the straight-line method of accounting required by generally
accepted accounting principles in the United States of America under which
contractual rent payment increases are recognized evenly over the lease
term. Cash rents for a property sold in 2002 are also excluded.
(2) Property was purchased during 2002. The 2002 Annual Base Rent reflects rent
received from the date of acquisition through December 31, 2002.
(3) Joint venture properties. Only one property in the Triangle Technology Park
is a joint venture.
(4) Only property 5345 Hellyer Avenue was acquired in 2002.
- 17 -
We own 100% of all of the properties, except for one of the buildings in
the Triangle Technology Park, which is owned by a joint venture in which
we, through an operating partnership, own a 75% interest, the property at
10401-10411 Bubb Road, which is owned by a joint venture in which we,
through an operating partnership, own an 83.33% interest, and the
properties at 5300-5350 Hellyer Avenue, which are owned by a joint venture
in which we, through an operating partnership, own a 50% interest.
EVENTS SUBSEQUENT TO DECEMBER 31, 2002
On January 1, 2003, we acquired a 50% interest in TBI-Mission West, LLC, a
two-member joint venture that owns and developed a complex of four R&D
properties totaling approximately 593,000 rentable square feet, from the
Berg Group. The properties are operated and managed by the other joint
venture partner of TBI-Mission West, LLC. The total acquisition price for
the 50% interest in the joint venture was $1.8 million, which we financed
by issuing 181,032 O.P. Units to the Berg Group.
- 18 -
LEASE EXPIRATIONS
The following table sets forth a schedule of the lease expirations for the
properties beginning with 2003, assuming that none of the tenants exercise
existing renewal options or termination rights. The table excludes
1,156,122 rentable square feet that was vacant as of December 31, 2002.
Number of Percentage of Total Annual
Year of Lease Leases Rentable Square Footage 2003 Annual Base Rent Base Rent Represented By
Expiration Expiring Subject to Expiring Leases Under Expiring Leases (1) Expiring Leases (2)
--------------------------------------------------------------------------------------------------------------------
2003 16 527,369 $ 8,133,121 6.3%
2004 20 1,211,906 16,227,002 12.6%
2005 21 578,513 11,834,886 9.2%
2006 16 1,310,132 43,571,901 33.8%
2007 16 1,074,928 23,048,393 17.8%
2008 4 218,402 2,407,255 1.9%
2009 4 223,783 6,088,673 4.7%
2010 2 100,275 1,838,767 1.4%
2011 2 602,500 12,546,990 9.7%
Thereafter 1 160,000 3,316,116 2.6%
--------------------------------------------------------------------------------------------------
102 6,007,808 $129,013,104 100%
==================================================================================================
(1) The base rent for leases expiring is based on scheduled 2003 annualized
cash rents, which are different than annual rents determined in accordance
with GAAP.
(2) Based upon 2003 annualized cash rents as discussed in Note (1).
If we are unable to lease a significant portion of the available space or
space scheduled to expire in 2003 and thereafter at any of our properties,
if existing tenants do not renew their leases, or if rental rates decrease,
our results of operations, financial condition and cash flows would be
adversely affected.
ENVIRONMENTAL MATTERS
To date, compliance with laws and regulations relating to the protection of
the environment, including those regarding the discharge of materials into
the environment has not had any material effects upon our capital
expenditures, earnings or competitive position.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may be held liable for the costs of
removal or remediation of certain hazardous or toxic substances located on
or in the property. Such laws often impose liability on the owner and
expose the owner to governmental proceedings without regard to whether the
owner knew of, or was responsible for, the presence of the hazardous or
toxic substances. The cost of any required remediation or removal of such
substances may be substantial. In addition, the owner's liability as to any
specific property is generally not limited and could exceed the value of
the property and/or the aggregate assets of the owner. The presence of such
substances, or the failure to properly remove or remediate such substances,
may also adversely affect the owner's ability to sell or rent the property
or to borrow using the property as collateral. Persons who arrange for
treatment or the disposal of hazardous or toxic substances may also be
liable for the costs of any required remediation or removal of the
hazardous or toxic substances at a disposal facility, regardless of whether
the facility is owned or operated by such owner or entity. In connection
with the ownership of the properties or the treatment or disposal of
hazardous or toxic substances, we may be liable for such costs.
Some of our properties are leased, in part, to businesses, including
manufacturers that use, store or otherwise handle hazardous or toxic
substances in their business operations. These operations create a
potential for the release of hazardous or toxic substances. In addition,
groundwater contaminated by chemicals used in various manufacturing
processes, including semiconductor fabrication, underlies a significant
portion of northeastern Santa Clara County, where many of our properties
are located.
- 19 -
Environmental laws also govern the presence, maintenance and removal of
asbestos. These laws require that owners or operators of buildings
containing asbestos properly manage and maintain the asbestos, that they
adequately inform or train those who may come into contact with asbestos
and that they undertake special precautions, including removal or other
abatement in the event that asbestos is disturbed during renovation or
demolition of a building. These laws may impose fines and penalties on
building owners or operators for failure to comply with these requirements
and may allow third parties to seek recovery from owners or operators for
personal injury associated with exposure to asbestos fibers. We are aware
that there are asbestos-containing materials, or ACMs, present at several
of the properties, primarily in floor coverings. We believe that the ACMs
present at these properties are generally in good condition and that no
ACMs are present at the remaining properties. We believe we are in
compliance in all material respects with all present federal, state and
local laws relating to ACMs and that if we were given limited time to
remove all ACMs present at the properties, the cost of such removal would
not have a material adverse effect on our financial condition, results of
operations and ability to make cash distributions to our stockholders.
Phase I assessments are intended to discover and evaluate information
regarding the environmental condition of the surveyed property and
surrounding properties. Phase I assessments generally include a historical
review, a public records review, an investigation of the surveyed site and
surrounding properties and the preparation and issuance of a written
report, but do not include soil sampling or subsurface investigations and
typically do not include an asbestos survey. Environmental assessments have
been conducted for about half of the properties.
The environmental investigations that have been conducted on our properties
have not revealed any environmental liability that we believe would have a
material adverse effect on our financial condition, results of operations
and assets, and we are not aware of any such liability. Nonetheless, it is
possible that there are material environmental liabilities of which we are
unaware. We cannot assure you that future laws, ordinances, or regulations
will not impose any material environmental liability, or that the current
environmental condition of the properties has not been, or will not be,
affected by tenants and occupants of the properties, by the condition of
properties in the vicinity of the properties, or by third parties unrelated
to us.
- 20 -
ITEM 3. LEGAL PROCEEDINGS
Neither the operating partnerships, the properties nor we are subject to
any material litigation nor, to our knowledge, is any material litigation
threatened against the operating partnerships, the properties or us. From
time to time, we are engaged in legal proceedings arising in the ordinary
course of our business. We do not expect any of such proceedings to have a
material adverse effect on our cash flows, financial condition or results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth
quarter of the year ended December 31, 2002.
- 21 -
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is listed on the American Stock Exchange ("AMEX") and the
Pacific Exchange, Inc. and trades under the symbol "MSW." The high and low
sale prices per share of common stock as reported on AMEX during each
quarter of 2002 and 2001 were as follows:
2002 2001
----------------------------- -----------------------------
High Low High Low
------------- ------------- ------------- -------------
1st Quarter $13.22 $11.10 $14.20 $12.50
2nd Quarter $13.03 $11.91 $14.39 $11.23
3rd Quarter $11.99 $10.31 $14.35 $11.60
4th Quarter $11.20 $9.72 $12.85 $10.85
On March 25, 2003, there were 235 registered holders of the Company's
common stock. We declared and paid dividends in each quarter of 2002 and
2001. We expect to pay quarterly dividends during 2003. The following
tables show information for quarterly dividends for 2002 and 2001.
2002
-----------------------------------------------
Record Payment Dividend
Date Date Per Share
------------- ------------- -------------
1st Quarter 03/29/02 04/11/02 $0.24
2nd Quarter 06/28/02 07/11/02 0.24
3rd Quarter 09/30/02 10/10/02 0.24
4th Quarter 12/31/02 01/09/03 0.24
-------------
Total $0.96
=============
2001
-----------------------------------------------
Record Payment Dividend
Date Date Per Share
------------- ------------- -------------
1st Quarter 03/30/01 04/10/01 $0.19
2nd Quarter 06/29/01 07/12/01 0.22
3rd Quarter 09/28/01 10/11/01 0.24
4th Quarter 12/31/01 01/10/02 0.24
-------------
Total $0.89
=============
For federal income tax purposes, we have characterized 100% of the
dividends declared in 2002 and 2001 as ordinary income.
The closing price of our common stock on December 31, 2002, the last
trading day, was $9.90 per share.
- 22 -
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial information
for Mission West Properties, Inc. See Part II - Item 7 "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
- Overview and Company History for discussion of business combinations and
property dispositions that materially affect the comparability of the
selected financial data. Selected consolidated financial data is derived
from the audited financial statements and notes thereto (see Part II - Item
8 "Consolidated Financial Statements and Supplementary Data," below) and is
as follows:
Year Ended December 31,
--------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------------- ------------- ------------- ------------- -------------
OPERATING DATA:
Revenue:
Rental revenues $129,781 $126,229 $97,568 $72,294 $26,637
Tenant reimbursements 20,097 17,474 14,548 10,913 4,142
Other income, including interest 4,250 2,465 1,241 1,198 278
Gain on sale of assets - 11,454 501 - -
-------------- ------------- ------------- ------------- -------------
Total revenues 154,128 157,622 113,858 84,405 31,057
-------------- ------------- ------------- ------------- -------------
Expenses:
Property operating, maintenance and real estate taxes 22,015 18,308 14,932 11,367 4,761
Interest 9,588 8,704 8,290 11,623 4,685
Interest (related parties) 3,422 4,709 4,475 2,246 3,511
General and administrative 1,488 1,284 1,065 1,185 1,501
Depreciation 17,928 16,638 15,178 12,878 5,270
-------------- ------------- ------------- ------------- -------------
Total expenses 54,441 49,643 43,940 39,299 19,728
-------------- ------------- ------------- ------------- -------------
Income before minority interest 99,687 107,979 69,918 45,106 11,329
Minority interest 83,251 90,129 57,650 38,755 11,610
-------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations 16,436 17,850 12,268 6,351 (281)
Discontinued operations, net of minority interests:
Gain from disposal of discontinued operations 1,018 - - - -
Income attributable to discontinued operations 47 285 311 180 60
-------------- ------------- ------------- ------------- -------------
Income from discontinued operations 1,065 285 311 180 60
-------------- ------------- ------------- ------------- -------------
Net income (loss) to common stockholders $ 17,501 $ 18,135 $12,579 $ 6,531 $ (221)
============== ============= ============= ============= =============
Net income to minority interest $ 88,576 $ 91,565 $59,054 $39,785 $12,049
============== ============= ============= ============= =============
Basic net income (loss) from continuing $0.94 $1.04 $.72 $.51 $(.17)
operations per share
Diluted net income (loss) from continuing $0.92 $1.01 $.70 $.50 $(.16)
operations per share
Basic net income (loss) per share $1.00 $1.06 $.74 $.52 $(.13)
Diluted net income (loss) per share $0.98 $1.03 $.72 $.52 $(.13)
PROPERTY AND OTHER DATA: (2)
Total properties, end of period 101 97 89 80
Total square feet, end of period (000's) 7,164 6,799 6,196 5,307
Average monthly rental revenue per square foot (1) $1.71 $1.59 $1.36 $1.16
Occupancy at end of period 84% 97% 99% 99%
FUNDS FROM OPERATIONS (3): $117,360 $114,513 $86,303 $59,079 $17,238
Cash flows from operating activities $117,368 $111,157 $84,580 $60,298 $16,264
Cash flows from investing activities (20,744) (3,040) (2,736) (12,084) (118)
Cash flows from financing activities (97,455) (107,498) (83,706) (41,920) (21,469)
December 31,
--------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------------- ------------- ------------- ------------- -------------
(dollars in thousands)
BALANCE SHEET DATA:
Real estate assets, net of accumulated depreciation $894,728 $860,935 $807,456 $697,616 $516,029
Total assets 929,406 910,255 826,910 712,704 519,866
Line of credit - related parties 58,792 79,887 50,886 - -
Revolving line of credit 23,839 - - - -
Loan payable 20,000 - - - -
Debt 125,062 127,416 132,055 133,952 184,389
Debt - related parties 11,078 11,371 11,643 31,193 20,752
Total liabilities 289,817 286,768 255,505 215,212 213,234
Minority interest 528,768 515,063 469,332 396,810 273,379
Stockholders' equity 110,821 108,424 102,073 100,682 33,253
Common stock outstanding 17,487,329 17,329,779 17,025,365 16,972,374 8,218,594
O.P. Units issued and outstanding 86,474,032 85,762,541 83,576,027 76,205,789 60,151,697
- 23 -
(1) Average monthly rental revenue per square foot has been determined by
taking the total base rent for the period, divided by the number of months
in the period, and then divided by the total square feet of occupied space.
(2) Property and other data shown only as of December 31, 2002, 2001, 2000, and
1999.
(3) 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), including non-recurring
events other than "extraordinary items" under GAAP and gains and losses
from sales of discontinued operations, 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 our ability to
incur and service debt and make capital expenditures. FFO should not be
considered as an alternative for neither net income as a measure of
profitability nor is it comparable to cash flows provided by operating
activities determined in accordance with GAAP. FFO is not comparable to
similarly entitled items reported by other REITs that do not define them
exactly as we define FFO. See Part II - Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Funds from
Operations."
- 24 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes forward-looking statements, including but
not limited to statements with respect to the future financial performance,
operating results, plans and objectives of Mission West Properties, Inc.
Actual results may differ materially from those currently anticipated
depending upon a variety of factors, including those described in Part I -
Item 1 "Business - Risk Factors."
OVERVIEW AND BACKGROUND
Our original predecessor was formed in 1969 as Palomar Mortgage Investors,
a California business trust, which operated as a mortgage REIT until 1979
when, under the name of Mission Investment Trust, it terminated its status
as a REIT and began to develop and market its own properties. In 1982,
Mission West Properties was incorporated as a successor to Mission
Investment Trust. In 1997, our predecessor, Mission West Properties, sold
all its real estate assets and paid a special dividend of $9.00 per share
to stockholders, after which it retained only nominal assets. Subsequently,
the Berg Group acquired control of the corporation as a vehicle to acquire
R&D properties, or interests in entities owning such properties in a
transaction completed September 2, 1997. At that time the Berg Group and
the other investors acquired an aggregate 79.6% controlling ownership
position. In May 1998, we, the Berg Group members, John Kontrabecki, and
certain other persons entered into an acquisition agreement providing,
among other things, for our acquisition of interests as the sole general
partner in the operating partnerships. At the time, the operating
partnerships held approximately 4.34 million rentable square feet of R&D
property located in Silicon Valley. The agreement also provided for the
parties to enter into the Pending Projects Acquisition Agreement, the Berg
Land Holdings Option Agreement and the Exchange Rights Agreement, following
stockholder approval. Effective July 1, 1998, we consummated our
acquisition of the general partnership interests in the operating
partnerships through the purchase of the general partnership interests, and
all limited partnership interests in the operating partnerships were
converted into 59,479,633 O.P. Units, which represented ownership of
approximately 87.89% of the operating partnerships. Our general partnership
interests represented the balance of the ownership of the operating
partnerships. At December 31, 2002, we owned a 16.82% general partnership
interest in the operating partnerships, taken as a whole, on a weighted
average basis.
On December 28, 1998, our stockholders approved and ratified our sale of
common stock under two May 1998 private placements. They also ratified the
Exchange Rights Agreement between us and the limited partners, the Pending
Projects Acquisition Agreement and the Berg Land Holdings Option Agreement
between us and the Berg Group, and approved our reincorporation in the
State of Maryland. On December 29, 1998, we sold 6,495,058 shares of common
stock at a price of $4.50 per share to a number of accredited investors to
complete two May 1998 private placements. The aggregate proceeds, net of
fees and offering costs, of approximately $27.8 million were used to pay
down amounts outstanding under the demand notes due to the operating
partnerships. Our reincorporation under the laws of the State of Maryland
through the merger of Mission West Properties into Mission West Properties,
Inc. occurred on December 30, 1998, at which time all outstanding shares
issued by our predecessor California corporation were converted into shares
of our common stock on a one-for-one basis.
On December 8, 1998, the AMEX recommenced trading of our common stock. In
July 1999, we completed a public offering of 8,680,000 shares of our common
stock at $8.25 per share. The net proceeds of approximately $66.9 million,
after deducting underwriting discounts and other offering costs, were used
primarily to repay indebtedness.
We have two wholly owned corporate subsidiaries, MIT Realty, Inc. and
Mission West Executive Aircraft Center. Both corporations are inactive.
Since the beginning of calendar year 1999, we have been taxed as a
qualified REIT.
CRITICAL ACCOUNTING POLICIES
We prepare the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP"), which requires us to make certain estimates, judgments and
assumptions that affect the reported amounts in the accompanying
consolidated financial statements, disclosure of contingent assets and
liabilities and related footnotes. Actual results may differ from these
estimates under different assumptions or conditions.
Critical accounting policies are defined as those that require management
to make estimates, judgments and assumptions, giving due consideration to
materiality, in certain circumstances that affect amounts reported in the
consolidated financial statements, and potentially result in materially
different results under different conditions and assumptions. We believe
that the following best describe our critical accounting policies:
- 25 -
REAL ESTATE ASSETS. Real estate assets are stated at cost. Cost includes
expenditures for improvements or replacements. Maintenance and repairs are
charged to expense as incurred. Gains and losses from sales are included in
income in accordance with Statement of Financial Accounting Standard
("SFAS") No. 66, "Accounting for Sales of Real Estate."
We review real estate assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the carrying amount of the asset exceeds its estimated
undiscounted net cash flow, before interest, we will recognize an
impairment loss equal to the difference between its carrying amount and its
estimated fair value. If impairment is recognized, the reduced carrying
amount of the asset will be accounted for as its new cost. For a
depreciable asset, the new cost will be depreciated over the asset's
remaining useful life. Generally, fair values are estimated using
discounted cash flow, replacement cost or market comparison analyses. The
process of evaluating for impairment requires estimates as to future events
and conditions, which are subject to varying market and economic factors,
however. Therefore, it is reasonably possible that a change in estimate
resulting from judgments as to future events could occur which would affect
the recorded amounts of the property.
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND RESERVE. The preparation of the
consolidated financial statements requires us to make estimates and
assumptions. As such, we must make estimates of the uncollectability of our
accounts receivable based on the evaluation of our tenants' financial
position, analyses of accounts receivable and current economic trends. We
also make estimates for a straight-line adjustment reserve for existing
tenants with the potential of bankruptcy or ceasing operations. Our
estimates are based on our review of tenants' payment histories, publicly
available financial information and such additional information about their
financial condition as tenants provided to us. The information available to
us might lead us to overstate or understate these reserve amounts. The use
of different estimates or assumptions could produce different results.
Moreover, actual future collections of accounts receivable or reductions in
future reported rental income due to tenant bankruptcies or other business
failures could differ materially from our estimates.
CONSOLIDATED JOINT VENTURES. We, through an operating partnership, own
three properties that are in joint ventures of which we have interests. We
manage and operate all three properties. The recognition of these
properties and their operating results are 100% reflected on our
consolidated financial statements and minority interest because we have
operational and financial control of the investments. We make judgments and
assumptions about the estimated monthly payments made to our joint venture
partners, which are reported with our periodic results of operations.
Actual results may differ from these estimates under different assumptions
or conditions.
REVENUE RECOGNITION. Rental revenue is recognized on the straight-line
method of accounting required by GAAP under which contractual rent payment
increases are recognized evenly over the lease term. The difference between
recognized rental income and rental cash receipts is recorded as deferred
rent on the balance sheet. Certain lease agreements contain terms that
provide for additional rents based on reimbursement of certain costs. These
additional rents are reflected on the accrual basis.
Rental revenue is affected if existing tenants terminate or amend their
leases. Thus, if tenants lengthen their lease term, additional rental
revenue is recognized. On the other hand, if tenants terminate their lease
agreements or shorten their lease terms, rental revenue decreases because
of reduced future cash flows and a one-time straight-line adjustment to
deferred rent, which is the difference between recognized rental income and
rental cash receipts. We try to identify tenants who have the potential of
bankruptcy or of ceasing operations. By anticipating these events in
advance, we expect to take actions to minimize the effect on the results of
our operations. Our judgments and estimations about tenants' capacity to
continue to meet their lease obligations will affect the rental revenue
recognized. Material differences may result in the amount and timing of our
rental revenue for any period if we made different judgments or
estimations.
LEASE TERMINATION. Lease termination fees are included in revenues. These
fees are paid by tenants who want to terminate their lease obligations
before the end of the contractual term of the lease. There is no way of
predicting or forecasting the timing or amounts of future lease termination
fees.
- 26 -
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 TO THE YEAR ENDED DECEMBER
31, 2001.
RENTAL REVENUES
As of December 31, 2002, through our controlling interests in the operating
partnerships, we owned 101 R&D properties totaling approximately 7.2
million square feet compared to 97 such properties totaling approximately
6.8 million square feet as of December 31, 2001. This represented a net
increase of approximately 6% in total rentable square footage from the
prior year. During 2002, we made the following acquisitions by purchase of
new properties under the Berg Land Holdings Option Agreement or as
replacement property in exchange for existing R&D properties that we sold
in 2001 and 2002.
Date of Rentable Square
Acquisition Address Footage
------------------- ------------------------------------------- -------------------
1/02 5345 Hellyer Avenue 125,000
3/02 2630 Orchard Parkway (1) 60,633
3/02 2610 Orchard Parkway (1) 54,093
3/02 55 West Trimble Road (1) 91,722
7/02 5900 Optical Court 165,000
-------------------
Total 496,448
===================
(1) Acquired in exchange for R&D properties located at 5713-5729 Fontanoso Way
that was sold in year 2001 and 2001 Logic Drive in San Jose, California
that was sold in year 2002.
The following table depicts the amounts of rental revenues from continuing
operations for the years ended December 31, 2002 and 2001 represented by
our historical properties and the properties acquired in each such year and
the percentage of the total increase in rental revenues over the period
that is represented by each group of properties.
December 31,
---------------------------------- -----------------------------------------------------
% Change by % of Total
2002 2001 $ Change Property Group Net Change
-------------- -------------- -------------- -------------- --------------
(dollars in thousands)
Same Property (1) $103,076 $112,545 ($9,469) (8.4%) (7.5%)
2001 Acquisitions (2) 18,328 13,684 4,644 33.9% 3.7%
2002 Acquisitions 8,377 - 8,377 100% 6.6%
-------------- -------------- -------------- --------------
Total/Overall $129,781 $126,229 $3,552 2.8% 2.8%
============== ============== ============== ==============
(1) "Same Property" is defined as properties owned by us prior to 2001 that we
still owned as of December 31, 2002.
(2) Operating rental revenues for 2001 Acquisitions do not reflect a full 12
months of operations in 2001 because these properties were acquired at
various times during 2001.
For the year ended December 31, 2002, our rental revenues from real estate
increased by $3.5 million, or 3% from $126.2 million for the year ended
December 31, 2001 to $129.7 million for the same period in 2002. The $3.5
million increase in rental revenues resulted from new property
acquisitions, as "Same Property" rents decreased by ($9.5), rents from
newly developed properties acquired in 2001 represented an increased of
$4.6 million and rents from newly developed properties acquired in 2002
added approximately $8.4 million of new rental revenue. Approximately $0.3
million and $2.0 million in rental revenues were generated from a
discontinued operation for the years ended December 31, 2002 and 2001,
respectively. The decline in rental revenues from the "Same Property"
portfolio was a result from adverse market conditions and loss of several
tenants due to bankruptcy or cessation of operations. Our overall occupancy
rate at December 31, 2002 was approximately 84%.
OTHER INCOME
The following table depicts the amounts of other income from continuing
operations and gains from sales of assets for the years ended December 31,
2002 and 2001.
December 31,
----------------------------------
% Change by
2002 2001 $ Change Group
-------------- -------------- -------------- --------------
(dollars in thousands)
Other income $4,250 $ 2,465 $ 1,785 72.4%
Gains from sales of assets - 11,454 (11,454) (100%)
-------------- -------------- --------------
Total $4,250 $13,919 $ (9,669) (69.5%)
============== ============== ==============
- 27 -
Other income, including interest, was approximately $4.3 million and $2.5
million for the years ended December 31, 2002 and 2001, respectively. The
$1.8 million increase was primarily from lease termination fees.
In 2001, gain from sales of real estate was $11.5 million, which were
effected as tax-deferred Section 1031 exchanges. Due to the adoption of
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets" ("SFAS No. 144") effective
January 1, 2002, gains from sales of operating properties are classified as
discontinued operations. In 2002, a gain of approximately $6.1 million from
the sale of one property consisting of 72,426 rentable square feet at 2001
Logic Drive in a Section 1031 exchange has been classified as Gain from
Disposal of Discontinued Operations (see below).
TENANT REIMBURSEMENTS AND EXPENSES
The following table reflects the increase in property operating expenses
and real estate taxes from continuing operations for the year ended
December 31, 2002 over property operating expenses and real estate taxes
from continuing operations for the year ended December 31, 2001 and the
percentage of total increase in expenses over the period that is
represented by each group of properties.
December 31,
---------------------------------- -----------------------------------------------------
% Change by % of Total
2002 2001 $ Change Property Group Net Change
-------------- -------------- -------------- -------------- --------------
(dollars in thousands)
Same Property (1) $18,026 $15,894 $2,132 13.4% 11.6%
2001 Acquisitions (2) 2,777 2,414 363 15.0% 2.0%
2002 Acquisitions 1,212 - 1,212 100% 6.6%
-------------- -------------- -------------- --------------
Total/Overall $22,015 $18,308 $3,707 20.2% 20.2%
============== ============== ============== ==============
(1) "Same Property" is defined as properties owned by us prior to 2001 that we
still owned as of December 31, 2002.
(2) Operating expenses and real estate taxes for 2001 Acquisitions do not
reflect a full 12 months of operations in 2001 because these properties
were acquired at various times during 2001.
Tenant reimbursements from continuing operations increased by $2.6 million,
or 15%, from $17.5 million for the year ended December 31, 2001 to $20.1
million for the year ended December 31, 2002. Operating expenses and real
estate taxes from continuing operations, on a combined basis, increased by
$3.7 million, or 20%, from $18.3 million for the year ended December 31,
2001 to $22.0 million for the year ended December 31, 2002. Of the $3.7
million increase in operating expenses and real estate taxes, $2.1 million
resulted from the Company's "Same Property" portfolio, $0.4 million
resulted from properties acquired in 2001 and $1.2 million resulted from
properties acquired in 2002. The overall increase in tenant reimbursements,
operating expenses and real estate taxes is primarily a result of the
growth in the total square footage of the Company's portfolio of properties
during the periods presented. Total operating expenses and real estate
taxes exceeded tenant reimbursements because of vacancies, which reached
approximately 1.16 million square feet by year-end 2002. For the same
reason, "Same Property" rental revenues decreased in 2002 over 2001 while
"Same Property" operating expenses increased in 2002 over 2001. We expect
tenant reimbursements to decrease further in the coming year as our vacancy
rate increases. General and administrative expenses increased by $0.2
million from $1.3 million for the year ended December 31, 2001 to $1.5
million for the year ended December 31, 2002, primarily due to the addition
of one new employee in 2001 and minor increases in general expenses.
The following table depicts the amounts of interest expense from continuing
operations for the years ended December 31, 2002 and 2001.
December 31,
----------------------------------
% Change by
2002 2001 $ Change Group
-------------- -------------- -------------- --------------
(dollars in thousands)
Interest $ 9,588 $ 8,704 $ 884 10.2%
Interest (related parties) 3,422 4,709 (1,287) (27.3%)
-------------- -------------- --------------
Total $13,010 $13,413 $ (403) (3.0%)
============== ============== ==============
Interest expense increased by $0.9 million, or 10%, from $8.7 million for
the year ended December 31, 2001 to $9.6 million for the year ended
December 31, 2002. The increased expense resulted from additional debt that
the Company incurred under a new $20 million uncollateralized loan obtained
from Citicorp USA, Inc. and a $40 million credit line established with
Cupertino National Bank. Interest expense (related parties) decreased by
$1.3 million, or 27%, from $4.7 million for the year ended December 31,
2001 to $3.4 million for the year ended December 31, 2002. As a result of
five R&D property acquisitions totaling approximately 496,000 rentable
square feet in 2002, debt outstanding, including amounts due related
parties, increased by $20.1 million, or 9%, from $218.7 million as of
December 31, 2001 to $238.8 million as of December 31,
- 28 -
2002. Interest rates declined in 2002, which lessened the effect of the
additional debt on total interest expense. We expect interest expense to
increase if we acquire additional properties or interest rates increase in
2003.
The following table depicts the amounts of depreciation expense from
continuing operations for the years ended December 31, 2002 and 2001.
December 31,
----------------------------------
2002 2001 $ Change % Change
-------------- -------------- -------------- --------------
(dollars in thousands)
Depreciation $17,928 $16,638 $1,290 7.8%
Depreciation expense from continuing operations increased by $1.3 million,
or 8%, from $16.6 million for the year ended December 31, 2001 to $17.9
million for the year ended December 31, 2002. The increase was attributable
to the acquisition of five R&D properties in 2002. Depreciation expense
attributable to discontinued operations was approximately $46,000 and
$278,000 for the years ended December 31, 2002 and 2001, respectively.
MINORITY INTEREST AND NET INCOME
The following table depicts the amounts of earnings attributable to
shareholders and minority interests for the years ended December 31, 2002
and 2001.
December 31,
-------------------------------------
% Change by
2002 2001 $ Change Group
---------------- --------------- ---------------- ----------------
(dollars in thousands)
Net income to shareholders $ 17,501 $ 18,135 ($ 634) (3.5%)
Net income to minority interest 88,576 91,565 (2,989) (3.3%)
---------------- --------------- ----------------
Total $106,077 $109,700 ($3,623) (3.3%)
================ =============== ================
As of December 31, 2002 and 2001, we owned a general partnership interest
of 16.68%, 21.46%, 15.46% and 12.27% and 16.54%, 21.41%, 15.42% and 12.24%
in Mission West Properties, L.P., Mission West Properties, L.P. I, Mission
West Properties, L.P. II and Mission West Properties, L.P. III,
respectively, which are the operating partnerships. We owned a 16.82% and
16.73% general partnership interest in the operating partnerships, taken as
a whole, on a weighted average basis as of December 31, 2002 and 2001,
respectively. Net income to shareholders decreased by $0.6 million, or 3%,
from $18.1 million for the year ended December 31, 2001 to $17.5 million
for the year ended December 31, 2002. Our income attributable to minority
interest decreased by $3.0 million, or 3%, from $91.6 million for the year
ended December 31, 2001 to $88.6 million for the year ended December 31,
2002. Minority interest represents the limited partners' ownership interest
of 83.18% and 83.27%, on a weighted average basis, as of December 31, 2002
and 2001, respectively, in the operating partnerships. The decrease in the
minority interest percentage resulted from the issuance of additional
common stock in connection with exchanging O.P. Units for common stock by
minority interest holders and exercise of stock options.
INCOME FROM DISCONTINUED OPERATIONS
The following table depicts the amounts of income from discontinued
operations for the years ended December 31, 2002 and 2001.
December 31,
----------------------------------
% Change by
2002 2001 $ Change Group
-------------- --------------- -------------- ---------------
(dollars in thousands)
Gain from disposal of discontinued operations $6,103 - $ 6,103 100%
Income attributable to discontinued operations 287 $1,721 (1,434) (83.3%)
Minority interest in earnings attributable to
discontinued operations 5,325 1,436 3,889 270.8%
-------------- --------------- --------------
Total income from discontinued operations $1,065 $ 285 $ 780 273.7%
============== =============== ==============
In accordance with our adoption of SFAS No. 144, in 2002, we sold one
property consisting of 72,426 rentable square feet and recognized a net
gain of $6.1 million, of which $1.0 million and $5.1 million were
attributable to shareholders and minority interests, respectively. The
income to shareholders and minority interests attributable to discontinued
operations from this property in 2002 was approximately $47,000 and
$240,000, respectively. For 2001, the income to shareholders and minority
interests attributable to discontinued operations from this property was
approximately $285,000 and $1.4 million, respectively. We did not report
gains from the disposal of discontinued operations or from discontinued
operations for any transactions in 2001.
- 29 -
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER
31, 2000.
RENTAL REVENUES
As of December 31, 2001, through our controlling interests in the operating
partnerships, we owned 97 R&D properties totaling approximately 6.8 million
square feet compared to 89 such properties totaling approximately 6.2
million square feet as of December 31, 2000. This represented a net
increase of approximately 10% in total rentable square footage from the
prior year. During 2001, we made the following acquisitions by purchase of
new properties under the Berg Land Holdings Option Agreement or as
replacement properties in exchange for existing R&D properties that we sold
in 2001.
Date of Rentable Square
Acquisition Address Footage
------------------- ------------------------------------------- -------------------
1/01 5325 Hellyer Avenue 131,500
2/01 5500 Hellyer Avenue 117,740
4/01 245 Caspian Drive (1)(3) 59,400
5/01 855 Branham Lane East (1) 67,912
6/01 5550 Hellyer Avenue 78,794
7/01 5905-5965 Silver Creek Valley Road I (2) 247,500
8/01 5750 Hellyer Avenue 73,312
10/01 5905-5965 Silver Creek Valley Road II 98,500
-------------------
Total 874,658
===================
(1) Acquired in exchange for R&D property located at 4949 Hellyer Avenue, San
Jose, California.
(2) Three buildings were acquired at this location.
(3) A lessee was paying rent for this site under a 15-year lease, although the
building has not been completed for occupancy by this lessee. This lessee
filed for bankruptcy protection under Chapter 11 in September 2001 and has
effectively terminated its lease agreement in May 2002 in a negotiated
settlement with us.
During 2001, we sold the following two R&D properties in transactions
effected as tax-deferred Section 1031 exchanges:
Date of Rentable Square
Disposition Address Footage
------------------- ------------------------------------------- -------------------
1/01 4949 Hellyer Avenue 200,484
9/01 5713-5729 Fontanoso Way 77,700
-------------------
Total 278,184
===================
The following table depicts the amounts of rental revenues from continuing
operations for the years ended December 31, 2001 and 2000 represented by
our historical properties and the properties acquired in each such year and
the percentage of the total increase in rental revenues over the period
that is represented by each group of properties.
December 31,
---------------------------------- -----------------------------------------------------
% Change by % of Total
2001 2000 $ Change Property Group Net Change
-------------- -------------- -------------- -------------- --------------
(dollars in thousands)
Same Property (1) $ 92,394 $85,271 $ 7,123 8.4% 7.3%
2000 Acquisitions (2) 20,151 12,297 7,854 63.9% 8.1%
2001 Acquisitions 13,684 - 13,684 100% 14.0%
-------------- -------------- -------------- --------------
Total/Overall $126,229 $97,568 $28,661 29.4% 29.4%
============== ============== ============== ==============
(1) "Same Property" is defined as properties owned by us prior to 2000 that we
still owned as of December 31, 2001.
(2) Operating rental revenues for 2000 Acquisitions do not reflect a full 12
months of operations in 2000 because these properties were acquired at
various times during 2000.
For the year ended December 31, 2001, our rental revenues from real estate
increased by $28.6 million, or 29%, which included an increase of
approximately $6.1 million over base rental revenues to reflect rental
revenues on a straight-line basis, from $97.6 million for the year ended
December 31, 2000 to $126.2 million for the same period in 2001. These
increases were primarily attributable to scheduled increases in rental
rates and new acquisitions. Of the $28.6 million increase in rental
revenues, $7.1 million resulted from the Company's "Same Property"
portfolio, $7.8 million resulted from newly developed properties acquired
in 2000, and $13.7 million resulted from newly developed properties
acquired in 2001. Approximately $2.0 million in rental revenues were
generated for each of the years ended December 31, 2001 and 2000 from a
property that we disposed of in a Section 1031 exchange in 2002.
- 30 -
OTHER INCOME
The following table depicts the amounts of other income from continuing
operations and gains from sales of assets for the years ended December 31,
2001 and 2000.
December 31,
----------------------------------
% Change by
2001 2000 $ Change Group
-------------- -------------- -------------- --------------
(dollars in thousands)
Other income $ 2,465 $1,241 $ 1,224 98.6%
Gains from sales of assets 11,454 501 10,953 2,186.2%
-------------- -------------- --------------
Total $13,919 $1,742 $12,177 699.0%
============== ============== ==============
Other income, including interest, was approximately $2.5 million and $1.2
million for the years ended December 31, 2001 and 2000, respectively. The
$1.3 million increase was primarily from interest earned on our restricted
cash account.
In 2001, we recognized a gain of $11.5 million from sales of real estate,
which were effected as tax-deferred Section 1031 exchanges. We acquired
replacement properties in 2001 and 2002. In 2001, we recognized a gain of
$0.5 million from the sale of common stock.
TENANT REIMBURSEMENTS AND EXPENSES
The following table reflects the increase in property operating expenses
and real estate taxes from continuing operations for the year ended
December 31, 2001 over property operating expenses and real estate taxes
from continuing operations for the year ended December 31, 2000 and the
percentage of total increase in expenses over the period that is
represented by each group of properties.
December 31,
---------------------------------- -----------------------------------------------------
% Change by % of Total
2001 2000 $ Change Property Group Net Change
-------------- -------------- -------------- -------------- --------------
(dollars in thousands)
Same Property (1) $14,212 $14,219 $ (7) - -
2000 Acquisitions (2) 1,682 713 969 135.9% 6.5%
2001 Acquisitions 2,414 - 2,414 100% 16.1%
-------------- -------------- -------------- --------------
Total/Overall $18,308 $14,932 $3,376 22.6% 22.6%
============== ============== ============== ==============
(1) "Same Property" is defined as properties owned by us prior to 2000 that we
still owned as of December 31, 2001.
(2) Operating expenses and real estate taxes for 2000 Acquisitions do not
reflect a full 12 months of operations in 2000 because these properties
were acquired at various times during 2000.
Tenant reimbursements from continuing operations increased by $3.0 million,
or 21%, from $14.5 million for the year ended December 31, 2000 to $17.5
million for the year ended December 31, 2001. Operating expenses and real
estate taxes from continuing operations, on a combined basis, increased by
$3.4 million, or 23%, from $14.9 million for the year ended December 31,
2000 to $18.3 million for the year ended December 31, 2001. Of the $3.4
million increase in property operating expenses and real estate taxes, $1.0
million resulted from properties acquired in 2000 and $2.4 million resulted
from properties acquired in 2001. The overall increase in tenant
reimbursements, property operating expenses and real estate taxes is
primarily a result of the growth in the total square footage of the
Company's portfolio of properties during the periods presented. The
increases experienced were consistent with the increase in rental revenues.
General and administrative expenses increased by $0.2 million from $1.1
million for the year ended December 31, 2000 to $1.3 million for the year
ended December 31, 2001, primarily due to the addition of one new employee
in 2001.
The following table depicts the amounts of interest expense from continuing
operations for the years ended December 31, 2001 and 2000.
December 31,
----------------------------------
% Change by
2001 2000 $ Change Group
-------------- -------------- -------------- --------------
(dollars in thousands)
Interest $ 8,704 $ 8,290 $414 5.0%
Interest (related parties) 4,709 4,475 234 5.2%
-------------- -------------- --------------
Total $13,413 $12,765 $648 5.1%
============== ============== ==============
Interest expense increased by $0.4 million, or 5%, from $8.3 million for
the year ended December 31, 2000 to $8.7 million for the year ended
December 31, 2001, primarily due to a mortgage loan we established in May
2000 in connection with a property acquisition. Interest expense (related
parties) increased by $0.2 million, or 5%, from $4.5 million for the year
ended
- 31 -
December 31, 2000 to $4.7 million for the year ended December 31, 2001. As
a result of ten R&D property acquisitions totaling approximately 875,000
rentable square feet in 2001, debt outstanding, including amounts due
related parties, increased by $24.1 million, or 12%, from $194.6 million as
of December 31, 2000 to $218.7 million as of December 31, 2001. Interest
rates in 2001 were lower than interest rates in 2000, which lessened the
effect of the additional debt on total debt interest expense.
The following table depicts the amounts of depreciation expense from
continuing operations for the years ended December 31, 2001 and 2000.
December 31,
----------------------------------
2001 2000 $ Change % Change
-------------- -------------- -------------- --------------
(dollars in thousands)
Depreciation $16,638 $15,178 $1,460 9.6%
Depreciation expense increased by $1.4 million, or 10%, from $15.2 million
for the year ended December 31, 2000 to $16.6 million for the year ended
December 31, 2001. The increase was attributable to the acquisition of ten
R&D properties in 2001 Depreciation expense from the discontinued
operations of the R&D property sold in 2002 was approximately $0.3 million
in both 2001 and 2000.
MINORITY INTEREST AND NET INCOME
The following table depicts the amounts of earnings attributable to
shareholders and minority interests for the years ended December 31, 2001
and 2000.
December 31,
-------------------------------------
% Change by
2001 2000 $ Change Group
---------------- --------------- ---------------- --------------
(dollars in thousands)
Net income to shareholders $ 18,135 $12,579 $ 5,556 44.2%
Net income to minority interest 91,565 59,054 32,511 55.1%
---------------- --------------- ----------------
Total $109,700 $71,633 $38,067 53.1%
================ =============== ================
As of December 31, 2001 and 2000, we owned a general partnership interest
of 16.54%, 21.41%, 15.42% and 12.24% and 18.15%, 21.36%, 15.38% and 12.21%
in Mission West Properties, L.P., Mission West Properties, L.P. I, Mission
West Properties, L.P. II and Mission West Properties, L.P. III,
respectively, which are the operating partnerships. We owned a 16.73% and
16.92% general partnership interest in the operating partnerships, taken as
a whole, on a weighted average basis as of December 31, 2001 and 2000,
respectively. Net income to shareholders increased by $5.5 million, or 44%,
from $12.6 million for the year ended December 31, 2000 to $18.1 million
for year ended December 31, 2001. Our income attributable to minority
interest increased by $32.5 million, or 55%, from $59.1 million for the
year ended December 31, 2000 to $91.6 million for the year ended December
31, 2001. Minority interest represents the limited partners' ownership
interest of 83.27% and 83.08%, on a weighted average basis, as of December
31, 2001 and 2000, respectively, in the operating partnerships. The
increase in the minority interest percentage resulted from the issuance of
additional O.P. Units in connection with the acquisition of eight new
properties under the Berg Land Holdings Option Agreement.
INCOME FROM DISCONTINUED OPERATIONS
The following table depicts the amounts of income from discontinued
operations for the years ended December 31, 2001 and 2000.
December 31,
----------------------------------
% Change by
2001 2000 $ Change Group
-------------- --------------- -------------- ---------------
(dollars in thousands)
Gain from disposal of discontinued operations - - - -
Income attributable to discontinued operations $1,721 $1,715 $ 6 -
Minority interest in earnings attributable to
discontinued operations 1,436 1,404 32 2.3%
-------------- --------------- --------------
Total income from discontinued operations $ 285 $ 311 ($26) (8.4%)
============== =============== ==============
In accordance with SFAS No. 144, rental revenues, tenant reimbursements and
expenses attributable to the 72,426 rentable square foot property, sold in
a Section 1031 tax-deferred exchange in 2002, have been reclassified and
reflected on a net basis as $0.3 million income to shareholders
attributable to discontinued operations in 2001 and 2000. Income to
minority interests attributable to discontinued operations in 2001 and 2000
was $1.4 million each.
- 32 -
CHANGES IN FINANCIAL CONDITION
YEAR ENDED DECEMBER 31, 2002.
The most significant changes in our financial condition in 2002 resulted
from property acquisitions and exchanges. In addition, stockholders' equity
increased from the exercise of stock options and the exchange of O.P. Units
for common stock.
During 2002, we acquired two R&D properties from the Berg Group, both
located in Silicon Valley. Those acquisitions added approximately 290,000
square feet of rentable space and were acquired under the Berg Land
Holdings Option Agreement. The total gross acquisition price for those two
properties was approximately $31.0 million. We financed those acquisitions
by borrowing $18.0 million under our line of credit from the Berg Group and
issuing 835,491 O.P. Units to various members of the Berg Group. In
addition to those two property purchases, we also acquired three R&D
properties representing approximately 206,500 rentable square feet from
Silicon Valley Properties, LLC for approximately $31.2 million in
connection with tax-deferred exchanges involving the property sold to Cisco
Systems, Inc. in late 2001 and property sold to Xilinx, Inc. in early 2002.
Until we obtained those three replacement properties, the sales proceeds
from the properties sold by the Company were designated as restricted cash
for use in tax-deferred property exchanges. No debt or O.P. Units were
issued to acquire those three properties.
In March 2002, we 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. We realized a gain of $6.1 million on the total sale price of
$18.5 million. Prior to our acquisition of the replacement property,
described in the preceding paragraph, the proceeds from the sale of this
property were designated as restricted cash to be used in tax-deferred
property exchanges.
During the year ended December 31, 2002, stock options were exercised to
purchase a total of 33,550 shares of common stock at $4.50 per share. Total
proceeds to the Company were approximately $0.15 million.
In 2002, three limited partners exchanged 124,000 O.P. Units for 124,000
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. In addition, in 2002, Carl E. Berg gave 155,000
O.P. Units to charitable institutions, which exchanged them for 155,000
shares of the Company's common stock pursuant to the Exchange Rights
Agreement in early January 2003.
The proceeds from the exercise of stock options and the conversions of O.P.
Units to shares of the Company's common stock were applied to increase our
percentage interest as general partner in the operating partnerships.
YEAR ENDED DECEMBER 31, 2001.
The most significant changes in our financial condition in 2001 resulted
from property acquisitions and exchanges. In addition, stockholders' equity
increased from the exercise of stock options and the exchange of O.P. Units
for common stock.
During 2001, we purchased eight R&D properties, all located in Silicon
Valley. Those acquisitions added approximately 748,000 square feet of
rentable space and were acquired from the Berg Group under the Berg Land
Holdings Option Agreement. The total gross acquisition price for these
eight properties was approximately $80.7 million. We financed these
acquisitions by borrowing $45.9 million under our line of credit from the
Berg Group, assuming other liabilities of $2.0 million, and issuing
2,422,837 O.P. Units to various members of the Berg Group. In addition to
those eight property purchases, we also acquired two R&D properties
representing approximately 127,000 rentable square feet from the Berg Group
for approximately $23.2 million in connection with a tax-deferred Section
1031 exchange for properties sold to Cisco Systems, Inc. in 2001. Until we
obtained those two replacement properties, the proceeds from the sale of
properties to Cisco Systems, Inc. were classified as restricted cash for
use in tax-deferred property exchanges and on our balance sheet at December
31, 2001. No debt or O.P. Units were issued to acquire those two
properties.
In January 2001, we completed the sale, in a tax-deferred exchange, of a
200,484 square foot R&D property located at 4949 Hellyer Avenue, San Jose,
California to Cisco Systems, Inc., which had exercised an option to
purchase that property in November 2000. We realized a gain of $3.1
million, which is included in other income, on the total sale price of
$23.2 million. In September 2001, we also completed the sale, in a
tax-deferred exchange, of a 77,700 square foot R&D property located at
5713-5729 Fontanoso Way, San Jose, California to Cisco Systems, Inc., which
had also exercised an option to purchase that property in November 2000. We
realized a gain of $8.5 million on the total sale price of $15.4 million.
- 33 -
During the year ended December 31, 2001, stock options were exercised to
purchase a total of 68,088 shares of common stock, consisting of 14,588
shares exercised at $4.50 per share, 47,500 shares exercised at $8.25 per
share, and 6,000 shares exercised at $13.00 per share. Total proceeds to
the Company were approximately $0.5 million.
Two limited partners exchanged 236,326 O.P. Units for 236,326 shares of the
Company's common stock under the terms of the Exchange Rights Agreement.
The proceeds from the exercise of stock options and the conversions of O.P.
Units to shares of the Company's common stock were applied to increase our
percentage interest as general partner in the operating partnerships.
YEAR ENDED DECEMBER 31, 2000.
In 2000, our financial condition changed principally as a result of
property acquisitions. In addition, stockholders' equity increased from the
exercise of stock options. During 2000, we acquired nine R&D properties,
all located in Silicon Valley.
The property acquisitions added approximately 891,000 square feet of
rentable space and were acquired from the Berg Group under the Berg Land
Holdings Option Agreement and the Pending Projects Acquisition Agreement.
The total gross acquisition price for those nine properties was
approximately $122.9 million. We financed those acquisitions by borrowing
$39.9 million under our line of credit from the Berg Group, issuing an
$11.8 million note to the Berg Group, assuming other liabilities of $2.6
million, and issuing 7,370,238 O.P. Units to various members of the Berg
Group.
In May 2000, we entered into a joint venture and acquired two R&D
properties of approximately 160,000 square feet located at 5300 and 5350
Hellyer Avenue in San Jose, California from the Berg Group under the Berg
Land Holdings Option Agreement. Those properties are operated, managed, and
owned by a partnership, Hellyer Avenue Limited Partnership, in which one of
the operating partnerships owns a 50% interest. The total acquisition price
for those properties was $17.2 million. We acquired those properties by
issuing an $11.8 million note secured by the property to the Berg Group,
issuing 659,223 O.P. Units to various members of the Berg Group, and
assuming other liabilities of $0.8 million. The note bears interest at
7.65%, and is due in ten years with principal payments amortized over 20
years. Included in the acquisition price were construction fees of
approximately $0.6 million, loan fees of approximately $0.4 million and
commission fees of approximately $0.3 million.
Also in May 2000, we entered into a ten-year lease with ONI Systems
Corporation ("ONI") for 444,500 square feet of space to be constructed by
the Berg Group on land that is subject to the Berg Land Holdings Option
Agreement. As partial consideration for the lease, we were allowed to
purchase 100,000 shares of ONI common stock in its initial public offering.
We purchased and then sold all of the shares and realized net proceeds of
$6.3 million. Of this amount, we recognized approximately $0.5 million
during the second quarter with the balance deferred as prepaid rent that we
are amortizing ratably over the ten-year lease term.
In November 2000, Cisco Systems, Inc. exercised a purchase option to
purchase the properties it was leasing from us at 4949 Hellyer Avenue, San
Jose, California and 5713-5729 Fontanoso Way, San Jose, California,
comprising 200,484 and 77,700 rentable square feet, respectively. The sale
at 4949 Hellyer Avenue was effected as a Section 1031 tax-deferred exchange
in January 2001 and the sale of 5713-5729 Fontanoso Way, also a Section
1031 tax-deferred exchange, closed in the third quarter of 2001.
During the year ended December 31, 2000, stock options were exercised to
purchase a total of 52,991 shares of common stock, consisting of 39,237
shares exercised at $4.50 per share and 13,754 shares exercised at $8.25
per share. Total proceeds to the Company were approximately $0.3 million.
The proceeds from the exercise of stock options were applied to increase
our percentage interest as general partner in the operating partnerships.
LIQUIDITY AND CAPITAL RESOURCES
We expect our principal source of liquidity for distributions to
stockholders and O.P. Unit holders, debt service, leasing commissions and
recurring capital expenditures to come from FFO and/or the borrowings under
the lines of credit with the Berg Group and Cupertino National Bank and the
Northwestern Mutual Life Insurance Company loan, which we obtained in
January 2003. We expect these sources of liquidity to be adequate to meet
projected distributions to stockholders and other presently anticipated
liquidity requirements in 2003. We expect to meet our long-term liquidity
requirements for the funding of property development, property acquisitions
and other material non-recurring capital improvements through long-term
- 34 -
secured and unsecured indebtedness and the issuance of additional equity
securities by us. We have the ability to meet short-term obligations or
other liquidity needs based on the Berg Group and Cupertino National Bank
lines of credit. Despite the current weakness in the economy, we expect our
total interest expense to increase, but not significantly, as we incur debt
through acquisitions of new properties and financing activities. In 2003,
we will be obligated to make payments of debt principal under mortgage
notes without regard to any debt refinancing or new debt obligations that
we might incur, or optional payments of debt principal.
On March 1, 2002, we obtained a $20 million uncollateralized 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. We paid a loan fee of
$50,000 and used the loan for acquiring new R&D properties. This loan was
paid off in its entirety in January 2003 and retired in March 2003.
On July 12, 2002, we established a $40 million uncollateralized revolving
line of credit (the "Revolving Line of Credit") with Cupertino National
Bank, Cupertino, California. We have guaranteed the Revolving Line of
Credit and two operating partnerships have pledged four properties under
separate guarantees. The loans under this line of credit bear interest at
LIBOR plus 2%, and mature on July 12, 2004. We pay an annual loan fee of
$33,000. The proceeds from the Revolving Line of Credit may be used to
repay debt, complete acquisitions and finance other working capital
requirements.
On July 1, 2001, our $75.0 million credit line with the Berg Group was
increased to $100.0 million with all other terms remaining the same. The
Berg Group line of credit is currently collateralized by ten properties,
bears interest at LIBOR plus 1.30%, and matures in March 2004. Debt of
$58.8 million outstanding at December 31, 2002 under this line of credit
was fully repaid in early 2003. The interest rate was 2.7% at December 31,
2002. We believe that the terms of the Berg Group line of credit were more
favorable than those available from institutional lenders. We are
continually evaluating alternative sources of credit to replace the Berg
Group line of credit. There can be no assurance that we will be able to
obtain a line of credit with terms similar to the Berg Group line of
credit, and its cost of borrowing could increase substantially. See "Item 1
- Business - Risk Factors - Our contractual business relationships with the
Berg Group presents additional conflicts of interest which may result in
the realization of economic benefits or the deferral of tax liabilities by
the Berg Group without equivalent benefits to our stockholders."
At December 31, 2002, we had total indebtedness of approximately $238.8
million, including approximately $136.2 million of fixed rate mortgage debt
and approximately $102.6 million under the loan from Citicorp USA, Inc. and
the lines of credit from the Berg Group and Cupertino National Bank, as to
which the interest rate varies with LIBOR. Of total fixed debt, the
Prudential loan represented approximately $123.3 million.
At December 31, 2002, our debt to total market capitalization ratio, which
is computed as our total debt outstanding divided by the sum of total debt
outstanding plus the market value of common stock (based upon the closing
price of $9.90 per share on December 31, 2002) on a fully diluted basis,
including the conversion of all O.P. Units into common stock, was
approximately 18.8%. On December 31, 2002, the last trading day for the
year, total market capitalization was approximately $1.3 billion.
On January 9, 2003, we paid dividends of $0.24 per share of common stock to
all common stockholders of record as of December 31, 2002. On the same
date, the operating partnerships paid a distribution of $0.24 per O.P.
Unit.
On January 9, 2003, we obtained a $100 million secured mortgage loan from
Northwestern Mutual Life Insurance Company ("Northwestern Loan") that bears
a fixed interest rate at 5.64% and matures in ten years with principal
payments amortized over 20 years. The mortgage loan is secured by 11 of our
properties. We paid approximately $675,000 in loan fees and financing costs
and used the proceeds to pay down the Citicorp USA, Inc. loan, the balance
of the Cupertino National Bank line of credit, and most of the Berg Group
line of credit.
On March 12, 2003, we declared dividends of $0.24 per common share payable
on April 10, 2003 to all common stockholders of record on March 31, 2003.
- 35 -
The following table sets forth certain information regarding debt
outstanding as of December 31, 2002.
At December 31, Maturity Interest
Debt Description Collateral Properties 2002 Date Rate
- -------------------------------------------- --------------------------------------------- --------------- ---------- ------------
(dollars in thousands)
Line of Credit:
Berg Group (related parties) 2033-2043 Samaritan Drive, San Jose, CA $ 58,792 3/04 (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 (2)
20605-20705 Valley Green Dr, Cupertino, CA (2)
Mortgage Notes Payable (related parties): 5300-5350 Hellyer Avenue, San Jose, CA 11,078 6/10 7.650%
Mortgage Notes Payable (3):
Prudential Capital Group 20400 Mariani Avenue, Cupertino, CA 1,423 4/09 8.750%
New York Life Insurance Company 10440 Bubb Road, Cupertino, CA - 9/09 9.625%
Washington Mutual (Home S&L Association) 10460 Bubb Road, Cupertino, CA 297 12/06 9.500%
Prudential Insurance Co. of America (4) 10300 Bubb Road, Cupertino, CA 123,342 10/08 6.560%
10500 North De Anza Blvd, Cupertino, CA
4050 Starboard Drive, Fremont, CA
45700 Northport Loop, Fremont, CA
45738 Northport Loop, Fremont, CA
450-460 National Ave, 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 East Arques, Sunnyvale, CA
1250 East 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 125,062
Uncollateralized Loan:
Citicorp USA, Inc. 20,000 3/03 (5)
Revolving Line of Credit:
Cupertino National Bank 23,839 7/04 (6)
---------------
TOTAL $238,771
===============
- 36 -
(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
2004. The interest rate was 2.7% at December 31, 2002.
(2) Substituted collateral properties for the Berg Group line of credit in
place of properties at 5325-5345 Hellyer Avenue, 2610 North First Street,
and 75 East Trimble Road. These four properties were collateralized under
the Berg Group line of credit at December 31, 2001.
(3) Mortgage notes payable generally require monthly installments of interest
and principal over various terms extending through the year 2009. The
weighted average interest rate of mortgage notes payable was 6.68% at
December 31, 2002.
(4) The Prudential loan is payable in monthly installments of $827, which
includes principal (based upon a 30-year amortization) and interest. John
Kontrabecki, one of the limited partners, has guaranteed approximately
$12,000 of this debt. Costs and fees incurred with obtaining this loan
aggregated approximately $900.
(5) The uncollateralized 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. The interest rate at
December 31, 2002 was 3.81%. The full balance was paid off in January 2003.
(6) The uncollateralized revolving line of credit from Cupertino National Bank
carries a variable interest rate equal to LIBOR plus 2.0% and is payable in
full in July 2004. The interest rate at December 31, 2002 was 3.72%.
At December 31, 2002, the outstanding balance remaining under the demand
notes owed to the operating partnerships was $1.37 million. The Company and
the operating partnerships have agreed to extend the due date of the demand
notes to September 30, 2005. The principal of the demand notes, along with
the interest expense, which is interest income to the operating
partnerships, is eliminated in consolidation and is not included in the
corresponding line items within the consolidated financial statements.
However, the interest income earned by the operating partnerships, which is
interest expense to us, in connection with this debt, is included in the
calculation of minority interest as reported on the consolidated statement
of operations, thereby reducing our net income by this same amount. At
present, our only means for repayment of this debt is through distributions
received from the operating partnerships in excess of the amount of
dividends to be paid to our stockholders.
- 37 -
HISTORICAL CASH FLOWS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 TO THE YEAR ENDED DECEMBER
31, 2001.
Net cash provided by operating activities for the year ended December 31,
2002 was approximately $117.4 million, compared to approximately $111.2
million for the prior year. The increase in cash resulted from increased
rental receipts attributable to newly acquired properties.
Net cash used in investing activities was approximately ($20.7) million for
the year ended December 31, 2002, compared to approximately ($3.0) million
for the prior year. Cash used in investing activities during 2002 related
to the acquisition of three R&D properties through a tax-deferred exchange
transaction involving the property sold to Xilinx, Inc. pursuant to its
purchase option as well as new equipment and improvements
Net cash used in financing activities was approximately ($97.5) million for
the year ended December 31, 2002, compared to ($107.5) million for the year
ended December 31, 2001. During 2002, we paid debt principal and made
distributions to holders of our common stock and O.P. Units utilizing cash
generated from operating activities and other borrowed funds. Financing
activities in 2002 also consisted of a $20 million uncollateralized loan
from Citicorp USA, Inc. and a $40 million line of credit established with
Cupertino National Bank of which $23.8 million had been drawn as of the
year end. For the year ended December 31, 2002, we paid dividends to our
stockholders and made distributions to the O.P. Unit holders totaling
approximately $99.7 million, compared to approximately $85.0 million for
the year ended December 31, 2001.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER
31, 2000.
Net cash provided by operating activities for the year ended December 31,
2001 was approximately $111.2 million, compared to approximately $84.6
million for the prior year. The change was a direct result of increased
rent from newly acquired properties and higher rental rates under existing
leases.
Net cash used in investing activities was approximately ($3.0) million for
the year ended December 31, 2001, compared to approximately ($2.7) million
for the prior year. Cash used in investing activities during 2001 related
to improvements and the amortization of the Xilinx purchase option deposit.
Net cash used in financing activities was approximately ($107.5) million
for the year ended December 31, 2001, compared to ($83.7) million for the
year ended December 31, 2000. During 2001, we paid debt principal and made
distributions to holders of our common stock and O.P. Units utilizing cash
generated from operating activities. For the year ended December 31, 2001,
we paid dividends to our stockholders and made distributions to the O.P.
Unit holders totaling approximately $85.0 million, compared to
approximately $61.1 million for the year ended December 31, 2000.
CAPITAL EXPENDITURES
The properties require periodic investments of capital for tenant-related
capital expenditures and for general capital improvements. For the years
ended December 31, 1995 through December 31, 2002, the recurring tenant
improvement costs and leasing commissions incurred with respect to new
leases and lease renewals of the properties previously owned or controlled
by members of the Berg Group averaged approximately $1.75 million annually.
We will have approximately 527,369 rentable square feet under expiring
leases in 2003. We expect that the average annual cost of recurring tenant
improvements and leasing commissions, related to these properties, will be
approximately $1.5 million during 2003. We believe we will recover
substantially all of these sums from the tenants under the new or renewed
leases through increases in rental rates. Until we actually sign the
leases, however, we cannot assure you that this will occur. Capital
expenditures may fluctuate in any given period subject to the nature,
extent, and timing of improvements required to be made to the properties.
Tenant improvements and leasing costs may also fluctuate in any given
period year depending upon factors such as the property, the term of the
lease, the type of lease and the overall market conditions. We expect to
meet our long-term liquidity requirements for the funding of 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, but cannot be assured that we will be
able to meet our requirements on favorable terms. See "Policy with Respect
to Certain Activities - Financing Policies."
FUNDS FROM OPERATIONS
As defined by the NAREIT, FFO represents net income (loss) before minority
interest of O.P. Unit holders, computed in accordance with GAAP, including
non-recurring events other than "extraordinary items" under GAAP and gains
and losses from sales of depreciable operating properties, 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
- 38 -
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 our 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 nor is it
comparable to cash flows provided by operating activities determined in
accordance with GAAP, nor is FFO necessarily indicative of funds available
to meet our cash needs, including our need to make cash distributions to
satisfy REIT requirements. For example, FFO is not adjusted for payments of
debt principal required under our service debt obligations.
Our 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. Our 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.
Furthermore, FFO is not comparable to similarly entitled items reported by
other REITs that do not define FFO exactly as we do. FFO for the years
ended December 31, 2002 and 2001 is as follows:
For the Year Ended December 31,
-----------------------------------------------------------
2002 2001
-------------------------- --------------------------
(dollars in thousands)
Net income $ 17,501 $ 18,135
Add:
Minority interest (1) 87,988 90,915
Depreciation 17,974 16,917
Less:
Gain on sales of assets 6,103 11,454
-------------------------- --------------------------
FFO $117,360 $114,513
========================== ==========================
(1) The minority interest for unrelated parties was deducted from total
minority interest in calculating FFO.
OVERVIEW OF DISTRIBUTION POLICY
We intend to make regular quarterly distributions to stockholders and O.P.
Unit holders based on our FAD, which is calculated as FFO less
straight-line rents, leasing commissions paid, and capital expenditures
made during the respective period. Our ability to make such distributions
will be affected by numerous factors including, most importantly, the
receipt of distributions from the operating partnerships.
FAD does not represent cash generated from operating activities in
accordance with GAAP and is not necessarily indicative of cash available to
fund cash needs. The actual return that we will realize and the amount
available for distributions to stockholders will be affected by a number of
factors, including the revenues received from our properties, our operating
expenses, debt service on borrowings, and planned and unanticipated capital
expenditures.
We anticipate that cash available for distribution will exceed earnings and
profits for federal income tax purposes, as the latter figure takes into
account non-cash expenses, such as depreciation and amortization, that we
will incur. Distributions, other than capital gain distributions, by us to
the extent of our current and accumulated earnings and profits for federal
income tax purposes most likely will be taxable to U.S. stockholders as
ordinary dividend income unless a stockholder is a tax-exempt entity.
Distributions in excess of earnings and profits generally will be treated
as a non-taxable reduction of the U.S. stockholder's basis in the common
stock to the extent of such basis, and thereafter as taxable gain. The
percentage of such distributions in excess of earnings and profits, if any,
may vary from period to period.
Distributions are determined by our board of directors and depend on actual
FAD, our financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors
as the board of directors deems relevant. For a discussion of the risk that
we will not meet our distribution objectives, see Part I, Item 1.,
"Business - Risk Factors -- Stockholders are not assured of receiving cash
distributions from us." The calculation of FAD for the years ended December
31, 2002 and 2001 is as follows:
- 39 -
For the Year Ended December 31,
-----------------------------------------------------------
2002 2001
-------------------------- --------------------------
(dollars in thousands)
FFO $117,360 $114,513
Less:
Straight-line rents 78 6,054
Leasing commissions 478 915
Capital expenditures 717 1,042
-------------------------- --------------------------
FAD $116,087 $106,502
========================== ==========================
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
We have adopted policies with respect to investment, financing, conflicts
of interest and other activities. These policies have been formulated by
our board of directors, are set forth in our charter, bylaws, operating
partnership agreements or agreements with the Berg Group, and generally may
be amended or revised from time to time, subject to applicable agreement
terms, at the discretion of the board of directors without a vote of the
stockholders. Among other things, these policies provide that:
- so long as the Berg Group members and their affiliates, other than us
and the operating partnerships, beneficially own, in the aggregate, at
least 15% of the outstanding shares of common stock on a Fully Diluted
basis, the approval of a majority of our directors, including Carl E.
Berg or his designee as a director, and of the holders of a majority
of the O.P. Units is required for us to take title to assets, other
than temporarily in connection with an acquisition prior to
contributing such assets to the operating partnerships, or to conduct
business other than through the operating partnerships, or for us or
the operating partnerships to engage in any business other than the
ownership, construction, development and operation of real estate
properties, or for certain fundamental corporate actions, including
amendments to our charter, bylaws or any operating partnership
agreement and any merger, consolidation or sale of all or
substantially all of our assets or the assets of the operating
partnerships;
- changes in certain policies with respect to conflicts of interest must
be consistent with legal requirements;
- certain policies with respect to competition by the Berg Group are
imposed pursuant to provisions of the acquisition agreement that
cannot be amended or waived without the approval of the independent
directors committee of our board of directors;
- we cannot take any action intended to terminate our qualification as a
REIT without the approval of more than 75% of the entire board of
directors; and
- we cannot undertake certain other specified transactions, including
the issuance of debt securities, and borrowings in excess of specified
limits, or the amendment of our charter and bylaws, without the
approval of more than 75% of the entire board of directors.
INVESTMENT POLICIES
We expect to pursue our business and investment objectives principally
through the direct ownership by the operating partnerships of our
properties and future acquired properties. Development or investment
activities are not limited to any specified percentage of our assets. We
may also participate with other entities in property ownership, through
joint ventures or other types of co-ownership. Equity investments may be
subject to existing mortgage financing and other indebtedness that have
priority over our equity interests.
While we will emphasize equity real estate investments, we may, in our
discretion and subject to the percentage ownership limitations and gross
income tests necessary for REIT qualification, invest in mortgage and other
real estate interests, including securities of other real estate investment
trusts. We have not previously invested in mortgages or securities of other
real estate investment trusts, and we do not have any present intention to
make such investments.
- 40 -
FINANCING POLICIES
To the extent that our board of directors determines to seek additional
capital, we may raise such capital through additional equity offerings,
debt financing or retention of cash flow, or through a combination of these
sources, after consideration of provisions of the Code requiring the
distribution by a REIT of a certain percentage of its taxable income and
taking into account taxes that would be imposed on undistributed taxable
income. It is our present intention that any additional borrowings will be
made through the operating partnerships, although we may incur borrowings
that would be reloaned to the operating partnerships. Borrowings may be
unsecured or may be secured by any or all of our assets, the operating
partnerships or any existing or new property, and may have full or limited
recourse to all or any portion of our assets, the operating partnerships or
any existing or new property.
We have not established any limit on the number or amount of mortgages that
may be placed on any single property or on our portfolio as a whole. We may
also determine to finance acquisitions through the exchange of properties
or the issuance of additional O.P. Units in the operating partnerships,
shares of common stock or other securities.
In the event that the board of directors determines to raise additional
equity capital, it has the authority, without stockholder approval, to
issue additional shares of common stock, preferred stock or other capital
stock, including securities senior to the common stock, in any manner and
on such terms and for such consideration it deems appropriate, including in
exchange for property. In the event that we issue any shares of common
stock or securities convertible into or exchangeable or exercisable for,
shares of common stock, subject to limited exceptions, such as the issuance
of common stock pursuant to any stock incentive plan adopted by us or
pursuant to limited partners' exercise of the exchange rights or the put
rights, the limited partners will have the right to purchase common stock
or such securities in order to maintain their respective percentage
interests in us on a Fully Diluted basis. If the board of directors
determines that we will raise additional equity capital to fund investments
by the operating partnerships, we will contribute such funds to the
operating partnerships as a contribution to capital and purchase of
additional general partnership interest; however, holders of O.P. Units
will have the right to participate in such funding on a pro rata basis. In
the event that holders of O.P. Units sell their O.P. Units to us upon
exercise of their put rights, we are authorized to raise the funds for such
purchase by issuing additional shares of common stock. Alternatively, we
may issue additional shares of common stock in exchange for the tendered
O.P. Units.
Our board of directors also has the authority to cause the operating
partnerships to issue additional O.P. Units in any manner and on such terms
and for such consideration, as it deems appropriate, including in exchange
for property. In the event that the operating partnerships issue new O.P.
Units for cash, but not property, the limited partners holding O.P. Units
in an operating partnership will have the right to purchase O.P. Units in
order, and to the extent necessary, to maintain their respective percentage
interests in that operating partnership. The new O.P. Units will be
exchangeable for common stock pursuant to the exchange rights or may be
tendered to us pursuant to the put rights.
DISPOSITION POLICIES
We have no current intention of disposing of any of our properties,
although we reserve the right to do so. The tax basis of the limited
partners in the properties in the operating partnerships is substantially
less than current fair market value. Accordingly, prior to the disposition
of their O.P. Units, upon a disposition of any of the properties, a
disproportionately large share of the gain for federal income tax purposes
would be allocated to the limited partners. Consequently, it may be in the
interests of the limited partners that we continue to hold the properties
in order to defer such taxable gain. In light of this tax effect, the
operating partnership agreements provide that, until January 2009, or until
the Berg Group members and their affiliates, other than us and the
operating partnerships, beneficially own, in the aggregate, less than 15%
of the outstanding shares of common stock on a Fully Diluted basis, if
earlier, Carl E. Berg and Clyde J. Berg may prohibit the operating
partnerships from disposing of properties which they designate in a taxable
transaction. Mr. Kontrabecki has a similar right with respect to seven of
the properties, which right will lapse before the end of the ten-year
period if his beneficial ownership interest falls below 750,000 O.P. Units.
The limited partners may seek to cause us to retain the properties even
when such action may not be in the interests of some, or a majority, of our
stockholders. The operating partnerships will be able to effect
"tax-deferred," like-kind exchanges under Section 1031 of the Code, or in
connection with other non-taxable transactions, such as a contribution of
property to a new partnership, without obtaining the prior written consent
of these individuals. The approval of a majority of our directors,
including Carl E. Berg or his designee, will be required to sell all or
substantially all of our assets. The consent of the holders of a majority
of the O.P. Units will be required to effect a sale or sales of all, or
substantially all, of the assets of any of the operating partnerships.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
We do not believe that recently issued accounting standards will materially
impact our financial position, results of operations, or cash flows.
- 41 -
ITEM 7A. 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. 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. 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 following
table provides information about the principal cash flows, weighted average
interest rates, and expected maturity dates for debt outstanding as of
December 31, 2002. The current terms of this debt are described in Item 7.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." Average interest rates are
based on implied LIBOR for the respective time period. Fair value
approximates book value for fixed rate debt. Of the projected fair value of
secured notes payable, approximately $123.3 million represents the
Prudential secured loan.
For variable rate debt, the table presents the assumption that the
outstanding principal balance at December 31, 2002 will be paid upon
maturity.
For fixed rate debt, the table presents the assumption that the outstanding
principal balance at December 31, 2002 will be paid according to scheduled
principal payments and that we will not prepay any of the outstanding
principal balance.
2003 2004 2005 2006 2007 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
VARIABLE RATE DEBT: (dollars in thousands)
Secured and unsecured debt $20,000 $82,631 $102,631 $102,631
Weighted average interest rate 3.42% 3.42%
FIXED RATE DEBT:
Secured notes payable $2,465 $2,642 $2,832 $3,000 $3,150 $122,051 $136,140 $136,140
Weighted average interest rate 6.68% 6.68% 6.68% 6.68% 6.68% 6.68%
The variable rate debt represented 43.0% and 36.5%, and the fixed rate debt
represented 57.0% and 63.5% of all debt outstanding for the years ended
December 31, 2002 and 2001, respectively. All of the debt is denominated in
United States dollars. The weighted average interest rate for variable rate
debt was approximately 3.42% and 4.88% for the years ended December 31,
2002 and 2001, respectively. The difference in spread was due to numerous
cuts in interest rates by the Federal Reserve during 2001 and 2002. The
weighted average interest rate for fixed rate debt was approximately 6.68%
and 6.69% for the years ended December 31, 2002 and 2001, respectively. The
difference in interest expense attributable to the average interest rate
difference between 2001 and 2002 was $403,000. We do not anticipate
interest rate changes in 2003 that would result in a change in interest
expense significantly larger than we experienced from 2001 to 2002.
The primary market risk we face is the risk of interest rate fluctuations.
The Berg Group line of credit, the Cupertino National Bank line of credit,
and the Citicorp USA, Inc. loan, which are tied to a LIBOR, based interest
rate, were approximately $102.6 million, or 43.0%, of the total $238.8
million of debt as of December 31, 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. In early 2003, with the
proceeds that we received from the $100 million secured mortgage loan with
Northwestern Mutual Life Insurance Company, we paid $20 million to Citicorp
USA, Inc., $23 million to Cupertino National Bank and $57 million to the
Berg Group. The Citicorp USA, Inc. loan was retired in March 2003, but we
anticipate drawing upon on the lines of credit with Cupertino National Bank
and the Berg Group in the future. At December 31, 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 December
31, 2002, a 1% increase or decrease in interest rates on our $102.6 million
of floating rate debt would decrease or increase, respectively, annual
earnings and cash flows by approximately $1.0 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.
- 42 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MISSION WEST PROPERTIES, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
---------
Report of Independent Accountants 44
Consolidated Balance Sheets of Mission West Properties, Inc. at December 31, 2002 and 2001 45
Consolidated Statements of Operations of Mission West Properties, Inc. for the years ended 46
December 31, 2002, 2001 and 2000
Consolidated Statements of Changes in Stockholders' Equity of Mission West Properties, Inc. 47
for the years ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows of Mission West Properties, Inc. for the years ended 48
December 31, 2002, 2001 and 2000
Notes to the Consolidated Financial Statements 49
Supplemental Financial Information 60
Report of Independent Accountants 62
Schedule III: Real Estate and Accumulated Depreciation of Mission West Properties, Inc. as of 64
December 31, 2002
Schedule III: Real Estate and Accumulated Depreciation of Mission West Properties, Inc. as of 66
December 31, 2001
- 43 -
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Mission West Properties, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Mission West Properties, Inc. and its subsidiaries
(the "Company") at December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standard No. 144,
"Accounting for the Impairment or Disposal of Long Lived Assets", in 2002.
PricewaterhouseCoopers LLP
San Francisco, California
January 28, 2003
- 44 -
MISSION WEST PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share data)
ASSETS
December 31,
---------------------------------------------
2002 2001
---------------------- ---------------------
Real estate assets:
Land $ 234,707 $ 218,058
Buildings and improvements 726,581 692,485
---------------------- ---------------------
961,288 910,543
Less accumulated depreciation (66,560) (49,608)
---------------------- ---------------------
Net real estate assets 894,728 860,935
Cash and cash equivalents 4,479 5,310
Restricted cash - 15,435
Deferred rent, net of allowance 17,001 16,923
Other assets (net of accumulated amortization of
$2,663 and $1,317 at December 31, 2002 and 2001, respectively) 13,198 11,652
---------------------- ---------------------
Total assets $ 929,406 $ 910,255
====================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Line of credit (related parties) $ 58,792 $ 79,887
Revolving line of credit 23,839 -
Loan payable 20,000 -
Mortgage notes payable 125,062 127,416
Mortgage notes payable (related parties) 11,078 11,371
Interest payable 337 342
Security deposits 11,184 7,337
Prepaid rental income 9,876 12,470
Dividends/distributions payable 24,951 24,742
Refundable option payment - 18,836
Accounts payable and accrued expenses 4,698 4,367
---------------------- ---------------------
Total liabilities 289,817 286,768
---------------------- ---------------------
Commitments and contingencies (Notes 3, 5, 12 and 14)
Minority interest 528,768 515,063
Stockholders' equity:
Preferred stock, no par value, 200,000 shares authorized,
none issued and outstanding - -
Common stock, $.001 par value at December 31, 2002 and 2001,
200,000,000 shares authorized, 17,487,329 and 17,329,779 shares
issued and outstanding at December 31, 2002 and 2001, respectively 17 17
Paid-in capital 128,295 126,626
Accumulated deficit (17,491) (18,219)
---------------------- ---------------------
Total stockholders' equity 110,821 108,424
---------------------- ---------------------
Total liabilities and stockholders' equity $ 929,406 $ 910,255
====================== =====================
See notes to consolidated financial statements
- 45 -
MISSION WEST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Year Ended December 31,
-----------------------------------------------------------------
2002 2001 2000
-------------------- --------------------- --------------------
Revenues:
Rental revenues from real estate $ 129,781 $ 126,229 $ 97,568
Tenant reimbursements 20,097 17,474 14,548
Other income, including interest 4,250 2,465 1,241
Gain on sales of assets - 11,454 501
-------------------- --------------------- --------------------
154,128 157,622 113,858
Expenses:
Property operating, maintenance and real estate taxes 22,015 18,308 14,932
Interest 9,588 8,704 8,290
Interest (related parties) 3,422 4,709 4,475
General and administrative 1,488 1,284 1,065
Depreciation 17,928 16,638 15,178
-------------------- --------------------- --------------------
54,441 49,643 43,940
-------------------- --------------------- --------------------
Income before minority interest 99,687 107,979 69,918
Minority interest 83,251 90,129 57,650
-------------------- --------------------- --------------------
Income from continuing operations 16,436 17,850 12,268
-------------------- --------------------- --------------------
Discontinued operations, net of minority interests:
Gain from disposal of discontinued operations 1,018 - -
Income attributable to discontinued operations 47 285 311
-------------------- --------------------- --------------------
Income from discontinued operations 1,065 285 311
-------------------- --------------------- --------------------
Net income to common stockholders $ 17,501 $ 18,135 $ 12,579
==================== ===================== ====================
Net income to minority interest $ 88,576 $ 91,565 $ 59,054
==================== ===================== ====================
Income per share from continuing operations:
Basic $ 0.94 $ 1.04 $ 0.72
==================== ===================== ====================
Diluted $ 0.92 $ 1.01 $ 0.70
==================== ===================== ====================
Income per share from discontinued operations:
Basic $ 0.06 $ 0.02 $ 0.02
==================== ===================== ====================
Diluted $ 0.06 $ 0.02 $ 0.02
==================== ===================== ====================
Net income per share to common stockholders:
Basic $ 1.00 $ 1.06 $ 0.74
==================== ===================== ====================
Diluted $ 0.98 $ 1.03 $ 0.72
==================== ===================== ====================
Weighted average shares of common stock (basic) 17,455,799 17,103,714 17,016,660
==================== ===================== ====================
Weighted average shares of common stock (diluted) 17,854,892 17,589,353 17,510,650
==================== ===================== ====================
Weighted average O.P. Units 86,334,548 85,122,715 80,807,389
==================== ===================== ====================
Outstanding common stock 17,487,329 17,329,779 17,025,365
==================== ===================== ====================
Outstanding O.P. Units 86,474,032 85,762,541 83,576,027
==================== ===================== ====================
See notes to consolidated financial statements
- 46 -
MISSION WEST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands, except share data)
Shares of Common Common Paid-in- Accumulated Total
Stock Outstanding Stock Capital Deficit Stockholders' Equity
----------------- ------- ------------ --------------- --------------------
Balance, December 31, 1999 16,972,374 $17 $122,746 $(22,081) $100,682
Issuance of common stock upon option exercise 52,991 390 390
Dividends declared (11,578) (11,578)
Net income 12,579 12,579
----------------- ------- ------------ --------------- --------------------
Balance, December 31, 2000 17,025,365 17 123,136 (21,080) 102,073
Issuance of common stock upon option exercise 68,088 535 535
Issuance of common stock upon O.P. Unit conversion 236,326 2,955 2,955
Dividends declared (15,274) (15,274)
Net income 18,135 18,135
----------------- ------- ------------ --------------- --------------------
Balance, December 31, 2001 17,329,779 17 126,626 (18,219) 108,424
Issuance of common stock upon option exercise 33,550 151 151
Issuance of common stock upon O.P. Unit conversion 124,000 1,518 1,518
Dividends declared (16,773) (16,773)
Net income 17,501 17,501
----------------- ------- ------------ --------------- --------------------
Balance, December 31, 2002 17,487,329 $17 $128,295 $(17,491) $110,821
================= ======= ============ =============== ====================
See notes to consolidated financial statements
- 47 -
MISSION WEST PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
2002 2001 2000
------------------- ------------------ ------------------
Cash flows from operating activities:
Net income $ 17,501 $ 18,135 $ 12,579
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest 88,576 91,565 59,054
Depreciation 17,974 16,917 15,456
Gain on sales of assets (6,103) (11,454) -
Other (14) 14 (364)
Change in operating assets and liabilities:
Deferred rent (78) (6,054) (4,905)
Other assets (1,546) (164) (942)
Interest payable (5) (5) (658)
Security deposits 3,847 797 1,854
Prepaid rental income (2,594) 1,172 3,064
Accounts payable and accrued expenses (190) 234 (558)
------------------- ------------------ ------------------
Net cash provided by operating activities 117,368 111,157 84,580
------------------- ------------------ ------------------
Cash flows from investing activities:
Improvements to real estate (1,902) (1,041) (2,007)
Refundable option payment (18,836) (1,999) (729)
Proceeds from sales of real estate 31,305 38,489 -
Purchase of real estate (31,311) (38,489) -
------------------- ------------------ ------------------
Net cash used in investing activities (20,744) (3,040) (2,736)
------------------- ------------------ ------------------
Cash flows from financing activities:
Principal payments on mortgage notes payable (2,354) (4,639) (1,897)
Principal payments on mortgage notes payable (related parties) (293) (272) (149)
Net payments under line of credit (related parties) (39,095) (18,136) (20,813)
Proceeds from unsecured loan 20,000 - -
Proceeds from line of credit 28,839 - -
Payment on line of credit (5,000) - -
Financing costs (52) - -
Net proceeds from exercise of stock options 151 536 290
Minority interest distributions (82,916) (70,636) (50,250)
Dividends (16,735) (14,351) (10,887)
------------------- ------------------ ------------------
Net cash used in financing activities (97,455) (107,498) (83,706)
------------------- ------------------ ------------------
Net (decrease) increase in cash and cash equivalents (831) 619 (1,862)
Cash and cash equivalents, beginning of year 5,310 4,691 6,553
------------------- ------------------ ------------------
Cash and cash equivalents, end of year $ 4,479 $ 5,310 $ 4,691
=================== ================== ==================
Refer to Note 13 for supplemental cash flow information.
See notes to consolidated financial statements
- 48 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
1. ORGANIZATIONS AND FORMATION OF THE COMPANY
Mission West Properties, Inc. ("the Company") is a fully integrated,
self-administered and self-managed real estate company that acquires and manages
office/R&D/manufacturing properties in the portion of the San Francisco Bay Area
commonly referred to as Silicon Valley. In July 1998, the Company acquired
control of four existing limited partnerships (referred to collectively as the
"operating partnerships"), by becoming the sole general partner in each one
effective July 1, 1998 for financial accounting and reporting purposes. The
Company purchased an approximate 12.11% interest in each of the operating
partnerships. All limited partnership interests in the operating partnerships
were converted into 59,479,633 O.P. Units, which represented an ownership
interest of approximately 87.89% of the operating partnerships. The operating
partnerships are the vehicles through which the Company will own its assets,
will make its future acquisitions, and generally conduct its business.
On December 30, 1998, the Company was reincorporated under the laws of the State
of Maryland through a merger with and into Mission West Properties, Inc.
Accordingly, shares of the former company, Mission West Properties, a California
corporation (no par), which were outstanding at December 30, 1998, were
converted into shares of common stock ($.001 par value per share) on a
one-for-one basis.
As of December 31, 2002, the Company owns a general partnership interest of
16.68%, 21.46%, 15.46% and 12.27% in Mission West Properties, L.P., Mission West
Properties, L.P. I, Mission West Properties, L.P. II and Mission West
Properties, L.P. III, respectively, for a 16.82% general partnership interest in
the operating partnerships, taken as a whole, on a weighted average basis.
The Company, through the operating partnerships, owns interests in 101 R&D
properties, all of which are located in Silicon Valley.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION:
The accompanying consolidated financial statements include the accounts of the
Company and its controlled subsidiaries, the operating partnerships (the
"Company"). All significant intercompany transactions have been eliminated in
consolidation.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
The Company adopted Statement of Financial Accounting Standard , ("SFAS") No.
144 "Accounting for the Impairment or Disposal of Long Lived Assets" ("SFAS" No.
144), effective January 1, 2002 (see note 15).
REAL ESTATE ASSETS:
Real estate assets are stated at cost. Cost includes expenditures for
improvements or replacements. Maintenance and repairs are charged to expense as
incurred.
The Company reviews real estate assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. If the carrying amount of the asset exceeds its estimated
undiscounted net cash flow, before interest, the Company will recognize an
impairment loss equal to the difference between its carrying amount and its
estimated fair value. If impairment is recognized, the reduced carrying amount
of the asset will be accounted for as its new cost. For a depreciable asset, the
new cost will be depreciated over the asset's remaining useful life. Generally,
fair values are estimated using discounted cash flow, replacement cost or market
comparison analyses. The process of evaluating for impairment requires estimates
as to future events and conditions, which are subject to varying market and
economic factors. Therefore, it is reasonably possible that a change in estimate
resulting from judgments as to future events could occur which
- 49 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
would affect the recorded amounts of the property. As of December 31, 2002 and
2001, the properties' carrying values did not exceed the estimated sum of their
undiscounted net cash flow and no impairment losses were recorded.
DEPRECIATION:
Depreciation is computed using the straight-line method over estimated useful
lives of 40 years for buildings and improvements.
CASH AND CASH EQUIVALENTS:
The Company considers highly liquid short-term investments with initial
maturities of three months or less to be cash equivalents.
Cash and cash equivalents are primarily held in a single financial institution,
and at times, such balances may be in excess of the Federal Deposit Insurance
Corporation insurance limit.
RESTRICTED CASH:
Restricted cash represent proceeds received from property sales that are held in
a separate cash account at a trust company that the Company has designated for
future use in tax-deferred exchanges.
DEFERRED RENT:
Deferred rent is the difference between recognized rental income and rental cash
receipts. Rental income is recognized on the straight-line method of accounting
required by GAAP under which contractual rent payment increases are recognized
evenly over the lease term.
OTHER ASSETS:
Included in other assets are costs associated with obtaining debt financing and
commissions associated with new leases. Such debt financing costs are being
amortized over the term of the associated debt, by a method that approximates
the effective interest method and such lease commissions are amortized over the
term of the related lease. Also included is the Berg Group's obligation of
approximately $7.5 million to construct a building at 245 Caspian Drive in
Sunnyvale, California.
MINORITY INTERESTS:
Minority interests represent the limited partnership interests in the operating
partnerships.
REVENUE RECOGNITION:
Rental income is recognized on the straight-line method of accounting required
by GAAP under which contractual rent payment increases are recognized evenly
over the lease term. The difference between recognized rental income and rental
cash receipts is recorded as deferred rent on the balance sheet. Certain lease
agreements contain terms that provide for additional rents based on
reimbursement of certain costs. These additional rents are reflected on the
accrual basis.
Gains and losses from sales are included in income in accordance with SFAS No.
66, "Accounting for Sales of Real Estate."
INCOME TAXES:
The Company has been taxed as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, (the "Code") commencing with the
taxable year ended December 31, 1999. In order for the Company to qualify as a
REIT, it must distribute annually at least 90% of its REIT taxable income, as
defined in the Code, to its stockholders and comply with certain other
requirements. Accordingly, for the years ended December 31, 2002, 2001 and 2000,
no provision for federal income taxes has been included in the accompanying
consolidated financial statements.
For the year ended December 31, 2002, the Company's total dividends paid or
payable to the stockholders represent 100% ordinary income for income tax
purposes.
- 50 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
NET INCOME PER SHARE:
The computation of net income per share is based on the weighted average number
of common shares outstanding during the period. Diluted earnings per share
amounts are based upon the weighted average of common and common equivalent
shares outstanding during the year.
ACCOUNTING FOR STOCK-BASED COMPENSATION:
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's financial instruments include cash and cash equivalents, accounts
payable, and debt. Considerable judgment is required in interpreting market data
to develop estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. Cash and cash equivalents and accounts payable are carried at amounts
that approximate their fair values due to their short-term maturities. The
carrying amounts of the Company's variable rate debt approximate fair value
since the interest rates on these instruments are equivalent to rates currently
offered to the Company. For fixed rate debt, the Company estimates fair value by
using discounted cash flow analyses based on borrowing rates for similar kinds
of borrowing arrangements. The fair value of the Company's fixed rate debt at
December 31, 2002 was $145 million.
RECLASSIFICATIONS:
Certain amounts from prior year's financial statements have been reclassified to
conform to the presentation of the current year's financial statements. There is
no impact on net income or stockholders' equity.
CONCENTRATION OF CREDIT RISK:
The Company's properties are not geographically diverse, and its tenants operate
primarily in the information technology industry. Additionally, because the
properties are leased to 84 tenants at December 31, 2002, default by any major
tenant could significantly impact the results of the consolidated total. One
tenant, Microsoft Corporation, accounted for approximately 15.7%, 16.0% and
19.9% of the Company's rental revenues for the years ended December 31, 2002,
2001 and 2000, respectively, with the next largest tenant accounting for 8.6,
8.8% and 6.7%, respectively, of total rental revenues. Rental income from
Microsoft Corporation was $20,338, $19,556 and $18,803 for the years ended
December 31, 2002, 2001 and 2000, respectively. Future minimum rents from this
tenant are $71,801. During 2002, eight of the Company's tenants either filed
voluntary petitions for bankruptcy protection under Chapter 11 or ceased
operations.
3. STOCK TRANSACTIONS
As of December 31, 2002 and 2001, $1,369 and $1,274 remained outstanding under
notes issued in connection with the Company's purchase of its general
partnership interests in 1998 (the "demand notes"), respectively. The demand
notes which accrue interest at 7.25%, along with the interest expense (interest
income to the operating partnerships), are eliminated in consolidation and are
not included in the corresponding line items within the consolidated financial
statements.
The limited partners of the operating partnerships have the right to tender
their O.P. Units to the Company for shares of common stock or, at the Company's
election, for cash. Each of the limited partners of the operating partnerships
(other than Carl E. Berg and Clyde J. Berg) has the annual right to exercise put
rights and cause the operating partnerships to purchase a portion of the limited
partner's O.P. Units at a purchase price based on the average market value of
the common stock for the 10-trading day period immediately preceding the date of
tender, generally limited to one-third of the aggregate number of O.P.
- 51 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
Units owned by each limited partner. Upon the exercise of any such right by a
limited partner, the Company will have the option to purchase the tendered O.P.
Units with available cash, borrowed funds or the proceeds of an offering of
newly issued shares of common stock. These put rights are available once a year.
If the total purchase price of the O.P. Units tendered by all of the eligible
limited partners in one year exceeds $1 million, the Company or the operating
partnerships will be entitled to reduce proportionately the number of O.P. Units
to be acquired from each tendering limited partner so that the total purchase
price does not exceed $1 million.
During the year ended December 31, 2002, stock options at $4.50 per share were
exercised to purchase a total of 33,550 shares of common stock. Total proceeds
to the Company were approximately $151.
In 2002 and 2001, 124,000 and 236,326 O.P. Units, respectively, were exchanged
for 124,000 and 236,326 shares of the Company's common stock, respectively,
under the terms of the December 1998 Exchange Rights Agreement among the Company
and all limited partners of the operating partnerships.
In 2002, Carl E. Berg gave 155,000 O.P. Units to charitable institutions that
exchanged them for 155,000 shares of the Company's common stock pursuant to the
Exchange Rights Agreement in January 2003.
4. MINORITY INTEREST
Minority interest represents the separate private ownership of the operating
partnerships, by the Berg Group and other non-affiliate interests. In total,
these interests account for 83.18% and 83.27%, on a weighted average basis, of
the ownership interests in the real estate operations of the Company as of
December 31, 2002 and 2001, respectively. 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.
There are three properties owned through three separate joint ventures, which
are not wholly owned by the operating partnerships. The operating partnerships
own an 83.33% interest in one joint venture, a 75% interest in another, and a
50% interest in the third. For the years ended December 31, 2002, 2001, and
2000, income associated with the interests held by the non-affiliated third
parties of the three joint ventures was $587, $650, and $481, respectively.
5. 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 R&D property
developed by the Berg Group on land currently owned or optioned, or acquired for
these purposes in the future, directly or indirectly, by Carl E. Berg or Clyde
J. Berg. At present, there are approximately 287 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, O.P. Units valued at the
average closing price of the shares of common stock over the 30-trading-day
period preceding the acquisition date. To date, the Company has completed 18
acquisitions under the Berg Land Holdings Option Agreement representing
approximately 1,864,000 rentable square feet (see Property Acquisitions below).
Upon the Company's exercise of an option to purchase any of the future R&D
property developments, the acquisition price will equal the sum of (a) the full
construction cost of the building; plus (b) 10% of the full construction cost of
the building; plus (c) interest at LIBOR (London Interbank Offer Rate) plus
1.65% on the amount of the full construction cost of the building for the period
from the date funds were disbursed by the developer to the close of escrow; plus
(d) the original acquisition cost of the parcel on which the improvements will
be constructed, which range from $8.50 to $20.00 per square foot for land
currently owned; plus (e) 10% per annum of the amount of the original
acquisition cost of the parcel from the later of January 1, 1998 and the
seller's acquisition date to the close of escrow; minus (f) the aggregate
principal amount of all debt encumbering the acquired property, or a lesser
amount as approved by the members of the independent directors committee of the
Company's board of directors.
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.
- 52 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
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 it be certain of the period in which it will acquire any of
the projects. Acquisitions of property under the Berg Land Holdings Option
Agreement must be approved by the independent directors committee of the board
of directors.
Although the Company has the right to acquire the new properties available to it
under the terms of the Berg Land Holdings Option Agreement, 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.
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 as
to when the Company will acquire such projects. 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 ownership 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 R&D, office and/or
industrial development or use in the states of California, Oregon, and
Washington.
Given the recent economic downturn in the Silicon Valley, the Company may not be
able to maintain historical levels of growth from acquisitions of new
developments in the future.
- 53 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
6. DEBT
The following table sets forth certain information regarding debt outstanding as
of December 31, 2002 and 2001.
Balance Maturity Interest
Debt Description Collateral Properties At December 31 Date Rate
- ---------------------------------- --------------------------------------- --------------------------- ------------ -----------
2002 2001
------------- -------------
Line of Credit:
Berg Group (related parties) 2033-2043 Samaritan Drive, San Jose, CA $ 58,792 $ 79,887 3/04 (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 (2)
20605-20705 Valley Green Dr, Cupertino, CA (2)
Mortgage Notes Payable (related 5300-5350 Hellyer Avenue, San Jose, CA 11,078 11,371 6/10 7.650%
parties):
Mortgage Notes Payable: (3)
Prudential Capital Group 20400 Mariani Avenue, Cupertino, CA 1,423 1,597 4/09 8.750%
New York Life Insurance Company (4) 10440 Bubb Road, Cupertino, CA - 347 9/09 9.625%
Washington Mutual (Home S&L 10460 Bubb Road, Cupertino, CA 297 363 12/06 9.500%
Association)
Prudential Insurance Company of 10300 Bubb Road, Cupertino, CA 123,342 125,109 10/08 6.560%
America (5) 10500 North De Anza Blvd, Cupertino, CA
4050 Starboard Drive, Fremont, CA
45700 Northport Loop, Fremont, CA
45738 Northport Loop, Fremont, CA
450-460 National Ave, 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 125,062 127,416
Uncollateralized Loan:
Citicorp USA, Inc. 20,000 - 3/03 (6)
Revolving Line of Credit:
Cupertino National Bank 23,839 - 7/04 (7)
------------- -------------
Total $238,771 $218,674
============= =============
(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
2004. The interest rate was 2.7% and 3.3% at December 31, 2002 and 2001,
respectively.
(2) Substituted collateral properties for the Berg Group line of credit in
place of properties at 5325-5345 Hellyer Avenue, 2610 North First Street,
and 75 East Trimble Road. These four properties were collateralized under
the Berg Group line of credit at December 31, 2001.
(3) Mortgage notes payable generally require monthly installments of interest
and principal over various terms extending through the year 2009. The
weighted average interest rate of mortgage notes payable was 6.68% and
6.69% at December 31, 2002 and 2001, respectively.
(4) The New York Life Insurance loan was paid off in its entirety in November
2002.
(5) The Prudential loan is payable in monthly installments of $827, which
includes principal (based upon a 30-year amortization) and interest. John
Kontrabecki, one of the limited partners, has guaranteed approximately
$12,000 of this debt. Costs and fees incurred with obtaining this loan
aggregated approximately $900.
(6) The uncollateralized 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. The interest rate at
December 31, 2002 was 3.81%. The full balance was paid off in January 2003.
(7) The uncollateralized revolving line of credit from Cupertino National Bank
carries a variable interest rate equal to LIBOR plus 2.0% and is payable in
full in July 2004. The interest rate at December 31, 2002 was 3.72%.
- 54 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
Scheduled principal payments on debt for the years ending are as follows:
Fixed Rate Debt Variable Rate Debt
(Including Related Parties)(Including Related Parties) Total
----------------------- ---------------------- ----------------
December 31, 2003 $ 2,465 $ 20,000 $ 22,465
December 31, 2004 2,642 82,631 85,273
December 31, 2005 2,832 2,832
December 31, 2006 3,000 3,000
December 31, 2007 3,150 3,150
Thereafter 122,051 122,051
----------------------- ---------------------- ----------------
$ 136,140 $ 102,631 $ 238,771
======================= ====================== ================
7. OPERATING PARTNERSHIP AND STOCKHOLDER DISTRIBUTIONS
During 2002, the Company, as general partner of the operating partnerships,
declared quarterly distributions aggregating $0.96 per common share and O.P.
Unit for total distributions of $99,643, including $24,951 payable in January
2003. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $75,076, which was treated as a draw on the Berg Group line
of credit.
During 2001, the Company, as general partner of the operating partnerships,
declared quarterly distributions aggregating $0.89 per common share and O.P.
Unit for total distributions of $91,126, including $24,742 payable in January
2002. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $70,371, which was treated as a draw on the Berg Group line
of credit.
During 2000, the Company, as general partner of the operating partnerships,
declared quarterly distributions aggregating $0.68 per common share and O.P.
Unit for total distributions of $66,993, including $19,115 payable in January
2001. Total distributions attributable to O.P. Units owned by various members of
the Berg Group were $52,478, which was treated as a draw on the Berg Group line
of credit.
8. STOCK-BASED COMPENSATION PLANS
The Company's 1997 Stock Option Plan was approved by the Company's shareholders
on November 10, 1997. The 1997 Stock Option Plan was adopted so that the Company
may attract and retain the high quality employees, consultants and directors
necessary to build the Company's infrastructure and to provide ongoing
incentives to the Company's employees in the form of options to purchase the
Company's common stock by enabling them to participate in the Company's success.
The 1997 Stock Option Plan provides for the granting to employees, including
officers (whether or not they are directors) of "incentive stock options" within
the meaning of Section 422 of the Code, and for the granting of non-statutory
options to employees, consultants and directors of the Company. Options to
purchase a maximum of 5,500,000 shares of common stock may be granted under the
1997 Stock Option Plan, subject to equitable adjustments to reflect certain
corporate events.
No options were granted in 2002.
During 2001, options were granted to one employee totaling 375,000, which become
exercisable as follows: a) six months from date of grant, 8.33%; and b) each
month thereafter for 66 months, an additional 1.39%. This option has a term of
eight years from the date of grant subject to earlier termination in certain
events related to termination of employment. The options granted during 2001
have an $11.33 per share exercise price.
During 2000, options were granted to five employees and three directors totaling
256,000 and 96,000, respectively, which become exercisable in quarterly
installments equal to 1/16th of the underlying shares beginning on the first
month anniversary of the grant date. In addition, one employee was granted an
option for 80,000 shares that become exercisable as follows: a) one year from
date of grant, 10%; and b) each month thereafter for 36 months, an additional
2.5%. Each option has a term of six years from the date of grant subject to
earlier termination in certain events related to termination of employment.
- 55 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
During 1999, one employee was granted an option for 100,000 shares that become
exercisable as follows: a) 10,000 shares on May 10, 2000; and b) each month
thereafter for 36 months, an additional 2,500 shares.
All options granted to employees in 1998 become exercisable as follows: a) six
months from date of grant, 6.25%; b) one year from date of grant, an additional
12.50%; c) each month thereafter for 36 months, an additional 2.26%. Each option
has a term of six years from the date of grant subject to earlier termination in
certain events related to termination of employment. Options granted to
directors will become exercisable cumulatively with respect to 1/48th of the
underlying shares on the first day of each month following the date of grant.
Generally, the options must be exercised while the optionee is a director of the
Company. The option price is equal to the fair market value of the common stock
on the date of grant.
The remaining contractual lives of unexercised options granted range from
January 2004 to April 2007.
The following table shows the activity and detail for the 1997 Stock Option
Plan.
1997 Stock Option Price
Option Plan Per Share
-------------- ------------------
Balance, December 31, 1998 680,000
Options granted 337,000 $8.25
Options exercised (191,920)
Options cancelled (299,722)
--------------
Balance, December 31, 1999 525,358
Options granted 80,000 $8.25
Options granted 352,000 $13.00
Options exercised (52,991)
Options cancelled (113,867)
--------------
Balance, December 31, 2000 790,500
Options granted 375,000 $11.33
Options exercised (68,088)
Options cancelled (113,500)
--------------
Balance, December 31, 2001 983,912
Options exercised (33,550)
--------------
Balance, December 31, 2002 950,362
==============
As of December 31, 2002, 3,978,089 additional shares were available for grant
under the 1997 Stock Option Plan. None of the options granted are contingent
upon the attainment of performance goals or subject to other restrictions. As of
December 31, 2002, outstanding options to purchase 510,654 shares of common
stock were exercisable.
The Company applies APB 25 and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans. Had compensation cost for the
Company's stock option plans been determined based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed under SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and net income per share for the year ended December 31,
2002 would not have changed since no options were granted in 2002.
For the year ended December 31, 2001, the Company's net income and net income
per share would have been decreased by approximately $439 or $0.03 per share,
resulting in a total consolidated net income of $17,696 or $1.01 per share on a
diluted basis. The estimated fair value of the options granted during 2001 was
$13.25 share on the date of grant using the Black-Scholes option pricing model
with the following assumptions: dividend yield of 8%, volatility of 23.03%, risk
free rates of 4.85% and an expected life of 5 years.
For the year ended December 31, 2000, the Company's net income and net income
per share would have been decreased by approximately $634 or $0.04 per share,
resulting in a total consolidated net income of $11,945 or $0.68 per share on a
diluted basis. The estimated fair value of the options granted during 2000
ranged from $9.32 to $14.56 per share on the date of grant
- 56 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
using the Black-Scholes option pricing model with the following assumptions:
dividend yield of 8%, volatility of 25.37%, risk free rates of 5.70% to 6.61%
and an expected life of 4 years.
The Company has adopted an employee investment plan (the "Plan"), under Section
401(k) of the Internal Revenue Code. Employees who are at least 21 years old and
who have completed six months of eligibility service may become participants in
the Plan. Each participant may make contributions to the Plan through salary
deferrals in amounts of at least 1% to a maximum of 15% of the participant's
compensation, subject to certain limitations imposed by the Internal Revenue
Code. The Company contributes an amount up to 15% of the participant's
compensation, based upon management's discretion. A participant's contribution
to the Plan is 100% vested and nonforfeitable. A participant will become vested
in 100% of the Company's contributions after two years of eligible service. For
the years ended December 31, 2002, 2001 and 2000, the Company recognized $95,
$58 and $40 of expense for employer contributions made in connection with this
plan, respectively.
9. NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted net
income per share is computed by dividing net income by the sum of
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:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2002 2001 2000
------------------ ------------------ -----------------
Weighted average shares outstanding (basic) 17,455,799 17,103,714 17,016,660
Incremental shares from assumed option exercise 399,093 485,639 493,990
------------------ ------------------ -----------------
Weighted average shares outstanding (diluted) 17,854,892 17,589,353 17,510,650
================== ================== =================
The outstanding O.P. Units have been excluded from the diluted net income per
share calculation as there would be no effect on the amounts since the minority
interests' share of income would also be added back to net income. O.P. Units
outstanding at December 31, 2002 and 2001 were 86,474,032 and 85,762,541,
respectively.
10. OTHER INCOME
Other income, including interest, was approximately $4,250, $2,465, and $1,241
for the years ended December 31, 2002, 2001 and 2000, respectively. For the year
ended December 31, 2002, termination fees accounted for approximately $2,529 of
other income.
Gain on sales of assets was approximately $11,454 and $501 for the years ended
December 31, 2001, and 2000, respectively.
11. RELATED PARTY TRANSACTIONS
As of December 31, 2002 and 2001, the Berg Group owned 78,338,684 and 79,191,923
O.P. Units, respectively, of the total 86,474,032 and 85,762,541 O.P. Units
issued and outstanding, respectively. Along with the Company's common shares
owned by the Berg Group, the Berg Group's interest in the Company represents
75.4% and 76.8% of the Company as of December 31, 2002 and 2001, respectively,
assuming conversion of the O.P. Units into common shares of the Company.
During 2002, the Company acquired two R&D properties, both located in Silicon
Valley. These acquisitions added approximately 290,000 square feet of rentable
space and were acquired from the Berg Group under the Berg Land Holdings Option
Agreement. The total gross acquisition price for these two properties was
approximately $30,953. The Company financed these acquisitions by borrowing
$18,000 under the Berg Group line of credit and issuing 835,491 O.P. Units to
various members of the Berg Group.
During 2001, the Company acquired eight R&D properties, all located in Silicon
Valley. These acquisitions added approximately 748,000 square feet of rentable
space and were acquired from the Berg Group under the Berg Land Holdings Option
Agreement. The total gross acquisition price for these eight properties was
approximately $80,683. The Company financed these acquisitions by borrowing
$45,884 under the Berg Group line of credit, assuming other liabilities of
$2,024,
- 57 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
and issuing 2,422,837 O.P. Units to various members of the Berg Group. In
addition to those eight property purchases, the Company also acquired two R&D
properties representing approximately 127,000 rentable square feet for
approximately $23,197 in a tax-deferred exchange with the Berg Group. The sales
proceeds from the properties sold by the Company were classified as restricted
cash for use in tax-deferred property exchanges and were included in restricted
cash at December 31, 2001. No debt or O.P. Units were issued for these two
acquisitions.
As of December 31, 2002 and 2001, debt in the amount of $58,792 and $79,887,
respectively, was due the Berg Group under the line of credit. This amount
includes $18,000 and $45,884 of debt assumed in connection with the acquisitions
of properties from the Berg Group in 2002 and 2001, respectively. Additionally,
during 2002 and 2001, the operating partnerships declared distributions of $0.96
and $0.89 per O.P. Unit, respectively. Distributions paid to various members of
the Berg Group were $75,281 and $66,423 during 2002 and 2001, respectively.
Interest expense incurred in connection with debt due the Berg Group was $2,562,
$3,828 and $3,914 for the years ended December 31, 2002, 2001 and 2000,
respectively.
As of December 31, 2002 and 2001, debt in the amount of $11,078 and $11,371,
respectively, 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 ten years with principal payments
amortized over 20 years.
Carl E. Berg has a significant financial interest in one company that leases
space from the operating partnerships. This company occupies, in the aggregate,
5,862 square feet at a rate of $2.34 per square foot per month. This lease was
in effect prior to the Company's acquisition of its general partnership
interests. 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 $90, $88 and
$80 for the years ended December 31, 2002, 2001 and 2000, respectively.
12. FUTURE MINIMUM RENTS
The Company, through the operating partnerships, owns interests in 101 R&D
properties that are leased to tenants under net operating leases with initial
terms extending to the year 2015, and are typically subject to fixed increases.
Generally, the leases grant tenants renewal options. Future minimum rentals
under non-cancelable operating leases, excluding tenant reimbursements of
expenses are as follows:
2003 $124,841
2004 119,498
2005 108,946
2006 75,638
2007 44,126
Thereafter 108,616
------------
Total $581,665
============
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $12,752, $13,307 and $12,676 for the years ended
December 31, 2002, 2001 and 2000, respectively.
In connection with the property acquisitions, the Company assumed $18,000,
$45,884 and $51,732 of related party debt due the Berg Group, assumed other
liabilities of $387, $2,024 and $2,636, and issued 835,491, 2,422,837 and
7,370,238 O.P. Units for a total acquisition value of $62,265, $103,881 and
$122,875 for the years ended December 31, 2002, 2001 and 2000, respectively.
Amounts of $75,281, $66,423 and $48,202 were due the Berg Group for
distributions declared to O.P. Unit holders during the years ended December 31,
2002, 2001 and 2000, respectively, and were treated as draws under the Berg
Group line of credit.
- 58 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
14. COMMITMENTS AND CONTINGENCIES
The Company and the operating partnerships, from time to time, are 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 cash flows, consolidated financial position or results of operations of
the Company.
Insurance policies currently maintained by the Company do not cover seismic
activity, although they do cover losses from fires after an earthquake.
15. DISCONTINUED OPERATIONS
Effective January 1, 2002, the Company adopted SFAS No. 144, 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 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 year ended December 31, 2002. Additionally, all
periods presented in this report will likely require further reclassification in
future periods if additional property sales occur.
As of December 31, 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. Condensed
results of operations for this property for the years ended December 31, 2002,
2001 and 2000 are as follows:
For the Year Ended December 31,
2002 2001 2000
--------------------- ---------------------- ---------------------
(dollars in thousands)
Rental income from real estate $ 333 $1,999 $1,999
Tenant reimbursements 293 96 87
--------------------- ---------------------- ---------------------
Total revenues 626 2,095 2,086
--------------------- ---------------------- ---------------------
Real estate taxes 293 96 93
Depreciation 46 278 278
--------------------- ---------------------- ---------------------
Total expenses 339 374 371
--------------------- ---------------------- ---------------------
Net income from discontinued operations 287 1,721 1,715
Net gain on disposition of discontinued 6,103 - -
operations
Minority interest in earnings attributable to (5,325) (1,436) (1,404)
discontinued operations
--------------------- ---------------------- ---------------------
Total income from discontinued operations $1,065 $ 285 $ 311
===================== ====================== =====================
- 59 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
16. SUPPLEMENTAL FINANCIAL INFORMATION (Unaudited)
Quarterly financial information for the year ended December 31, 2002 (1) is as
follows:
First Second Third Fourth
------------ ------------- ------------ -------------
Rental revenue from continuing operations $ 32,484 $ 32,753 $ 32,165 $ 32,378
Income before minority interest $ 24,905 $ 24,896 $ 24,594 $ 25,293
Income from continuing operations $ 4,136 $ 4,073 $ 4,558 $ 3,670
Income from discontinued operations $ 1,065 $ - $ - $ -
Net income $ 5,201 $ 4,073 $ 4,558 $ 3,670
Per share data:
Basic net income per share $ 0.30 $ 0.23 $ 0.26 $ 0.21
Diluted net income per share $ 0.29 $ 0.23 $ 0.26 $ 0.21
Weighted average shares of common
stock (basic) 17,404,568 17,464,692 17,467,329 17,485,590
Weighted average shares of common
stock (diluted) 17,853,809 17,902,853 17,856,688 17,800,971
Quarterly financial information for the year ended December 31, 2001 (1) is as
follows:
First Second Third Fourth
------------ ------------- ------------ -------------
Rental revenue from continuing operations $ 29,179 $ 31,154 $ 32,728 $ 33,168
Income before minority interest $ 24,879 $ 23,484 $ 34,361 $ 25,255
Income from continuing operations $ 4,147 $ 3,911 $ 5,659 $ 4,132
Income from discontinued operations $ 72 $ 72 $ 71 $ 71
Net income $ 4,219 $ 3,983 $ 5,730 $ 4,203
Per share data:
Basic net income per share $ 0.25 $ 0.23 $ 0.33 $ 0.24
Diluted net income per share $ 0.24 $ 0.23 $ 0.33 $ 0.24
Weighted average shares of common
stock (basic) 17,037,201 17,093,710 17,120,279 17,162,111
Weighted average shares of common
stock (diluted) 17,242,821 17,308,601 17,320,462 17,596,536
Quarterly financial information for the year ended December 31, 2000 (1) is as
follows:
First Second Third Fourth
------------ ------------- ------------ -------------
Rental revenue from continuing operations $ 20,736 $ 23,399 $ 26,322 $ 27,111
Income before minority interest $ 14,033 $ 16,128 $ 18,935 $ 20,822
Income from continuing operations $ 2,556 $ 2,845 $ 3,281 $ 3,586
Income from discontinued operations $ 75 $ 85 $ 76 $ 75
Net income $ 2,631 $ 2,930 $ 3,357 $ 3,661
Per share data:
Basic net income per share $ 0.15 $ 0.17 $ 0.20 $ 0.21
Diluted net income per share $ 0.15 $ 0.17 $ 0.20 $ 0.21
Weighted average shares of common
stock (basic) 16,990,353 17,025,365 17,025,365 17,025,365
Weighted average shares of common
stock (diluted) 17,389,409 17,113,346 17,191,306 17,249,144
(1) The summation of the quarterly financial data may not equal the annual
number reported on the consolidated financial statements of operations due
to rounding differences.
- 60 -
MISSION WEST PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(Dollars in thousands, except share and per share data)
17. SUBSEQUENT EVENTS
On January 1, 2003, the Company acquired a 50% interest in a joint venture
consisting of four properties with approximately 593,000 rentable square feet
from the Berg Group. These properties are operated and managed by the Company's
joint venture partner, TBI-Mission West, LLC. The total acquisition price for
the 50% interest in the joint venture was $1,800. The Company acquired the 50%
interest by issuing 181,032 O.P. Units to various members of the Berg Group.
On January 9, 2003, the Company obtained a $100,000 secured mortgage loan from
Northwestern Mutual Life Insurance Company that bears a fixed interest rate at
5.64% and matures in ten years with principal payments amortized over 20 years.
The mortgage loan is collateralized by real estate properties. The Company paid
approximately $675 in loan fees and financing costs and used the proceeds to
primarily pay down short-term debt. The balances of Citicorp USA, Inc.,
Cupertino National Bank line of credit and most of the Berg Group line of credit
were paid with the proceeds from the Northwestern Mutual Life Insurance Company
loan.
On January 9, 2003, the Company paid dividends of $0.24 per share of common
stock to all common stockholders of record as of December 31, 2002. On the same
date, the operating partnerships paid a distribution of $0.24 per O.P. Unit.
On March 12, 2003, the Company declared dividends of $0.24 per common share
payable on April 10, 2003 to all common stockholders of record on March 31,
2003.
- 61 -
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors and Stockholders
of Mission West Properties, Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 28, 2003 included in this Form 10-K of Mission West Properties,
Inc. also included audits of the financial statement schedules listed in Item
15(a)(2) of this Form 10-K. In our opinion, the financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
San Francisco, California
January 28, 2003
- 62 -
INTENTIONALLY BLANK
- 63 -
MISSION WEST PROPERTIES, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2002
(dollars in thousands)
Initial Cost
---------------------------- Cost
December 31, Buildings Subsequent to
2002 and Construction/
Property Name City Encumbrances Land Improvements Acquisition
- -------------------------------------------------- ------------ -------------- ------------ -------------
5300-5350 Hellyer Avenue San Jose E $ 11,078 $ 5,742 $ 11,442
10401-10411 Bubb Road Cupertino A 632 3,078
45365 Northport Loop Fremont 2,447 5,711 $ 11
47000 Northport Loop Fremont B 1,184 5,760 7
45738 Northport Loop Fremont B 891 4,338 5
4050 Starboard Drive Fremont B 1,329 6,467 8
3501 W. Warren Ave/Fremont Blvd Fremont 1,866 9,082
48800 Milmont Blvd Fremont 1,013 4,932 153
4750 Patrick Henry Drive Santa Clara 1,604 7,805
3520 Bassett Street Santa Clara C 1,104 5,371
3530 Bassett Street Santa Clara C,D 849 4,133
5850-5870 Hellyer Avenue San Jose 2,787 6,502
5750 Hellyer Avenue San Jose 3,266 3,354
800 Branham Lane East San Jose 5,508 12,851 16
5500 Hellyer Avenue San Jose 4,735 13,073 3
5550 Hellyer Avenue San Jose 3,261 3,872
5400 Hellyer Avenue San Jose 3,238 5,358 215
5325 Hellyer Avenue San Jose 4,684 10,789 34
5345 Hellyer Avenue San Jose 4,866 8,786
5905-5965 Silver Creek Valley Road San Jose 8,437 18,554
5905-5965 Silver Creek Valley Road San Jose 3,438 3,220
855 Branham Lane East San Jose 3,289 6,521 68
1065-1105 La Avenida Street Mountain View 46,832 109,275 65
1750 Automation Parkway San Jose 4,789 11,174 315
1756 Automation Parkway San Jose 4,378 10,216 15
1762 Automation Parkway San Jose 4,804 12,224 20
1768 Automation Parkway San Jose 8,195 19,121 14
255 Caspian Drive Sunnyvale 3,491 8,146 1,047
245 Caspian Drive Sunnyvale 5,894 -
5900 Optical Court San Jose 3,634 13,667 52
2630 Orchard Parkway San Jose 3,065 6,131
2610 Orchard Parkway San Jose 2,735 5,470
55 West Trimble Road San Jose 4,637 9,274
2251 Lawson Lane Santa Clara F 1,952 9,498
1230 East Arques Sunnyvale B 540 2,628 39
1250 East Arques Sunnyvale B 1,335 6,499
3120 Scott Blvd Santa Clara 2,044 9,948
20400 Mariani Avenue Cupertino 1,423 1,670 8,125
10500 De Anza Blvd Cupertino B 7,666 37,304
20605-20705 Valley Green Drive Cupertino F 3,490 16,984
10300 Bubb Road Cupertino B 635 3,090
10440 Bubb Road Cupertino 434 2,112
10460 Bubb Road Cupertino 297 994 4,838 1,161
1135 Kern Avenue Sunnyvale B 407 1,982
405 Tasman Drive Sunnyvale 550 2,676 90
450 National Avenue Mountain View B 611 2,973
3301 Olcott Street Santa Clara 1,846 8,984
2800 Bayview Avenue Fremont 1,070 5,205
6850 Santa Teresa Blvd San Jose 377 1,836 820
6810 Santa Teresa Blvd San Jose 2,567 5,991 12
140-160 Great Oaks Blvd San Jose 1,402 6,822 205
6541 Via del Oro/6385 San Ignacio San Jose 1,039 5,057
6311-6351 San Ignacio Avenue San Jose B 6,246 30,396 145
6320-6360 San Ignacio Avenue San Jose 2,616 12,732 353
75 E. Trimble Rd./2610 N. First St San Jose 3,477 16,919 85
2033-2243 Samaritan Drive San Jose 58,792F 5,046 24,556 154
1170 Morse Avenue Sunnyvale B 658 3,201
3236 Scott Blvd Santa Clara B 1,234 6,005
1212 Bordeaux Lane Sunnyvale B 2,250 10,948
MISSION WEST PROPERTIES, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2002
(dollars in thousands)
Total Cost
------------------------
Buildings
And Accumulated Date of Depreciable
Property Name City Land Improvements Total Depreciation Acquisition Life
- -------------------------------------------------- ---------- ------------ ------------ ------------ ----------- -----------
5300-5350 Hellyer Avenue San Jose E $ 5,742 $ 11,442 $ 17,184 $ 751 5/00 40 Years
10401-10411 Bubb Road Cupertino A 632 3,078 3,710 348 7/98 40 Years
45365 Northport Loop Fremont 2,447 5,722 8,169 322 10/00 40 Years
47000 Northport Loop Fremont 1,184 5,767 6,951 650 7/98 40 Years
45738 Northport Loop Fremont 891 4,343 5,234 491 7/98 40 Years
4050 Starboard Drive Fremont 1,329 6,475 7,804 731 7/98 40 Years
3501 W. Warren Ave/Fremont Blvd Fremont 1,866 9,082 10,948 1,024 7/98 40 Years
48800 Milmont Blvd Fremont 1,013 4,932 5,945 556 7/98 40 Years
4750 Patrick Henry Drive Santa Clara 1,604 7,958 9,562 893 7/98 40 Years
3520 Bassett Street Santa Clara C 1,104 5,371 6,475 605 7/98 40 Years
3530 Bassett Street Santa Clara C,D 849 4,133 4,982 466 7/98 40 Years
5850-5870 Hellyer Avenue San Jose 2,787 6,502 9,289 680 11/98 40 Years
5750 Hellyer Avenue San Jose 3,266 3,354 6,620 119 8/01 40 Years
800 Branham Lane East San Jose 5,508 12,867 18,375 911 3/00 40 Years
5500 Hellyer Avenue San Jose 4,735 13,076 17,811 627 2/01 40 Years
5550 Hellyer Avenue San Jose 3,261 3,872 7,133 153 6/01 40 Years
5400 Hellyer Avenue San Jose 3,238 5,573 8,811 344 7/00 40 Years
5325 Hellyer Avenue San Jose 4,684 10,823 15,507 540 1/01 40 Years
5345 Hellyer Avenue San Jose 4,866 8,786 13,652 220 1/02 40 Years
5905-5965 Silver Creek Valley Road San Jose 8,437 18,554 26,991 696 7/01 40 Years
5905-5965 Silver Creek Valley Road San Jose 3,438 3,220 6,658 101 10/01 40 Years
855 Branham Lane East San Jose 3,289 6,589 9,878 274 5/01 40 Years
1065-1105 La Avenida Street Mountain View 46,832 109,340 156,172 10,248 4/99 40 Years
1750 Automation Parkway San Jose 4,789 11,489 16,278 1,005 7/99 40 Years
1756 Automation Parkway San Jose 4,378 10,231 14,609 767 1/00 40 Years
1762 Automation Parkway San Jose 4,804 12,244 17,048 841 4/00 40 Years
1768 Automation Parkway San Jose 8,195 19,135 27,330 996 12/00 40 Years
255 Caspian Drive Sunnyvale 3,491 9,193 12,684 618 4/00 40 Years
245 Caspian Drive Sunnyvale 5,894 - 5,894 - 4/01 40 Years
5900 Optical Court San Jose 3,634 13,719 17,353 171 7/02 40 Years
2630 Orchard Parkway San Jose 3,065 6,131 9,196 128 3/02 40 Years
2610 Orchard Parkway San Jose 2,735 5,470 8,205 114 3/02 40 Years
55 West Trimble Road San Jose 4,637 9,274 13,911 193 3/02 40 Years
2251 Lawson Lane Santa Clara 1,952 9,498 11,450 1,070 7/98 40 Years
1230 East Arques Sunnyvale 540 2,667 3,207 301 7/98 40 Years
1250 East Arques Sunnyvale 1,335 6,499 7,834 732 7/98 40 Years
3120 Scott Blvd Santa Clara 2,044 9,948 11,992 1,122 7/98 40 Years
20400 Mariani Avenue Cupertino 1,670 8,125 9,795 916 7/98 40 Years
10500 De Anza Blvd Cupertino 7,666 37,304 44,970 4,200 7/98 40 Years
20605-20705 Valley Green Drive Cupertino 3,490 16,984 20,474 1,914 7/98 40 Years
10300 Bubb Road Cupertino 635 3,090 3,725 349 7/98 40 Years
10440 Bubb Road Cupertino 434 2,112 2,546 240 7/98 40 Years
10460 Bubb Road Cupertino 994 5,999 6,993 635 7/98 40 Years
1135 Kern Avenue Sunnyvale 407 1,982 2,389 226 7/98 40 Years
405 Tasman Drive Sunnyvale 550 2,766 3,316 303 7/98 40 Years
450 National Avenue Mountain View 611 2,973 3,584 335 7/98 40 Years
3301 Olcott Street Santa Clara 1,846 8,984 10,830 1,013 7/98 40 Years
2800 Bayview Avenue Fremont 1,070 5,205 6,275 588 7/98 40 Years
6850 Santa Teresa Blvd San Jose 377 2,656 3,033 267 7/98 40 Years
6810 Santa Teresa Blvd San Jose 2,567 6,003 8,570 576 3/99 40 Years
140-160 Great Oaks Blvd San Jose 1,402 7,027 8,429 780 7/98 40 Years
6541 Via del Oro/6385 San Ignacio San Jose 1,039 5,057 6,096 570 7/98 40 Years
6311-6351 San Ignacio Avenue San Jose 6,246 30,541 36,787 3,429 7/98 40 Years
6320-6360 San Ignacio Avenue San Jose 2,616 13,085 15,701 1,452 7/98 40 Years
75 E. Trimble Rd./2610 N. First St San Jose 3,477 17,004 20,481 1,911 7/98 40 Years
2033-2243 Samaritan Drive San Jose 5,046 24,710 29,756 2,771 7/98 40 Years
1170 Morse Avenue Sunnyvale 658 3,201 3,859 362 7/98 40 Years
3236 Scott Blvd Santa Clara 1,234 6,005 7,239 678 7/98 40 Years
1212 Bordeaux Lane Sunnyvale 2,250 10,948 13,198 1,235 7/98 40 Years
- 64 -
MISSION WEST PROPERTIES, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2002
(dollars in thousands)
Initial Cost
---------------------------- Cost
December 31, Buildings Subsequent to
2002 and Construction/
Property Name City Encumbrances Land Improvements Acquisition
- -------------------------------------------------- ------------ -------------- ------------ -------------
1325-1810 McCandless Drive Milpitas F 13,994 66,213 1,056
1600 Memorex Drive Santa Clara B 1,221 5,940 36
1688 Richard Avenue Santa Clara B 1,248 2,913 6
1700 Richard Avenue Santa Clara B 1,727 4,030
3506-3510 Bassett Street Santa Clara C 943 4,591 116
3540-3544 Bassett Street Santa Clara C B 1,565 7,615 189
3550 Bassett Street Santa Clara C B 1,079 5,251 33
3560 Bassett Street Santa Clara C B 1,075 5,233 8
3570-3580 Bassett Street Santa Clara C B 1,075 5,233
Prudential Insurance Company of America Loan 123,342B
------------ -------------- ----------- -------------
$ 194,932 $ 234,707 $ 720,025 $ 6,556
============ ============== =========== =============
Total Cost
------------------------
Buildings
And Accumulated Date of Depreciable
Property Name City Land Improvements Total Depreciation Acquisition Life
- -------------------------------------------------- ---------- ------------ ------------ ------------ ----------- -----------
1325-1810 McCandless Drive Milpitas 13,994 67,269 81,263 7,507 7/98 40 Years
1600 Memorex Drive Santa Clara 1,221 5,976 7,197 645 7/98 40 Years
1688 Richard Avenue Santa Clara 1,248 2,919 4,167 327 9/98 40 Years
1700 Richard Avenue Santa Clara 1,727 4,030 5,757 345 8/99 40 Years
3506-3510 Bassett Street Santa Clara C 943 4,707 5,650 526 7/98 40 Years
3540-3544 Bassett Street Santa Clara C 1,565 7,804 9,369 874 7/98 40 Years
3550 Bassett Street Santa Clara C 1,079 5,284 6,363 596 7/98 40 Years
3560 Bassett Street Santa Clara C 1,075 5,241 6,316 591 7/98 40 Years
3570-3580 Bassett Street Santa Clara C 1,075 5,233 6,308 591 7/98 40 Years
Prudential Insurance Company of America Loan
---------- ------------ ------------ ------------
$ 234,707 $ 726,581 $ 961,288 $ 66,560
========== ============ ============ ============
(A) 16.67% of this property's ownership is held by unaffiliated parties outside
the operating partnerships of the Company.
(B) Encumbered by the $123,342 Prudential Insurance Company of America loan -
full amount of loan shown at the bottom of the schedule.
(C) Part of the property group referred to as Triangle Technology Park.
(D) 25% of this property's ownership is held by unaffiliated parties outside
the operating partnerships of the Company.
(E) 50% of this property's ownership is held by unaffiliated parties outside
the operating partnerships of the Company.
(F) Four properties at McCandless Drive, three properties at Samaritan Drive
and three other various properties are encumbered by the $58,792 debt due
the Berg Group under the line of credit.
- 65 -
MISSION WEST PROPERTIES, INC.
Schedule III
Real Estate and Accumulated Depreciation
December 31, 2001
(dollars in thousands)
Initial Cost
---------------------------- Cost
December 31, Buildings Subsequent to
2002 and Construction/
Property Name City Encumbrances Land Improvements Acquisition
- -------------------------------------------------- ------------ -------------- ------------ -------------
5300-5350 Hellyer Avenue San Jose E $ 11,371 $ 5,742 $ 11,442 $ 16
10401-10411 Bubb Road Cupertino A 632 3,078
2001 Logic Drive San Jose 2,288 11,134
45365 Northport Loop Fremont 2,447 5,711 11
47000 Northport Loop Fremont B 1,184 5,760 7
45738 Northport Loop Fremont B 891 4,338 5
4050 Starboard Drive Fremont B 1,329 6,467 8
3501 W. Warren Ave/Fremont Blvd Fremont 1,866 9,082
48800 Milmont Blvd Fremont 1,013 4,932
4750 Patrick Henry Drive Santa Clara 1,604 7,805 153
3520 Bassett Street Santa Clara C 1,104 5,371
3530 Bassett Street Santa Clara C,D 849 4,133
5850-5870 Hellyer Avenue San Jose 2,787 6,502
5750 Hellyer Avenue San Jose 3,266 3,354
800 Branham Lane East San Jose 5,508 12,851 16
5500 Hellyer Avenue San Jose 4,735 13,073 3
5550 Hellyer Avenue San Jose 3,261 3,872
5400 Hellyer Avenue San Jose 3,238 5,358 77
5325 Hellyer Avenue San Jose F 4,684 10,789 34
5905-5965 Silver Creek Valley Rd San Jose 8,437 18,554
5905-5965 Silver Creek Valley Rd San Jose 3,438 3,220
855 Branham Lane East San Jose 3,289 6,521 68
1065-1105 La Avenida Street Mountain View 46,832 109,275 65
1750 Automation Parkway San Jose 4,789 11,174 315
1756 Automation Parkway San Jose 4,378 10,216 15
1762 Automation Parkway San Jose 4,804 12,224 20
1768 Automation Parkway San Jose 8,195 19,121 14
255 Caspian Drive Sunnyvale 3,491 8,146
245 Caspian Drive Sunnyvale 5,894 -
2251 Lawson Lane Santa Clara 1,952 9,498
1230 East Arques Sunnyvale B 540 2,628 39
1250 East Arques Sunnyvale B 1,335 6,499
3120 Scott Blvd Santa Clara 2,044 9,948
20400 Mariani Avenue Cupertino 1,597 1,670 8,125
10500 De Anza Blvd Cupertino B 7,666 37,304
20605-20705 Valley Green Drive Cupertino 3,490 16,984
10300 Bubb Road Cupertino B 635 3,090
10440 Bubb Road Cupertino 347 434 2,112
10460 Bubb Road Cupertino 363 994 4,838 1,161
1135 Kern Avenue Sunnyvale B 407 1,982
405 Tasman Drive Sunnyvale 550 2,676
450 National Avenue Mountain View B 611 2,973
3301 Olcott Street Santa Clara 1,846 8,984
2800 Bayview Avenue Fremont 1,070 5,205
6850 Santa Teresa Blvd San Jose 377 1,836 780
6810 Santa Teresa Blvd San Jose 2,567 5,991 12
140-160 Great Oaks Blvd San Jose 1,402 6,822 158
6541 Via del Oro/6385 San Ignacio San Jose 1,039 5,057
6311-6351 San Ignacio Avenue San Jose B 6,246 30,396 94
6320-6360 San Ignacio Avenue San Jose 2,616 12,732 338
75 E. Trimble Rd/2610 N. First St San Jose F 3,477 16,919 82
2033-2243 Samaritan Drive San Jose 79,887 F 5,046 24,556 125
1170 Morse Avenue Sunnyvale B 658 3,201
3236 Scott Blvd Santa Clara B 1,234 6,005
1212 Bordeaux Lane Sunnyvale B 2,250 10,948
1325-1810 McCandless Drive Milpitas F 13,994 66,213 703
1600 Memorex Drive Santa Clara B 1,221 5,940
1688 Richard Avenue Santa Clara B 1,248 2,913 6
1700 Richard Avenue Santa Clara B 1,727 4,030
Total Cost
------------------------
Buildings
And Accumulated Date of Depreciable
Property Name City Land Improvements Total Depreciation Acquisition Life
- -------------------------------------------------- ---------- ------------ ------------ ------------ ----------- -----------
5300-5350 Hellyer Avenue San Jose E $ 5,742 $ 11,458 $ 17,200 $ 465 5/00 40 Years
10401-10411 Bubb Road Cupertino A 632 3,078 3,710 271 7/98 40 Years
2001 Logic Drive San Jose 2,288 11,134 13,422 975 7/98 40 Years
45365 Northport Loop Fremont 2,447 5,722 8,169 179 10/00 40 Years
47000 Northport Loop Fremont 1,184 5,767 6,951 506 7/98 40 Years
45738 Northport Loop Fremont 891 4,343 5,234 383 7/98 40 Years
4050 Starboard Drive Fremont 1,329 6,475 7,804 569 7/98 40 Years
3501 W. Warren Ave/Fremont Blvd Fremont 1,866 9,082 10,948 797 7/98 40 Years
48800 Milmont Blvd Fremont 1,013 4,932 5,945 433 7/98 40 Years
4750 Patrick Henry Drive Santa Clara 1,604 7,958 9,562 694 7/98 40 Years
3520 Bassett Street Santa Clara C 1,104 5,371 6,475 471 7/98 40 Years
3530 Bassett Street Santa Clara C,D 849 4,133 4,982 363 7/98 40 Years
5850-5870 Hellyer Avenue San Jose 2,787 6,502 9,289 518 11/98 40 Years
5750 Hellyer Avenue San Jose 3,266 3,354 6,620 35 8/01 40 Years
800 Branham Lane East San Jose 5,508 12,867 18,375 589 3/00 40 Years
5500 Hellyer Avenue San Jose 4,735 13,076 17,811 300 2/01 40 Years
5550 Hellyer Avenue San Jose 3,261 3,872 7,133 57 6/01 40 Years
5400 Hellyer Avenue San Jose 3,238 5,435 8,673 203 7/00 40 Years
5325 Hellyer Avenue San Jose 4,684 10,823 15,507 270 1/01 40 Years
5905-5965 Silver Creek Valley Rd San Jose 8,437 18,554 26,991 232 7/01 40 Years
5905-5965 Silver Creek Valley Rd San Jose 3,438 3,220 6,658 20 10/01 40 Years
855 Branham Lane East San Jose 3,289 6,589 9,878 109 5/01 40 Years
1065-1105 La Avenida Street Mountain View 46,832 109,340 156,172 7,515 4/99 40 Years
1750 Automation Parkway San Jose 4,789 11,489 16,278 718 7/99 40 Years
1756 Automation Parkway San Jose 4,378 10,231 14,609 512 1/00 40 Years
1762 Automation Parkway San Jose 4,804 12,244 17,048 535 4/00 40 Years
1768 Automation Parkway San Jose 8,195 19,135 27,330 518 12/00 40 Years
255 Caspian Drive Sunnyvale 3,491 8,146 11,637 357 4/00 40 Years
245 Caspian Drive Sunnyvale 5,894 - 5,894 - 4/01 40 Years
2251 Lawson Lane Santa Clara 1,952 9,498 11,450 832 7/98 40 Years
1230 East Arques Sunnyvale 540 2,667 3,207 234 7/98 40 Years
1250 East Arques Sunnyvale 1,335 6,499 7,834 569 7/98 40 Years
3120 Scott Blvd Santa Clara 2,044 9,948 11,992 873 7/98 40 Years
20400 Mariani Avenue Cupertino 1,670 8,125 9,795 713 7/98 40 Years
10500 De Anza Blvd Cupertino 7,666 37,304 44,970 3,268 7/98 40 Years
20605-20705 Valley Green Drive Cupertino 3,490 16,984 20,474 1,490 7/98 40 Years
10300 Bubb Road Cupertino 635 3,090 3,725 272 7/98 40 Years
10440 Bubb Road Cupertino 434 2,112 2,546 187 7/98 40 Years
10460 Bubb Road Cupertino 994 5,999 6,993 485 7/98 40 Years
1135 Kern Avenue Sunnyvale 407 1,982 2,389 177 7/98 40 Years
405 Tasman Drive Sunnyvale 550 2,676 3,226 236 7/98 40 Years
450 National Avenue Mountain View 611 2,973 3,584 261 7/98 40 Years
3301 Olcott Street Santa Clara 1,846 8,984 10,830 789 7/98 40 Years
2800 Bayview Avenue Fremont 1,070 5,205 6,275 457 7/98 40 Years
6850 Santa Teresa Blvd San Jose 377 2,616 2,993 201 7/98 40 Years
6810 Santa Teresa Blvd San Jose 2,567 6,003 8,570 426 3/99 40 Years
140-160 Great Oaks Blvd San Jose 1,402 6,980 8,382 606 7/98 40 Years
6541 Via del Oro/6385 San Ignacio San Jose 1,039 5,057 6,096 443 7/98 40 Years
6311-6351 San Ignacio Avenue San Jose 6,246 30,490 36,736 2,666 7/98 40 Years
6320-6360 San Ignacio Avenue San Jose 2,616 13,070 15,686 1,125 7/98 40 Years
75 E. Trimble Rd/2610 N. First St San Jose 3,477 17,001 20,478 1,486 7/98 40 Years
2033-2243 Samaritan Drive San Jose 5,046 24,681 29,727 2,153 7/98 40 Years
1170 Morse Avenue Sunnyvale 658 3,201 3,859 282 7/98 40 Years
3236 Scott Blvd Santa Clara 1,234 6,005 7,239 527 7/98 40 Years
1212 Bordeaux Lane Sunnyvale 2,250 10,948 13,198 961 7/98 40 Years
1325-1810 McCandless Drive Milpitas 13,994 66,916 80,910 5,831 7/98 40 Years
1600 Memorex Drive Santa Clara 1,221 5,940 7,161 497 7/98 40 Years
1688 Richard Avenue Santa Clara 1,248 2,919 4,167 254 9/98 40 Years
1700 Richard Avenue Santa Clara 1,727 4,030 5,757 244 8/99 40 Years
- 66 -
Initial Cost
---------------------------- Cost
December 31, Buildings Subsequent to
2002 and Construction/
Property Name City Encumbrances Land Improvements Acquisition
- -------------------------------------------------- ------------ -------------- ------------ -------------
3506-3510 Bassett Street Santa Clara C 943 4,591 99
3540-3544 Bassett Street Santa Clara C B 1,565 7,615 189
3550 Bassett Street Santa Clara C B 1,079 5,251 33
3560 Bassett Street Santa Clara C B 1,075 5,233 8
3570-3580 Bassett Street Santa Clara C B 1,075 5,233
Prudential Insurance Company of America Loan 125,109B
------------ -------------- ------------ -------------
$ 218,674 $ 218,058 $ 687,831 $ 4,654
============ ============== ============ =============
Total Cost
------------------------
Buildings
And Accumulated Date of Depreciable
Property Name City Land Improvements Total Depreciation Acquisition Life
- -------------------------------------------------- ---------- ------------ ------------ ------------ ----------- -----------
3506-3510 Bassett Street Santa Clara C 943 4,690 5,633 408 7/98 40 Years
3540-3544 Bassett Street Santa Clara C 1,565 7,804 9,369 678 7/98 40 Years
3550 Bassett Street Santa Clara C 1,079 5,284 6,363 463 7/98 40 Years
3560 Bassett Street Santa Clara C 1,075 5,241 6,316 460 7/98 40 Years
3570-3580 Bassett Street Santa Clara C 1,075 5,233 6,308 460 7/98 40 Years
Prudential Insurance Company of America Loan
---------- ------------ ------------ ------------
$ 218,058 $ 692,485 $ 910,543 $49,608
========== ============ ============ ============
(A) 16.67% of this property's ownership is held by unaffiliated parties outside
the operating partnerships of the Company.
(B) Encumbered by the $125,109 Prudential Insurance Company of America loan -
full amount of loan shown at the bottom of the schedule.
(C) Part of the property group referred to as Triangle Technology Park.
(D) 25% of this property's ownership is held by unaffiliated parties outside
the operating partnerships of the Company.
(E) 50% of this property's ownership is held by unaffiliated parties outside
the operating partnerships of the Company.
(F) Four properties at McCandless Drive, three properties at Samaritan Drive
and four other various properties are encumbered by the $79,887 debt due
the Berg Group under the line of credit.
- 67 -
MISSION WEST PROPERTIES, INC.
NOTE TO SCHEDULE III
December 31, 2002 and 2001
(dollars in thousands)
1. Reconciliation of real estate and accumulated depreciation:
2002 2001
------------------------ ------------------------
Real estate investments:
Balance at beginning of year $ 910,543 $ 841,478
Additions 64,167 97,422
Dispositions (13,422) (28,357)
------------------------ ------------------------
Balance at end of year $ 961,288 $ 910,543
======================== ========================
Accumulated depreciation:
Balance at beginning of year $ 49,608 $ 34,022
Additions 17,974 16,917
Dispositions (1,022) (1,331)
------------------------ ------------------------
Balance at end of year $ 66,560 $ 49,608
======================== ========================
- 68 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
- 69 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference from the
sections titled "Directors and Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive
proxy statement for its annual stockholders' meeting.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
section titled "Executive Compensation" in the Company's definitive proxy
statement for its annual stockholders' meeting, excluding, however, the
sections titled "Executive Compensation - Performance Graph" and "Executive
Compensation - Report on Executive Compensation by the Compensation
Committee of the Board of Directors," none of which are incorporated by
reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Item 12 is incorporated by reference from the
sections titled "Share Ownership" and "Securities Authorized for Issuance
Under Equity Compensation Plans" in the Company's definitive proxy
statement for its annual stockholders' meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
sections titled "Certain Relationships and Related Transactions" in the
Company's definitive proxy statement for its annual stockholders' meeting.
ITEM 14. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Within the 90 days prior
to the date of this report, the Company has conducted an evaluation, under
the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14c.
Base upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its subsidiaries) required to be included in the
Company's periodic SEC filings.
CHANGES IN INTERNAL CONTROLS. There were no significant changes in our
internal controls or to our knowledge, in other factors that could
significantly affect such internal controls subsequent to the date of their
evaluation.
- 70 -
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Exhibits required by Item 601 of Regulation S-K.
EXHIBIT INDEX
3.2.1+ Articles of Amendment and Restatement of Mission West Properties, Inc.
3.2.2+ Restated Bylaws of Mission West Properties, Inc.
10.1.1** Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P.
10.1.2** Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. I
10.1.3** Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. II
10.1.4** Amended and Restated Agreement of Limited Partnership of Mission West Properties, L.P. III
10.2** Exchange Rights Agreement between Mission West Properties and the Limited Partners
10.3.1* 1997 Stock Option Plan
10.3.2* Form of Incentive Stock Option Agreement
10.3.3* Form of Non-statutory Stock Option Agreement
10.3.4* Form of Directors Stock Option Agreement
10.4.1* Acquisition Agreement, dated as of May 14, 1998, among Mission West Properties, certain partnerships and the Berg
Group (as defined therein)
10.4.2* Amendment of Acquisition Agreement, dated as of July 1, 1998
10.4.3* Form of Partnership Interest Purchase Demand Note
10.5.1* Stock Purchase Agreement dated as of May 4, 1998, between Mission West Properties and the purchasers of Common
Stock in a private placement of 5,800,000 shares and Subscription Agreement relating to same
10.5.2* Stock Purchase Agreement dated as of May 4, 1998 between Mission West Properties and the purchasers of Common
Stock in a private placement of 695,058 shares and Subscription Agreement relating to same
10.5.3** Form of Registration Rights Agreement for purchasers, who acquired shares of Common Stock under the May 4, 1998
Stock Purchase Agreements (filed as Exhibits 10.8 to Post-effective Amendment No. 1 to S-4 Registration Statement
filed on Form S-3 on February 11, 1999. Commission File No. 333-52835-99)
10.6** Pending Projects Acquisition Agreement among Mission West Properties, the Operating Partnership and the Berg
Group
10.7** Berg Land Holdings Option Agreement between Mission West Properties and certain members of the Berg Group
10.8* Berg & Berg Enterprises, Inc. Sublease Agreement
10.9 Not In Use
10.10 Not In Use
10.11 Not In Use
10.12* Lease Agreement with Apple Computer, Inc.
10.13* Lease Agreement with Cisco Systems, Inc,
10.14* Lease Agreement with Amdahl Corporation
10.15* Prudential Promissory Note
10.16* Prudential Deed of Trust
10.17* Prudential Certificate Regarding Distribution
10.18* Prudential Guaranty
10.19+ Waiver Agreement
10.20** Ownership Limit Exemption Agreement dated December 29, 1999 between Mission West Properties and Dan and Paul
McCarthy
10.21x Lease Agreement with Microsoft Corporation 10.22x Contribution Agreement
10.23xx Assumption Agreement for Wells Fargo Line of Credit
10.24xx Not In Use
10.25xx Not In Use
10.26xx Supplemental Agreement among Mission West Properties, Inc., Carl E. Berg and Clyde J. Berg
10.27 Berg Group Revolving Credit - $100,000,000 Secured Promissory Note
- 71 -
10.28 Berg Group Deed of Trust Securing Revolving Promissory Note
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
10.32 Mission West Properties, L.P. Promissory Note to Northwestern Mutual Life Insurance Company
10.33 Mission West Properties, L.P. I Promissory Note to Northwestern Mutual Life Insurance Company
10.34 Mission West Properties, L.P. II Promissory Note to Northwestern Mutual Life Insurance Company
10.35 Mission West Properties, L.P. Deed of Trust and Security Agreement (First Priority)
10.36 Mission West Properties, L.P. Deed of Trust and Security Agreement (Second Priority)
10.37 Mission West Properties, L.P. I Deed of Trust and Security Agreement (First Priority)
10.38 Mission West Properties, L.P. I Deed of Trust and Security Agreement (Second Priority)
10.39 Mission West Properties, L.P. II Deed of Trust and Security Agreement (First Priority)
10.40 Mission West Properties, L.P. II Deed of Trust and Security Agreement (Second Priority)
10.41 Mission West Properties, L.P. Absolute Assignment of Leases and Rents (First Priority)
10.42 Mission West Properties, L.P. I Absolute Assignment of Leases and Rents (First Priority)
10.43 Mission West Properties, L.P. II Absolute Assignment of Leases and Rents (First Priority)
21.1++ Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
24.1 Powers of Attorney (included on the signature page hereto)
99.1 Section 1350 Certificate
* Incorporated herein by reference to the same-numbered exhibit to the
Company's Registration Statement on Form S-4 filed on May 15, 1998 and
declared effective on November 23, 1998.
** Incorporated herein by reference to the same-numbered exhibit to the
Company's Post-effective Amendment No. 1 to Registration Statement on Form
S-4 filed on Form S-3 on February 11, 1999. (Commission File No.
333-52835-99).
+ Incorporated herein by reference to the same-numbered exhibit to Amendment
No. 4 to the Registration Statement on Form S-4 filed on November 16, 1998
and declared effective on November 23, 1998.
++ Incorporated herein by reference to the same-numbered exhibit to the annual
report on Form 10-K for 1998 filed on March 31, 1999.
x Incorporated herein by reference to the same-numbered exhibit to current
report on Form 8-K filed on May 14, 1999 (Commission File No. 000-25235).
xx Incorporated herein by reference to the same-numbered exhibit to the
Registration Statement on Form S-11 filed on June 8, 1999 (Commission File
No. 333-80203).
(b) Reports on Form 8-K.
The registrant has not filed any reports on Form 8-K during the last
quarter of the period covered by this report.
- 72 -
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MISSION WEST PROPERTIES, INC.
Date: March 26, 2003 By: /s/ CARL E. BERG
----------------------
Carl E. Berg
Chief Executive Officer
Date: March 26, 2003 By: /s/ WAYNE N. PHAM
----------------------
Wayne N. Pham
Vice President of Finance and Controller
(Principal Accounting Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Carl E. Berg his true and lawful attorney-in-fact
with the power of substitution, to sign any amendments to this Report on Form
10-K and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorney-in-fact, or his or her
substitute, may do or choose to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ CARL E. BERG
- -----------------------
Carl E. Berg Chairman of the Board, Chief March 26, 2003
Executive Officer and Director
/s/ RAYMOND V. MARINO
- -----------------------
Raymond V. Marino President, Chief Operating Officer March 26, 2003
and Director
/s/ JOHN C. BOLGER
- -----------------------
John C. Bolger Director March 26, 2003
/s/ WILLIAM A. HASLER
- -----------------------
William A. Hasler Director March 26, 2003
/s/ LAWRENCE B. HELZEL
- -----------------------
Lawrence B. Helzel Director March 26, 2003
- 73 -
CERTIFICATE PURSUANT TO
RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934
I, Carl E. Berg, certify that:
1. I have reviewed this Annual Report on Form 10-K of Mission West
Properties, Inc. (the "Company") for the year ended December 31, 2002;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying offices and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Carl E. Berg
Chairman and CEO
March 26, 2003
- 74 -
CERTIFICATE PURSUANT TO
RULE 13a-14 THE SECURITIES EXCHANGE ACT OF 1934
I, Wayne N. Pham, certify that:
1. I have reviewed this Annual Report on Form 10-K of Mission West
Properties, Inc. (the "Company") for the year ended December 31, 2002;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying offices and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Wayne N. Pham
Vice President of Finance and Controller
March 26, 2003
- 75 -
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 Annual Report on Form 10-K of Mission West
Properties, Inc. (the "Company") for the year ended December 31, 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.
/s/ Carl E. Berg
- ----------------------------
Carl E. Berg
Chairman of the Board and Chief Executive Officer
March 26, 2003
/s/ Wayne N. Pham
- ----------------------------
Wayne N. Pham
Vice President of Finance and Controller
March 26, 2003
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.
A signed original of this written statement required by section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
- 77 -
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.
"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 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.
"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.
"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.
"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) 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 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.
2.3.2 LIBOR LOANS. The following provisions apply to each LIBOR Loan:
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 expiration 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 and impractical 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 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 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.
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.
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 ($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, 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.
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.
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;
(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 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 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 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 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 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 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, (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 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 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 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.
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
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.
8.1.10 CHANGE 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.
8.1.11 INADEQUATE 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.
8.1.12 OCCURRENCE 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 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.
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 expenses include 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-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
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.
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
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.
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 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.
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 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 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.
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.
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
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.
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 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.
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 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 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.
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.
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
EXHIBIT 10.32
California
Loan No. C-332757
PROMISSORY NOTE
Mission West Properties, L.P.
$28,868,655.00 January 3, 2003
For value received, the undersigned, herein called "Borrower," promises to
pay to the order of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin
corporation, who, together with any subsequent holder of this note, is
hereinafter referred to as "Lender", at 720 E. Wisconsin Avenue, Milwaukee, WI
53202 or at such other place as Lender shall designate in writing, in coin or
currency which, at the time or times of payment, is legal tender for public and
private debts in the United States, the principal sum of TWENTY-EIGHT MILLION
EIGHT HUNDRED SIXTY-EIGHT THOUSAND SIX HUNDRED FIFTY-FIVE DOLLARS or so much
thereof as shall have been advanced from time to time plus interest on the
outstanding principal balance at the rate and payable as follows:
Interest shall accrue from the date of advance until maturity at the
rate of five and sixty-four hundredths percent (5.64%) per annum (the
"Interest Rate").
Accrued interest only on the amount advanced shall be paid on the
first day of the month following the date of advance ("Amortization Period
Commencement Date"). On the first day of the following month and on the
first day of each month thereafter until maturity, installments of
principal and interest shall be paid in the amount of $200,874.00. Payments
shall be made directly to Lender by electronic transfer of funds using the
Automated Clearing House System. All installments shall be applied first in
payment of interest, calculated monthly on the unpaid principal balance,
and the remainder of each installment shall be applied in payment of
principal. The entire unpaid principal balance plus accrued interest
thereon shall be due and payable on February 1, 2013 (the "Maturity Date").
DEFINITIONS. For the purpose of this Promissory Note (this "Note"), the
following terms shall have the meanings set forth below. Except as otherwise
provided herein, any capitalized term not otherwise defined herein shall have
the meaning ascribed to such term in the Lien Instrument.
(a) "Lien Instrument" means that certain first priority Deed of Trust and
Security Agreement of even date herewith executed by Borrower as "Grantor"
to the benefit of Lender as "Beneficiary" as security for repayment of this
Note.
(b) "Other Borrowers" means, collectively, Mission West Properties, L.P. I,
a Delaware limited partnership, and Mission West Properties, L.P. II, a
Delaware limited partnership.
(c) "Other Notes" means, collectively, the Promissory Notes executed by the
Other Borrowers evidencing the Loan, as more particularly identified on
Schedule 1 of this Note.
(d) "Property" means the Property (as defined in the Lien Instrument),
together with all real and personal property securing, in whole or in part,
this Note, the Indebtedness or the Obligations.
(e) "Transaction" means the loans in the aggregate principal amount of One
Hundred Million Dollars ($100,000,000.00), which are made by the
Beneficiary to the Borrower and the Other Borrowers on the date hereof and
are evidenced by the Note and Other Notes and secured by other lien
instruments and collateral documents from Borrower and the Other Borrowers
granting liens and creating rights for the benefit of Beneficiary.
(f) "Transaction Documents" means all documents evidencing, securing or
related to the payment of amounts owed Lender in connection with the
Transaction, with the exception of the Environmental Agreement.
Borrower shall have the right, upon not less than ten (10) business days
prior written notice, of paying this note in full with a prepayment fee, but
only if the Other Borrowers concurrently pay the Other Notes in full. Borrower's
failure to prepay within twenty (20) business days of the date of Borrower's
written notice of prepayment shall be deemed a withdrawal of Borrower's notice
of prepayment, and Borrower shall be required to submit another written notice
of prepayment pursuant to the terms and conditions set forth in this note if
Borrower thereafter elects to prepay this note. This prepayment fee represents
consideration to Lender for loss of yield and reinvestment costs. The prepayment
fee shall be the greater of Yield Maintenance or 1% of the outstanding principal
balance
of this note.
"Yield Maintenance" means the amount, if any, by which
(i) the present value of the Then Remaining Payments (as hereinafter
defined) calculated using a periodic discount rate (corresponding
to the payment frequency under this note) which, when compounded
for such number of payment periods in a year, equals the linearly
interpolated per annum effective yield of the two Most Recently
Auctioned United States Treasury Obligations having maturity
dates most nearly equivalent to the Maturity Date as reported by
The Wall Street Journal one (1) business day preceding the date
of prepayment; exceeds
(ii) the outstanding principal balance of this note (exclusive of all
accrued interest).
If such United States Treasury obligation yields shall not be reported as
of such time or the yields reported as of such time shall not be ascertainable,
then the periodic discount rate shall be equal to the linearly interpolated per
annum effective yield of the two Treasury Constant Maturity Series yields having
maturity dates most nearly equivalent to the Maturity Date reported, for the
latest day for which such yields shall have been so reported, as of one (1)
business day preceding the prepayment date, in Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication) for actively traded
United States Treasury obligations.
"Then Remaining Payments" means payments in such amounts and at such times
as would have been payable subsequent to the date of such prepayment in
accordance with the terms of this note.
"Most Recently Auctioned United States Treasury Obligations" means the U.S.
Treasury bonds, notes and bills with maturities of 30 years, 10 years, 5 years,
2 years and 1 year which, as of the date the prepayment fee is calculated, were
most recently auctioned by the United States Treasury.
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument) followed by the acceleration of the whole indebtedness evidenced by
this note, the payment of such indebtedness will constitute an evasion of the
prepayment terms hereunder and be deemed to be a voluntary prepayment hereof and
such payment will, therefore, to the extent not prohibited by law, include the
prepayment fee required under the prepayment in full privilege recited above.
Notwithstanding the above and provided Borrower is not in default under any
provision contained in the Loan Documents, this note may be prepaid in full at
any time, without a prepayment fee, during the last 60 days of the term of this
note.
By signing immediately below, Borrower hereby acknowledges the provisions
of this note relating to prepayments of the indebtedness evidenced by this note
and the application of these provisions to prepayments on acceleration of the
indebtedness hereunder. Specifically, but without limiting the generality of the
foregoing, Borrower has separately signed below in compliance with the
provisions of California Civil Code Section 2954.10, to the extent applicable to
Borrower. Borrower hereby acknowledges that this waiver is supported by evidence
of a course of conduct by Lender of individual weight given to the consideration
in the loan transaction evidenced by this note for the waiver and agreement of
Borrower contained herein.
Acknowledgment by Borrower of Prepayment Provisions.
SIGNATURE OF BORROWER:
MISSION WEST PROPERTIES, L.P., a
Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
Name: Carl E. Berg
Title: CEO
Borrower acknowledges and agrees that the Interest Rate hereunder shall be
increased if certain financial statements and other reports are not furnished to
Lender, all as described in more detail in the provision of the Lien Instrument
entitled "Financial Statements".
This note is secured, among other security, by the Lien Instrument, and
certain other deeds of trust executed and delivered by the Other Borrowers on
the date hereof, and the other Transaction Documents, which contain provisions
for the acceleration of the maturity of this Note upon the occurrence of certain
described events.
The occurrence of a default under any of the Other Notes shall constitute a
default under this Note, and Lender, at its option may exercise any and all
remedies provided for in the Lien Instrument.
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument), the whole unpaid principal hereof and accrued interest shall, at
the option of Lender, to be exercised at any time thereafter, become due and
payable at once without notice, notice of the exercise of, and the intent to
exercise, such option being hereby expressly waived.
All parties at any time liable, whether primarily or secondarily, for
payment of indebtedness evidenced hereby, for themselves, their heirs, legal
representatives, successors and assigns, respectively, expressly waive
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection; consent to the extension by Lender of the time of said
payments or any part thereof; further consent that the real or collateral
security or any part thereof may be released by Lender, without in any way
modifying, altering, releasing, affecting, or limiting their respective
liability or the lien of the Lien Instrument; and agree to pay reasonable
attorneys' fees and expenses of collection in case this note is placed in the
hands of an attorney for collection or suit is brought hereon and any attorneys'
fees and expenses incurred by Lender to enforce or preserve its rights under any
of the Loan Documents in any bankruptcy or insolvency proceeding.
All amounts due Lender including principal and, to the extent permitted by
applicable law, interest not paid when due (without regard to any notice and/or
cure provisions contained in any of the Loan Documents), other than principal
becoming due by reason of acceleration by Lender of the unpaid balance of this
note, shall bear interest from the due date thereof until paid at the Default
Rate. "Default Rate" means the lower of a rate equal to the interest rate in
effect at the time of the default as herein provided plus 5% per annum or the
maximum rate permitted by law.
No provision of this note shall require the payment or permit the
collection of interest, including any fees paid which are construed under
applicable law to be interest, in excess of the maximum permitted by law. If any
such excess interest is collected or herein provided for, or shall be
adjudicated to have been collected or be so provided for herein, the provisions
of this paragraph shall govern, and Borrower shall not be obligated to pay the
amount of such interest to the extent that it is in excess of the amount
permitted by law. Any such excess collected shall, at the option of Lender,
unless otherwise required by applicable law, be immediately refunded to Borrower
or credited on the principal of this note immediately upon Lender's awareness of
the collection of such excess.
Nothing herein contained shall limit the rights of Lender under California
Code of Civil Procedure Section 726.5 or under any other statute, case or other
law which gives Lender the right to waive its lien against environmentally
impaired property and pursue the rights of an unsecured creditor or otherwise
obtain a money judgment against Borrower.
Notwithstanding any provision contained herein or in the Lien Instrument to
the contrary, if Lender shall take action to enforce the collection of the
indebtedness evidenced hereby or secured by the Lien Instrument (collectively,
the "Indebtedness"), its recourse shall, except as provided below, be limited to
the Property or the proceeds from the sale of the Property and the proceeds
realized by Lender in exercising its rights and remedies (i) under the Absolute
Assignment (as defined in the Lien Instrument), (ii) under the Guarantee of
Recourse Obligations of even date herewith executed by Mission West Properties,
Inc., a Maryland corporation for the benefit of Lender and under other separate
guarantees, if any, (iii) under any of the other Loan Documents (as defined in
the Lien Instrument), (iv) under any of the Transaction Documents, and (v) in
any other collateral securing the Indebtedness. If such proceeds are
insufficient to pay the Indebtedness, Lender will never institute any action,
suit, claim or demand in law or in equity against Borrower for or on account of
such deficiency; provided, however, that the provisions contained in this
paragraph
(i) shall not in any way affect or impair the validity or enforceability
of the Indebtedness or the Lien Instrument; and
(ii) shall not prevent Lender from seeking and obtaining a judgment against
Borrower, and Borrower shall be personally liable, for the Recourse
Obligations.
"Recourse Obligations" means
(a) rents and other income from the Property received by Borrower or those
acting on behalf of Borrower from and after the date of any default under
the Loan Documents remaining uncured prior to the Conveyance Date (as
hereinafter defined), which rents and
other income have not been applied to the payment of principal and interest
on this note or to reasonable operating expenses of the Property;
(b) amounts necessary to repair any damage to the Property caused by the
intentional acts or omissions of Borrower or those acting on behalf of
Borrower;
(c) insurance loss and Condemnation Proceeds (as defined in the Lien
Instrument) released to Borrower but not applied in accordance with any
agreement between Borrower and Lender as to their application;
(d) the amount of insurance loss proceeds which would have been available
with respect to a casualty on the Property, but were not available due to
the default by Borrower in carrying all insurance required by Lender;
(e) damages suffered by Lender as a result of fraud or misrepresentation in
connection with the Indebtedness by Borrower or any other person or entity
acting on behalf of Borrower;
(f) amounts in excess of any rents or other revenues collected by Lender
from operation of the Property from and after acceleration of the
Indebtedness until the Conveyance Date, which amounts are necessary to pay
real estate taxes, special assessments and insurance premiums with respect
to the Property, and amounts required to fulfill Borrower's obligations as
lessor under any leases of the Property, in each case, either paid by
Lender and not reimbursed prior to, or remaining due or delinquent on the
Conveyance Date;
(g) all security deposits under leases of the Property or any portion of
the Property collected by Borrower, any agent of Borrower or any
predecessor of Borrower, and not refunded to the tenants thereunder in
accordance with their respective leases, applied in accordance with such
leases or law or delivered to Lender, and all advance rents collected by
Borrower, any agent of Borrower or any predecessor of Borrower and not
applied in accordance with the leases of the Property or delivered to
Lender;
(h) all outstanding amounts due under the Indebtedness, including
principal, interest, and other charges if there shall be a violation of any
of the provisions in the Lien Instrument following the caption entitled
"Prohibition on Transfer".
"Conveyance Date" means (i) the later of (a) the date on which title vests
in the purchaser at the foreclosure sale of the Property pursuant to the Lien
Instrument or (b) the date on which Borrower's statutory right of redemption
shall expire or be waived or (ii) the date of the conveyance of the Property to
Lender in lieu of foreclosure.
This Note shall be governed by and construed in all respects in accordance
with the laws of the State of California without regard to any conflict of law
principles. Any action, lawsuit or other legal proceeding concerning any dispute
arising under or related to this Note shall be brought in a state or federal
court located in the State of California, and Lender and Borrower hereby
irrevocably consent to the jurisdiction of the courts located in the State of
California and irrevocably waive any defense of improper venue, forum
nonconveniens or lack of personal jurisdiction in any such action, lawsuit or
other legal proceeding brought in any court located in the State of California.
MISSION WEST PROPERTIES, L.P., a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
Name: Carl E. Berg
Title: CEO
EXHIBIT 10.33
California
Loan No. C-332757
PROMISSORY NOTE
Mission West Properties, L.P. I
$29,811,369.00 January 3, 2003
For value received, the undersigned, herein called "Borrower," promises to
pay to the order of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin
corporation, who, together with any subsequent holder of this note, is
hereinafter referred to as "Lender", at 720 E. Wisconsin Avenue, Milwaukee, WI
53202 or at such other place as Lender shall designate in writing, in coin or
currency which, at the time or times of payment, is legal tender for public and
private debts in the United States, the principal sum of TWENTY-NINE MILLION
EIGHT HUNDRED ELEVEN THOUSAND THREE HUNDRED SIXTY-NINE DOLLARS or so much
thereof as shall have been advanced from time to time plus interest on the
outstanding principal balance at the rate and payable as follows:
Interest shall accrue from the date of advance until maturity at the
rate of five and sixty-four hundredths percent (5.64%) per annum (the
"Interest Rate").
Accrued interest only on the amount advanced shall be paid on the
first day of the month following the date of advance ("Amortization Period
Commencement Date"). On the first day of the following month and on the
first day of each month thereafter until maturity, installments of
principal and interest shall be paid in the amount of $207,433.00. Payments
shall be made directly to Lender by electronic transfer of funds using the
Automated Clearing House System. All installments shall be applied first in
payment of interest, calculated monthly on the unpaid principal balance,
and the remainder of each installment shall be applied in payment of
principal. The entire unpaid principal balance plus accrued interest
thereon shall be due and payable on February 1, 2013 (the "Maturity Date").
DEFINITIONS. For the purpose of this Promissory Note (this "Note"), the
following terms shall have the meanings set forth below. Except as otherwise
provided herein, any capitalized term not otherwise defined herein shall have
the meaning ascribed to such term in the Lien Instrument.
(a) "Lien Instrument" means that certain first priority Deed of Trust and
Security Agreement of even date herewith executed by Borrower as "Grantor"
to the benefit of Lender as "Beneficiary" as security for repayment of this
Note.
(b) "Other Borrowers" means, collectively, Mission West Properties, L.P., a
Delaware limited partnership, and Mission West Properties, L.P. II, a
Delaware limited partnership.
(c) "Other Notes" means, collectively, the Promissory Notes executed by the
Other Borrowers evidencing the Loan, as more particularly identified on
Schedule 1 of this Note.
(d) "Property" means the Property (as defined in the Lien Instrument),
together with all real and personal property securing, in whole or in part,
this Note, the Indebtedness or the Obligations.
(e) "Transaction" means the loans in the aggregate principal amount of One
Hundred Million Dollars ($100,000,000.00), which are made by the
Beneficiary to the Borrower and the Other Borrowers on the date hereof and
are evidenced by the Note and Other Notes and secured by other lien
instruments and collateral documents from Borrower and the Other Borrowers
granting liens and creating rights for the benefit of Beneficiary.
(f) "Transaction Documents" means all documents evidencing, securing or
related to the payment of amounts owed Lender in connection with the
Transaction, with the exception of the Environmental Agreement.
Borrower shall have the right, upon not less than ten (10) business days
prior written notice, of paying this note in full with a prepayment fee, but
only if the Other Borrowers concurrently pay the Other Notes in full. Borrower's
failure to prepay within twenty (20) business days of the date of Borrower's
written notice of prepayment shall be deemed a withdrawal of Borrower's notice
of prepayment, and Borrower shall be required to submit another written notice
of prepayment pursuant to the terms and conditions set forth in this note if
Borrower thereafter elects to prepay this note. This prepayment fee represents
consideration to Lender for loss of yield and reinvestment costs. The prepayment
fee shall be the greater of Yield Maintenance or 1% of the outstanding principal
balance
of this note.
"Yield Maintenance" means the amount, if any, by which
(i) the present value of the Then Remaining Payments (as hereinafter
defined) calculated using a periodic discount rate (corresponding to
the payment frequency under this note) which, when compounded for such
number of payment periods in a year, equals the linearly interpolated
per annum effective yield of the two Most Recently Auctioned United
States Treasury Obligations having maturity dates most nearly
equivalent to the Maturity Date as reported by The Wall Street Journal
one (1) business day preceding the date of prepayment; exceeds
(ii) the outstanding principal balance of this note (exclusive of all
accrued interest).
If such United States Treasury obligation yields shall not be reported as
of such time or the yields reported as of such time shall not be ascertainable,
then the periodic discount rate shall be equal to the linearly interpolated per
annum effective yield of the two Treasury Constant Maturity Series yields having
maturity dates most nearly equivalent to the Maturity Date reported, for the
latest day for which such yields shall have been so reported, as of one (1)
business day preceding the prepayment date, in Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication) for actively traded
United States Treasury obligations.
"Then Remaining Payments" means payments in such amounts and at such times
as would have been payable subsequent to the date of such prepayment in
accordance with the terms of this note.
"Most Recently Auctioned United States Treasury Obligations" means the U.S.
Treasury bonds, notes and bills with maturities of 30 years, 10 years, 5 years,
2 years and 1 year which, as of the date the prepayment fee is calculated, were
most recently auctioned by the United States Treasury.
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument) followed by the acceleration of the whole indebtedness evidenced by
this note, the payment of such indebtedness will constitute an evasion of the
prepayment terms hereunder and be deemed to be a voluntary prepayment hereof and
such payment will, therefore, to the extent not prohibited by law, include the
prepayment fee required under the prepayment in full privilege recited above.
Notwithstanding the above and provided Borrower is not in default under any
provision contained in the Loan Documents, this note may be prepaid in full at
any time, without a prepayment fee, during the last 60 days of the term of this
note.
By signing immediately below, Borrower hereby acknowledges the provisions
of this note relating to prepayments of the indebtedness evidenced by this note
and the application of these provisions to prepayments on acceleration of the
indebtedness hereunder. Specifically, but without limiting the generality of the
foregoing, Borrower has separately signed below in compliance with the
provisions of California Civil Code Section 2954.10, to the extent applicable to
Borrower. Borrower hereby acknowledges that this waiver is supported by evidence
of a course of conduct by Lender of individual weight given to the consideration
in the loan transaction evidenced by this note for the waiver and agreement of
Borrower contained herein.
Acknowledgment by Borrower of Prepayment Provisions.
SIGNATURE OF BORROWER:
MISSION WEST PROPERTIES, L.P. I, a
Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
Name: Carl E. Berg
Title: CEO
Borrower acknowledges and agrees that the Interest Rate hereunder shall be
increased if certain financial statements and other reports are not furnished to
Lender, all as described in more detail in the provision of the Lien Instrument
entitled "Financial Statements".
This note is secured, among other security, by the Lien Instrument, and
certain other deeds of trust executed and delivered by the Other Borrowers on
the date hereof, and the other Transaction Documents, which contain provisions
for the acceleration of the maturity of this Note upon the occurrence of certain
described events.
The occurrence of a default under any of the Other Notes shall constitute a
default under this Note, and Lender, at its option may exercise any and all
remedies provided for in the Lien Instrument.
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument), the whole unpaid principal hereof and accrued interest shall, at
the option of Lender, to be exercised at any time thereafter, become due and
payable at once without notice, notice of the exercise of, and the intent to
exercise, such option being hereby expressly waived.
All parties at any time liable, whether primarily or secondarily, for
payment of indebtedness evidenced hereby, for themselves, their heirs, legal
representatives, successors and assigns, respectively, expressly waive
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection; consent to the extension by Lender of the time of said
payments or any part thereof; further consent that the real or collateral
security or any part thereof may be released by Lender, without in any way
modifying, altering, releasing, affecting, or limiting their respective
liability or the lien of the Lien Instrument; and agree to pay reasonable
attorneys' fees and expenses of collection in case this note is placed in the
hands of an attorney for collection or suit is brought hereon and any attorneys'
fees and expenses incurred by Lender to enforce or preserve its rights under any
of the Loan Documents in any bankruptcy or insolvency proceeding.
All amounts due Lender including principal and, to the extent permitted by
applicable law, interest not paid when due (without regard to any notice and/or
cure provisions contained in any of the Loan Documents), other than principal
becoming due by reason of acceleration by Lender of the unpaid balance of this
note, shall bear interest from the due date thereof until paid at the Default
Rate. "Default Rate" means the lower of a rate equal to the interest rate in
effect at the time of the default as herein provided plus 5% per annum or the
maximum rate permitted by law.
No provision of this note shall require the payment or permit the
collection of interest, including any fees paid which are construed under
applicable law to be interest, in excess of the maximum permitted by law. If any
such excess interest is collected or herein provided for, or shall be
adjudicated to have been collected or be so provided for herein, the provisions
of this paragraph shall govern, and Borrower shall not be obligated to pay the
amount of such interest to the extent that it is in excess of the amount
permitted by law. Any such excess collected shall, at the option of Lender,
unless otherwise required by applicable law, be immediately refunded to Borrower
or credited on the principal of this note immediately upon Lender's awareness of
the collection of such excess.
Nothing herein contained shall limit the rights of Lender under California
Code of Civil Procedure Section 726.5 or under any other statute, case or other
law which gives Lender the right to waive its lien against environmentally
impaired property and pursue the rights of an unsecured creditor or otherwise
obtain a money judgment against Borrower.
Notwithstanding any provision contained herein or in the Lien Instrument to
the contrary, if Lender shall take action to enforce the collection of the
indebtedness evidenced hereby or secured by the Lien Instrument (collectively,
the "Indebtedness"), its recourse shall, except as provided below, be limited to
the Property or the proceeds from the sale of the Property and the proceeds
realized by Lender in exercising its rights and remedies (i) under the Absolute
Assignment (as defined in the Lien Instrument), (ii) under the Guarantee of
Recourse Obligations of even date herewith executed by Mission West Properties,
Inc., a Maryland corporation for the benefit of Lender and under other separate
guarantees, if any, (iii) under any of the other Loan Documents (as defined in
the Lien Instrument), (iv) under any of the Transaction Documents, and (v) in
any other collateral securing the Indebtedness. If such proceeds are
insufficient to pay the Indebtedness, Lender will never institute any action,
suit, claim or demand in law or in equity against Borrower for or on account of
such deficiency; provided, however, that the provisions contained in this
paragraph
(i) shall not in any way affect or impair the validity or enforceability
of the Indebtedness or the Lien Instrument; and
(ii) shall not prevent Lender from seeking and obtaining a judgment against
Borrower, and Borrower shall be personally liable, for the Recourse
Obligations.
"Recourse Obligations" means
(a) rents and other income from the Property received by Borrower or those
acting on behalf of Borrower from and after the date of any default under
the Loan Documents remaining uncured prior to the Conveyance Date (as
hereinafter defined), which rents and
other income have not been applied to the payment of principal and interest
on this note or to reasonable operating expenses of the Property;
(b) amounts necessary to repair any damage to the Property caused by the
intentional acts or omissions of Borrower or those acting on behalf of
Borrower;
(c) insurance loss and Condemnation Proceeds (as defined in the Lien
Instrument) released to Borrower but not applied in accordance with any
agreement between Borrower and Lender as to their application;
(d) the amount of insurance loss proceeds which would have been available
with respect to a casualty on the Property, but were not available due to
the default by Borrower in carrying all insurance required by Lender;
(e) damages suffered by Lender as a result of fraud or misrepresentation in
connection with the Indebtedness by Borrower or any other person or entity
acting on behalf of Borrower;
(f) amounts in excess of any rents or other revenues collected by Lender
from operation of the Property from and after acceleration of the
Indebtedness until the Conveyance Date, which amounts are necessary to pay
real estate taxes, special assessments and insurance premiums with respect
to the Property, and amounts required to fulfill Borrower's obligations as
lessor under any leases of the Property, in each case, either paid by
Lender and not reimbursed prior to, or remaining due or delinquent on the
Conveyance Date;
(g) all security deposits under leases of the Property or any portion of
the Property collected by Borrower, any agent of Borrower or any
predecessor of Borrower, and not refunded to the tenants thereunder in
accordance with their respective leases, applied in accordance with such
leases or law or delivered to Lender, and all advance rents collected by
Borrower, any agent of Borrower or any predecessor of Borrower and not
applied in accordance with the leases of the Property or delivered to
Lender;
(h) all outstanding amounts due under the Indebtedness, including
principal, interest, and other charges if there shall be a violation of any
of the provisions in the Lien Instrument following the caption entitled
"Prohibition on Transfer".
"Conveyance Date" means (i) the later of (a) the date on which title vests
in the purchaser at the foreclosure sale of the Property pursuant to the Lien
Instrument or (b) the date on which Borrower's statutory right of redemption
shall expire or be waived or (ii) the date of the conveyance of the Property to
Lender in lieu of foreclosure.
This Note shall be governed by and construed in all respects in
accordance with the laws of the State of California without regard to any
conflict of law principles. Any action, lawsuit or other legal proceeding
concerning any dispute arising under or related to this Note shall be brought in
a state or federal court located in the State of California, and Lender and
Borrower hereby irrevocably consent to the jurisdiction of the courts
located in
the State of California and irrevocably waive any defense of improper venue,
forum nonconveniens or lack of personal jurisdiction in any such action, lawsuit
or other legal proceeding brought in any court located in the State of
California.
MISSION WEST PROPERTIES, L.P. I, a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
Name: Carl E. Berg
Title: CEO
EXHIBIT 10.34
California
Loan No. C-332757
PROMISSORY NOTE
Mission West Properties, L.P. II
$41,319,976.00 January 3, 2003
For value received, the undersigned, herein called "Borrower," promises to
pay to the order of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin
corporation, who, together with any subsequent holder of this note, is
hereinafter referred to as "Lender", at 720 E. Wisconsin Avenue, Milwaukee, WI
53202 or at such other place as Lender shall designate in writing, in coin or
currency which, at the time or times of payment, is legal tender for public and
private debts in the United States, the principal sum of FORTY-ONE MILLION THREE
HUNDRED NINETEEN THOUSAND, NINE HUNDRED SEVENTY-SIX DOLLARS or so much thereof
as shall have been advanced from time to time plus interest on the outstanding
principal balance at the rate and payable as follows:
Interest shall accrue from the date of advance until maturity at the
rate of five and sixty-four hundredths percent (5.64%) per annum (the
"Interest Rate").
Accrued interest only on the amount advanced shall be paid on the
first day of the month following the date of advance ("Amortization Period
Commencement Date"). On the first day of the following month and on the
first day of each month thereafter until maturity, installments of
principal and interest shall be paid in the amount of $287,512.00. Payments
shall be made directly to Lender by electronic transfer of funds using the
Automated Clearing House System. All installments shall be applied first in
payment of interest, calculated monthly on the unpaid principal balance,
and the remainder of each installment shall be applied in payment of
principal. The entire unpaid principal balance plus accrued interest
thereon shall be due and payable on February 1, 2013 (the "Maturity Date").
DEFINITIONS. For the purpose of this Promissory Note (this "Note"), the
following terms shall have the meanings set forth below. Except as otherwise
provided herein, any capitalized term not otherwise defined herein shall have
the meaning ascribed to such term in the Lien Instrument.
(a) "Lien Instrument" means that certain first priority Deed of Trust and
Security Agreement of even date herewith executed by Borrower as "Grantor"
to the benefit of Lender as "Beneficiary" as security for repayment of this
Note.
(b) "Other Borrowers" means, collectively, Mission West Properties, L.P., a
Delaware limited partnership, and Mission West Properties, L.P. I, a
Delaware limited partnership.
(c) "Other Notes" means, collectively, the Promissory Notes executed by the
Other Borrowers evidencing the Loan, as more particularly identified on
Schedule 1 of this Note.
(d) "Property" means the Property (as defined in the Lien Instrument),
together with all real and personal property securing, in whole or in part,
this Note, the Indebtedness or the Obligations.
(e) "Transaction" means the loans in the aggregate principal amount of One
Hundred Million Dollars ($100,000,000.00), which are made by the
Beneficiary to the Borrower and the Other Borrowers on the date hereof and
are evidenced by the Note and Other Notes and secured by other lien
instruments and collateral documents from Borrower and the Other Borrowers
granting liens and creating rights for the benefit of Beneficiary.
(f) "Transaction Documents" means all documents evidencing, securing or
related to the payment of amounts owed Lender in connection with the
Transaction, with the exception of the Environmental Agreement.
Borrower shall have the right, upon not less than ten (10) business days
prior written notice, of paying this note in full with a prepayment fee, but
only if the Other Borrowers concurrently pay the Other Notes in full. Borrower's
failure to prepay within twenty (20) business days of the date of Borrower's
written notice of prepayment shall be deemed a withdrawal of Borrower's notice
of prepayment, and Borrower shall be required to submit another written notice
of prepayment pursuant to the terms and conditions set forth in this note if
Borrower thereafter elects to prepay this note. This prepayment fee represents
consideration to Lender for loss of yield and reinvestment costs. The prepayment
fee shall be the greater of Yield Maintenance or 1% of the outstanding principal
balance
of this note.
"Yield Maintenance" means the amount, if any, by which
(i) the present value of the Then Remaining Payments (as hereinafter
defined) calculated using a periodic discount rate (corresponding to
the payment frequency under this note) which, when compounded for such
number of payment periods in a year, equals the linearly interpolated
per annum effective yield of the two Most Recently Auctioned United
States Treasury Obligations having maturity dates most nearly
equivalent to the Maturity Date as reported by The Wall Street Journal
one (1) business day preceding the date of prepayment; exceeds
(ii) the outstanding principal balance of this note (exclusive of all
accrued interest).
If such United States Treasury obligation yields shall not be reported as
of such time or the yields reported as of such time shall not be ascertainable,
then the periodic discount rate shall be equal to the linearly interpolated per
annum effective yield of the two Treasury Constant Maturity Series yields having
maturity dates most nearly equivalent to the Maturity Date reported, for the
latest day for which such yields shall have been so reported, as of one (1)
business day preceding the prepayment date, in Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication) for actively traded
United States Treasury obligations.
"Then Remaining Payments" means payments in such amounts and at such times
as would have been payable subsequent to the date of such prepayment in
accordance with the terms of this note.
"Most Recently Auctioned United States Treasury Obligations" means the U.S.
Treasury bonds, notes and bills with maturities of 30 years, 10 years, 5 years,
2 years and 1 year which, as of the date the prepayment fee is calculated, were
most recently auctioned by the United States Treasury.
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument) followed by the acceleration of the whole indebtedness evidenced by
this note, the payment of such indebtedness will constitute an evasion of the
prepayment terms hereunder and be deemed to be a voluntary prepayment hereof and
such payment will, therefore, to the extent not prohibited by law, include the
prepayment fee required under the prepayment in full privilege recited above.
Notwithstanding the above and provided Borrower is not in default under any
provision contained in the Loan Documents, this note may be prepaid in full at
any time, without a prepayment fee, during the last 60 days of the term of this
note.
By signing immediately below, Borrower hereby acknowledges the provisions
of this note relating to prepayments of the indebtedness evidenced by this note
and the application of these provisions to prepayments on acceleration of the
indebtedness hereunder. Specifically, but without limiting the generality of the
foregoing, Borrower has separately signed below in compliance with the
provisions of California Civil Code Section 2954.10, to the extent applicable to
Borrower. Borrower hereby acknowledges that this waiver is supported by evidence
of a course of conduct by Lender of individual weight given to the consideration
in the loan transaction evidenced by this note for the waiver and agreement of
Borrower contained herein.
Acknowledgment by Borrower of Prepayment Provisions.
SIGNATURE OF BORROWER:
MISSION WEST PROPERTIES, L.P. II,
a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
Name: Carl E. Berg
Title: CEO
Borrower acknowledges and agrees that the Interest Rate hereunder shall be
increased if certain financial statements and other reports are not furnished to
Lender, all as described in more detail in the provision of the Lien Instrument
entitled "Financial Statements".
This note is secured, among other security, by the Lien Instrument, and
certain other deeds of trust executed and delivered by the Other Borrowers on
the date hereof, and the other Transaction Documents, which contain provisions
for the acceleration of the maturity of this Note upon the occurrence of certain
described events.
The occurrence of a default under any of the Other Notes shall constitute a
default under this Note, and Lender, at its option may exercise any and all
remedies provided for in the Lien Instrument.
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument), the whole unpaid principal hereof and accrued interest shall, at
the option of Lender, to be exercised at any time thereafter, become due and
payable at once without notice, notice of the exercise of, and the intent to
exercise, such option being hereby expressly waived.
All parties at any time liable, whether primarily or secondarily, for
payment of indebtedness evidenced hereby, for themselves, their heirs, legal
representatives, successors and assigns, respectively, expressly waive
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection; consent to the extension by Lender of the time of said
payments or any part thereof; further consent that the real or collateral
security or any part thereof may be released by Lender, without in any way
modifying, altering, releasing, affecting, or limiting their respective
liability or the lien of the Lien Instrument; and agree to pay reasonable
attorneys' fees and expenses of collection in case this note is placed in the
hands of an attorney for collection or suit is brought hereon and any attorneys'
fees and expenses incurred by Lender to enforce or preserve its rights under any
of the Loan Documents in any bankruptcy or insolvency proceeding.
All amounts due Lender including principal and, to the extent permitted by
applicable law, interest not paid when due (without regard to any notice and/or
cure provisions contained in any of the Loan Documents), other than principal
becoming due by reason of acceleration by Lender of the unpaid balance of this
note, shall bear interest from the due date thereof until paid at the Default
Rate. "Default Rate" means the lower of a rate equal to the interest rate in
effect at the time of the default as herein provided plus 5% per annum or the
maximum rate permitted by law.
No provision of this note shall require the payment or permit the
collection of interest, including any fees paid which are construed under
applicable law to be interest, in excess of the maximum permitted by law. If any
such excess interest is collected or herein provided for, or shall be
adjudicated to have been collected or be so provided for herein, the provisions
of this paragraph shall govern, and Borrower shall not be obligated to pay the
amount of such interest to the extent that it is in excess of the amount
permitted by law. Any such excess collected shall, at the option of Lender,
unless otherwise required by applicable law, be immediately refunded to Borrower
or credited on the principal of this note immediately upon Lender's awareness of
the collection of such excess.
Nothing herein contained shall limit the rights of Lender under California
Code of Civil Procedure Section 726.5 or under any other statute, case or other
law which gives Lender the right to waive its lien against environmentally
impaired property and pursue the rights of an unsecured creditor or otherwise
obtain a money judgment against Borrower.
Notwithstanding any provision contained herein or in the Lien Instrument to
the contrary, if Lender shall take action to enforce the collection of the
indebtedness evidenced hereby or secured by the Lien Instrument (collectively,
the "Indebtedness"), its recourse shall, except as provided below, be limited to
the Property or the proceeds from the sale of the Property and the proceeds
realized by Lender in exercising its rights and remedies (i) under the Absolute
Assignment (as defined in the Lien Instrument), (ii) under the Guarantee of
Recourse Obligations of even date herewith executed by Mission West Properties,
Inc., a Maryland corporation for the benefit of Lender and under other separate
guarantees, if any, (iii) under any of the other Loan Documents (as defined in
the Lien Instrument), (iv) under any of the Transaction Documents, and (v) in
any other collateral securing the Indebtedness. If such proceeds are
insufficient to pay the Indebtedness, Lender will never institute any action,
suit, claim or demand in law or in equity against Borrower for or on account of
such deficiency; provided, however, that the provisions contained in this
paragraph
(i) shall not in any way affect or impair the validity or enforceability
of the Indebtedness or the Lien Instrument; and
(ii) shall not prevent Lender from seeking and obtaining a judgment against
Borrower, and Borrower shall be personally liable, for the Recourse
Obligations.
"Recourse Obligations" means
(a) rents and other income from the Property received by Borrower or those
acting on behalf of Borrower from and after the date of any default under
the Loan Documents remaining uncured prior to the Conveyance Date (as
hereinafter defined), which rents and
other income have not been applied to the payment of principal and interest
on this note or to reasonable operating expenses of the Property;
(b) amounts necessary to repair any damage to the Property caused by the
intentional acts or omissions of Borrower or those acting on behalf of
Borrower;
(c) insurance loss and Condemnation Proceeds (as defined in the Lien
Instrument) released to Borrower but not applied in accordance with any
agreement between Borrower and Lender as to their application;
(d) the amount of insurance loss proceeds which would have been available
with respect to a casualty on the Property, but were not available due to
the default by Borrower in carrying all insurance required by Lender;
(e) damages suffered by Lender as a result of fraud or misrepresentation in
connection with the Indebtedness by Borrower or any other person or entity
acting on behalf of Borrower;
(f) amounts in excess of any rents or other revenues collected by Lender
from operation of the Property from and after acceleration of the
Indebtedness until the Conveyance Date, which amounts are necessary to pay
real estate taxes, special assessments and insurance premiums with respect
to the Property, and amounts required to fulfill Borrower's obligations as
lessor under any leases of the Property, in each case, either paid by
Lender and not reimbursed prior to, or remaining due or delinquent on the
Conveyance Date;
(g) all security deposits under leases of the Property or any portion of
the Property collected by Borrower, any agent of Borrower or any
predecessor of Borrower, and not refunded to the tenants thereunder in
accordance with their respective leases, applied in accordance with such
leases or law or delivered to Lender, and all advance rents collected by
Borrower, any agent of Borrower or any predecessor of Borrower and not
applied in accordance with the leases of the Property or delivered to
Lender;
(h) all outstanding amounts due under the Indebtedness, including
principal, interest, and other charges if there shall be a violation of any
of the provisions in the Lien Instrument following the caption entitled
"Prohibition on Transfer".
"Conveyance Date" means (i) the later of (a) the date on which title vests
in the purchaser at the foreclosure sale of the Property pursuant to the Lien
Instrument or (b) the date on which Borrower's statutory right of redemption
shall expire or be waived or (ii) the date of the conveyance of the Property to
Lender in lieu of foreclosure.
This Note shall be governed by and construed in all respects in accordance
with the laws of the State of California without regard to any conflict of law
principles. Any action, lawsuit or other legal proceeding concerning any dispute
arising under or related to this Note shall be brought in a state or federal
court located in the State of California, and Lender and Borrower hereby
irrevocably consent to the jurisdiction of the courts located in the State of
California and irrevocably waive any defense of improper venue, forum
nonconveniens or lack of personal jurisdiction in any such action, lawsuit or
other legal proceeding brought in any court located in the State of California.
MISSION WEST PROPERTIES, L.P. II, a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
Name: Carl E. Berg
Title: CEO
EXHIBIT 10.35
California
Loan No. C-332757
RECORDING REQUESTED BY
American Title Company
632004LZ
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Nadine T. Hansohn
SPACE ABOVE THIS LINE FOR RECORDER'S USE
DEED OF TRUST and SECURITY AGREEMENT (FIRST PRIORITY)
Mission West Properties, L. P.
THIS DEED OF TRUST and SECURITY AGREEMENT is made as of the 3rd day of
January, 2003 between MISSION WEST PROPERTIES, L.P., a Delaware limited
partnership, 10050 Bandley Drive, Cupertino, CA 95014, herein (said
Grantor/Trustor, whether one or more in number) called "Grantor", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Trustee", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":
WITNESSETH, That Grantor, in consideration of the indebtedness herein
mentioned, does hereby irrevocably bargain, sell, grant, transfer, assign and
convey unto Trustee, in trust, with power of sale and right of entry and
possession, the following property (herein referred to as the "Property"):
A. The land in the City of San Jose, Santa Clara County, California
described in Exhibit "A" attached hereto and incorporated herein (the
"Land");
B. All easements, appurtenances, tenements and hereditaments belonging to
or benefiting the Land, including but not limited to all waters, water
rights, water courses, all ways, trees, rights, liberties and
privileges; and
C. All improvements to the Land, including, but not limited to, all
buildings, structures and improvements now existing or hereafter
erected on the Land; all fixtures and equipment of every description
belonging to Grantor which are or may be placed or used upon the Land
or attached to the buildings, structures or improvements, including,
but not limited to, all engines, boilers, elevators and machinery, all
heating apparatus, electrical equipment, air-conditioning and
ventilating equipment, water and gas fixtures, and all furniture and
easily removable equipment; all of which, to the extent permitted by
applicable law, shall be deemed an accession to the freehold and a
part of the realty as between the parties hereto.
D. All Grantor's right, title and interest in and to that certain C.O.E.
- 30' Reciprocal Ingress, Egress Easement Agreement filed for record
on December 23, 1997, in Book 698 of Maps, Pages 1 & 2, Santa Clara
County, California.
E. All Grantor's right, title and interest in and to that certain C.O.E.
- 26' Reciprocal-Ingress, Egress-Easement Agreement filed for record
on December 23, 1997, in Book 698 of Maps, Pages 1 and 2, Santa Clara
County, California.
Grantor agrees not to sell, transfer, assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any buildings or structures or the sale or transfer of waters or water rights
and (ii) such action results in the substitution or replacement with similar
items of equal value.
Without limiting the foregoing grants, Grantor hereby pledges to
Beneficiary, and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter acquired right, title and interest in and to the Property
and any and all
F. cash and other funds now or at any time hereafter deposited by or for
Grantor on account of tax, special assessment, replacement or other
reserves required to be maintained pursuant to the Loan Documents (as
hereinafter defined) with Beneficiary or a third party, or otherwise
deposited with, or in the possession of, Beneficiary pursuant to the
Loan Documents; and
G. surveys, soils reports, environmental reports, guaranties, warranties,
architect's contracts, construction contracts, drawings and
specifications, applications, permits, surety bonds and other
contracts relating to the acquisition, design, development,
construction and operation of the Property; and
H. accounts, chattel paper, deposit accounts, instruments, equipment,
inventory, documents, general intangibles, letter-of-credit rights,
investment property and all other personal property of Grantor, in
each case, to the extent associated with or arising from the
ownership, development, operation, use or disposition of any portion
of the property; and
I. present and future rights to condemnation awards, insurance proceeds
or other proceeds at any time payable to or received by Grantor on
account of the Property or any of the foregoing personal property.
All personal property hereinabove described is hereinafter referred to as the
"Personal Property".
If any of the Property is of a nature that a security interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing statement if permitted by applicable law and
Grantor authorizes Beneficiary to file a financing statement describing such
Property and, at Beneficiary's request, agrees to join with Beneficiary in the
execution of any financing statements and to execute any other instruments that
may be necessary or desirable, in Beneficiary's determination, for the
perfection or renewal of such security interest under the Uniform Commercial
Code.
TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF SECURING, in
such order of priority as Beneficiary may determine: (i) payment of the
Indebtedness (as hereinafter defined); and (ii) payment (with interest as
provided) and performance by Grantor of the Obligations (as hereinafter
defined). Notwithstanding the foregoing, or any other term contained herein or
in the Loan Documents, none of Grantor's obligations (the "Other Obligations")
under or pursuant to (a) the Environmental Indemnity Agreement of even date
herewith executed by Grantor, Guarantor and the Other Borrowers in favor of
Beneficiary ("Environmental Agreement"), (b) the Other Indebtedness or (c) any
Other Note shall be secured by the lien of this Deed of Trust.
FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture filing in the real estate records of the County of the State in which
the real estate described in Exhibit A is located, with respect to any and all
fixtures included within the term "Property" and "fixtures" under this Deed of
Trust and to any goods or other personal property that are now or hereafter
become a part of the Property as fixtures.
DEFINITIONS
CERTAIN DEFINED TERMS: As used in this Deed of Trust the following terms
shall have the following meanings:
ABSOLUTE ASSIGNMENT: The Absolute Assignment of Leases and Rents (First
Priority) of even date herewith executed by Grantorin favor of Beneficiary.
COMMITMENT: The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications stated in the letter, the Loan application executed by
Grantor and the Other Borrowers, dated October 31, 2002, which acceptance and
modification was agreed to by Grantor and the Other Borrowers on November 23,
2002.
ENVIRONMENTAL AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.
FACILITY: A real property (including, without limitation, all buildings,
fixtures and other improvements located thereon) now or hereafter serving as
security for the loans which comprise the Transaction. Attached hereto as
Exhibit B is a list of all Facilities as of the date hereof.
GUARANTOR: Mission West Properties, Inc., a Maryland corporation, and each
other person hereafter guaranteeing any portion of the Indebtedness or
Obligations.
GUARANTEE: That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission West Properties, Inc., a Maryland corporation,
in favor of Beneficiary, and any other guarantee of any portion of the
Indebtedness or Obligations hereafter executed by any person.
INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Note (as hereinafter defined) and any extensions or renewals
thereof (including extensions or renewals at a different rate of interest,
whether or not evidenced by a new or additional promissory note or notes), and
all other indebtedness of Grantor to Beneficiary and additional advances under,
evidenced by and/or secured by the Loan Documents, plus interest on all such
amounts, other than any obligations relating to the Other Indebtedness, Other
Notes or Other Obligations.
LOAN DOCUMENTS: The Note, this Deed of Trust, the Commitment (as it relates
to the Indebtedness), the Absolute Assignment, the Guarantee (as it relates to
the Indebtedness), that certain Certification of Borrowers and Carl E. Berg
("Certification") of even date herewith (as it relates to the Indebtedness),
that certain Limited Partnership Supplement dated January 3, 2003, any other
supplements and authorizations required by Beneficiary, the Fraudulent
Conveyance Indemnity Agreement from Guarantor (as it relates to the
Indebtedness), Certificate Regarding Distribution of Loan Proceeds and Indemnity
Agreement among Guarantor, Grantor and the Other Borrowers (as it relates to the
Indebtedness), and Contribution and Reimbursement Agreement among Grantor and
the Other Borrowers (as it relates to the Indebtedness), and all other documents
evidencing, securing or relating to the payment of the Indebtedness or the
performance of the Obligations, with the exception of the Other Notes and the
Environmental Agreement.
NOTE: The Promissory Note of even date herewith executed by Grantor in the
original principal amount of Twenty Eight Million Eight Hundred Sixty Eight
Thousand Six Hundred Fifty-Five Dollars ($28,868,655.00), payable to Beneficiary
or its order, with final maturity no later than February 1, 2013 and with
interest as therein expressed, and all modifications, renewals or extensions of
such Promissory Note.
OBLIGATIONS: Any and all of the covenants, promises and other obligations
(including payment of the Indebtedness) made or owing by Grantor to or due to
Beneficiary under and/or as set forth in the Loan Documents and all of the
material covenants, promises and other obligations made or owing by Grantor to
each and every other person relating to the Property, exclusive of the Other
Obligations.
OTHER BORROWERS: Collectively, Mission West Properties, L.P. I, a Delaware
limited partnership, and Mission West Properties, L.P. II, a Delaware limited
partnership.
OTHER INDEBTEDNESS: The loans from Beneficiary to the Other Borrowers
evidenced by the Other Notes.
OTHER NOTES: Those other Promissory Notes, each executed by one of the
Other Borrowers and payable to the order of Beneficiary, which Promissory Notes
are more particularly described in Schedule 1 of the Note.
OTHER OBLIGATIONS: As defined in the Granting Paragraph of this Deed of
Trust.
PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.
TRANSACTION: Loans in the aggregate principal amount of One Hundred Million
Dollars ($100,000,000.00), which are made by the Beneficiary to the Grantor and
the Other Borrowers on the date hereof, and are evidenced by the Note and Other
Notes and secured by lien instruments and collateral documents from Grantor and
the Other Borrowers creating liens and rights for the benefit of Beneficiary.
TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the payment of amounts owed Beneficiary in connection with the
Transaction, with the exception of the Environmental Agreement.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:
PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness hereby secured promptly
and in full compliance with the terms of the Loan Documents.
OWNERSHIP. Grantor represents that it owns the Property and has good and lawful
right to convey the same and that the Property is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary. Grantor does hereby forever warrant and shall forever defend the
title and possession thereof against the lawful claims of any and all persons
whomsoever.
MAINTENANCE OF PROPERTY AND COMPLIANCE WITH LAWS. Grantor agrees to keep the
buildings and other improvements now or hereafter erected on the Land in good
condition and repair; not to commit or suffer any waste; to comply with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all reasonable times for the purpose of inspection and of conducting,
in a reasonable and proper manner, such tests as Beneficiary determines to be
necessary in order to monitor Grantor's compliance with applicable laws and
regulations regarding hazardous materials affecting the Property.
TENANTS USING CHLORINATED SOLVENTS. Grantor agrees not to lease any of the
Property, without the prior written consent of Beneficiary, to (i) dry cleaning
operations that perform dry cleaning on site with chlorinated solvents or (ii)
any other tenants that use chlorinated solvents in the operation of their
businesses.
Notwithstanding the above, a tenant's use and storage of a product which
contains no more than twelve (12) ounces of chlorinated solvents shall not
violate this prohibition if, and only if, (i) each tenant's use, storage, and
the ultimate disposal, of said solvents is at all times in compliance with
applicable law; (ii) said solvents are acquired and kept in prepackaged
containers; and (iii) each tenant keeps no more than one (1) prepackaged
container of said solvents on the Property.
BUSINESS RESTRICTION REPRESENTATION AND WARRANTY. Grantor represents and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the Indebtedness: (i) are not, and shall not
become, a person or entity with whom Beneficiary is restricted from doing
business with under regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's Specially Designated and Blocked Persons list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism), or other governmental action; (ii)
are not knowingly engaged in, and shall not engage in, any dealings or
transaction or be otherwise associated with such persons or entities described
in (i) above; and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.
INSURANCE. Grantor agrees to keep the Property insured for the protection of
Beneficiary and Beneficiary's wholly owned subsidiaries and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance in amounts and form and with companies all satisfactory to
Beneficiary:
(A) All risk property insurance with a deductible of not greater than
$100,000.00, including Demolition and Increased Cost of Construction
(DICC) coverage equal to a minimum of 5% of the estimated replacement
cost, with an Agreed Amount Endorsement for the estimated replacement
cost of the improvements. If such all risk property insurance policy
contains a terrorism exclusion, then Grantor shall purchase a separate
insurance policy acceptable to Beneficiary for terrorism coverage.
Notwithstanding the foregoing, however, Grantor shall only be required
to carry such insurance coverage for acts of terrorism with a
deductible acceptable to Lender if such coverage is customarily
required by other institutional lenders on loans secured by property
similar to the Property;
(B) Loss of rents insurance equal to twelve months rent or business income
insurance for 100% of the annual gross earnings from business derived
from the Property;
(C) Flood insurance, if the Property is located in a flood plain (as that
term is used in the National Flood Insurance Program) in an amount not
less than 25% of the estimated replacement cost;
(D) Grantor's own commercial general liability insurance policy with
Beneficiary, and Beneficiary's wholly owned subsidiaries and agents,
named as additional insureds for their interests in the Property; and
(E) Other insurance as required by Beneficiary.
Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary, or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing all insurance coverages required hereunder on deposit with
Beneficiary, which certificates shall provide at least thirty (30) days notice
of cancellation to Beneficiary and shall list Beneficiary as the certificate
holder.
All insurance loss proceeds from all property insurance policies, whether
or not required by Beneficiary (less expenses of collection) shall, at
Beneficiary's option, be applied on the Indebtedness, whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan Documents.
If Beneficiary elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.
Notwithstanding the foregoing provision, Beneficiary agrees that if the
insurance loss proceeds from an insured loss as a Facility are less than the
Allocated Loan Amount for the Facility (as shown in Exhibit B attached hereto)
and if the casualty occurs prior to the last three years of the term of the
Note, then the insurance loss proceeds (less expenses of collection) shall be
applied to restoration of the Facility to its condition prior to the casualty,
subject to satisfaction of the following conditions:
(a) There is no existing Event of Default (as hereinafter defined) at the
time of casualty, and if there shall occur any Event of Default after
the date of the casualty, Beneficiary shall have no further obligation
to release insurance loss proceeds hereunder.
(b) The casualty insurer has not denied liability for payment of insurance
loss proceeds as a result of any act, neglect, use or occupancy of the
Property by Grantor or any tenant of the Property.
(c) Beneficiary shall be satisfied that all insurance loss proceeds so
held, together with supplemental funds to be made available by
Grantor, shall be sufficient to complete the restoration of the
Property. Any remaining insurance loss proceeds may, at the option of
Beneficiary, be applied on the Indebtedness, whether or not due, or be
released to Grantor.
(d) If required by Beneficiary, Beneficiary shall be furnished a
satisfactory report addressed to Beneficiary from an environmental
engineer or other qualified professional satisfactory to Beneficiary
to the effect that no adverse environmental impact to the Property
resulted from the casualty.
(e) Beneficiary shall release casualty insurance proceeds as restoration
of the Property progresses provided that Beneficiary is furnished
satisfactory evidence of the costs of restoration and if, at the time
of such release, there shall exist no Monetary Default (as hereinafter
defined) under the Transaction Documents and no default with respect
to which Beneficiary shall have given Grantor or Other Borrowers
notice pursuant to the Notice of Default provision herein or in the
documents related to other loans comprising the Transaction. If the
estimated cost of restoration exceeds $250,000.00, (i) the drawings
and specifications for the restoration shall be approved by
Beneficiary in writing prior to commencement of the restoration, and
(ii) Beneficiary shall receive an administration fee equal to 1% of
the cost of restoration.
(f) Prior to each release of funds, Grantor shall obtain for the benefit
of Beneficiary an endorsement to Beneficiary's title insurance policy
insuring Beneficiary's lien as a first and valid lien on the Property
subject only to liens and encumbrances theretofore approved by
Beneficiary.
(g) Grantor shall pay all costs and expenses incurred by Beneficiary,
including, but not limited to, outside legal fees, title insurance
costs, third-party disbursement fees, third-party engineering reports
and inspections deemed necessary by Beneficiary.
(h) All reciprocal easement and operating agreements benefiting the
Property, if any, shall remain in full force and effect between the
parties thereto on and after restoration of the Property.
(i) Beneficiary shall be satisfied that Projected Debt Service Coverage
(as hereinafter defined) of at least 1.50 will be produced from the
leasing of not more than 189,023 square feet of space to former
tenants or approved new tenants with leases satisfactory to
Beneficiary for terms of at least five (5) years to commence not later
than (30) days following completion of such restoration ("Approved
Leases").
(j) All leases in effect at the time of the casualty with tenants who have
entered into Beneficiary's form of Non-Disturbance and Attornment
Agreement or similar agreement shall remain in full force and
Beneficiary shall be satisfied that restoration can be completed
within a time frame such that each tenant thereunder shall be
obligated, or each such tenant shall have elected, to continue the
lease term at full rental (subject only to abatement, if any, during
any period in which the Property or a portion thereof shall not be
used and occupied by such tenant as a result of the casualty).
(k) Without limiting the Earthquake provisions contained herein, if the
casualty has resulted in whole or part from an earthquake: (a) Grantor
shall have supplied Beneficiary with a "Seismic Risk Estimate" (in
accordance with the Earthquake provisions herein) which show that the
Property will meet "Minimum Seismic Criteria" (as defined in the
Earthquake provisions herein) upon completion of repair and retrofit
work which can be completed within one year of the earthquake, (b)
prior to commencement of the restoration, Grantor shall have committed
in writing to Beneficiary that Grantor will do such repair and
retrofit work as shall be necessary to cause the Property to in fact
meet Minimum Seismic Criteria following completion of restoration, and
(c) Beneficiary must at all times during the restoration be reasonably
satisfied that the Property will meet Minimum Seismic Criteria
following completion of the restoration, Grantor hereby agreeing to
supply Beneficiary with such evidence thereof as Beneficiary shall
request from time to time.
"Projected Debt Service Coverage" means a number calculated by dividing
Projected Operating Income Available for Debt Service (as hereinafter defined)
for the first fiscal year following restoration of the Property by the debt
service during the same fiscal year under all indebtedness secured by a first
mortgage lien on any portion of the Property. For purposes of the preceding
sentence, "debt service" means the greater of (x) debt service due under all
such indebtedness during the first fiscal year following completion of the
restoration of the Property or (y) debt service that would be due and payable
during such fiscal year if all such indebtedness were amortized over 20 years
(whether or not amortization is actually required) and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).
"Projected Operating Income Available for Debt Service" means projected
gross annual rent from the Approved Leases for the first full fiscal year
following completion of the restoration of the Property less:
(A) The operating expenses of the Property for the last fiscal year preceding
the casualty and
(B) the following:
(i) a replacement reserve for future tenant improvements, leasing
commissions and structural items based on not less than $1.80 per
square foot per annum;
(ii) the amount, if any, by which actual gross income during such fiscal
period exceeds that which would be earned from the rental of 85% of
the gross leasable area in the Property;
(iii)the amount, if any, by which the actual management fee is less than
2% of gross revenue during such fiscal period;
(iv) the amount, if any, by which the actual real estate taxes are less
than $2.10 per square foot per annum; and
(v) the amount, if any, by which total actual operating expenses,
excluding management fees, real estate taxes and replacement reserves,
are less than $1.40 per square foot per annum.
All projections referenced above shall be calculated in a manner
satisfactory to Beneficiary.
CONDEMNATION. Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds resulting from damage to, or the taking of, all or any portion of the
Property, and (ii) the proceeds from any sale or transfer in lieu thereof
(collectively, "Condemnation Proceeds") in connection with condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter, a "Taking"); if the Condemnation Proceeds related to a Facility
are less than the Allocated Loan Amount for the Facility and such damage or
Taking occurs prior to the last three years of the term of the Note, such
Condemnation Proceeds (less expenses of collection) shall be applied to
restoration of the Facility to its condition, or the functional equivalent of
its condition prior to the Taking, subject to the conditions set forth above in
the section entitled "Insurance" and subject to the further condition that
restoration or replacement of the improvements on the Land to their functional
and economic utility prior to the Taking be possible. Any portion of such award
and proceeds not applied to restoration shall, at Beneficiary's option, be
applied on the Indebtedness, whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.
TAXES AND SPECIAL ASSESSMENTS. Grantor agrees to pay before delinquency all
taxes and special assessments of any kind that have been or may be levied or
assessed against the Property, this instrument, the Note or the Indebtedness, or
upon the interest of Trustee or Beneficiary in the Property, this instrument,
the Note or the Indebtedness, and to procure and deliver to Beneficiary within
30 days after Beneficiary shall have given a written request to Grantor, the
official receipt of the proper officer showing timely payment of all such taxes
and assessments; provided, however, that Grantor shall not be required to pay
any such taxes or special assessments if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and funds sufficient to satisfy the contested amount have been deposited in an
escrow satisfactory to Beneficiary.
PERSONAL PROPERTY. With respect to the Personal Property, Grantor hereby
represents, warrants and covenants as follows:
(a) Except for the security interest granted hereby, Grantor is, and as to
portions of the Personal Property to be acquired after the date hereof will be,
the sole owner of the Personal Property, free from any lien, security interest,
encumbrance or adverse claim thereon of any kind whatsoever. Grantor shall
notify Beneficiary of, and shall indemnify and defend Beneficiary and the
Personal Property against, all claims and demands of all persons at any time
claiming the Personal Property or any part thereof or any interest therein.
(b) Except as otherwise provided above, Grantor shall not lease, sell,
convey or in any manner transfer the Personal Property without the prior consent
of Beneficiary.
(c) Grantor is a limited partnership organized under the laws of the State
of Delaware. Until the Indebtedness is paid in full, Grantor (i) shall not
change its legal name without providing Beneficiary with thirty (30) days prior
written notice; (ii) shall not change its state of organization; and (iii) shall
preserve its existence and shall not, in one transaction or a series of
transactions, merge into or consolidate with any other entity.
(d) At the request of Beneficiary, Grantor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the Uniform Commercial Code in form satisfactory to
Beneficiary, and Grantor shall pay the cost of filing the same in all public
offices wherever filing is deemed by Beneficiary to be necessary or desirable.
Grantor shall also, at Grantor's expense, take any and all other action
requested by Beneficiary to perfect Beneficiary's security interest under the
Uniform Commercial Code with respect to the Personal Property, including,
without limitation, exercising Grantor's best efforts to obtain any consents,
agreements or acknowledgments required of third parties to perfect Beneficiary's
security interest in Personal Property consisting of deposit accounts,
letter-of-credit rights, investment property, and electronic chattel paper.
OTHER LIENS. Grantor agrees to keep the Property or any Personal Property free
from all other liens either prior or subsequent to the lien created by this
instrument other than liens created by the Transaction Documents. The (i)
creation of any other lien on any portion of the Property or on any Personal
Property, whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable license to collect, use and enjoy rents and
profits from the Property, shall constitute a default under the terms of this
instrument; except that upon written notice to Beneficiary, Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal Property described herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.
COSTS, FEES AND EXPENSES. Grantor agrees to pay all costs, fees and expenses of
this trust; to appear in and defend any action or proceeding purporting to
affect the security hereof or the rights or powers of Beneficiary or Trustee
hereunder; to pay all costs and expenses, including the cost of obtaining
evidence of title and reasonable attorney's fees, incurred in connection with
any such action or proceeding; and to pay any and all attorney's fees and
expenses of collection and enforcement in the event the Note is placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.
FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein provided, Beneficiary or Trustee may, without obligation so to do,
without notice to or demand upon Grantor and without releasing Grantor from any
obligation hereof: (i) make or do the same in such manner and to such extent as
Beneficiary may deem necessary to protect the security hereof, Beneficiary or
Trustee being authorized to enter upon the Property for such purpose; (ii)
appear in and defend any action or proceeding purporting to affect the security
hereof, or the rights or powers of Beneficiary or Trustee; (iii) pay, purchase,
contest or compromise any encumbrance, charge or lien which in the judgment of
Beneficiary appears to be prior or superior hereto; and (iv) in exercising any
such powers, pay necessary expenses, employ counsel and pay its reasonable fees.
Sums so expended shall be payable by Grantor immediately upon demand with
interest from date of expenditure at the Default Rate (as defined in the Note).
All sums so expended by Beneficiary and the interest thereon shall be included
in the Indebtedness and secured by the lien of this instrument.
EVENT OF DEFAULT. Any default by Grantor or the Other Borrowers in making any
required payment of the Indebtedness or the Other Indebtedness or any default in
any provision, covenant, agreement, warranty or certification contained in any
of the Transaction Documents shall, except as provided in the two immediately
succeeding paragraphs, constitute an "Event of Default".
NOTICE OF DEFAULT. A default in any payment required in the Note or Other Notes
or any other Transaction Document, whether or not payable to Beneficiary, (a
"Monetary Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written notice of such Monetary Default to Grantor and the
Other Borrowers and Grantor and the Other Borrowers shall not have cured such
Monetary Default by payment of all amounts in default (including payment of
interest at the Default Rate, as defined in the Note or Other Notes, from the
date of default to the date of cure on amounts owed to Beneficiary) within five
(5) business days after the date on which Beneficiary shall have given such
notice to Grantor and Other Borrowers.
Any other default under the Note or Other Notes or under any other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default unless Beneficiary shall have given a written notice of such
Non-Monetary Default to Grantor and the Other Borrowers and Grantor and the
Other Borrowers shall not have cured such Non-Monetary Default within thirty
(30) days after the date on which Beneficiary shall have given such notice of
default to Grantor and the Other Borrowers (or, if the Non-Monetary Default is
not curable within such 30-day period, Grantor and the Other Borrowers shall not
have diligently undertaken and continued to pursue the curing of such
Non-Monetary Default and deposited an amount sufficient to cure such
Non-Monetary Default in an escrow account satisfactory to Beneficiary).
In no event shall the notice and cure period provisions recited above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).
SUBSTITUTION OF TRUSTEE. Beneficiary and its successors and assigns may for any
reason and at any time appoint a new or substitute Trustee by written
appointment delivered to such new or substitute Trustee without notice to
Grantor, without notice to, or the resignation or withdrawal by, the existing
Trustee and without recordation of such written appointment unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment, the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.
APPOINTMENT OF RECEIVER. Upon commencement of any proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or restriction by any present or future law, without regard to the
solvency or insolvency at that time of any party liable for the payment of the
Indebtedness, without regard to the then value of the Property, whether or not
there exists a threat of imminent harm, waste or loss to the Property and
whether or not the same shall then be occupied by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the revenues, rents, profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such appointment may confer) full power to collect all such income
and, after paying all necessary expenses of such receivership and of operation,
maintenance and repair of said Property, to apply the balance to the payment of
any of the Indebtedness then due.
FORECLOSURE. Upon the occurrence of an Event of Default, the entire unpaid
Indebtedness shall, at the option of Beneficiary, become immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE EXERCISE OF SUCH OPTION, OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising any rights it may have with respect to the Personal Property under
the Uniform Commercial Code of the jurisdiction in which the Property is
located, institute proceedings in any court of competent jurisdiction to
foreclose this instrument as a mortgage, or to enforce any of the covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage, rent or
lease the Property or any portion thereof upon such terms as Beneficiary may
deem expedient, and collect, receive and receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter provided in case
of sale. Trustee is hereby further authorized and empowered, either after or
without such entry, to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think best), and all the right, title and interest of
Grantor therein, by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located, (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue, execute and deliver a
deed of conveyance, all as then may be provided by law; and Trustee shall, out
of the proceeds or avails of such sale, after first paying and retaining all
fees, charges, costs of advertising the Property and of making said sale, and
attorneys' fees as herein provided, pay to Beneficiary or the legal holder of
the Indebtedness the amount thereof, including all sums advanced or expended by
Beneficiary or the legal holder of the Indebtedness, with interest from date of
advance or expenditure at the Default Rate (as defined in the Note), rendering
the excess, if any, as provided by law; such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against Grantor,
the heirs, successors and assigns of Grantor, and all other persons claiming the
Property aforesaid, or any part thereof, by, from, through or under Grantor. The
legal holder of the Indebtedness may purchase the Property or any part thereof,
and it shall not be obligatory upon any purchaser at any such sale to see to the
application of the purchase money.
PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material consideration to Beneficiary in making the loan secured by this
instrument, and Grantor shall not (i) convey title to all or any part of the
Property, (ii) enter into any contract to convey (land contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a purchaser possession of, or income from, the Property prior to a
transfer of title to all or any part of the Property ("Contract to Convey") or
(iii) cause or permit a Change in the Proportionate Ownership (as hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the Proportionate Ownership of Grantor shall constitute a default
hereunder.
B. For purposes of this instrument, a "Change in the Proportionate
Ownership" means any transfer which results in Carl E. Berg and/or Permitted
Transferee's (as defined below) collectively, owning less than 49% of Carl E.
Berg's direct and indirect ownership interest in Grantor (existing on the date
of initial advance of funds, as represented in the Certification) without
Beneficiary's approval.
C. Notwithstanding the above, a transfer of Carl E. Berg's ownership in
Grantor (i) to and among the Berg Family (as hereinafter defined) shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E. Berg, and (ii) to any entity owned and controlled (ownership and voting
interest in excess of 50% by the Berg Family) shall be permitted for estate
planning purposes or upon the death or incompetency of Carl E. Berg. A person or
entity holding a direct or indirect ownership interest by virtue of a transfer
described in this subpart C. is a "Permitted Transferee."
D. For purposes hereof, the "Berg Family" shall mean Carl E. Berg, his
spouse, his descendants and their spouses, Clyde J. Berg, any trusts or estates
for the benefit of said parties, and any entities owned and controlled
(ownership and voting interests in excess of 50%) by said parties.
E. A conversion of all or part of the ownership interest of Carl E. Berg
from limited partnership units ("L.P. Units") of Grantor to common shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.
FINANCIAL STATEMENTS. Grantor agrees to furnish to Beneficiary:
(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the "Property Financial Statements Due
Date"):
(i) an unaudited balance sheet as of the last day of such fiscal year;
(ii) an unaudited statement of operations for such fiscal year with a
detailed line item break-down of all sources of income and expenses,
including capital expenses broken down between, leasing commissions,
tenant improvements, capital maintenance, common area renovation, and
expansion;
(iii)a current rent roll identifying location, leased area, lease begin
and end dates, current contract rent, rent increases and increase
dates, percentage rent, expense reimbursements, and any other recovery
items;
(iv) an operating budget for the current fiscal year; and
(B) the following financial statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor, respectively (the
"Grantor/Guarantor Financial Statements Due Date")
(i) an audited balance sheet as of the last day of such fiscal year; and
(ii) an audited statement of cash flows for such fiscal year; and
(C) to the extent the following tenants are not publicly traded, Grantor will
use its best efforts to obtain the following financial statements for Fujitsu
(formerly known as Amdahl), Apple, JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective tenant (the "Tenant
Financial Statements Due Date"):
(i) an audited, or unaudited if audited is not available, balance sheet as
of the last day of such fiscal year; and
(ii) an audited, or unaudited if audited is not available, statement of
cash flows for such fiscal period.
The Property Financial Statements Due Date, the Grantor/Guarantors
Financial Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".
If audited, the financial statements identified in sections (A)(i),
(A)(ii), (B)(i), (B)(ii), (C)(i) and (C)(ii) above, shall each be prepared in
accordance with generally accepted accounting principles by a "Big Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary. All unaudited financial statements for Grantor, Property, and
Guarantor shall contain a certification by the managing general partner of
Grantor stating that they have been prepared in accordance with generally
accepted accounting principles and that they are true and correct. The expense
of preparing all of the financial statements required in (A) and (B) above,
shall be borne by Grantor.
Grantor acknowledges that Beneficiary requires the financial statements to
record accurately the value of the Property for financial and regulatory
reporting.
In addition to all other remedies available to Beneficiary hereunder, at
law and in equity, if any financial statement or proof of payment of property
taxes and assessments is not furnished to Beneficiary as required in this
section entitled "Financial Statements" and in the section entitled "Taxes and
Special Assessments", within 30 days after Beneficiary shall have given written
notice to Grantor that it has not been received as required,
(x) interest on the unpaid principal balance of the Indebtedness and the
Other Notes shall as of the applicable Financial Statements Due Date or the
date such proof of payment of property taxes and assessments was due,
accrue and become payable at a rate equal to the sum of the Interest Rate
(as defined in the Note) plus one percent (1%) per annum (the "Increased
Rate"); and
(y) Beneficiary may elect to obtain an independent appraisal and audit of
the Property at Grantor's expense, and Grantor agrees that it will, upon
request, promptly make Grantor's books and records regarding the Property
available to Beneficiary and the person(s) performing the appraisal and
audit (which obligation Grantor agrees can be specifically enforced by
Beneficiary).
The amount of the payments due under the Note and Other Notes during the
time in which the Increased Rate shall be in effect shall be changed to an
amount which is sufficient to amortize the then unpaid principal balance at the
Increased Rate during the then remaining portion of a period of 20 years
commencing with the Amortization Period Commencement Date (as defined in the
Note and Other Notes). Interest shall continue to accrue and be due and payable
monthly at the Increased Rate until the financial statements and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished to Beneficiary as required. Commencing on the date on which the
financial statements and proof of payment of property taxes and assessments are
received by Beneficiary, interest on the unpaid principal balance shall again
accrue at the Interest Rate and the payments due during the remainder of the
term of the Note and Other Notes shall be changed to an amount which is
sufficient to amortize the then unpaid principal balance at the Interest Rate
during the then remaining portion of a period of 20 years commencing with the
Amortization Period Commencement Date. Notwithstanding the foregoing,
Beneficiary shall have the right to conduct an independent audit at its own
expense at any time.
PROPERTY MANAGEMENT. The management company for the Property shall be
satisfactory to Beneficiary. Any change in the management company without the
prior written consent of Beneficiary shall constitute a default under this
instrument. Beneficiary shall be reasonable in giving its approval, and
Beneficiary may require that the new management company, by itself or through
its manager, have good character and reputation, and demonstrated ability and
experience in the operation and leasing of at least one million square feet of
property similar to the Property.
EARTHQUAKE. If the Property is damaged by an earthquake during the term of the
Indebtedness:
(A) Beneficiary may require a new "Seismic Risk Estimate" (as hereinafter
defined) to be performed at Grantor's expense, and
(B) Grantor shall perform repair and retrofit work, satisfactory to
Beneficiary, which results in (i) the complete repair of the Property and
(ii) the performance of a subsequent Seismic Risk Estimate verifying that
the Property meets "Minimum Seismic Criteria" (as hereinafter defined).
Such work shall be commenced and completed as soon as possible and in any
event within one year of the earthquake.
Without limiting the Grantor's obligation to cause the Property to satisfy
Minimum Seismic Criteria, during any period of time in which the Property does
not satisfy Minimum Seismic Criteria, Grantor shall provide Beneficiary with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).
As used herein, "Earthquake Insurance" means a policy satisfactory to
Beneficiary with a deductible of no greater than 5% of the "Replacement Cost"
(as hereinafter defined) and in an amount calculated as follows: (i) the "Loan
Amount" (as hereinafter defined) plus (ii) the "Specified Loss Dollar Amount"
(as defined below) plus (iii) 5% of the Replacement Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).
As used herein, "Loan Amount" shall mean the total principal amount
advanced at closing, under the Note.
As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).
As used herein, "Market Value" means the estimated fair market value of the
Property, determined by Beneficiary in its sole discretion, at the time a
Seismic Risk Estimate is performed.
As used herein, "Minimum Seismic Criteria" means that both the Specified
Loss Percentage (as hereinafter defined) for the Property is less than or equal
to 30% and the Loan Plus Specified Loss is less than or equal to 90% of the
Market Value.
As used herein, "Model" means a computer based seismic model selected by
Beneficiary, currently the Insurance and Investment Risk Assessment System
("IRAS") program by Risk Management Solutions ("RMS").
As used herein, "Replacement Cost" means the estimated total cost,
determined by Beneficiary in its sole discretion, to construct all of the
Improvements as if the Property were completely unimproved (not including the
cost of site work, utilities and foundation).
As used herein, "Seismic Risk Estimate" refers to the results of a seismic
risk estimate for the Property produced by the Model. Grantor agrees that it
will not rely for its own evaluation purposes on the Seismic Risk Estimate
produced by or for Beneficiary.
As used herein, "Specified Loss Dollar Amount" means the "Specified
Loss Percentage" (as hereinafter defined) multiplied by the Replacement Cost.
As used herein, "Specified Loss Percentage" means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement Cost. Beneficiary's parameters for the Model are based on a 90%
probability that the level of damage predicted will not be exceeded in an
earthquake with an expected 475 year return period.
DEPOSITS BY GRANTOR. To assure the timely payment of real estate taxes and
special assessments (including personal property taxes, if appropriate), upon
the occurrence of an Event of Default, Beneficiary shall thence forth have the
option to require Grantor to deposit funds with Beneficiary or in an account
satisfactory to Beneficiary, in monthly or other periodic installments in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and special assessments as they become due. If at any time the funds so
held by Beneficiary, or in such other account, shall be insufficient to pay any
of said expenses, Grantor shall, upon receipt of notice thereof, immediately
deposit such additional funds as may be necessary to remove the deficiency. All
funds so deposited shall be irrevocably appropriated to Beneficiary to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.
NOTICES. Any notices, demands, requests and consents permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally or sent by certified mail with postage prepaid or by reputable
courier service with charges prepaid. Any notice or demand sent to Grantor by
certified mail or reputable courier service shall be addressed to Grantor at
10050 Bandley Drive, Cupertino, CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable courier service shall be addressed to The Northwestern Mutual Life
Insurance Company to the attention of the Real Estate Investment Department at
720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Beneficiary shall designate in a notice given in the manner described herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand hereunder shall be deemed given when received. Any notice or
demand which is rejected, the acceptance of delivery of which is refused or
which is incapable of being delivered during normal business hours at the
address specified herein or such other address designated pursuant hereto shall
be deemed received as of the date of attempted delivery.
MODIFICATION OF TERMS. Without affecting the liability of Grantor or any other
person (except any person expressly released in writing) for payment of the
Indebtedness or for performance of any obligation contained herein and without
affecting the rights of Beneficiary with respect to any security not expressly
released in writing, Beneficiary may, at any time and from time to time, either
before or after the maturity of the Note, without notice or consent: (i) release
any person liable for payment of all or any part of the Indebtedness or for
performance of any obligation; (ii) make any agreement extending the time or
otherwise altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing with the lien or charge hereof; (iii) exercise or refrain from
exercising or waive any right Beneficiary may have; (iv) accept additional
security of any kind; (v) release or otherwise deal with any property, real or
personal, securing the Indebtedness, including all or any part of the Property.
EXERCISE OF OPTIONS. Whenever, by the terms of this instrument, of the Note or
any of the other Loan Documents, Beneficiary is given any option, such option
may be exercised when the right accrues, or at any time thereafter, and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.
NATURE AND SUCCESSION OF AGREEMENTS. Each of the provisions, covenants and
agreements contained herein shall inure to the benefit of, and be binding on,
the heirs, executors, administrators, successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Note.
LEGAL ENFORCEABILITY. No provision of this instrument, the Note or any other
Loan Documents shall require the payment of interest or other obligation in
excess of the maximum permitted by law. If any such excess payment is provided
for in any Loan Documents or shall be
adjudicated to be so provided, the provisions of this paragraph shall govern and
Grantor shall not be obligated to pay the amount of such interest or other
obligation to the extent that it is in excess of the amount permitted by law.
LIMITATION OF LIABILITY. Notwithstanding any provision contained herein to the
contrary, the personal liability of Grantor shall be limited as provided in the
Note.
MISCELLANEOUS. Time is of the essence in each of the Loan Documents. The
remedies of Beneficiary as provided herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent, and may be pursued singly,
successively, or together at the sole discretion of Beneficiary, and may be
exercised as often as occasion therefor shall occur; and neither the failure to
exercise any such right or remedy nor any acceptance by Beneficiary of payment
of Indebtedness in default shall in any event be construed as a waiver or
release of any right or remedy. Neither this instrument nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and Beneficiary. If any of the provisions of
any Loan Document or the application thereof to any persons or circumstances
shall to any extent be invalid or unenforceable, the remainder of such Loan
Document and each of the other Loan Documents, and the application of such
provision or provisions to persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.
WAIVER OF JURY TRIAL. Grantor hereby waives any right to trial by jury with
respect to any action or proceeding (a) brought by Grantor, Beneficiary or any
other person relating to (i) the obligations secured hereby and/or any
understandings or prior dealings between the parties hereto or (ii) the Loan
Documents or the Environmental Indemnity Agreement, or (b) to which Beneficiary
is a party.
CAPTIONS. The captions contained herein are for convenience and reference only
and in no way define, limit or describe the scope or intent of, or in any way
affect this instrument.
GOVERNING LAW. This instrument shall be governed by and construed in all
respects in accordance with the laws of the State of California without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning any dispute arising under or related to this instrument shall be
brought in a state or federal court located in the State of California, and
Beneficiary and Grantor hereby irrevocably consent to the jurisdiction of the
courts located in the State of California and irrevocably waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action, lawsuit or other legal proceeding brought in any court located in the
State of California.
REQUEST FOR NOTICE. Pursuant to California Government Code Section 27321.5(b),
Grantor hereby requests that a copy of any notice of default and a copy of any
notice of sale given pursuant to this instrument be mailed to Grantor at the
address set forth herein.
IN WITNESS WHEREOF, this instrument has been executed by the Grantor as of
the day and year first above written.
MISSION WEST PROPERTIES, L.P., a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
By: Carl E. Berg
Name: Carl E. Berg
Title: CEO of G.P.
STATE OF California )
)ss.
COUNTY OF Santa Clara )
On January 7th, 2003, before me, G.W. Shott, a notary for the state, personally
appeared Carl E. Berg, CEO of G.P., personally known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature /s/ GW Shott
-----------------------------------
G.W. Shott
-----------------------------------
Name (typed or printed)
This instrument was prepared by Sally J. Lewis, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
EXHIBIT "A"
(Mission West LP)
Parcel One:
Parcel 1, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on December 23, 1997,
in Book 698 of Maps, Page(s) 1 and 2.
Reserving therefrom an easement for ingress and over that portion of land
designated and delineated as "C.O.E.- 30'" Reciprocal-Ingress, Egress- Easement"
on that Parcel Map filed for record in the Office of the Recorder of the County
of Santa Clara, State of California, on December 23, 1997 in Book 698 of Maps,
Pages 1 and 2.
Parcel Two:
An easement for ingress and egress over those portion of Parcel 2 designated and
delineated as "C.O.E.- 30' Reciprocal-Ingress, Egress-Easement" on that Parcel
Map filed for record in the Office of the Recorder of the County of Santa Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.
Parcel Three:
An easement for ingress and egress over those portion of Parcel 3 designated and
delineated as "C.O.E-26'Reciprocal-Ingress, Egress-Easement" on that Parcel Map
filed for record in the Office of the Recorder of the County of Santa Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.
Assessors Parcel No: 244-13-015
EXHIBIT 10.36
California
Loan No. C-332757
RECORDING REQUESTED BY
American Title Company
632004LZ
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Nadine T. Hansohn
SPACE ABOVE THIS LINE FOR RECORDER'S USE
DEED OF TRUST and SECURITY AGREEMENT and ASSIGNMENT OF LEASES AND RENTS (SECOND
PRIORITY)
Mission West Properties, L. P.
THIS DEED OF TRUST and SECURITY AGREEMENT is made as of the 3rd day of
January, 2003 between MISSION WEST PROPERTIES, L.P., a Delaware limited
partnership, 10050 Bandley Drive, Cupertino, CA 95014, herein (said
Grantor/Trustor, whether one or more in number) called "Grantor", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Trustee", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":
WITNESSETH, That Grantor, in consideration of the indebtedness herein
mentioned, does hereby irrevocably bargain, sell, grant, transfer, assign and
convey unto Trustee, in trust, with power of sale and right of entry and
possession, the following property (herein referred to as the "Property"):
(A) The land in the City of San Jose, Santa Clara County, California
described in Exhibit "A" attached hereto and incorporated herein (the
"Land");
(B) All easements, appurtenances, tenements and hereditaments belonging to
or benefiting the Land, including but not limited to all waters, water
rights, water courses, all ways, trees, rights, liberties and
privileges; and
(C) All improvements to the Land, including, but not limited to, all
buildings, structures and improvements now existing or hereafter
erected on the Land; all fixtures and equipment of every description
belonging to Grantor which are or may be placed or used upon the Land
or attached to the buildings, structures or improvements, including,
but not limited to, all engines, boilers, elevators and machinery, all
heating apparatus, electrical equipment, air-conditioning and
ventilating equipment, water and gas fixtures, and all furniture and
easily removable equipment; all of which, to the extent permitted by
applicable law, shall be deemed an accession to the freehold and a
part of the realty as between the parties hereto; the rents, issues
and profits arising from the Land and improvements subject, however,
to any right, power and authority given to Grantor to collect and
apply such rents, issues and profits.
(D) All Grantor's right, title and interest in and to that certain C.O.E.
- 30' Reciprocal-Ingress, Egress-Easement Agreement filed for record
on December 23, 1997, in Book 698 of Maps, Pages 1 & 2, Santa Clara
County, California.
(E) All Grantor's right, title and interest in and to that certain C.O.E.
- 26' Reciprocal-Ingress, Egress-Easement Agreement filed for record
on December 23, 1997, in Book 698 of Maps, Pages 1 & 2, Santa Clara
County, California.
Grantor agrees not to sell, transfer, assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any buildings or structures or the sale or transfer of waters or water rights
and (ii) such action results in the substitution or replacement with similar
items of equal value.
Without limiting the foregoing grants, Grantor hereby pledges to
Beneficiary, and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter acquired right, title and interest in and to the Property
and any and all
(F) cash and other funds now or at any time hereafter deposited by or for
Grantor on account of tax, special assessment, replacement or other
reserves required to be maintained pursuant to the Loan Documents (as
hereinafter defined) with Beneficiary or a third party, or otherwise
deposited with, or in the possession of, Beneficiary pursuant to the
Loan Documents; and
(G) surveys, soils reports, environmental reports, guaranties, warranties,
architect's contracts, construction contracts, drawings and
specifications, applications, permits, surety bonds and other
contracts relating to the acquisition, design, development,
construction and operation of the Property; and
(H) accounts, chattel paper, deposit accounts, instruments, equipment,
inventory, documents, general intangibles, letter-of-credit rights,
investment property and all other personal property of Grantor, in
each case, to the extent associated with or arising from the
ownership, development, operation, use or disposition of any portion
of the property; and
(I) present and future rights to condemnation awards, insurance proceeds
or other proceeds at any time payable to or received by Grantor on
account of the Property or any of the foregoing personal property.
All personal property hereinabove described is hereinafter referred to as the
"Personal Property".
If any of the Property is of a nature that a security interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing statement if permitted by applicable law and
Grantor authorizes Beneficiary to file a financing statement describing such
Property and, at Beneficiary's request, agrees to join with Beneficiary in the
execution of any financing statements and to execute any other instruments that
may be necessary or desirable, in Beneficiary's determination, for the
perfection or renewal of such security interest under the Uniform Commercial
Code.
TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF SECURING, in
such order of priority as Beneficiary may determine: (i) payment of the
Indebtedness (as hereinafter defined); and (ii) payment (with interest as
provided) and performance by Grantor of the Obligations (as hereinafter
defined). Notwithstanding the foregoing, or any other term contained herein or
in the Loan Documents, none of Grantor's obligations (the "Other Obligations")
under or pursuant to (a) the Environmental Indemnity Agreement of even date
herewith executed by Grantor, Guarantor and the other Borrowers in favor of
Beneficiary ("Environmental Agreement"), (b) the Other Indebtedness or (c) any
Other Note shall be secured by the lien of this Deed of Trust.
FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture filing in the real estate records of the County of the State in which
the real estate described in Exhibit A is located, with respect to any and all
fixtures included within the term "Property" and "fixtures" under this Deed of
Trust and to any goods or other personal property that are now or hereafter
become a part of the Property as fixtures.
DEFINITIONS
CERTAIN DEFINED TERMS: As used in this Deed of Trust the following terms
shall have the following meanings:
COMMITMENT: The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications stated in the letter, the Loan application executed by
Grantor and the Other Borrowers, dated October 31, 2002, which acceptance and
modification was agreed to by Grantor and the Other Borrowers on November 28,
2002.
ENVIRONMENTAL AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.
FACILITY: A real property (including, without limitation, all buildings,
fixtures and other improvements located thereon) now or hereafter serving as
security for the loans which comprise the Transaction. Attached hereto as
Exhibit B is a list of all Facilities as of the date hereof.
GUARANTOR: Mission West Properties, Inc., a Maryland corporation, and each
other person hereafter guaranteeing any portionof the Indebtedness or
Obligations.
GUARANTEE: That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission WestProperties, Inc., a Maryland corporation,
in favor of Beneficiary, and any other guarantee of any portion of the
Indebtedness or Obligations hereafter executed by any person.
INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Notes (as hereinafter defined) and any extensions or renewals
thereof (including extensions or renewals at a different rate of interest,
whether or not evidenced by a new or additional promissory note or notes), and
all other indebtedness of Grantor to Beneficiary and additional advances under,
evidenced by and/or secured by the Loan Documents, plus interest on all such
amounts, other than any obligations relating to the Other Indebtedness, Other
Note or Other Obligations.
LOAN DOCUMENTS: The Notes, this Deed of Trust, the Commitment (as it
relates to the Indebtedness), the Guarantee (as it relates to the Indebtedness),
that certain Certification of Borrowers and Carl E. Berg ("Certification") of
even date herewith (as it relates to the Indebtedness), that certain Limited
Partnership Supplement dated January 3, 2003, any other supplements and
authorizations required by Beneficiary, the Fraudulent Conveyance Indemnity
Agreement from Guarantor (as it relates to the Indebtedness), Certificate
Regarding Distribution of Loan Proceeds and Indemnity Agreement among Guarantor,
Grantor and the Other Borrowers (as it relates to the Indebtedness), and
Contribution and Reimbursement Agreement among Grantor and the Other Borrowers
(as it relates to the Indebtedness), and all other documents evidencing,
securing or relating to the payment of the Indebtedness or the performance of
the Obligations, with the exception of the Other Note and the Environmental
Agreement.
NOTES: The Promissory Note of even date herewith executed by Mission West
Properties, L.P. I, a Delaware limited partnership in the original principal
amount of Twenty Nine Million Eight Hundred Eleven Thousand Three Hundred
Sixty-Nine Dollars ($29,811,369.00), payable to Beneficiary or its order, and
the Promissory Note of even date herewith executed by Mission West Properties,
L.P. II, a Delaware limited partnership in the original principal amount of
Forty One Million Three Hundred Nineteen Thousand Nine Hundred Seventy-Six
Dollars ($41,319,976.00), payable to Beneficiary or its order, in each with
final maturity no later than February 1, 2013 and with interest as therein
expressed, and all modifications, renewals or extensions of such Promissory
Notes.
OBLIGATIONS: Any and all of the covenants, promises and other obligations
(including payment of the Indebtedness) made or owing by Grantor to or due to
Beneficiary under and/or as set forth in the Loan Documents and all of the
material covenants, promises and other obligations made or owing by Grantor to
each and every other person relating to the Property, exclusive of the Other
Obligations.
OTHER BORROWERS: Collectively, Mission West Properties, L.P. I, a Delaware
limited partnership, and Mission West Properties, L.P. II, a Delaware limited
partnership.
OTHER INDEBTEDNESS: The loan from Beneficiary evidenced by the Other Note.
OTHER NOTE: The Promissory Note of even date herewith executed by Grantor
in the original principal amount of Twenty Eight Million Eight Hundred
Sixty-Eight Thousand Six Hundred Fifty-Five Dollars ($28,868,655.00), payable to
Beneficiary or its order, with final maturity no later than February 1, 2013 and
with interest as therein expressed, and all modifications, renewals or
extensions of such Promissory Note.
OTHER OBLIGATIONS: As defined in the Granting Paragraph of this Deed of
Trust.
PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.
TRANSACTION: Loans in the aggregate principal amount of One Hundred Million
Dollars ($100,000,000.00), which are made by the Beneficiary to the Grantor and
the Other Borrowers on the date hereof, and are evidenced by the Notes and Other
Note and secured by lien instruments and collateral documents from Grantor and
the Other Borrowers creating liens and rights for the benefit of Beneficiary.
TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the payment of amounts owed Beneficiary in connection with the
Transaction, with the exception of the Environmental Agreement.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:
PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness hereby secured promptly
and in full compliance with the terms of the Loan Documents.
OWNERSHIP. Grantor represents that it owns the Property and has good and lawful
right to convey the same and that the Property is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary. Grantor does hereby forever warrant and shall forever defend the
title and possession thereof against the lawful claims of any and all persons
whomsoever.
MAINTENANCE OF PROPERTY AND COMPLIANCE WITH LAWS. Grantor agrees to keep the
buildings and other improvements now or hereafter erected on the Land in good
condition and repair; not to commit or suffer any waste; to comply with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all reasonable times for the purpose of inspection and of conducting,
in a reasonable and proper manner, such tests as Beneficiary determines to be
necessary in order to monitor Grantor's compliance with applicable laws and
regulations regarding hazardous materials affecting the Property.
TENANTS USING CHLORINATED SOLVENTS. Grantor agrees not to lease any of the
Property, without the prior written consent of Beneficiary, to (i) dry cleaning
operations that perform dry cleaning on site with chlorinated solvents or (ii)
any other tenants that use chlorinated solvents in the operation of their
businesses.
Notwithstanding the above, a tenant's use and storage of a product which
contains no more than twelve (12) ounces of chlorinated solvents shall not
violate this prohibition if, and only if, (i) each tenant's use, storage, and
the ultimate disposal, of said solvents is at all times in compliance with
applicable law; (ii) said solvents are acquired and kept in prepackaged
containers; and (iii) each tenant keeps no more than one (1) prepackaged
container of said solvents on the Property.
BUSINESS RESTRICTION REPRESENTATION AND WARRANTY. Grantor represents and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the Indebtedness: (i) are not, and shall not
become, a person or entity with whom Beneficiary is restricted from doing
business with under regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's Specially Designated and Blocked Persons list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism), or other governmental action; (ii)
are not knowingly engaged in, and shall not engage in, any dealings or
transaction or be otherwise associated with such persons or entities described
in (i) above; and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.
INSURANCE. Grantor agrees to keep the Property insured for the protection of
Beneficiary and Beneficiary's wholly owned subsidiaries and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance in amounts and form and with companies all satisfactory to
Beneficiary:
(A) All risk property insurance with a deductible of not greater than
$100,000.00, including Demolition and Increased Cost of Construction
(DICC) coverage equal to a minimum of 5% of the estimated replacement
cost, with an Agreed Amount Endorsement for the estimated replacement
cost of the improvements. If such all risk property insurance policy
contains a terrorism exclusion, then Grantor shall purchase a separate
insurance policy acceptable to Beneficiary for terrorism coverage.
Notwithstanding the foregoing, however, Grantor shall only be required
to carry such insurance coverage for acts of terrorism with a
deductible acceptable to Lender if such coverage is customarily
required by other institutional lenders on loans secured by property
similar to the property;
(B) Loss of rents insurance equal to twelve months rent or business income
insurance for 100% of the annual gross earnings from business derived
from the Property;
(C) Flood insurance, if the Property is located in a flood plain (as that
term is used in the National Flood Insurance Program) in an amount not
less than 25% of the estimated replacement cost;
(D) Grantor's own commercial general liability insurance policy with
Beneficiary, and Beneficiary's wholly owned subsidiaries and agents,
named as additional insureds for their interests in the Property; and
(E) Other insurance as required by Beneficiary.
Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary, or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing all insurance coverages required hereunder on deposit with
Beneficiary, which certificates shall provide at least thirty (30) days notice
of cancellation to Beneficiary and shall list Beneficiary as the certificate
holder.
All insurance loss proceeds from all property insurance policies, whether
or not required by Beneficiary (less expenses of collection) shall, at
Beneficiary's option, be applied on the Indebtedness, whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan Documents.
If Beneficiary elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.
Notwithstanding the foregoing provision, Beneficiary agrees that if the
insurance loss proceeds from an insured loss as a Facility are less than the
Allocated Loan Amount for the Facility (as shown in Exhibit B attached hereto)
and if the casualty occurs prior to the last three years of the term of the
Notes, then the insurance loss proceeds (less expenses of collection) shall be
applied to restoration of the Facility to its condition prior to the casualty,
subject to satisfaction of the following conditions:
(a) There is no existing Event of Default (as hereinafter defined) at the
time of casualty, and if there shall occur any Event of Default after
the date of the casualty, Beneficiary shall have no further obligation
to release insurance loss proceeds hereunder.
(b) The casualty insurer has not denied liability for payment of insurance
loss proceeds as a result of any act, neglect, use or occupancy of the
Property by Grantor or any tenant of the Property.
(c) Beneficiary shall be satisfied that all insurance loss proceeds so
held, together with supplemental funds to be made available by
Grantor, shall be sufficient to complete the restoration of the
Property. Any remaining insurance loss proceeds may, at the option of
Beneficiary, be applied on the Indebtedness, whether or not due, or be
released to Grantor.
(d) If required by Beneficiary, Beneficiary shall be furnished a
satisfactory report addressed to Beneficiary from an environmental
engineer or other qualified professional satisfactory to Beneficiary
to the effect that no adverse environmental impact to the Property
resulted from the casualty.
(e) Beneficiary shall release casualty insurance proceeds as restoration
of the Property progresses provided that Beneficiary is furnished
satisfactory evidence of the costs of restoration and if, at the time
of such release, there shall exist no Monetary Default (as hereinafter
defined) under the Transaction Documents and no default with respect
to which Beneficiary shall have given Grantor or Other Borrowers
notice pursuant to the Notice of Default provision herein or in the
documents related to other loans comprising the Transaction. If the
estimated cost of restoration exceeds $250,000.00, (i) the drawings
and specifications for the restoration shall be approved by
Beneficiary in writing prior to commencement of the restoration, and
(ii) Beneficiary shall receive an administration fee equal to 1% of
the cost of restoration.
(f) Prior to each release of funds, Grantor shall obtain for the benefit
of Beneficiary an endorsement to Beneficiary's title insurance policy
insuring Beneficiary's lien as a first and valid lien on the Property
subject only to liens and encumbrances theretofore approved by
Beneficiary.
(g) Grantor shall pay all costs and expenses incurred by Beneficiary,
including, but not limited to, outside legal fees, title insurance
costs, third-party disbursement fees, third-party engineering reports
and inspections deemed necessary by Beneficiary.
(h) All reciprocal easement and operating agreements benefiting the
Property, if any, shall remain in full force and effect between the
parties thereto on and after restoration of the Property.
(i) Beneficiary shall be satisfied that Projected Debt Service Coverage
(as hereinafter defined) of at least 1.50 will be produced from the
leasing of not more than 189,023 square feet of space to former
tenants or approved new tenants with leases satisfactory to
Beneficiary for terms of at least five (5) years to commence not later
than (30) days following completion of such restoration ("Approved
Leases").
(j) All leases in effect at the time of the casualty with tenants who have
entered into Beneficiary's form of Non-Disturbance and Attornment
Agreement or similar agreement shall remain in full force and
Beneficiary shall be satisfied that restoration can be completed
within a time frame such that each tenant thereunder shall be
obligated, or each such tenant shall have elected, to continue the
lease term at full rental (subject only to abatement, if any, during
any period in which the Property or a portion thereof shall not be
used and occupied by such tenant as a result of the casualty).
(k) Without limiting the Earthquake provisions contained herein, if the
casualty has resulted in whole or part from an earthquake: (a) Grantor
shall have supplied Beneficiary with a "Seismic Risk Estimate" (in
accordance with the Earthquake provisions herein) which show that the
Property will meet "Minimum Seismic Criteria" (as defined in the
Earthquake provisions herein) upon completion of repair and retrofit
work which can be completed within one year of the earthquake, (b)
prior to commencement of the restoration, Grantor shall have committed
in writing to Beneficiary that Grantor will do such repair and
retrofit work as shall be necessary to cause the Property to in fact
meet Minimum Seismic Criteria following completion of restoration, and
(c) Beneficiary must at all times during the restoration be reasonably
satisfied that the Property will meet Minimum Seismic Criteria
following completion of the restoration, Grantor hereby agreeing to
supply Beneficiary with such evidence thereof as Beneficiary shall
request from time to time.
"Projected Debt Service Coverage" means a number calculated by dividing
Projected Operating Income Available for Debt Service (as hereinafter defined)
for the first fiscal year following restoration of the Property by the debt
service during the same fiscal year under all indebtedness secured by a first
mortgage lien on any portion of the Property. For purposes of the preceding
sentence, "debt service" means the greater of (x) debt service due under all
such indebtedness during the first fiscal year following completion of the
restoration of the Property or (y) debt service that would be due and payable
during such fiscal year if all such indebtedness were amortized over 20 years
(whether or not amortization is actually required) and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).
"Projected Operating Income Available for Debt Service" means projected
gross annual rent from the Approved Leases for the first full fiscal year
following completion of the restoration of the Property less:
(A) The operating expenses of the Property for the last fiscal year
preceding the casualty and
(B) the following:
(i) a replacement reserve for future tenant improvements, leasing
commissions and structural items based on not less than $1.80 per
square foot per annum;
(ii) the amount, if any, by which actual gross income during such
fiscal period exceeds that which would be earned from the rental
of 85% of the gross leasable area in the Property;
(iii)the amount, if any, by which the actual management fee is less
than 2% of gross revenue during such fiscal period;
(iv) the amount, if any, by which the actual real estate taxes are
less than $2.10 per square foot per annum; and
(v) the amount, if any, by which total actual operating expenses,
excluding management fees, real estate taxes and replacement
reserves, are less than $1.40 per square foot per annum.
All projections referenced above shall be calculated in a manner
satisfactory to Beneficiary.
CONDEMNATION. Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds resulting from damage to, or the taking of, all or any portion of the
Property, and (ii) the proceeds from any sale or transfer in lieu thereof
(collectively, "Condemnation Proceeds") in connection with condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter, a "Taking"); if the Condemnation Proceeds related to a Facility
are less than the Allocated Loan Amount for the Facility and such damage or
Taking occurs prior to the last three years of the term of the Notes, such
Condemnation Proceeds (less expenses of collection) shall be applied to
restoration of the Facility to its condition, or the functional equivalent of
its condition prior to the Taking, subject to the conditions set forth above in
the section entitled "Insurance" and subject to the further condition that
restoration or replacement of the improvements on the Land to their functional
and economic utility prior to the Taking be possible. Any portion of such award
and proceeds not applied to restoration shall, at Beneficiary's option, be
applied on the Indebtedness, whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.
TAXES AND SPECIAL ASSESSMENTS. Grantor agrees to pay before delinquency all
taxes and special assessments of any kind that have been or may be levied or
assessed against the Property, this instrument, the Notes or the Indebtedness,
or upon the interest of Trustee or Beneficiary in the Property, this instrument,
the Notes or the Indebtedness, and to procure and deliver to Beneficiary within
30 days after Beneficiary shall have given a written request to Grantor, the
official receipt of the proper officer showing timely payment of all such taxes
and assessments; provided, however, that Grantor shall not be required to pay
any such taxes or special assessments if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and funds sufficient to satisfy the contested amount have been deposited in an
escrow satisfactory to Beneficiary.
PERSONAL PROPERTY. With respect to the Personal Property, Grantor hereby
represents, warrants and covenants as follows:
(a) Except for the security interest granted hereby, Grantor is, and as to
portions of the Personal Property to be acquired after the date hereof
will be, the sole owner of the Personal Property, free from any lien,
security interest, encumbrance or adverse claim thereon of any kind
whatsoever. Grantor shall notify Beneficiary of, and shall indemnify
and defend Beneficiary and the Personal Property against, all claims
and demands of all persons at any time claiming the Personal Property
or any part thereof or any interest therein.
(b) Except as otherwise provided above, Grantor shall not lease, sell,
convey or in any manner transfer the Personal Property without the
prior consent of Beneficiary.
(c) Grantor is a limited partnership organized under the laws of the State
of Delaware. Until the Indebtedness is paid in full, Grantor (i) shall
not change its legal name without providing Beneficiary with thirty
(30) days prior written notice; (ii) shall not change its state of
organization; and (iii) shall preserve its existence and shall not, in
one transaction or a series of transactions, merge into or consolidate
with any other entity.
(d) At the request of Beneficiary, Grantor shall join Beneficiary in
executing one or more financing statements and continuations and
amendments thereof pursuant to the Uniform Commercial Code in form
satisfactory to Beneficiary, and Grantor shall pay the cost of filing
the same in all public offices wherever filing is deemed by
Beneficiary to be necessary or desirable. Grantor shall also, at
Grantor's expense, take any and all other action requested by
Beneficiary to perfect Beneficiary's security interest under the
Uniform Commercial Code with respect to the Personal Property,
including, without limitation, exercising Grantor's best efforts to
obtain any consents, agreements or acknowledgments required of third
parties to perfect Beneficiary's security interest in Personal
Property consisting of deposit accounts, letter-of-credit rights,
investment property, and electronic chattel paper.
OTHER LIENS. Grantor agrees to keep the Property or any Personal Property free
from all other liens either prior or subsequent to the lien created by this
instrument other than liens created by the Transaction Documents. The (i)
creation of any other lien on any portion of the Property or on any Personal
Property, whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable license to collect, use and enjoy rents and
profits from the Property, shall constitute a default under the terms of this
instrument; except that upon written notice to Beneficiary, Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal Property described herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.
LEASES. Grantor covenants with Beneficiary (a) to observe and perform all the
obligations imposed upon the lessor under all leases and not to do or permit to
be done anything to impair the same without Beneficiary's prior written consent,
(b) not to collect any of the rent or other amounts due under any lease or other
issues or profits from the Property in any manner in advance of the time when
the same shall become due (save and except only for collecting one month's rent
in advance plus tenant contributions toward operating expenses plus the security
deposit, if any, at the time of execution of a lease), (c) not to execute any
other assignment of rents, issues, or profits arising or accruing from any of
the leases or from the Property, except the Transaction Documents, (d) not to
enter into any lease agreement affecting the Property, except those leases
entered into in the ordinary course of business and utilizing Grantor's standard
form lease previously approved by Beneficiary, with no substantial modifications
thereto, without the prior written consent of Beneficiary, (e) to execute and
deliver, at the request of Beneficiary, all such further assurances and
acknowledgments of the assignment contained herein and the other provisions
hereof, with respect to specific leases or otherwise, as Beneficiary shall from
time to time require, (f) to obtain from any tenant at the Property, from time
to time as requested by Beneficiary, estoppel certificates, in form and
substance satisfactory to Beneficiary, confirming the terms of such tenant's
lease and the absence of default thereunder, and (g) not to cancel, surrender or
terminate any lease, exercise any option which might lead to such termination or
consent to any change, modification, or alteration thereof, to the release of
any party liable thereunder or to the assignment of the lessee's interest
therein, without the prior written consent of Beneficiary, and any of said acts,
if done without the prior written consent of Beneficiary, shall be null and
void. Notwithstanding clause (g) of the preceding sentence, with respect to all
leases (other than leases as to which Beneficiary, Grantor and tenant have
executed a separate non-disturbance and attornment agreement), Grantor may take
actions described in clause (g) without Beneficiary's prior written consent (but
with written notice thereof to Beneficiary), if and only if such action is
consistent with the usual and customary operation of the Property.
COSTS, FEES AND EXPENSES. Grantor agrees to pay all costs, fees and expenses of
this trust; to appear in and defend any action or proceeding purporting to
affect the security hereof or the rights or powers of Beneficiary or Trustee
hereunder; to pay all costs and expenses, including the cost of obtaining
evidence of title and reasonable attorney's fees, incurred in connection with
any such action or proceeding; and to pay any and all attorney's fees and
expenses of collection and enforcement in the event the Notes are placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.
FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein provided, Beneficiary or Trustee may, without obligation so to do,
without notice to or demand upon Grantor and without releasing Grantor from any
obligation hereof: (i) make or do the
same in such manner and to such extent as Beneficiary may deem necessary to
protect the security hereof, Beneficiary or Trustee being authorized to enter
upon the Property for such purpose; (ii) appear in and defend any action or
proceeding purporting to affect the security hereof, or the rights or powers of
Beneficiary or Trustee; (iii) pay, purchase, contest or compromise any
encumbrance, charge or lien which in the judgment of Beneficiary appears to be
prior or superior hereto; and (iv) in exercising any such powers, pay necessary
expenses, employ counsel and pay its reasonable fees. Sums so expended shall be
payable by Grantor immediately upon demand with interest from date of
expenditure at the Default Rate (as defined in the Notes). All sums so expended
by Beneficiary and the interest thereon shall be included in the Indebtedness
and secured by the lien of this instrument.
EVENT OF DEFAULT AND CROSS DEFAULT. Any default by Grantor or the Other
Borrowers in making any required payment of the Indebtedness or the Other
Indebtedness or any default in any provision, covenant, agreement, warranty or
certification contained in any of the Transaction Documents shall, except as
provided in the two immediately succeeding paragraphs, constitute an "Event of
Default".
NOTICE OF DEFAULT. A default in any payment required in the Notes or Other Note
or any other Transaction Document, whether or not payable to Beneficiary, (a
"Monetary Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written notice of such Monetary Default to Grantor and the
Other Borrowers and Grantor and the Other Borrowers shall not have cured such
Monetary Default by payment of all amounts in default (including payment of
interest at the Default Rate, as defined in the Notes or Other Note, from the
date of default to the date of cure on amounts owed to Beneficiary) within five
(5) business days after the date on which Beneficiary shall have given such
notice to Grantor and Other Borrowers.
Any other default under the Notes or Other Note or under any other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default unless Beneficiary shall have given a written notice of such
Non-Monetary Default to Grantor and the Other Borrowers and Grantor and the
Other Borrowers shall not have cured such Non-Monetary Default within thirty
(30) days after the date on which Beneficiary shall have given such notice of
default to Grantor and the Other Borrowers (or, if the Non-Monetary Default is
not curable within such 30-day period, Grantor and the Other Borrowers shall not
have diligently undertaken and continued to pursue the curing of such
Non-Monetary Default and deposited an amount sufficient to cure such
Non-Monetary Default in an escrow account satisfactory to Beneficiary).
In no event shall the notice and cure period provisions recited above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).
SUBSTITUTION OF TRUSTEE. Beneficiary and its successors and assigns may for any
reason and at any time appoint a new or substitute Trustee by written
appointment delivered to such new or substitute Trustee without notice to
Grantor, without notice to, or the resignation or withdrawal by, the existing
Trustee and without recordation of such written appointment unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment, the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.
APPOINTMENT OF RECEIVER. Upon commencement of any proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or restriction by any present or future law, without regard to the
solvency or insolvency at that time of any party liable for the payment of the
Indebtedness, without regard to the then value of the Property, whether or not
there exists a threat of imminent harm, waste or loss to the Property and
whether or not the same shall then be occupied by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the revenues, rents, profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such appointment may confer) full power to collect all such income
and, after paying all necessary expenses of such receivership and of operation,
maintenance and repair of said Property, to apply the balance to the payment of
any of the Indebtedness then due.
FORECLOSURE. Upon the occurrence of an Event of Default, the entire unpaid
Indebtedness shall, at the option of Beneficiary, become immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE EXERCISE OF SUCH OPTION, OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising any rights it may have with respect to the Personal Property under
the Uniform Commercial Code of the jurisdiction in which the Property is
located, institute proceedings in any court of competent jurisdiction to
foreclose this instrument as a mortgage, or to enforce any of the covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage, rent or
lease the Property or any portion thereof upon such terms as Beneficiary may
deem expedient, and collect, receive and receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter provided in case
of sale. Trustee is hereby further authorized and empowered, either after or
without such entry, to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think best), and all the right, title and interest of
Grantor therein, by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located, (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue, execute and deliver a
deed of conveyance, all as then may be provided by law; and Trustee shall, out
of the proceeds or avails of such sale, after first paying and retaining all
fees, charges, costs of advertising the Property and of making said sale, and
attorneys' fees as herein provided, pay to Beneficiary or the
legal holder of the Indebtedness the amount thereof, including all sums advanced
or expended by Beneficiary or the legal holder of the Indebtedness, with
interest from date of advance or expenditure at the Default Rate (as defined in
the Notes), rendering the excess, if any, as provided by law; such sale or sales
and said deed or deeds so made shall be a perpetual bar, both in law and equity,
against Grantor, the heirs, successors and assigns of Grantor, and all other
persons claiming the Property aforesaid, or any part thereof, by, from, through
or under Grantor. The legal holder of the Indebtedness may purchase the Property
or any part thereof, and it shall not be obligatory upon any purchaser at any
such sale to see to the application of the purchase money.
PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material consideration to Beneficiary in making the loan secured by this
instrument, and Grantor shall not (i) convey title to all or any part of the
Property, (ii) enter into any contract to convey (land contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a purchaser possession of, or income from, the Property prior to a
transfer of title to all or any part of the Property ("Contract to Convey") or
(iii) cause or permit a Change in the Proportionate Ownership (as hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the Proportionate Ownership of Grantor shall constitute a default
hereunder.
B. For purposes of this instrument, a "Change in the Proportionate
Ownership" means any transfer which results in Carl E. Berg and/or Permitted
Transferee's (as defined below) collectively, owning less than 49% of Carl E.
Berg's direct and indirect ownership interest in Grantor (existing on the date
of initial advance of funds, as represented in the Certification) without
Beneficiary's approval.
C. Notwithstanding the above, a transfer of Carl E. Berg's ownership in
Grantor (i) to and among the Berg Family (as hereinafter defined) shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E. Berg, and (ii) to any entity owned and controlled (ownership and voting
interest in excess of 50% by the Berg Family) shall be permitted for estate
planning purposes or upon the death or incompetency of Carl E. Berg. A person or
entity holding a direct or indirect ownership interest by virtue of a transfer
described in this subpart C. is a "Permitted Transferee."
D. For purposes hereof, the "Berg Family" shall mean Carl E. Berg, his
spouse, his descendants and their spouses, Clyde J. Berg, any trusts or estates
for the benefit of said parties, and any entities owned and controlled
(ownership and voting interests in excess of 50%) by said parties.
E. A conversion of all or part of the ownership interest of Carl E. Berg
from limited partnership units ("L.P. Units") of Grantor to common shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.
FINANCIAL STATEMENTS. Grantor agrees to furnish to Beneficiary:
(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the "Property Financial Statements Due
Date"):
(i) an unaudited balance sheet as of the last day of such fiscal year;
(ii) an unaudited statement of operations for such fiscal year with a
detailed line item break-down of all sources of income and expenses,
including capital expenses broken down between, leasing commissions,
tenant improvements, capital maintenance, common area renovation, and
expansion;
(iii)a current rent roll identifying location, leased area, lease begin
and end dates, current contract rent, rent increases and increase
dates, percentage rent, expense reimbursements, and any other recovery
items;
(iv) an operating budget for the current fiscal year; and
(B) the following financial statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor, respectively (the
"Grantor/Guarantor Financial Statements Due Date")
(i) an audited balance sheet as of the last day of such fiscal year; and
(ii) an audited statement of cash flows for such fiscal year; and
(C) to the extent the following tenants are not publicly traded, Grantor will
use its best efforts to obtain the following financial statements for Fujitsu
(formerly known as Amdahl), Apple, JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective tenant (the "Tenant
Financial Statements Due Date"):
(i) an audited, or unaudited if audited is not available, balance sheet as
of the last day of such fiscal year; and
(ii) an audited, or unaudited if audited is not available, statement of
cash flows for such fiscal period.
The Property Financial Statements Due Date, the Grantor/Guarantors
Financial Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".
If audited, the financial statements identified in sections (A)(i),
(A)(ii), (B)(i), (B)(ii), (C)(i) and (C)(ii) above, shall each be prepared in
accordance with generally accepted accounting principles by a "Big Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary. All unaudited financial statements for Grantor, Property, and
Guarantor shall contain a certification by the managing general partner of
Grantor stating that they have been prepared in accordance with generally
accepted accounting principles and that they are true and correct. The expense
of preparing all of the financial statements required in (A) and (B) above,
shall be borne by Grantor.
Grantor acknowledges that Beneficiary requires the financial statements to
record accurately the value of the Property for financial and regulatory
reporting.
In addition to all other remedies available to Beneficiary hereunder, at
law and in equity, if any financial statement or proof of payment of property
taxes and assessments is not furnished to Beneficiary as required in this
section entitled "Financial Statements" and in the section entitled "Taxes and
Special Assessments", within 30 days after Beneficiary shall have given written
notice to Grantor that it has not been received as required,
(x) interest on the unpaid principal balance of the Indebtedness and the
Other Notes shall as of the applicable Financial Statements Due Date or the
date such proof of payment of property taxes and assessments was due,
accrue and become payable at a rate equal to the sum of the Interest Rate
(as defined in the Notes) plus one percent (1%) per annum (the "Increased
Rate"); and
(y) Beneficiary may elect to obtain an independent appraisal and audit of
the Property at Grantor's expense, and Grantor agrees that it will, upon
request, promptly make Grantor's books and records regarding the Property
available to Beneficiary and the person(s) performing the appraisal and
audit (which obligation Grantor agrees can be specifically enforced by
Beneficiary).
The amount of the payments due under the Notes and Other Note during the
time in which the Increased Rate shall be in effect shall be changed to an
amount which is sufficient to amortize the then unpaid principal balance at the
Increased Rate during the then remaining portion of a period of 20 years
commencing with the Amortization Period Commencement Date (as defined in the
Notes and Other Note). Interest shall continue to accrue and be due and payable
monthly at the Increased Rate until the financial statements and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished to Beneficiary as required. Commencing on the date on which the
financial statements and proof of payment of property taxes and assessments are
received by Beneficiary, interest on the unpaid principal balance shall again
accrue at the Interest Rate and the payments due during the remainder of the
term of the Notes and Other Note shall be changed to an amount which is
sufficient to amortize the then unpaid principal balance at the Interest Rate
during the then remaining portion of a period of 20 years commencing with the
Amortization Period Commencement Date. Notwithstanding the foregoing,
Beneficiary shall have the right to conduct an independent audit at its own
expense at any time.
PROPERTY MANAGEMENT. The management company for the Property shall be
satisfactory to Beneficiary. Any change in the management company without the
prior written consent of Beneficiary shall constitute a default under this
instrument. Beneficiary shall be reasonable in giving its approval, and
Beneficiary may require that the new management company, by itself or through
its manager, have good character and reputation, and demonstrated ability and
experience in the operation and leasing of at least one million square feet of
property similar to the Property.
EARTHQUAKE. If the Property is damaged by an earthquake during the term of the
Indebtedness:
(A) Beneficiary may require a new "Seismic Risk Estimate" (as hereinafter
defined) to be performed at Grantor's expense, and
(B) Grantor shall perform repair and retrofit work, satisfactory to
Beneficiary, which results in (i) the complete repair of the Property and
(ii) the performance of a subsequent Seismic Risk Estimate verifying that
the Property meets "Minimum Seismic
Criteria" (as hereinafter defined). Such work shall be commenced and
completed as soon as possible and in any event within one year of the
earthquake.
Without limiting the Grantor's obligation to cause the Property to satisfy
Minimum Seismic Criteria, during any period of time in which the Property does
not satisfy Minimum Seismic Criteria, Grantor shall provide Beneficiary with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).
As used herein, "Earthquake Insurance" means a policy satisfactory to
Beneficiary with a deductible of no greater than 5% of the "Replacement Cost"
(as hereinafter defined) and in an amount calculated as follows: (i) the "Loan
Amount" (as hereinafter defined) plus (ii) the "Specified Loss Dollar Amount"
(as defined below) plus (iii) 5% of the Replacement Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).
As used herein, "Loan Amount" shall mean the total principal amount
advanced at closing under the Other Note.
As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).
As used herein, "Market Value" means the estimated fair market value of the
Property, determined by Beneficiary in its sole discretion, at the time a
Seismic Risk Estimate is performed.
As used herein, "Minimum Seismic Criteria" means that both the Specified
Loss Percentage (as hereinafter defined) for the Property is less than or equal
to 30% and the Loan Plus Specified Loss is less than or equal to 90% of the
Market Value.
As used herein, "Model" means a computer based seismic model selected by
Beneficiary, currently the Insurance and Investment Risk Assessment System
("IRAS") program by Risk Management Solutions ("RMS").
As used herein, "Replacement Cost" means the estimated total cost,
determined by Beneficiary in its sole discretion, to construct all of the
Improvements as if the Property were completely unimproved (not including the
cost of site work, utilities and foundation).
As used herein, "Seismic Risk Estimate" refers to the results of a seismic
risk estimate for the Property produced by the Model. Grantor agrees that it
will not rely for its own evaluation purposes on the Seismic Risk Estimate
produced by or for Beneficiary.
As used herein, "Specified Loss Dollar Amount" means the "Specified Loss
Percentage" (as hereinafter defined) multiplied by the Replacement Cost.
As used herein, "Specified Loss Percentage" means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement Cost. Beneficiary's parameters for the Model are based on a 90%
probability that the level of damage predicted will not be exceeded in an
earthquake with an expected 475 year return period.
DEPOSITS BY GRANTOR. To assure the timely payment of real estate taxes and
special assessments (including personal property taxes, if appropriate), upon
the occurrence of an Event of Default, Beneficiary shall thence forth have the
option to require Grantor to deposit funds with Beneficiary or in an account
satisfactory to Beneficiary, in monthly or other periodic installments in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and special assessments as they become due. If at any time the funds so
held by Beneficiary, or in such other account, shall be insufficient to pay any
of said expenses, Grantor shall, upon receipt of notice thereof, immediately
deposit such additional funds as may be necessary to remove the deficiency. All
funds so deposited shall be irrevocably appropriated to Beneficiary to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.
NOTICES. Any notices, demands, requests and consents permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally or sent by certified mail with postage prepaid or by reputable
courier service with charges prepaid. Any notice or demand sent to Grantor by
certified mail or reputable courier service shall be addressed to Grantor at
10050 Bandley Drive, Cupertino, CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable courier service shall be addressed to The Northwestern Mutual Life
Insurance Company to the attention of the Real Estate Investment Department at
720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Beneficiary shall designate in a notice given in the manner described herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand hereunder shall be deemed given when received. Any notice or
demand which is rejected, the acceptance of delivery of which is refused or
which is incapable of
being delivered during normal business hours at the address specified herein or
such other address designated pursuant hereto shall be deemed received as of the
date of attempted delivery.
MODIFICATION OF TERMS. Without affecting the liability of Grantor or any other
person (except any person expressly released in writing) for payment of the
Indebtedness or for performance of any obligation contained herein and without
affecting the rights of Beneficiary with respect to any security not expressly
released in writing, Beneficiary may, at any time and from time to time, either
before or after the maturity of the Notes, without notice or consent: (i)
release any person liable for payment of all or any part of the Indebtedness or
for performance of any obligation; (ii) make any agreement extending the time or
otherwise altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing with the lien or charge hereof; (iii) exercise or refrain from
exercising or waive any right Beneficiary may have; (iv) accept additional
security of any kind; (v) release or otherwise deal with any property, real or
personal, securing the Indebtedness, including all or any part of the Property.
EXERCISE OF OPTIONS. Whenever, by the terms of this instrument, of the Notes or
any of the other Loan Documents, Beneficiary is given any option, such option
may be exercised when the right accrues, or at any time thereafter, and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.
NATURE AND SUCCESSION OF AGREEMENTS. Each of the provisions, covenants and
agreements contained herein shall inure to the benefit of, and be binding on,
the heirs, executors, administrators, successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Notes.
LEGAL ENFORCEABILITY. No provision of this instrument, the Notes or any other
Loan Documents shall require the payment of interest or other obligation in
excess of the maximum permitted by law. If any such excess payment is provided
for in any Loan Documents or shall be adjudicated to be so provided, the
provisions of this paragraph shall govern and Grantor shall not be obligated to
pay the amount of such interest or other obligation to the extent that it is in
excess of the amount permitted by law.
LIMITATION OF LIABILITY. Notwithstanding any provision contained herein to the
contrary, the personal liability of Grantor shall be limited as provided in the
Notes.
MISCELLANEOUS. Time is of the essence in each of the Loan Documents. The
remedies of Beneficiary as provided herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent, and may be pursued singly,
successively, or together at the sole discretion of Beneficiary, and may be
exercised as often as occasion therefor shall occur; and neither the failure to
exercise any such right or remedy nor any acceptance by Beneficiary of payment
of Indebtedness in default shall in any event be construed as a waiver or
release of any right or remedy. Neither this instrument nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and Beneficiary. If any of the provisions of
any Loan Document or the application thereof to any persons or circumstances
shall to any extent be invalid or unenforceable, the remainder of such Loan
Document and each of the other Loan Documents, and the application of such
provision or provisions to persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.
SURETYSHIP WAIVERS. This instrument is intended to constitute the primary
obligation of Grantor with respect to the Obligations, and Grantor is not
intended to be a guarantor or surety or otherwise only secondarily liable with
respect to matters covered hereby. However, if said Obligations, or any of them,
should be determined to not be direct obligations but rather suretyship
obligations, Grantor agrees as follows:
Without limiting or lessening the primary liability of Grantor hereunder,
Beneficiary may, without notice to Grantor,
(a) grant extensions of time or any other indulgences on the Indebtedness;
(b) take, give up, modify, vary, exchange, renew or abstain from
perfecting or taking advantage of any security for the Indebtedness;
and
(c) accept or make compositions or other arrangements with Other Borrowers
under the Transaction Documents, realize on any security, and
otherwise deal with Other Borrowers, other parties and any security as
Beneficiary may deem expedient; and
All additional demands, presentments, notices of protest and dishonor, and
notices of every kind and nature, including those of any action or no action on
the part of Other Borrowers, Beneficiary or Grantor, are expressly waived by
Grantor. Grantor hereby waives the right to require Beneficiary to proceed
against the Other Borrowers or any other party or to proceed against or apply
any security it may hold, waives the right to require Beneficiary to pursue any
other remedy for the benefit of Grantor and agrees that Beneficiary may
proceed against Grantor without taking any action against any other party and
without proceeding against or applying any security it may hold. Beneficiary
may, at its election, foreclose upon any security held by it in one or more
judicial or non-judicial sales, whether or not every aspect of such sale is
commercially reasonable, without affecting or impairing the liability of
Grantor, except to the extent the Indebtedness shall have been paid. Grantor
waives any defense arising out of such an election, notwithstanding that such
election may operate to impair or extinguish any right or remedy of Grantor
against the Other Borrowers or any other security.
Grantor waives all rights and defenses arising out of an election of remedies by
Beneficiary, even though that election of remedies, such as a nonjudicial
foreclosure of the Lien Instrument, has destroyed Grantor's right of subrogation
and reimbursement against the Other Borrowers by the operation of Section 580d
of the California Code of Civil Procedure or otherwise. Grantor waives all
rights and defenses that Grantor may have because the Other Borrowers' debt is
secured by real property. This means, among other things, that (i) Beneficiary
may foreclose on the real and personal property pledged by Grantor without first
foreclosing on any real or personal collateral pledged by the Other Borrowers,
and (ii) if Beneficiary forecloses on any real property collateral pledged by
the Other Borrowers: (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 and (B) Beneficiary may collect
from Grantor even if Beneficiary, by foreclosing on the real property
collateral, has destroyed any right Grantor may have to collect from Other
Borrowers. This is an unconditional and irrevocable waiver of any rights and
defenses Grantor may have because the Other Borrowers' debt is secured by real
property. These rights and defenses waived by Grantor include, but are not
limited to, any rights or defenses based upon Sections 580a, 580b, 580d or 726
of the California Code of Civil Procedure. Without limiting the foregoing,
Grantor hereby waives any and all benefits that might otherwise be available to
Grantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2849,
2850, 2899 and 3433.
SUBORDINATION. Notwithstanding anything to the contrary contained in this Deed
of Trust (Second Priority), the terms and provisions of this Deed of Trust
(Second Priority) and the lien created hereby shall be subject and subordinate
to the terms and provisions of the first and prior lien instrument ("First Lien
Instrument") of even date herewith executed and delivered by Grantor to
Beneficiary to secure the Other Note, the lien created thereby and all
modifications and supplements thereto. The First Lien Instrument and the
indebtedness secured thereby, and any increases therein or renewals or
extensions thereof, shall unconditionally be and remain at all times a lien or
charge on the Land prior and superior to the lien or charge of this Deed of
Trust (Second Priority).
WAIVER OF JURY TRIAL. Grantor hereby waives any right to trial by jury with
respect to any action or proceeding (a) brought by Grantor, Beneficiary or any
other person relating to (i) the obligations secured hereby and/or any
understandings or prior dealings between the parties hereto or (ii) the Loan
Documents or the Environmental Indemnity Agreement, or (b) to which Beneficiary
is a party.
CAPTIONS. The captions contained herein are for convenience and reference only
and in no way define, limit or describe the scope or intent of, or in any way
affect this instrument.
GOVERNING LAW. This instrument shall be governed by and construed in all
respects in accordance with the laws of the State of California without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning any dispute arising under or related to this instrument shall be
brought in a state or federal court located in the State of California, and
Beneficiary and Grantor hereby irrevocably consent to the jurisdiction of the
courts located in the State of California and irrevocably waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action, lawsuit or other legal proceeding brought in any court located in the
State of California
REQUEST FOR NOTICE. Pursuant to California Government Code Section 27321.5(b),
Grantor hereby requests that a copy of any notice of default and a copy of any
notice of sale given pursuant to this instrument be mailed to Grantor at the
address set forth herein.
IN WITNESS WHEREOF, this instrument has been executed by the Grantor as of
the day and year first above written.
MISSION WEST PROPERTIES, L.P., a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
By: Carl E. Berg
Name: Carl E. Berg
Title: CEO of G.P.
STATE OF California )
)ss.
COUNTY OF Santa Clara )
On January 7th, 2003, before me, G.W. Shott, a notary for the state, personally
appeared Carl E. Berg, CEO of G.P., personally known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature GW Shott
-----------------------------------
G.W. Shott
-----------------------------------
Name (typed or printed)
This instrument was prepared by Sally J. Lewis, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
EXHIBIT "A"
(Mission West LP)
Parcel One:
Parcel 1, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on December 23, 1997,
in Book 698 of Maps, Page(s) 1 and 2.
Reserving therefrom an easement for ingress and over that portion of land
designated and delineated as "C.O.E.- 30'" Reciprocal-Ingress, Egress- Easement"
on that Parcel Map filed for record in the Office of the Recorder of the County
of Santa Clara, State of California, on December 23, 1997 in Book 698 of Maps,
Pages 1 and 2.
Parcel Two:
An easement for ingress and egress over those portion of Parcel 2 designated and
delineated as "C.O.E.- 30' Reciprocal-Ingress, Egress-Easement" on that Parcel
Map filed for record in the Office of the Recorder of the County of Santa Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.
Parcel Three:
An easement for ingress and egress over those portion of Parcel 3 designated and
delineated as "C.O.E-26'Reciprocal-Ingress, Egress-Easement" on that Parcel Map
filed for record in the Office of the Recorder of the County of Santa Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.
Assessors Parcel No: 244-13-015
EXHIBIT 10.37
California
Loan No. C-332757
RECORDING REQUESTED BY
American Title Company
632004LZ
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Nadine T. Hansohn
SPACE ABOVE THIS LINE FOR RECORDER'S USE
DEED OF TRUST and SECURITY AGREEMENT (FIRST PRIORITY)
Mission West Properties, L. P. I
THIS DEED OF TRUST and SECURITY AGREEMENT is made as of the 3rd day of
January, 2003 between MISSION WEST PROPERTIES, L.P. I, a Delaware limited
partnership, 10050 Bandley Drive, Cupertino, CA 95014, herein (said
Grantor/Trustor, whether one or more in number) called "Grantor", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Trustee", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":
WITNESSETH, That Grantor, in consideration of the indebtedness herein
mentioned, does hereby irrevocably bargain, sell, grant, transfer, assign and
convey unto Trustee, in trust, with power of sale and right of entry and
possession, the following property (herein referred to as the "Property"):
A. The land in the City of Santa Clara and City of Cupertino, Santa Clara
County, California described in Exhibit "A" attached hereto and
incorporated herein (the "Land");
B. All easements, appurtenances, tenements and hereditaments belonging to
or benefiting the Land, including but not limited to all waters, water
rights, water courses, all ways, trees, rights, liberties and
privileges; and
C. All improvements to the Land, including, but not limited to, all
buildings, structures and improvements now existing or hereafter
erected on the Land; all fixtures and equipment of every description
belonging to Grantor which are or may be placed or used upon the Land
or attached to the buildings, structures or improvements, including,
but not limited to, all engines, boilers, elevators and machinery, all
heating apparatus, electrical equipment, air-conditioning and
ventilating equipment, water and gas fixtures, and all furniture and
easily removable equipment; all of which, to the extent permitted by
applicable law, shall be deemed an accession to the freehold and a
part of the realty as between the parties hereto.
D. All Grantor's right, title and interest in and to that certain 17.5'
Ingress and Egress Easement Agreement No. 1 filed for record on April
13, 1979, in Book 439 of Maps, Pages 17 & 18, Santa Clara County,
California.
Grantor agrees not to sell, transfer, assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any buildings or structures or the sale or transfer of waters or water rights
and (ii) such action results in the substitution or replacement with similar
items of equal value.
Without limiting the foregoing grants, Grantor hereby pledges to
Beneficiary, and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter acquired right, title and interest in and to the Property
and any and all
E. cash and other funds now or at any time hereafter deposited by or for
Grantor on account of tax, special assessment, replacement or other
reserves required to be maintained pursuant to the Loan Documents (as
hereinafter defined) with Beneficiary or a third party, or otherwise
deposited with, or in the possession of, Beneficiary pursuant to the
Loan Documents; and
F. surveys, soils reports, environmental reports, guaranties, warranties,
architect's contracts, construction contracts, drawings and
specifications, applications, permits, surety bonds and other
contracts relating to the acquisition, design, development,
construction and operation of the Property; and
G. accounts, chattel paper, deposit accounts, instruments, equipment,
inventory, documents, general intangibles, letter-of-credit rights,
investment property and all other personal property of Grantor, in
each case, to the extent associated with or arising from the
ownership, development, operation, use or disposition of any portion
of the property; and
H. present and future rights to condemnation awards, insurance proceeds
or other proceeds at any time payable to or received by Grantor on
account of the Property or any of the foregoing personal property.
All personal property hereinabove described is hereinafter referred to as the
"Personal Property".
If any of the Property is of a nature that a security interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing statement if permitted by applicable law and
Grantor authorizes Beneficiary to file a financing statement describing such
Property and, at Beneficiary's request, agrees to join with Beneficiary in the
execution of any financing statements and to execute any other instruments that
may be necessary or desirable, in Beneficiary's determination, for the
perfection or renewal of such security interest under the Uniform Commercial
Code.
TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF SECURING, in
such order of priority as Beneficiary may determine: (i) payment of the
Indebtedness (as hereinafter defined); and (ii) payment (with interest as
provided) and performance by Grantor of the Obligations (as hereinafter
defined). Notwithstanding the foregoing, or any other term contained herein or
in the Loan Documents, none of Grantor's obligations (the "Other Obligations")
under or pursuant to (a) the Environmental Indemnity Agreement of even date
herewith executed by Grantor, Guarantor and the Other Borrowers in favor of
Beneficiary ("Environmental Agreement"), (b) the Other Indebtedness or (c) any
Other Note shall be secured by the lien of this Deed of Trust.
FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture filing in the real estate records of the County of the State in which
the real estate described in Exhibit A is located, with respect to any and all
fixtures included within the term "Property" and "fixtures" under this Deed of
Trust and to any goods or other personal property that are now or hereafter
become a part of the Property as fixtures.
DEFINITIONS
CERTAIN DEFINED TERMS: As used in this Deed of Trust the following terms
shall have the following meanings:
ABSOLUTE ASSIGNMENT: The Absolute Assignment of Leases and Rents (First
Priority) of even date herewith executed by Grantor in favor of Beneficiary.
COMMITMENT: The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications stated in the letter, the Loan application executed by
Grantor and the Other Borrowers, dated October 31, 2002, which acceptance and
modification was agreed to by Grantor and the Other Borrowers on November 23,
2002.
ENVIRONMENTAL AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.
FACILITY: A real property (including, without limitation, all buildings,
fixtures and other improvements located thereon) now or hereafter serving as
security for the loans which comprise the Transaction. Attached hereto as
Exhibit B is a list of all Facilities as of the date hereof.
GUARANTOR: Mission West Properties, Inc., a Maryland corporation, and each
other person hereafter guaranteeing any portion of the Indebtedness or
Obligations.
GUARANTEE: That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission West Properties, Inc., a Maryland corporation,
in favor of Beneficiary, and any other guarantee of any portion of the
Indebtedness or Obligations hereafter executed by any person.
INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Note (as hereinafter defined) and any extensions or renewals
thereof (including extensions or renewals at a different rate of interest,
whether or not evidenced by a new or additional promissory note or notes), and
all other indebtedness of Grantor to Beneficiary and additional advances under,
evidenced by and/or secured by the Loan Documents, plus interest on all such
amounts, other than any obligations relating to the Other Indebtedness, Other
Notes or Other Obligations.
LOAN DOCUMENTS: The Note, this Deed of Trust, the Commitment (as it relates
to the Indebtedness), the Absolute Assignment, the Guarantee (as it relates to
the Indebtedness), that certain Certification of Borrowers and Carl E. Berg
("Certification") of even date herewith (as it relates to the Indebtedness),
that certain Limited Partnership Supplement dated January 3, 2003, any other
supplements and authorizations required by Beneficiary, the Fraudulent
Conveyance Indemnity Agreement from Guarantor (as it relates to the
Indebtedness), Certificate Regarding Distribution of Loan Proceeds and Indemnity
Agreement among Guarantor, Grantor and the Other Borrowers (as it relates to the
Indebtedness), and Contribution and Reimbursement Agreement among Grantor and
the Other Borrowers (as it relates to the Indebtedness), and all other documents
evidencing, securing or relating to the payment of the Indebtedness or the
performance of the Obligations, with the exception of the Other Notes and the
Environmental Agreement.
NOTE: The Promissory Note of even date herewith executed by Grantor in
the original principal amount of Twenty Nine Million Eight Hundred Eleven
Thousand Three Hundred Sixty-Nine Dollars ($29,811,369.00), payable to
Beneficiary or its order, with final maturity no later than February 1, 2013 and
with interest as therein expressed, and all modifications, renewals or
extensions of such Promissory Note.
OBLIGATIONS: Any and all of the covenants, promises and other
obligations (including payment of the Indebtedness) made or owing by Grantor to
or due to Beneficiary under and/or as set forth in the Loan Documents and all of
the material covenants, promises and other obligations made or owing by Grantor
to each and every other person relating to the Property, exclusive of the Other
Obligations.
OTHER BORROWERS: Collectively, Mission West Properties, L.P., a Delaware
limited partnership, and Mission West Properties, L.P. II, a Delaware limited
partnership.
OTHER INDEBTEDNESS: The loans from Beneficiary to the Other Borrowers
evidenced by the Other Notes.
OTHER NOTES: Those other Promissory Notes, each executed by one of the
Other Borrowers and payable to the order of Beneficiary, which Promissory Notes
are more particularly described in Schedule 1 of the Note.
OTHER OBLIGATIONS: As defined in the Granting Paragraph of this Deed of
Trust.
PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.
TRANSACTION: Loans in the aggregate principal amount of One Hundred Million
Dollars ($100,000,000.00), which are made by the Beneficiary to the Grantor and
the Other Borrowers on the date hereof, and are evidenced by the Note and Other
Notes and secured by lien instruments and collateral documents from Grantor and
the Other Borrowers creating liens and rights for the benefit of Beneficiary.
TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the payment of amounts owed Beneficiary in connection with the
Transaction, with the exception of the Environmental Agreement.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:
PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness hereby secured promptly
and in full compliance with the terms of the Loan Documents.
OWNERSHIP. Grantor represents that it owns the Property and has good and lawful
right to convey the same and that the Property is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary. Grantor does hereby forever warrant and shall forever defend the
title and possession thereof against the lawful claims of any and all persons
whomsoever.
MAINTENANCE OF PROPERTY AND COMPLIANCE WITH LAWS. Grantor agrees to keep the
buildings and other improvements now or hereafter erected on the Land in good
condition and repair; not to commit or suffer any waste; to comply with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all reasonable times for the purpose of inspection and of conducting,
in a reasonable and proper manner, such tests as Beneficiary determines to be
necessary in order to monitor Grantor's compliance with applicable laws and
regulations regarding hazardous materials affecting the Property.
TENANTS USING CHLORINATED SOLVENTS. Grantor agrees not to lease any of the
Property, without the prior written consent of Beneficiary, to (i) dry cleaning
operations that perform dry cleaning on site with chlorinated solvents or (ii)
any other tenants that use chlorinated solvents in the operation of their
businesses.
Notwithstanding the above, a tenant's use and storage of a product which
contains no more than twelve (12) ounces of chlorinated solvents shall not
violate this prohibition if, and only if, (i) each tenant's use, storage, and
the ultimate disposal, of said solvents is at all times in compliance with
applicable law; (ii) said solvents are acquired and kept in prepackaged
containers; and (iii) each tenant keeps no more than one (1) prepackaged
container of said solvents on the Property.
BUSINESS RESTRICTION REPRESENTATION AND WARRANTY. Grantor represents and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the Indebtedness: (i) are not, and shall not
become, a person or entity with whom Beneficiary is restricted from doing
business with under regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's Specially Designated and Blocked Persons list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism), or other governmental action; (ii)
are not knowingly engaged in, and shall not engage in, any dealings or
transaction or be otherwise associated with such persons or entities described
in (i) above; and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.
INSURANCE. Grantor agrees to keep the Property insured for the protection of
Beneficiary and Beneficiary's wholly owned subsidiaries and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance in amounts and form and with companies all satisfactory to
Beneficiary:
(A) All risk property insurance with a deductible of not greater than
$100,000.00, including Demolition and Increased Cost of Construction
(DICC) coverage equal to a minimum of 5% of the estimated replacement
cost, with an Agreed Amount Endorsement for the estimated replacement
cost of the improvements. If such all risk property insurance policy
contains a terrorism exclusion, then Grantor shall purchase a separate
insurance policy acceptable to Beneficiary for terrorism coverage.
Notwithstanding the foregoing, however, Grantor shall only be required
to carry such insurance coverage for acts of terrorism with a
deductible acceptable to Lender if such coverage is customarily
required by other institutional lenders on loans secured by property
similar to the Property;
(B) Loss of rents insurance equal to twelve months rent or business income
insurance for 100% of the annual gross earnings from business derived
from the Property;
(C) Flood insurance, if the Property is located in a flood plain (as that
term is used in the National Flood Insurance Program) in an amount not
less than 25% of the estimated replacement cost;
(D) Grantor's own commercial general liability insurance policy with
Beneficiary, and Beneficiary's wholly owned subsidiaries and agents,
named as additional insureds for their interests in the Property; and
(E) Other insurance as required by Beneficiary.
Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary, or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing all insurance coverages required hereunder on deposit with
Beneficiary, which certificates shall provide at least thirty (30) days notice
of cancellation to Beneficiary and shall list Beneficiary as the certificate
holder.
All insurance loss proceeds from all property insurance policies, whether
or not required by Beneficiary (less expenses of collection) shall, at
Beneficiary's option, be applied on the Indebtedness, whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan Documents.
If Beneficiary elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.
Notwithstanding the foregoing provision, Beneficiary agrees that if the
insurance loss proceeds from an insured loss as a Facility are less than the
Allocated Loan Amount for the Facility (as shown in Exhibit B attached hereto)
and if the casualty occurs prior to the last three years of the term of the
Note, then the insurance loss proceeds (less expenses of collection) shall be
applied to restoration of the Facility to its condition prior to the casualty,
subject to satisfaction of the following conditions:
(a) There is no existing Event of Default (as hereinafter defined) at the
time of casualty, and if there shall occur any Event of Default after
the date of the casualty, Beneficiary shall have no further obligation
to release insurance loss proceeds hereunder.
(b) The casualty insurer has not denied liability for payment of insurance
loss proceeds as a result of any act, neglect, use or occupancy of the
Property by Grantor or any tenant of the Property.
(c) Beneficiary shall be satisfied that all insurance loss proceeds so
held, together with supplemental funds to be made available by
Grantor, shall be sufficient to complete the restoration of the
Property. Any remaining insurance loss proceeds may, at the option of
Beneficiary, be applied on the Indebtedness, whether or not due, or be
released to Grantor.
(d) If required by Beneficiary, Beneficiary shall be furnished a
satisfactory report addressed to Beneficiary from an environmental
engineer or other qualified professional satisfactory to Beneficiary
to the effect that no adverse environmental impact to the Property
resulted from the casualty.
(e) Beneficiary shall release casualty insurance proceeds as restoration
of the Property progresses provided that Beneficiary is furnished
satisfactory evidence of the costs of restoration and if, at the time
of such release, there shall exist no Monetary Default (as hereinafter
defined) under the Transaction Documents and no default with respect
to which Beneficiary shall have given Grantor or Other Borrowers
notice pursuant to the Notice of Default provision herein or in the
documents related to other loans comprising the Transaction. If the
estimated cost of restoration exceeds $250,000.00, (i) the drawings
and specifications for the restoration shall be approved by
Beneficiary in writing prior to commencement of the restoration, and
(ii) Beneficiary shall receive an administration fee equal to 1% of
the cost of restoration.
(f) Prior to each release of funds, Grantor shall obtain for the benefit
of Beneficiary an endorsement to Beneficiary's title insurance policy
insuring Beneficiary's lien as a first and valid lien on the Property
subject only to liens and encumbrances theretofore approved by
Beneficiary.
(g) Grantor shall pay all costs and expenses incurred by Beneficiary,
including, but not limited to, outside legal fees, title insurance
costs, third-party disbursement fees, third-party engineering reports
and inspections deemed necessary by Beneficiary.
(h) All reciprocal easement and operating agreements benefiting the
Property, if any, shall remain in full force and effect between the
parties thereto on and after restoration of the Property.
(i) Beneficiary shall be satisfied that Projected Debt Service Coverage
(as hereinafter defined) of at least 1.50 will be produced from the
leasing of not more than 226,950 square feet of space to former
tenants or approved new tenants with leases satisfactory to
Beneficiary for terms of at least five (5) years to commence not later
than (30) days following completion of such restoration ("Approved
Leases").
(j) All leases in effect at the time of the casualty with tenants who have
entered into Beneficiary's form of Non-Disturbance and Attornment
Agreement or similar agreement shall remain in full force and
Beneficiary shall be satisfied that restoration can be completed
within a time frame such that each tenant thereunder shall be
obligated, or each such tenant shall have elected, to continue the
lease term at full rental (subject only to abatement, if any, during
any period in which the Property or a portion thereof shall not be
used and occupied by such tenant as a result of the casualty).
(k) Without limiting the Earthquake provisions contained herein, if the
casualty has resulted in whole or part from an earthquake: (a) Grantor
shall have supplied Beneficiary with a "Seismic Risk Estimate" (in
accordance with the Earthquake provisions herein) which show that the
Property will meet "Minimum Seismic Criteria" (as defined in the
Earthquake provisions herein) upon completion of repair and retrofit
work which can be completed within one year of the earthquake, (b)
prior to commencement of the restoration, Grantor shall have committed
in writing to
Beneficiary that Grantor will do such repair and retrofit work as
shall be necessary to cause the Property to in fact meet Minimum
Seismic Criteria following completion of restoration, and (c)
Beneficiary must at all times during the restoration be reasonably
satisfied that the Property will meet Minimum Seismic Criteria
following completion of the restoration, Grantor hereby agreeing to
supply Beneficiary with such evidence thereof as Beneficiary shall
request from time to time.
"Projected Debt Service Coverage" means a number calculated by dividing
Projected Operating Income Available for Debt Service (as hereinafter defined)
for the first fiscal year following restoration of the Property by the debt
service during the same fiscal year under all indebtedness secured by a first
mortgage lien on any portion of the Property. For purposes of the preceding
sentence, "debt service" means the greater of (x) debt service due under all
such indebtedness during the first fiscal year following completion of the
restoration of the Property or (y) debt service that would be due and payable
during such fiscal year if all such indebtedness were amortized over 20 years
(whether or not amortization is actually required) and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).
"Projected Operating Income Available for Debt Service" means projected
gross annual rent from the Approved Leases for the first full fiscal year
following completion of the restoration of the Property less:
(A) The operating expenses of the Property for the last fiscal year preceding
the casualty and
(B) the following:
(i) a replacement reserve for future tenant improvements, leasing
commissions and structural items based on not less than $1.80 per
square foot per annum;
(ii) the amount, if any, by which actual gross income during such fiscal
period exceeds that which would be earned from the rental of 85% of
the gross leasable area in the Property;
(iii)the amount, if any, by which the actual management fee is less than
2% of gross revenue during such fiscal period;
(iv) the amount, if any, by which the actual real estate taxes are less
than $2.10 per square foot per annum; and
(v) the amount, if any, by which total actual operating expenses,
excluding management fees, real estate taxes and replacement reserves,
are less than $1.40 per square foot per annum.
All projections referenced above shall be calculated in a manner
satisfactory to Beneficiary.
CONDEMNATION. Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds resulting from damage to, or the taking of, all or any portion of the
Property, and (ii) the proceeds from any sale or transfer in lieu thereof
(collectively, "Condemnation Proceeds") in connection with condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter, a "Taking"); if the Condemnation Proceeds related to a Facility
are less than the Allocated Loan Amount for the Facility and such damage or
Taking occurs prior to the last three years of the term of the Note, such
Condemnation Proceeds (less expenses of collection) shall be applied to
restoration of the Facility to its condition, or the functional equivalent of
its condition prior to the Taking, subject to the conditions set forth above in
the section entitled "Insurance" and subject to the further condition that
restoration or replacement of the improvements on the Land to their functional
and economic utility prior to the Taking be possible. Any portion of such award
and proceeds not applied to restoration shall, at Beneficiary's option, be
applied on the Indebtedness, whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.
TAXES AND SPECIAL ASSESSMENTS. Grantor agrees to pay before delinquency all
taxes and special assessments of any kind that have been or may be levied or
assessed against the Property, this instrument, the Note or the Indebtedness, or
upon the interest of Trustee or Beneficiary in the Property, this instrument,
the Note or the Indebtedness, and to procure and deliver to Beneficiary within
30 days after Beneficiary shall have given a written request to Grantor, the
official receipt of the proper officer showing timely payment of all such taxes
and assessments; provided, however, that Grantor shall not be required to pay
any such taxes or special assessments if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and funds sufficient to satisfy the contested amount have been deposited in an
escrow satisfactory to Beneficiary.
PERSONAL PROPERTY. With respect to the Personal Property, Grantor hereby
represents, warrants and covenants as follows:
(a) Except for the security interest granted hereby, Grantor is, and as to
portions of the Personal Property to be acquired after the date hereof will be,
the sole owner of the Personal Property, free from any lien, security interest,
encumbrance or adverse claim thereon
of any kind whatsoever. Grantor shall notify Beneficiary of, and shall indemnify
and defend Beneficiary and the Personal Property against, all claims and demands
of all persons at any time claiming the Personal Property or any part thereof or
any interest therein.
(b) Except as otherwise provided above, Grantor shall not lease, sell,
convey or in any manner transfer the Personal Property without the prior consent
of Beneficiary.
(c) Grantor is a limited partnership organized under the laws of the State
of Delaware. Until the Indebtedness is paid in full, Grantor (i) shall not
change its legal name without providing Beneficiary with thirty (30) days prior
written notice; (ii) shall not change its state of organization; and (iii) shall
preserve its existence and shall not, in one transaction or a series of
transactions, merge into or consolidate with any other entity.
(d) At the request of Beneficiary, Grantor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the Uniform Commercial Code in form satisfactory to
Beneficiary, and Grantor shall pay the cost of filing the same in all public
offices wherever filing is deemed by Beneficiary to be necessary or desirable.
Grantor shall also, at Grantor's expense, take any and all other action
requested by Beneficiary to perfect Beneficiary's security interest under the
Uniform Commercial Code with respect to the Personal Property, including,
without limitation, exercising Grantor's best efforts to obtain any consents,
agreements or acknowledgments required of third parties to perfect Beneficiary's
security interest in Personal Property consisting of deposit accounts,
letter-of-credit rights, investment property, and electronic chattel paper.
OTHER LIENS. Grantor agrees to keep the Property or any Personal Property free
from all other liens either prior or subsequent to the lien created by this
instrument other than liens created by the Transaction Documents. The (i)
creation of any other lien on any portion of the Property or on any Personal
Property, whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable license to collect, use and enjoy rents and
profits from the Property, shall constitute a default under the terms of this
instrument; except that upon written notice to Beneficiary, Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal Property described herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.
COSTS, FEES AND EXPENSES. Grantor agrees to pay all costs, fees and expenses of
this trust; to appear in and defend any action or proceeding purporting to
affect the security hereof or the rights or powers of Beneficiary or Trustee
hereunder; to pay all costs and expenses, including the cost of obtaining
evidence of title and reasonable attorney's fees, incurred in connection with
any such action or proceeding; and to pay any and all attorney's fees and
expenses of collection and enforcement in the event the Note is placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.
FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein provided, Beneficiary or Trustee may, without obligation so to do,
without notice to or demand upon Grantor and without releasing Grantor from any
obligation hereof: (i) make or do the same in such manner and to such extent as
Beneficiary may deem necessary to protect the security hereof, Beneficiary or
Trustee being authorized to enter upon the Property for such purpose; (ii)
appear in and defend any action or proceeding purporting to affect the security
hereof, or the rights or powers of Beneficiary or Trustee; (iii) pay, purchase,
contest or compromise any encumbrance, charge or lien which in the judgment of
Beneficiary appears to be prior or superior hereto; and (iv) in exercising any
such powers, pay necessary expenses, employ counsel and pay its reasonable fees.
Sums so expended shall be payable by Grantor immediately upon demand with
interest from date of expenditure at the Default Rate (as defined in the Note).
All sums so expended by Beneficiary and the interest thereon shall be included
in the Indebtedness and secured by the lien of this instrument.
EVENT OF DEFAULT. Any default by Grantor or the Other Borrowers in making any
required payment of the Indebtedness or the Other Indebtedness or any default in
any provision, covenant, agreement, warranty or certification contained in any
of the Transaction Documents shall, except as provided in the two immediately
succeeding paragraphs, constitute an "Event of Default".
NOTICE OF DEFAULT. A default in any payment required in the Note or Other Notes
or any other Transaction Document, whether or not payable to Beneficiary, (a
"Monetary Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written notice of such Monetary Default to Grantor and the
Other Borrowers and Grantor and the Other Borrowers shall not have cured such
Monetary Default by payment of all amounts in default (including payment of
interest at the Default Rate, as defined in the Note or Other Notes, from the
date of default to the date of cure on amounts owed to Beneficiary) within five
(5) business days after the date on which Beneficiary shall have given such
notice to Grantor and Other Borrowers.
Any other default under the Note or Other Notes or under any other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default unless Beneficiary shall have given a written notice of such
Non-Monetary Default to Grantor and the Other Borrowers and Grantor and the
Other Borrowers shall not have cured such Non-Monetary Default within thirty
(30) days after the date on which Beneficiary shall have given such notice of
default to Grantor and the Other Borrowers (or, if the
Non-Monetary Default is not curable within such 30-day period, Grantor and the
Other Borrowers shall not have diligently undertaken and continued to pursue the
curing of such Non-Monetary Default and deposited an amount sufficient to cure
such Non-Monetary Default in an escrow account satisfactory to Beneficiary).
In no event shall the notice and cure period provisions recited above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).
SUBSTITUTION OF TRUSTEE. Beneficiary and its successors and assigns may for any
reason and at any time appoint a new or substitute Trustee by written
appointment delivered to such new or substitute Trustee without notice to
Grantor, without notice to, or the resignation or withdrawal by, the existing
Trustee and without recordation of such written appointment unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment, the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.
APPOINTMENT OF RECEIVER. Upon commencement of any proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or restriction by any present or future law, without regard to the
solvency or insolvency at that time of any party liable for the payment of the
Indebtedness, without regard to the then value of the Property, whether or not
there exists a threat of imminent harm, waste or loss to the Property and
whether or not the same shall then be occupied by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the revenues, rents, profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such appointment may confer) full power to collect all such income
and, after paying all necessary expenses of such receivership and of operation,
maintenance and repair of said Property, to apply the balance to the payment of
any of the Indebtedness then due.
FORECLOSURE. Upon the occurrence of an Event of Default, the entire unpaid
Indebtedness shall, at the option of Beneficiary, become immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE EXERCISE OF SUCH OPTION, OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising any rights it may have with respect to the Personal Property under
the Uniform Commercial Code of the jurisdiction in which the Property is
located, institute proceedings in any court of competent jurisdiction to
foreclose this instrument as a mortgage, or to enforce any of the covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage, rent or
lease the Property or any portion thereof upon such terms as Beneficiary may
deem expedient, and collect, receive and receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter provided in case
of sale. Trustee is hereby further authorized and empowered, either after or
without such entry, to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think best), and all the right, title and interest of
Grantor therein, by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located, (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue, execute and deliver a
deed of conveyance, all as then may be provided by law; and Trustee shall, out
of the proceeds or avails of such sale, after first paying and retaining all
fees, charges, costs of advertising the Property and of making said sale, and
attorneys' fees as herein provided, pay to Beneficiary or the legal holder of
the Indebtedness the amount thereof, including all sums advanced or expended by
Beneficiary or the legal holder of the Indebtedness, with interest from date of
advance or expenditure at the Default Rate (as defined in the Note), rendering
the excess, if any, as provided by law; such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against Grantor,
the heirs, successors and assigns of Grantor, and all other persons claiming the
Property aforesaid, or any part thereof, by, from, through or under Grantor. The
legal holder of the Indebtedness may purchase the Property or any part thereof,
and it shall not be obligatory upon any purchaser at any such sale to see to the
application of the purchase money.
PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material consideration to Beneficiary in making the loan secured by this
instrument, and Grantor shall not (i) convey title to all or any part of the
Property, (ii) enter into any contract to convey (land contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a purchaser possession of, or income from, the Property prior to a
transfer of title to all or any part of the Property ("Contract to Convey") or
(iii) cause or permit a Change in the Proportionate Ownership (as hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the Proportionate Ownership of Grantor shall constitute a default
hereunder.
B. For purposes of this instrument, a "Change in the Proportionate
Ownership" means any transfer which results in Carl E. Berg and/or Permitted
Transferee's (as defined below) collectively, owning less than 49% of Carl E.
Berg's direct and indirect ownership interest in Grantor (existing on the date
of initial advance of funds, as represented in the Certification) without
Beneficiary's approval.
C. Notwithstanding the above, a transfer of Carl E. Berg's ownership in
Grantor (i) to and among the Berg Family (as hereinafter defined) shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E. Berg, and (ii) to any entity owned and controlled (ownership and voting
interest in excess of 50% by the Berg Family) shall be permitted for estate
planning
purposes or upon the death or incompetency of Carl E. Berg. A person or entity
holding a direct or indirect ownership interest by virtue of a transfer
described in this subpart C. is a "Permitted Transferee."
D. For purposes hereof, the "Berg Family" shall mean Carl E. Berg, his
spouse, his descendants and their spouses, Clyde J. Berg, any trusts or estates
for the benefit of said parties, and any entities owned and controlled
(ownership and voting interests in excess of 50%) by said parties.
E. A conversion of all or part of the ownership interest of Carl E. Berg
from limited partnership units ("L.P. Units") of Grantor to common shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.
FINANCIAL STATEMENTS. Grantor agrees to furnish to Beneficiary:
(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the "Property Financial Statements Due
Date"):
(i) an unaudited balance sheet as of the last day of such fiscal year;
(ii) an unaudited statement of operations for such fiscal year with a
detailed line item break-down of all sources of income and expenses,
including capital expenses broken down between, leasing commissions,
tenant improvements, capital maintenance, common area renovation, and
expansion;
(iii)a current rent roll identifying location, leased area, lease begin
and end dates, current contract rent, rent increases and increase
dates, percentage rent, expense reimbursements, and any other recovery
items;
(iv) an operating budget for the current fiscal year; and
(B) the following financial statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor, respectively (the
"Grantor/Guarantor Financial Statements Due Date")
(i) an audited balance sheet as of the last day of such fiscal year; and
(ii) an audited statement of cash flows for such fiscal year; and
(C) to the extent the following tenants are not publicly traded, Grantor will
use its best efforts to obtain the following financial statements for Fujitsu
(formerly known as Amdahl), Apple, JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective tenant (the "Tenant
Financial Statements Due Date"):
(i) an audited, or unaudited if audited is not available, balance sheet as
of the last day of such fiscal year; and
(ii) an audited, or unaudited if audited is not available, statement of
cash flows for such fiscal period.
The Property Financial Statements Due Date, the Grantor/Guarantors
Financial Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".
If audited, the financial statements identified in sections (A)(i),
(A)(ii), (B)(i), (B)(ii), (C)(i) and (C)(ii) above, shall each be prepared in
accordance with generally accepted accounting principles by a "Big Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary. All unaudited financial statements for Grantor, Property, and
Guarantor shall contain a certification by the managing general partner of
Grantor stating that they have been prepared in accordance with generally
accepted accounting principles and that they are true and correct. The expense
of preparing all of the financial statements required in (A) and (B) above,
shall be borne by Grantor.
Grantor acknowledges that Beneficiary requires the financial statements to
record accurately the value of the Property for financial and regulatory
reporting.
In addition to all other remedies available to Beneficiary hereunder, at
law and in equity, if any financial statement or proof of payment of property
taxes and assessments is not furnished to Beneficiary as required in this
section entitled "Financial Statements" and in
the section entitled "Taxes and Special Assessments", within 30 days after
Beneficiary shall have given written notice to Grantor that it has not been
received as required,
(x) interest on the unpaid principal balance of the Indebtedness and the
Other Notes shall as of the applicable Financial Statements Due Date or the
date such proof of payment of property taxes and assessments was due,
accrue and become payable at a rate equal to the sum of the Interest Rate
(as defined in the Note) plus one percent (1%) per annum (the "Increased
Rate"); and
(y) Beneficiary may elect to obtain an independent appraisal and audit of
the Property at Grantor's expense, and Grantor agrees that it will, upon
request, promptly make Grantor's books and records regarding the Property
available to Beneficiary and the person(s) performing the appraisal and
audit (which obligation Grantor agrees can be specifically enforced by
Beneficiary).
The amount of the payments due under the Note and Other Notes during the
time in which the Increased Rate shall be in effect shall be changed to an
amount which is sufficient to amortize the then unpaid principal balance at the
Increased Rate during the then remaining portion of a period of 20 years
commencing with the Amortization Period Commencement Date (as defined in the
Note and Other Notes). Interest shall continue to accrue and be due and payable
monthly at the Increased Rate until the financial statements and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished to Beneficiary as required. Commencing on the date on which the
financial statements and proof of payment of property taxes and assessments are
received by Beneficiary, interest on the unpaid principal balance shall again
accrue at the Interest Rate and the payments due during the remainder of the
term of the Note and Other Notes shall be changed to an amount which is
sufficient to amortize the then unpaid principal balance at the Interest Rate
during the then remaining portion of a period of 20 years commencing with the
Amortization Period Commencement Date. Notwithstanding the foregoing,
Beneficiary shall have the right to conduct an independent audit at its own
expense at any time.
PROPERTY MANAGEMENT. The management company for the Property shall be
satisfactory to Beneficiary. Any change in the management company without the
prior written consent of Beneficiary shall constitute a default under this
instrument. Beneficiary shall be reasonable in giving its approval, and
Beneficiary may require that the new management company, by itself or through
its manager, have good character and reputation, and demonstrated ability and
experience in the operation and leasing of at least one million square feet of
property similar to the Property.
EARTHQUAKE. If the Property is damaged by an earthquake during the term of the
Indebtedness:
(A) Beneficiary may require a new "Seismic Risk Estimate" (as hereinafter
defined) to be performed at Grantor's expense, and
(B) Grantor shall perform repair and retrofit work, satisfactory to
Beneficiary, which results in (i) the complete repair of the Property and
(ii) the performance of a subsequent Seismic Risk Estimate verifying that
the Property meets "Minimum Seismic Criteria" (as hereinafter defined).
Such work shall be commenced and completed as soon as possible and in any
event within one year of the earthquake.
Without limiting the Grantor's obligation to cause the Property to satisfy
Minimum Seismic Criteria, during any period of time in which the Property does
not satisfy Minimum Seismic Criteria, Grantor shall provide Beneficiary with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).
As used herein, "Earthquake Insurance" means a policy satisfactory to
Beneficiary with a deductible of no greater than 5% of the "Replacement Cost"
(as hereinafter defined) and in an amount calculated as follows: (i) the "Loan
Amount" (as hereinafter defined) plus (ii) the "Specified Loss Dollar Amount"
(as defined below) plus (iii) 5% of the Replacement Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).
As used herein, "Loan Amount" shall mean the total principal amount
advanced at closing, under the Note.
As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).
As used herein, "Market Value" means the estimated fair market value of the
Property, determined by Beneficiary in its sole discretion, at the time a
Seismic Risk Estimate is performed.
As used herein, "Minimum Seismic Criteria" means that both the Specified
Loss Percentage (as hereinafter defined) for the Property is less than or equal
to 30% and the Loan Plus Specified Loss is less than or equal to 90% of the
Market Value.
As used herein, "Model" means a computer based seismic model selected by
Beneficiary, currently the Insurance and Investment Risk Assessment System
("IRAS") program by Risk Management Solutions ("RMS").
As used herein, "Replacement Cost" means the estimated total cost,
determined by Beneficiary in its sole discretion, to construct all of the
Improvements as if the Property were completely unimproved (not including the
cost of site work, utilities and foundation).
As used herein, "Seismic Risk Estimate" refers to the results of a seismic
risk estimate for the Property produced by the Model. Grantor agrees that it
will not rely for its own evaluation purposes on the Seismic Risk Estimate
produced by or for Beneficiary.
As used herein, "Specified Loss Dollar Amount" means the "Specified Loss
Percentage" (as hereinafter defined) multiplied by the Replacement Cost.
As used herein, "Specified Loss Percentage" means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement Cost. Beneficiary's parameters for the Model are based on a 90%
probability that the level of damage predicted will not be exceeded in an
earthquake with an expected 475 year return period.
DEPOSITS BY GRANTOR. To assure the timely payment of real estate taxes and
special assessments (including personal property taxes, if appropriate), upon
the occurrence of an Event of Default, Beneficiary shall thence forth have the
option to require Grantor to deposit funds with Beneficiary or in an account
satisfactory to Beneficiary, in monthly or other periodic installments in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and special assessments as they become due. If at any time the funds so
held by Beneficiary, or in such other account, shall be insufficient to pay any
of said expenses, Grantor shall, upon receipt of notice thereof, immediately
deposit such additional funds as may be necessary to remove the deficiency. All
funds so deposited shall be irrevocably appropriated to Beneficiary to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.
NOTICES. Any notices, demands, requests and consents permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally or sent by certified mail with postage prepaid or by reputable
courier service with charges prepaid. Any notice or demand sent to Grantor by
certified mail or reputable courier service shall be addressed to Grantor at
10050 Bandley Drive, Cupertino, CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable courier service shall be addressed to The Northwestern Mutual Life
Insurance Company to the attention of the Real Estate Investment Department at
720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Beneficiary shall designate in a notice given in the manner described herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand hereunder shall be deemed given when received. Any notice or
demand which is rejected, the acceptance of delivery of which is refused or
which is incapable of being delivered during normal business hours at the
address specified herein or such other address designated pursuant hereto shall
be deemed received as of the date of attempted delivery.
MODIFICATION OF TERMS. Without affecting the liability of Grantor or any other
person (except any person expressly released in writing) for payment of the
Indebtedness or for performance of any obligation contained herein and without
affecting the rights of Beneficiary with respect to any security not expressly
released in writing, Beneficiary may, at any time and from time to time, either
before or after the maturity of the Note, without notice or consent: (i) release
any person liable for payment of all or any part of the Indebtedness or for
performance of any obligation; (ii) make any agreement extending the time or
otherwise altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing with the lien or charge hereof; (iii) exercise or refrain from
exercising or waive any right Beneficiary may have; (iv) accept additional
security of any kind; (v) release or otherwise deal with any property, real or
personal, securing the Indebtedness, including all or any part of the Property.
EXERCISE OF OPTIONS. Whenever, by the terms of this instrument, of the Note or
any of the other Loan Documents, Beneficiary is given any option, such option
may be exercised when the right accrues, or at any time thereafter, and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.
NATURE AND SUCCESSION OF AGREEMENTS. Each of the provisions, covenants and
agreements contained herein shall inure to the benefit of, and be binding on,
the heirs, executors, administrators, successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Note.
LEGAL ENFORCEABILITY. No provision of this instrument, the Note or any other
Loan Documents shall require the payment of interest or other obligation in
excess of the maximum permitted by law. If any such excess payment is provided
for in any Loan Documents or shall be adjudicated to be so provided, the
provisions of this paragraph shall govern and Grantor shall not be obligated to
pay the amount of such interest or other obligation to the extent that it is in
excess of the amount permitted by law.
LIMITATION OF LIABILITY. Notwithstanding any provision contained herein to the
contrary, the personal liability of Grantor shall be limited as provided in the
Note.
MISCELLANEOUS. Time is of the essence in each of the Loan Documents. The
remedies of Beneficiary as provided herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent, and may be pursued singly,
successively, or together at the sole discretion of Beneficiary, and may be
exercised as often as occasion therefor shall occur; and neither the failure to
exercise any such right or remedy nor any acceptance by Beneficiary of payment
of Indebtedness in default shall in any event be construed as a waiver or
release of any right or remedy. Neither this instrument nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and Beneficiary. If any of the provisions of
any Loan Document or the application thereof to any persons or circumstances
shall to any extent be invalid or unenforceable, the remainder of such Loan
Document and each of the other Loan Documents, and the application of such
provision or provisions to persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.
WAIVER OF JURY TRIAL. Grantor hereby waives any right to trial by jury with
respect to any action or proceeding (a) brought by Grantor, Beneficiary or any
other person relating to (i) the obligations secured hereby and/or any
understandings or prior dealings between the parties hereto or (ii) the Loan
Documents or the Environmental Indemnity Agreement, or (b) to which Beneficiary
is a party.
CAPTIONS. The captions contained herein are for convenience and reference only
and in no way define, limit or describe the scope or intent of, or in any way
affect this instrument.
GOVERNING LAW. This instrument shall be governed by and construed in all
respects in accordance with the laws of the State of California without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning any dispute arising under or related to this instrument shall be
brought in a state or federal court located in the State of California, and
Beneficiary and Grantor hereby irrevocably consent to the jurisdiction of the
courts located in the State of California and irrevocably waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action, lawsuit or other legal proceeding brought in any court located in the
State of California.
REQUEST FOR NOTICE. Pursuant to California Government Code Section 27321.5(b),
Grantor hereby requests that a copy of any notice of default and a copy of any
notice of sale given pursuant to this instrument be mailed to Grantor at the
address set forth herein.
IN WITNESS WHEREOF, this instrument has been executed by the Grantor as of
the day and year first above written.
MISSION WEST PROPERTIES, L.P. I, a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
By: Carl E. Berg
Name: Carl E. Berg
Title: CEO of G.P.
STATE OF California )
)ss.
COUNTY OF Santa Clara )
On January 7th, 2003, before me, G.W. Shott, a notary for the state, personally
appeared Carl E. Berg, CEO of G.P., personally known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature /s/ GW Shott
-----------------------------------
G.W. Shott
-----------------------------------
Name (typed or printed)
This instrument was prepared by Sally J. Lewis, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
EXHIBIT "A"
(Mission West I)
PROPERTY ONE:
Parcel One:
Parcel 1, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on April 13, 1979, in
Book 439 of Maps, page(s) 17 and 18.
Parcel Two:
A 17.5' ingress and egress Easement No. 1 (appurtenant to Parcel 1) situated at
the Northwesterly corner of Parcel 2 and being shown on that certain Parcel Map
recorded April 13, 1979 in Book 439 of Maps, pages 17 and 18, Santa Clara County
Records.
Assessors Parcel No: 224-44-019
PROPERTY TWO:
PARCEL ONE:
Parcel 3 as shown on that certain Parcel Map recorded August 9, 1974, in Book
344, Page 10, Santa Clara County.
Excepting therefrom the underground water rights, but without surface rights of
entry, as granted to the City of Cupertino by instrument recorded January 3,
1975 in Book B233 of Official Records at Page 276.
PARCEL TWO:
An easement for ingress and egress and for the installation and maintenance of a
public utilities over the Westerly 15 feet of Parcels 1 and 2 and the Easterly
15 feet of Parcel 4, as said Parcels are shown on that certain Parcel Map
recorded August 9, 1974 in Book 344 at Page 10 of Maps, Records of Santa Clara
County, California.
Assessors Parcel No: 326-10-046
EXHIBIT 10.38
California
Loan No. C-332757
RECORDING REQUESTED BY
American Title Company
632004LZ
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Nadine T. Hansohn
SPACE ABOVE THIS LINE FOR RECORDER'S USE
DEED OF TRUST and SECURITY AGREEMENT and ASSIGNMENT OF LEASES AND RENTS (SECOND
PRIORITY)
Mission West Properties, L. P. I
THIS DEED OF TRUST and SECURITY AGREEMENT is made as of the 3rd day of
January 2003 between MISSION WEST PROPERTIES, L.P. I, a Delaware limited
partnership, 10050 Bandley Drive, Cupertino, CA 95014, herein (said
Grantor/Trustor, whether one or more in number) called "Grantor", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Trustee", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":
WITNESSETH, That Grantor, in consideration of the indebtedness herein
mentioned, does hereby irrevocably bargain, sell, grant, transfer, assign and
convey unto Trustee, in trust, with power of sale and right of entry and
possession, the following property (herein referred to as the "Property"):
A. The land in the City of Santa Clara and City of Cupertino, Santa Clara
County, California described in Exhibit "A" attached hereto and
incorporated herein (the "Land");
B. All easements, appurtenances, tenements and hereditaments belonging to
or benefiting the Land, including but not limited to all waters, water
rights, water courses, all ways, trees, rights, liberties and
privileges; and
C. All improvements to the Land, including, but not limited to, all
buildings, structures and improvements now existing or hereafter
erected on the Land; all fixtures and equipment of every description
belonging to Grantor which are or may be placed or used upon the Land
or attached to the buildings, structures or improvements, including,
but not limited to, all engines, boilers, elevators and machinery, all
heating apparatus, electrical equipment, air-conditioning and
ventilating equipment, water and gas fixtures, and all furniture and
easily removable equipment; all of which, to the extent permitted by
applicable law, shall be deemed an accession to the freehold and a
part of the realty as between the parties hereto; the rents, issues
and profits arising from the Land and improvements subject, however,
to any right, power and authority given to Grantor to collect and
apply such rents, issues and profits.
D. All Grantor's right, title and interest in and to that certain 17.5'
Ingress and Egress Easement Agreement No. 1 filed for record on April
13, 1979, in Book 439 of Maps, Pages 17 & 18, Santa Clara County,
California.
Grantor agrees not to sell, transfer, assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any buildings or structures or the sale or transfer of waters or water rights
and (ii) such action results in the substitution or replacement with similar
items of equal value.
Without limiting the foregoing grants, Grantor hereby pledges to
Beneficiary, and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter acquired right, title and interest in and to the Property
and any and all
E. cash and other funds now or at any time hereafter deposited by or for
Grantor on account of tax, special assessment, replacement or other
reserves required to be maintained pursuant to the Loan Documents (as
hereinafter defined) with Beneficiary or a third party, or otherwise
deposited with, or in the possession of, Beneficiary pursuant to the
Loan Documents; and
F. surveys, soils reports, environmental reports, guaranties, warranties,
architect's contracts, construction contracts, drawings and
specifications, applications, permits, surety bonds and other
contracts relating to the acquisition, design, development,
construction and operation of the Property; and
G. accounts, chattel paper, deposit accounts, instruments, equipment,
inventory, documents, general intangibles, letter-of-credit rights,
investment property and all other personal property of Grantor, in
each case, to the extent associated with or arising from the
ownership, development, operation, use or disposition of any portion
of the property; and
H. present and future rights to condemnation awards, insurance proceeds
or other proceeds at any time payable to or received by Grantor on
account of the Property or any of the foregoing personal property.
All personal property hereinabove described is hereinafter referred to as the
"Personal Property".
If any of the Property is of a nature that a security interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing statement if permitted by applicable law and
Grantor authorizes Beneficiary to file a financing statement describing such
Property and, at Beneficiary's request, agrees to join with Beneficiary in the
execution of any financing statements and to execute any other instruments that
may be necessary or desirable, in Beneficiary's determination, for the
perfection or renewal of such security interest under the Uniform Commercial
Code.
TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF SECURING, in
such order of priority as Beneficiary may determine: (i) payment of the
Indebtedness (as hereinafter defined); and (ii) payment (with interest as
provided) and performance by Grantor of the Obligations (as hereinafter
defined). Notwithstanding the foregoing, or any other term contained herein or
in the Loan Documents, none of Grantor's obligations (the "Other Obligations")
under or pursuant to (a) the Environmental Indemnity Agreement of even date
herewith executed by Grantor, Guarantor and the other Borrowers in favor of
Beneficiary ("Environmental Agreement"), (b) the Other Indebtedness or (c) any
Other Note shall be secured by the lien of this Deed of Trust.
FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture filing in the real estate records of the County of the State in which
the real estate described in Exhibit A is located, with respect to any and all
fixtures included within the term "Property" and "fixtures" under this Deed of
Trust and to any goods or other personal property that are now or hereafter
become a part of the Property as fixtures.
DEFINITIONS
CERTAIN DEFINED TERMS: As used in this Deed of Trust the following terms
shall have the following meanings:
COMMITMENT: The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications stated in the letter, the Loan application executed by
Grantor and the Other Borrowers, dated October 31, 2002, which acceptance and
modification was agreed to by Grantor and the Other Borrowers on November 28,
2002.
ENVIRONMENTAL AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.
FACILITY: A real property (including, without limitation, all buildings,
fixtures and other improvements located thereon) now or hereafter serving as
security for the loans which comprise the Transaction. Attached hereto as
Exhibit B is a list of all Facilities as of the date hereof.
GUARANTOR: Mission West Properties, Inc., a Maryland corporation, and each
other person hereafter guaranteeing any portion of the Indebtedness or
Obligations.
GUARANTEE: That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission West Properties, Inc., a Maryland corporation,
in favor of Beneficiary, and any other guarantee of any portion of the
Indebtedness or
Obligations hereafter executed by any person.
INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Notes (as hereinafter defined) and any extensions or renewals
thereof (including extensions or renewals at a different rate of interest,
whether or not evidenced by a new or additional promissory note or notes), and
all other indebtedness of Grantor to Beneficiary and additional advances under,
evidenced by and/or secured by the Loan Documents, plus interest on all such
amounts, other than any obligations relating to the Other Indebtedness, Other
Note or Other Obligations.
LOAN DOCUMENTS: The Notes, this Deed of Trust, the Commitment (as it
relates to the Indebtedness), the Guarantee (as it relates to the Indebtedness),
that certain Certification of Borrowers and Carl E. Berg ("Certification") of
even date herewith (as it relates to the Indebtedness), that certain Limited
Partnership Supplement dated January 3, 2003, any other supplements and
authorizations required by Beneficiary, the Fraudulent Conveyance Indemnity
Agreement from Guarantor (as it relates to the Indebtedness), Certificate
Regarding Distribution of Loan Proceeds and Indemnity Agreement among Guarantor,
Grantor and the Other Borrowers (as it relates to the Indebtedness), and
Contribution and Reimbursement Agreement among Grantor and the Other Borrowers
(as it relates to the Indebtedness), and all other documents evidencing,
securing or relating to the payment of the Indebtedness or the performance of
the Obligations, with the exception of the Other Note and the Environmental
Agreement.
NOTES: The Promissory Note of even date herewith executed by Mission West
Properties, L.P., a Delaware limited partnership in the original principal
amount of Twenty Eight Million Eight Hundred Sixty-Eight Thousand Six Hundred
Fifty-Five Dollars ($28,868,655.00), payable to Beneficiary or its order, and
the Promissory Note of even date herewith executed by Mission West Properties,
L.P. II, a Delaware limited partnership in the original principal amount of
Forty One Million Three Hundred Nineteen Thousand Nine Hundred Seventy-Six
Dollars ($41,319,976.00), payable to Beneficiary or its order, in each with
final maturity no later than February 1, 2013 and with interest as therein
expressed, and all modifications, renewals or extensions of such Promissory
Notes.
OBLIGATIONS: Any and all of the covenants, promises and other obligations
(including payment of the Indebtedness) made or owing by Grantor to or due to
Beneficiary under and/or as set forth in the Loan Documents and all of the
material covenants, promises and other obligations made or owing by Grantor to
each and every other person relating to the Property, exclusive of the Other
Obligations.
OTHER BORROWERS: Collectively, Mission West Properties, L.P., a Delaware
limited partnership, and Mission West Properties, L.P. II, a Delaware limited
partnership.
OTHER INDEBTEDNESS: The loan from Beneficiary evidenced by the Other Note.
OTHER NOTE: The Promissory Note of even date herewith executed by Grantor
in the original principal amount of Twenty Nine Million Eight Hundred Eleven
Thousand Three Hundred Sixty-Nine Dollars ($29,811,369.00), payable to
Beneficiary or its order, with final maturity no later than February 1, 2013 and
with interest as therein expressed, and all modifications, renewals or
extensions of such Promissory Note.
OTHER OBLIGATIONS: As defined in the Granting Paragraph of this Deed of
Trust.
PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.
TRANSACTION: Loans in the aggregate principal amount of One Hundred Million
Dollars ($100,000,000.00), which are made by the Beneficiary to the Grantor and
the Other Borrowers on the date hereof, and are evidenced by the Notes and Other
Note and secured by lien instruments and collateral documents from Grantor and
the Other Borrowers creating liens and rights for the benefit of Beneficiary.
TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the payment of amounts owed Beneficiary in connection with the
Transaction, with the exception of the Environmental Agreement.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:
PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness hereby secured promptly
and in full compliance with the terms of the Loan Documents.
OWNERSHIP. Grantor represents that it owns the Property and has good and lawful
right to convey the same and that the Property is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary. Grantor does hereby forever warrant and shall forever defend the
title and possession thereof against the lawful claims of any and all persons
whomsoever.
MAINTENANCE OF PROPERTY AND COMPLIANCE WITH LAWS. Grantor agrees to keep the
buildings and other improvements now or hereafter erected on the Land in good
condition and repair; not to commit or suffer any waste; to comply with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all reasonable times for the purpose of inspection and of conducting,
in a reasonable and proper manner, such tests as Beneficiary determines to be
necessary in order to monitor Grantor's compliance with applicable laws and
regulations regarding hazardous materials affecting the Property.
TENANTS USING CHLORINATED SOLVENTS. Grantor agrees not to lease any of the
Property, without the prior written consent of Beneficiary, to (i) dry cleaning
operations that perform dry cleaning on site with chlorinated solvents or (ii)
any other tenants that use chlorinated solvents in the operation of their
businesses.
Notwithstanding the above, a tenant's use and storage of a product which
contains no more than twelve (12) ounces of chlorinated solvents shall not
violate this prohibition if, and only if, (i) each tenant's use, storage, and
the ultimate disposal, of said solvents is at all times in compliance with
applicable law; (ii) said solvents are acquired and kept in prepackaged
containers; and (iii) each tenant keeps no more than one (1) prepackaged
container of said solvents on the Property.
BUSINESS RESTRICTION REPRESENTATION AND WARRANTY. Grantor represents and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the Indebtedness: (i) are not, and shall not
become, a person or entity with whom Beneficiary is restricted from doing
business with under regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's Specially Designated and Blocked Persons list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism), or other governmental action; (ii)
are not knowingly engaged in, and shall not engage in, any dealings or
transaction or be otherwise associated with such persons or entities described
in (i) above; and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.
INSURANCE. Grantor agrees to keep the Property insured for the protection of
Beneficiary and Beneficiary's wholly owned subsidiaries and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance in amounts and form and with companies all satisfactory to
Beneficiary:
(A) All risk property insurance with a deductible of not greater than
$100,000.00, including Demolition and Increased Cost of Construction
(DICC) coverage equal to a minimum of 5% of the estimated replacement
cost, with an Agreed Amount Endorsement for the estimated replacement
cost of the improvements. If such all risk property insurance policy
contains a terrorism exclusion, then Grantor shall purchase a separate
insurance policy acceptable to Beneficiary for terrorism coverage.
Notwithstanding the foregoing, however, Grantor shall only be required
to carry such insurance coverage for acts of terrorism with a
deductible acceptable to Lender if such coverage is customarily
required by other institutional lenders on loans secured by property
similar to the property;
(B) Loss of rents insurance equal to twelve months rent or business income
insurance for 100% of the annual gross earnings from business derived
from the Property;
(C) Flood insurance, if the Property is located in a flood plain (as that
term is used in the National Flood Insurance Program) in an amount not
less than 25% of the estimated replacement cost;
(D) Grantor's own commercial general liability insurance policy with
Beneficiary, and Beneficiary's wholly owned subsidiaries and agents,
named as additional insureds for their interests in the Property; and
(E) Other insurance as required by Beneficiary.
Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary, or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing all insurance coverages required hereunder on deposit with
Beneficiary, which certificates shall provide at least thirty (30) days notice
of cancellation to Beneficiary and shall list Beneficiary as the certificate
holder.
All insurance loss proceeds from all property insurance policies, whether
or not required by Beneficiary (less expenses of collection) shall, at
Beneficiary's option, be applied on the Indebtedness, whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan Documents.
If Beneficiary elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.
Notwithstanding the foregoing provision, Beneficiary agrees that if the
insurance loss proceeds from an insured loss as a Facility are less than the
Allocated Loan Amount for the Facility (as shown in Exhibit B attached hereto)
and if the casualty occurs prior to the last three years of the term of the
Notes, then the insurance loss proceeds (less expenses of collection) shall be
applied to restoration of the Facility to its condition prior to the casualty,
subject to satisfaction of the following conditions:
(a) There is no existing Event of Default (as hereinafter defined) at the
time of casualty, and if there shall occur any Event of Default after
the date of the casualty, Beneficiary shall have no further obligation
to release insurance loss proceeds hereunder.
(b) The casualty insurer has not denied liability for payment of insurance
loss proceeds as a result of any act, neglect, use or occupancy of the
Property by Grantor or any tenant of the Property.
(c) Beneficiary shall be satisfied that all insurance loss proceeds so
held, together with supplemental funds to be made available by
Grantor, shall be sufficient to complete the restoration of the
Property. Any remaining insurance loss proceeds may, at the option of
Beneficiary, be applied on the Indebtedness, whether or not due, or be
released to Grantor.
(d) If required by Beneficiary, Beneficiary shall be furnished a
satisfactory report addressed to Beneficiary from an environmental
engineer or other qualified professional satisfactory to Beneficiary
to the effect that no adverse environmental impact to the Property
resulted from the casualty.
(e) Beneficiary shall release casualty insurance proceeds as restoration
of the Property progresses provided that Beneficiary is furnished
satisfactory evidence of the costs of restoration and if, at the time
of such release, there shall exist no Monetary Default (as hereinafter
defined) under the Transaction Documents and no default with respect
to which Beneficiary shall have given Grantor or Other Borrowers
notice pursuant to the Notice of Default provision herein or in the
documents related to other loans comprising the Transaction. If the
estimated cost of restoration exceeds $250,000.00, (i) the drawings
and specifications for the restoration shall be approved by
Beneficiary in writing prior to commencement of the restoration, and
(ii) Beneficiary shall receive an administration fee equal to 1% of
the cost of restoration.
(f) Prior to each release of funds, Grantor shall obtain for the benefit
of Beneficiary an endorsement to Beneficiary's title insurance policy
insuring Beneficiary's lien as a first and valid lien on the Property
subject only to liens and encumbrances theretofore approved by
Beneficiary.
(g) Grantor shall pay all costs and expenses incurred by Beneficiary,
including, but not limited to, outside legal fees, title insurance
costs, third-party disbursement fees, third-party engineering reports
and inspections deemed necessary by Beneficiary.
(h) All reciprocal easement and operating agreements benefiting the
Property, if any, shall remain in full force and effect between the
parties thereto on and after restoration of the Property.
(i) Beneficiary shall be satisfied that Projected Debt Service Coverage
(as hereinafter defined) of at least 1.50 will be produced from the
leasing of not more than 226,950 square feet of space to former
tenants or approved new tenants with leases satisfactory to
Beneficiary for terms of at least five (5) years to commence not later
than (30) days following completion of such restoration ("Approved
Leases").
(j) All leases in effect at the time of the casualty with tenants who have
entered into Beneficiary's form of Non-Disturbance and Attornment
Agreement or similar agreement shall remain in full force and
Beneficiary shall be satisfied that restoration can be completed
within a time frame such that each tenant thereunder shall be
obligated, or each such tenant shall have elected, to continue the
lease term at full rental (subject only to abatement, if any, during
any period in which the Property or a portion thereof shall not be
used and occupied by such tenant as a result of the casualty).
(k) Without limiting the Earthquake provisions contained herein, if the
casualty has resulted in whole or part from an earthquake: (a) Grantor
shall have supplied Beneficiary with a "Seismic Risk Estimate" (in
accordance with the Earthquake provisions herein) which show that the
Property will meet "Minimum Seismic Criteria" (as defined in the
Earthquake provisions herein) upon completion of repair and retrofit
work which can be completed within one year of the earthquake, (b)
prior to commencement of the restoration, Grantor shall have committed
in writing to Beneficiary that Grantor will do such repair and
retrofit work as shall be necessary to cause the Property to in fact
meet Minimum Seismic Criteria following completion of restoration, and
(c) Beneficiary must at all times during the restoration be reasonably
satisfied that the Property will meet Minimum Seismic Criteria
following completion of the restoration, Grantor hereby agreeing to
supply Beneficiary with such evidence thereof as Beneficiary shall
request from time to time.
"Projected Debt Service Coverage" means a number calculated by dividing
Projected Operating Income Available for Debt Service (as hereinafter defined)
for the first fiscal year following restoration of the Property by the debt
service during the same fiscal year under all indebtedness secured by a first
mortgage lien on any portion of the Property. For purposes of the preceding
sentence, "debt service" means the greater of (x) debt service due under all
such indebtedness during the first fiscal year following completion of the
restoration of the Property or (y) debt service that would be due and payable
during such fiscal year if all such indebtedness were amortized over 20 years
(whether or not amortization is actually required) and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).
"Projected Operating Income Available for Debt Service" means projected
gross annual rent from the Approved Leases for the first full fiscal year
following completion of the restoration of the Property less:
(A) The operating expenses of the Property for the last fiscal year preceding
the casualty and
(B) the following:
(i) a replacement reserve for future tenant improvements, leasing
commissions and structural items based on not less than $1.80 per
square foot per annum;
(ii) the amount, if any, by which actual gross income during such fiscal
period exceeds that which would be earned from the rental of 85% of
the gross leasable area in the Property;
(iii)the amount, if any, by which the actual management fee is less than
2% of gross revenue during such fiscal period;
(iv) the amount, if any, by which the actual real estate taxes are less
than $2.10 per square foot per annum; and
(v) the amount, if any, by which total actual operating expenses,
excluding management fees, real estate taxes and replacement reserves,
are less than $1.40 per square foot per annum.
All projections referenced above shall be calculated in a manner
satisfactory to Beneficiary.
CONDEMNATION. Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds resulting from damage to, or the taking of, all or any portion of the
Property, and (ii) the proceeds from any sale or transfer in lieu thereof
(collectively, "Condemnation Proceeds") in connection with condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter, a "Taking"); if the Condemnation Proceeds related to a Facility
are less than the Allocated Loan Amount for the Facility and such damage or
Taking occurs prior to the last three years of the term of the Notes, such
Condemnation Proceeds (less expenses of collection) shall be applied to
restoration of the Facility to its condition, or the functional equivalent of
its condition prior to the Taking, subject to the conditions set forth above in
the section entitled "Insurance" and subject to the further condition that
restoration or replacement of the improvements on the Land to their functional
and economic utility prior to the Taking be possible. Any portion of such award
and proceeds not applied to restoration shall, at Beneficiary's option, be
applied on the Indebtedness, whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.
TAXES AND SPECIAL ASSESSMENTS. Grantor agrees to pay before delinquency all
taxes and special assessments of any kind that have been or may be levied or
assessed against the Property, this instrument, the Notes or the Indebtedness,
or upon the interest of Trustee or Beneficiary in the Property, this instrument,
the Notes or the Indebtedness, and to procure and deliver to Beneficiary within
30 days after Beneficiary shall have given a written request to Grantor, the
official receipt of the proper officer showing timely payment of all such taxes
and assessments; provided, however, that Grantor shall not be required to pay
any such taxes or special assessments if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and funds sufficient to satisfy the contested amount have been deposited in an
escrow satisfactory to Beneficiary.
PERSONAL PROPERTY. With respect to the Personal Property, Grantor hereby
represents, warrants and covenants as follows:
(a) Except for the security interest granted hereby, Grantor is, and as to
portions of the Personal Property to be acquired after the date hereof will be,
the sole owner of the Personal Property, free from any lien, security interest,
encumbrance or adverse claim thereon of any kind whatsoever. Grantor shall
notify Beneficiary of, and shall indemnify and defend Beneficiary and the
Personal Property against, all claims and demands of all persons at any time
claiming the Personal Property or any part thereof or any interest therein.
(b) Except as otherwise provided above, Grantor shall not lease, sell,
convey or in any manner transfer the Personal Property without the prior consent
of Beneficiary.
(c) Grantor is a limited partnership organized under the laws of the State
of Delaware. Until the Indebtedness is paid in full, Grantor (i) shall not
change its legal name without providing Beneficiary with thirty (30) days prior
written notice; (ii) shall not change its state of organization; and (iii) shall
preserve its existence and shall not, in one transaction or a series of
transactions, merge into or consolidate with any other entity.
(d) At the request of Beneficiary, Grantor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the Uniform Commercial Code in form satisfactory to
Beneficiary, and Grantor shall pay the cost of filing the same in all public
offices wherever filing is deemed by Beneficiary to be necessary or desirable.
Grantor shall also, at Grantor's expense, take any and all other action
requested by Beneficiary to perfect Beneficiary's security interest under the
Uniform Commercial Code with respect to the Personal Property, including,
without limitation, exercising Grantor's best efforts to obtain any consents,
agreements or acknowledgments required of third parties to perfect Beneficiary's
security interest in Personal Property consisting of deposit accounts,
letter-of-credit rights, investment property, and electronic chattel paper.
OTHER LIENS. Grantor agrees to keep the Property or any Personal Property free
from all other liens either prior or subsequent to the lien created by this
instrument other than liens created by the Transaction Documents. The (i)
creation of any other lien on any portion of the Property or on any Personal
Property, whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable license to collect, use and enjoy rents and
profits from the Property, shall constitute a default under the terms of this
instrument; except that upon written notice to Beneficiary, Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal Property described herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.
LEASES. Grantor covenants with Beneficiary (a) to observe and perform all the
obligations imposed upon the lessor under all leases and not to do or permit to
be done anything to impair the same without Beneficiary's prior written consent,
(b) not to collect any of the rent or other amounts due under any lease or other
issues or profits from the Property in any manner in advance of the time when
the same shall become due (save and except only for collecting one month's rent
in advance plus tenant contributions toward operating expenses plus the security
deposit, if any, at the time of execution of a lease), (c) not to execute any
other assignment of rents, issues, or profits arising or accruing from any of
the leases or from the Property, except the Transaction Documents, (d) not to
enter into any lease agreement affecting the Property, except those leases
entered into in the ordinary course of business and utilizing Grantor's standard
form lease previously approved by Beneficiary, with no substantial modifications
thereto, without the prior written consent of Beneficiary, (e) to execute and
deliver, at the request of Beneficiary, all such further assurances and
acknowledgments of the assignment contained herein and the other provisions
hereof, with respect to specific leases or otherwise, as Beneficiary shall from
time to time require, (f) to obtain from any tenant at the Property, from time
to time as requested by Beneficiary, estoppel certificates, in form and
substance satisfactory to Beneficiary, confirming the terms of such tenant's
lease and the absence of default thereunder, and (g) not to cancel, surrender or
terminate any lease, exercise any option which might lead to such termination or
consent to any change, modification, or alteration thereof, to the release of
any party liable thereunder or to the assignment of the lessee's interest
therein, without the prior written consent of Beneficiary, and any of said acts,
if done without the prior written consent of Beneficiary, shall be null and
void. Notwithstanding clause (g) of the preceding sentence, with respect to all
leases (other than leases as to which Beneficiary, Grantor and tenant have
executed a separate non-disturbance and attornment agreement), Grantor may take
actions described in clause (g) without Beneficiary's prior written consent (but
with written notice thereof to Beneficiary), if and only if such action is
consistent with the usual and customary operation of the Property.
COSTS, FEES AND EXPENSES. Grantor agrees to pay all costs, fees and expenses of
this trust; to appear in and defend any action or proceeding purporting to
affect the security hereof or the rights or powers of Beneficiary or Trustee
hereunder; to pay all costs and expenses, including the cost of obtaining
evidence of title and reasonable attorney's fees, incurred in connection with
any such action or proceeding; and to pay any and all attorney's fees and
expenses of collection and enforcement in the event the Notes are placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.
FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein provided, Beneficiary or Trustee may, without obligation so to do,
without notice to or demand upon Grantor and without releasing Grantor from any
obligation hereof: (i) make or do the same in such manner and to such extent as
Beneficiary may deem necessary to protect the security hereof, Beneficiary or
Trustee being authorized to enter upon the Property for such purpose; (ii)
appear in and defend any action or proceeding purporting to affect the security
hereof, or the rights or powers of Beneficiary or Trustee; (iii) pay, purchase,
contest or compromise any encumbrance, charge or lien which in the judgment of
Beneficiary appears to be prior or superior hereto; and (iv) in exercising any
such powers, pay necessary expenses, employ counsel and pay its reasonable fees.
Sums so expended shall be payable by Grantor immediately upon demand with
interest from date of expenditure at the Default Rate (as defined in the Notes).
All sums so expended by Beneficiary and the interest thereon shall be included
in the Indebtedness and secured by the lien of this instrument.
EVENT OF DEFAULT AND CROSS DEFAULT. Any default by Grantor or the Other
Borrowers in making any required payment of the Indebtedness or the Other
Indebtedness or any default in any provision, covenant, agreement, warranty or
certification contained in any of the Transaction Documents shall, except as
provided in the two immediately succeeding paragraphs, constitute an "Event of
Default".
NOTICE OF DEFAULT. A default in any payment required in the Notes or Other Note
or any other Transaction Document, whether or not payable to Beneficiary, (a
"Monetary Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written notice of such Monetary Default to Grantor and the
Other Borrowers and Grantor and the Other Borrowers shall not have cured such
Monetary Default by payment of all amounts in default (including payment of
interest at the Default Rate, as defined in the Notes or Other Note, from the
date of default to the date of cure on amounts owed to Beneficiary) within five
(5) business days after the date on which Beneficiary shall have given such
notice to Grantor and Other Borrowers.
Any other default under the Notes or Other Note or under any other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default unless Beneficiary shall have given a written notice of such
Non-Monetary Default to Grantor and the Other Borrowers and Grantor and the
Other Borrowers shall not have cured such Non-Monetary Default within thirty
(30) days after the date on which Beneficiary shall have given such notice of
default to Grantor and the Other Borrowers (or, if the Non-Monetary Default is
not curable within such 30-day period, Grantor and the Other Borrowers shall not
have diligently undertaken and continued to pursue the curing of such
Non-Monetary Default and deposited an amount sufficient to cure such
Non-Monetary Default in an escrow account satisfactory to Beneficiary).
In no event shall the notice and cure period provisions recited above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).
SUBSTITUTION OF TRUSTEE. Beneficiary and its successors and assigns may for any
reason and at any time appoint a new or substitute Trustee by written
appointment delivered to such new or substitute Trustee without notice to
Grantor, without notice to, or the resignation or withdrawal by, the existing
Trustee and without recordation of such written appointment unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment, the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.
APPOINTMENT OF RECEIVER. Upon commencement of any proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or restriction by any present or future law, without regard to the
solvency or insolvency at that time of any party liable for the payment of the
Indebtedness, without regard to the then value of the Property, whether or not
there exists a threat of imminent harm, waste or loss to the Property and
whether or not the same shall then be occupied by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the revenues, rents, profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such appointment may confer) full power to collect all such income
and, after paying all necessary expenses of such receivership and of operation,
maintenance and repair of said Property, to apply the balance to the payment of
any of the Indebtedness then due.
FORECLOSURE. Upon the occurrence of an Event of Default, the entire unpaid
Indebtedness shall, at the option of Beneficiary, become immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE EXERCISE OF SUCH OPTION, OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising any rights it may have with respect to the Personal Property under
the Uniform Commercial Code of the jurisdiction in which the Property is
located, institute proceedings in any court of competent jurisdiction to
foreclose this instrument as a mortgage, or to enforce any of the covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage, rent or
lease the Property or any portion thereof upon such terms as Beneficiary may
deem expedient, and collect, receive and receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter provided in case
of sale. Trustee is hereby further authorized and empowered, either after or
without such entry, to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think best), and all the right, title and interest of
Grantor therein, by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located, (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue, execute and deliver a
deed of
conveyance, all as then may be provided by law; and Trustee shall, out of the
proceeds or avails of such sale, after first paying and retaining all fees,
charges, costs of advertising the Property and of making said sale, and
attorneys' fees as herein provided, pay to Beneficiary or the legal holder of
the Indebtedness the amount thereof, including all sums advanced or expended by
Beneficiary or the legal holder of the Indebtedness, with interest from date of
advance or expenditure at the Default Rate (as defined in the Notes), rendering
the excess, if any, as provided by law; such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against Grantor,
the heirs, successors and assigns of Grantor, and all other persons claiming the
Property aforesaid, or any part thereof, by, from, through or under Grantor. The
legal holder of the Indebtedness may purchase the Property or any part thereof,
and it shall not be obligatory upon any purchaser at any such sale to see to the
application of the purchase money.
PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material consideration to Beneficiary in making the loan secured by this
instrument, and Grantor shall not (i) convey title to all or any part of the
Property, (ii) enter into any contract to convey (land contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a purchaser possession of, or income from, the Property prior to a
transfer of title to all or any part of the Property ("Contract to Convey") or
(iii) cause or permit a Change in the Proportionate Ownership (as hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the Proportionate Ownership of Grantor shall constitute a default
hereunder.
B. For purposes of this instrument, a "Change in the Proportionate
Ownership" means any transfer which results in Carl E. Berg and/or Permitted
Transferee's (as defined below) collectively, owning less than 49% of Carl E.
Berg's direct and indirect ownership interest in Grantor (existing on the date
of initial advance of funds, as represented in the Certification) without
Beneficiary's approval.
C. Notwithstanding the above, a transfer of Carl E. Berg's ownership in
Grantor (i) to and among the Berg Family (as hereinafter defined) shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E. Berg, and (ii) to any entity owned and controlled (ownership and voting
interest in excess of 50% by the Berg Family) shall be permitted for estate
planning purposes or upon the death or incompetency of Carl E. Berg. A person or
entity holding a direct or indirect ownership interest by virtue of a transfer
described in this subpart C. is a "Permitted Transferee."
D. For purposes hereof, the "Berg Family" shall mean Carl E. Berg, his
spouse, his descendants and their spouses, Clyde J. Berg, any trusts or estates
for the benefit of said parties, and any entities owned and controlled
(ownership and voting interests in excess of 50%) by said parties.
E. A conversion of all or part of the ownership interest of Carl E. Berg
from limited partnership units ("L.P. Units") of Grantor to common shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.
FINANCIAL STATEMENTS. Grantor agrees to furnish to Beneficiary:
(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the "Property Financial Statements Due
Date"):
(i) an unaudited balance sheet as of the last day of such fiscal year;
(ii) an unaudited statement of operations for such fiscal year with a
detailed line item break-down of all sources of income and expenses,
including capital expenses broken down between, leasing commissions,
tenant improvements, capital maintenance, common area renovation, and
expansion;
(iii)a current rent roll identifying location, leased area, lease begin
and end dates, current contract rent, rent increases and increase
dates, percentage rent, expense reimbursements, and any other recovery
items;
(iv) an operating budget for the current fiscal year; and
(B) the following financial statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor, respectively (the
"Grantor/Guarantor Financial Statements Due Date")
(i) an audited balance sheet as of the last day of such fiscal year; and
(ii) an audited statement of cash flows for such fiscal year; and
(C) to the extent the following tenants are not publicly traded, Grantor will
use its best efforts to obtain the following financial statements for Fujitsu
(formerly known as Amdahl), Apple, JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective tenant (the "Tenant
Financial Statements Due Date"):
(i) an audited, or unaudited if audited is not available, balance sheet as
of the last day of such fiscal year; and
(ii) an audited, or unaudited if audited is not available, statement of
cash flows for such fiscal period.
The Property Financial Statements Due Date, the Grantor/Guarantors
Financial Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".
If audited, the financial statements identified in sections (A)(i),
(A)(ii), (B)(i), (B)(ii), (C)(i) and (C)(ii) above, shall each be prepared in
accordance with generally accepted accounting principles by a "Big Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary. All unaudited financial statements for Grantor, Property, and
Guarantor shall contain a certification by the managing general partner of
Grantor stating that they have been prepared in accordance with generally
accepted accounting principles and that they are true and correct. The expense
of preparing all of the financial statements required in (A) and (B) above,
shall be borne by Grantor.
Grantor acknowledges that Beneficiary requires the financial statements to
record accurately the value of the Property for financial and regulatory
reporting.
In addition to all other remedies available to Beneficiary hereunder,
at law and in equity, if any financial statement or proof of payment of property
taxes and assessments is not furnished to Beneficiary as required in this
section entitled "Financial Statements" and in the section entitled "Taxes and
Special Assessments", within 30 days after Beneficiary shall have given written
notice to Grantor that it has not been received as required,
(x) interest on the unpaid principal balance of the Indebtedness and the
Other Notes shall as of the applicable Financial Statements Due Date or the
date such proof of payment of property taxes and assessments was due,
accrue and become payable at a rate equal to the sum of the Interest Rate
(as defined in the Notes) plus one percent (1%) per annum (the "Increased
Rate"); and
(y) Beneficiary may elect to obtain an independent appraisal and audit of
the Property at Grantor's expense, and Grantor agrees that it will, upon
request, promptly make Grantor's books and records regarding the Property
available to Beneficiary and the person(s) performing the appraisal and
audit (which obligation Grantor agrees can be specifically enforced by
Beneficiary).
The amount of the payments due under the Notes and Other Note during the
time in which the Increased Rate shall be in effect shall be changed to an
amount which is sufficient to amortize the then unpaid principal balance at the
Increased Rate during the then remaining portion of a period of 20 years
commencing with the Amortization Period Commencement Date (as defined in the
Notes and Other Note). Interest shall continue to accrue and be due and payable
monthly at the Increased Rate until the financial statements and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished to Beneficiary as required. Commencing on the date on which the
financial statements and proof of payment of property taxes and assessments are
received by Beneficiary, interest on the unpaid principal balance shall again
accrue at the Interest Rate and the payments due during the remainder of the
term of the Notes and Other Note shall be changed to an amount which is
sufficient to amortize the then unpaid principal balance at the Interest Rate
during the then remaining portion of a period of 20 years commencing with the
Amortization Period Commencement Date. Notwithstanding the foregoing,
Beneficiary shall have the right to conduct an independent audit at its own
expense at any time.
PROPERTY MANAGEMENT. The management company for the Property shall be
satisfactory to Beneficiary. Any change in the management company without the
prior written consent of Beneficiary shall constitute a default under this
instrument. Beneficiary shall be reasonable in giving its approval, and
Beneficiary may require that the new management company, by itself or through
its manager, have good character and reputation, and demonstrated ability and
experience in the operation and leasing of at least one million square feet of
property similar to the Property.
EARTHQUAKE. If the Property is damaged by an earthquake during the term of the
Indebtedness:
(A) Beneficiary may require a new "Seismic Risk Estimate" (as hereinafter
defined) to be performed at Grantor's expense, and
(B) Grantor shall perform repair and retrofit work, satisfactory to
Beneficiary, which results in (i) the complete repair of the Property and
(ii) the performance of a subsequent Seismic Risk Estimate verifying that
the Property meets "Minimum Seismic
Criteria" (as hereinafter defined). Such work shall be commenced and
completed as soon as possible and in any event within one year of the
earthquake.
Without limiting the Grantor's obligation to cause the Property to satisfy
Minimum Seismic Criteria, during any period of time in which the Property does
not satisfy Minimum Seismic Criteria, Grantor shall provide Beneficiary with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).
As used herein, "Earthquake Insurance" means a policy satisfactory to
Beneficiary with a deductible of no greater than 5% of the "Replacement Cost"
(as hereinafter defined) and in an amount calculated as follows: (i) the "Loan
Amount" (as hereinafter defined) plus (ii) the "Specified Loss Dollar Amount"
(as defined below) plus (iii) 5% of the Replacement Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).
As used herein, "Loan Amount" shall mean the total principal amount
advanced at closing under the Other Note.
As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).
As used herein, "Market Value" means the estimated fair market value of the
Property, determined by Beneficiary in its sole discretion, at the time a
Seismic Risk Estimate is performed.
As used herein, "Minimum Seismic Criteria" means that both the Specified
Loss Percentage (as hereinafter defined) for the Property is less than or equal
to 30% and the Loan Plus Specified Loss is less than or equal to 90% of the
Market Value.
As used herein, "Model" means a computer based seismic model selected by
Beneficiary, currently the Insurance and Investment Risk Assessment System
("IRAS") program by Risk Management Solutions ("RMS").
As used herein, "Replacement Cost" means the estimated total cost,
determined by Beneficiary in its sole discretion, to construct all of the
Improvements as if the Property were completely unimproved (not including the
cost of site work, utilities and foundation).
As used herein, "Seismic Risk Estimate" refers to the results of a seismic
risk estimate for the Property produced by the Model. Grantor agrees that it
will not rely for its own evaluation purposes on the Seismic Risk Estimate
produced by or for Beneficiary.
As used herein, "Specified Loss Dollar Amount" means the "Specified Loss
Percentage" (as hereinafter defined) multiplied by the Replacement Cost.
As used herein, "Specified Loss Percentage" means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement Cost. Beneficiary's parameters for the Model are based on a 90%
probability that the level of damage predicted will not be exceeded in an
earthquake with an expected 475 year return period.
DEPOSITS BY GRANTOR. To assure the timely payment of real estate taxes and
special assessments (including personal property taxes, if appropriate), upon
the occurrence of an Event of Default, Beneficiary shall thence forth have the
option to require Grantor to deposit funds with Beneficiary or in an account
satisfactory to Beneficiary, in monthly or other periodic installments in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and special assessments as they become due. If at any time the funds so
held by Beneficiary, or in such other account, shall be insufficient to pay any
of said expenses, Grantor shall, upon receipt of notice thereof, immediately
deposit such additional funds as may be necessary to remove the deficiency. All
funds so deposited shall be irrevocably appropriated to Beneficiary to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.
NOTICES. Any notices, demands, requests and consents permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally or sent by certified mail with postage prepaid or by reputable
courier service with charges prepaid. Any notice or demand sent to Grantor by
certified mail or reputable courier service shall be addressed to Grantor at
10050 Bandley Drive, Cupertino, CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable courier service shall be addressed to The Northwestern Mutual Life
Insurance Company to the attention of the Real Estate Investment Department at
720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Beneficiary shall designate in a notice given in the manner described herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand hereunder shall be deemed given when received. Any notice or
demand which is rejected, the acceptance of delivery of which is refused or
which is incapable of
being delivered during normal business hours at the address specified herein or
such other address designated pursuant hereto shall be deemed received as of the
date of attempted delivery.
MODIFICATION OF TERMS. Without affecting the liability of Grantor or any other
person (except any person expressly released in writing) for payment of the
Indebtedness or for performance of any obligation contained herein and without
affecting the rights of Beneficiary with respect to any security not expressly
released in writing, Beneficiary may, at any time and from time to time, either
before or after the maturity of the Notes, without notice or consent: (i)
release any person liable for payment of all or any part of the Indebtedness or
for performance of any obligation; (ii) make any agreement extending the time or
otherwise altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing with the lien or charge hereof; (iii) exercise or refrain from
exercising or waive any right Beneficiary may have; (iv) accept additional
security of any kind; (v) release or otherwise deal with any property, real or
personal, securing the Indebtedness, including all or any part of the Property.
EXERCISE OF OPTIONS. Whenever, by the terms of this instrument, of the Notes or
any of the other Loan Documents, Beneficiary is given any option, such option
may be exercised when the right accrues, or at any time thereafter, and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.
NATURE AND SUCCESSION OF AGREEMENTS. Each of the provisions, covenants and
agreements contained herein shall inure to the benefit of, and be binding on,
the heirs, executors, administrators, successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Notes.
LEGAL ENFORCEABILITY. No provision of this instrument, the Notes or any other
Loan Documents shall require the payment of interest or other obligation in
excess of the maximum permitted by law. If any such excess payment is provided
for in any Loan Documents or shall be adjudicated to be so provided, the
provisions of this paragraph shall govern and Grantor shall not be obligated to
pay the amount of such interest or other obligation to the extent that it is in
excess of the amount permitted by law.
LIMITATION OF LIABILITY. Notwithstanding any provision contained herein to the
contrary, the personal liability of Grantor shall be limited as provided in the
Notes.
MISCELLANEOUS. Time is of the essence in each of the Loan Documents. The
remedies of Beneficiary as provided herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent, and may be pursued singly,
successively, or together at the sole discretion of Beneficiary, and may be
exercised as often as occasion therefor shall occur; and neither the failure to
exercise any such right or remedy nor any acceptance by Beneficiary of payment
of Indebtedness in default shall in any event be construed as a waiver or
release of any right or remedy. Neither this instrument nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and Beneficiary. If any of the provisions of
any Loan Document or the application thereof to any persons or circumstances
shall to any extent be invalid or unenforceable, the remainder of such Loan
Document and each of the other Loan Documents, and the application of such
provision or provisions to persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.
SURETYSHIP WAIVERS. This instrument is intended to constitute the primary
obligation of Grantor with respect to the Obligations, and Grantor is not
intended to be a guarantor or surety or otherwise only secondarily liable with
respect to matters covered hereby. However, if said Obligations, or any of them,
should be determined to not be direct obligations but rather suretyship
obligations, Grantor agrees as follows:
Without limiting or lessening the primary liability of Grantor hereunder,
Beneficiary may, without notice to Grantor,
(a) grant extensions of time or any other indulgences on the Indebtedness;
(b) take, give up, modify, vary, exchange, renew or abstain from
perfecting or taking advantage of any security for the Indebtedness;
and
(c) accept or make compositions or other arrangements with Other Borrowers
under the Transaction Documents, realize on any security, and
otherwise deal with Other Borrowers, other parties and any security as
Beneficiary may deem expedient; and
All additional demands, presentments, notices of protest and dishonor, and
notices of every kind and nature, including those of any action or no action on
the part of Other Borrowers, Beneficiary or Grantor, are expressly waived by
Grantor. Grantor hereby waives the right to require Beneficiary to proceed
against the Other Borrowers or any other party or to proceed against or apply
any security it may hold, waives the right to require Beneficiary to pursue any
other remedy for the benefit of Grantor and agrees that Beneficiary may
proceed against Grantor without taking any action against any other party and
without proceeding against or applying any security it may hold. Beneficiary
may, at its election, foreclose upon any security held by it in one or more
judicial or non-judicial sales, whether or not every aspect of such sale is
commercially reasonable, without affecting or impairing the liability of
Grantor, except to the extent the Indebtedness shall have been paid. Grantor
waives any defense arising out of such an election, notwithstanding that such
election may operate to impair or extinguish any right or remedy of Grantor
against the Other Borrowers or any other security.
Grantor waives all rights and defenses arising out of an election of remedies by
Beneficiary, even though that election of remedies, such as a nonjudicial
foreclosure of the Lien Instrument, has destroyed Grantor's right of subrogation
and reimbursement against the Other Borrowers by the operation of Section 580d
of the California Code of Civil Procedure or otherwise. Grantor waives all
rights and defenses that Grantor may have because the Other Borrowers' debt is
secured by real property. This means, among other things, that (i) Beneficiary
may foreclose on the real and personal property pledged by Grantor without first
foreclosing on any real or personal collateral pledged by the Other Borrowers,
and (ii) if Beneficiary forecloses on any real property collateral pledged by
the Other Borrowers: (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 and (B) Beneficiary may collect
from Grantor even if Beneficiary, by foreclosing on the real property
collateral, has destroyed any right Grantor may have to collect from Other
Borrowers. This is an unconditional and irrevocable waiver of any rights and
defenses Grantor may have because the Other Borrowers' debt is secured by real
property. These rights and defenses waived by Grantor include, but are not
limited to, any rights or defenses based upon Sections 580a, 580b, 580d or 726
of the California Code of Civil Procedure. Without limiting the foregoing,
Grantor hereby waives any and all benefits that might otherwise be available to
Grantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2849,
2850, 2899 and 3433.
SUBORDINATION. Notwithstanding anything to the contrary contained in this Deed
of Trust (Second Priority), the terms and provisions of this Deed of Trust
(Second Priority) and the lien created hereby shall be subject and subordinate
to the terms and provisions of the first and prior lien instrument ("First Lien
Instrument") of even date herewith executed and delivered by Grantor to
Beneficiary to secure the Other Note, the lien created thereby and all
modifications and supplements thereto. The First Lien Instrument and the
indebtedness secured thereby, and any increases therein or renewals or
extensions thereof, shall unconditionally be and remain at all times a lien or
charge on the Land prior and superior to the lien or charge of this Deed of
Trust (Second Priority).
WAIVER OF JURY TRIAL. Grantor hereby waives any right to trial by jury with
respect to any action or proceeding (a) brought by Grantor, Beneficiary or any
other person relating to (i) the obligations secured hereby and/or any
understandings or prior dealings between the parties hereto or (ii) the Loan
Documents or the Environmental Indemnity Agreement, or (b) to which Beneficiary
is a party.
CAPTIONS. The captions contained herein are for convenience and reference only
and in no way define, limit or describe the scope or intent of, or in any way
affect this instrument.
GOVERNING LAW. This instrument shall be governed by and construed in all
respects in accordance with the laws of the State of California without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning any dispute arising under or related to this instrument shall be
brought in a state or federal court located in the State of California, and
Beneficiary and Grantor hereby irrevocably consent to the jurisdiction of the
courts located in the State of California and irrevocably waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action, lawsuit or other legal proceeding brought in any court located in the
State of California
REQUEST FOR NOTICE. Pursuant to California Government Code Section 27321.5(b),
Grantor hereby requests that a copy of any notice of default and a copy of any
notice of sale given pursuant to this instrument be mailed to Grantor at the
address set forth herein.
IN WITNESS WHEREOF, this instrument has been executed by the Grantor as of
the day and year first above written.
MISSION WEST PROPERTIES, L.P. I, a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
By: Carl E. Berg
Name: Carl E. Berg
Title: CEO of G.P.
STATE OF California )
)ss.
COUNTY OF Santa Clara )
On January 7th, 2003, before me, G.W. Shott, a notary for the state, personally
appeared Carl E. Berg, CEO of G.P., personally known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature /s/ GW Shott
-----------------------------------
G.W. Shott
-----------------------------------
Name (typed or printed)
This instrument was prepared by Sally J. Lewis, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
EXHIBIT "A"
(Mission West I)
PROPERTY ONE:
Parcel One:
Parcel 1, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on April 13, 1979, in
Book 439 of Maps, page(s) 17 and 18.
Parcel Two:
A 17.5' ingress and egress Easement No. 1 (appurtenant to Parcel 1) situated at
the Northwesterly corner of Parcel 2 and being shown on that certain Parcel Map
recorded April 13, 1979 in Book 439 of Maps, pages 17 and 18, Santa Clara County
Records.
Assessors Parcel No: 224-44-019
PROPERTY TWO:
PARCEL ONE:
Parcel 3 as shown on that certain Parcel Map recorded August 9, 1974, in Book
344, Page 10, Santa Clara County.
Excepting therefrom the underground water rights, but without surface rights of
entry, as granted to the City of Cupertino by instrument recorded January 3,
1975 in Book B233 of Official Records at Page 276.
PARCEL TWO:
An easement for ingress and egress and for the installation and maintenance of a
public utilities over the Westerly 15 feet of Parcels 1 and 2 and the Easterly
15 feet of Parcel 4, as said Parcels are shown on that certain Parcel Map
recorded August 9, 1974 in Book 344 at Page 10 of Maps, Records of Santa Clara
County, California.
Assessors Parcel No: 326-10-046
EXHIBIT 10.39
California
Loan No. C-332757
RECORDING REQUESTED BY
American Title Company
632004LZ
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Nadine T. Hansohn
SPACE ABOVE THIS LINE FOR RECORDER'S USE
DEED OF TRUST and SECURITY AGREEMENT (FIRST PRIORITY)
Mission West Properties, L. P. II
THIS DEED OF TRUST and SECURITY AGREEMENT is made as of the 3rd day of
January, 2003 between MISSION WEST PROPERTIES, L.P. II, a Delaware limited
partnership, 10050 Bandley Drive, Cupertino, CA 95014, herein (said
Grantor/Trustor, whether one or more in number) called "Grantor", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Trustee", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":
WITNESSETH, That Grantor, in consideration of the indebtedness herein
mentioned, does hereby irrevocably bargain, sell, grant, transfer, assign and
convey unto Trustee, in trust, with power of sale and right of entry and
possession, the following property (herein referred to as the "Property"):
A. The land in the City of San Jose and City of Milpitas, Santa Clara
County, California described in Exhibit "A" attached hereto and
incorporated herein (the "Land");
B. All easements, appurtenances, tenements and hereditaments belonging to
or benefiting the Land, including but not limited to all waters, water
rights, water courses, all ways, trees, rights, liberties and
privileges; and
C. All improvements to the Land, including, but not limited to, all
buildings, structures and improvements now existing or hereafter
erected on the Land; all fixtures and equipment of every description
belonging to Grantor which are or may be placed or used upon the Land
or attached to the buildings, structures or improvements, including,
but not limited to, all engines, boilers, elevators and machinery, all
heating apparatus, electrical equipment, air-conditioning and
ventilating equipment, water and gas fixtures, and all furniture and
easily removable equipment; all of which, to the extent permitted by
applicable law, shall be deemed an accession to the freehold and a
part of the realty as between the parties hereto.
Grantor agrees not to sell, transfer, assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any buildings or structures or the sale or transfer of waters or water rights
and (ii) such action results in the substitution or replacement with similar
items of equal value.
Without limiting the foregoing grants, Grantor hereby pledges to
Beneficiary, and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter acquired right, title and interest in and to the Property
and any and all
D. cash and other funds now or at any time hereafter deposited by or for
Grantor on account of tax, special assessment, replacement or other
reserves required to be maintained pursuant to the Loan Documents (as
hereinafter defined) with Beneficiary or a third party, or otherwise
deposited with, or in the possession of, Beneficiary pursuant to the
Loan Documents; and
E. surveys, soils reports, environmental reports, guaranties, warranties,
architect's contracts, construction contracts, drawings and
specifications, applications, permits, surety bonds and other
contracts relating to the acquisition, design, development,
construction and operation of the Property; and
F. accounts, chattel paper, deposit accounts, instruments, equipment,
inventory, documents, general intangibles, letter-of-credit rights,
investment property and all other personal property of Grantor, in
each case, to the extent associated with or arising from the
ownership, development, operation, use or disposition of any portion
of the property; and
G. present and future rights to condemnation awards, insurance proceeds
or other proceeds at any time payable to or received by Grantor on
account of the Property or any of the foregoing personal property.
All personal property hereinabove described is hereinafter referred to as the
"Personal Property".
If any of the Property is of a nature that a security interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing statement if permitted by applicable law and
Grantor authorizes Beneficiary to file a financing statement describing such
Property and, at Beneficiary's request, agrees to join with Beneficiary in the
execution of any financing statements and to execute any other instruments that
may be necessary or desirable, in Beneficiary's determination, for the
perfection or renewal of such security interest under the Uniform Commercial
Code.
TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF SECURING, in such
order of priority as Beneficiary may determine: (i) payment of the Indebtedness
(as hereinafter defined); and (ii) payment (with interest as provided) and
performance by Grantor of the Obligations (as hereinafter defined).
Notwithstanding the foregoing, or any other term contained herein or in the Loan
Documents, none of Grantor's obligations (the "Other Obligations") under or
pursuant to (a) the Environmental Indemnity Agreement of even date herewith
executed by Grantor, Guarantor and the Other Borrowers in favor of Beneficiary
("Environmental Agreement"), (b) the Other Indebtedness or (c) any Other Note
shall be secured by the lien of this Deed of Trust.
FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture filing in the real estate records of the County of the State in which
the real estate described in Exhibit A is located, with respect to any and all
fixtures included within the term "Property" and "fixtures" under this Deed of
Trust and to any goods or other personal property that are now or hereafter
become a part of the Property as fixtures.
DEFINITIONS
CERTAIN DEFINED TERMS: As used in this Deed of Trust the following terms
shall have the following meanings:
ABSOLUTE ASSIGNMENT: The Absolute Assignment of Leases and Rents (First
Priority) of even date herewith executed by Grantorin favor of Beneficiary.
COMMITMENT: The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications stated in the letter, the Loan application executed by
Grantor and the Other Borrowers, dated October 31, 2002, which acceptance and
modification was agreed to by Grantor and the Other Borrowers on November 23,
2002.
ENVIRONMENTAL AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.
FACILITY: A real property (including, without limitation, all buildings,
fixtures and other improvements located thereon) now or hereafter serving as
security for the loans which comprise the Transaction. Attached hereto as
Exhibit B is a list of all Facilities as of the date hereof.
GUARANTOR: Mission West Properties, Inc., a Maryland corporation, and each
other person hereafter guaranteeing any portionof the Indebtedness or
Obligations.
GUARANTEE: That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission West Properties, Inc., a Maryland corporation,
in favor of Beneficiary, and any other guarantee of any portion of the
Indebtedness or Obligations hereafter executed by any person.
INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Note (as hereinafter defined) and any extensions or renewals
thereof (including extensions or renewals at a different rate of interest,
whether or not evidenced by a new or additional promissory note or notes), and
all other indebtedness of Grantor to Beneficiary and additional advances under,
evidenced by and/or secured by the Loan Documents, plus interest on all such
amounts, other than any obligations relating to the Other Indebtedness, Other
Notes or Other Obligations.
LOAN DOCUMENTS: The Note, this Deed of Trust, the Commitment (as it relates
to the Indebtedness), the Absolute Assignment, the Guarantee (as it relates to
the Indebtedness), that certain Certification of Borrowers and Carl E. Berg
("Certification") of even date herewith (as it relates to the Indebtedness),
that certain Limited Partnership Supplement dated January 6, 2003, any other
supplements and authorizations required by Beneficiary, the Fraudulent
Conveyance Indemnity Agreement from Guarantor (as it relates to the
Indebtedness), Certificate Regarding Distribution of Loan Proceeds and Indemnity
Agreement among Guarantor, Grantor and the Other Borrowers (as it relates to the
Indebtedness), and Contribution and Reimbursement Agreement among Grantor and
the Other Borrowers (as it relates to the Indebtedness), and all other documents
evidencing, securing or relating to the payment of the Indebtedness or the
performance of the Obligations, with the exception of the Other Notes and the
Environmental Agreement.
NOTE: The Promissory Note of even date herewith executed by Grantor in the
original principal amount of Forty-One Million Three Hundred Nineteen Thousand
Nine Hundred Seventy-Six Dollars ($41,319,976.00), payable to Beneficiary or its
order, with final maturity no later than February 1, 2013 and with interest as
therein expressed, and all modifications, renewals or extensions of such
Promissory Note.
OBLIGATIONS: Any and all of the covenants, promises and other obligations
(including payment of the Indebtedness) made or owing by Grantor to or due to
Beneficiary under and/or as set forth in the Loan Documents and all of the
material covenants, promises and other obligations made or owing by Grantor to
each and every other person relating to the Property, exclusive of the Other
Obligations.
OTHER BORROWERS: Collectively, Mission West Properties, L.P. I, a Delaware
limited partnership, and Mission West Properties, L.P., a Delaware limited
partnership.
OTHER INDEBTEDNESS: The loans from Beneficiary to the Other Borrowers
evidenced by the Other Notes.
OTHER NOTES: Those other Promissory Notes, each executed by one of the
Other Borrowers and payable to the order of Beneficiary, which Promissory Notes
are more particularly described in Schedule 1 of the Note.
OTHER OBLIGATIONS: As defined in the Granting Paragraph of this Deed of
Trust.
PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.
TRANSACTION: Loans in the aggregate principal amount of One Hundred Million
Dollars ($100,000,000.00), which are made by the Beneficiary to the Grantor and
the Other Borrowers on the date hereof, and are evidenced by the Note and Other
Notes and secured by lien instruments and collateral documents from Grantor and
the Other Borrowers creating liens and rights for the benefit of Beneficiary.
TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the payment of amounts owed Beneficiary in connection with the
Transaction, with the exception of the Environmental Agreement.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:
PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness hereby secured promptly
and in full compliance with the terms of the Loan Documents.
OWNERSHIP. Grantor represents that it owns the Property and has good and lawful
right to convey the same and that the Property is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary. Grantor does hereby forever warrant and shall forever defend the
title and possession thereof against the lawful claims of any and all persons
whomsoever.
MAINTENANCE OF PROPERTY AND COMPLIANCE WITH LAWS. Grantor agrees to keep the
buildings and other improvements now or hereafter erected on the Land in good
condition and repair; not to commit or suffer any waste; to comply with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all reasonable times for the purpose of inspection and of conducting,
in a reasonable and proper manner, such tests as Beneficiary determines to be
necessary in order to monitor Grantor's compliance with applicable laws and
regulations regarding hazardous materials affecting the Property.
TENANTS USING CHLORINATED SOLVENTS. Grantor agrees not to lease any of the
Property, without the prior written consent of Beneficiary, to (i) dry cleaning
operations that perform dry cleaning on site with chlorinated solvents or (ii)
any other tenants that use chlorinated solvents in the operation of their
businesses.
Notwithstanding the above, a tenant's use and storage of a product which
contains no more than twelve (12) ounces of chlorinated solvents shall not
violate this prohibition if, and only if, (i) each tenant's use, storage, and
the ultimate disposal, of said solvents is at all times in compliance with
applicable law; (ii) said solvents are acquired and kept in prepackaged
containers; and (iii) each tenant keeps no more than one (1) prepackaged
container of said solvents on the Property.
BUSINESS RESTRICTION REPRESENTATION AND WARRANTY. Grantor represents and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the Indebtedness: (i) are not, and shall not
become, a person or entity with whom Beneficiary is restricted from doing
business with under regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's Specially Designated and Blocked Persons list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism), or other governmental action; (ii)
are not knowingly engaged in, and shall not engage in, any dealings or
transaction or be otherwise associated with such persons or entities described
in (i) above; and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.
INSURANCE. Grantor agrees to keep the Property insured for the protection of
Beneficiary and Beneficiary's wholly owned subsidiaries and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance in amounts and form and with companies all satisfactory to
Beneficiary:
(A) All risk property insurance with a deductible of not greater than
$100,000.00, including Demolition and Increased Cost of Construction
(DICC) coverage equal to a minimum of 5% of the estimated replacement
cost, with an Agreed Amount Endorsement for the estimated replacement
cost of the improvements. If such all risk property insurance policy
contains a terrorism exclusion, then Grantor shall purchase a separate
insurance policy acceptable to Beneficiary for terrorism coverage.
Notwithstanding the foregoing, however, Grantor shall only be required
to carry such insurance coverage for acts of terrorism with a
deductible acceptable to Lender if such coverage is customarily
required by other institutional lenders on loans secured by property
similar to the Property;
(B) Loss of rents insurance equal to twelve months rent or business income
insurance for 100% of the annual gross earnings from business derived
from the Property;
(C) Flood insurance, if the Property is located in a flood plain (as that
term is used in the National Flood Insurance Program) in an amount not
less than 25% of the estimated replacement cost; however, Beneficiary
has agreed that Grantor can self insure for flood coverage for the two
facilities on McCandless Drive in Milpitas, California;
(D) Grantor's own commercial general liability insurance policy with
Beneficiary, and Beneficiary's wholly owned subsidiaries and agents,
named as additional insureds for their interests in the Property; and
(E) Other insurance as required by Beneficiary.
Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary, or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing all insurance coverages required hereunder on deposit with
Beneficiary, which certificates shall provide at least thirty (30) days notice
of cancellation to Beneficiary and shall list Beneficiary as the certificate
holder.
All insurance loss proceeds from all property insurance policies, whether
or not required by Beneficiary (less expenses of collection) shall, at
Beneficiary's option, be applied on the Indebtedness, whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan Documents.
If Beneficiary elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.
Notwithstanding the foregoing provision, Beneficiary agrees that if the
insurance loss proceeds from an insured loss as a Facility are less than the
Allocated Loan Amount for the Facility (as shown in Exhibit B attached hereto)
and if the casualty occurs prior to the last three years of the term of the
Note, then the insurance loss proceeds (less expenses of collection) shall be
applied to restoration of the Facility to its condition prior to the casualty,
subject to satisfaction of the following conditions:
(a) There is no existing Event of Default (as hereinafter defined) at the
time of casualty, and if there shall occur any Event of Default after
the date of the casualty, Beneficiary shall have no further obligation
to release insurance loss proceeds hereunder.
(b) The casualty insurer has not denied liability for payment of insurance
loss proceeds as a result of any act, neglect, use or occupancy of the
Property by Grantor or any tenant of the Property.
(c) Beneficiary shall be satisfied that all insurance loss proceeds so
held, together with supplemental funds to be made available by
Grantor, shall be sufficient to complete the restoration of the
Property. Any remaining insurance loss proceeds may, at the option of
Beneficiary, be applied on the Indebtedness, whether or not due, or be
released to Grantor.
(d) If required by Beneficiary, Beneficiary shall be furnished a
satisfactory report addressed to Beneficiary from an environmental
engineer or other qualified professional satisfactory to Beneficiary
to the effect that no adverse environmental impact to the Property
resulted from the casualty.
(e) Beneficiary shall release casualty insurance proceeds as restoration
of the Property progresses provided that Beneficiary is furnished
satisfactory evidence of the costs of restoration and if, at the time
of such release, there shall exist no Monetary Default (as hereinafter
defined) under the Transaction Documents and no default with respect
to which Beneficiary shall have given Grantor or Other Borrowers
notice pursuant to the Notice of Default ----------------- provision
herein or in the documents related to other loans comprising the
Transaction. If the estimated cost of restoration exceeds $250,000.00,
(i) the drawings and specifications for the restoration shall be
approved by Beneficiary in writing prior to commencement of the
restoration, and (ii) Beneficiary shall receive an administration fee
equal to 1% of the cost of restoration.
(f) Prior to each release of funds, Grantor shall obtain for the benefit
of Beneficiary an endorsement to Beneficiary's title insurance policy
insuring Beneficiary's lien as a first and valid lien on the Property
subject only to liens and encumbrances theretofore approved by
Beneficiary.
(g) Grantor shall pay all costs and expenses incurred by Beneficiary,
including, but not limited to, outside legal fees, title insurance
costs, third-party disbursement fees, third-party engineering reports
and inspections deemed necessary by Beneficiary.
(h) All reciprocal easement and operating agreements benefiting the
Property, if any, shall remain in full force and effect between the
parties thereto on and after restoration of the Property.
(i) Beneficiary shall be satisfied that Projected Debt Service Coverage
(as hereinafter defined) of at least 1.50 will be produced from the
leasing of not more than 319,495 square feet of space to former
tenants or approved new tenants with leases satisfactory to
Beneficiary for terms of at least five (5) years to commence not later
than (30) days following completion of such restoration ("Approved
Leases").
(j) All leases in effect at the time of the casualty with tenants who have
entered into Beneficiary's form of Non-Disturbance and Attornment
Agreement or similar agreement shall remain in full force and
Beneficiary shall be satisfied that restoration can be completed
within a time frame such that each tenant thereunder shall be
obligated, or each such tenant shall have elected, to continue the
lease term at full rental (subject only to abatement, if any, during
any period in which the Property or a portion thereof shall not be
used and occupied by such tenant as a result of the casualty).
(k) Without limiting the Earthquake provisions contained herein, if the
casualty has resulted in whole or part from an earthquake: (a) Grantor
shall have supplied Beneficiary with a "Seismic Risk Estimate" (in
accordance with the Earthquake provisions herein) which show that the
Property will meet "Minimum Seismic Criteria" (as defined in the
Earthquake provisions herein) upon completion of repair and retrofit
work which can be completed within one year of the earthquake, (b)
prior to commencement of the restoration, Grantor shall have committed
in writing to
Beneficiary that Grantor will do such repair and retrofit work as shall be
necessary to cause the Property to in fact meet Minimum Seismic Criteria
following completion of restoration, and (c) Beneficiary must at all times
during the restoration be reasonably satisfied that the Property will meet
Minimum Seismic Criteria following completion of the restoration, Grantor hereby
agreeing to supply Beneficiary with such evidence thereof as Beneficiary shall
request from time to time.
"Projected Debt Service Coverage" means a number calculated by dividing
Projected Operating Income Available for Debt Service (as hereinafter defined)
for the first fiscal year following restoration of the Property by the debt
service during the same fiscal year under all indebtedness secured by a first
mortgage lien on any portion of the Property. For purposes of the preceding
sentence, "debt service" means the greater of (x) debt service due under all
such indebtedness during the first fiscal year following completion of the
restoration of the Property or (y) debt service that would be due and payable
during such fiscal year if all such indebtedness were amortized over 20 years
(whether or not amortization is actually required) and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).
"Projected Operating Income Available for Debt Service" means projected
gross annual rent from the Approved Leases for the first full fiscal year
following completion of the restoration of the Property less:
(A) The operating expenses of the Property for the last fiscal year
preceding the casualty and
(B) the following:
(i) a replacement reserve for future tenant improvements, leasing
commissions and structural items based on not less than $1.80 per
square foot per annum;
(ii) the amount, if any, by which actual gross income during such
fiscal period exceeds that which would be earned from the rental
of 85% of the gross leasable area in the Property;
(iii)the amount, if any, by which the actual management fee is less
than 2% of gross revenue during such fiscal period;
(iv) the amount, if any, by which the actual real estate taxes are
less than $2.10 per square foot per annum; and
(v) the amount, if any, by which total actual operating expenses,
excluding management fees, real estate taxes and replacement
reserves, are less than $1.40 per square foot per annum.
All projections referenced above shall be calculated in a manner
satisfactory to Beneficiary.
CONDEMNATION. Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds resulting from damage to, or the taking of, all or any portion of the
Property, and (ii) the proceeds from any sale or transfer in lieu thereof
(collectively, "Condemnation Proceeds") in connection with condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter, a "Taking"); if the Condemnation Proceeds related to a Facility
are less than the Allocated Loan Amount for the Facility and such damage or
Taking occurs prior to the last three years of the term of the Note, such
Condemnation Proceeds (less expenses of collection) shall be applied to
restoration of the Facility to its condition, or the functional equivalent of
its condition prior to the Taking, subject to the conditions set forth above in
the section entitled "Insurance" and subject to the further condition that
restoration or replacement of the improvements on the Land to their functional
and economic utility prior to the Taking be possible. Any portion of such award
and proceeds not applied to restoration shall, at Beneficiary's option, be
applied on the Indebtedness, whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.
TAXES AND SPECIAL ASSESSMENTS. Grantor agrees to pay before delinquency all
taxes and special assessments of any kind that have been or may be levied or
assessed against the Property, this instrument, the Note or the Indebtedness, or
upon the interest of Trustee or Beneficiary in the Property, this instrument,
the Note or the Indebtedness, and to procure and deliver to Beneficiary within
30 days after Beneficiary shall have given a written request to Grantor, the
official receipt of the proper officer showing timely payment of all such taxes
and assessments; provided, however, that Grantor shall not be required to pay
any such taxes or special assessments if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and funds sufficient to satisfy the contested amount have been deposited in an
escrow satisfactory to Beneficiary.
PERSONAL PROPERTY. With respect to the Personal Property, Grantor hereby
represents, warrants and covenants as follows:
(a) Except for the security interest granted hereby, Grantor is, and as to
portions of the Personal Property to be acquired after the date hereof will be,
the sole owner of the Personal Property, free from any lien, security interest,
encumbrance or adverse claim thereon
of any kind whatsoever. Grantor shall notify Beneficiary of, and shall indemnify
and defend Beneficiary and the Personal Property against, all claims and demands
of all persons at any time claiming the Personal Property or any part thereof or
any interest therein.
(b) Except as otherwise provided above, Grantor shall not lease, sell,
convey or in any manner transfer the Personal Property without the prior consent
of Beneficiary.
(c) Grantor is a limited partnership organized under the laws of the State
of Delaware. Until the Indebtedness is paid in full, Grantor (i) shall not
change its legal name without providing Beneficiary with thirty (30) days prior
written notice; (ii) shall not change its state of organization; and (iii) shall
preserve its existence and shall not, in one transaction or a series of
transactions, merge into or consolidate with any other entity.
(d) At the request of Beneficiary, Grantor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the Uniform Commercial Code in form satisfactory to
Beneficiary, and Grantor shall pay the cost of filing the same in all public
offices wherever filing is deemed by Beneficiary to be necessary or desirable.
Grantor shall also, at Grantor's expense, take any and all other action
requested by Beneficiary to perfect Beneficiary's security interest under the
Uniform Commercial Code with respect to the Personal Property, including,
without limitation, exercising Grantor's best efforts to obtain any consents,
agreements or acknowledgments required of third parties to perfect Beneficiary's
security interest in Personal Property consisting of deposit accounts,
letter-of-credit rights, investment property, and electronic chattel paper.
OTHER LIENS. Grantor agrees to keep the Property or any Personal Property free
from all other liens either prior or subsequent to the lien created by this
instrument other than liens created by the Transaction Documents. The (i)
creation of any other lien on any portion of the Property or on any Personal
Property, whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable license to collect, use and enjoy rents and
profits from the Property, shall constitute a default under the terms of this
instrument; except that upon written notice to Beneficiary, Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal Property described herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.
COSTS, FEES AND EXPENSES. Grantor agrees to pay all costs, fees and expenses of
this trust; to appear in and defend any action or proceeding purporting to
affect the security hereof or the rights or powers of Beneficiary or Trustee
hereunder; to pay all costs and expenses, including the cost of obtaining
evidence of title and reasonable attorney's fees, incurred in connection with
any such action or proceeding; and to pay any and all attorney's fees and
expenses of collection and enforcement in the event the Note is placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.
FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein provided, Beneficiary or Trustee may, without obligation so to do,
without notice to or demand upon Grantor and without releasing Grantor from any
obligation hereof: (i) make or do the same in such manner and to such extent as
Beneficiary may deem necessary to protect the security hereof, Beneficiary or
Trustee being authorized to enter upon the Property for such purpose; (ii)
appear in and defend any action or proceeding purporting to affect the security
hereof, or the rights or powers of Beneficiary or Trustee; (iii) pay, purchase,
contest or compromise any encumbrance, charge or lien which in the judgment of
Beneficiary appears to be prior or superior hereto; and (iv) in exercising any
such powers, pay necessary expenses, employ counsel and pay its reasonable fees.
Sums so expended shall be payable by Grantor immediately upon demand with
interest from date of expenditure at the Default Rate (as defined in the Note).
All sums so expended by Beneficiary and the interest thereon shall be included
in the Indebtedness and secured by the lien of this instrument.
EVENT OF DEFAULT. Any default by Grantor or the Other Borrowers in making any
required payment of the Indebtedness or the Other Indebtedness or any default in
any provision, covenant, agreement, warranty or certification contained in any
of the Transaction Documents shall, except as provided in the two immediately
succeeding paragraphs, constitute an "Event of Default".
NOTICE OF DEFAULT. A default in any payment required in the Note or Other Notes
or any other Transaction Document, whether or not payable to Beneficiary, (a
"Monetary Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written notice of such Monetary Default to Grantor and the
Other Borrowers and Grantor and the Other Borrowers shall not have cured such
Monetary Default by payment of all amounts in default (including payment of
interest at the Default Rate, as defined in the Note or Other Notes, from the
date of default to the date of cure on amounts owed to Beneficiary) within five
(5) business days after the date on which Beneficiary shall have given such
notice to Grantor and Other Borrowers.
Any other default under the Note or Other Notes or under any other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default unless Beneficiary shall have given a written notice of such
Non-Monetary Default to Grantor and the Other Borrowers and Grantor and the
Other Borrowers shall not have cured such Non-Monetary Default within thirty
(30) days after the date on which Beneficiary shall have given such notice of
default to Grantor and the Other Borrowers (or, if the
Non-Monetary Default is not curable within such 30-day period, Grantor and the
Other Borrowers shall not have diligently undertaken and continued to pursue the
curing of such Non-Monetary Default and deposited an amount sufficient to cure
such Non-Monetary Default in an escrow account satisfactory to Beneficiary).
In no event shall the notice and cure period provisions recited above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).
SUBSTITUTION OF TRUSTEE. Beneficiary and its successors and assigns may for any
reason and at any time appoint a new or substitute Trustee by written
appointment delivered to such new or substitute Trustee without notice to
Grantor, without notice to, or the resignation or withdrawal by, the existing
Trustee and without recordation of such written appointment unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment, the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.
APPOINTMENT OF RECEIVER. Upon commencement of any proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or restriction by any present or future law, without regard to the
solvency or insolvency at that time of any party liable for the payment of the
Indebtedness, without regard to the then value of the Property, whether or not
there exists a threat of imminent harm, waste or loss to the Property and
whether or not the same shall then be occupied by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the revenues, rents, profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such appointment may confer) full power to collect all such income
and, after paying all necessary expenses of such receivership and of operation,
maintenance and repair of said Property, to apply the balance to the payment of
any of the Indebtedness then due.
FORECLOSURE. Upon the occurrence of an Event of Default, the entire unpaid
Indebtedness shall, at the option of Beneficiary, become immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE EXERCISE OF SUCH OPTION, OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising any rights it may have with respect to the Personal Property under
the Uniform Commercial Code of the jurisdiction in which the Property is
located, institute proceedings in any court of competent jurisdiction to
foreclose this instrument as a mortgage, or to enforce any of the covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage, rent or
lease the Property or any portion thereof upon such terms as Beneficiary may
deem expedient, and collect, receive and receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter provided in case
of sale. Trustee is hereby further authorized and empowered, either after or
without such entry, to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think best), and all the right, title and interest of
Grantor therein, by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located, (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue, execute and deliver a
deed of conveyance, all as then may be provided by law; and Trustee shall, out
of the proceeds or avails of such sale, after first paying and retaining all
fees, charges, costs of advertising the Property and of making said sale, and
attorneys' fees as herein provided, pay to Beneficiary or the legal holder of
the Indebtedness the amount thereof, including all sums advanced or expended by
Beneficiary or the legal holder of the Indebtedness, with interest from date of
advance or expenditure at the Default Rate (as defined in the Note), rendering
the excess, if any, as provided by law; such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against Grantor,
the heirs, successors and assigns of Grantor, and all other persons claiming the
Property aforesaid, or any part thereof, by, from, through or under Grantor. The
legal holder of the Indebtedness may purchase the Property or any part thereof,
and it shall not be obligatory upon any purchaser at any such sale to see to the
application of the purchase money.
PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material consideration to Beneficiary in making the loan secured by this
instrument, and Grantor shall not (i) convey title to all or any part of the
Property, (ii) enter into any contract to convey (land contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a purchaser possession of, or income from, the Property prior to a
transfer of title to all or any part of the Property ("Contract to Convey") or
(iii) cause or permit a Change in the Proportionate Ownership (as hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the Proportionate Ownership of Grantor shall constitute a default
hereunder.
B. For purposes of this instrument, a "Change in the Proportionate
Ownership" means any transfer which results in Carl E. Berg and/or Permitted
Transferee's (as defined below) collectively, owning less than 49% of Carl E.
Berg's direct and indirect ownership interest in Grantor (existing on the date
of initial advance of funds, as represented in the Certification) without
Beneficiary's approval.
C. Notwithstanding the above, a transfer of Carl E. Berg's ownership in
Grantor (i) to and among the Berg Family (as hereinafter defined) shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E. Berg, and (ii) to any entity owned and controlled (ownership and voting
interest in excess of 50% by the Berg Family) shall be permitted for estate
planning
purposes or upon the death or incompetency of Carl E. Berg. A person or entity
holding a direct or indirect ownership interest by virtue of a transfer
described in this subpart C. is a "Permitted Transferee."
D. For purposes hereof, the "Berg Family" shall mean Carl E. Berg, his
spouse, his descendants and their spouses, Clyde J. Berg, any trusts or estates
for the benefit of said parties, and any entities owned and controlled
(ownership and voting interests in excess of 50%) by said parties.
E. A conversion of all or part of the ownership interest of Carl E. Berg
from limited partnership units ("L.P. Units") of Grantor to common shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.
FINANCIAL STATEMENTS. Grantor agrees to furnish to Beneficiary:
(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the "Property Financial Statements Due
Date"):
(i) an unaudited balance sheet as of the last day of such fiscal year;
(ii) an unaudited statement of operations for such fiscal year with a
detailed line item break-down of all sources of income and expenses,
including capital expenses broken down between, leasing commissions,
tenant improvements, capital maintenance, common area renovation, and
expansion;
(iii)a current rent roll identifying location, leased area, lease begin
and end dates, current contract rent, rent increases and increase
dates, percentage rent, expense reimbursements, and any other recovery
items;
(iv) an operating budget for the current fiscal year; and
(B) the following financial statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor, respectively (the
"Grantor/Guarantor Financial Statements Due Date")
(i) an audited balance sheet as of the last day of such fiscal year; and
(ii) an audited statement of cash flows for such fiscal year; and
(C) to the extent the following tenants are not publicly traded, Grantor will
use its best efforts to obtain the following financial statements for Fujitsu
(formerly known as Amdahl), Apple, JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective tenant (the "Tenant
Financial Statements Due Date"):
(i) an audited, or unaudited if audited is not available, balance sheet as
of the last day of such fiscal year; and
(ii) an audited, or unaudited if audited is not available, statement of
cash flows for such fiscal period.
The Property Financial Statements Due Date, the Grantor/Guarantors
Financial Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".
If audited, the financial statements identified in sections (A)(i),
(A)(ii), (B)(i), (B)(ii), (C)(i) and (C)(ii) above, shall each be prepared in
accordance with generally accepted accounting principles by a "Big Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary. All unaudited financial statements for Grantor, Property, and
Guarantor shall contain a certification by the managing general partner of
Grantor stating that they have been prepared in accordance with generally
accepted accounting principles and that they are true and correct. The expense
of preparing all of the financial statements required in (A) and (B) above,
shall be borne by Grantor.
Grantor acknowledges that Beneficiary requires the financial statements to
record accurately the value of the Property for financial and regulatory
reporting.
In addition to all other remedies available to Beneficiary hereunder, at
law and in equity, if any financial statement or proof of payment of property
taxes and assessments is not furnished to Beneficiary as required in this
section entitled "Financial Statements" and in
the section entitled "Taxes and Special Assessments", within 30 days after
Beneficiary shall have given written notice to Grantor that it has not been
received as required,
(x) interest on the unpaid principal balance of the Indebtedness and the
Other Notes shall as of the applicable Financial Statements Due Date or the
date such proof of payment of property taxes and assessments was due,
accrue and become payable at a rate equal to the sum of the Interest Rate
(as defined in the Note) plus one percent (1%) per annum (the "Increased
Rate"); and
(y) Beneficiary may elect to obtain an independent appraisal and audit of
the Property at Grantor's expense, and Grantor agrees that it will, upon
request, promptly make Grantor's books and records regarding the Property
available to Beneficiary and the person(s) performing the appraisal and
audit (which obligation Grantor agrees can be specifically enforced by
Beneficiary).
The amount of the payments due under the Note and Other Notes during the
time in which the Increased Rate shall be in effect shall be changed to an
amount which is sufficient to amortize the then unpaid principal balance at the
Increased Rate during the then remaining portion of a period of 20 years
commencing with the Amortization Period Commencement Date (as defined in the
Note and Other Notes). Interest shall continue to accrue and be due and payable
monthly at the Increased Rate until the financial statements and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished to Beneficiary as required. Commencing on the date on which the
financial statements and proof of payment of property taxes and assessments are
received by Beneficiary, interest on the unpaid principal balance shall again
accrue at the Interest Rate and the payments due during the remainder of the
term of the Note and Other Notes shall be changed to an amount which is
sufficient to amortize the then unpaid principal balance at the Interest Rate
during the then remaining portion of a period of 20 years commencing with the
Amortization Period Commencement Date. Notwithstanding the foregoing,
Beneficiary shall have the right to conduct an independent audit at its own
expense at any time.
PROPERTY MANAGEMENT. The management company for the Property shall be
satisfactory to Beneficiary. Any change in the management company without the
prior written consent of Beneficiary shall constitute a default under this
instrument. Beneficiary shall be reasonable in giving its approval, and
Beneficiary may require that the new management company, by itself or through
its manager, have good character and reputation, and demonstrated ability and
experience in the operation and leasing of at least one million square feet of
property similar to the Property.
EARTHQUAKE. If the Property is damaged by an earthquake during the term of the
Indebtedness:
(A) Beneficiary may require a new "Seismic Risk Estimate" (as hereinafter
defined) to be performed at Grantor's expense, and
(B) Grantor shall perform repair and retrofit work, satisfactory to
Beneficiary, which results in (i) the complete repair of the Property and
(ii) the performance of a subsequent Seismic Risk Estimate verifying that
the Property meets "Minimum Seismic Criteria" (as hereinafter defined).
Such work shall be commenced and completed as soon as possible and in any
event within one year of the earthquake.
Without limiting the Grantor's obligation to cause the Property to satisfy
Minimum Seismic Criteria, during any period of time in which the Property does
not satisfy Minimum Seismic Criteria, Grantor shall provide Beneficiary with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).
As used herein, "Earthquake Insurance" means a policy satisfactory to
Beneficiary with a deductible of no greater than 5% of the "Replacement Cost"
(as hereinafter defined) and in an amount calculated as follows: (i) the "Loan
Amount" (as hereinafter defined) plus (ii) the "Specified Loss Dollar Amount"
(as defined below) plus (iii) 5% of the Replacement Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).
As used herein, "Loan Amount" shall mean the total principal amount
advanced at closing, under the Note.
As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).
As used herein, "Market Value" means the estimated fair market value of the
Property, determined by Beneficiary in its sole discretion, at the time a
Seismic Risk Estimate is performed.
As used herein, "Minimum Seismic Criteria" means that both the Specified
Loss Percentage (as hereinafter defined) for the Property is less than or equal
to 30% and the Loan Plus Specified Loss is less than or equal to 90% of the
Market Value.
As used herein, "Model" means a computer based seismic model selected by
Beneficiary, currently the Insurance and Investment Risk Assessment System
("IRAS") program by Risk Management Solutions ("RMS").
As used herein, "Replacement Cost" means the estimated total cost,
determined by Beneficiary in its sole discretion, to construct all of the
Improvements as if the Property were completely unimproved (not including the
cost of site work, utilities and foundation).
As used herein, "Seismic Risk Estimate" refers to the results of a seismic
risk estimate for the Property produced by the Model. Grantor agrees that it
will not rely for its own evaluation purposes on the Seismic Risk Estimate
produced by or for Beneficiary.
As used herein, "Specified Loss Dollar Amount" means the "Specified Loss
Percentage" (as hereinafter defined) multiplied by the Replacement Cost.
As used herein, "Specified Loss Percentage" means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement Cost. Beneficiary's parameters for the Model are based on a 90%
probability that the level of damage predicted will not be exceeded in an
earthquake with an expected 475 year return period.
DEPOSITS BY GRANTOR. To assure the timely payment of real estate taxes and
special assessments (including personal property taxes, if appropriate), upon
the occurrence of an Event of Default, Beneficiary shall thence forth have the
option to require Grantor to deposit funds with Beneficiary or in an account
satisfactory to Beneficiary, in monthly or other periodic installments in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and special assessments as they become due. If at any time the funds so
held by Beneficiary, or in such other account, shall be insufficient to pay any
of said expenses, Grantor shall, upon receipt of notice thereof, immediately
deposit such additional funds as may be necessary to remove the deficiency. All
funds so deposited shall be irrevocably appropriated to Beneficiary to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.
NOTICES. Any notices, demands, requests and consents permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally or sent by certified mail with postage prepaid or by reputable
courier service with charges prepaid. Any notice or demand sent to Grantor by
certified mail or reputable courier service shall be addressed to Grantor at
10050 Bandley Drive, Cupertino, CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable courier service shall be addressed to The Northwestern Mutual Life
Insurance Company to the attention of the Real Estate Investment Department at
720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Beneficiary shall designate in a notice given in the manner described herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand hereunder shall be deemed given when received. Any notice or
demand which is rejected, the acceptance of delivery of which is refused or
which is incapable of being delivered during normal business hours at the
address specified herein or such other address designated pursuant hereto shall
be deemed received as of the date of attempted delivery.
MODIFICATION OF TERMS. Without affecting the liability of Grantor or any other
person (except any person expressly released in writing) for payment of the
Indebtedness or for performance of any obligation contained herein and without
affecting the rights of Beneficiary with respect to any security not expressly
released in writing, Beneficiary may, at any time and from time to time, either
before or after the maturity of the Note, without notice or consent: (i) release
any person liable for payment of all or any part of the Indebtedness or for
performance of any obligation; (ii) make any agreement extending the time or
otherwise altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing with the lien or charge hereof; (iii) exercise or refrain from
exercising or waive any right Beneficiary may have; (iv) accept additional
security of any kind; (v) release or otherwise deal with any property, real or
personal, securing the Indebtedness, including all or any part of the Property.
EXERCISE OF OPTIONS. Whenever, by the terms of this instrument, of the Note or
any of the other Loan Documents, Beneficiary is given any option, such option
may be exercised when the right accrues, or at any time thereafter, and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.
NATURE AND SUCCESSION OF AGREEMENTS. Each of the provisions, covenants and
agreements contained herein shall inure to the benefit of, and be binding on,
the heirs, executors, administrators, successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Note.
LEGAL ENFORCEABILITY. No provision of this instrument, the Note or any other
Loan Documents shall require the payment of interest or other obligation in
excess of the maximum permitted by law. If any such excess payment is provided
for in any Loan Documents or shall be adjudicated to be so provided, the
provisions of this paragraph shall govern and Grantor shall not be obligated to
pay the amount of such interest or other obligation to the extent that it is in
excess of the amount permitted by law.
LIMITATION OF LIABILITY. Notwithstanding any provision contained herein to the
contrary, the personal liability of Grantor shall be limited as provided in the
Note.
MISCELLANEOUS. Time is of the essence in each of the Loan Documents. The
remedies of Beneficiary as provided herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent, and may be pursued singly,
successively, or together at the sole discretion of Beneficiary, and may be
exercised as often as occasion therefor shall occur; and neither the failure to
exercise any such right or remedy nor any acceptance by Beneficiary of payment
of Indebtedness in default shall in any event be construed as a waiver or
release of any right or remedy. Neither this instrument nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and Beneficiary. If any of the provisions of
any Loan Document or the application thereof to any persons or circumstances
shall to any extent be invalid or unenforceable, the remainder of such Loan
Document and each of the other Loan Documents, and the application of such
provision or provisions to persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.
WAIVER OF JURY TRIAL. Grantor hereby waives any right to trial by jury with
respect to any action or proceeding (a) brought by Grantor, Beneficiary or any
other person relating to (i) the obligations secured hereby and/or any
understandings or prior dealings between the parties hereto or (ii) the Loan
Documents or the Environmental Indemnity Agreement, or (b) to which Beneficiary
is a party.
CAPTIONS. The captions contained herein are for convenience and reference only
and in no way define, limit or describe the scope or intent of, or in any way
affect this instrument.
GOVERNING LAW. This instrument shall be governed by and construed in all
respects in accordance with the laws of the State of California without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning any dispute arising under or related to this instrument shall be
brought in a state or federal court located in the State of California, and
Beneficiary and Grantor hereby irrevocably consent to the jurisdiction of the
courts located in the State of California and irrevocably waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action, lawsuit or other legal proceeding brought in any court located in the
State of California.
REQUEST FOR NOTICE. Pursuant to California Government Code Section 27321.5(b),
Grantor hereby requests that a copy of any notice of default and a copy of any
notice of sale given pursuant to this instrument be mailed to Grantor at the
address set forth herein.
IN WITNESS WHEREOF, this instrument has been executed by the Grantor as of
the day and year first above written.
MISSION WEST PROPERTIES, L.P. II, a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
By: Carl E. Berg
Name: Carl E. Berg
Title: CEO of G.P.
STATE OF California )
)ss.
COUNTY OF Santa Clara )
On January 7th, 2003, before me, G.W. Shott, a notary for the state, personally
appeared Carl E. Berg, CEO of G.P., personally known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature GW Shott
-----------------------------------
G.W. Shott
-----------------------------------
Name (typed or printed)
This instrument was prepared by Sally J. Lewis, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
EXHIBIT "A"
(Mission West II)
PROPERTY ONE:
All that certain real property situated in the City of San Jose, County of Santa
Clara, State of California, described as follows:
Parcel 2, as shown on the Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on November 26, 1979,
in Book 455 of Maps, Page(s) 1 and 2.
Assessors Parcel No: 706-09-023
PROPERTY TWO:
Parcel 1, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on May 22, 1980, in
Book 463 of Maps, Page(s) 43 and 44.
Assessors Parcel No: 706-02-034
PROPERTY THREE:
Parcel 7, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.
Assessors Parcel No: 086-33-092
PROPERTY FOUR:
Parcel 3 as shown on that Parcel Map filed for recorded in the Office of the
Recorder of the County of Santa Clara, State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.
Assessors Parcel No: 086-41-017 & 086-41-018
EXHIBIT 10.40
California
Loan No. C-332757
RECORDING REQUESTED BY
American Title Company
632004LZ
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Nadine T. Hansohn
SPACE ABOVE THIS LINE FOR RECORDER'S USE
DEED OF TRUST and SECURITY AGREEMENT and ASSIGNMENT OF LEASES AND RENTS (SECOND
PRIORITY)
Mission West Properties, L. P. II
THIS DEED OF TRUST and SECURITY AGREEMENT is made as of the 3rd day of
January, 2003 between MISSION WEST PROPERTIES, L.P. II, a Delaware limited
partnership, 10050 Bandley Drive, Cupertino, CA 95014, herein (said
Grantor/Trustor, whether one or more in number) called "Grantor", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Trustee", and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, 720 E.
Wisconsin Avenue, Milwaukee, WI 53202, herein called "Beneficiary":
WITNESSETH, That Grantor, in consideration of the indebtedness herein
mentioned, does hereby irrevocably bargain, sell, grant, transfer, assign and
convey unto Trustee, in trust, with power of sale and right of entry and
possession, the following property (herein referred to as the "Property"):
A. The land in the City of San Jose and City of Milpitas, Santa Clara
County, California described in Exhibit "A" attached hereto and
incorporated herein (the "Land");
B. All easements, appurtenances, tenements and hereditaments belonging to
or benefiting the Land, including but not limited to all waters, water
rights, water courses, all ways, trees, rights, liberties and
privileges; and
C. All improvements to the Land, including, but not limited to, all
buildings, structures and improvements now existing or hereafter
erected on the Land; all fixtures and equipment of every description
belonging to Grantor which are or may be placed or used upon the Land
or attached to the buildings, structures or improvements, including,
but not limited to, all engines, boilers, elevators and machinery, all
heating apparatus, electrical equipment, air-conditioning and
ventilating equipment, water and gas fixtures, and all furniture and
easily removable equipment; all of which, to the extent permitted by
applicable law, shall be deemed an accession to the freehold and a
part of the realty as between the parties hereto; the rents, issues
and profits arising from the Land and improvements subject, however,
to any right, power and authority given to Grantor to collect and
apply such rents, issues and profits.
Grantor agrees not to sell, transfer, assign or remove anything described in B,
C and D above now or hereafter located on the Land without prior written consent
from Beneficiary unless (i) such action does not constitute a sale or removal of
any buildings or structures or the sale or transfer of waters or water rights
and (ii) such action results in the substitution or replacement with similar
items of equal value.
Without limiting the foregoing grants, Grantor hereby pledges to
Beneficiary, and grants to Beneficiary a security interest in, all of Grantor's
present and hereafter acquired right, title and interest in and to the Property
and any and all
D. cash and other funds now or at any time hereafter deposited by or for
Grantor on account of tax, special assessment, replacement or other
reserves required to be maintained pursuant to the Loan Documents (as
hereinafter defined) with Beneficiary or a third party, or otherwise
deposited with, or in the possession of, Beneficiary pursuant to the
Loan Documents; and
E. surveys, soils reports, environmental reports, guaranties, warranties,
architect's contracts, construction contracts, drawings and
specifications, applications, permits, surety bonds and other
contracts relating to the acquisition, design, development,
construction and operation of the Property; and
F. accounts, chattel paper, deposit accounts, instruments, equipment,
inventory, documents, general intangibles, letter-of-credit rights,
investment property and all other personal property of Grantor, in
each case, to the extent associated with or arising from the
ownership, development, operation, use or disposition of any portion
of the property; and
G. present and future rights to condemnation awards, insurance proceeds
or other proceeds at any time payable to or received by Grantor on
account of the Property or any of the foregoing personal property.
All personal property hereinabove described is hereinafter referred to as the
"Personal Property".
If any of the Property is of a nature that a security interest therein can
be perfected under the Uniform Commercial Code, this instrument shall constitute
a security agreement and financing statement if permitted by applicable law and
Grantor authorizes Beneficiary to file a financing statement describing such
Property and, at Beneficiary's request, agrees to join with Beneficiary in the
execution of any financing statements and to execute any other instruments that
may be necessary or desirable, in Beneficiary's determination, for the
perfection or renewal of such security interest under the Uniform Commercial
Code.
TO HAVE AND TO HOLD THE SAME UNTO TRUSTEE FOR THE PURPOSE OF SECURING, in
such order of priority as Beneficiary may determine: (i) payment of the
Indebtedness (as hereinafter defined); and (ii) payment (with interest as
provided) and performance by Grantor of the Obligations (as hereinafter
defined). Notwithstanding the foregoing, or any other term contained herein or
in the Loan Documents, none of Grantor's obligations (the "Other Obligations")
under or pursuant to (a) the Environmental Indemnity Agreement of even date
herewith executed by Grantor, Guarantor and the other Borrowers in favor of
Beneficiary ("Environmental Agreement"), (b) the Other Indebtedness or (c) any
Other Note shall be secured by the lien of this Deed of Trust.
FIXTURE FILING. This Deed of Trust constitutes a financing statement, filed as a
fixture filing in the real estate records of the County of the State in which
the real estate described in Exhibit A is located, with respect to any and all
fixtures included within the term "Property" and "fixtures" under this Deed of
Trust and to any goods or other personal property that are now or hereafter
become a part of the Property as fixtures.
DEFINITIONS
CERTAIN DEFINED TERMS: As used in this Deed of Trust the following terms
shall have the following meanings:
COMMITMENT: The letter from Beneficiary dated November 18, 2002 accepting,
subject to modifications stated in the letter, the Loan application executed by
Grantor and the Other Borrowers, dated October 31, 2002, which acceptance and
modification was agreed to by Grantor and the Other Borrowers on November 28,
2002.
ENVIRONMENTAL AGREEMENT: As defined in the Securing paragraph of this Deed
of Trust.
FACILITY: A real property (including, without limitation, all buildings,
fixtures and other improvements located thereon) now or hereafter serving as
security for the loans which comprise the Transaction. Attached hereto as
Exhibit B is a list of all Facilities as of the date hereof.
GUARANTOR: Mission West Properties, Inc., a Maryland corporation, and each
other person hereafter guaranteeing any portion of the Indebtedness or
Obligations.
GUARANTEE: That certain Guarantee of Recourse Obligations dated as of even
date herewith executed by Mission West Properties, Inc., a Maryland corporation,
in favor of Beneficiary, and any other guarantee of any portion of the
Indebtedness or
Obligations hereafter executed by any person.
INDEBTEDNESS: The principal of and all other amounts, payments and premiums
due under the Notes (as hereinafter defined) and any extensions or renewals
thereof (including extensions or renewals at a different rate of interest,
whether or not evidenced by a new or additional promissory note or notes), and
all other indebtedness of Grantor to Beneficiary and additional advances under,
evidenced by and/or secured by the Loan Documents, plus interest on all such
amounts, other than any obligations relating to the Other Indebtedness, Other
Note or Other Obligations.
LOAN DOCUMENTS: The Notes, this Deed of Trust, the Commitment (as it
relates to the Indebtedness), the Guarantee (as it relates to the Indebtedness),
that certain Certification of Borrowers and Carl E. Berg ("Certification") of
even date herewith (as it relates to the Indebtedness), that certain Limited
Partnership Supplement dated January 6, 2003, any other supplements and
authorizations required by Beneficiary, the Fraudulent Conveyance Indemnity
Agreement from Guarantor (as it relates to the Indebtedness), Certificate
Regarding Distribution of Loan Proceeds and Indemnity Agreement among Guarantor,
Grantor and the Other Borrowers (as it relates to the Indebtedness), and
Contribution and Reimbursement Agreement among Grantor and the Other Borrowers
(as it relates to the Indebtedness), and all other documents evidencing,
securing or relating to the payment of the Indebtedness or the performance of
the Obligations, with the exception of the Other Note and the Environmental
Agreement.
NOTES: The Promissory Note of even date herewith executed by Mission West
Properties, L.P. I, a Delaware limited partnership in the original principal
amount of Twenty Nine Million Eight Hundred Eleven Thousand Three Hundred
Sixty-Nine Dollars ($29,811,369.00), payable to Beneficiary or its order, and
the Promissory Note of even date herewith executed by Mission West Properties,
L.P., a Delaware limited partnership in the original principal amount of Twenty
Eight Million Eight Hundred Sixty-Eight Thousand Six Hundred Fifty-Five Dollars
($28,868,655.00), payable to Beneficiary or its order, in each with final
maturity no later than February 1, 2013 and with interest as therein expressed,
and all modifications, renewals or extensions of such Promissory Notes.
OBLIGATIONS: Any and all of the covenants, promises and other obligations
(including payment of the Indebtedness) made or owing by Grantor to or due to
Beneficiary under and/or as set forth in the Loan Documents and all of the
material covenants, promises and other obligations made or owing by Grantor to
each and every other person relating to the Property, exclusive of the Other
Obligations.
OTHER BORROWERS: Collectively, Mission West Properties, L.P. I, a Delaware
limited partnership, and Mission West Properties, L.P., a Delaware limited
partnership.
OTHER INDEBTEDNESS: The loan from Beneficiary evidenced by the Other Note.
OTHER NOTE: The Promissory Note of even date herewith executed by Grantor
in the original principal amount of Forty One Million Three Hundred Nineteen
Thousand Nine Hundred Seventy-Six Dollars ($41,319,976.00), payable to
Beneficiary or its order, with final maturity no later than February 1, 2013 and
with interest as therein expressed, and all modifications, renewals or
extensions of such Promissory Note.
OTHER OBLIGATIONS: As defined in the Granting Paragraph of this Deed of
Trust.
PROPERTY: As defined in the Granting Paragraph of this Deed of Trust.
Transaction: Loans in the aggregate principal amount of One Hundred
Million Dollars ($100,000,000.00), which are made by the Beneficiary to the
Grantor and the Other Borrowers on the date hereof, and are evidenced by the
Notes and Other Note and secured by lien instruments and collateral documents
from Grantor and the Other Borrowers creating liens and rights for the benefit
of Beneficiary.
TRANSACTION DOCUMENTS: All documents evidencing, securing, guaranteeing, or
related to the payment of amounts owed Beneficiary in connection with the
Transaction, with the exception of the Environmental Agreement.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, GRANTOR COVENANTS AND AGREES:
PAYMENT OF DEBT. Grantor agrees to pay the Indebtedness hereby secured promptly
and in full compliance with the terms of the Loan Documents.
OWNERSHIP. Grantor represents that it owns the Property and has good and lawful
right to convey the same and that the Property is free and clear from any and
all encumbrances whatsoever, except as appears in the title evidence accepted by
Beneficiary. Grantor does hereby forever warrant and shall forever defend the
title and possession thereof against the lawful claims of any and all persons
whomsoever.
MAINTENANCE OF PROPERTY AND COMPLIANCE WITH LAWS. Grantor agrees to keep the
buildings and other improvements now or hereafter erected on the Land in good
condition and repair; not to commit or suffer any waste; to comply with all
laws, rules and regulations affecting the Property; and to permit Beneficiary to
enter at all reasonable times for the purpose of inspection and of conducting,
in a reasonable and proper manner, such tests as Beneficiary determines to be
necessary in order to monitor Grantor's compliance with applicable laws and
regulations regarding hazardous materials affecting the Property.
TENANTS USING CHLORINATED SOLVENTS. Grantor agrees not to lease any of the
Property, without the prior written consent of Beneficiary, to (i) dry cleaning
operations that perform dry cleaning on site with chlorinated solvents or (ii)
any other tenants that use chlorinated solvents in the operation of their
businesses.
Notwithstanding the above, a tenant's use and storage of a product which
contains no more than twelve (12) ounces of chlorinated solvents shall not
violate this prohibition if, and only if, (i) each tenant's use, storage, and
the ultimate disposal, of said solvents is at all times in compliance with
applicable law; (ii) said solvents are acquired and kept in prepackaged
containers; and (iii) each tenant keeps no more than one (1) prepackaged
container of said solvents on the Property.
BUSINESS RESTRICTION REPRESENTATION AND WARRANTY. Grantor represents and
warrants that Grantor, all guarantors of all or any portion of the Indebtedness,
and all persons and entities executing any separate indemnity agreement in favor
of Beneficiary in connection with the Indebtedness: (i) are not, and shall not
become, a person or entity with whom Beneficiary is restricted from doing
business with under regulations of the Office of Foreign Asset Control ("OFAC")
of the Department of the Treasury (including, but not limited to, those named on
OFAC's Specially Designated and Blocked Persons list) or under any statute,
executive order (including, but not limited to, the September 24, 2001 Executive
Order Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism), or other governmental action; (ii)
are not knowingly engaged in, and shall not engage in, any dealings or
transaction or be otherwise associated with such persons or entities described
in (i) above; and (iii) are not, and shall not become, a person or entity whose
activities are regulated by the International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.
INSURANCE. Grantor agrees to keep the Property insured for the protection of
Beneficiary and Beneficiary's wholly owned subsidiaries and agents and shall
provide Beneficiary with evidence of, and shall maintain, the following types of
insurance in amounts and form and with companies all satisfactory to
Beneficiary:
(A) All risk property insurance with a deductible of not greater than
$100,000.00, including Demolition and Increased Cost of Construction
(DICC) coverage equal to a minimum of 5% of the estimated replacement
cost, with an Agreed Amount Endorsement for the estimated replacement
cost of the improvements. If such all risk property insurance policy
contains a terrorism exclusion, then Grantor shall purchase a separate
insurance policy acceptable to Beneficiary for terrorism coverage.
Notwithstanding the foregoing, however, Grantor shall only be required
to carry such insurance coverage for acts of terrorism with a
deductible acceptable to Lender if such coverage is customarily
required by other institutional lenders on loans secured by property
similar to the property;
(B) Loss of rents insurance equal to twelve months rent or business income
insurance for 100% of the annual gross earnings from business derived
from the Property;
(C) Flood insurance, if the Property is located in a flood plain (as that
term is used in the National Flood Insurance Program) in an amount not
less than 25% of the estimated replacement cost; however, Beneficiary
has agreed that Grantor can self insure for flood coverage for the two
Facilities on McCandless Drive in Milpitas, California;
(D) Grantor's own commercial general liability insurance policy with
Beneficiary, and Beneficiary's wholly owned subsidiaries and agents,
named as additional insureds for their interests in the Property; and
(E) Other insurance as required by Beneficiary.
Grantor agrees to keep the policies therefor, properly endorsed, on deposit
with Beneficiary, or at Beneficiary's option, to keep certificates of insurance
(Acord 27 for all property insurance and Acord 25-S for all liability insurance)
evidencing all insurance coverages required hereunder on deposit with
Beneficiary, which certificates shall provide at least thirty (30) days notice
of cancellation to Beneficiary and shall list Beneficiary as the certificate
holder.
All insurance loss proceeds from all property insurance policies, whether
or not required by Beneficiary (less expenses of collection) shall, at
Beneficiary's option, be applied on the Indebtedness, whether due or not, or to
the restoration of the Property, or be released to Grantor, but such application
or release shall not cure or waive any default under any of the Loan Documents.
If Beneficiary elects to apply the insurance loss proceeds on the Indebtedness,
no prepayment privilege fee shall be due thereon.
Notwithstanding the foregoing provision, Beneficiary agrees that if the
insurance loss proceeds from an insured loss as a Facility are less than the
Allocated Loan Amount for the Facility (as shown in Exhibit B attached hereto)
and if the casualty occurs prior to the last three years of the term of the
Notes, then the insurance loss proceeds (less expenses of collection) shall be
applied to restoration of the Facility to its condition prior to the casualty,
subject to satisfaction of the following conditions:
(a) There is no existing Event of Default (as hereinafter defined) at the
time of casualty, and if there shall occur any Event of Default after
the date of the casualty, Beneficiary shall have no further obligation
to release insurance loss proceeds hereunder.
(b) The casualty insurer has not denied liability for payment of insurance
loss proceeds as a result of any act, neglect, use or occupancy of the
Property by Grantor or any tenant of the Property.
(c) Beneficiary shall be satisfied that all insurance loss proceeds so
held, together with supplemental funds to be made available by
Grantor, shall be sufficient to complete the restoration of the
Property. Any remaining insurance loss proceeds may, at the option of
Beneficiary, be applied on the Indebtedness, whether or not due, or be
released to Grantor.
(d) If required by Beneficiary, Beneficiary shall be furnished a
satisfactory report addressed to Beneficiary from an environmental
engineer or other qualified professional satisfactory to Beneficiary
to the effect that no adverse environmental impact to the Property
resulted from the casualty.
(e) Beneficiary shall release casualty insurance proceeds as restoration
of the Property progresses provided that Beneficiary is furnished
satisfactory evidence of the costs of restoration and if, at the time
of such release, there shall exist no Monetary Default (as hereinafter
defined) under the Transaction Documents and no default with respect
to which Beneficiary shall have given Grantor or Other Borrowers
notice pursuant to the Notice of Default provision herein or in the
documents related to other loans comprising the Transaction. If the
estimated cost of restoration exceeds $250,000.00, (i) the drawings
and specifications for the restoration shall be approved by
Beneficiary in writing prior to commencement of the restoration, and
(ii) Beneficiary shall receive an administration fee equal to 1% of
the cost of restoration.
(f) Prior to each release of funds, Grantor shall obtain for the benefit
of Beneficiary an endorsement to Beneficiary's title insurance policy
insuring Beneficiary's lien as a first and valid lien on the Property
subject only to liens and encumbrances theretofore approved by
Beneficiary.
(g) Grantor shall pay all costs and expenses incurred by Beneficiary,
including, but not limited to, outside legal fees, title insurance
costs, third-party disbursement fees, third-party engineering reports
and inspections deemed necessary by Beneficiary.
(h) All reciprocal easement and operating agreements benefiting the
Property, if any, shall remain in full force and effect between the
parties thereto on and after restoration of the Property.
(i) Beneficiary shall be satisfied that Projected Debt Service Coverage
(as hereinafter defined) of at least 1.50 will be produced from the
leasing of not more than 319,495 square feet of space to former
tenants or approved new tenants with leases satisfactory to
Beneficiary for terms of at least five (5) years to commence not later
than (30) days following completion of such restoration ("Approved
Leases").
(j) All leases in effect at the time of the casualty with tenants who have
entered into Beneficiary's form of Non-Disturbance and Attornment
Agreement or similar agreement shall remain in full force and
Beneficiary shall be satisfied that restoration can be completed
within a time frame such that each tenant thereunder shall be
obligated, or each such tenant shall have elected, to continue the
lease term at full rental (subject only to abatement, if any, during
any period in which the Property or a portion thereof shall not be
used and occupied by such tenant as a result of the casualty).
(k) Without limiting the Earthquake provisions contained herein, if the
casualty has resulted in whole or part from an earthquake: (a) Grantor
shall have supplied Beneficiary with a "Seismic Risk Estimate" (in
accordance with the Earthquake provisions herein) which show that the
Property will meet "Minimum Seismic Criteria" (as defined in the
Earthquake provisions herein) upon completion of repair and retrofit
work which can be completed within one year of the earthquake, (b)
prior to commencement of the restoration, Grantor shall have committed
in writing to Beneficiary that Grantor will do such repair and
retrofit work as shall be necessary to cause the Property to in fact
meet Minimum Seismic Criteria following completion of restoration, and
(c) Beneficiary must at all times during the restoration be reasonably
satisfied that the Property will meet Minimum Seismic Criteria
following completion of the restoration, Grantor hereby agreeing to
supply Beneficiary with such evidence thereof as Beneficiary shall
request from time to time.
"Projected Debt Service Coverage" means a number calculated by dividing
Projected Operating Income Available for Debt Service (as hereinafter defined)
for the first fiscal year following restoration of the Property by the debt
service during the same fiscal year under all indebtedness secured by a first
mortgage lien on any portion of the Property. For purposes of the preceding
sentence, "debt service" means the greater of (x) debt service due under all
such indebtedness during the first fiscal year following completion of the
restoration of the Property or (y) debt service that would be due and payable
during such fiscal year if all such indebtedness were amortized over 20 years
(whether or not amortization is actually required) and if interest on such
indebtedness were due as it accrues at the face rate shown on the notes therefor
(whether or not interest payments based on such face rates are required).
"Projected Operating Income Available for Debt Service" means projected
gross annual rent from the Approved Leases for the first full fiscal year
following completion of the restoration of the Property less:
(A) The operating expenses of the Property for the last fiscal year
preceding the casualty and
(B) the following:
(i) a replacement reserve for future tenant improvements, leasing
commissions and structural items based on not less than $1.80 per
square foot per annum;
(ii) the amount, if any, by which actual gross income during such
fiscal period exceeds that which would be earned from the rental
of 85% of the gross leasable area in the Property;
(iii)the amount, if any, by which the actual management fee is less
than 2% of gross revenue during such fiscal period;
(iv) the amount, if any, by which the actual real estate taxes are
less than $2.10 per square foot per annum; and
(v) the amount, if any, by which total actual operating expenses,
excluding management fees, real estate taxes and replacement
reserves, are less than $1.40 per square foot per annum.
All projections referenced above shall be calculated in a manner
satisfactory to Beneficiary.
CONDEMNATION. Grantor hereby assigns to Beneficiary (i) any award and any other
proceeds resulting from damage to, or the taking of, all or any portion of the
Property, and (ii) the proceeds from any sale or transfer in lieu thereof
(collectively, "Condemnation Proceeds") in connection with condemnation
proceedings or the exercise of any power of eminent domain or the threat thereof
(hereinafter, a "Taking"); if the Condemnation Proceeds related to a Facility
are less than the Allocated Loan Amount for the Facility and such damage or
Taking occurs prior to the last three years of the term of the Notes, such
Condemnation Proceeds (less expenses of collection) shall be applied to
restoration of the Facility to its condition, or the functional equivalent of
its condition prior to the Taking, subject to the conditions set forth above in
the section entitled "Insurance" and subject to the further condition that
restoration or replacement of the improvements on the Land to their functional
and economic utility prior to the Taking be possible. Any portion of such award
and proceeds not applied to restoration shall, at Beneficiary's option, be
applied on the Indebtedness, whether due or not, or be released to Grantor, but
such application or release shall not cure or waive any default under any of the
Loan Documents.
TAXES AND SPECIAL ASSESSMENTS. Grantor agrees to pay before delinquency all
taxes and special assessments of any kind that have been or may be levied or
assessed against the Property, this instrument, the Notes or the Indebtedness,
or upon the interest of Trustee or Beneficiary in the Property, this instrument,
the Notes or the Indebtedness, and to procure and deliver to Beneficiary within
30 days after Beneficiary shall have given a written request to Grantor, the
official receipt of the proper officer showing timely payment of all such taxes
and assessments; provided, however, that Grantor shall not be required to pay
any such taxes or special assessments if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and funds sufficient to satisfy the contested amount have been deposited in an
escrow satisfactory to Beneficiary.
PERSONAL PROPERTY. With respect to the Personal Property, Grantor hereby
represents, warrants and covenants as follows:
(a) Except for the security interest granted hereby, Grantor is, and as to
portions of the Personal Property to be acquired after the date hereof will be,
the sole owner of the Personal Property, free from any lien, security interest,
encumbrance or adverse claim thereon of any kind whatsoever. Grantor shall
notify Beneficiary of, and shall indemnify and defend Beneficiary and the
Personal Property against, all claims and demands of all persons at any time
claiming the Personal Property or any part thereof or any interest therein.
(b) Except as otherwise provided above, Grantor shall not lease, sell,
convey or in any manner transfer the Personal Property without the prior consent
of Beneficiary.
(c) Grantor is a limited partnership organized under the laws of the State
of Delaware. Until the Indebtedness is paid in full, Grantor (i) shall not
change its legal name without providing Beneficiary with thirty (30) days prior
written notice; (ii) shall not change its state of organization; and (iii) shall
preserve its existence and shall not, in one transaction or a series of
transactions, merge into or consolidate with any other entity.
(d) At the request of Beneficiary, Grantor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the Uniform Commercial Code in form satisfactory to
Beneficiary, and Grantor shall pay the cost of filing the same in all public
offices wherever filing is deemed by Beneficiary to be necessary or desirable.
Grantor shall also, at Grantor's expense, take any and all other action
requested by Beneficiary to perfect Beneficiary's security interest under the
Uniform Commercial Code with respect to the Personal Property, including,
without limitation, exercising Grantor's best efforts to obtain any consents,
agreements or acknowledgments required of third parties to perfect Beneficiary's
security interest in Personal Property consisting of deposit accounts,
letter-of-credit rights, investment property, and electronic chattel paper.
OTHER LIENS. Grantor agrees to keep the Property or any Personal Property free
from all other liens either prior or subsequent to the lien created by this
instrument other than liens created by the Transaction Documents. The (i)
creation of any other lien on any portion of the Property or on any Personal
Property, whether or not prior to the lien created hereby or (ii) assignment or
pledge by Grantor of its revocable license to collect, use and enjoy rents and
profits from the Property, shall constitute a default under the terms of this
instrument; except that upon written notice to Beneficiary, Grantor may, after
the Loan Closing Date (as defined in the Commitment), proceed to contest in good
faith and by appropriate proceedings any mechanics liens, tax liens or judgment
liens with respect to the Property or any Personal Property described herein,
provided funds sufficient to satisfy the contested amount have been deposited in
an escrow account satisfactory to Beneficiary.
LEASES. Grantor covenants with Beneficiary (a) to observe and perform all the
obligations imposed upon the lessor under all leases and not to do or permit to
be done anything to impair the same without Beneficiary's prior written consent,
(b) not to collect any of the rent or other amounts due under any lease or other
issues or profits from the Property in any manner in advance of the time when
the same shall become due (save and except only for collecting one month's rent
in advance plus tenant contributions toward operating expenses plus the security
deposit, if any, at the time of execution of a lease), (c) not to execute any
other assignment of rents, issues, or profits arising or accruing from any of
the leases or from the Property, except the Transaction Documents, (d) not to
enter into any lease agreement affecting the Property, except those leases
entered into in the ordinary course of business and utilizing Grantor's standard
form lease previously approved by Beneficiary, with no substantial modifications
thereto, without the prior written consent of Beneficiary, (e) to execute and
deliver, at the request of Beneficiary, all such further assurances and
acknowledgments of the assignment contained herein and the other provisions
hereof, with respect to specific leases or otherwise, as Beneficiary shall from
time to time require, (f) to obtain from any tenant at the Property, from time
to time as requested by Beneficiary, estoppel certificates, in form and
substance satisfactory to Beneficiary, confirming the terms of such tenant's
lease and the absence of default thereunder, and (g) not to cancel, surrender or
terminate any lease, exercise any option which might lead to such termination or
consent to any change, modification, or alteration thereof, to the release of
any party liable thereunder or to the assignment of the lessee's interest
therein, without the prior written consent of Beneficiary, and any of said acts,
if done without the prior written consent of Beneficiary, shall be null and
void. Notwithstanding clause (g) of the preceding sentence, with respect to all
leases (other than leases as to which Beneficiary, Grantor and tenant have
executed a separate non-disturbance and attornment agreement), Grantor may take
actions described in clause (g) without Beneficiary's prior written consent (but
with written notice thereof to Beneficiary), if and only if such action is
consistent with the usual and customary operation of the Property.
COSTS, FEES AND EXPENSES. Grantor agrees to pay all costs, fees and expenses of
this trust; to appear in and defend any action or proceeding purporting to
affect the security hereof or the rights or powers of Beneficiary or Trustee
hereunder; to pay all costs and expenses, including the cost of obtaining
evidence of title and reasonable attorney's fees, incurred in connection with
any such action or proceeding; and to pay any and all attorney's fees and
expenses of collection and enforcement in the event the Notes are placed in the
hands of an attorney for collection, enforcement of any of the Loan Documents is
undertaken or suit is brought thereon.
FAILURE OF GRANTOR TO ACT. If Grantor fails to make any payment or do any act as
herein provided, Beneficiary or Trustee may, without obligation so to do,
without notice to or demand upon Grantor and without releasing Grantor from any
obligation hereof: (i) make or do the same in such manner and to such extent as
Beneficiary may deem necessary to protect the security hereof, Beneficiary or
Trustee being authorized to enter upon the Property for such purpose; (ii)
appear in and defend any action or proceeding purporting to affect the security
hereof, or the rights or powers of Beneficiary or Trustee; (iii) pay, purchase,
contest or compromise any encumbrance, charge or lien which in the judgment of
Beneficiary appears to be prior or superior hereto; and (iv) in exercising any
such powers, pay necessary expenses, employ counsel and pay its reasonable fees.
Sums so expended shall be payable by Grantor immediately upon demand with
interest from date of expenditure at the Default Rate (as defined in the Notes).
All sums so expended by Beneficiary and the interest thereon shall be included
in the Indebtedness and secured by the lien of this instrument.
EVENT OF DEFAULT AND CROSS DEFAULT. Any default by Grantor or the Other
Borrowers in making any required payment of the Indebtedness or the Other
Indebtedness or any default in any provision, covenant, agreement, warranty or
certification contained in any of the Transaction Documents shall, except as
provided in the two immediately succeeding paragraphs, constitute an "Event of
Default".
NOTICE OF DEFAULT. A default in any payment required in the Notes or Other Note
or any other Transaction Document, whether or not payable to Beneficiary, (a
"Monetary Default") shall not constitute an Event of Default unless Beneficiary
shall have given a written notice of such Monetary Default to Grantor and the
Other Borrowers and Grantor and the Other Borrowers shall not have cured such
Monetary Default by payment of all amounts in default (including payment of
interest at the Default Rate, as defined in the Notes or Other Note, from the
date of default to the date of cure on amounts owed to Beneficiary) within five
(5) business days after the date on which Beneficiary shall have given such
notice to Grantor and Other Borrowers.
Any other default under the Notes or Other Note or under any other
Transaction Document (a "Non-Monetary Default") shall not constitute an Event of
Default unless Beneficiary shall have given a written notice of such
Non-Monetary Default to Grantor and the Other Borrowers and Grantor and the
Other Borrowers shall not have cured such Non-Monetary Default within thirty
(30) days after the date on which Beneficiary shall have given such notice of
default to Grantor and the Other Borrowers (or, if the Non-Monetary Default is
not curable within such 30-day period, Grantor and the Other Borrowers shall not
have diligently undertaken and continued to pursue the curing of such
Non-Monetary Default and deposited an amount sufficient to cure such
Non-Monetary Default in an escrow account satisfactory to Beneficiary).
In no event shall the notice and cure period provisions recited above
constitute a grace period for the purposes of commencing interest at the Default
Rate (as defined in the Note and Other Notes).
SUBSTITUTION OF TRUSTEE. Beneficiary and its successors and assigns may for any
reason and at any time appoint a new or substitute Trustee by written
appointment delivered to such new or substitute Trustee without notice to
Grantor, without notice to, or the resignation or withdrawal by, the existing
Trustee and without recordation of such written appointment unless notice or
recordation is required by the laws of the jurisdiction in which the Property is
located. Upon delivery of such appointment, the new or substitute Trustee shall
be vested with the same title and with the same powers and duties granted to the
original Trustee.
APPOINTMENT OF RECEIVER. Upon commencement of any proceeding to enforce any
right under this instrument, including foreclosure thereof, Beneficiary (without
limitation or restriction by any present or future law, without regard to the
solvency or insolvency at that time of any party liable for the payment of the
Indebtedness, without regard to the then value of the Property, whether or not
there exists a threat of imminent harm, waste or loss to the Property and
whether or not the same shall then be occupied by the owner of the equity of
redemption as a homestead) shall have the absolute right to the appointment of a
receiver of the Property and of the revenues, rents, profits and other income
therefrom, and said receiver shall have (in addition to such other powers as the
court making such appointment may confer) full power to collect all such income
and, after paying all necessary expenses of such receivership and of operation,
maintenance and repair of said Property, to apply the balance to the payment of
any of the Indebtedness then due.
FORECLOSURE. Upon the occurrence of an Event of Default, the entire unpaid
Indebtedness shall, at the option of Beneficiary, become immediately due and
payable for all purposes without any notice or demand, except as required by law
(ALL OTHER NOTICE OF THE EXERCISE OF SUCH OPTION, OR OF THE INTENT TO EXERCISE
SUCH OPTION, BEING HEREBY EXPRESSLY WAIVED), and Beneficiary may, in addition to
exercising any rights it may have with respect to the Personal Property under
the Uniform Commercial Code of the jurisdiction in which the Property is
located, institute proceedings in any court of competent jurisdiction to
foreclose this instrument as a mortgage, or to enforce any of the covenants
hereof, or Trustee or Beneficiary may, either personally or by agent or attorney
in fact, enter upon and take possession of the Property and may manage, rent or
lease the Property or any portion thereof upon such terms as Beneficiary may
deem expedient, and collect, receive and receipt for all rentals and other
income therefrom and apply the sums so received as hereinafter provided in case
of sale. Trustee is hereby further authorized and empowered, either after or
without such entry, to sell and dispose of the Property en masse or in separate
parcels (as Trustee may think best), and all the right, title and interest of
Grantor therein, by advertisement or in any manner provided by the laws of the
jurisdiction in which the Property is located, (GRANTOR HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A HEARING PRIOR TO SUCH SALE), and to issue, execute and deliver a
deed of
conveyance, all as then may be provided by law; and Trustee shall, out of the
proceeds or avails of such sale, after first paying and retaining all fees,
charges, costs of advertising the Property and of making said sale, and
attorneys' fees as herein provided, pay to Beneficiary or the legal holder of
the Indebtedness the amount thereof, including all sums advanced or expended by
Beneficiary or the legal holder of the Indebtedness, with interest from date of
advance or expenditure at the Default Rate (as defined in the Notes), rendering
the excess, if any, as provided by law; such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against Grantor,
the heirs, successors and assigns of Grantor, and all other persons claiming the
Property aforesaid, or any part thereof, by, from, through or under Grantor. The
legal holder of the Indebtedness may purchase the Property or any part thereof,
and it shall not be obligatory upon any purchaser at any such sale to see to the
application of the purchase money.
PROHIBITION ON TRANSFER. A. The present ownership and management of the Property
is a material consideration to Beneficiary in making the loan secured by this
instrument, and Grantor shall not (i) convey title to all or any part of the
Property, (ii) enter into any contract to convey (land contract/installment
sales contract/contract for deed) title to all or any part of the Property which
gives a purchaser possession of, or income from, the Property prior to a
transfer of title to all or any part of the Property ("Contract to Convey") or
(iii) cause or permit a Change in the Proportionate Ownership (as hereinafter
defined) of Grantor. Any such conveyance, entering into a Contract to Convey, or
Change in the Proportionate Ownership of Grantor shall constitute a default
hereunder.
B. For purposes of this instrument, a "Change in the Proportionate
Ownership" means any transfer which results in Carl E. Berg and/or Permitted
Transferee's (as defined below) collectively, owning less than 49% of Carl E.
Berg's direct and indirect ownership interest in Grantor (existing on the date
of initial advance of funds, as represented in the Certification) without
Beneficiary's approval.
C. Notwithstanding the above, a transfer of Carl E. Berg's ownership in
Grantor (i) to and among the Berg Family (as hereinafter defined) shall be
permitted for estate planning purposes or upon the death or incompetency of Carl
E. Berg, and (ii) to any entity owned and controlled (ownership and voting
interest in excess of 50% by the Berg Family) shall be permitted for estate
planning purposes or upon the death or incompetency of Carl E. Berg. A person or
entity holding a direct or indirect ownership interest by virtue of a transfer
described in this subpart C. is a "Permitted Transferee."
D. For purposes hereof, the "Berg Family" shall mean Carl E. Berg, his
spouse, his descendants and their spouses, Clyde J. Berg, any trusts or estates
for the benefit of said parties, and any entities owned and controlled
(ownership and voting interests in excess of 50%) by said parties.
E. A conversion of all or part of the ownership interest of Carl E. Berg
from limited partnership units ("L.P. Units") of Grantor to common shares of
Guarantor shall be permitted provided Carl E. Berg's combined interest in common
shares and L.P. Units for Grantor satisfies the threshold established in subpart
B. this provision.
FINANCIAL STATEMENTS. Grantor agrees to furnish to Beneficiary:
(A) the following financial statements for the Property within 90 days after the
close of each fiscal year of Grantor (the "Property Financial Statements Due
Date"):
(i) an unaudited balance sheet as of the last day of such fiscal year;
(ii) an unaudited statement of operations for such fiscal year with a
detailed line item break-down of all sources of income and expenses,
including capital expenses broken down between, leasing commissions,
tenant improvements, capital maintenance, common area renovation, and
expansion;
(iii)a current rent roll identifying location, leased area, lease begin
and end dates, current contract rent, rent increases and increase
dates, percentage rent, expense reimbursements, and any other recovery
items;
(iv) an operating budget for the current fiscal year; and
(B) the following financial statements for Grantor and Guarantor within 90 days
after the close of each fiscal year of Grantor and Guarantor, respectively (the
"Grantor/Guarantor Financial Statements Due Date")
(i) an audited balance sheet as of the last day of such fiscal year; and
(ii) an audited statement of cash flows for such fiscal year; and
(C) to the extent the following tenants are not publicly traded, Grantor will
use its best efforts to obtain the following financial statements for Fujitsu
(formerly known as Amdahl), Apple, JDS Uniphase and Nortel Networks within 90
days after the close of each fiscal year of each respective tenant (the "Tenant
Financial Statements Due Date"):
(i) an audited, or unaudited if audited is not available, balance sheet as
of the last day of such fiscal year; and
(ii) an audited, or unaudited if audited is not available, statement of
cash flows for such fiscal period.
The Property Financial Statements Due Date, the Grantor/Guarantors
Financial Statements Due Date, and the Tenant Financial Statements Due Date are
each sometimes hereinafter referred to as a "Financial Statements Due Date".
If audited, the financial statements identified in sections (A)(i),
(A)(ii), (B)(i), (B)(ii), (C)(i) and (C)(ii) above, shall each be prepared in
accordance with generally accepted accounting principles by a "Big Four"
accounting firm or, alternatively, a certified public accountant satisfactory to
Beneficiary. All unaudited financial statements for Grantor, Property, and
Guarantor shall contain a certification by the managing general partner of
Grantor stating that they have been prepared in accordance with generally
accepted accounting principles and that they are true and correct. The expense
of preparing all of the financial statements required in (A) and (B) above,
shall be borne by Grantor.
Grantor acknowledges that Beneficiary requires the financial statements to
record accurately the value of the Property for financial and regulatory
reporting.
In addition to all other remedies available to Beneficiary hereunder, at
law and in equity, if any financial statement or proof of payment of property
taxes and assessments is not furnished to Beneficiary as required in this
section entitled "Financial Statements" and in the section entitled "Taxes and
Special Assessments", within 30 days after Beneficiary shall have given written
notice to Grantor that it has not been received as required,
(x) interest on the unpaid principal balance of the Indebtedness and the
Other Notes shall as of the applicable Financial Statements Due Date or the
date such proof of payment of property taxes and assessments was due,
accrue and become payable at a rate equal to the sum of the Interest Rate
(as defined in the Notes) plus one percent (1%) per annum (the "Increased
Rate"); and
(y) Beneficiary may elect to obtain an independent appraisal and audit of
the Property at Grantor's expense, and Grantor agrees that it will, upon
request, promptly make Grantor's books and records regarding the Property
available to Beneficiary and the person(s) performing the appraisal and
audit (which obligation Grantor agrees can be specifically enforced by
Beneficiary).
The amount of the payments due under the Notes and Other Note during the
time in which the Increased Rate shall be in effect shall be changed to an
amount which is sufficient to amortize the then unpaid principal balance at the
Increased Rate during the then remaining portion of a period of 20 years
commencing with the Amortization Period Commencement Date (as defined in the
Notes and Other Note). Interest shall continue to accrue and be due and payable
monthly at the Increased Rate until the financial statements and proof of
payment of property taxes and assessments (as requested by Beneficiary) shall be
furnished to Beneficiary as required. Commencing on the date on which the
financial statements and proof of payment of property taxes and assessments are
received by Beneficiary, interest on the unpaid principal balance shall again
accrue at the Interest Rate and the payments due during the remainder of the
term of the Notes and Other Note shall be changed to an amount which is
sufficient to amortize the then unpaid principal balance at the Interest Rate
during the then remaining portion of a period of 20 years commencing with the
Amortization Period Commencement Date. Notwithstanding the foregoing,
Beneficiary shall have the right to conduct an independent audit at its own
expense at any time.
PROPERTY MANAGEMENT. The management company for the Property shall be
satisfactory to Beneficiary. Any change in the management company without the
prior written consent of Beneficiary shall constitute a default under this
instrument. Beneficiary shall be reasonable in giving its approval, and
Beneficiary may require that the new management company, by itself or through
its manager, have good character and reputation, and demonstrated ability and
experience in the operation and leasing of at least one million square feet of
property similar to the Property.
EARTHQUAKE. If the Property is damaged by an earthquake during the term of the
Indebtedness:
(A) Beneficiary may require a new "Seismic Risk Estimate" (as hereinafter
defined) to be performed at Grantor's expense, and
(B) Grantor shall perform repair and retrofit work, satisfactory to
Beneficiary, which results in (i) the complete repair of the Property and
(ii) the performance of a subsequent Seismic Risk Estimate verifying that
the Property meets "Minimum Seismic
Criteria" (as hereinafter defined). Such work shall be commenced and
completed as soon as possible and in any event within one year of the
earthquake.
Without limiting the Grantor's obligation to cause the Property to satisfy
Minimum Seismic Criteria, during any period of time in which the Property does
not satisfy Minimum Seismic Criteria, Grantor shall provide Beneficiary with
evidence of, and maintain, "Earthquake Insurance" (as hereinafter defined).
As used herein, "Earthquake Insurance" means a policy satisfactory to
Beneficiary with a deductible of no greater than 5% of the "Replacement Cost"
(as hereinafter defined) and in an amount calculated as follows: (i) the "Loan
Amount" (as hereinafter defined) plus (ii) the "Specified Loss Dollar Amount"
(as defined below) plus (iii) 5% of the Replacement Cost minus (iv) 90% of the
"Market Value" (as hereinafter defined).
As used herein, "Loan Amount" shall mean the total principal amount
advanced at closing under the Other Note.
As used herein, "Loan Plus Specified Loss" means the sum of the Loan Amount
and the Specified Loss Dollar Amount (as hereinafter defined).
As used herein, "Market Value" means the estimated fair market value of the
Property, determined by Beneficiary in its sole discretion, at the time a
Seismic Risk Estimate is performed.
As used herein, "Minimum Seismic Criteria" means that both the Specified
Loss Percentage (as hereinafter defined) for the Property is less than or equal
to 30% and the Loan Plus Specified Loss is less than or equal to 90% of the
Market Value.
As used herein, "Model" means a computer based seismic model selected by
Beneficiary, currently the Insurance and Investment Risk Assessment System
("IRAS") program by Risk Management Solutions ("RMS").
As used herein, "Replacement Cost" means the estimated total cost,
determined by Beneficiary in its sole discretion, to construct all of the
Improvements as if the Property were completely unimproved (not including the
cost of site work, utilities and foundation).
As used herein, "Seismic Risk Estimate" refers to the results of a seismic
risk estimate for the Property produced by the Model. Grantor agrees that it
will not rely for its own evaluation purposes on the Seismic Risk Estimate
produced by or for Beneficiary.
As used herein, "Specified Loss Dollar Amount" means the "Specified Loss
Percentage" (as hereinafter defined) multiplied by the Replacement Cost.
As used herein, "Specified Loss Percentage" means an estimate produced by
the Model of the earthquake damage to the Property, expressed as a percentage of
Replacement Cost. Beneficiary's parameters for the Model are based on a 90%
probability that the level of damage predicted will not be exceeded in an
earthquake with an expected 475 year return period.
DEPOSITS BY GRANTOR. To assure the timely payment of real estate taxes and
special assessments (including personal property taxes, if appropriate), upon
the occurrence of an Event of Default, Beneficiary shall thence forth have the
option to require Grantor to deposit funds with Beneficiary or in an account
satisfactory to Beneficiary, in monthly or other periodic installments in
amounts estimated by Beneficiary from time to time sufficient to pay real estate
taxes and special assessments as they become due. If at any time the funds so
held by Beneficiary, or in such other account, shall be insufficient to pay any
of said expenses, Grantor shall, upon receipt of notice thereof, immediately
deposit such additional funds as may be necessary to remove the deficiency. All
funds so deposited shall be irrevocably appropriated to Beneficiary to be
applied to the payment of such real estate taxes and special assessments and, at
the option of Beneficiary after default, the Indebtedness.
NOTICES. Any notices, demands, requests and consents permitted or required
hereunder or under any other Loan Document shall be in writing, may be delivered
personally or sent by certified mail with postage prepaid or by reputable
courier service with charges prepaid. Any notice or demand sent to Grantor by
certified mail or reputable courier service shall be addressed to Grantor at
10050 Bandley Drive, Cupertino, CA 95014 or such other address in the United
States of America as Grantor shall designate in a notice to Beneficiary given in
the manner described herein. Any notice sent to Beneficiary by certified mail or
reputable courier service shall be addressed to The Northwestern Mutual Life
Insurance Company to the attention of the Real Estate Investment Department at
720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Beneficiary shall designate in a notice given in the manner described herein.
Any notice given to Beneficiary shall refer to the Loan No. set forth above. Any
notice or demand hereunder shall be deemed given when received. Any notice or
demand which is rejected, the acceptance of delivery of which is refused or
which is incapable of
being delivered during normal business hours at the address specified herein or
such other address designated pursuant hereto shall be deemed received as of the
date of attempted delivery.
MODIFICATION OF TERMS. Without affecting the liability of Grantor or any other
person (except any person expressly released in writing) for payment of the
Indebtedness or for performance of any obligation contained herein and without
affecting the rights of Beneficiary with respect to any security not expressly
released in writing, Beneficiary may, at any time and from time to time, either
before or after the maturity of the Notes, without notice or consent: (i)
release any person liable for payment of all or any part of the Indebtedness or
for performance of any obligation; (ii) make any agreement extending the time or
otherwise altering the terms of payment of all or any part of the Indebtedness,
or modifying or waiving any obligation, or subordinating, modifying or otherwise
dealing with the lien or charge hereof; (iii) exercise or refrain from
exercising or waive any right Beneficiary may have; (iv) accept additional
security of any kind; (v) release or otherwise deal with any property, real or
personal, securing the Indebtedness, including all or any part of the Property.
EXERCISE OF OPTIONS. Whenever, by the terms of this instrument, of the Notes or
any of the other Loan Documents, Beneficiary is given any option, such option
may be exercised when the right accrues, or at any time thereafter, and no
acceptance by Beneficiary of payment of Indebtedness in default shall constitute
a waiver of any default then existing and continuing or thereafter occurring.
NATURE AND SUCCESSION OF AGREEMENTS. Each of the provisions, covenants and
agreements contained herein shall inure to the benefit of, and be binding on,
the heirs, executors, administrators, successors, grantees, and assigns of the
parties hereto, respectively, and the term "Beneficiary" shall include the owner
and holder of the Notes.
LEGAL ENFORCEABILITY. No provision of this instrument, the Notes or any other
Loan Documents shall require the payment of interest or other obligation in
excess of the maximum permitted by law. If any such excess payment is provided
for in any Loan Documents or shall be adjudicated to be so provided, the
provisions of this paragraph shall govern and Grantor shall not be obligated to
pay the amount of such interest or other obligation to the extent that it is in
excess of the amount permitted by law.
LIMITATION OF LIABILITY. Notwithstanding any provision contained herein to the
contrary, the personal liability of Grantor shall be limited as provided in the
Notes.
MISCELLANEOUS. Time is of the essence in each of the Loan Documents. The
remedies of Beneficiary as provided herein or in any other Loan Document or at
law or in equity shall be cumulative and concurrent, and may be pursued singly,
successively, or together at the sole discretion of Beneficiary, and may be
exercised as often as occasion therefor shall occur; and neither the failure to
exercise any such right or remedy nor any acceptance by Beneficiary of payment
of Indebtedness in default shall in any event be construed as a waiver or
release of any right or remedy. Neither this instrument nor any other Loan
Document may be modified or terminated orally but only by agreement or discharge
in writing and signed by Grantor and Beneficiary. If any of the provisions of
any Loan Document or the application thereof to any persons or circumstances
shall to any extent be invalid or unenforceable, the remainder of such Loan
Document and each of the other Loan Documents, and the application of such
provision or provisions to persons or circumstances other than those as to whom
or which it is held invalid or unenforceable, shall not be affected thereby, and
every provision of each of the Loan Documents shall be valid and enforceable to
the fullest extent permitted by law.
SURETYSHIP WAIVERS. This instrument is intended to constitute the primary
obligation of Grantor with respect to the Obligations, and Grantor is not
intended to be a guarantor or surety or otherwise only secondarily liable with
respect to matters covered hereby. However, if said Obligations, or any of them,
should be determined to not be direct obligations but rather suretyship
obligations, Grantor agrees as follows:
Without limiting or lessening the primary liability of Grantor hereunder,
Beneficiary may, without notice to Grantor,
(a) grant extensions of time or any other indulgences on the Indebtedness;
(b) take, give up, modify, vary, exchange, renew or abstain from
perfecting or taking advantage of any security for the Indebtedness;
and
(c) accept or make compositions or other arrangements with Other Borrowers
under the Transaction Documents, realize on any security, and
otherwise deal with Other Borrowers, other parties and any security as
Beneficiary may deem expedient; and
All additional demands, presentments, notices of protest and dishonor, and
notices of every kind and nature, including those of any action or no action on
the part of Other Borrowers, Beneficiary or Grantor, are expressly waived by
Grantor. Grantor hereby waives the right to require Beneficiary to proceed
against the Other Borrowers or any other party or to proceed against or apply
any security it may hold, waives the right to require Beneficiary to pursue any
other remedy for the benefit of Grantor and agrees that Beneficiary may
proceed against Grantor without taking any action against any other party and
without proceeding against or applying any security it may hold. Beneficiary
may, at its election, foreclose upon any security held by it in one or more
judicial or non-judicial sales, whether or not every aspect of such sale is
commercially reasonable, without affecting or impairing the liability of
Grantor, except to the extent the Indebtedness shall have been paid. Grantor
waives any defense arising out of such an election, notwithstanding that such
election may operate to impair or extinguish any right or remedy of Grantor
against the Other Borrowers or any other security.
Grantor waives all rights and defenses arising out of an election of remedies by
Beneficiary, even though that election of remedies, such as a nonjudicial
foreclosure of the Lien Instrument, has destroyed Grantor's right of subrogation
and reimbursement against the Other Borrowers by the operation of Section 580d
of the California Code of Civil Procedure or otherwise. Grantor waives all
rights and defenses that Grantor may have because the Other Borrowers' debt is
secured by real property. This means, among other things, that (i) Beneficiary
may foreclose on the real and personal property pledged by Grantor without first
foreclosing on any real or personal collateral pledged by the Other Borrowers,
and (ii) if Beneficiary forecloses on any real property collateral pledged by
the Other Borrowers: (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 and (B) Beneficiary may collect
from Grantor even if Beneficiary, by foreclosing on the real property
collateral, has destroyed any right Grantor may have to collect from Other
Borrowers. This is an unconditional and irrevocable waiver of any rights and
defenses Grantor may have because the Other Borrowers' debt is secured by real
property. These rights and defenses waived by Grantor include, but are not
limited to, any rights or defenses based upon Sections 580a, 580b, 580d or 726
of the California Code of Civil Procedure. Without limiting the foregoing,
Grantor hereby waives any and all benefits that might otherwise be available to
Grantor under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2849,
2850, 2899 and 3433.
SUBORDINATION. Notwithstanding anything to the contrary contained in this Deed
of Trust (Second Priority), the terms and provisions of this Deed of Trust
(Second Priority) and the lien created hereby shall be subject and subordinate
to the terms and provisions of the first and prior lien instrument ("First Lien
Instrument") of even date herewith executed and delivered by Grantor to
Beneficiary to secure the Other Note, the lien created thereby and all
modifications and supplements thereto. The First Lien Instrument and the
indebtedness secured thereby, and any increases therein or renewals or
extensions thereof, shall unconditionally be and remain at all times a lien or
charge on the Land prior and superior to the lien or charge of this Deed of
Trust (Second Priority).
WAIVER OF JURY TRIAL. Grantor hereby waives any right to trial by jury with
respect to any action or proceeding (a) brought by Grantor, Beneficiary or any
other person relating to (i) the obligations secured hereby and/or any
understandings or prior dealings between the parties hereto or (ii) the Loan
Documents or the Environmental Indemnity Agreement, or (b) to which Beneficiary
is a party.
CAPTIONS. The captions contained herein are for convenience and reference only
and in no way define, limit or describe the scope or intent of, or in any way
affect this instrument.
GOVERNING LAW. This instrument shall be governed by and construed in all
respects in accordance with the laws of the State of California without regard
to any conflict of law principles. Any action, lawsuit or other legal proceeding
concerning any dispute arising under or related to this instrument shall be
brought in a state or federal court located in the State of California, and
Beneficiary and Grantor hereby irrevocably consent to the jurisdiction of the
courts located in the State of California and irrevocably waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action, lawsuit or other legal proceeding brought in any court located in the
State of California
REQUEST FOR NOTICE. Pursuant to California Government Code Section 27321.5(b),
Grantor hereby requests that a copy of any notice of default and a copy of any
notice of sale given pursuant to this instrument be mailed to Grantor at the
address set forth herein.
IN WITNESS WHEREOF, this instrument has been executed by the Grantor as of
the day and year first above written.
MISSION WEST PROPERTIES, L.P. II, a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general
partner
By: Carl E. Berg
Name: Carl E. Berg
Title: CEO of G.P.
STATE OF California )
)ss.
COUNTY OF Santa Clara )
On January 7th, 2003, before me, G.W. Shott, a notary for the state, personally
appeared Carl E. Berg, CEO of G.P., personally known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature /s/ GW Shott
-----------------------------------
G.W. Shott
-----------------------------------
Name (typed or printed)
This instrument was prepared by Sally J. Lewis, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
EXHIBIT "A"
(Mission West II)
PROPERTY ONE:
All that certain real property situated in the City of San Jose, County of Santa
Clara, State of California, described as follows:
Parcel 2, as shown on the Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on November 26, 1979,
in Book 455 of Maps, Page(s) 1 and 2.
Assessors Parcel No: 706-09-023
PROPERTY TWO:
Parcel 1, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on May 22, 1980, in
Book 463 of Maps, Page(s) 43 and 44.
Assessors Parcel No: 706-02-034
PROPERTY THREE:
Parcel 7, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.
Assessors Parcel No: 086-33-092
PROPERTY FOUR:
Parcel 3 as shown on that Parcel Map filed for recorded in the Office of the
Recorder of the County of Santa Clara, State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.
Assessors Parcel No: 086-41-017 & 086-41-018
EXHIBIT 10.41
RECORDING REQUESTED BY
American Title Company
632004LZ
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Nadine T. Hansohn
Loan No. C-332757 SPACE ABOVE THIS LINE FOR RECORDER'S USE
- ---------------------------------------------------------------
ABSOLUTE ASSIGNMENT OF LEASES AND RENTS (FIRST PRIORITY)
Mission West Properties, L.P.
(With License Back)
THIS Absolute Assignment of Leases and Rents (First Priority) (this
"Assignment") is made as of the 3rd day of January, 2003, by and between MISSION
WEST PROPERTIES, L.P., a Delaware limited partnership, whose mailing address is
10050 Bandley Drive, Cupertino, CA 95014, (herein called "Borrower") and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, whose
mailing address is c/o Real Estate Department, 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, (herein called "Lender").
W I T N E S S E T H
FOR AND IN CONSIDERATION of the indebtedness hereinafter described,
Borrower has granted, bargained, sold and conveyed, and by these presents does
grant, bargain, sell and convey, unto Lender, its successors and assigns
forever, all and singular the property hereinafter described (collectively, the
"Security"), to wit:
(a) All rents, issues and profits arising from or related to the land,
situated in the City of San Jose, County of Santa Clara and State of
California and described in Exhibit "A" attached hereto and fully
incorporated herein by reference for all purposes and all improvements and
any other property, whether real, personal or mixed, located thereon (which
land, improvements and other property are hereinafter collectively called
the "Property");
(b) All of Borrower's rights, titles, interests and privileges, as
lessor, in the leases now existing or hereafter made affecting the
Property, whether or not made by Borrower and as the same may have been, or
may from time to time hereafter be, modified, extended and renewed
(hereinafter collectively called the "Leases"), including without
limitation that certain lease dated February 3, 1999 and amended on October
7, 1999, between Borrower, as landlord, and E-Tek Dynamics, Inc., as tenant
(the interest of the latter is now held by JDS Uniphase Corporation);
(c) All tenant security deposits and other amounts due and becoming
due under the Leases;
(d) All guarantees of the Leases, including guarantees of tenant
performance;
(e) All insurance proceeds, including rental loss coverage and
business interruption coverage with respect to the Leases; and
(f) All judgments and settlements of claims in favor of Borrower
(including condemnation proceeds, if any) and all rights, claims and causes
of action under any court proceeding, including without limitation any
bankruptcy, reorganization or insolvency proceeding, or otherwise arising
from the Leases.
TO HAVE AND TO HOLD the Security unto Lender, its successors and assigns
forever, and Borrower does hereby bind itself, its heirs, legal representatives,
successors and assigns, to warrant and forever defend the Security unto Lender,
its successors and assigns forever against the claim or claims of all persons
whomsoever claiming the same or any part thereof.
ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used in this Assignment, the terms "Borrower",
"Leases", "Lender", "Property", and "Security" shall have the respective
meanings indicated above.
1.02 CERTAIN DEFINITIONS. The following terms shall have the meanings
assigned to them below whenever they are used in this Assignment, unless the
context clearly otherwise requires. Except where the context otherwise requires,
words in the singular form shall include the plural and vice versa.
"Event of Default" shall mean any Event of Default as defined in the
Lien Instrument.
"Lien Instrument" shall mean that certain Deed of Trust and Security
Agreement (First Priority) of even date herewith, executed by Borrower and
granting a lien on the Property to a trustee for the benefit of Lender, as
such instrument may be amended, renewed and restated from time to time.
"Loan Commitment", "Loan Documents", "Note" and "Obligations" shall
each have the meaning set forth in the Lien Instrument.
ARTICLE II
ASSIGNMENT
2.01 ABSOLUTE ASSIGNMENT. This Assignment is, and is intended to be, an
absolute and present assignment of the Security from Borrower to Lender with a
concurrent license back to the Borrower (which license is subject to revocation
upon the occurrence of an Event of Default as herein provided) and is not
intended as merely the granting of a security interest relating to the
Obligations.
2.02 LICENSE. Borrower is hereby granted the license to manage and control
the Security and to collect at the time of, but not prior to, the date provided
for the payment thereof, all rents, issues and profits from the Property and to
retain, use and enjoy the same. The license created and granted hereby shall be
revocable upon the terms and conditions contained herein.
2.03 REVOCATION OF LICENSE. Immediately upon the occurrence of an Event of
Default and at any time thereafter, Lender may, at its option and without regard
to the adequacy of the security for the Obligations, either by an authorized
representative or agent, with or without bringing or instituting any judicial or
other action or proceeding, or by a receiver appointed by a court, immediately
revoke the license granted in Section 2.02, as evidenced by a written notice to
said effect given to Borrower, and further, at Lender's option (without any
obligation to do so), take possession of the Property and the Security and have,
hold, manage, lease and operate the Property and the Security on such terms and
for such period of time as Lender may deem proper, and, in addition, either with
or without taking possession of the Property, demand, sue for or otherwise
collect and receive all rents, issues and profits from the Property, including
those past due and unpaid, with full power to make, from time to time, all
alterations, renovations, repairs or replacements thereto or thereof as may seem
proper to the Lender in its sole discretion, and to apply (in such order and
priority as Lender shall determine in its sole discretion) such rents, issues
and profits to the payment of:
(a) all expenses of (i) managing the Property, including without
implied limitation, the salaries, fees and wages of a managing agent and
such other employees as Lender may in its sole discretion deem necessary or
desirable, (ii) operating and maintaining the Property, including without
implied limitation, all taxes, charges, claims, assessments, water rents,
sewer rents and any other liens, and premiums for all insurance which
Lender may in its sole discretion deem necessary or desirable, (iii) the
cost of any and all alterations, renovations, repairs or replacements of or
to the Property, and (iv) any and all expenses incident to taking and
retaining possession of the Property and the Security; and
(b) the Obligations.
The exercise by Lender of the rights granted it in this Section 2.03, and the
collection and receipt of rents, issues and profits and the application thereof
as herein provided, shall not be considered a waiver of any Event of Default.
2.04 TRUST FUNDS. All monies or funds covered by this Assignment paid to,
or for the benefit of, Borrower after any default are hereby declared, and shall
be deemed to be, trust funds in the hands of Borrower for the sole benefit of
Lender, until all defaults have been cured or waived or the Obligations have
been paid and performed in full. Borrower, or any officer, director,
representative or agent thereof receiving such trust funds or having control or
direction of same, is hereby made and shall be construed to be a trustee
of such trust funds so received or under its control and direction, and such
person shall be under a strict obligation and duty should such persons receive
or constructively receive trust funds to (1) remit any and all such trust funds
to Lender within twenty-four (24) hours of receipt, upon demand therefor by
Lender or (2) to apply such trust funds only to Obligations then due or the
operating expenses of the Property.
ARTICLE III
COVENANTS, REPRESENTATIONS AND WARRANTIES
3.01 LIABILITY. Lender shall not be liable for any loss sustained by
Borrower resulting from Lender's failure to let the Property after an Event of
Default or from any other act or omission of Lender in managing the Property or
the Security after an Event of Default, except for acts constituting gross
negligence or willful misconduct. Lender shall not be obligated to perform or
discharge, nor does Lender hereby undertake to perform or discharge, any
obligation, duty or liability under any Lease, and Borrower shall and does
hereby indemnify Lender for, and save and hold Lender harmless from, any and all
liability, loss or damages, except so much thereof as shall result from the
gross negligence or willful misconduct of Lender, which may or might be incurred
under any Lease or under or by reason of this Assignment and from any and all
claims and demands whatsoever which may be asserted against Lender by reason of
any alleged obligation or undertaking on its part to perform or discharge any of
the terms, covenants or agreements contained in any Lease, including without
implied limitation, any claims by any tenants of credit for rents for any period
paid to and received by Borrower but not delivered to Lender. Should Lender
incur any such liability under any Lease in defense of any such claim or demand,
the amount thereof, including without implied limitation all costs, expenses and
attorneys' fees, shall be added to the principal of the Note and Borrower shall
reimburse Lender therefor immediately upon demand. This Assignment shall not
operate to place responsibility upon Lender for the control, care, upkeep,
management, operation or repair of the Property and the Security or for the
carrying out of any of the terms and conditions of any Lease; nor shall this
Assignment operate to make Lender responsible or liable for any waste committed
on the Property by the tenants or any other party, for any dangerous or
defective condition of the Property or for any negligence in the control, care,
upkeep, operation, management or repair of the Property resulting in loss or
injury or death to any tenant, licensee, employee, stranger or other person
whatsoever.
3.02 TERMINATION. Upon payment and performance of the Obligations in full,
this Assignment shall become null and void and of no further legal force or
effect, but the affidavit, certificate, letter or statement of any officer,
agent, authorized representative or attorney of Lender showing any part of the
Obligations remaining unpaid or unperformed shall be and constitute conclusive
evidence of the validity, effectiveness and continuing force of this Assignment
upon which any person may, and is hereby authorized to, rely. Borrower hereby
authorizes and directs all tenants under the Leases, all guarantors of Leases,
all insurers providing rental loss or business interruption insurance with
respect to the Property, all governmental authorities and all other occupants of
the Property, upon receipt from Lender of written notice to the effect that
Lender is then the holder of the Note and that an Event of Default exists, to
pay over to Lender all rents and other amounts due and to become due under the
Leases and under guaranties of the Leases and all other issues and profits from
the Property and to continue so to do until otherwise notified in writing by
Lender. This right may be exercised without Lender taking actual or constructive
possession of the Property or any part thereof.
3.03 SECURITY. Lender may take or release any security for the payment or
performance of the Obligations, may release any party primarily or secondarily
liable therefor and may apply any security held by it to the satisfaction of all
or any portion of the Obligations, without prejudice to any of its rights under
this Assignment, the other Loan Documents or otherwise available at law or in
equity.
3.04 COVENANTS. Borrower covenants with Lender (a) to observe and perform
all the obligations imposed upon the lessor under all Leases and not to do or
permit to be done anything to impair the same without Lender's prior written
consent, (b) not to collect any of the rent or other amounts due under any Lease
or other issues or profits from the Property in any manner in advance of the
time when the same shall become due (save and except only for collecting one
month's rent in advance plus tenant contributions toward operating expenses plus
the security deposit, if any, at the time of execution of a Lease), (c) not to
execute any other assignment of rents, issues or profits arising or accruing
from the Leases or from the Property, except the Transaction Documents, (d) not
to enter into any lease agreement affecting the Property, except those leases
entered into in the ordinary course of business and utilizing Borrower's
standard form lease previously approved by Lender, with no substantial
modifications thereto, without the prior written consent of Lender, (e) to
execute and deliver, at the request of Lender, all such further assurances and
acknowledgments of the assignment contained herein and the other provisions
hereof, with respect to specific Leases or otherwise, as Lender shall from time
to time require, (f) to obtain from any tenant at the Property, from time to
time as requested by Lender, estoppel certificates, in form and substance
satisfactory to Lender, confirming the terms of such tenant's Lease and the
absence of default thereunder, and (g) not to cancel, surrender or terminate any
Lease, exercise any option which might lead to such termination or consent to
any change, modification, or alteration thereof, to the release of any party
liable thereunder or to the assignment of the lessee's interest therein, without
the prior written consent of Lender, and any of said acts, if done without the
prior written consent of Lender, shall be null and void. Notwithstanding clause
(g) of the preceding sentence, with respect to all leases (other than leases as
to which Beneficiary, Grantor and tenant have executed a separate
non-disturbance and attornment agreement), Grantor may take the actions
described in
clause (g) without Beneficiary's prior written consent (but with written notice
thereof to Beneficiary), if and only if such action is consistent with the usual
and customary operation of the Property.
3.05 AUTHORITY TO ASSIGN. Borrower represents and warrants that (a)
Borrower has full right and authority to execute this Assignment and has no
knowledge of any existing defaults under any of the existing Leases, (b) all
conditions precedent to the effectiveness of said existing Leases have been
satisfied, (c) Borrower has not executed or granted any modification of the
existing Leases, either orally or in writing, (d) the existing Leases are in
full force and effect according to the terms set forth in the lease instruments
heretofore submitted to Lender, and (e) Borrower has not executed any other
instrument which might prevent Lender from operating under any of the terms and
conditions of this Assignment, including any other assignment of the Leases or
the rents, issues and profits from the Property.
3.06 CROSS-DEFAULT. Violation or default under any of the covenants,
representations, warranties and provisions contained in this Assignment by
Borrower shall be deemed a default hereunder as well as under the terms of the
other Loan Documents, and any default thereunder shall likewise be a default
under this Assignment. Any default by Borrower under any of the terms of any
Lease shall be deemed a default hereunder and under the terms of the other Loan
Documents, and any expenditures made by Lender in curing such default on
Borrower's behalf, with interest thereon at the Default Rate (as defined in the
Note), shall become part of the Obligations.
3.07 NO MORTGAGEE IN POSSESSION. The acceptance by Lender of this
Assignment, with all of the rights, powers, privileges and authority created
hereby, shall not, prior to entry upon and taking possession of the Property by
Lender, be deemed or construed to constitute Lender a "mortgagee in possession",
or hereafter or at any time or in any event obligate Lender to appear in or
defend any action or proceeding relating to any Lease, the Property or the
Security, to take any action hereunder, to expend any money, incur any expense,
perform or discharge any obligation, duty or liability under any Lease, or to
assume any obligation or responsibility for any security deposits or other
deposits delivered to Borrower by any tenant and not actually delivered to
Lender. Lender shall not be liable in any way for any injury or damage to any
person or property sustained in or about the Property.
ARTICLE IV
GENERAL
4.01 REMEDIES. The rights and remedies provided Lender in this Assignment
and the other Loan Documents are cumulative. Nothing contained in this
Assignment, and no act done or omitted by Lender pursuant hereto, including
without implied limitation the collection of any rents, shall be deemed to be a
waiver by Lender of any of its rights and remedies under the other Loan
Documents or applicable law or a waiver of any default under the other Loan
Documents, and this Assignment is made and accepted without prejudice to any of
the rights and remedies provided Lender by the other Loan Documents. The right
of Lender to collect the principal sum and interest due on the Note and to
enforce the other Loan Documents may be exercised by Lender either prior to,
simultaneously with, or subsequent to any action taken by it hereunder.
4.02 NOTICES. Any notices, demands, requests and consents permitted or
required hereunder or under any other Loan Document shall be in writing, may be
delivered personally or sent by certified mail with postage prepaid or by
reputable courier service with charges prepaid. Any notice or demand sent to
Borrower by certified mail or reputable courier service shall be addressed to
Borrower at 10050 Bandley Drive, Cupertino, CA 95014 or such other address in
the United States of America as Borrower shall designate in a notice to Lender
given in the manner described herein. Any notice sent to Lender by certified
mail or reputable courier service shall be addressed to The Northwestern Mutual
Life Insurance Company to the attention of the Real Estate Investment Department
at 720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Lender shall designate in a notice given in the manner described herein. Any
notice given to Lender shall refer to the Loan No. set forth above. Any notice
or demand hereunder shall be deemed given when received. Any notice or demand
which is rejected, the acceptance of delivery of which is refused or which is
incapable of being delivered during normal business hours at the address
specified herein or such other address designated pursuant hereto shall be
deemed received as of the date of attempted delivery.
4.03 CAPTIONS. The titles and headings of the various Articles and Sections
hereof are intended solely for reference and are not intended to modify, explain
or affect the meaning of the provisions of this Assignment.
4.04 SEVERABILITY. If any of the provisions of this Assignment or the
application thereof to any persons or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Assignment, and the application
of such provision or provisions to persons or circumstances other than those as
to whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Assignment shall be valid and enforceable
to the fullest extent permitted by law.
4.05 ATTORNEYS' FEES. In the event of any controversy, claim, dispute, or
litigation between the parties hereto to enforce any provision of this
Assignment or any right of Lender hereunder, Borrower agrees to pay to Lender
all costs and expenses, including
reasonable attorneys' fees incurred therein by Lender, whether in preparation
for or during any trial, as a result of an appeal from a judgment entered in
such litigation or otherwise.
4.06 AMENDMENTS. This Assignment may not be modified, amended or otherwise
changed in any manner unless done so by a writing executed by the parties
hereto.
4.07 BENEFITS. This Assignment and all the covenants, terms and provisions
contained herein shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.
4.08 ASSIGNMENT. Borrower shall have no right to assign or transfer the
revocable license granted herein. Any such assignment or transfer shall
constitute a default.
4.09 TIME OF ESSENCE. Time is of the essence of this Assignment.
4.10 GOVERNING LAW. This Assignment shall be governed by and construed in
all respects in accordance with the laws of the State of California without
regard to any conflict of law principles. Any action, lawsuit or other legal
proceeding concerning any dispute arising under or related to this Assignment
shall be brought in a state or federal court located in the State of California,
and Lender and Borrower hereby irrevocably consent to the jurisdiction of the
courts located in the State of California and irrevocably waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action, lawsuit or other legal proceeding brought in any court located in the
State of California.
4.11 LIMITATION OF LIABILITY. Notwithstanding any provision contained in
this Assignment, the personal liability of Borrower shall be limited as provided
in the Note.
IN WITNESS WHEREOF, this Assignment has been entered into as of the day and
year first-above written.
BORROWER: MISSION WEST PROPERTIES, L.P.,
a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general partner
By: Carl E. Berg
Name: Carl E. Berg
Title: CEO of G.P.
LENDER: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a
Wisconsin corporation
By: Northwestern Investment Management Company, LLC, a
Delaware limited liability company, its wholly-
owned affiliate and authorized representative
By: /s/ ER Skagg
-----------------------------------------
E.R. Skaggs, Managing Director
Attest: /s/ Richard A. Schnell
-------------------------------------
Richard A. Schnell, Assistant Secretary
STATE OF California )
)ss.
COUNTY OF Santa Clara )
On January 7th, 2003, before me, G.W. Shott, a notary for the state, personally
appeared Carl E. Berg, CEO of G.P., personally known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature /s/ GW Shott
-----------------------------------
G.W. Shott
-----------------------------------
Name (typed or printed)
STATE OF WISCONSIN )
)ss.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this 3rd day of January,
2003, by E.R. Skaggs and Richard A. Schnell, the Managing Director and Assistant
Secretary respectively, of Northwestern Investment Management Company, LLC, on
behalf of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY and acknowledged the
execution of the foregoing instrument as the act and deed of said corporation.
My commission expires: May 9, 2004
Janet M. Szukalski, Notary Public
This instrument was prepared by Sally J. Lewis, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
EXHIBIT "A"
(Mission West LP)
Parcel One:
Parcel 1, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on December 23, 1997,
in Book 698 of Maps, Page(s) 1 and 2.
Reserving therefrom an easement for ingress and over that portion of land
designated and delineated as "C.O.E.- 30'" Reciprocal-Ingress, Egress- Easement"
on that Parcel Map filed for record in the Office of the Recorder of the County
of Santa Clara, State of California, on December 23, 1997 in Book 698 of Maps,
Pages 1 and 2.
Parcel Two:
An easement for ingress and egress over those portion of Parcel 2 designated and
delineated as "C.O.E.- 30' Reciprocal-Ingress, Egress-Easement" on that Parcel
Map filed for record in the Office of the Recorder of the County of Santa Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.
Parcel Three:
An easement for ingress and egress over those portion of Parcel 3 designated and
delineated as "C.O.E-26'Reciprocal-Ingress, Egress-Easement" on that Parcel Map
filed for record in the Office of the Recorder of the County of Santa Clara,
State of California on December 23, 1997 in Book 698 of Maps, Pages 1 and 2.
Assessors Parcel No: 244-13-015
EXHIBIT 10.42
RECORDING REQUESTED BY
American Title Company
632004LZ
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Nadine T. Hansohn
Loan No. C-332757 SPACE ABOVE THIS LINE FOR RECORDER'S USE
- -------------------------------------------------------------------------------
ABSOLUTE ASSIGNMENT OF LEASES AND RENTS (FIRST PRIORITY)
Mission West Properties, L.P. I
(With License Back)
THIS Absolute Assignment of Leases and Rents (First Priority) (this
"Assignment") is made as of the 3rd day of January, 2003, by and between MISSION
WEST PROPERTIES, L.P. I, a Delaware limited partnership, whose mailing address
is 10050 Bandley Drive, Cupertino, CA 95014, (herein called "Borrower") and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, whose
mailing address is c/o Real Estate Department, 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, (herein called "Lender").
W I T N E S S E T H
FOR AND IN CONSIDERATION of the indebtedness hereinafter described,
Borrower has granted, bargained, sold and conveyed, and by these presents does
grant, bargain, sell and convey, unto Lender, its successors and assigns
forever, all and singular the property hereinafter described (collectively, the
"Security"), to wit:
(a) All rents, issues and profits arising from or related to the land,
situated in the Cities of Santa Clara and Cupertino, County of Santa Clara
and State of California and described in Exhibit "A" attached hereto and
fully incorporated herein by reference for all purposes and all
improvements and any other property, whether real, personal or mixed,
located thereon (which land, improvements and other property are
hereinafter collectively called the "Property");
(b) All of Borrower's rights, titles, interests and privileges, as
lessor, in the leases now existing or hereafter made affecting the
Property, whether or not made by Borrower and as the same may have been, or
may from time to time hereafter be, modified, extended and renewed
(hereinafter collectively called the "Leases"), including without
limitation that certain lease dated July 1, 2002 between Borrower, as
landlord, and Apple Computer, Inc., as tenant;
(c) All tenant security deposits and other amounts due and becoming
due under the Leases;
(d) All guarantees of the Leases, including guarantees of tenant
performance;
(e) All insurance proceeds, including rental loss coverage and
business interruption coverage with respect to the Leases; and
(f) All judgments and settlements of claims in favor of Borrower
(including condemnation proceeds, if any) and all rights, claims and causes
of action under any court proceeding, including without limitation any
bankruptcy, reorganization or insolvency proceeding, or otherwise arising
from the Leases.
TO HAVE AND TO HOLD the Security unto Lender, its successors and assigns
forever, and Borrower does hereby bind itself, its heirs, legal representatives,
successors and assigns, to warrant and forever defend the Security unto Lender,
its successors and assigns forever against the claim or claims of all persons
whomsoever claiming the same or any part thereof.
ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used in this Assignment, the terms "Borrower",
"Leases", "Lender", "Property", and "Security" shall have the respective
meanings indicated above.
1.02 CERTAIN DEFINITIONS. The following terms shall have the meanings
assigned to them below whenever they are used in this Assignment, unless the
context clearly otherwise requires. Except where the context otherwise requires,
words in the singular form shall include the plural and vice versa.
"Event of Default" shall mean any Event of Default as defined in the
Lien Instrument.
"Lien Instrument" shall mean that certain Deed of Trust and Security
Agreement (First Priority) of even date herewith, executed by Borrower and
granting a lien on the Property to a trustee for the benefit of Lender, as
such instrument may be amended, renewed and restated from time to time.
"Loan Commitment", "Loan Documents", "Note" and "Obligations" shall
each have the meaning set forth in the Lien Instrument.
ARTICLE II
ASSIGNMENT
2.01 ABSOLUTE ASSIGNMENT. This Assignment is, and is intended to be, an
absolute and present assignment of the Security from Borrower to Lender with a
concurrent license back to the Borrower (which license is subject to revocation
upon the occurrence of an Event of Default as herein provided) and is not
intended as merely the granting of a security interest relating to the
Obligations.
2.02 LICENSE. Borrower is hereby granted the license to manage and control
the Security and to collect at the time of, but not prior to, the date provided
for the payment thereof, all rents, issues and profits from the Property and to
retain, use and enjoy the same. The license created and granted hereby shall be
revocable upon the terms and conditions contained herein.
2.03 REVOCATION OF LICENSE. Immediately upon the occurrence of an Event of
Default and at any time thereafter, Lender may, at its option and without regard
to the adequacy of the security for the Obligations, either by an authorized
representative or agent, with or without bringing or instituting any judicial or
other action or proceeding, or by a receiver appointed by a court, immediately
revoke the license granted in Section 2.02, as evidenced by a written notice to
said effect given to Borrower, and further, at Lender's option (without any
obligation to do so), take possession of the Property and the Security and have,
hold, manage, lease and operate the Property and the Security on such terms and
for such period of time as Lender may deem proper, and, in addition, either with
or without taking possession of the Property, demand, sue for or otherwise
collect and receive all rents, issues and profits from the Property, including
those past due and unpaid, with full power to make, from time to time, all
alterations, renovations, repairs or replacements thereto or thereof as may seem
proper to the Lender in its sole discretion, and to apply (in such order and
priority as Lender shall determine in its sole discretion) such rents, issues
and profits to the payment of:
(a) all expenses of (i) managing the Property, including without
implied limitation, the salaries, fees and wages of a managing agent and
such other employees as Lender may in its sole discretion deem necessary or
desirable, (ii) operating and maintaining the Property, including without
implied limitation, all taxes, charges, claims, assessments, water rents,
sewer rents and any other liens, and premiums for all insurance which
Lender may in its sole discretion deem necessary or desirable, (iii) the
cost of any and all alterations, renovations, repairs or replacements of or
to the Property, and (iv) any and all expenses incident to taking and
retaining possession of the Property and the Security; and
(b) the Obligations.
The exercise by Lender of the rights granted it in this Section 2.03, and the
collection and receipt of rents, issues and profits and the application thereof
as herein provided, shall not be considered a waiver of any Event of Default.
2.04 TRUST FUNDS. All monies or funds covered by this Assignment paid to,
or for the benefit of, Borrower after any default are hereby declared, and shall
be deemed to be, trust funds in the hands of Borrower for the sole benefit of
Lender, until all defaults have been cured or waived or the Obligations have
been paid and performed in full. Borrower, or any officer, director,
representative or agent thereof receiving such trust funds or having control or
direction of same, is hereby made and shall be construed to be a trustee
of such trust funds so received or under its control and direction, and such
person shall be under a strict obligation and duty should such persons receive
or constructively receive trust funds to (1) remit any and all such trust funds
to Lender within twenty-four (24) hours of receipt, upon demand therefor by
Lender or (2) to apply such trust funds only to Obligations then due or the
operating expenses of the Property.
ARTICLE III
COVENANTS, REPRESENTATIONS AND WARRANTIES
3.01 LIABILITY. Lender shall not be liable for any loss sustained by
Borrower resulting from Lender's failure to let the Property after an Event of
Default or from any other act or omission of Lender in managing the Property or
the Security after an Event of Default, except for acts constituting gross
negligence or willful misconduct. Lender shall not be obligated to perform or
discharge, nor does Lender hereby undertake to perform or discharge, any
obligation, duty or liability under any Lease, and Borrower shall and does
hereby indemnify Lender for, and save and hold Lender harmless from, any and all
liability, loss or damages, except so much thereof as shall result from the
gross negligence or willful misconduct of Lender, which may or might be incurred
under any Lease or under or by reason of this Assignment and from any and all
claims and demands whatsoever which may be asserted against Lender by reason of
any alleged obligation or undertaking on its part to perform or discharge any of
the terms, covenants or agreements contained in any Lease, including without
implied limitation, any claims by any tenants of credit for rents for any period
paid to and received by Borrower but not delivered to Lender. Should Lender
incur any such liability under any Lease in defense of any such claim or demand,
the amount thereof, including without implied limitation all costs, expenses and
attorneys' fees, shall be added to the principal of the Note and Borrower shall
reimburse Lender therefor immediately upon demand. This Assignment shall not
operate to place responsibility upon Lender for the control, care, upkeep,
management, operation or repair of the Property and the Security or for the
carrying out of any of the terms and conditions of any Lease; nor shall this
Assignment operate to make Lender responsible or liable for any waste committed
on the Property by the tenants or any other party, for any dangerous or
defective condition of the Property or for any negligence in the control, care,
upkeep, operation, management or repair of the Property resulting in loss or
injury or death to any tenant, licensee, employee, stranger or other person
whatsoever.
3.02 TERMINATION. Upon payment and performance of the Obligations in full,
this Assignment shall become null and void and of no further legal force or
effect, but the affidavit, certificate, letter or statement of any officer,
agent, authorized representative or attorney of Lender showing any part of the
Obligations remaining unpaid or unperformed shall be and constitute conclusive
evidence of the validity, effectiveness and continuing force of this Assignment
upon which any person may, and is hereby authorized to, rely. Borrower hereby
authorizes and directs all tenants under the Leases, all guarantors of Leases,
all insurers providing rental loss or business interruption insurance with
respect to the Property, all governmental authorities and all other occupants of
the Property, upon receipt from Lender of written notice to the effect that
Lender is then the holder of the Note and that an Event of Default exists, to
pay over to Lender all rents and other amounts due and to become due under the
Leases and under guaranties of the Leases and all other issues and profits from
the Property and to continue so to do until otherwise notified in writing by
Lender. This right may be exercised without Lender taking actual or constructive
possession of the Property or any part thereof.
3.03 SECURITY. Lender may take or release any security for the payment or
performance of the Obligations, may release any party primarily or secondarily
liable therefor and may apply any security held by it to the satisfaction of all
or any portion of the Obligations, without prejudice to any of its rights under
this Assignment, the other Loan Documents or otherwise available at law or in
equity.
3.04 COVENANTS. Borrower covenants with Lender (a) to observe and perform
all the obligations imposed upon the lessor under all Leases and not to do or
permit to be done anything to impair the same without Lender's prior written
consent, (b) not to collect any of the rent or other amounts due under any Lease
or other issues or profits from the Property in any manner in advance of the
time when the same shall become due (save and except only for collecting one
month's rent in advance plus tenant contributions toward operating expenses plus
the security deposit, if any, at the time of execution of a Lease), (c) not to
execute any other assignment of rents, issues or profits arising or accruing
from the Leases or from the Property, except the Transaction Documents, (d) not
to enter into any lease agreement affecting the Property, except those leases
entered into in the ordinary course of business and utilizing Borrower's
standard form lease previously approved by Lender, with no substantial
modifications thereto, without the prior written consent of Lender, (e) to
execute and deliver, at the request of Lender, all such further assurances and
acknowledgments of the assignment contained herein and the other provisions
hereof, with respect to specific Leases or otherwise, as Lender shall from time
to time require, (f) to obtain from any tenant at the Property, from time to
time as requested by Lender, estoppel certificates, in form and substance
satisfactory to Lender, confirming the terms of such tenant's Lease and the
absence of default thereunder, and (g) not to cancel, surrender or terminate any
Lease, exercise any option which might lead to such termination or consent to
any change, modification, or alteration thereof, to the release of any party
liable thereunder or to the assignment of the lessee's interest therein, without
the prior written consent of Lender, and any of said acts, if done without the
prior written consent of Lender, shall be null and void. Notwithstanding clause
(g) of the preceding sentence, with respect to all leases (other than leases as
to which Beneficiary, Grantor and tenant have executed a separate
non-disturbance and attornment agreement), Grantor may take the actions
described in
clause (g) without Beneficiary's prior written consent (but with written notice
thereof to Beneficiary), if and only if such action is consistent with the usual
and customary operation of the Property.
3.05 AUTHORITY TO ASSIGN. Borrower represents and warrants that (a)
Borrower has full right and authority to execute this Assignment and has no
knowledge of any existing defaults under any of the existing Leases, (b) all
conditions precedent to the effectiveness of said existing Leases have been
satisfied, (c) Borrower has not executed or granted any modification of the
existing Leases, either orally or in writing, (d) the existing Leases are in
full force and effect according to the terms set forth in the lease instruments
heretofore submitted to Lender, and (e) Borrower has not executed any other
instrument which might prevent Lender from operating under any of the terms and
conditions of this Assignment, including any other assignment of the Leases or
the rents, issues and profits from the Property.
3.06 CROSS-DEFAULT. Violation or default under any of the covenants,
representations, warranties and provisions contained in this Assignment by
Borrower shall be deemed a default hereunder as well as under the terms of the
other Loan Documents, and any default thereunder shall likewise be a default
under this Assignment. Any default by Borrower under any of the terms of any
Lease shall be deemed a default hereunder and under the terms of the other Loan
Documents, and any expenditures made by Lender in curing such default on
Borrower's behalf, with interest thereon at the Default Rate (as defined in the
Note), shall become part of the Obligations.
3.07 NO MORTGAGEE IN POSSESSION. The acceptance by Lender of this
Assignment, with all of the rights, powers, privileges and authority created
hereby, shall not, prior to entry upon and taking possession of the Property by
Lender, be deemed or construed to constitute Lender a "mortgagee in possession",
or hereafter or at any time or in any event obligate Lender to appear in or
defend any action or proceeding relating to any Lease, the Property or the
Security, to take any action hereunder, to expend any money, incur any expense,
perform or discharge any obligation, duty or liability under any Lease, or to
assume any obligation or responsibility for any security deposits or other
deposits delivered to Borrower by any tenant and not actually delivered to
Lender. Lender shall not be liable in any way for any injury or damage to any
person or property sustained in or about the Property.
ARTICLE IV
GENERAL
4.01 REMEDIES. The rights and remedies provided Lender in this Assignment
and the other Loan Documents are cumulative. Nothing contained in this
Assignment, and no act done or omitted by Lender pursuant hereto, including
without implied limitation the collection of any rents, shall be deemed to be a
waiver by Lender of any of its rights and remedies under the other Loan
Documents or applicable law or a waiver of any default under the other Loan
Documents, and this Assignment is made and accepted without prejudice to any of
the rights and remedies provided Lender by the other Loan Documents. The right
of Lender to collect the principal sum and interest due on the Note and to
enforce the other Loan Documents may be exercised by Lender either prior to,
simultaneously with, or subsequent to any action taken by it hereunder.
4.02 NOTICES. Any notices, demands, requests and consents permitted or
required hereunder or under any other Loan Document shall be in writing, may be
delivered personally or sent by certified mail with postage prepaid or by
reputable courier service with charges prepaid. Any notice or demand sent to
Borrower by certified mail or reputable courier service shall be addressed to
Borrower at 10050 Bandley Drive, Cupertino, CA 95014 or such other address in
the United States of America as Borrower shall designate in a notice to Lender
given in the manner described herein. Any notice sent to Lender by certified
mail or reputable courier service shall be addressed to The Northwestern Mutual
Life Insurance Company to the attention of the Real Estate Investment Department
at 720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Lender shall designate in a notice given in the manner described herein. Any
notice given to Lender shall refer to the Loan No. set forth above. Any notice
or demand hereunder shall be deemed given when received. Any notice or demand
which is rejected, the acceptance of delivery of which is refused or which is
incapable of being delivered during normal business hours at the address
specified herein or such other address designated pursuant hereto shall be
deemed received as of the date of attempted delivery.
4.03 CAPTIONS. The titles and headings of the various Articles and Sections
hereof are intended solely for reference and are not intended to modify, explain
or affect the meaning of the provisions of this Assignment.
4.04 SEVERABILITY. If any of the provisions of this Assignment or the
application thereof to any persons or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Assignment, and the application
of such provision or provisions to persons or circumstances other than those as
to whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Assignment shall be valid and enforceable
to the fullest extent permitted by law.
4.05 Attorneys' Fees. In the event of any controversy, claim, dispute, or
litigation between the parties hereto to enforce any provision of this
Assignment or any right of Lender hereunder, Borrower agrees to pay to Lender
all costs and expenses, including
reasonable attorneys' fees incurred therein by Lender, whether in preparation
for or during any trial, as a result of an appeal from a judgment entered in
such litigation or otherwise.
4.06 AMENDMENTS. This Assignment may not be modified, amended or otherwise
changed in any manner unless done so by a writing executed by the parties
hereto.
4.07 BENEFITS. This Assignment and all the covenants, terms and provisions
contained herein shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.
4.08 ASSIGNMENT. Borrower shall have no right to assign or transfer the
revocable license granted herein. Any such assignment or transfer shall
constitute a default.
4.09 TIME OF ESSENCE. Time is of the essence of this Assignment.
4.10 GOVERNING LAW. This Assignment shall be governed by and construed in
all respects in accordance with the laws of the State of California without
regard to any conflict of law principles. Any action, lawsuit or other legal
proceeding concerning any dispute arising under or related to this Assignment
shall be brought in a state or federal court located in the State of California,
and Lender and Borrower hereby irrevocably consent to the jurisdiction of the
courts located in the State of California and irrevocably waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action, lawsuit or other legal proceeding brought in any court located in the
State of California.
4.11 LIMITATION OF LIABILITY. Notwithstanding any provision contained in
this Assignment, the personal liability of Borrower shall be limited as provided
in the Note.
IN WITNESS WHEREOF, this Assignment has been entered into as of the day and
year first-above written.
BORROWER: MISSION WEST PROPERTIES, L.P. I,
a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general partner
By: Carle E. Berg
Name: Carl E. Berg
Title: CEO of G.P.
LENDER: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
a Wisconsin corporation
By: Northwestern Investment Management Company, LLC,
a Delaware limited liability company, its wholly-
owned affiliate and authorized representative
By: /s/ ER Skaggs
----------------------------------------------
E.R. Skaggs, Managing Director
Attest: /s/ Richard A. Schnell
------------------------------------------
Richard A. Schnell, Assistant Secretary
STATE OF California )
)ss.
COUNTY OF Santa Clara )
On January 7th, 2003, before me, G.W. Shott, a notary for the state, personally
appeared Carl E. Berg, CEO of G.P., personally known to me to be the person
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature /s/ GW Shott
-----------------------------------
G.W. Shott
-----------------------------------
Name (typed or printed)
STATE OF WISCONSIN )
)ss.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this 3RD day of January,
2003, by and between E.R. Skaggs and Richard A. Schnell, the Managing Director
and Assistant Secretary respectively, of Northwestern Investment Management
Company, LLC, on behalf of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY and
acknowledged the execution of the foregoing instrument as the act and deed of
said corporation.
My commission expires: May 9, 2004
Janet M. Szukalski, Notary Public
This instrument was prepared by Sally J. Lewis, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
EXHIBIT "A"
(Mission West I)
PROPERTY ONE:
Parcel One:
Parcel 1, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on April 13, 1979, in
Book 439 of Maps, page(s) 17 and 18.
Parcel Two:
A 17.5' ingress and egress Easement No. 1 (appurtenant to Parcel 1) situated at
the Northwesterly corner of Parcel 2 and being shown on that certain Parcel Map
recorded April 13, 1979 in Book 439 of Maps, pages 17 and 18, Santa Clara County
Records.
Assessors Parcel No: 224-44-019
PROPERTY TWO:
PARCEL ONE:
Parcel 3 as shown on that certain Parcel Map recorded August 9, 1974, in Book
344, Page 10, Santa Clara County.
Excepting therefrom the underground water rights, but without surface rights of
entry, as granted to the City of Cupertino by instrument recorded January 3,
1975 in Book B233 of Official Records at Page 276.
PARCEL TWO:
An easement for ingress and egress and for the installation and maintenance of a
public utilities over the Westerly 15 feet of Parcels 1 and 2 and the Easterly
15 feet of Parcel 4, as said Parcels are shown on that certain Parcel Map
recorded August 9, 1974 in Book 344 at Page 10 of Maps, Records of Santa Clara
County, California.
Assessors Parcel No: 326-10-046
EXHIBIT 10.43
RECORDING REQUESTED BY
American Title Company
632004LZ
WHEN RECORDED MAIL TO
The Northwestern Mutual Life Ins. Co.
720 East Wisconsin Avenue - Rm N16WC
Milwaukee, WI 53202
Attn: Nadine T. Hansohn
Loan No. C-332757 SPACE ABOVE THIS LINE FOR RECORDER'S USE
- -------------------------------------------------------------------------------
ABSOLUTE ASSIGNMENT OF LEASES AND RENTS (FIRST PRIORITY)
Mission West Properties, L.P. II
(With License Back)
THIS Absolute Assignment of Leases and Rents (First Priority) (this
"Assignment") is made as of the 3rd day of January, 2003, by and between MISSION
WEST PROPERTIES, L.P. II, a Delaware limited partnership, whose mailing address
is 10050 Bandley Drive, Cupertino, CA 95014, (herein called "Borrower") and THE
NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation, whose
mailing address is c/o Real Estate Department, 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202, (herein called "Lender").
W I T N E S S E T H
FOR AND IN CONSIDERATION of the indebtedness hereinafter described,
Borrower has granted, bargained, sold and conveyed, and by these presents does
grant, bargain, sell and convey, unto Lender, its successors and assigns
forever, all and singular the property hereinafter described (collectively, the
"Security"), to wit:
(a) All rents, issues and profits arising from or related to the land,
situated in the Cities of San Jose and Milpitas, County of Santa Clara and
State of California and described in Exhibit "A" attached hereto and fully
incorporated herein by reference for all purposes and all improvements and
any other property, whether real, personal or mixed, located thereon (which
land, improvements and other property are hereinafter collectively called
the "Property");
(b) All of Borrower's rights, titles, interests and privileges, as
lessor, in the leases now existing or hereafter made affecting the
Property, whether or not made by Borrower and as the same may have been, or
may from time to time hereafter be, modified, extended and renewed
(hereinafter collectively called the "Leases");
(c) All tenant security deposits and other amounts due and becoming
due under the Leases;
(d) All guarantees of the Leases, including guarantees of tenant
performance;
(e) All insurance proceeds, including rental loss coverage and
business interruption coverage with respect to the Leases; and
(f) All judgments and settlements of claims in favor of Borrower
(including condemnation proceeds, if any) and all rights, claims and causes
of action under any court proceeding, including without limitation any
bankruptcy, reorganization or insolvency proceeding, or otherwise arising
from the Leases.
TO HAVE AND TO HOLD the Security unto Lender, its successors and assigns
forever, and Borrower does hereby bind itself, its heirs, legal representatives,
successors and assigns, to warrant and forever defend the Security unto Lender,
its successors and assigns forever against the claim or claims of all persons
whomsoever claiming the same or any part thereof.
ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used in this Assignment, the terms "Borrower",
"Leases", "Lender", "Property", and "Security" shall have the respective
meanings indicated above.
1.02 CERTAIN DEFINITIONS. The following terms shall have the meanings
assigned to them below whenever they are used in this Assignment, unless the
context clearly otherwise requires. Except where the context otherwise requires,
words in the singular form shall include the plural and vice versa.
"Event of Default" shall mean any Event of Default as defined in the
Lien Instrument.
"Lien Instrument" shall mean that certain Deed of Trust and Security
Agreement (First Priority) of even date herewith, executed by Borrower and
granting a lien on the Property to a trustee for the benefit of Lender, as
such instrument may be amended, renewed and restated from time to time.
"Loan Commitment", "Loan Documents", "Note" and "Obligations" shall
each have the meaning set forth in the Lien Instrument.
ARTICLE II
ASSIGNMENT
2.01 ABSOLUTE ASSIGNMENT. This Assignment is, and is intended to be, an
absolute and present assignment of the Security from Borrower to Lender with a
concurrent license back to the Borrower (which license is subject to revocation
upon the occurrence of an Event of Default as herein provided) and is not
intended as merely the granting of a security interest relating to the
Obligations.
2.02 LICENSE. Borrower is hereby granted the license to manage and control
the Security and to collect at the time of, but not prior to, the date provided
for the payment thereof, all rents, issues and profits from the Property and to
retain, use and enjoy the same. The license created and granted hereby shall be
revocable upon the terms and conditions contained herein.
2.03 REVOCATION OF LICENSE. Immediately upon the occurrence of an Event of
Default and at any time thereafter, Lender may, at its option and without regard
to the adequacy of the security for the Obligations, either by an authorized
representative or agent, with or without bringing or instituting any judicial or
other action or proceeding, or by a receiver appointed by a court, immediately
revoke the license granted in Section 2.02, as evidenced by a written notice to
said effect given to Borrower, and further, at Lender's option (without any
obligation to do so), take possession of the Property and the Security and have,
hold, manage, lease and operate the Property and the Security on such terms and
for such period of time as Lender may deem proper, and, in addition, either with
or without taking possession of the Property, demand, sue for or otherwise
collect and receive all rents, issues and profits from the Property, including
those past due and unpaid, with full power to make, from time to time, all
alterations, renovations, repairs or replacements thereto or thereof as may seem
proper to the Lender in its sole discretion, and to apply (in such order and
priority as Lender shall determine in its sole discretion) such rents, issues
and profits to the payment of:
(a) all expenses of (i) managing the Property, including without
implied limitation, the salaries, fees and wages of a managing agent and
such other employees as Lender may in its sole discretion deem necessary or
desirable, (ii) operating and maintaining the Property, including without
implied limitation, all taxes, charges, claims, assessments, water rents,
sewer rents and any other liens, and premiums for all insurance which
Lender may in its sole discretion deem necessary or desirable, (iii) the
cost of any and all alterations, renovations, repairs or replacements of or
to the Property, and (iv) any and all expenses incident to taking and
retaining possession of the Property and the Security; and
(b) the Obligations.
The exercise by Lender of the rights granted it in this Section 2.03, and the
collection and receipt of rents, issues and profits and the application thereof
as herein provided, shall not be considered a waiver of any Event of Default.
2.04 TRUST FUNDS. All monies or funds covered by this Assignment paid to,
or for the benefit of, Borrower after any default are hereby declared, and shall
be deemed to be, trust funds in the hands of Borrower for the sole benefit of
Lender, until all defaults have been cured or waived or the Obligations have
been paid and performed in full. Borrower, or any officer, director,
representative or agent thereof receiving such trust funds or having control or
direction of same, is hereby made and shall be construed to be a trustee
of such trust funds so received or under its control and direction, and such
person shall be under a strict obligation and duty should such persons receive
or constructively receive trust funds to (1) remit any and all such trust funds
to Lender within twenty-four (24) hours of receipt, upon demand therefor by
Lender or (2) to apply such trust funds only to Obligations then due or the
operating expenses of the Property.
ARTICLE III
COVENANTS, REPRESENTATIONS AND WARRANTIES
3.01 LIABILITY. Lender shall not be liable for any loss sustained by
Borrower resulting from Lender's failure to let the Property after an Event of
Default or from any other act or omission of Lender in managing the Property or
the Security after an Event of Default, except for acts constituting gross
negligence or willful misconduct. Lender shall not be obligated to perform or
discharge, nor does Lender hereby undertake to perform or discharge, any
obligation, duty or liability under any Lease, and Borrower shall and does
hereby indemnify Lender for, and save and hold Lender harmless from, any and all
liability, loss or damages, except so much thereof as shall result from the
gross negligence or willful misconduct of Lender, which may or might be incurred
under any Lease or under or by reason of this Assignment and from any and all
claims and demands whatsoever which may be asserted against Lender by reason of
any alleged obligation or undertaking on its part to perform or discharge any of
the terms, covenants or agreements contained in any Lease, including without
implied limitation, any claims by any tenants of credit for rents for any period
paid to and received by Borrower but not delivered to Lender. Should Lender
incur any such liability under any Lease in defense of any such claim or demand,
the amount thereof, including without implied limitation all costs, expenses and
attorneys' fees, shall be added to the principal of the Note and Borrower shall
reimburse Lender therefor immediately upon demand. This Assignment shall not
operate to place responsibility upon Lender for the control, care, upkeep,
management, operation or repair of the Property and the Security or for the
carrying out of any of the terms and conditions of any Lease; nor shall this
Assignment operate to make Lender responsible or liable for any waste committed
on the Property by the tenants or any other party, for any dangerous or
defective condition of the Property or for any negligence in the control, care,
upkeep, operation, management or repair of the Property resulting in loss or
injury or death to any tenant, licensee, employee, stranger or other person
whatsoever.
3.02 TERMINATION. Upon payment and performance of the Obligations in full,
this Assignment shall become null and void and of no further legal force or
effect, but the affidavit, certificate, letter or statement of any officer,
agent, authorized representative or attorney of Lender showing any part of the
Obligations remaining unpaid or unperformed shall be and constitute conclusive
evidence of the validity, effectiveness and continuing force of this Assignment
upon which any person may, and is hereby authorized to, rely. Borrower hereby
authorizes and directs all tenants under the Leases, all guarantors of Leases,
all insurers providing rental loss or business interruption insurance with
respect to the Property, all governmental authorities and all other occupants of
the Property, upon receipt from Lender of written notice to the effect that
Lender is then the holder of the Note and that an Event of Default exists, to
pay over to Lender all rents and other amounts due and to become due under the
Leases and under guaranties of the Leases and all other issues and profits from
the Property and to continue so to do until otherwise notified in writing by
Lender. This right may be exercised without Lender taking actual or constructive
possession of the Property or any part thereof.
3.03 SECURITY. Lender may take or release any security for the payment or
performance of the Obligations, may release any party primarily or secondarily
liable therefor and may apply any security held by it to the satisfaction of all
or any portion of the Obligations, without prejudice to any of its rights under
this Assignment, the other Loan Documents or otherwise available at law or in
equity.
3.04 COVENANTS. Borrower covenants with Lender (a) to observe and perform
all the obligations imposed upon the lessor under all Leases and not to do or
permit to be done anything to impair the same without Lender's prior written
consent, (b) not to collect any of the rent or other amounts due under any Lease
or other issues or profits from the Property in any manner in advance of the
time when the same shall become due (save and except only for collecting one
month's rent in advance plus tenant contributions toward operating expenses plus
the security deposit, if any, at the time of execution of a Lease), (c) not to
execute any other assignment of rents, issues or profits arising or accruing
from the Leases or from the Property, except the Transaction Documents, (d) not
to enter into any lease agreement affecting the Property, except those leases
entered into in the ordinary course of business and utilizing Borrower's
standard form lease previously approved by Lender, with no substantial
modifications thereto, without the prior written consent of Lender, (e) to
execute and deliver, at the request of Lender, all such further assurances and
acknowledgments of the assignment contained herein and the other provisions
hereof, with respect to specific Leases or otherwise, as Lender shall from time
to time require, (f) to obtain from any tenant at the Property, from time to
time as requested by Lender, estoppel certificates, in form and substance
satisfactory to Lender, confirming the terms of such tenant's Lease and the
absence of default thereunder, and (g) not to cancel, surrender or terminate any
Lease, exercise any option which might lead to such termination or consent to
any change, modification, or alteration thereof, to the release of any party
liable thereunder or to the assignment of the lessee's interest therein, without
the prior written consent of Lender, and any of said acts, if done without the
prior written consent of Lender, shall be null and void. Notwithstanding clause
(g) of the preceding sentence, with respect to all leases (other than leases as
to which Beneficiary, Grantor and tenant have executed a separate
non-disturbance and attornment agreement), Grantor may take the actions
described in
clause (g) without Beneficiary's prior written consent (but with written notice
thereof to Beneficiary), if and only if such action is consistent with the usual
and customary operation of the Property.
3.05 AUTHORITY TO ASSIGN. Borrower represents and warrants that (a)
Borrower has full right and authority to execute this Assignment and has no
knowledge of any existing defaults under any of the existing Leases, (b) all
conditions precedent to the effectiveness of said existing Leases have been
satisfied, (c) Borrower has not executed or granted any modification of the
existing Leases, either orally or in writing, (d) the existing Leases are in
full force and effect according to the terms set forth in the lease instruments
heretofore submitted to Lender, and (e) Borrower has not executed any other
instrument which might prevent Lender from operating under any of the terms and
conditions of this Assignment, including any other assignment of the Leases or
the rents, issues and profits from the Property.
3.06 CROSS-DEFAULT. Violation or default under any of the covenants,
representations, warranties and provisions contained in this Assignment by
Borrower shall be deemed a default hereunder as well as under the terms of the
other Loan Documents, and any default thereunder shall likewise be a default
under this Assignment. Any default by Borrower under any of the terms of any
Lease shall be deemed a default hereunder and under the terms of the other Loan
Documents, and any expenditures made by Lender in curing such default on
Borrower's behalf, with interest thereon at the Default Rate (as defined in the
Note), shall become part of the Obligations.
3.07 NO MORTGAGEE IN POSSESSION. The acceptance by Lender of this
Assignment, with all of the rights, powers, privileges and authority created
hereby, shall not, prior to entry upon and taking possession of the Property by
Lender, be deemed or construed to constitute Lender a "mortgagee in possession",
or hereafter or at any time or in any event obligate Lender to appear in or
defend any action or proceeding relating to any Lease, the Property or the
Security, to take any action hereunder, to expend any money, incur any expense,
perform or discharge any obligation, duty or liability under any Lease, or to
assume any obligation or responsibility for any security deposits or other
deposits delivered to Borrower by any tenant and not actually delivered to
Lender. Lender shall not be liable in any way for any injury or damage to any
person or property sustained in or about the Property.
ARTICLE IV
GENERAL
4.01 REMEDIES. The rights and remedies provided Lender in this Assignment
and the other Loan Documents are cumulative. Nothing contained in this
Assignment, and no act done or omitted by Lender pursuant hereto, including
without implied limitation the collection of any rents, shall be deemed to be a
waiver by Lender of any of its rights and remedies under the other Loan
Documents or applicable law or a waiver of any default under the other Loan
Documents, and this Assignment is made and accepted without prejudice to any of
the rights and remedies provided Lender by the other Loan Documents. The right
of Lender to collect the principal sum and interest due on the Note and to
enforce the other Loan Documents may be exercised by Lender either prior to,
simultaneously with, or subsequent to any action taken by it hereunder.
4.02 NOTICES. Any notices, demands, requests and consents permitted or
required hereunder or under any other Loan Document shall be in writing, may be
delivered personally or sent by certified mail with postage prepaid or by
reputable courier service with charges prepaid. Any notice or demand sent to
Borrower by certified mail or reputable courier service shall be addressed to
Borrower at 10050 Bandley Drive, Cupertino, CA 95014 or such other address in
the United States of America as Borrower shall designate in a notice to Lender
given in the manner described herein. Any notice sent to Lender by certified
mail or reputable courier service shall be addressed to The Northwestern Mutual
Life Insurance Company to the attention of the Real Estate Investment Department
at 720 East Wisconsin Avenue, Milwaukee, WI 53202, or at such other addresses as
Lender shall designate in a notice given in the manner described herein. Any
notice given to Lender shall refer to the Loan No. set forth above. Any notice
or demand hereunder shall be deemed given when received. Any notice or demand
which is rejected, the acceptance of delivery of which is refused or which is
incapable of being delivered during normal business hours at the address
specified herein or such other address designated pursuant hereto shall be
deemed received as of the date of attempted delivery.
4.03 CAPTIONS. The titles and headings of the various Articles and Sections
hereof are intended solely for reference and are not intended to modify, explain
or affect the meaning of the provisions of this Assignment.
4.04 SEVERABILITY. If any of the provisions of this Assignment or the
application thereof to any persons or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Assignment, and the application
of such provision or provisions to persons or circumstances other than those as
to whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Assignment shall be valid and enforceable
to the fullest extent permitted by law.
4.05 ATTORNEYS' FEES. In the event of any controversy, claim, dispute, or
litigation between the parties hereto to enforce any provision of this
Assignment or any right of Lender hereunder, Borrower agrees to pay to Lender
all costs and expenses, including
reasonable attorneys' fees incurred therein by Lender, whether in preparation
for or during any trial, as a result of an appeal from a judgment entered in
such litigation or otherwise.
4.06 AMENDMENTS. This Assignment may not be modified, amended or otherwise
changed in any manner unless done so by a writing executed by the parties
hereto.
4.07 BENEFITS. This Assignment and all the covenants, terms and provisions
contained herein shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.
4.08 ASSIGNMENT. Borrower shall have no right to assign or transfer the
revocable license granted herein. Any such assignment or transfer shall
constitute a default.
4.09 TIME OF ESSENCE. Time is of the essence of this Assignment.
4.10 GOVERNING LAW. This Assignment shall be governed by and construed in
all respects in accordance with the laws of the State of California without
regard to any conflict of law principles. Any action, lawsuit or other legal
proceeding concerning any dispute arising under or related to this Assignment
shall be brought in a state or federal court located in the State of California,
and Lender and Borrower hereby irrevocably consent to the jurisdiction of the
courts located in the State of California and irrevocably waive any defense of
improper venue, forum nonconveniens or lack of personal jurisdiction in any such
action, lawsuit or other legal proceeding brought in any court located in the
State of California.
4.11 LIMITATION OF LIABILITY. Notwithstanding any provision contained in
this Assignment, the personal liability of Borrower shall be limited as provided
in the Note.
IN WITNESS WHEREOF, this Assignment has been entered into as of the day and
year first-above written.
BORROWER: MISSION WEST PROPERTIES, L.P. II,
a Delaware limited partnership
By: Mission West Properties, Inc., a
Maryland corporation, its general partner
By: Carl E. Berg
Name: Carl E. Berg
Title: CEO of G.P.
LENDER: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
a Wisconsin corporation
By: Northwestern Investment Management Company, LLC,
a Delaware limited liability company, its wholly-
owned affiliate and authorized representative
By: /s/ ER Skaggs
----------------------------------------------
E.R. Skaggs, Managing Director
Attest: /s/ Richard A. Schnell
------------------------------------------
Richard A. Schnell, Assistant Secretary
STATE OF California )
)ss.
COUNTY OF Santa Clara )
On January 7th, 2003, before me, G.W. Shott, a notary for the state, personally
appeared Carl E. Berg, CEO of G.P., personally known to me to be the person(s)
whose name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
Signature /s/ GW Shott
-----------------------------------
G.W. Shott
-----------------------------------
Name (typed or printed)
STATE OF WISCONSIN )
)ss.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this 3rd day of January,
2003, by and between E.R. Skaggs and Richard A. Schnell, the Managing Director
and Assistant Secretary respectively, of Northwestern Investment Management
Company, LLC, on behalf of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY and
acknowledged the execution of the foregoing instrument as the act and deed of
said corporation.
My commission expires: May 9, 2004
Janet M. Szukalski, Notary Public
This instrument was prepared by Sally J. Lewis, Attorney, for The Northwestern
Mutual Life Insurance Company, 720 East Wisconsin Avenue, Milwaukee, WI 53202.
EXHIBIT "A"
(Mission West II)
PROPERTY ONE:
All that certain real property situated in the City of San Jose, County of Santa
Clara, State of California, described as follows:
Parcel 2, as shown on the Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on November 26, 1979,
in Book 455 of Maps, Page(s) 1 and 2.
Assessors Parcel No: 706-09-023
PROPERTY TWO:
Parcel 1, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on May 22, 1980, in
Book 463 of Maps, Page(s) 43 and 44.
Assessors Parcel No: 706-02-034
PROPERTY THREE:
Parcel 7, as shown on that Parcel Map filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.
Assessors Parcel No: 086-33-092
PROPERTY FOUR:
Parcel 3 as shown on that Parcel Map filed for recorded in the Office of the
Recorder of the County of Santa Clara, State of California on December 5, 1984,
in Book 536 of Maps, Page(s) 41, 42 and 43.
Assessors Parcel No: 086-41-017 & 086-41-018
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 No. 333-80369 of Mission West Properties, Inc. of our
reports dated January 28, 2003 relating to the financial statements and
financial statement schedules, which appear in this Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, California
March 26, 2003