-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OD5NMwe9AtAuO8cv/dOaNhU2xVVxunxvNmiRn8OMDRwbayureinYr8L0c2M0FSmb NGhkSbKvw5Syh981AlKdXg== 0000931763-97-001578.txt : 19970923 0000931763-97-001578.hdr.sgml : 19970923 ACCESSION NUMBER: 0000931763-97-001578 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19970627 FILED AS OF DATE: 19970922 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIENTIFIC ATLANTA INC CENTRAL INDEX KEY: 0000087777 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 580612397 STATE OF INCORPORATION: GA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05517 FILM NUMBER: 97683436 BUSINESS ADDRESS: STREET 1: ONE TECHNOLOGY PKWY S CITY: NORCROSS STATE: GA ZIP: 30092-2967 BUSINESS PHONE: 7709035000 MAIL ADDRESS: STREET 1: ONE TECHNOLOGY PKWY S CITY: NORCROSS STATE: GA ZIP: 30092-2967 FORMER COMPANY: FORMER CONFORMED NAME: SCIENTIFIC ASSOCIATES INC DATE OF NAME CHANGE: 19671024 10-K 1 FORM 10-K FOR FISCAL YEAR END JUNE 27, 1997 - ------------------------------------------------------------------------------- UNITED STATES 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 the fiscal year ended June 27, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-5517 SCIENTIFIC-ATLANTA, INC. (Exact Name of Registrant as Specified in Its Charter) Georgia 58-0612397 (State or Other Jurisdiction of (I.R.S. Employer Identification Incorporation Number) or Organization) One Technology Parkway, South 30092-2967 Norcross, Georgia (Zip Code) (Address of Principal Executive Offices) 770-903-5000 (Registrant's Telephone Number, including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which registered Title of each class New York Stock Exchange Common Stock, par value $0.50 per share Preferred Stock Purchase Rights New York Stock Exchange 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. [_] The aggregate market value of the voting stock held by non-affiliates of the Registrant at September 9, 1997, was approximately $1,783,375,582. As of September 9, 1997, the Registrant had outstanding 78,424,676 shares of common stock. Documents Incorporated By Reference: Specified portions of the Proxy Statement for the Registrant's 1997 Annual Meeting of Shareholders are incorporated by reference to the extent indicated in Part III of this Form 10-K. - ------------------------------------------------------------------------------- PART I ITEM 1.BUSINESS GENERAL Scientific-Atlanta, Inc. (the "Company") provides its customers with the products and services they need to develop the advanced terrestrial and satellite networks which deliver entertainment, information and communications. The Company's products connect information generators with information users via broadband terrestrial and satellite networks, and include applications for the converging cable, telephone, and data networks. The Company operates primarily in one business segment, Communications, providing satellite-based and terrestrial-based networks to a range of customers in a variety of applications, and providing network management and systems integration to add value to those networks. This segment represents over 90% of consolidated sales, operating profit and identifiable assets. The Company has evolved from a manufacturer of electronic test equipment for antennas and electronics for the cable industry to a producer of a wide variety of products for terrestrial and satellite communications networks, including digital video, voice and data communications products. The Company's products include receivers, transmitters, distribution amplifiers, modulators, demodulators, signal encoders and decoders, controllers, optical amplifiers, source lasers, set-top (home communications) terminals, digital audio terminals, digital video compression and transmission equipment, fiber optic distribution equipment, and satellite earth station antennas. These products, and integrated systems and networks using these and other products, are sold to CATV system operators, telephone companies, communications carriers, communications network operators, utility companies and multi- facility business organizations which use communications satellites for intracompany communications. Sales are also made to independent system integrators, distributors and dealers who resell the products to some of the above types of customers. The Company sells transmission products, including RF (radio frequency) amplifiers, line extenders, optoelectronic transmitters, optoelectronic amplifiers and taps and passives, which transmit signals via coaxial cable or via fiber optic cable from the cable operator to the end-user customer. The Company's transmission products enable operators to transmit video and data over the same network, with a reverse path for customers to communicate back to the operator. Sales of RF distribution products constituted approximately 19% of the Company's total sales for fiscal 1997, and approximately 21% and 17% of such sales in fiscal years 1996 and 1995, respectively. The Company also sells modulators, demodulators and signal processors for video and audio receiving stations (often referred to as "headend" systems), products for distributing communications signals by coaxial cable and by fiber optic cable from headend systems to subscribers, set-top terminals that enable television sets to receive all channels transmitted by system operators, and interdiction equipment which enables connections, disconnections and changes in service to be made from the headend. In February 1997, the Company acquired Arcodan A/S, a prominent Danish manufacturer of headend systems, opto-electronics and RF distribution equipment. This acquisition is expected to enhance the Company's position as a global manufacturer and marketer of communications products. Arcodan serves customers such as cable operators, installers and systems integrators throughout Scandinavia and the rest of Europe. Arcodan employs approximately 270 people. Development and manufacturing take place at its facility in So/nderborg, Denmark. Its products are distributed through its subsidiaries in Germany and Poland; a partly-owned subsidiary in France; and through a direct sales and distribution network in Europe. The Company's set-top terminals include units which are addressable from the headend system so as to permit control of channel authorizations, including authorizations for pay-per-view events, impulse ordering 1 and automatic recording of billing information at the cable operator's central facility, and menu-driven volume controllable units. Sales of set-top terminals constituted approximately 30% of the Company's total sales for fiscal year 1997, and approximately 27% and 26% of such sales in fiscal years 1996 and 1995, respectively. Proprietary software used in the terminals, as well as system manager software at the headend system or at the transmission level, was developed by the Company and is updated from time to time. The Company's new digital home communications terminals enable subscribers to access new services such as advanced pay-per-view ordering of special events and movies, fully interactive home shopping services, electronic program guides and more. During fiscal year 1997, the Company commenced manufacture and sales of a telephone return cable modem and announced its intention to develop a two-way RF cable modem. However, the market for all cable modems has developed more slowly than originally anticipated by the Company. As a result, the Company is re-evaluating the need for a stand alone two-way RF modem in fiscal 1998. A two-way data solution is currently included in one of the Company's digital set-top product offerings. The Company's products, both analog and digital, are being utilized by cable operators and Regional Bell Operating Companies to upgrade existing networks to provide new services and to build new video, voice and data networks. They are also utilized by electric utilities in load management systems which monitor and control power usage and monitor power outages. The Company's products are also utilized by programmers and broadcasters to transmit their programs to viewers. The Company's satellite earth stations receive and transmit signals for video, voice and data and are utilized in satellite-band telephone, data and television distribution networks. Some of these earth stations are part of national and international communications systems which communicate by means of a satellite with earth stations in other countries or with other earth stations in the same national network. Earth stations in these systems may be connected with local telephone, teletype, television or other terrestrial communications networks. The Company's earth stations, signal encoders and decoders, packet switches and controllers are also used in private business networks for the exchange of audio, video and data via satellite among various office, manufacturing and sales facilities and for the delivery of television programming to hotels, motels and apartment complexes. The Company's data communications product offerings include private interactive data systems using VSAT (very small aperture terminal) technology. The Company designs, manufactures and sells digital video compression communications products for direct satellite broadcast and cable television systems and digital storage and retrieval products for applications such as ad insertion for television broadcasters and cable operators. The Company's compression products utilize the open architecture MPEG-2 technology developed by an international standards group. MPEG-2 digital equipment allows cable, telephone, computer and consumer electronics products and systems to operate together across networks and in the home. The Company's satellite products and systems include tracking and telemetry equipment, earth observation satellite ground stations, shipboard and command telephony and facsimile communications products and intercept systems. The Company produces telemetry instruments, radar platforms, special receivers, special measurement devices and other equipment used to track aircraft, missiles, satellites and other moving objects and to communicate with and receive and record various measurements and other data from the object. The Company develops services and applications which can be utilized by its customers on their terrestrial-based and satellite-based networks. Such applications include (i) a system which enables power companies to detect power failures automatically, (ii) transmittal of information over cable networks via modem, and (iii) interactive video games. 2 OTHER PRODUCTS AND SERVICES. The Company's microwave instrumentation systems are used to design and manufacture antennas for communication and radar systems. Products include pattern recorders, receivers, positioners and various display units, which measure, record and display various characteristics of antennas such as signal pattern, gain, phase, amplitude and frequency. The Company has consolidated its service functions into a service organization, with its goal being to ensure effective post-sale service for customers using its products, whether such products are under warranty or no longer under warranty. This service organization offers a variety of maintenance and service contracts to companies using products manufactured or sold by the Company. MARKETING AND SALES The Company's products are sold primarily through its own sales personnel who work out of offices in Atlanta and other metropolitan areas in the United States and around the world. Certain products are also marketed in the United States through independent sales representatives and independent distributors. Sales in foreign countries are made through wholly-owned subsidiaries and branch offices, as well as through independent distributors and independent sales representatives. The Company's management personnel are also actively involved in marketing and sales activities. The Company's international sales constituted 37% of the Company's total sales for fiscal year 1997 and 36% and 34% of total sales in fiscal years 1996 and 1995, respectively. Substantially all of these sales were export sales. Foreign subsidiary sales were not material for any of these fiscal years. See Note 3 of the Notes to Financial Statements included in this Report. Sales to Europe were 16% of total sales in fiscal 1997 and were 12% and 16% of total sales in fiscal 1996 and 1995, respectively. A limited number of cable television operators provide communications services to a large percentage of U.S. households, and the loss of one or more of these operators as customers could have a material adverse effect on the Company's sales. Sales to Time Warner, Inc. and its affiliates were 11% of the Company's total sales in fiscal 1997 and were 13% of total sales in fiscal 1995. No customer (or group of customers under common control) accounted for more than 10% of the Company's total sales in fiscal 1996. BACKLOG The Company's backlog consists of unfilled customer orders believed to be firm and long-term contracts which have not been completed. The Company's backlog as of June 27, 1997, and June 28, 1996, was $483,463,000 and $378,582,000, respectively. The Company believes that approximately 90% of the backlog existing at June 27, 1997 will be shipped within the succeeding fiscal year. With respect to long-term contracts, the Company includes in its backlog only amounts representing orders currently released for production. The amount contained in backlog for any contract or order may not be the total amount of the contract or order. The amount of the Company's backlog at any time does not reflect expected revenues for any fiscal period. PRODUCT RESEARCH AND DEVELOPMENT AND PATENTS The Company conducts an active research and development program to strengthen and broaden its existing products and systems and to develop new products and systems. The Company's development strategy is to identify products and systems which are, or are expected to be, needed by a substantial number of customers in the Company's markets and to allocate a greater share of its research and development resources to areas with the highest potential for future benefits to the Company. In addition, the Company develops specific applications 3 related to its present technology. Expenditures in fiscal 1997, 1996 and 1995 were principally for development of commercial digital cable products, satellite network products, cable telephony products and interactive data communications products. In fiscal 1997, 1996 and 1995, the Company's research and development expenses were approximately $114,344,000, $95,299,000, and $82,378,000, respectively. The Company, with the consent of its product development partner, Siemens, plans to decrease its research and development efforts related to cable telephony products, because the markets for cable telephony products have not developed as quickly as the Company previously anticipated. The Company holds patents with respect to certain of its products and actively seeks to obtain patent protection in the U.S. and in other countries for significant inventions and developments. MANUFACTURING The Company develops, designs, fabricates, manufactures, assembles or acquires its products. Manufacturing operations range from complete assembly of a particular product by one individual or small group of individuals to semi-automated assembly lines for volume production. Because many of the Company's products include precision electronic components requiring close tolerances, the Company maintains rigorous and exacting test and inspection procedures designed to prevent production errors, and also constantly reviews its overall production techniques to enhance productivity and reliability. The Company's set-top terminals and certain pole-line hardware for the CATV industry are also manufactured by contract vendors with high-quality, high- volume production facilities. In addition to such manufacturing by contract vendors, the Company commenced its own manufacturing of set-top terminals in fiscal year 1995 in its new Juarez, Mexico facility. In fiscal year 1997, the Company completed a 124,000 square foot addition to its manufacturing facility in Juarez, Mexico. The Company manufactures a variety of products in its Juarez, Mexico facility, including a portion of its 8600x(TM) advanced analog set-tops. During fiscal year 1998, the Company expects to launch the production of its Explorer(R) set-top in the Juarez, Mexico facility. MATERIALS AND SUPPLIES The materials and supplies purchased by the Company are standard electronic components, such as custom integrated circuits, wire, circuit boards, transistors, capacitors and resistors, all of which are produced by a number of manufacturers. Matsushita Electronic Components Co., Ltd. manufactures set-top terminals for the Company and is a primary supplier of those terminals. Cablevision is a primary supplier of taps for the Company. The Company also purchases aluminum and steel, including castings and semi- fabricated items produced by a variety of sources. The Company considers its sources of supply to be adequate and is not dependent upon any single supplier, except for Matsushita Electronic Components Co., Ltd. and Cablevision, for any significant portion of the materials used in the products it manufactures or the products it sells. EMPLOYEES The Company employed, as of June 27, 1997, approximately 5,343 regular full-time and part-time employees and approximately 743 additional workers employed through temporary employment agencies. The Company believes its employee relations are satisfactory. COMPETITION The businesses in which the Company is engaged are highly competitive. The Company competes with domestic and international companies that have substantially greater resources and a larger number of products, as well as with smaller specialized companies. Some of the Company's customers are in businesses closely related to the production of such products and are, therefore, potential competitors of the Company. The Company believes that its ability to compete successfully results from its marketing strategy, engineering skills, ability to provide post-purchase services, ability to provide quality products at competitive prices and broad coverage by its sales personnel. FORWARD-LOOKING INFORMATION This Form 10-K, the 1997 Annual Report, any Form 10-Q or any Form 8-K of the Company or any written or verbal statements made by representatives of the Company may include "forward-looking statements." Please see Exhibit 99 to this Form 10-K for detailed information about the uncertainties and other factors that may cause actual results to materially differ from the views stated in such forward-looking statements. 4 ITEM 2.PROPERTIES The Company owns and uses in its operations office and manufacturing facilities in metropolitan Atlanta, Georgia, Chicago, Illinois and Juarez, Mexico, which comprise five sites containing a total of approximately 631,200 square feet. The Company also owns (i) approximately 130 acres of land in Gwinnett County, Georgia, where antenna test ranges and a hub station used in providing interactive data communications services are located, (ii) approximately 219 acres of land in Walton County, Georgia, held for future antenna test range expansion, and (iii) approximately 280 acres of land in Gwinnett County, Georgia, held for future development of and expansion of a consolidated campus for the Company. The Company presently leases two buildings in San Diego County, California, neither of which is required for present operations, and both of which are under sublease to other tenants. Additional major manufacturing facilities containing an aggregate of approximately 361,500 square feet are leased by the Company at the following locations under leases expiring (including renewal options) from 2001 to 2015:
APPROXIMATE LOCATION SQUARE FOOTAGE -------- -------------- Norcross, Georgia 249,000 Sonderborg, Denmark 71,500 Vancouver, British Columbia 25,000 Toronto, Ontario 16,000
The Company also leases laboratory, office and warehouse space in several buildings in the metropolitan areas of Atlanta, Georgia; Cupertino, California; Tempe, Arizona; Phoenix, Arizona; El Paso, Texas; Sonderborg, Denmark; Toronto, Ontario; Vancouver, British Columbia; Melbourne, Florida; and Manchester, United Kingdom, and the Company leases sales and service offices in 29 domestic and foreign cities. ITEM 3.LEGAL PROCEEDINGS The Company is not currently a party to any legal proceedings which may or could have a material adverse impact on the Company or its operations. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended June 27, 1997. 5 EXECUTIVE OFFICERS OF THE COMPANY The following persons are the executive officers of the Company:
Executive Name Age Officer Since Present Office ---- --- ------------- -------------- James F. McDonald 57 1993 President and Chief Executive Officer John E. Breyer 62 1989 Senior Vice President William E. Eason, Jr. 54 1993 Senior Vice President, General Counsel and Corporate Secretary H. Allen Ecker 61 1979 Senior Vice President, Technical Operations and Chief Technical Officer Larry L. Enterline 44 1997 Senior Vice President, Worldwide Sales and Service Brian C. Koenig 50 1988 Senior Vice President, Human Resources John H. Levergood 63 1992 Senior Vice President and Member of Corporate Operating Committee Raymond D. Lucas 59 1989 Senior Vice President, Strategic Operations and Chief Strategic Officer Harvey A. Wagner 56 1994 Senior Vice President-Finance, Chief Financial Officer and Treasurer Conrad Wredberg, Jr. 56 1995 Senior Vice President and Chairman of Corporate Operating Committee Dwight B. Duke 45 1997 Vice President and Member of Corporate Operating Committee Julian W. Eidson 58 1978 Vice President, Controller and Member of Corporate Operating Committee
Each executive officer is elected annually and serves at the pleasure of the Board of Directors. Each executive officer, except Mr. Eidson, serves on the Corporate Management Committee of the Company. Mr. McDonald was elected President and Chief Executive Officer of the Company effective July 15, 1993. He was a general partner of J. H. Whitney & Company, a private investment firm, from 1991 until his employment by the Company. From 1989 to 1991 he was President and Chief Executive Officer of Prime Computer, Inc., a supplier of CAD/CAM software and computer systems. Prior to that time he was President and Chief Executive Officer of Gould, Inc., a computer and electronics company (1984 to 1989) and held a variety of positions with IBM Corporation (1963 to 1984). Mr. Eason has been a partner at Paul, Hastings, Janofsky & Walker since 1989. He has been Corporate Secretary of the Company since August 1993, and became Senior Vice President and General Counsel 6 in February 1994. Paul, Hastings, Janofsky & Walker performs legal services for the Company. Mr. Eason receives a fixed salary from the Firm for work which he performs for clients of the Firm other than the Company, but has no interest in the Firm's earnings and profits. Mr. Enterline was elected Senior Vice President, Worldwide Sales and Service of the Company on February 23, 1997. From January 1996 through January 1997, Mr. Enterline was a consultant in the telecommunications industry, providing consulting services to companies such as the Company and Compression Labs, Inc. From 1989 through January 1996, Mr. Enterline was employed in a variety of management positions with the Company. Mr. Levergood re-joined the Company in December 1992 as a Senior Vice President. He had previously been employed by the Company in various managerial positions (most recently as Chief Operating Officer) until December 1989. From January through June 1990, he was President and Chief Operating Officer of Dowden Communications, an operator of cable television systems. He was an independent communications consultant from June 1990 until he re-joined the Company in 1992. Mr. Wagner was Vice President-Finance and Chief Financial Officer of Computervision Corporation, a supplier of CAD/CAM/CAE software and services from September 1989 until he joined the Company in his current position in June 1994. Mr. Wredberg joined the Company in 1995 and was elected to the position of Vice President in May 1995. In November 1995, Mr. Wredberg was elected as a Senior Vice President of the Company, and in January 1997, Mr. Wredberg was appointed Chairman of the Corporate Operating Committee. Mr. Wredberg served as President of American Microsystem, Inc., a supplier of semiconductors, from 1985 until 1995. Mr. Duke was elected Vice President of the Company on June 19, 1996. Prior to that date, Mr. Duke was employed by the Company in a variety of management positions for more than five years. All other executive officers have been employed by the Company in the same or similar capacities for more than five years. There are no family relationships among the executive officers. PART II ITEM 5.MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED MATTERS The Common Stock of the Company is traded on the New York Stock Exchange (symbol SFA). The approximate number of holders of record of the Company's Common Stock at September 9, 1997, was 6,487. It has been the policy of the Company to retain a substantial portion of its earnings to finance the expansion of its business. In 1976, the Company commenced payment of quarterly cash dividends and intends to consider the continued payment of dividends on a regular basis; however, the declaration of dividends is discretionary with the Board of Directors, and there is no assurance regarding the payment of future dividends by the Company. During fiscal years 1997 and 1996, the Company paid out a $.015 dividend per share each quarter. Information as to the high and low stock prices and dividends paid for each quarter of fiscal years 1997 and 1996 is included in Note 6 of the Notes to Financial Statements included in this Report. 7 ITEM 6.SELECTED FINANCIAL DATA Selected Financial Data is set forth on page 26 of this Report. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion of Consolidated Statement of Financial Position, of Consolidated Statement of Earnings, and of Consolidated Statement of Cash Flows are set forth on pages 15 and 16, 18 through 22, and 24 of this Report, respectively. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This information is not yet required, per General Instruction 1 to Item 305 of Regulation S-K. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company and notes thereto, the schedule containing certain supporting information and the report of independent public accountants are set forth on pages 13 through 39 of this Report. See Part IV, Item 14 for an index of the statements, notes and schedules. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Pursuant to General Instruction G(3) to Form 10-K, the information required in Items 10 through 13 (except for the information set forth at the end of Part I with respect to Executive Officers of the Company) is incorporated by reference from the Company's definitive proxy statement for the Company's 1997 Annual Meeting of shareholders, which is expected to be filed pursuant to Regulation 14A within 120 days after the end of the Company's 1997 fiscal year. PART IV ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)The following documents are filed as part of this Report: (1) The consolidated financial statements listed below are included on pages 13 through 38 of this Report. Report of Independent Public Accountants. Consolidated Statement of Financial Position as of June 27, 1997 and June 28, 1996. Consolidated Statement of Earnings for each of the three years in the period ended June 27, 1997. Consolidated Statement of Cash Flows for each of the three years in the period ended June 27, 1997. Notes to Consolidated Financial Statements. 8 (2) Financial Statement Schedule:
Page ---- Schedule II Valuation and Qualifying Accounts for Each of the 39 Three Years in the Period ended June 27, 1997.
All other Schedules called for under Regulation S-X are not submitted because they are not applicable or are not required or because the required information is not material or is included in the financial statements or notes thereto. (b) Reports on Form 8-K. A report on Form 8-K was filed on April 7, 1997, to report the Company's Rights Agreement which is incorporated by reference under (c)(4)(a) below. (c) Exhibits: (3) (a) Composite Statement of Amended and Restated Articles of Incorporation of the Company. (b)By-laws of the Company, as amended. (4) The following instrument defining the rights of security holders is incorporated by reference to the Company's Form 8-A Registration Statement filed on April 7, 1997: (a)Rights Agreement, dated as of February 23, 1997, between the Company and The Bank of New York, as Rights Agent, which includes as Exhibit A the Preferences and Rights of Series A Junior Participating Preferred Stock and as Exhibit B the Form of Rights Certificate. (10) Material Contracts: (a)Agreement pertaining to the compensation of Sidney Topol.* (b)Scientific-Atlanta, Inc. Non-Employee Directors Stock Option Plan, as amended.* (c)Scientific-Atlanta, Inc. 1981 Incentive Stock Option Plan, as amended.* (d)1985 Executive Deferred Compensation Plan of Scientific-Atlanta, Inc., as amended.* (e)Scientific-Atlanta, Inc. Annual Incentive Plan for Key Executives, as amended.* (f)Scientific-Atlanta, Inc. 1978 Non-Qualified Stock Option Plan for Key Employees, as amended.* (g)Scientific-Atlanta, Inc. Senior Officer Annual Incentive Plan.* (h)Scientific-Atlanta, Inc. Restoration Retirement Plan, as amended.* (i)The following material contracts are incorporated by reference to the Company's report on Form 10-K for the fiscal year ended July 1, 1994: (i) Scientific-Atlanta, Inc. Supplemental Executive Retirement Plan.* (ii) 1994 Scientific-Atlanta, Inc. Executive Deferred Compensation Plan.* (iii) Form of Severance Protection Agreement between the Company and Certain Officers and Key Employees.* 9 (j) The following material contract is incorporated by reference to the Company's report on Form 10-K for the fiscal year ended June 30, 1995: (i) Credit Agreement, dated May 11, 1995, by and between the Company and NationsBank of Georgia, National Association, for itself and as agent for other banks participating in the credit facility. (k) The following material contract is incorporated by reference to the Company's report on Form 10-Q for its fiscal quarter ended December 29, 1995: (i) Amended and Restated Scientific-Atlanta, Inc. Retirement Plan for Non-Employee Directors.* (l) The following amendments to the Credit Agreement described in item (j) above are incorporated by reference to the Company's report on Form 10-K for its fiscal year ended June 28, 1996: (i) First Amendment, dated as of December 29, 1995, to the Credit Agreement. (ii) Letter Amendment, dated as of April 5, 1996, to the Credit Agreement. (iii) Second Amendment, dated as of June 28, 1996, to the Credit Agreement. (m) The following material contracts are incorporated by reference to the Company's report on Form 10-Q for the fiscal quarter ended September 27, 1996: (i) Long-Term Incentive Plan of Scientific-Atlanta, Inc., as amended and restated by the Board on November 13, 1996.* (ii) Stock Plan for Non-Employee Directors, as amended and restated by the Board on November 13, 1996.* (iii) Scientific-Atlanta, Inc. 1992 Employee Stock Option Plan, as amended and restated by the Board on November 13, 1996.* (iv) Deferred Compensation Plan for Non-Employee Directors of Scientific-Atlanta, Inc., as amended and restated by the Board on November 13, 1996.* (n) The following material contract is incorporated by reference to the Company's Form S-8 Registration Statement, filed on December 27, 1996: (i) Non-Qualified Stock Option Agreement between Scientific- Atlanta, Inc. and James F. McDonald.* (o) The following material contract is incorporated by reference to the Company's Post-Effective Amendment No. 1 to its Form S-8 Registration Statement, filed on January 7, 1997: (i) 1996 Employee Stock Option Plan.* (p) The following material contract is incorporated by reference to the Company's Form S-8 Registration Statement, filed on March 11, 1997: (i) Non-Qualified Stock Option Agreement between Scientific- Atlanta, Inc. and Larry L. Enterline.* 10 (q) The following amendment to the Credit Agreement described in item (j) above is incorporated by reference to the Company's report on Form 10-Q for the fiscal quarter ended March 28, 1997: (i) Third Amendment, dated as of January 27, 1997, to the Credit Agreement. (r) Letter Amendment, dated as of April 23, 1997, to the Credit Agreement described in item (j) above. (s) Credit and Investment Agreement, dated as of July 30, 1997, among the Company, Wachovia Capital Markets, Inc., Wachovia Bank, N.A., as agent, and the lenders signatories thereto. (t) Lease Agreement, dated as of July 30, 1997, between Wachovia Capital Markets, Inc. and the Company. (u) Acquisition, Agency, Indemnity and Support Agreement between the Company and Wachovia Capital Markets, Inc., dated as of July 30, 1997. (v) Ground Lease, dated as of July 30, 1997, between the Company and Wachovia Capital Markets, Inc. (w) The Rights Agreement included as Exhibit 4(a) above, which Agreement is hereby incorporated by reference. (11) Computation of Earnings Per Share of Common Stock. (21) List of Significant Subsidiaries. (23) Consent of Independent Public Accountants. (27) Financial Data Schedule. (99) Cautionary Statements. - -------- * Indicates management contract or compensatory plan or arrangement. 11 [This Page Intentionally Left Blank] 12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Scientific-Atlanta, Inc.: We have audited the accompanying consolidated statement of financial position of Scientific-Atlanta, Inc. (a Georgia corporation) and subsidiaries as of June 27, 1997 and June 28, 1996 and the related consolidated statements of earnings and cash flows for each of the three years in the period ended June 27, 1997 appearing on pages 17, 23, and 25, respectively. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Scientific- Atlanta, Inc. and subsidiaries as of June 27, 1997 and June 28, 1996 and the results of their operations and their cash flows for each of the three years in the period ended June 27, 1997 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule listed in Item 14(a)(2) of this Form 10-K is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP ----------------------- ARTHUR ANDERSEN LLP Atlanta, Georgia August 5, 1997 REPORT OF MANAGEMENT The management of Scientific-Atlanta, Inc. (the Company) has the responsibility for preparing the accompanying financial statements and for their integrity and objectivity. The statements, which include amounts that are based on management's best estimates and judgments, have been prepared in conformity with generally accepted accounting principles and are free of material misstatement. Management also prepared the other information in the Form 10-K and is responsible for its accuracy and consistency with the financial statements. The Company maintains a system of internal control over the preparation of its published annual and interim financial statements. It should be recognized that even an effective internal control system, no matter how well designed, can provide only reasonable assurance with respect to the preparation of reliable financial statements; further, because of changes in conditions, internal control system effectiveness may vary over time. Management assessed the Company's system of internal control in relation to criteria for effective internal control over the preparation of its published annual and interim financial statements. Based on its assessment, it is management's opinion that its system of internal control as of June 27, 1997 is effective in providing reasonable assurance that its published annual and interim financial statements are free of material misstatement. As part of their audit of our financial statements, Arthur Andersen LLP considered certain elements of our system of internal controls in determining their audit procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors is composed solely of outside directors and is responsible for recommending to the board the independent public accountants to be retained for the year, subject to stockholder approval. The audit committee meets three times each year to review with management the Company's system of internal accounting controls, audit plans and results, accounting principles and practices, and the annual financial statements. /s/ James F. McDonald /s/ Harvey A. Wagner - ------------------------------------- ------------------------------- James F. McDonald Harvey A. Wagner President and Chief Executive Officer Senior Vice President - Finance Chief Financial Officer and Treasurer 13 [This Page Intentionally Left Blank] 14 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION Scientific-Atlanta had stockholders' equity of $532.6 million and cash and cash equivalents of $107.1 million at June 27, 1997. The current ratio of 2.4:1 at June 27, 1997 compared to 2.1:1 at June 28, 1996. CASH AND CASH EQUIVALENTS at the end of 1997 were $107.1 million, up $86.2 million over last year. Cash generated from earnings, accounts receivable collections, reductions in inventory levels, and the sale of discontinued operations and the sale of land and a building not required for current operations exceeded expenditures for equipment, expansion of manufacturing capacity and the acquisition of Arcodan A/S (Arcodan). Arcodan is a Danish manufacturer of advanced analog and digital headend systems, opto- electronics and RF (radio frequency) distribution equipment. See Note 2. Ending working capital, excluding cash, was $240.2 million, or 20.6 percent of sales, as compared to $280.1 million or 26.7 percent of sales in the prior year. RECEIVABLES were $238.2 million at year-end, compared to $252.9 million at the prior fiscal year-end. Average days sales outstanding decreased to 76 for 1997 from 79 for 1996 due to improved collections of accounts receivable. The allowance for doubtful accounts as a percent of gross receivables was 1.7 percent in 1997, up slightly over the prior year. INVENTORY turnover was 4.1 times in 1997, compared to 3.1 in the prior year. The improvement in inventory turnover was due to lower average inventory balances in 1997 as compared to 1996 reflecting management's effort to improve working capital by reducing inventory levels. CURRENT DEFERRED INCOME TAXES decreased $19.7 million due to decreases in nondeductible reserves, including usage during 1997 of a reserve of $25.4 million recorded in 1996 related to an arbitration award. See Note 4 for details about the arbitration award. OTHER CURRENT ASSETS, which include assets held for sale, prepaid insurance, deposits, royalties, license fees and other miscellaneous prepaid expenses, decreased $11.5 million due primarily to the sale in 1997 of the net assets of the defense-related businesses discontinued in 1996 (see Note 5 for details) and land held for resale. NET PROPERTY, PLANT AND EQUIPMENT increased by $15.8 million in 1997 as capital spending exceeded depreciation and disposals. Capital additions of $53.1 million included expenditures for equipment, and expansion of manufacturing capacity, primarily in Juarez, Mexico. COST IN EXCESS OF NET ASSETS ACQUIRED increased $5.1 million in 1997, including $5.8 million recorded with the acquisition of Arcodan. See Note 2 for details. OTHER ASSETS, which include license fees, investments, intellectual property, capitalized software development costs, cash surrender value of company- owned life insurance and various prepaid expenses, increased $5.3 million in 1997 due primarily to capitalized software development costs and additional investments. See Notes 1 and 2. TOTAL BORROWINGS at year-end amounted to $2.7 million, up $0.7 million over the prior year. The borrowings include industrial development bonds, working capital loans for foreign subsidiaries and financing for equipment. Working capital borrowings by foreign subsidiaries decreased $1.3 million during 1997. Details of borrowings are shown in Note 7. The Company has a $300 million senior credit facility that provides for unsecured borrowings up to $150 million which expire May 1998 and up to $150 million which expire May 2000. There were no outstanding borrowings under this facility at June 27, 1997 or June 28, 1996. The facility may be used to supplement funds generated internally to support the growth of the Company. ACCOUNTS PAYABLE were $123.7 million at year-end, up from $106.5 million last year. The increase reflects higher production levels in the fourth quarter of 1997 as compared to 1996. Days in 15 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED) accounts payable decreased to 49 in 1997 from 56 in 1996. ACCRUED LIABILITIES of $111.7 million include accruals for compensation, warranty and service, customer down-payments, royalties and taxes, excluding income taxes. Reductions in accruals related to an arbitration award recorded in 1996 were offset partially by higher accruals for royalties and compensation. See Note 8 for details. OTHER LIABILITIES of $39.4 million are comprised of deferred compensation, retirement plans, postretirement benefit plans, postemployment benefits and other miscellaneous accruals. See Note 9 for details. STOCKHOLDERS' EQUITY was $532.6 million at the end of 1997, up $69.0 million over the prior year. Net earnings of $64.0 million and $13.5 million from the issuance of common stock pursuant to employee benefit plans were partially offset by dividend payments of $4.6 million, the repurchase of 225,000 shares of the Company's stock for $3.0 million, and a $0.9 million decline in accumulated translation adjustments. See Note 17 for details. 16 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
In Thousands ------------------ 1997 1996 - ------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash and cash equivalents $107,143 $ 20,930 Receivables, less allowance for doubtful accounts of $4,202,000 in 1997 and $3,826,000 in 1996 238,179 252,882 Inventories 209,570 215,767 Deferred income taxes 31,323 50,979 Other current assets 10,886 22,413 -------- -------- TOTAL CURRENT ASSETS 597,101 562,971 -------- -------- PROPERTY, PLANT, AND EQUIPMENT, AT COST Land and improvements 19,854 18,173 Buildings and improvements 32,229 38,628 Machinery and equipment 206,760 162,073 -------- -------- 258,843 218,874 Less - Accumulated depreciation and amortization 92,423 68,275 -------- -------- 166,420 150,599 -------- -------- COST IN EXCESS OF NET ASSETS ACQUIRED 11,263 6,191 -------- -------- OTHER ASSETS 48,831 43,561 -------- -------- TOTAL ASSETS $823,615 $763,322 ======== ======== - ------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt and current maturities of long-term debt $ 842 $ 1,600 Accounts payable 123,675 106,542 Accrued liabilities 111,737 127,546 Income taxes currently payable 13,507 26,229 -------- -------- TOTAL CURRENT LIABILITIES 249,761 261,917 -------- -------- LONG-TERM DEBT, less current maturities 1,810 400 -------- -------- OTHER LIABILITIES 39,394 37,353 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 14) STOCKHOLDERS' EQUITY Preferred stock, authorized 50,000,000 shares; no shares issued -- -- Common stock, $0.50 par value, authorized 350,000,000 shares, issued 77,995,475 shares in 1997 and 77,255,528 shares in 1996 38,998 38,628 Additional paid-in capital 171,857 163,143 Retained earnings 323,608 264,206 Accumulated translation adjustments (186) 740 -------- -------- 534,277 466,717 Less - Treasury stock, at cost (113,000 shares in 1997 and 265,640 shares in 1996) 1,627 3,065 -------- -------- 532,650 463,652 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $823,615 $763,322 ======== ======== - ------------------------------------------------------------------------------
See accompanying notes. 17 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS The Consolidated Statement of Earnings summarizes Scientific-Atlanta's operating performance over the last three years, during which time the Company has accelerated development of new products and expanded into international markets. EARNINGS FROM CONTINUING OPERATIONS in 1997 were $60.6 million, as compared to $7.2 million in 1996. Earnings from continuing operations in 1996 included one-time, after-tax charges of $19.5 million for the resolution of an arbitration proceeding and $9.9 million for the write-off of purchased in- process technology. Excluding these charges in 1996, earnings from continuing operations in 1997 increased $24.0 million, or 66 percent over the prior year. Higher sales volume and improved gross margins, which were the primary factors in the year-to-year increase, were offset partially by increased sales and administrative expenses and research and development expenses. SALES of $1,168.2 million in 1997, increased 11 percent over the prior year. Higher domestic sales volume of subscriber products, particularly advanced analog set-tops, was the major contributor to the increase. Sales volume of distribution equipment, primarily RF products, also contributed to the increase. Sales in 1997 of satellite systems increased slightly over the prior year driven by sales of the Company's recently introduced PowerVuTM digital video systems. Sales volume of video game adapters declined as compared to the prior year. Sales of set-tops constituted approximately 30 percent of the Company's total sales in 1997, and approximately 27 percent and 26 percent of such sales in 1996 and 1995, respectively. Sales of RF products were approximately 19 percent of the Company's total sales in 1997, and approximately 21 percent and 17 percent of such sales in 1996 and 1995, respectively. International sales were 37 percent of total sales in 1997, as compared to 36 percent and 34 percent of such sales in 1996 and 1995, respectively. Sales of $1,047.9 million in 1996 were 6 percent lower than the prior year. Lower sales volumes of video game adapters and analog set-tops more than offset increases in sales of distribution equipment and satellite systems, excluding sales to Orbit Communications Company (Orbit). Sales of satellite systems in 1996 included sales of $4.5 million to Orbit for its direct-to- home satellite services, $78.3 million lower than the prior year due to substantial completion of deliveries in 1995. Sales in 1996 were negatively impacted by reduced levels of orders from domestic cable operators and telephone companies. The Company believes that the capital spending in telecommunications markets was affected as cable television operators and telephone companies developed strategies to take advantage of provisions in the Telecommunications Act of 1996. COST OF SALES as a percent of sales decreased 3.4 percentage points as compared to 1996. Improved margins reflect the impact of internal programs to improve quality and reduce cost, the ramp-up of the Juarez, Mexico manufacturing facility, and favorable exchange rates on Japanese yen compared to the prior year. Favorable margin improvements were offset partially by increased volumes of certain subscriber products which have a lower margin than some of the Company's other products. The Company recently completed a 124,000 square foot addition to its manufacturing facility in Juarez, Mexico. The Company currently manufactures a portion of its 8600X advanced analog set-tops in Juarez and expects to launch production of its Explorer 2000 digital set-top in Juarez during fiscal 1998. The Company believes that it will be able to manufacture certain products at its new high-quality, high volume facility in Juarez and expanded facilities in Atlanta, Georgia at costs competitive with those currently charged by contract vendors. Cost of sales as a percent of sales in 1996 increased 0.9 percentage points over 1995. Unfavorable exchange rates in Japanese yen and costs associated with planned expansion of manufacturing capacity offset cost reductions. 18 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED) The materials and supplies purchased by the Company are standard electronic components, such as custom integrated circuits, wire, circuit boards, transistors, capacitors and resistors, all of which are produced by a number of manufacturers. Matsushita Electronic Components Co., Ltd. manufactures set-top terminals for the Company and is a primary supplier of those terminals. Cablevision is a primary supplier of taps for the Company. The Company also purchases aluminum and steel, including castings and semi- fabricated items produced by a variety of sources. The Company considers its sources of supply to be adequate and is not dependent upon any single supplier, except for Matsushita Electronic Components, Ltd. and Cablevision, for any significant portion of the materials used in the products it manufactures or the products it sells. Certain material purchases are denominated in Japanese yen and, accordingly, the purchase price in U.S. dollars is subject to change based on exchange rate fluctuations. Currently, the Company has forward exchange contracts to purchase yen to hedge a portion of its exposure on purchase commitments for a period of twelve months. SALES AND ADMINISTRATIVE EXPENSES of $160.6 million in 1997 increased $22.3 million over the prior year. Increased selling expenses reflect costs associated with higher sales volumes, ongoing investments to support expansion into international markets, particularly in the Asia Pacific and Latin American regions, and to support the introduction of new products and a build-up in the infrastructure to handle the growth the Company is experiencing. The Company is continuing to invest in opportunities to expand into international markets and introduce new products. Administrative expenses increased as higher consulting fees, administrative expenses of ATx Telecom Systems Inc. (ATx) acquired in June 1996 and Arcodan A/S acquired in February 1997, and other miscellaneous items more than offset cost reductions from internal processes and systems improvements. Sales and administrative expenses of $138.4 million in 1996 were slightly lower than the prior year. Selling expenses were flat reflecting the slightly lower sales volume in 1996. Administrative expenses declined slightly in 1996 as the Company continued efforts to improve internal processes and systems to enhance quality and the overall cost structure. RESEARCH AND DEVELOPMENT expenses of $114.0 million increased $19.0 million over 1996, reflecting the Company's continued investment in research and development programs to support existing products and new product initiatives. New product initiatives include high speed cable data modems, cable telephony products, interactive settops and home automation products for the utility industry. The Company expects to begin shipment of interactive settops during the first half of fiscal 1998. During fiscal year 1997, the Company commenced manufacture and sales of a telephone return cable modem and announced its intention to develop a two- way RF cable modem. However, the market for all cable modems has developed more slowly than originally anticipated by the Company. As a result, the Company is reevaluating the need for a stand alone two-way RF modem in fiscal 1998. A two-way solution is currently included in one of the Company's digital set-top product offerings. The Company, with the consent of its product development partner, Siemens, plans to decrease its research and development efforts related to cable telephony products because the markets for cable telephony products has not developed as quickly as the Company previously anticipated. Certain software development costs are capitalized when incurred and are reported at the lower of unamortized cost or net realizable value. Capitalization of software development costs begins upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing 19 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED) assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future sales, estimated economic life and changes in software and hardware technologies. During 1997, the Company capitalized $2.0 million of software development costs. Capitalization will cease when the product is available for general release to customers. Software development costs were not material and, therefore, were not capitalized in 1996 or 1995. The Company periodically allocates engineering resources from research and development efforts for specific customer orders. The revenue from these orders will be recognized in future periods and, accordingly, the related costs have been capitalized as inventory. At June 27, 1997 the Company had capitalized $5.5 million of such non-recurring engineering costs. There were no material non-recurring engineering costs capitalized at June 28, 1996 or June 30, 1995. The Company anticipates that spending on research and development will increase at a slightly lower rate in 1998. The Company periodically evaluates the strategic direction of the Company including an assessment of the markets the Company serves and alternative methods of generating revenues from its investments in research and development programs, such as licensing of software and hardware technology. Research and development expenses of $95.3 million in 1996 increased $12.9 million over 1995. Research and development activity increased in most businesses, particularly in the development of digital products and cable telephony products. PURCHASED IN-PROCESS TECHNOLOGY was $14.6 million in 1996. In connection with the acquisition of ATx Telecom Systems, Inc. on June 28, 1996, the Company recorded a pre-tax charge of $14.6 million for purchased in-process technology which had not yet reached technological feasibility and had no alternative future use. ATx is a supplier of Erbium Doped Fiber Amplifiers (EDFA) fiber optic products for hybrid fiber/coax (HFC) networks. The acquisition reflects the Company's strategic commitment to maintaining its role in the rapidly growing opto-electronic market with a full range of fiberoptic technology. INTEREST EXPENSE was $0.5 million, $0.7 million, and $0.8 million in 1997, 1996, and 1995, respectively. The year-to-year decreases reflect lower average working capital borrowings by foreign subsidiaries. INTEREST INCOME was $3.9 million, an increase of $2.1 million over the prior year, reflecting higher average cash balances in fiscal 1997. Interest income of $1.8 million in 1996 was lower than the prior year due to the lower average cash balances in 1996 as compared to 1995. OTHER INCOME of $1.5 million in 1997 included a gain of $5.6 million from the sale of land and a building in San Diego County, California not required for current operations, the results of foreign currency transactions and partnership activities and net gains from rental income and other miscellaneous items. During the quarter ended March 28, 1997, the Company decided to dispose of two business units, microwave and mobile, because these businesses were not aligned with the Company's core business strategies. The Company recorded a charge of $5.5 million during the quarter ended March 28, 1997 to adjust the carrying amount of the net assets held for sale to net realizable value and to provide for estimated indemnifications to the purchaser, severance, closing costs and other miscellaneous expenses related to the sale. During the ordinary course of business, the Company encounters certain risks and uncertainties related to the satisfactory performance under contracts which it evaluates periodically and provides reserves, if appropriate. The estimated loss on the sale of these businesses was computed on the basis that 20 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED) the Company would sell the businesses at an amount that would allow the purchaser, with reasonable assurance, to complete the contracts at a reasonable margin. The Company believes that it will complete the sale of these two business units during fiscal 1998. Other expense in 1996 included a charge of $28.7 million, related to an arbitration panel's decision in a proceeding with StarSight Telecast, Inc. (StarSight), for damages, legal and arbitration expenses and other expenses, including incremental costs to independently develop an electronic program guide. In July 1996, an arbitration panel awarded StarSight $15 million in damages, plus legal and arbitration expenses, and issued a three year limited-term injunction on the future sales of interactive electronic program guides contained in set-tops. The panel determined the Company violated the terms of a 1992 license and technical assistance agreement between the Company and StarSight. In April 1997, the Company and StarSight entered into a License and Settlement Agreement which resolved all outstanding disputes and provided for the cross-licensing of technologies. Other income was $1.6 million in 1995. Other income included rental income, royalty income, net gains from partnership activities and other miscellaneous items. There were no significant items in other income and other expense during 1995. THE PROVISION FOR INCOME TAXES was 32 percent of pre-tax earnings in 1997, 1996 and 1995. Details of the provision for income taxes are discussed in Note 10. GAIN ON SALE OF DISCONTINUED OPERATIONS was $3.4 million in 1997 compared to losses of $13.2 million in 1996. Losses in 1996 included losses from discontinued operations of $1.0 million, net of a tax benefit of $0.5 million, and a one-time, after-tax charge of $12.2 million, net of a tax benefit of $5.7 million, for the estimated loss on the sale of discontinued operations which was recorded in the quarter ended September 29, 1995. During the quarter ended September 29, 1995, the Company decided to discontinue its defense-related businesses in San Diego, California. The estimated loss on the sale of discontinued operations included losses of the operations through the expected date of sale, reserves to adjust the carrying amount of the net assets held for sale to net realizable value and losses on a subcontract. The Company had performed work as a subcontractor under a subcontract which included options for additional products. The Company believed that some of these options had not been validly exercised. The Company had been negotiating with the prime contractor to increase the pricing on the unexercised options to provide a reasonable margin and believed these negotiations would be successful. At the time the Company decided to discontinue the defense-related businesses, the negotiations had deteriorated significantly. The estimated loss on the disposition was computed on the basis that the Company would give a buyer a subcontract to complete the options at an amount that would provide a reasonable margin. No accounting recognition was given to the Company's claim against the prime contractor due to its uncertain outcome. In July 1996, the Company completed negotiations with the prime contractor to settle issues related to the pricing of the unexercised options. On August 14, 1996, the Company completed the sale of its defense-related businesses to Global Associates, Ltd. (Global) for cash of $13.2 million and secured and unsecured notes aggregating approximately $5.0 million. The net realizable value of the assets of the defense-related businesses and the settlement with the prime contractor were more favorable than the Company had anticipated when it decided to exit these businesses; accordingly, the Company recognized a pre-tax gain of $5.0 million from these transactions in the first quarter of 1997. Losses from the defense- related businesses while they were accounted for as discontinued operations of $2.5 million, net of a tax benefit of $1.2 million, approximated the amount included in 21 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED) the $12.2 million one-time after-tax charge for the estimated loss on the sale of discontinued operations. At June 27, 1997, the Company had a reserve of approximately $7.5 million for potential sales price adjustments, indemnifications provided to Global, legal, severance and other miscellaneous expenses related to the sale and the settlement with the prime contractor. NET EARNINGS of $64.0 million, which included an after-tax gain of $3.4 million from the sale of discontinued operations, compared to a net loss of $6.0 million in 1996. The net loss in 1996 included after-tax charges of $9.9 million for purchased in-process technology, $19.5 million for damages, legal and arbitration expenses and $13.2 million from discontinued operations. EARNINGS PER SHARE of $0.82 compares with a loss per share of $0.08 in 1996 and earnings per share of $0.83 in 1995. Shares outstanding and share equivalents increased slightly to 78.2 million in 1997 from 76.7 million in 1996 and 76.2 million in 1995. 22 CONSOLIDATED STATEMENT OF EARNINGS
(In Thousands, Except Per Share Data) 1997 1996 1995 - ------------------------------------------------------------------------------ SALES $1,168,245 $1,047,901 $1,118,057 - ------------------------------------------------------------------------------ COSTS AND EXPENSES - ------------------------------------------------------------------------------ Cost of sales 809,081 761,876 802,216 Sales and administrative 160,613 138,362 140,082 Research and development 114,344 95,299 82,378 Purchased in-process technology -- 14,583 -- Interest expense 484 672 775 Interest income (3,943) (1,818) (2,837) Other (income) expense, net (1,513) 28,374 (1,566) - ------------------------------------------------------------------------------ 1,079,066 1,037,348 1,021,048 - ------------------------------------------------------------------------------ EARNINGS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS 89,179 10,553 97,009 - ------------------------------------------------------------------------------ PROVISION FOR INCOME TAXES 28,537 3,377 31,042 - ------------------------------------------------------------------------------ EARNINGS BEFORE DISCONTINUED OPERATIONS 60,642 7,176 65,967 - ------------------------------------------------------------------------------ LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX -- (1,038) (2,427) - ------------------------------------------------------------------------------ GAIN (LOSS) ON SALE OF DISCONTINUED OPERATIONS, NET OF TAX 3,400 (12,172) -- - ------------------------------------------------------------------------------ NET EARNINGS (LOSS) $ 64,042 $ (6,034) $ 63,540 - ------------------------------------------------------------------------------ EARNINGS (LOSS) PER COMMON SHARE AND COMMON EQUIVALENT SHARE - ------------------------------------------------------------------------------ Primary Before discontinued operations $ 0.78 $ 0.09 $ 0.86 Discontinued operations 0.04 (0.17) (0.03) - ------------------------------------------------------------------------------ Net earnings (loss) $ 0.82 $ (0.08) $ 0.83 - ------------------------------------------------------------------------------ Fully diluted $ 0.82 $ (0.08) $ 0.83 - ------------------------------------------------------------------------------ WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON EQUIVALENT SHARES OUTSTANDING - ------------------------------------------------------------------------------ Primary 78,198 76,666 76,194 - ------------------------------------------------------------------------------ Fully diluted 78,383 76,666 76,194 - ------------------------------------------------------------------------------
See accompanying notes. 23 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF CASH FLOWS The Statement of Cash Flows summarizes the main sources of Scientific-Atlanta's cash and its uses. These flows of cash provided or used are summarized by the Company's operating activities, investing activities and financing activities. CASH AND CASH EQUIVALENTS at the end of 1997 were $107.1 million, up $86.2 million from the end of 1996 due to improved earnings, working capital management, and proceeds from the sale of discontinued operations and the sale of land and a building not required for current operations. The Company has a $300 million senior credit facility available that provides for unsecured borrowings up to $150 million which expire May 1998 and up to $150 million which expire May 2000. There were no outstanding borrowings under this facility at June 27, 1997 or June 28, 1996. The Company believes that funds generated from operations, existing cash balances and its available senior credit facility will be sufficient to support growth and planned expansion of manufacturing capacity. During the first quarter of fiscal 1998, the Company secured a $38.0 million commitment under a long-term operating lease for the consolidation of certain operations and future expansion. The initial lease term will be seven years with the option to extend the lease for an additional fifteen years in five year increments. CASH PROVIDED BY OPERATING ACTIVITIES was $125.1 million for 1997, compared to $44.1 million for 1996. Cash provided by earnings, accounts receivable collections and reductions in inventory levels was partially offset by decreases in payables and other liabilities and increases in other assets. See Management's Discussion of the Statement of Financial Position for details of this performance. In 1996, cash provided by earnings and decreases in inventories was partially offset by increases in accounts receivable and decreases in payables. In 1995, cash provided by improved earnings and increases in payables was partially offset by increases in inventories and accounts receivable. CASH USED BY INVESTING ACTIVITIES of $35.9 million included expenditures for equipment, the expansion of manufacturing capacity, primarily in Juarez, Mexico, the acquisition of Arcodan and other investing activities. Sources of cash from investing activities included proceeds from the sale of defense-related businesses discontinued in 1996 and the sale of land and a building not required for current operations. See Note 2 for additional discussion of investing activities. In 1996, cash used by investing activities included expenditures for equipment, expansion of manufacturing capacity, the purchase of land for future expansion, the acquisition of ATx and other investing activities. In 1995, cash used by investing activities of $65.4 million included expenditures of $63.8 million for equipment and expansion of manufacturing capacity, including the construction of a manufacturing facility in Juarez, Mexico. CASH USED BY FINANCING ACTIVITIES was $3.0 million in 1997. Financing activities included dividend payments of $4.6 million, the repurchase of 225,000 shares of the Company's common stock for $3.0 million and net debt payments of $2.0 million. The issuance of stock pursuant to stock option and employee benefit plans generated cash of $6.6 million. The repurchase of 1,010,000 shares of the Company's common stock for $12.4 million and dividend payments of $4.6 million exceeded cash generated from the issuance of stock of $4.3 million in 1996. The issuance of stock generated $8.2 million in 1995. Cash used by financing activities included a $5.1 million reduction of working capital borrowings by foreign subsidiaries and dividend payments of $4.6 million. ---------------- Any statements in Management's Discussion and Analysis of Financial Condition that are not statements about historical facts are forward-looking statements. Such forward-looking statements are based upon current expectations but involve risks and uncertainties. Investors are referred to the Cautionary Statements contained in Exhibit 99 to this Form 10-K for a description of the various risks and uncertainties that could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. Such Exhibit 99 is hereby incorporated by reference into Management's Discussion and Analysis of Financial Condition and Results of Operations. PowerVu and 8600x are trademarks of Scientific-Atlanta, Inc. Explorer is a registered name of Scientific-Atlanta, Inc. 24 CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) 1997 1996 1995 - ------------------------------------------------------------------------------- OPERATING ACTIVITIES: - --------------------- NET EARNINGS FROM CONTINUING OPERATIONS $ 60,642 $ 7,176 $ 65,967 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 43,151 36,597 28,328 Purchased in-process technology -- 14,583 -- Compensation related to stock benefit plans 6,600 6,193 6,051 Provision for losses on accounts receivable 391 324 343 (Gain) loss on sale of property, plant and equipment (4,965) (2,123) 625 (Earnings) losses of partnerships (393) 103 386 Changes in operating assets and liabilities: Receivables 20,028 (21,810) (43,618) Inventories 11,371 29,370 (117,156) Deferred income taxes 17,686 (15,308) (353) Accounts payable and accrued liabilities (7,676) (27,546) 81,862 Other assets (10,690) (4,900) 2,928 Other liabilities (10,144) 21,450 (1,021) Net effect of exchange rate fluctuations (899) 35 (208) -------- -------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 125,102 44,144 24,134 -------- -------- --------- INVESTING ACTIVITIES: - --------------------- Purchases of property, plant and equipment (53,076) (60,812) (63,798) Acquisition of businesses, net of cash acquired (11,237) (24,336) -- Payment for businesses purchased -- (1,721) (1,634) Purchase of land held for resale -- (5,085) -- Proceeds from the sale of property, plant and equipment 13,183 2,358 510 Proceeds from the sale of discontinued operations 18,858 -- -- (Increase) decrease in net assets of discontinued operations (2,264) 1,505 (1,110) Proceeds from the sale of investments 500 -- 4,214 Other investments (1,875) (2,600) (3,560) -------- -------- --------- NET CASH USED BY INVESTING ACTIVITIES (35,911) (90,691) (65,378) -------- -------- --------- FINANCING ACTIVITIES: - --------------------- Net short-term borrowings (payments) (1,600) 214 (5,101) Principal payments on long-term debt (400) (373) (315) Dividends paid (4,640) (4,600) (4,578) Issuance of stock 6,635 4,336 8,162 Treasury shares acquired (2,973) (12,411) -- -------- -------- --------- NET CASH USED BY FINANCING ACTIVITIES (2,978) (12,834) (1,832) -------- -------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 86,213 (59,381) (43,076) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,930 80,311 123,387 -------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $107,143 $ 20,930 $ 80,311 ======== ======== =========
See accompanying notes. 25 SELECTED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Data) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------ SALES $1,168,245 $1,047,901 $1,118,057 $755,923 $666,033 - ------------------------------------------------------------------------------------ Cost of Sales 809,081 761,876 802,216 525,955 484,887 Sales and Administrative Expense 160,613 138,362 140,082 107,233 103,143 Research and Development Expense 114,344 95,299 82,378 58,542 55,283 Purchased In-Process Technology -- 14,583 -- -- -- Interest Expense 484 672 775 1,066 933 Interest Income (3,943) (1,818) (2,837) (3,151) (2,925) Other (Income) Expense, Net (1,513) 28,374 (1,566) 17,449 (686) - ------------------------------------------------------------------------------------ EARNINGS BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES 89,179 10,553 97,009 48,829 25,398 - ------------------------------------------------------------------------------------ PROVISION FOR INCOME TAXES 28,537 3,377 31,042 15,624 6,349 - ------------------------------------------------------------------------------------ EARNINGS BEFORE DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES 60,642 7,176 65,967 33,205 19,049 - ------------------------------------------------------------------------------------ EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAX 3,400 (13,210) (2,427) 1,817 5,625 - ------------------------------------------------------------------------------------ CUMULATIVE EFFECT OF ACCOUNTING CHANGES -- -- -- -- (4,700) - ------------------------------------------------------------------------------------ NET EARNINGS (LOSS) $ 64,042 $ (6,034) $ 63,540 $ 35,022 $ 19,974 - ------------------------------------------------------------------------------------ PRIMARY EARNINGS PER SHARE BEFORE DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES $ 0.78 $ 0.09 $ 0.86 $ 0.44 $ 0.25 - ------------------------------------------------------------------------------------ PRIMARY EARNINGS (LOSS) PER SHARE $ 0.82 $ (0.08) $ 0.83 $ 0.46 $ 0.27 - ------------------------------------------------------------------------------------ CASH DIVIDENDS PAID PER SHARE $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.05 5/6 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ WORKING CAPITAL $ 347,340 $ 301,054 $ 339,665 302,771 $280,616 - ------------------------------------------------------------------------------------ TOTAL ASSETS $ 823,615 $ 763,322 $ 785,264 $640,219 $524,210 - ------------------------------------------------------------------------------------ Short-Term Debt and Current Maturities $ 842 $ 1,600 $ 1,386 $ 6,487 $ 5,962 Long-Term Debt 1,810 400 773 1,088 1,398 Stockholders' Equity 532,650 463,652 474,189 395,646 352,890 - ------------------------------------------------------------------------------------ TOTAL CAPITAL INVESTED $ 535,302 $ 465,652 $ 476,348 $403,221 $360,250 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ SALES PER EMPLOYEE $ 207 $ 240 $ 265 $ 224 $ 220 - ------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------ GROSS MARGIN % TO SALES 30.7% 27.3% 28.2% 30.4% 27.2% - ------------------------------------------------------------------------------------ RETURN ON SALES BEFORE DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES 5.2% 0.7% 5.9% 4.4% 2.9% - ------------------------------------------------------------------------------------ RETURN ON AVERAGE STOCKHOLDERS' EQUITY 13.0% (1.3)% 14.7% 9.5% 6.1% - ------------------------------------------------------------------------------------
26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ----------------------------------- BUSINESS Scientific-Atlanta, Inc. (the "Company") provides its customers with the products and services they need to develop the advanced terrestrial and satellite networks that deliver entertainment, information and communications. The Company's products connect information generators with information users via broadband terrestrial and satellite networks, and include applications for the converging cable, telephone, and data networks. The Company operates primarily in one business segment, Communications, providing satellite and terrestrial based networks to a range of customers and applications, and providing network management and systems integration to add value to those networks. This segment represents over 90 percent of consolidated sales, operating profit and identifiable assets. The Company's products are sold primarily through its own sales personnel who work out of offices in Atlanta and other metropolitan areas in the United States and around the world. Certain products are also marketed in the United States through independent sales representatives and independent distributors. Sales in foreign countries are made through wholly-owned subsidiaries and branch offices, as well as through independent distributors and independent sales representatives. The materials and supplies purchased by the Company are standard electronic components, such as custom integrated circuits, wire, circuit boards, transistors, capacitors and resistors, all of which are produced by a number of manufacturers. Matsushita Electronic Components Co., Ltd. manufactures set- top terminals for the Company and is a primary supplier of those terminals. Cablevision is a primary supplier of taps for the Company. The Company also purchases aluminum and steel, including castings and semi-fabricated items produced by a variety of sources. The Company considers its sources of supply to be adequate and is not dependent upon any single supplier, except for Matsushita Electronic Components Co., Ltd. and Cablevision, for any significant portion of the materials used in the products it manufactures or the products it sells. FISCAL YEAR-END The Company's fiscal year ends on the Friday closest to June 30 of each year. Fiscal year ends are as follows: 1997: June 27, 1997 1996: June 28, 1996 1995: June 30, 1995
CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and all subsidiaries after elimination of all material intercompany accounts and transactions. USE OF ESTIMATES The preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The estimates made by management primarily relate to receivable and inventory reserves, estimated costs to complete long-term contracts and certain accrued liabilities, principally relating to warranty and service provisions, compensation, claims, litigation and taxes. FOREIGN CURRENCY TRANSLATION The financial statements of certain foreign operations are translated into U.S. dollars at current exchange rates. Resulting translation adjustments are accumulated as a component of stockholders' equity and excluded from net earnings. Foreign currency transaction gains and losses are included in cost of sales and other income. FOREIGN EXCHANGE CONTRACTS The Company enters into foreign exchange forward contracts to hedge certain firm commitments and assets denominated in currencies other than the U.S. dollar, primarily Japanese yen. These contracts are 27 for periods consistent with the exposure being hedged and generally have maturities of one year or less. To qualify as a hedge, the item to be hedged must expose the Company to inventory pricing or asset devaluation risk and the related contract must reduce that exposure and be designated by the Company as a hedge. Gains and losses on foreign exchange forward contracts, including cost of the contracts, are deferred and recognized in income in the same period as the hedged transactions. The Company's foreign exchange forward contracts do not subject the Company's results of operations to risk due to exchange rate fluctuations because gains and losses on these contracts generally offset losses and gains on the exposure being hedged. The Company does not enter into any foreign exchange forward contracts for speculative trading purposes. If a foreign exchange forward contract did not meet the criteria for hedges, the Company would recognize unrealized gains and losses as they occur. METHOD OF RECORDING CONTRACT PROFITS Revenues from progress-billed contracts are primarily recorded using the percentage-of-completion method based on contract costs incurred to date. Losses, if any, are recorded when determinable. Costs incurred and accrued profits not billed on these contracts are included in receivables. These receivables from commercial customers and government agencies were $22,515 at June 27, 1997 and $45,543 at June 28, 1996. It is anticipated that substantially all such amounts will be collected within one year. RESEARCH AND DEVELOPMENT EXPENDITURES Certain software development costs are capitalized when incurred and are reported at the lower of unamortized cost or net realizable value. Capitalization of software development costs begins upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future sales, estimated economic life and changes in software and hardware technologies. During 1997, the Company capitalized $2,022 of software development costs. Capitalization will cease when the product is available for general release to customers. Software development costs were not material and, therefore, were not capitalized in 1996 or 1995. The Company periodically allocates engineering resources from research and development efforts for specific customer orders. The revenue from these orders will be recognized in future periods and, accordingly, the related costs have been inventoried. At June 27, 1997 the Company had capitalized $5,502 of such non-recurring engineering costs. There were no material non-recurring engineering costs capitalized at June 28, 1996 or June 30, 1995. DEPRECIATION, MAINTENANCE AND REPAIRS Depreciation is provided using principally the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred. Renewals and betterments are capitalized. The cost and accumulated depreciation of property retired or otherwise disposed of are removed from the respective accounts, and the gains or losses thereon are included in the consolidated statement of earnings. WARRANTY COSTS The Company accrues warranty costs at the time of sale. Expenses related to unusual product warranty problems and product defects are recorded in the period the problem is identified. EARNINGS PER SHARE Earnings per share were computed based on the weighted average number of shares of common stock outstanding and equivalent shares derived from dilutive stock options. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash at June 28, 1996 included $470 held in escrow as a contingent payment for an acquisition. See Note 2. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. Cost includes materials, direct labor, and manufacturing overhead. Market is defined principally as net realizable value. Inventories include purchased and manufactured 28 components in various stages of assembly as presented in the following table:
1997 1996 -------- -------- Raw Materials and Work-In-Process $136,699 $131,762 Finished Goods 72,871 84,005 -------- -------- Total Inventory $209,570 $215,767 ======== ========
COST IN EXCESS OF NET ASSETS ACQUIRED Cost in excess of net assets of businesses acquired is amortized on a straight- line basis over seventeen years. The Company periodically evaluates the carrying values assigned to costs in excess of net assets acquired and other intangible assets. FINANCIAL PRESENTATION Certain prior year amounts have been restated to reflect the discontinuance in 1996 of defense related businesses. See Note 5. 2. INVESTMENTS AND ACQUISITIONS - ----------------------------------- On February 28, 1997, the Company acquired 100 percent of the outstanding stock of Arcodan A/S (Arcodan) for $15,000 in cash. Arcodan is a Danish manufacturer of advanced analog and digital headend systems, opto-electronics and RF distribution equipment. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded at their estimated fair value at the date of acquisition. The purchase price has been allocated to the assets and liabilities acquired, including $5,781 to costs in excess of net assets acquired. During fiscal 1997, the Company also acquired minority interests in various companies for an aggregate cost of $1,133. On June 28, 1996, the Company acquired 100 percent of the outstanding stock of ATx Telecom Systems, Inc. (ATx) for $24,336 in cash and a contingent payment of $152 due June 28, 1997. ATx is a supplier of fiber optic products for hybrid fiber/coax networks. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded at their estimated fair value at the date of acquisition. The purchase price of $24,336 has been allocated to the assets and liabilities acquired. Approximately $14,583 of the total purchase price represented the value of ATx's in-process technology. Since technological feasibility had not yet been achieved and there was no alternative future use for the technology being developed, the amounts allocated to the in-process technology were expensed concurrent with the purchase. During 1996, the Company also acquired a minority interest in Wink Communications, Inc. (Wink), an enabling software developer, for $2,400. The Company invested an additional $500 in Wink during fiscal 1997. During 1994 the Company entered into partnership agreements in connection with the formation of two joint ventures, Comunicaciones Broadband and Scientific- Atlanta of Shanghai, Ltd., and invested a total of $5,240 in the partnerships. During 1995 the Company invested an additional $2,410 in these partnerships and disposed of its investment in Comunicaciones Broadband for a loss of $197 which was included in other (income) expense. The Company's equity in the earnings (losses) of the partnerships was $361, $21 and ($296) in 1997, 1996 and 1995, respectively. 3. SALES - ----------------------------------- Sales to Time Warner, Inc. and affiliates were 11 percent of total sales in 1997 and 13 percent of total sales in 1995. Sales to any one customer were less than 10 percent of total sales in 1996. Export sales accounted for 37 percent of total sales in 1997, 36 percent in 1996 and 34 percent in 1995. Sales to Europe were 16 percent, 12 percent and 16 percent of total sales in 1997, 1996 and 1995, respectively. Sales of set-top terminals constituted approximately 30 percent of the Company's total sales in 1997, and approximately 27 percent and 26 percent of such sales in 1996 and 1995, respectively. Sales of RF (radio frequency) products were approximately 19 percent of the Company's total sales in 1997, and approximately 21 percent and 17 percent of such sales in 1996 and 1995, respectively. Foreign subsidiary sales were not material for any of the three fiscal years presented. 4. OTHER (INCOME) EXPENSE - ----------------------------------- Other income of $1.5 million in 1997 included a gain of $5.6 million from the sale of land and a building in San Diego County, California not required for current operations, the results of foreign 29 currency transactions and partnership activities, and net gains from rental income and other miscellaneous items. During the quarter ended March 28, 1997, the Company decided to dispose of two business units, microwave and mobile, because these businesses were not aligned with the Company's core business strategies. The Company recorded a charge of $5.5 million during the quarter ended March 28, 1997 to adjust the carrying amount of the net assets held for sale to net realizable value and to provide for estimated indemnifications to the purchaser, severance, closing costs and other miscellaneous expenses related to the sale. During the ordinary course of business, the Company encounters certain risks and uncertainties related to the satisfactory performance under contracts which it evaluates periodically and provides reserves, if appropriate. The estimated loss on the sale of these businesses was computed on the basis that the Company would sell the businesses at an amount that would allow the purchaser, with reasonable assurance, to complete the contracts at a reasonable margin. The Company believes that it will complete the sale of these two business units during fiscal 1998. Other expense in 1996 included a charge of $28,700 related to an arbitration panel's decision in a proceeding with StarSight Telecast, Inc. (StarSight), for damages, legal and arbitration expenses and other expenses, including incremental costs to independently develop an electronic program guide. In July 1996, an arbitration panel awarded StarSight $15,000 in damages, plus legal and arbitration expenses, and issued a three year limited-term injunction on the future sales of interactive electronic program guides contained in set- tops. The panel determined the Company violated the terms of a 1992 license and technical assistance agreement between the Company and StarSight. In April 1997, the Company and StarSight entered into a License and Settlement Agreement which resolved all outstanding disputes and provided for the cross- licensing of technologies. Other income of $1,566 in 1995 included rental income, royalty income, net gains from partnership activities and other miscellaneous items. There were no significant items in other income and other expense during 1995. 5. DISCONTINUED OPERATIONS - ----------------------------------- During the quarter ended September 29, 1995, the Company decided to discontinue its defense-related businesses in San Diego, California because these businesses were not aligned with the Company's core business strategies. A one- time charge of $12,172, net of a tax benefit of $5,728 for the estimated loss on the sale of discontinued operations was recorded in the quarter ended September 29, 1995. The estimated loss on the sale of discontinued operations included losses of the operations through the expected date of sale, reserves to adjust the carrying amount of the net assets held for sale to net realizable value and losses on a subcontract. The Company had performed work as a subcontractor under a subcontract which included options for additional products. The Company believed that some of these options had not been validly exercised. The Company had been negotiating with the prime contractor to increase the pricing on the unexercised options to provide a reasonable margin and believed these negotiations would be successful. At the time the Company decided to discontinue the defense related businesses, the negotiations had deteriorated significantly. The estimated loss on the disposition was computed on the basis that the Company would give a buyer a subcontract to complete the options at an amount that would provide a reasonable margin. No accounting recognition was given to the Company's claim against the prime contractor due to its uncertain outcome. In July 1996, the Company completed negotiations with the prime contractor to settle issues related to the pricing of the unexercised options. On August 14, 1996, the Company completed the sale of its defense-related businesses to Global Associates, Ltd. (Global) for cash of $13,274 and secured and unsecured notes aggregating approximately $5,000. The net realizable value of the assets of the defense-related businesses and the settlement with the prime contractor were more favorable than the Company had anticipated when it decided to exit these businesses; accordingly the Company recognized a pre-tax gain of $5,000 from these transactions in the first quarter of 1997. Losses from the defense- related businesses while they were accounted for as discontinued operations of $2,482, net of a tax 30 benefit of $1,168, approximated the amount included in the $12,172 one-time after-tax charge for the estimated loss on the sale of discontinued operations. At June 27, 1997, the Company had a reserve of approximately $7,500 for potential sales price adjustments, indemnifications provided to Global, legal, severance and other miscellaneous expenses related to the sale and the settlement with the prime contractor. Sales and losses from discontinued operations were as follows:
1997 1996 1995 ------ ------- ------- Sales $1,920 $25,780 $28,445 Losses from discontinued operations, net of tax $ (817) $(2,744) $(2,427) Tax benefit $ 385 $ 1,291 $ 1,141
The net assets of the discontinued operations which include inventory, accounts receivable, machinery and equipment, accounts payable, and accrued expenses were included in other current assets in the Consolidated Statement of Financial Position at June 28, 1996. 6. QUARTERLY FINANCIAL DATA (UNAUDITED) - -----------------------------------
Fiscal Quarters ------------------------------------------ 1997 First Second Third Fourth - ------------------------ -------- -------- -------- -------- Sales $261,664 $282,184 $301,741 $322,656 Gross margin 78,770 85,337 94,292 100,765 Gross margin % 30.1% 30.2% 31.2% 31.2% Net earnings 14,211(1) 13,752 16,461(2) 19,618 Earnings per share 0.18(1) 0.18 0.21 0.25 Stock prices High 16.250 18.250 19.125 23.000 Low 12.000 13.375 15.000 14.625 Dividends paid per share 0.015 0.015 0.015 0.015
- -------- (1) Includes a gain of $3,400 ($0.04 per share) from the sale of discontinued operations. (2) Includes a gain of $3,733 ($0.05) from the sale of land and a building in San Diego County, California not required for current operations and charges of $3,758 ($0.05) related to the Company's decision to dispose of two business units. See Note 4.
Fiscal Quarters ----------------------------------------- 1996 First Second Third Fourth - ------------------------- -------- -------- -------- -------- Sales $242,193 $261,100 $271,883 $272,725 Gross margin 61,077 67,717 75,210 82,021 Gross margin % 25.2% 25.9% 27.7% 30.1% Net earnings (loss) (9,124)(1) 6,601 11,525 (15,036)(2) Earnings (loss) per share (0.12)(1) 0.09 0.15 (0.20)(2) Stock prices High 23.250 16.750 19.250 19.875 Low 16.875 11.500 13.375 14.625 Dividends paid per share 0.015 0.015 0.015 0.015
- -------- (1) Includes charges of $13,210 ($0.17 per share) for the discontinuance of defense-related businesses. (2) Includes charges of $19,516 ($0.25 per share) to settle an arbitration proceeding and related costs and $9,916 ($0.14 per share) to write off purchased in-process technology in connection with the acquisition of ATx. 7. INDEBTEDNESS - ----------------------------------- Credit Facility: At June 27, 1997, the Company had a $300,000 senior credit facility that provides for unsecured borrowings up to $150,000 which expire May 9, 1998 and up to $150,000 which expire May 10, 2000. There were no borrowings outstanding under this facility at June 27, 1997 or June 28, 1996. Interest on borrowings under this facility are at varying rates and fluctuate based on market rates. Facility fees based on the average daily aggregate amount of the facility commitments are payable quarterly. Long-term debt consisted of:
1997 1996 ------ ---- 6 1/4% - 10% capitalized leases, payable in varying installments ranging from $200 to $250 through 2001 $1,202 $650 Other debt at 7.8% - 8.4% in varying installments ranging from $11 to $508 through 2001 1,450 -- ------ ---- 2,652 650 Less-Current maturities 842 250 ------ ---- $1,810 $400 ====== ====
31 Long-term debt at June 27, 1997 had scheduled maturities as follows: $842 -- 1998; $813 -- 1999; $517 -- 2000; $315 -- 2001 and $165 -- 2002. At June 27, 1997, property, plant and equipment costing approximately $4,154 were pledged as collateral on long-term debt. Foreign short-term debt was $1,350 at the end of 1996. There was no foreign short-term debt at June 27, 1997. The average interest rates for foreign short- term debt during fiscal 1997 and fiscal 1996 were 10.1 percent and 10.9 percent, respectively. Total interest paid was $430, $680, and $811 in 1997, 1996, and 1995, respectively. 8. ACCRUED LIABILITIES - ----------------------------------- Accrued liabilities consisted of:
1997 1996 -------- -------- Compensation $ 29,004 $ 24,294 Arbitration and related costs 100 25,383 Warranty and service 14,281 15,852 Customer down payments 5,346 9,282 Taxes, excluding income taxes 5,829 8,236 Other 57,177 44,499 -------- -------- $111,737 $127,546 ======== ========
9. OTHER LIABILITIES - ----------------------------------- Other liabilities consisted of:
1997 1996 ------- ------- Retirement $24,679 $23,645 Compensation 9,363 8,247 Other 5,352 5,461 ------- ------- $39,394 $37,353 ======= =======
10. INCOME TAXES - ----------------------------------- The tax provision differs from the amount resulting from multiplying earnings before income taxes by the statutory federal income tax rate as follows:
1997 1996 1995 ------- ------- ------- Statutory federal tax rate $31,213 $ 3,693 $33,953 State income taxes, net of federal tax benefit 1,127 (901) 3,430 Tax reserves 2,020 1,689 1 Research and development tax credit (6,394) -- (2,852) Export incentives (2,808) (1,233) (1,370) Foreign earnings taxed at different rates 2,859 (5) (193) Other, net 520 134 (1,927) ------- ------- ------- $28,537 $ 3,377 $31,042 ======= ======= =======
Income tax provision (benefit) includes the following:
1997 1996 1995 -------- -------- ------- Current tax provision (benefit) Federal $(10,420) $ 10,974 $22,588 State (544) 273 5,436 Foreign 17,559 10,187 1,138 -------- -------- ------- 6,595 21,434 29,162 -------- -------- ------- Deferred tax provision (benefit) Federal 19,647 (16,300) (389) State 2,277 (1,659) (195) Foreign 18 (98) 2,464 -------- -------- ------- 21,942 (18,057) 1,880 -------- -------- ------- Total provision for income taxes $ 28,537 $ 3,377 $31,042 ======== ======== =======
Total income taxes paid include settlement payments for federal, state and foreign audit adjustments. The total income taxes paid were $22,686, $5,394 and $28,937 in 1997, 1996, and 1995, respectively. During 1997, the Company completed an audit of its federal income tax returns for the years 1990 through 1993. The settlement payment from the audit did not have a significant impact on the consolidated financial statements. 32 The tax effect of significant temporary differences representing deferred tax assets and liabilities are as follows:
1997 1996 ------- ------- Current deferred tax assets Expenses not currently deductible $17,750 $33,593 Inventory valuation 8,744 12,108 Warranty reserves 3,253 3,632 Bad debt reserves 1,286 1,353 Other 290 293 ------- ------- Current deferred tax assets $31,323 $50,979 ======= ======= Noncurrent deferred tax assets Postretirement and postemployment benefits $10,981 $10,477 Tax credit/loss carryforwards -- 267 Expenses not currently deductible 3,469 2,707 ------- ------- Noncurrent deferred tax assets 14,450 13,451 Noncurrent deferred tax liabilities Depreciation and amortization (4,634) (4,322) Capitalized software (708) -- ------- ------- Net noncurrent deferred tax asset $ 9,108 $ 9,129 ======= =======
Valuation allowances for current deferred tax assets and noncurrent deferred tax assets were not required in 1997 or 1996. The net noncurrent deferred tax asset is included in Other Assets at June 27, 1997 and June 28, 1996. In 1997, 1996, and 1995, earnings before income taxes included $35,658, $33,745, and $8,571 respectively, of earnings generated by the Company's foreign operations. 11. RETIREMENT AND BENEFIT PLANS - ----------------------------------- The Company has a defined benefit pension plan covering substantially all of its domestic employees. The benefits are based upon the employees' years of service, age and compensation. The Company's funding policy is to contribute annually the amount expensed each year consistent with the requirements of the federal tax law to the extent that such costs are currently deductible. The following table sets forth the plan's funded status and amounts recognized in the Company's Consolidated Statement of Financial Position at year-end, using March 31 as a measurement date for all actuarial calculations of asset and liability values and significant actuarial assumptions:
1997 1996 -------- -------- Accumulated benefit obligation Vested portion $ 65,507 $ 55,252 Nonvested portion 4,258 2,274 -------- -------- 69,765 57,526 Excess of projected benefit obligation over accumulated benefit obligation 9,426 17,215 -------- -------- Projected benefit obligation 79,191 74,741 Plan assets at fair value (74,457) (75,155) -------- -------- Projected benefit obligation in excess of (less than) plan assets 4,734 (414) Unrecognized prior service costs 316 351 Unrecognized (loss) gain (2,794) 528 Unrecognized net asset from initial application of SFAS 87 6,371 7,025 Fourth quarter contribution (891) (279) -------- -------- Accrued pension cost $ 7,736 $ 7,211 ======== ======== Discount rate 7.75% 7.75% Rate of increase in future compensation 5.0% 4.5% Expected long-term rate of return on assets 10.0% 10.0%
Plan assets are invested in listed stocks, bonds and short-term monetary investments. The Company's net pension expense was $4,091 in 1997, $3,325 in 1996, and $2,483 in 1995. The components of pension expense are as follows:
1997 1996 1995 ------- -------- ------- Service cost of benefits earned $ 6,105 $ 5,169 $ 4,059 Interest cost 5,330 5,128 4,826 Actual return on plan assets (6,396) (12,532) (4,821) Net amortization and deferral (948) 5,560 (1,581) ------- -------- ------- Net periodic pension cost $ 4,091 $ 3,325 $ 2,483 ======= ======== =======
33 The Company has unfunded defined benefit retirement plans for certain key officers and non-employee directors. Accrued pension cost for these plans was $8,658 at June 27, 1997 and $6,842 at June 28, 1996. Retirement expense for these plans was $1,872, $1,366 and $1,223 in 1997, 1996, and 1995, respectively. In addition to providing pension benefits, the Company has contributory plans that provide certain health care and life insurance benefits to eligible retired employees. The following table sets forth the plan's funded status and amounts recognized in the Company's Consolidated Statement of Financial Position at year-end, using March 31 as a measurement date for all actuarial calculations of liability values:
1997 1996 ------- ------- Accumulated postretirement benefit obligation Retirees $ 8,764 $ 9,069 Fully eligible active participants 203 181 Other active participants 331 293 ------- ------- 9,298 9,543 Unrecognized net gain 1,040 978 Fourth quarter claims payments (250) (220) ------- ------- Accrued postretirement benefit cost $10,088 $10,301 ======= =======
The components of postretirement benefit expense are as follows:
1997 1996 ---- ---- Service cost of benefits earned $ 45 $ 39 Interest cost 704 719 Net amortization and deferral (24) (26) ---- ---- Postretirement benefit expense $725 $732 ==== ====
Significant actuarial assumptions are as follows:
1997 1996 ----- ----- Annual rate of increase in per capita cost Pre-Medicare 11.25% 11.25% Annual decline 0.75% 0.75% Final rate of increase 6.00% 6.00% Post-Medicare 9.50% 9.50% Annual decline 0.50% 0.50% Final rate of increase 6.00% 6.00% Impact of one percentage point in health care cost trend rate on Accumulated postretirement benefit obligation 7.6% 7.6% Interest cost component of benefits 11.2% 11.2% Discount rate used to measure accumulated postretirement benefit obligation 7.75% 7.75%
12. FAIR VALUE OF FINANCIAL INSTRUMENTS - ----------------------------------- The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments. The fair value of foreign currency forward contracts is based on quoted market prices.
1997 1996 ------------------ ----------------- CARRYING/ Carrying/ CONTRACT FAIR Contract Fair AMOUNT VALUE Amount Value --------- -------- --------- ------- Cash and cash equivalents $107,143 $107,143 $20,930 $20,930 Foreign currency forward contracts Sell $ 1,196 $ 1,087 $ 7,999 $ 8,152 Buy $ 58,984 $ 59,981 $61,700 $59,245
34 13. RELATED PARTY TRANSACTIONS - ----------------------------------- The Company had sales of $3,591, $2,728 and $3,384 to Scientific-Atlanta of Shanghai, Ltd. (SASL) in 1997, 1996 and 1995, respectively. The Company purchased $2,496 of inventory from SASL in 1997. There were no such purchases in 1996 or 1995. The Company had a net receivable from SASL of $1,024 at June 27, 1997 and $760 at June 28, 1996. Related party transactions were at prices and terms equivalent to those available to and transacted with unrelated parties. 14. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS - ----------------------------------- Rental expense under operating lease agreements for facilities and equipment for 1997, 1996 and 1995 was $17,462, $15,347 and $10,696, respectively. The Company pays taxes, insurance, and maintenance costs with respect to most leased items. Remaining operating lease terms, including renewals, range up to thirteen years. Future minimum payments at June 27, 1997, under operating leases were $52,012. Payments under these leases for the next five years are as follows: 1998 -- $13,466; 1999 -- $10,707; 2000 -- $8,431; 2001 -- $5,496; 2002 -- $3,864. During the first quarter of fiscal 1998, the Company secured a $38.0 million commitment under a long-term operating lease for the consolidation of certain operations and future expansion. The initial lease term will be seven years with the option to extend the lease for an additional fifteen years in five year increments. The Company has agreements with certain officers which include certain benefits in the event of termination of the officers' employment as a result of a change in control of the Company. The Company is also committed under certain purchase agreements which are intended to benefit future periods. The Company is a party to various legal proceedings arising in the ordinary course of business. In management's opinion, the outcome of these proceedings will not have a material adverse effect on the Company's financial position or results of operations. 15. COMMON STOCK AND RELATED MATTERS - ----------------------------------- The Company purchased 225,000 shares of its common stock at an aggregate cost of $2,973 during fiscal 1997, and 1,010,000 shares at an aggregate cost of $12,411 during 1996. The Company has non-qualified and incentive stock option plans to provide key employees and directors with an increased incentive to work for the success of the Company. Generally, the option price for stock options is the market value at the date of grant and thus, the plans are non-compensatory. The options expire 10 years after the dates of their respective grants. The Company accounts for the stock purchase and stock option plans under APB Opinion No. 25, which requires compensation costs to be recognized only when the option price differs from the market price at the grant date. Statement of Financial Accounting Standards (SFAS) No. 123 allows a company to follow APB Opinion No. 25 with the following additional disclosure that shows what the Company's net income (loss) and earnings (loss) per share would have been using the compensation model under SFAS No. 123:
1997 1996 ------- -------- Net income (loss) As reported $64,042 $ (6,034) Pro forma $57,761 $(12,455) Earnings (loss) per share: Primary As reported $ 0.82 $ (0.08) Pro forma $ 0.74 $ (0.16) Fully diluted As reported $ 0.82 $ (0.08) Pro forma $ 0.74 $ (0.16)
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to July 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1997 and 1996, respectively:
1997 1996 ------- ------- Risk free interest rate 6.35% 6.32% Expected term 5 YEARS 5 years Expected forfeiture rate 1% 1% Volatility 44% 44% Expected annual dividends $0.06 $0.06
35 The following information pertains to options on the Company's common stock for the years ended June 27, 1997, June 28, 1996 and June 30, 1995:
Weighted Number Average of Shares Exercise Price --------- -------------- 1997 - ---- Outstanding, beginning of year 5,469,550 $15.213 Granted 1,663,000 $15.530 Cancelled (300,903) $19.934 Exercised (513,569) $10.423 --------- Outstanding, end of year 6,318,078 $15.469 ========= 1996 - ---- Outstanding, beginning of year 4,946,199 $13.157 Granted 1,315,050 $20.732 Cancelled (309,270) $18.620 Exercised (482,429) $ 6.803 --------- Outstanding, end of year 5,469,550 $15.213 ========= 1995 - ---- Outstanding, beginning of year 4,482,052 $18.942 Granted 1,624,189 $21.400 Cancelled (202,979) $13.648 Exercised (957,063) $ 7.271 --------- Outstanding, end of year 4,946,199 $13.157 =========
The following information pertains to options on the Company's common stock at June 27, 1997:
Options Outstanding --------------------------------- Weighted Weighted Average Average Range of Remaining Life Exercise Eercise Pricesx Shares in Years Price - --------------- --------- -------------- -------- $ 3.250 - $10.000 1,506,456 4.2 $ 6.490 $11.333 - $16.750 1,891,052 7.9 $14,669 $17.000 - $22.125 2,920,570 8.0 $20.658 --------- 6,318,078 7.1 $15.469 =========
Options Exercisable ------------------------ Weighted Range of Average Eercise Pricesx Shares Exercise Price - --------------- --------- -------------- $ 3.250 - $10.000 1,506,456 $ 6.490 $11.333 - $16.750 995,207 $14.826 $17.000 - $22.125 1,560,278 $21.049 --------- 4,061,941 $14.149 =========
At June 27, 1997, an additional 1,724,432 were reserved under employee and director stock option plans. The Company has an employee stock purchase plan whereby the Company provides certain purchase benefits for participating employees. At June 27, 1997, 475,251 shares were reserved for issuance to employees under the plan. The Company has a 401(k) plan whereby the Company matches eligible employee contributions in Company stock, subject to certain limitations. The Company's expense to match contributions was $6,075, $5,644, and $4,940, in 1997, 1996 and 1995, respectively. At June 27, 1997, 332,039 shares were reserved for issuance to employees under the plan. The Company has a stock plan for non-employee directors which provides for 500 shares of common stock of the Company to be granted to each director annually and which allows directors to elect to receive all or a portion of his or her quarterly compensation from the Company in the form of shares of common stock of the Company. At June 27, 1997, 92,000 shares were reserved for issuance to non-employee directors under the plan. The Company issues restricted stock awards to certain officers and key employees under a long-term incentive plan. Compensation expense for restricted stock awards was $845, $470, and $1,102, in 1997, 1996, and 1995, respectively. At June 27, 1997, 1,741,184 shares were reserved for issuance under this plan. At June 27, 1997, a total of 4,272,906 shares of authorized stock were reserved for the above purposes. The Company adopted a Rights Plan effective upon expiration of its previous Shareholder Rights Plan in April 1997, and pursuant to the Plan declared a dividend of one Right for each outstanding share of common stock. For shares issued after such dividend, a Right attaches to each share of common stock issued. The Right is to purchase 1/1000th share of preferred stock at an exercise price of $118. Separate Rights certificates will be distributed and the Rights will become exercisable if a person or group (i) acquires beneficial ownership of 15 percent or more of the Company's common stock, (ii) makes a tender offer to acquire 15 percent or more of the Company's common stock, or (iii) is determined by the Board of Directors to be an "adverse person" as defined by the Plan. If a person or a group becomes a 15 percent holder (other than by offer for all shares approved by the Board of Directors) or is determined by the Board of Directors to be an "adverse person", each Right will entitle the holder thereof, other than the acquiring shareholder or adverse person, to acquire, upon payment of the 36 exercise price, common stock of the Company having a value equal to twice the exercise price. If the Company engages in a merger or other business combination in which the Company does not survive, and which is not approved by the Board of Directors, each Right entitles the holder to acquire common shares of the surviving company having a market value equal to twice the exercise price. Following the occurrence of any event described in either of the two preceeding sentences, the Company is required by the Rights Plan to reserve sufficient shares of its common stock to permit the exercise in full of all outstanding Rights. At June 27, 1997, no shares of common stock were reserved for this purpose. The Rights may be redeemed by the Company at a price of $0.01 per Right at any time prior to 10 days after the announcement that a party acquired 15 percent or more of the Company's common stock or prior to the date any person or group is determined by the Board of Directors to be an "adverse person". The Rights have no voting power and, until exercised, no dilutive effect on earnings per share. If not previously redeemed, the Rights will expire on April 13, 2007. In conection with adoption of the new Rights Plan, the Board of Directors designated 350,000 shares of Series A Junior Participating Preferred Stock from the Company's 50,000,000 authorized shares of preferred stock for issuance under for the Rights Plan. Upon issuance, each share of preferred stock is entitled to a quarterly dividend equal to the greater of $0.01 or 1,000 times the per share amount of all cash dividends, non-cash dividends, or other distributions, other than dividends payable in common stock, declared on the Company's common stock. At June 27, 1997, there were 77,882 shares of preferred stock reserved for this purpose. 16. EARNINGS PER SHARE - ----------------------------------- In February 1997, the Financial Accounting Standards Board issued Statement 128 "Earnings Per Share" superseding Accounting Principles Board Opinion No. 15, "Earnings Per Share". The Company plans to adopt SFAS No. 128 in fiscal 1998. Earnings per share computed under the provisions of SFAS No. 128 were approximately the same as those computed under Opinion No. 15 for fiscal 1993 through 1997. 37 17. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - -------------------------------------
(In Thousands) 1997 1996 1995 - ------------------------------------------------------------------------------ PREFERRED STOCK Shares authorized 50,000 50,000 50,000 Shares issued -- -- -- COMMON STOCK ($0.50 PAR VALUE) Shares authorized 350,000 350,000 350,000 -------- -------- -------- Shares issued at beginning of year 77,256 76,950 75,495 Issuance of a 2-for-1 stock split effected in the form of a stock dividend -- -- 97 Issuance of shares under employee benefit plans 612 219 1,179 Issuance of restricted shares 127 87 179 -------- -------- -------- Shares issued at end of year 77,995 77,256 76,950 ======== ======== ======== ADDITIONAL PAID-IN CAPITAL Balance at beginning of year $163,143 $160,206 $141,179 Issuance of shares under employee benefit plans 7,137 1,245 13,048 Tax benefit from employees' stock plans 1,664 1,876 4,966 Issuance of restricted shares to employees 4,743 572 3,825 Unearned compensation - restricted shares (4,830) (756) (2,812) -------- -------- -------- Balance at end of year $171,857 $163,143 $160,206 ======== ======== ======== RETAINED EARNINGS Balance at beginning of year $264,206 $274,840 $215,926 Net earnings (loss) 64,042 (6,034) 63,540 Issuance of a 2-for-1 stock split effected in the form of a stock dividend -- -- (48) Cash dividends ($0.06 per share) (4,640) (4,600) (4,578) -------- -------- -------- Balance at end of year $323,608 $264,206 $274,840 ======== ======== ======== ACCUMULATED TRANSLATION ADJUSTMENTS Balance at beginning of year $ 740 $ 668 $ 794 Foreign currency translation adjustments (926) 72 (126) -------- -------- -------- Balance at end of year $ (186) $ 740 $ 668 ======== ======== ======== TREASURY STOCK Balance at beginning of year $ 3,065 $ -- $ -- Treasury shares acquired 2,973 12,411 -- Issuance of shares under employee benefit plans (4,411) (9,346) -- -------- -------- -------- Balance at end of year $ 1,627 $ 3,065 $ -- ======== ======== ========
38 SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 27, 1997 (In Thousands)
Col. A Col. B Col. C Col. D Col. E ------ ---------- ------------------------------------ ------------- ---------- Additions Balance at ------------------------------------ Balance at beginning Charged to Charged to end of Description of period costs and expenses other accounts(1) Deductions(2) period ----------- ---------- ------------------ ----------------- ------------- ---------- Deducted on the balance sheet from asset to which it applies: June 27, 1997 -- Allowance for doubtful accounts $3,826 $391 $186 $(201) $4,202 ====== ==== ==== ===== ====== June 28, 1996 -- Allowance for doubtful accounts $3,823 $324 $100 $(421) $3,826 ====== ==== ==== ===== ====== June 30, 1995 -- Allowance for doubtful accounts $3,839 $343 $ 69 $(428) $3,823 ====== ==== ==== ===== ======
Notes: (1) Represents recoveries on accounts previously written off, $186 acquired with the purchases of Arcodan A/S in fiscal 1997 and $100 acquired with the purchase of ATx Telecom Systems, Inc. in fiscal 1996. (2) Amounts represent uncollectible accounts written off and $86 transferred to net assets held for sale in fiscal 1996. 39 SIGNATURES PURSUANT TO THE REQUIREMENTS OF 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. Scientific-Atlanta, Inc. (Registrant) /s/ James F. McDonald September 19, - ------------------------------------ 1997 James F. McDonald -------------- President and Chief Executive Date Officer and Director PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. /s/ James F. McDonald September 19, - ------------------------------------ 1997 James F. McDonald -------------- President and Chief Executive Officer Date and Director (Principal Executive Officer) /s/ Harvey A. Wagner September 19, - ------------------------------------ 1997 Harvey A. Wagner -------------- Senior Vice President-- Date Finance, Chief Financial Officer and Treasurer (Principal Financial Officer) /s/ Julian W. Eidson September 19, - ------------------------------------ 1997 Julian W. Eidson -------------- Vice President and Controller Date (Principal Accounting Officer) /s/ Marion H. Antonini September 19, - ------------------------------------ 1997 Marion H. Antonini, Director -------------- Date /s/ William E. Kassling September 19, - ------------------------------------ 1997 William E. Kassling, Director -------------- Date /s/ Wilbur Branch King September 19, - ------------------------------------ 1997 Wilbur Branch King, Director -------------- Date [SIGNATURES CONTINUED ON FOLLOWING PAGE] 40 /s/ Mylle Bell Mangum September 19, - ------------------------------------- 1997 Mylle Bell Mangum, Director -------------- Date /s/ Alonzo L. McDonald September 19, - ------------------------------------- 1997 Alonzo L. McDonald, Director -------------- Date /s/ David J. McLaughlin September 19, - ------------------------------------- 1997 David J. McLaughlin, Director -------------- Date /s/ James V. Napier September 19, - ------------------------------------- 1997 James V. Napier, Director -------------- Date /s/ Sam Nunn September 19, - ------------------------------------- 1997 Sam Nunn, Director -------------- Date /s/ Sidney Topol September 19, - ------------------------------------- 1997 Sidney Topol, Director -------------- Date 41 EX-3.(A) 2 COMPOSITE STATEMENT OF AMENDED AND RESTATED ARTICLES OF INC. EXHIBIT 3(a) COMPOSITE STATEMENT OF AMENDED AND RESTATED ARTICLES OF INCORPORATION OF SCIENTIFIC-ATLANTA, INC. AS OF NOVEMBER 3, 1987, AS FURTHER AMENDED ON NOVEMBER 15, 1989 AND AUGUST 20, 1990 The following Amended and Restated Articles of Incorporation are adopted pursuant to Section 14-2-196 of the Georgia Business Corporation Code and shall supersede in all respects the Corporation's original Articles of Incorporation, as heretofore amended. These Amended and Restated Articles of Incorporation merely restate all of the provisions of the original Articles of Incorporation, as heretofore amended, not being amended hereby. These Amended and Restated Articles of Incorporation were approved by the Board of Directors of the Company on August 18, 1987, and by the shareholders of the Company on November 3, 1987. On the date of such approval by the shareholders, there were 23,595,468 shares of Common Stock, $0.50 par value, of the Corporation outstanding and entitled to vote thereon, the affirmative vote of the holders of 11,797,735 of such shares was required to approve the Amended and Restated Articles of Incorporation and the holders of 12,003,693 of such shares voted in favor thereof. I. The name of the Corporation is: SCIENTIFIC-ATLANTA, INC. II. The Corporation is organized pursuant to the provisions of the Georgia Business Corporation Code. III. The Corporation shall have perpetual duration. IV. The Corporation is organized for the following purposes: To engage in any lawful purpose, act or activity for which corporations may be organized under the Georgia Business Corporation Code, including, but not limited to, the following: Manufacturing, distributing, and selling at wholesale and retail, any and all types of merchandise, machinery, appliances, fixtures and supplies; engaging in scientific and engineering research and development, selling services, publishing books and periodicals, acquiring, holding, selling or otherwise trading in patents, patents pending, copyrights and franchises; acquiring, holding, improving and trading in real property, or any rights or interest therein or appurtenant thereto necessary for its purposes; mortgaging or otherwise encumbering its property whether real or personal or both, by note loan, deed or otherwise; making and granting loans on both real and personal property. To do each and every thing necessary, suitable or proper for the accomplishment of any of the purposes or the attainment of any one or more of the objects herein enumerated, or which shall at any time appear conducive to or expedient for the protection or benefit of the Corporation. IN FURTHERANCE OF AND NOT IN LIMITATION of the general powers conferred by the laws of the State of Georgia and the objects and purposes herein set forth, it is expressly provided that to such extent as a corporation organized under the Georgia Business Corporation Code may now or hereafter lawfully do, the Corporation shall have the power to do, either as principal or agent and either alone or in connection with other corporations, firms or individuals, all and everything necessary, suitable, convenient or proper for, or in connection with, or incident to, the accomplishment of any of the purposes or the attainment of any one or more of the objects herein enumerated, or designed directly or indirectly to promote the interests of the Corporation or to enhance the value of its properties; and in general to do any and all things and exercise any and all powers, rights and privileges which a corporation may now or hereafter be authorized to do or to exercise under the Georgia Business Corporation Code or under any act amendatory thereof, supplemental thereto or substituted therefor. The foregoing provisions of this Article IV shall be construed both as purposes and powers and each as an independent purpose and power. The foregoing enumeration of specific purposes and powers herein specified shall, except when otherwise provided in this Article IV, be in no wise limited or restricted by reference to, or inference from the terms of any provision of this or any other Article of these Articles of Incorporation. V. The total number of shares of capital stock which the Corporation shall have authority to issue is 400,000,000 shares, consisting of 350,000,000 shares of common stock of $.50 par value per share and 50,000,000 shares of preferred stock of $.50 par value per share. The voting powers, designations, preferences and relative rights of the classes of stock of the Corporation which are fixed by these Articles of Incorporation, the authority expressly vested in the Board of Directors to fix, by resolution or resolutions providing for the issue of preferred stock, and the voting powers (if any), designations, preferences and relative rights of the shares of preferred stock which are not fixed by these Articles of Incorporation, are as follows: (1) Subject to the provisions of any applicable law, or of the By-Laws of the Corporation as from time to time amended, with respect to the fixing of a record date for the determination of shareholders entitled to vote and except as otherwise provided by any applicable law or by the resolution or resolutions of the Board of Directors providing for the issue of any series of preferred stock, the holders of the outstanding shares of common stock shall have and possess exclusive voting power and rights for the election of directors and for all other purposes, with each holder of record of shares of common stock being entitled to one vote for each share of common stock standing in his name on the books of the Corporation in the election of directors and on all other matters presented to the shareholders. (2) Except as otherwise provided by applicable law, or by the resolution or resolutions of the Board of Directors providing for the issue of any series of preferred stock, the holders of shares of preferred stock, as such holders, (i) shall not have any right to vote, and are hereby specifically excluded from the right to vote, in the election of directors or for any other purpose, and (ii) shall not be entitled to notice of any meeting of shareholders. (3) Before any sum or sums shall be set aside or applied to the purchase of any outstanding shares of common stock, and before any dividend shall be declared or paid or any distribution ordered or made upon the common stock (other than a dividend payable in shares of common stock), the Corporation shall have complied with the dividend and sinking fund requirements (if any) set forth in any resolution or resolutions of the Board of Directors with respect to the issue of any series of preferred stock of which any shares shall at the time be outstanding. (4) Subject to the provisions of Paragraph 3 of this Article V, and to such other limitations as may be specified in any resolution or resolutions of the Board of Directors providing for the issue of any series of preferred stock, the holders of outstanding shares of common stock shall be entitled, to the exclusion of the holders of shares of preferred stock of any and all series, to receive such dividends as may be declared by the Board of Directors from time to time. (5) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary of involuntary, after payment shall have been made to the holders of shares of preferred stock of the full amount to which any series of the preferred stock is entitled as set forth in the resolution or resolutions of the Board of Directors providing for the issue thereof, the holders of outstanding shares of common stock shall be entitled, to the exclusion of the holders of shares of preferred stock of any and all series, to share in all remaining assets of the Corporation available for distribution to its shareholders ratably according to the number of shares of common stock held by them. Neither the merger nor consolidation of the Corporation with or into any other corporation or corporations, nor the merger or consolidation of any other corporation or corporations into or with the Corporation, nor the sale, transfer, mortgage, pledge or lease by the Corporation of all or any part of its assets shall be deemed to be a liquidation, dissolution or winding up of the Corporation. (6) The preferred stock may be issued from time to time in one or more series of any number of shares, except that the aggregate number of shares issued and not cancelled of any and all such series shall not exceed the total number of shares of preferred stock hereinabove authorized. Each series of preferred stock shall be distinctively designated by number, letter or descriptive words. (7) Authority is hereby expressly granted to and vested in the Board of Directors to issue the preferred stock at any time, or from time to time, as preferred stock of any one or more series, and, in connection with the establishment of each such series, to fix by resolution or resolutions providing for the issue of the shares thereof the voting powers, if any, and the designation, preferences and relative rights of each such series of preferred stock to the full extent now or hereafter permitted by these Articles of Incorporation and the laws of the State of Georgia, including without limiting the generality of the foregoing, all of the following matters which may vary between each series: (a) The distinctive designation of such series and the number of shares which constitute such series, which number may be increased or decreased either before or subsequent to the issuance of any shares of such series (but not below the number of shares of such series then outstanding), from time to time by action of the Board of Directors; (b) The dividend rate of such series, the date of payment thereof, and any limitations, restrictions or conditions on the payment of dividends, including whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on the shares of each series; (c) The price or prices at which, and the terms, times and conditions on which, the shares of such series may be redeemed at the option of the Corporation or at the option of the holder of such shares; (d) The amount or amounts payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment to the holders of shares of each series; (e) Whether or not the shares of such series shall be entitled to the benefit of a purchase, retirement or sinking fund to be applied to the redemption or purchase of such series, and if so entitled, the amount of such fund and the manner of its applications, including the price or prices at which the shares of such series may be redeemed or purchased through the application of such fund; (f) Whether or not the shares of such series shall be made convertible into, or exchangeable for, shares of any other class or classes of stock of the Corporation, or the shares of any other series of preferred stock, and, if made so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (g) Whether or not the shares of such series shall have any voting right, and, if voting rights are so granted, the extent of such voting rights and the terms and conditions under which such voting rights may be exercised; (h) Whether of not the issue of any additional shares of such series or of any future series in addition to such series shall be subject to restrictions in addition to the restrictions, if any, on the issue of additional shares imposed in the resolution or resolutions fixing the terms of any outstanding series of preferred stock theretofore issued pursuant to this Paragraph 7, and, if subject to additional restrictions, the extent of such additional restrictions; and (i) Whether or not the shares of such series shall be entitled to the benefit of limitations restricting the purchase of, the payment of dividends on, or the making of other distributions in respect of stock of any class of the Corporation, and the terms of any such restrictions; provided, however, that such restrictions shall not include any prohibition on the payment of dividends or with respect to distributions in the event of voluntary or involuntary liquidation established for any outstanding series of preferred stock theretofore issued. The Board of Directors may from time to time distribute to shareholders out of capital surplus of the Corporation a portion of its assets, in cash or in property. The Corporation may purchase its own shares of capital stock out of unreserved and unrestricted earned surplus and capital surplus available therefor and as otherwise provided by law. All shares of capital stock of the Corporation that are reacquired by the Corporation shall be treasury shares and shall not be returned to the status of authorized but unissued shares unless and until the Board of Directors by resolution otherwise directs. VI. None of the holders of any capital stock of the Corporation of any kind, class or series now or hereafter authorized shall have preemptive rights with respect to any shares of capital stock of the Corporation of any kind, class or series now or hereafter authorized. VII. The Board of Directors of the Corporation, when evaluating any offer to (a) make a tender or exchange offer for any equity security of the Corporation, (b) merge or consolidate the Corporation with another person, or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation (an "Acquisition Proposal"), shall, in connection with the exercise of its business judgment in determining what is in the best interests of the Corporation and its shareholders, give due consideration to all relevant factors, including without limitation the consideration being offered in the Acquisition Proposal in relation to the then-current market price, but also in relation to the then-current value of the Corporation in a freely negotiated transaction and in relation to the Board of Directors' then-estimate of the future value of the Corporation as an independent entity, the social and economic effects on the employees, customers, suppliers and other constituents of the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located and the desirability of maintaining independence from any other entity which is a customer or competitor of the Corporation. VIII. No director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for breach of his duty of care or other duty as a director; provided, that this provision shall eliminate or limit the liability of a director only to the extent permitted from time to time by the Georgia Business Corporation Code or any successor law or laws. IX. (A) Beginning with the election of Directors in 1989, the members of the Board of Directors shall be divided into three classes, Class I, Class II, and Class III. Each such class shall consist, as nearly as possible, of one-third of the total number of Directors and any remaining Directors shall be included within such class or classes as the Board of Directors shall designate provided that the difference in the number of Directors in any two classes shall not exceed one (1). At the annual meeting of shareholders in 1989, Class I Directors shall be elected for a one-year term, Class II Directors for a two-year term, and Class III Directors for a three-year term. At each succeeding annual meeting of shareholders beginning in 1990, successors to the class of Directors whose term expires at the annual meeting shall be elected for a three-year term. (B) Any Director of the Corporation, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least two-thirds of the shares entitled to vote for the election of Directors, voting together as a single class. No Director may be removed without cause. (C) The number of Directors constituting the Board of Directors shall be fixed from time to time by the affirmative vote of a number of Directors equal to at least a majority of the then authorized number of Directors (regardless of any vacancies then existing). If the number of Directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible. No decrease in the number of Directors shall affect the term of any director. (D) Any vacancy on the Board of Directors, including any vacancy occurring by reason of any increase in the number or Directors, shall be filled only by the Board of Directors acting by the affirmative vote of a majority of the remaining Directors then in office, although constituting less than a quorum of the Board of Directors. (E) The provisions of this Article IX are subject in all respects to the rights, privileges and preferences of the holders of any class of capital stock of the Corporation other than Common Stock. (F) This Article IX may be modified, amended or repealed only by the affirmative vote of the holders of at least two-thirds of the shares entitled to vote on such modification, amendment or repeal. EX-3.(B) 3 BYLAWS EXHIBIT 3(b) BY-LAWS OF SCIENTIFIC-ATLANTA, INC. (as amended May 11, 1994) ARTICLE I OFFICES ------- Section 1. Registered Office. The registered office shall be in the ----------------- state of Georgia, County of Gwinnett. Section 2. Other Offices. The corporation may also have offices at ------------- such other places both within and without the state of Georgia as the board of directors may from time to time determine and the business of the corporation may require or make desirable. ARTICLE II SHAREHOLDERS' MEETINGS ---------------------- Section 1. Annual Meetings. The annual meeting of the shareholders of --------------- the corporation shall be held at such place and time in the United States as may be determined by the board of directors, for the purpose of electing directors and transacting such other business as may properly be brought before the meeting. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a shareholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, no earlier than 90 days and no later than 60 days prior to the date of such meeting, regardless of any postponements, deferrals or adjournments of such meeting to a later date; provided, however, that if less than 60 days' notice or prior public disclosure of the date of the meeting is given or made, notice by a holder of record must, to be timely, be so delivered or received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting is mailed or the day on which such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of securities 1 of the corporation which are beneficially owned by the shareholder, and (iv) any material interest of the shareholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 1, provided, however, that nothing in this -------- ------- Section 1 shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting. The presiding officer at an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 1, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 2. Special Meetings. (a) Special meetings of the shareholders ---------------- shall be held at the principal office of the corporation or at such other place in the United States as may be designated in the notice of such meetings, and shall be called by the chief executive officer or the secretary only when so directed by the board of directors or when so requested in writing by the holders of at least 75 percent of the issued and outstanding capital stock of the corporation entitled to vote in an election of directors. (b) Anything in these by-laws to the contrary notwithstanding, the following procedures shall apply to the call of any special meeting of shareholders, or a special meeting in lieu of the annual meeting of shareholders, at the request of holders of the outstanding capital stock of the corporation: (i) Every written request for the call of a special meeting shall bear the signature and date of signature of each shareholder who signs the request and shall state the purpose or purposes for which the meeting is to be called. (ii) The record date for the determination of shareholders entitled to request the corporation to call a special meeting shall be the date which is 45 calendar days prior to the date (the "Filing Date") that written requests complying with the requirements of law and these by-laws signed by a sufficient number of record holders to request a special meeting in accordance with this Section 2 have been received by the corporation (the "Minimum Request Condition"). (iii) Promptly after receipt of a written request or requests for the call of a special meeting, the corporation shall engage nationally recognized independent inspectors of election for the purpose of determining the validity of the request or requests and any revocations thereof. Within 15 calendar days of the Filing Date, such independent inspectors shall deliver to the corporation a written report stating whether the Minimum Request Condition has been satisfied. If such written report states that the Minimum Request 2 Condition has been satisfied. If such written report states that the Minimum Request Condition has been satisfied, or if no report is delivered by independent inspectors within 15 calendar days of the Filing Date, the chief executive officer or the secretary of the corporation shall call the special meeting by mailing notice thereof not later than 45 calendar days after the Filing Date. (iv) The date, time and place of the special meeting shall be determined by the board of directors and shall be set forth in the notice of meeting, which notice shall comply with the provisions of Section 3 of this Article II. (v) The record date for the determination of shareholders entitled to notice of and to vote at the special meeting shall be set by the board of directors in accordance with the provisions of Section 4 of Article V of these by-laws. Section 3. Notice of Meetings. Written notice of every meeting of ------------------ shareholders, stating the place, date and hour of the meeting, shall be given personally or by mail to each shareholder of record entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with first class postage thereon prepaid (except as hereinafter provided) addressed to the shareholder at his address as it appears on the corporation's record of stockholders. The corporation may utilize a class of mail other than first class if the notice of the meeting is mailed, with adequate postage prepaid, not less than 30 days before the date of the meeting. Attendance of a shareholder at a meeting of shareholders (1) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (2) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. Notice need not be given to any shareholder who signs a waiver of notice either before or after the meeting. Section 4. Quorum. The holders of a majority of the stock issued and ------ outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the shareholders except as otherwise provided by statute, by the articles of incorporation, or by these by-laws. If a quorum is not present or represented at any meeting of the shareholders, the holders of a majority of the voting shares, present in person or represented by proxy, may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than 120 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. 3 Section 5. Voting. When a quorum is present at any meeting, action on ------ a matter (other than the election of directors) is approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the question is one upon which by express provision of law, of the articles of incorporation or of these by-laws, a different vote is required, in which case such express provision shall govern and control the decision of the question. Each shareholder shall at every meeting of the shareholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power registered in his name on the books of the corporation, but no proxy shall be voted or acted upon after eleven months from its date, unless otherwise provided in the proxy. Section 6. Consent of Shareholders. Any action required or permitted ----------------------- to be taken at any meeting of the shareholders may be taken without a meeting if all of the shareholders consent thereto in writing, setting forth the action so taken, and such writing is delivered to the corporation for inclusion in the minutes or filing with the corporate records. Such consent shall have the same force and effect as a unanimous vote of shareholders. Section 7. List of Shareholders. The corporation shall keep at its -------------------- registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving their names and addresses and the number, class and series, if any, of the shares held by each. The officer who has charge of the stock transfer books of the corporation shall prepare and make, before every meeting of shareholders or any adjournment thereof, a complete list of the shareholders entitled to vote at the meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number and class and series, if any, of shares held by each. The list shall be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder during the whole time of the meeting for the purposes thereof. The said list may be the corporation's regular record of shareholders if it is arranged in alphabetical order or contains an alphabetical index. ARTICLE III DIRECTORS --------- Section 1. Powers. Except as otherwise provided by any legal ------ agreement among shareholders, the property, affairs and business of the corporation shall be managed and directed by its board of directors, which may exercise all powers of the corporation and do all lawful acts and things which are not by law, by any legal agreement among shareholders, by the articles of incorporation, or by these by-laws directed or required to be exercised or done by the shareholders. Section 2. Meetings and Notice. The board of directors of the ------------------- corporation may hold meetings, both regular and special, either within or without the state of Georgia. Regular meetings of the board of directors may be held without notice at such time and place as shall from time to time be determined by resolution of the board. Special meetings of the board may 4 be called by the chairman of the board or the chief executive officer or by any three directors on one day's oral, telegraphic or written notice duly given or served on each director personally, or three days' notice deposited, first class postage prepaid, in the United States mail. Such notice shall state a reasonable time, date and place of meeting, but the purpose need not be stated therein. Notice need not be given to any director who signs a waiver of notice either before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and waiver of all objections to the place and time of the meeting, or the manner in which it has been called or convened, except when the director states, at the beginning of the meeting, any such objection or objections to the transaction of business. Section 3. Quorum. At all meetings of the board a majority of ------ directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board, except as may be otherwise specifically provided by law, by the articles of incorporation, or by these by-laws. If a quorum shall not be present at any meeting of the board, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 4. Consent of Directors. Unless otherwise restricted by the -------------------- articles of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, setting forth the action so taken, and the writing or writings are delivered to the corporation for inclusion in the minutes of the proceedings of the board or committee or filing with the corporate records. Such consent shall have the same force and effect as a unanimous vote of the board. Section 5. Committees. The board of directors may by resolution ---------- designate from among its members one or more committees, each committee to consist of one or more directors. The board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of such committee. Any such committee, to the extent provided in the resolution, shall have and may exercise all of the authority of the board of directors in the management of the business and affairs of the corporation, except that it shall have no authority to (1) approve or propose to shareholders action which the Georgia Business Corporation Code requires to be approved by shareholders; (2) fill vacancies on the board of directors or any of its committees; (3) amend the articles of incorporation; (4) adopt, amend or repeal by-laws; or (5) approve a plan of merger not requiring shareholder approval. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. The provisions of Sections 2 and 3 of this Article III shall apply to committees and their members as well as to the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. Section 6. Compensation of Directors. Directors shall be entitled to ------------------------- such reasonable compensation for their services as directors or members of any committee of the board as shall 5 be fixed from time to time by resolution adopted by the board, and shall also be entitled to reimbursement for any reasonable expenses incurred in attending any meeting of the board or any such committee. Section 7. Nominations of Directors. Nominations of candidates for ------------------------ election at any meeting of the shareholders of the corporation as directors of the corporation may be made (i) by, or at the direction of, the board of directors or (ii) by any holder of record entitled to vote at such meeting in an election of directors who complies with the notice procedures set forth in this Section 7. Nominations, other than those made by, or at the direction of, the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation as set forth in this Section 7. To be timely, any such notice must be delivered to, or mailed and received at, the principal executive offices of the corporation not less than 60 days nor more than 90 days prior to the date of such meeting, regardless of any postponements, deferrals or adjournments of such meeting to a later date; provided, however, that if less than 60 days' notice or prior public disclosure of the date of the meeting is given or made, notice by a holder of record must, to be timely, be so delivered or received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting is mailed or the day on which such public disclosure was made. Such notice by a holder of record must set forth (i) as to each person whom such holder proposes to nominate for election as a director, all information relating to such person that would be required to be disclosed, or otherwise required, pursuant to Sections 13 or 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"), in connection with any acquisition of shares and the solicitations of proxies with respect to nominees for election of directors pursuant to the Exchange Act, regardless of whether such person is subject to such provisions of such Exchange Act, and (ii) as to the holder of record giving such notice, (a) the name and address, as they appear on the records of the corporation, of such holder, together with the name and address of any other shareholder of the corporation who is a record or beneficial owner of securities of the corporation and who is known by such holder to be supporting such nominee(s) and (b) the class and number of securities which are beneficially owned and owned of record by such holder on the date of such holder's notice and the class and number of securities of the corporation beneficially owned and owned of record by any person known by such holder to be supporting such nominee(s). At the request of the board of directors, any person nominated by, or at the direction of, the board of directors for election as a director shall furnish to the secretary of the corporation that information that would be required to be set forth in any holder's notice of nomination pertaining to such nominee. Ballots bearing the names of all the persons who have been nominated for election as directors at any meeting of shareholders in accordance with the procedures set forth in this Section 7 shall be provided for use at such meeting. The board of directors of the corporation may reject any nomination by a holder of record not timely made in accordance with the procedures set forth in this Section 7. If the board of directors determines that the information provided in a holder's notice of nomination does not satisfy the informational requirements of this Section 7 in any material respect, the secretary of 6 the corporation shall promptly notify such holder of the deficiency in such notice. The holder shall have an opportunity to cure the deficiency by providing additional information to the secretary within such period of time, not to exceed five days, from the date such notice of deficiency is given to such holder, as the board of directors shall determine. If the deficiency is not cured within such period, or if the board of directors reasonably determines that the additional information provided by such holder, together with previously provided information, does not satisfy the requirements of this Section 7 in any material respect, then the board of directors may reject such holder's nomination. The secretary of the corporation shall notify in writing any holder making a nomination whether such nomination has been made in accordance with the time and informational requirements of this Section 7. Notwithstanding the procedures set forth herein, if the board of directors does not make a determination as to the validity of any nomination by a holder of record, the presiding officer at the meeting of shareholders shall determine and declare at such meeting whether a nomination was or was not made in accordance with the procedures set forth in this Section 7. If the presiding officer determines that a nomination was not made in accordance with the procedures set forth in this Section 7, he shall so declare at such meeting of shareholders and the defective nomination shall be disregarded. ARTICLE IV OFFICERS -------- Section 1. Number. The officers of the corporation, shall be chosen ------ by the board of directors and shall be a chairman of the board, a chief executive officer, a vice president, a secretary, and a treasurer. The board of directors may also choose a vice chairman, additional vice presidents, one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board of directors. Section 2. Compensation. The salaries of all officers and agents of ------------ the corporation shall be fixed by the board of directors or a committee or officer appointed by the board. As used herein the term "salaries" shall include any bonus, incentive payments, or other plans or programs involving remuneration to officers. Section 3. Term of Office. Unless otherwise provided by resolution of -------------- the board of directors, the principal officers shall be chosen annually by the board at the first meeting of the board following the annual meeting of shareholders of the corporation, or as soon thereafter as is conveniently possible. Subordinate officers may be elected from time to time. Each officer shall serve until his successor shall have been chosen and qualified, or until his death, resignation or removal. 7 Section 4. Removal. Any officer may be removed from office at any ------- time, with or without cause, by the board of directors whenever in its judgment the best interest of the corporation will be served thereby. Section 5. Vacancies. Any vacancy in an office resulting from any --------- cause may be filled by the board of directors. Section 6. Powers and Duties. Except as hereinafter provided, the ----------------- officers of the corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the board of directors. At the annual meeting at which officers are elected, the board shall by resolution designate a chief executive officer, who will be responsible to the board for the general management of the company. (a) Chairman of the Board. The chairman of the board shall --------------------- preside at all meetings of the stockholders and directors, and shall see that all orders and resolutions of the board are carried into effect. He shall have such powers and perform all such other duties as the board may direct. (b) Vice Chairman of the Board. The vice chairman shall -------------------------- have such duties, responsibilities and authority as the board of directors may prescribe, subject to the limitations expressed or implied by these by-laws. In the absence of the chairman or in the event of his inability or incapacity to act, the vice chairman shall perform the duties and exercise the powers of the chairman. (c) President and Chief Executive Officer. The president ------------------------------------- and chief executive officer shall be responsible for the operation and management of the company and shall be responsible for the proper utilization and security of the company's assets and resources. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, within such limitations as the board by resolution may establish. The president and chief executive officer may delegate his powers to other officers and agents of the company; provided, however, that such delegation shall be reported to the board of directors no less frequently than once a year at the annual meeting, or at such other time as a significant change is made to a previously reported delegation. (d) Vice Presidents. The vice presidents shall have such --------------- duties, responsibilities and authority as the chief executive officer shall delegate, subject to any limitations imposed by the board and subject to the limitations expressed or implied by these by-laws. In the absence of the chief executive officer or in the event of his inability or incapacity to act, the vice president designated as the executive vice president shall perform the duties of the chief executive officer and, when so acting, shall have all the powers of and be subject to all the restrictions upon the chief executive officer. 8 (e) Secretary. The secretary shall attend all meetings of --------- the board of directors and all meetings of the shareholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or chief executive officer, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. (f) Assistant Secretary. The assistant secretary, or if ------------------- there be more than one, the assistant secretaries in the order determined by the board of directors (or, if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. (g) Treasurer. The treasurer shall, subject to the --------- direction of a vice president designated by the chief executive officer, have general custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The treasurer shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements. If required by the board of directors, the treasurer shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the treasurer's office and for the restoration to the corporation, in case of death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in the possession or under control of the treasurer and belonging to the corporation. (h) Assistant Treasurer. The assistant treasurer, or if ------------------- there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. (i) Controller. The controller shall be the chief ---------- accounting officer of the corporation. Subject to the direction of a vice president designated by the chief executive 9 officer, the controller shall maintain adequate records of all assets, liabilities, and transactions of the corporation in the conduct of its business. The controller shall require reports from the other officers and agents of the corporation who receive or disburse funds for its account, at such time and in such form as the controller may deem advisable. The controller shall compile and maintain such accounting and statistical records and data as may be required, and shall prepare and submit to the executive officers, including the treasurer, and to the board of directors such periodical and special financial statements as may be called for by them. In conjunction with other officers and heads of divisions, the controller shall initiate and enforce rules and regulations, budgets, and other measures and procedures for the purpose of enhancing the efficiency, economy, and profit with which the business of the corporation is conducted. The controller shall see that adequate internal audits of the financial records of the corporation are currently and accurately made. Section 7. Voting Securities of the Corporation. Unless otherwise ------------------------------------ ordered by the board of directors, the chief executive officer shall have full power and authority on behalf of the corporation to attend and to act and vote at any meetings of security holders of corporations in which the corporation may hold securities, and at such meetings shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the corporation might have possessed and exercised if it had been present. The chief executive officer from time to time may delegate like powers upon any other officer or agent of the corporation. ARTICLE V CERTIFICATES OF STOCK --------------------- Section 1. Form of Certificate. Every holder of fully-paid stock in ------------------- the corporation shall be entitled to have a certificate in such form as the board of directors may from time to time prescribe. Section 2. Lost Certificates. A new certificate may be issued in ----------------- place of any certificate theretofore issued by the corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When issuing such new certificate, the officer of the corporation responsible for such issuance may, in his discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as he shall require and/or to give the corporation a bond in such sum as he may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 10 Section 3. Transfers. --------- (a) Transfers of shares of the capital stock of the corporation shall be made only on the books of the corporation by the registered holder thereof, or by his duly authorized attorney, or with a transfer clerk or transfer agent appointed as in Section 5 of this Article provided, and on surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. (b) The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and for all other purposes, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. (c) Shares of capital stock may be transferred by delivery of the certificates therefor, accompanied either by an assignment in writing on the back of the certificates or by separate written power of attorney to sell, assign and transfer the same, signed by the record holder thereof, or by his duly authorized attorney in fact, but no transfer shall affect the right of the corporation to pay any dividend upon the stock to the holder of record as the holder in fact thereof for all purposes, and no transfer shall be valid, except between the parties thereto, until such transfer shall have been made upon the books of the corporation as herein provided. (d) The board may, from time to time, make such additional rules and regulations as it may deem expedient, not inconsistent with these by-laws or the certificate of incorporation, concerning the issue, transfer, and registration of certificates for shares of the capital stock of the corporation. Section 4. Record Date. In order that the corporation may determine ----------- the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than 70 days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of and to vote at any meeting of shareholders, the record date shall be at the close of business on the day next preceding the day on which the notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. If no record date is fixed for determining shareholders entitled to take action without a meeting, the record date shall be the date the first shareholder signs the consent. If no record date is fixed for other purposes, the record date shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. A determination of shareholders of record entitled to notice of or 11 to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the board of directors shall fix a new record date for the adjourned meeting. Section 5. Transfer Agent and Registrar. The board of directors may ---------------------------- appoint one or more transfer agents or one or more transfer clerks and one or more registrars, and may require all certificates of stock to bear the signature or signatures of any of them. ARTICLE VI GENERAL PROVISIONS ------------------ Section 1. Dividends. Dividends upon the capital stock of the --------- corporation, subject to the provisions of the articles of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock, subject to the provisions of the articles of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 2. Fiscal Year. The fiscal year of the corporation shall be ----------- fixed by resolution of the board of directors. Section 3. Seal. The corporate seal shall have inscribed thereon the ---- name of the corporation, the year of its organization and the words "Corporate Seal" and "Georgia." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. In the event it is inconvenient to use such a seal at any time, the signature of the corporation followed by the word "Seal" enclosed in parentheses shall be deemed the seal of the corporation. Section 4. Annual Statements. Not later than four months after the ----------------- close of each fiscal year, and in any case prior to the next annual meeting of stockholders, the corporation shall prepare: (1) A balance sheet showing in reasonable detail the financial condition of the corporation as of the close of its fiscal year, and (2) A profit and loss statement showing the results of its operations during its fiscal year. 12 Upon written request the corporation promptly shall mail to any shareholder of record a copy of the most recent such balance sheet and profit and loss statement. Section 5. Fair Price to Shareholders; Business Combinations. All of ------------------------------------------------- the requirements of Part 2 of Article 11 and all of the requirements of Article 11A of the Georgia Business Corporation Code shall be applicable to the corporation. ARTICLE VII INDEMNIFICATION --------------- Section 1. Definitions. As used in this Article, the term ----------- (a) "change of control", for purposes of this Article VII, means (1) an acquisition by a person of beneficial ownership of 20% or more of the combined voting power of the corporation's then outstanding voting securities, provided that any such securities acquired directly from the corporation shall be excluded from the determination of such person's beneficial ownership (but shall be included in calculating total outstanding securities); or (2) the individuals who are members of the incumbent board (as defined below) cease for any reason to constitute two-thirds of the Board of Directors; or (3) approval by the shareholders of the corporation of (i) a merger or consolidation involving the corporation if the shareholders of the corporation, immediately before such merger or consolidation, do not own, immediately following such merger or consolidation, more than 80% of the combined voting power of the outstanding voting securities of the corporation in substantially the same proportion as their ownership of voting securities immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the corporation or an agreement for the sale or other disposition of all or substantially all of the assets of the corporation. Notwithstanding the foregoing, a change of control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding voting securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the corporation or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the shareholders of this corporation in the same proportion as their ownership of shares in this corporation immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a change of control shall not be deemed to occur solely because any person (the "Subject Person") acquired beneficial ownership of more than the permitted amount of the outstanding voting securities as a result of the acquisition of voting securities by the corporation which, by reducing the number of voting securities outstanding increases the proportional number of shares beneficially owned by the Subject Person, provided, that if a change of control would occur (but for -------- 13 the operation of this sentence) as a result of the acquisition of voting securities by the corporation, and after such share acquisition by the corporation, the Subject Person becomes the beneficial owner of any additional voting securities which increases the percentage of the then outstanding voting securities beneficially owned by the Subject Person, then a change of control shall occur. (b) "corporation" includes any domestic or foreign predecessor entity of the corporation or a corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (c) "director" means an individual who is or was a director of the corporation or an individual who, while a director of the corporation, is or was serving at the corporation's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director is considered to be serving an employee benefit plan at the corporation's request if his duties to the corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. Director includes, unless the context requires otherwise, the estate or personal representative of a director. (d) "expenses" include attorneys' fees. (e) "incumbent board" includes the individuals who as of May 11, 1994 are members of the Board of Directors and any individual becoming a director subsequent to May 11, 1994 whose election, or nomination for election by the corporation's shareholders was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board; provided, however, that any -------- ------- individual who is not a member of the incumbent board at the time he or she becomes a member of the Board of Directors shall become a member of the incumbent board upon the completion of two full years as a member of the Board of Directors; provided further, however, -------- ------- ------- that notwithstanding the foregoing, no individual shall be considered a member of the incumbent board if such individual initially assumed office (1) as a result of either an actual threatened "election contest" (within the meaning of Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors (a "Proxy Contest") or (2) with the approval of the other members of the Board of Directors, but by reason of any agreement intended to avoid or settle a Proxy Contest. (f) "liability" means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding. (g) "party" includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding. 14 (h) "proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal. Section 2. Indemnification of Directors and Officers - General. --------------------------------------------------- (a) Subject to the terms and conditions of this Article VII, the corporation shall indemnify an individual made a party to a proceeding because he is or was a director or officer of the corporation against liability incurred in connection with a proceeding to the fullest extent permitted by the Georgia Business Corporation Code (the "GBCC"), as the same now exists or may hereafter be amended (but only to the extent any such amendment permits the corporation to provide broader indemnification rights than the GBCC permitted the corporation to provide prior to such amendment). (b) The termination of a proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director or officer did not meet the standard of conduct set forth in the GBCC. (c) To the extent that a director or officer has been successful, on the merits or otherwise, in the defense of any proceeding to which he was a party, or in defense of any claim, issue, or matter therein, because he is or was a director or officer of the corporation, the corporation shall indemnify the director or officer against reasonable expenses incurred by him in connection therewith regardless of whether the director or officer has met the standards set forth in the GBCC and without any action or determination under Section 4 of this Article VII. Section 3. Advance for Expenses. -------------------- (a) The corporation shall pay for or reimburse the reasonable expenses incurred by a director or officer who is a party to a proceeding in advance of final disposition of the proceeding if: (1) The director or officer furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct set forth in the GBCC; and (2) The director or officer furnishes the corporation a written undertaking, executed personally or on his behalf, to repay any advances if it is ultimately determined that he is not entitled to indemnification under this Article (b) The undertaking required by paragraph (2) of subsection (a) of this Section 3 must be an unlimited general obligation of the director or officer but need not be secured and may be accepted without reference to financial ability to make repayment. 15 Section 4. Limitations on Indemnification. ------------------------------ (a) The corporation shall not indemnify a director under Section 2 of this Article VII unless a determination has been made in the specific case that indemnification of the director is permissible in the circumstances because he has met the standard of conduct set forth in the GBCC. (b) The corporation shall indemnify an officer under Section 2 of this Article VII unless a determination has been made in the specific case that indemnification of the officer is precluded in the circumstances because he has failed to meet the standard of conduct set forth in the GBCC. (c) In either paragraph (a) or (b) above, such determination shall be made within 60 days of the request for indemnification: (i) By the Board of Directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding; (ii) If a quorum cannot be obtained under paragraph (i) of this subsection, by majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding; (iii) By special legal counsel: (A) Selected by the Board of Directors or its committee in the manner prescribed in paragraph (i) or (ii) of this subsection; or (B) If a quorum of the Board of Directors cannot be obtained under paragraph (i) of this subsection and a committee cannot be designated under paragraph (ii) of this subsection, selected by majority vote of the full Board of Directors (in which selection directors who are parties may participate); or (iv) By the shareholders, but the shares owned by or voted under the control of the officers and directors who are at the time parties to the proceeding may not be voted on the determination; provided, however, that following a change of control of the corporation, with respect to all matters thereafter arising out of acts, omissions or events prior to the change of control of the corporation concerning the rights of any person seeking indemnification under this Article VII, such determination shall be made by special legal counsel selected by such person and approved by the Board of Directors or its committee in the manner described in Section 4(c)(iii) above (which approval shall not be unreasonably withheld), which 16 counsel has not otherwise performed services (other than in connection with similar matters) within the five years preceding its engagement to render such opinion for such person or for the corporation or any affiliates (as such term is defined in Rule 405 under the Securities Act of 1933, as amended) of the corporation (whether or not they were affiliates when services were so performed) ("Independent Counsel"). Unless such person has theretofore selected Independent Counsel pursuant to this Section 4 and such Independent Counsel has been approved by the corporation, legal counsel approved by a resolution or resolutions of the Board of Directors of the corporation prior to a change of control of the corporation shall be deemed to have been approved by the corporation as required. Such Independent Counsel shall determine as promptly as practicable whether and to what extent such person would be permitted to be indemnified under applicable law and shall render its written opinion to the corporation and such person to such effect. In making a determination under this Section 4, the special legal counsel and Independent Counsel referred to above shall determine that indemnification is permissible unless clearly precluded by this Article VII or the applicable provisions of the GBCC. The corporation agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such Independent Counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Article or its engagement pursuant hereto. (d) Authorization of indemnification or an obligation to indemnify and evaluation as to reasonableness of expenses shall be made as set forth in paragraph (C) above. (e) Indemnification under this Article VII in connection with a proceeding by or in the right of the corporation shall be limited to reasonable expenses incurred in connection with the proceeding. Section 5. Enforceability. The provisions of this Article shall be -------------- applicable to all proceedings commenced after its adoption, whether such arise out of events, acts, omissions or circumstances which occurred or existed prior or subsequent to such adoption, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. This Article shall be deemed to grant each person who is entitled to indemnification hereunder rights against the corporation to enforce the provisions of this Article, and any repeal or other modification of this Article or any repeal or modification of the GBCC or any other applicable law shall not limit any rights of indemnification then existing or arising out of events, acts, omissions, circumstances occurring or existing prior to such repeal or modification, including, without limitation, the right to indemnification for proceedings commenced after such repeal or modification to enforce this Article with regard to acts, omissions, events or circumstances occurring or existing prior to such repeal or modification. Section 6. Severability. If this Article or any portion hereof shall ------------ be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director or officer of the corporation as to liabilities incurred in connection with any 17 proceeding, including an action by or in the right of the corporation, to the full extent permitted by any applicable portion of this Article that shall not have been invalidated and to the full extent permitted by applicable law. Section 7. Statements to Shareholders. If the corporation indemnifies -------------------------- or advances expenses to an officer or director under this Article VII in connection with a proceeding by or in the right of the corporation, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting. 18 EX-10.(A) 4 COMPENSATION AGREEMENT WITH TOPOL EXHIBIT 10(a) DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT made the 30th day of June, 1987, by and between SCIENTIFIC-ATLANTA, INC., a Georgia corporation (hereinafter referred to as the "Company"), and SIDNEY TOPOL, a citizen and resident of the State of Georgia (hereinafter referred to as "Topol"); W I T N E S S E T H: - - - - - - - - - - WHEREAS, Topol is now serving as Chairman of the Board of the Company, and has rendered and continues to render outstanding and valuable services to the Company in all such capacities; WHEREAS, the Company wishes to reward Topol for such services, to retain his full and undivided commitment to the interests of the Company both before and after his retirement as an active employee of the Company, and to fairly compensate him for such services and such commitment; WHEREAS, Topol and the Company initially entered into a deferred compensation agreement dated September 15, 1978 (effective as of July 1, 1977), which by its terms contemplated review every two years "to determine the extent to which the benefits [t]herein provided reflect Topol's current level of compensation. . . .," and which has heretofore been modified as contemplated, restated and superseded, in its entirety (said deferred compensation agreement as heretofore and hereby modified being called the "Prior Agreement"); and WHEREAS, the Prior Agreement has been again reviewed as contemplated therein, and the Company and Topol desire to further modify and restate the Prior Agreement, it being understood that the Prior Agreement in effect immediately prior to the execution and delivery hereof is hereby superseded in its entirety; NOW, THEREFORE, in consideration of the premises, the mutual covenants and promises herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto covenant, agree and promise as follows: ARTICLE I - DEFINITIONS - ----------------------- 1.1 Supplemental Retirement Income Base: The product of (i) 60% of ----------------------------------- (ii) the average annual earnings (base salary and annual bonus) for the highest three fiscal years out of the last ten years of Topol's employment multiplied by (iii) the Early Retirement Factor, being:
Early Retirement Age Factor --- ---------------- 65 and beyond 1.000 64 .967 63 .933 62 .900
1.2 Beneficiary: Topol's spouse as defined in Section 1.33 of the ----------- Company's Pension Plan. 1.3 Board: The Board of Directors of the Company. ----- 1.4 Company: Scientific-Atlanta, Inc., and, where the context ------- permits, such term shall also include any successor by merger, consolidation or corporate reorganization, any parent or subsidiary corporation, and any subsidiary of any of them. 1.5 Corporate Retirement Plan: The Scientific-Atlanta, Inc. ------------------------- Retirement Plan (which term shall include any successor or replacement or additional plan providing retirement benefits) as the same may from time to time be amended, whether or not Topol is a participant in such plan. 1.6 Corporate Retirement Plan Income: Benefits payable under the -------------------------------- Corporate Retirement Plan in the event of Topol's Normal (including Deferred), Early or Disability Retirement will be calculated, solely for the purpose of determining amounts payable under this Agreement, on the assumption that Topol elects the life only income benefit option of the Corporate Retirement Plan. 1.7 Death: Topol's death from any cause at any time. ----- 1.8 Disability: Any physical or mental disability of Topol ---------- resulting from illness, accident or other physical or mental incapacity which for a period of at least six (6) consecutive months has prevented Topol from engaging in and performing the duties assigned him by the Board. For purposes of this Agreement, Disability shall be deemed to have commenced as of the expiration of any such six-month period during which Topol has been so disabled. The Board shall determine the date on which Disability commences or terminates for the purpose of establishing the amount of compensation payable under this Agreement and the time when such compensation becomes payable, and in making such determination, shall analyze and consider the results of such medical or psychiatric findings as may be available. In regard to Disability, this Agreement constitutes an accident and health plan for Topol's benefit and the benefits payable - 2 - hereunder are for the purpose of indemnifying him against his injury or illness. 1.9 Early Retirement: Retirement by Topol prior to his Normal ---------------- Retirement in accordance with Section 4.2 of the Corporate Retirement Plan. 1.10 Effective Date: The date hereof. -------------- 1.11 Normal Retirement: Actual retirement by Topol from active ----------------- employment by the Company on or after December 1, 1989 (first day of the calendar month in which falls his 65th birthday), in accordance with Section 4.1 of the Corporate Retirement Plan. 1.12 Supplemental Retirement Income: The amount derived by ------------------------------ calculating the Supplemental Retirement Income Base less the annual Corporate Retirement Plan income. 1.13 Severance: For purposes of this Agreement, severance shall mean --------- only one of the following circumstances: (a) Severance for Cause: Discharge of Topol from employment by ------------------- the Company, or Topol's resignation at the request of the Board, where the reason for such action is (i) dishonest or fraudulent conduct by Topol which would constitute a basis for criminal charges and which would normally be considered as a matter of sound business practice to be so serious as to disqualify him from serving as Chairman of the Board of the Company (or a similar corporation), or (ii) a breach by Topol of his covenant under Section 3.2 hereof. (b) Company Severance: Topol's resignation at the request of ----------------- the Board, removal of Topol as Chairman of the Board while still employed, or termination by action of the Board for his failure to fulfill the expectations of the Board in the capacity in which he is then employed, or for any reason not constituting the basis of another form of Severance under this Section 1.13. 1.14 Change of Control: A change of control of the Company following ----------------- the acquisition of beneficial ownership by any person or entity, or group of persons or entities and their affiliates acting in concert, of twenty-five percent (25%) or more of the voting securities of the Company, followed or accompanied by a change, over a twenty-four (24) month period, of twenty-five (25%) or more of the membership of the Board of Directors. The terms "beneficial ownership," "control" and "affiliate" for purposes hereof shall have the meanings - 3 - set out in Regulations 12b-2 and 13d-3 as appropriate (17 CFR Sections 240.12b-2 and 240.13d-3, respectively) of the Securities and Exchange Commission, as the same may from time to time be amended. ARTICLE II - COMPENSATION AND METHOD OF PAYMENT - ----------------------------------------------- 2.1 The Company agrees to pay Topol for so long as he shall be employed by the Company, or until the end of the fiscal year in which Topol reaches his 65th birthday, whichever shall occur first, a fixed salary payable in monthly installments at the end of each month (or at such other intervals and times as may be from time to time mutually satisfactory to the Board and Topol). Topol will receive a base salary the equivalent of $350,000 per annum. Topol's base salary will be adjusted by a minimum of $25,000 per annum effective August 1 of each year hereafter, until the termination of this Agreement. 2.2 Upon Topol's Normal Retirement, Early Retirement or Disability Retirement, the Company, subject to the conditions set forth in this Agreement, shall pay Topol compensation in the respective amount determined in accordance with Sections 2.3, 2.4 or 2.5 hereof (whichever is applicable). Payment to Topol of the Supplemental Retirement Income will be in an actuarially equivalent form identical to the form of annuity approved by the Board as payable to Topol under Section 4.6 of the Corporate Retirement Plan. The actuarial assumptions used in the Corporate Retirement Plan for purposes of determining actuarial equivalent forms of benefits payable thereunder will be used for purposes of determining actuarial equivalent benefits payable hereunder. Such compensation shall be paid to Topol on the first day of each calendar month, commencing with the first month following the termination of his employment. In the event of Death, any required payments shall be made to his Beneficiary (in monthly installments), commencing with the first day of the first month following the date after Death when the Company first becomes aware of the Beneficiary entitled to receive such payments. In the event Topol dies while actively in the employ of the Company leaving a surviving spouse, survivor's benefits will be payable as provided in Section 2.6. In the event of Severance, payments shall be made in accordance with Section 2.7 hereof. Notwithstanding anything contained in this Article II to the contrary, Topol is hereby guaranteed supplemental retirement income, depending on Topol's age at the time of Normal Retirement, Early Retirement, Death, Disability or Company Severance, which is the greater of (i) the form of annuity provided in the Addendum hereto or (ii) the results of the calculation of the Supplemental Retirement Income - 4 - pursuant to Sections 2.3 through 2.7, together with any other payments specified in Sections 2.4 through 2.7 and 2.9 and the form of payment described in Section 2.8. Provided, however, that (i) the form of annuity provided in the Addendum hereto will be increased by the actuarial equivalent of any reduction after the Effective Date in the maximum benefit payable under the Corporate Retirement Plan and (ii) if Topol or his beneficiary receives the form of annuity provided in the Addendum on account of Death or Disability, Topol shall be deemed to have reached age 65 as of the date of such Death or Disability. In the event any payments are made pursuant to this Agreement because of a Change of Control, such payments shall be reduced to the extent, if any, required in order for any payment made hereunder not to be a "parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended. 2.3 Normal Retirement: Upon his Normal Retirement, Topol shall be ----------------- entitled to compensation under this Agreement in an aggregate amount equal to the Supplemental Retirement Income. 2.4 Early Retirement: Upon his Early Retirement, Topol shall be entitled ---------------- to compensation under this Agreement in an aggregate amount equal to the Supplemental Retirement Income. If during the 18-month period following a Change of Control Topol retires early, then Topol will be entitled to a continuance of base salary for a period of 24 months or until his Normal Retirement Date or Death, whichever shall first occur. At the end of such salary continuation period, Topol will be entitled to retirement payments as elsewhere herein provided, except that in such event the Supplemental Retirement Income Base shall be determined exclusive of the amounts payable during the salary continuation period. 2.5 Disability: In the event of the Disability of Topol while an active ---------- employee of the Company, he shall be entitled to compensation under this Agreement in an aggregate amount equal to the Supplemental Retirement Income; provided however, that for purposes of calculating the Supplemental Retirement Income in such event, Topol shall be deemed to have reached age 65 as of the date of Disability. In the event that Topol's Disability ceases, as determined by the Board, and he does not thereupon return to the employ of the Company, he shall be deemed to have taken Retirement as of the date of Disability, and all Disability payments shall be credited as Retirement benefits that otherwise would have been payable during such period of Disability. In the event that Topol's Disability ceases and he returns to the employ of the Company, all further obligations hereunder in regard -5- to such Disability shall cease, and the Company shall thereafter have no obligation to make any further payments hereunder by reason of that particular Disability. In a case to which the preceding sentence applies, the prior disability payments shall not be offset against or limit this Agreement. Disability payments will not be considered as earnings nor will the period of Disability be considered in calculating any future payments under this Agreement. 2.6 Death: In the event of Death while Topol is an active employee of the ----- Company or during the salary continuation period under Section 2.4 hereof, survivor's benefits will be payable to Topol's surviving spouse, for her life, in an amount equal to what she would have received had Topol retired on the date of his Death and selected to receive his retirement benefits hereunder in the form of a 50% Joint and Survivor Annuity as defined in Section 4.6 of the Corporate Retirement Plan. For purposes of calculating any retirement benefits payable pursuant hereto, Topol shall be deemed to have reached age 65 at the time of his Death. In addition, the Company agrees that it will either (i) maintain, so long as the Company is making payments to Topol pursuant hereto, the group life insurance coverage for Topol in effect as of the date of his Retirement or Company Severance or (ii) upon Topol's Death, pay to his Beneficiary a death benefit in an amount equivalent to the amount of group life insurance in effect for Topol as of the date of his Retirement or Company Severance. 2.7 Severance: Payment in the event of Severance shall be as described --------- in the applicable paragraph set forth below: (a) Severance for Cause: There shall be no amount payable under ------------------- this Agreement, which shall terminate at the time of such Severance for Cause. (b) Company Severance: Topol shall be entitled to receive a ----------------- continuation of base salary for a period of 24 months (36 months in the event Company Severance is within 18 months following a Change of Control), but in no event beyond the earlier to occur of Topol's Normal Retirement Date or Death. At the end of such salary continuation period Topol shall, for the purposes of this Agreement, be deemed to have retired and retirement benefits shall be payable as elsewhere herein provided, except that in such event the Supplemental ------ Retirement Income Base shall be determined exclusive of the amounts payable during the salary continuation period. - 6 - 2.8 Lump Sum Payment: Anything in this Agreement to the contrary ---------------- notwithstanding, in the event any two of the following events occur within any consecutive six month period, as determined by the Company's independent auditors, said events being: 1. The ratio of current assets to current liabilities is less than 1.5:1 at the end of each of four consecutive calendar quarters; or 2. All interest-bearing debt (short term and long term) exceeds eighty percent (80%) of shareholders' equity for each of four consecutive quarters; or 3. The Company fails to make any profit before taxes for each of six consecutive calendar quarters; Topol or his beneficiary in the case of Topol's earlier Death, shall be entitled, upon written request to the Board, to a lump sum payment of the then present value of the benefits that would thereafter otherwise be payable under this Agreement, based upon a life expectancy or expectancies under the mortality tables used by the Company's actuary in determining the Company's funding liability of the Corporate Retirement Plan, and discounted at the prime rate then in effect at Chase Manhattan Bank. 2.9 Long-Term Incentive Plans: ------------------------- (a) Stock Options: In the event of Company Severance or Retirement ------------- (Normal, Early or Disability), all outstanding stock options previously granted to Topol will become immediately exercisable to the extent permitted by the Company's stock option plans pursuant to which such options were granted and such options will be exercisable for a period of three years following Severance or Retirement; provided, however, that such options will not be exercisable later than the date preceding the tenth anniversary of the date on which the options were granted. To the extent that the terms of the Company's stock option plans do not allow Topol to exercise any portion of his outstanding options in the event of Severance or Retirement, Topol will be entitled to receive a cash payment equal to the excess, if any, of the fair market value of one share as of the date of such Severance or Retirement over the exercise price multiplied by the number of shares as to which the option is not exercisable. - 7 - (b) Long-term Executive Compensation Plan: In the event of ------------------------------------- Company Severance or Retirement (Normal, Early or Disability), all earnings unit awards previously granted to Topol will become immediately vested for the entire three-year award cycle pursuant to which such earnings units were granted. Payment of any amount due will be paid to Topol or his Beneficiary as soon as possible after the end of each award cycle. (c) Incentive Stock Award: Topol is hereby granted a deferred --------------------- stock award equal to 100,000 shares (the "Shares") of the Company's common stock with such shares to be issued on March 15, 1988; provided, however, that if Topol sells any Shares of the Company's common stock during the six-month period prior to March 15, 1988, the Shares shall be issued on the date six months and one week after the date of such sale. The grant of the deferred stock award pursuant hereto shall be subject to the approval of the holders of the outstanding shares of the Company's common stock at the Company's next annual meeting, unless the Company has received an opinion of counsel that such approval is not required. The Company agrees that it shall loan Topol the amount of money necessary to enable Topol to pay all federal and state income taxes that may be owed by him with respect to his receipt of such shares of the Company's common stock. During the term of such loan, Topol shall pay interest thereon to the Company at the same rate available to the Company to borrow funds. Topol agrees to repay the loan, if any, made to him pursuant hereto before the earlier of (i) the thirtieth day after sale by Topol or his Beneficiary of any of the Shares or (ii) September 1, 1990. The loan shall be upon such other terms and conditions as shall be agreed upon in writing by Topol and the Human Resources and Compensation Committee of the Board of Directors of the Company. (d) Registration Rights: For a period of two years after the ------------------- Shares are issued to Topol, the Company, upon the written request of Topol or his Beneficiary, as the case may be, shall promptly prepare and file a Registration Statement on Form S-3 or the then appropriate form to register the Shares under the Securities Act of 1933, as amended (the "1933 Act"), for resale by Topol or his Beneficiary. Topol agrees to supply in writing all information requested by the Company in relation to such Registration Statement. The Company will use its best efforts to have such Registration Statement declared effective under the 1933 Act and to keep such Registration Statement effective until all of the Shares registered thereby have been sold. If the Company registers the Shares under the 1933 Act prior to issuance to Topol, so that Topol or his Beneficiary is permitted to resell the Shares pursuant to Rule 144 promulgated under the 1933 Act, or any other applicable rule, without - 8 - being required to hold the Shares for a two-year period, then the Company shall not be required to register the Shares pursuant to this Section 2.9(d) for resale by Topol or his Beneficiary. ARTICLE III - CONDITIONS AS TO PAYMENT - -------------------------------------- 3.1 Topol agrees to continue to devote all of his time, attention, skill and efforts to the performance of duties in behalf of the Company so long as he shall be employed by the Company. 3.2 In consideration of the Company's employment of Topol hereunder and the severance and retirement benefits provided for herein, Topol undertakes and agrees that during the period of his active employment by the Company, Topol will not have any other corporate affiliations without the written approval of the Board (but this restriction shall not apply to Topol's serving on the Board of any corporation which is not in the same industry as the Company and which is neither a supplier nor a customer of the Company). The Company acknowledges that Topol's position as a director of Contel Corporation is not in violation of this provision. During the period of such employment, and during an additional period of three (3) years after termination of this employment with the Company, for whatever reason, Topol will not, within the United States (the "Restricted Area"), without the written consent of the Board, directly or indirectly, for his own benefit, or for, with or through any person, firm or corporation, other than the Company, engage in the production, manufacture, sale or distribution of any products competitive with those manufactured or sold by the Company during his period of employment with the Company. Topol expressly acknowledges and agrees that the Company conducts and will conduct business in and throughout the entire Restricted Area and that Topol will perform his duties for the Company within and throughout the entire Restricted Area. 3.3 Topol shall forever refrain from disclosing to unauthorized persons trade or business secrets or any other confidential information of the Company or any of its subsidiaries or affiliated companies. 3.4 In the event that Topol shall fail to comply with any provision of this Agreement, including, without limitation, Topol's covenants in this Article III which are vital to the Company and without which the Company would not enter into this Agreement, the Company's obligation to make any further payment hereunder shall forthwith terminate, but Topol shall not have any obligation to repay the Company any payments theretofore made to him. It is understood and - 9 - agreed that the Company's sole remedy in such event is termination of its obligation to make any further payments hereunder and that the Company shall have no right to have repaid to it any payments which have accrued up to and already been paid to Topol prior to the time of Topol's failure to comply with any provision hereof. ARTICLE IV - BENEFIT PLAN - ------------------------- So long as the Company is making payments to Topol pursuant hereto, the Company agrees that it will continue to furnish Topol with such medical insurance coverage as is being furnished Topol at the time of Company Severance or Retirement. ARTICLE V - CONSOLIDATION, MERGER OR SALE OF ASSETS - --------------------------------------------------- 5.1 The Company agrees not to consolidate or merge into or with another corporation, or transfer all or substantially all of its assets to any person, another corporation or any other entity, unless the resulting corporation or such other party shall expressly assume the Company's obligations under this Agreement, and upon such assumption, Topol and such resulting corporation or other party shall become obligated to perform the terms and conditions hereof. It is understood and agreed, however, that in the event of any such transaction, this Agreement does not require that Topol continue as or be designated as Chairman of the Board of such resulting corporation or other party, and his employment duties thereafter shall be such as are agreed upon or prescribed by the appropriate parties at that time. However, in no event will Topol's base salary or annual target bonus be reduced during the period of this Agreement. ARTICLE VI - CONTINUED EMPLOYMENT - --------------------------------- 6.1 This Agreement does not constitute an agreement on the part of the Company to employ Topol until his date of Normal Retirement, Early Retirement, Disability, Death or Severance, nor does it constitute an agreement by Topol to continue in the employment of the Company until such time. Either party hereto may terminate the employment of Topol by the Company on ninety (90) days prior written notice to the other party (which notice may be waived), and such termination shall constitute Company Severance. Topol shall give the Company at least six months advance written notice of his intention to retire. - 10 - ARTICLE VII - ADMINISTRATION AND MISCELLANEOUS - ---------------------------------------------- 7.1 This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective legal representatives, heirs, successors, assigns and Beneficiary. 7.2 Notwithstanding anything in Section 7.1 hereof to the contrary: (a) except as expressly authorized pursuant to this Agreement, neither this Agreement nor any right or interest under this Agreement shall be transferred, assigned or encumbered by Topol or by his Beneficiary without the Company's prior written consent; (b) except as expressly authorized by this Agreement, none of the benefits hereunder may be subject to anticipation, alienation, encumbrance, assignment or judgements nor shall they be transferred by law in the event of Topol's insolvency or bankruptcy or the appointment of a receiver on his behalf or in regard to any of his assets; and (c) except in regard to a transaction described in Section 5.1 above, this Agreement shall not be assignable by the Company. 7.3 Neither Topol nor any Beneficiary who is a member of the Board shall participate in any decision of the Board as to any matter concerning this Agreement including, without limitation, any determination of payment of any sum under this Agreement. 7.4 If any difference shall arise between the Company and Topol or his Beneficiary as to the interpretation or operation of this Agreement, such difference shall be settled by arbitration in the manner provided by Title 9, Chapter 9, Article I of the Official Code of Georgia Annotated, as amended and in effect at such time, or any statute of similar import in effect at such time. If such Code then contains no arbitration provisions, each party shall select an arbitrator; the two arbitrators selected by the parties shall select a third arbitrator; and the decision of a majority of the arbitrators so selected shall be final and binding on all parties concerned. The expense of arbitration under either of the procedures set forth above shall be paid equally by the parties to the arbitration. 7.5 This Agreement having been executed and delivered in the State of Georgia, its validity, interpretation, performance and enforcement shall be governed by the laws of that State. 7.6 This Agreement contains the entire agreement between the parties hereto relating to the matters provided herein, and supersedes any and all prior agreements between - 11 - the parties, whether written or oral, in regard to any matter provided herein. 7.7 No amendment, revision or modification of this Agreement shall be valid unless the same is set forth in writing and signed by both parties hereto. 7.8 In the event that any one or more of the provisions of this Agreement or any word, phrase, clause, sentence or other portion thereof (including, without limitation, the geographical, temporal and activity restrictions contained herein) shall be deemed to be illegal or unenforceable for any reason, such provision or portion thereof shall be modified or deleted in such a manner so as to make this Agreement as modified legal and enforceable to the fullest extent permitted under applicable laws. The validity and enforceability of the remaining provisions or portions thereof shall not be construed as a waiver of any subsequent breach of the same or any other covenant, term or provision. 7.9 None of the remedies conferred upon any of the parties is intended to be exclusive of any other remedy, and each and every such remedy shall be in addition to, and not in limitation of or substitution for, every other remedy available at law or in equity or by statute or otherwise. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective seals affixed hereto as of the day and year first above written. SCIENTIFIC-ATLANTA, INC. (CORPORATE SEAL) By: /s/ James V. Napier ------------------------------- James V. Napier, Chairman, Human Resources and Compensation Committee of the Board of Directors ATTEST: /s/ David A. Eggers - ---------------------------- Secretary /s/ Sidney Topol (SEAL) ------------------------------ Sidney Topol - 12 - Addendum SUPPLEMENTAL RETIREMENT ----------
SINGLE LIFE 50% J&S 100% J&S AGE ANNUITY ANNUITY ANNUITY - --------- --------- --------- --------- 62 $172,170 $153,403 $138,425 63 $208,820 $185,015 $166,261 64 $235,850 $207,548 $185,614 65 and $271,260 $237,624 $211,041 beyond
- 13 - EX-10.(B) 5 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN EXHIBIT 10(b) SCIENTIFIC-ATLANTA, INC. NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN AS AMENDED THROUGH NOVEMBER 13, 1996 1. PURPOSE. The purposes of the plan ("Plan") are to advance the interests of Scientific-Atlanta, Inc. ("Company") and its shareholders by (i) encouraging increased share ownership by members of the Board of Directors ("Board") of the Company who are not employees of the Company or any of its subsidiaries, (ii) enhancing the Company's ability to attract and retain the services of experienced, able and knowledgeable persons to serve as directors, and (iii) providing additional incentive for directors to contribute their best efforts to the Company's success. 2. ADMINISTRATION. The Plan shall be administered by the Board. The Board shall have full authority, consistent with the Plan, to interpret the Plan, to promulgate such rules and regulations with respect to the Plan as it deems desirable and to make all other determinations necessary or desirable for the administration of the Plan. All decisions, determinations and interpretations of the Board shall be binding upon all persons. 3. SHARES TO BE ISSUED. Shares of the Company's common stock ("Common Stock") delivered on the exercise of stock options ("Options") granted under the Plan may be authorized, but previously unissued, shares or previously issued shares reacquired by the Company. 4. GRANTING OF OPTIONS. (a) Eligible Directors. "Eligible Directors" are all members of the ------------------ Board who are not employees of the Company. (b) Initial Grant. Each Non-Employee Director will receive an initial ------------- grant of 20,000 shares upon approval by the Board of this plan or upon the initial appointment or election to the Board. (c) Automatic Grants. An Option to Purchase 5,000 shares of Common ---------------- Stock shall granted at the annual meeting of the Board held on the date of the Annual Meeting of Shareholders beginning in 1995 and at each succeeding Board meeting held on that date provided the Non-Employee Director continues in office after the Board meeting date on which the Option is granted. 1 (d) Option Agreement. Each Option shall be evidenced by a written ---------------- instrument which shall state the terms and conditions of the grant, not inconsistent with the Plan, as the Board in its sole discretion shall determine and approve. (e) Option Price. The purchase price for each share of Common Stock ------------ subject to an Option shall be the fair market value of the Common Stock on the date the Option is granted. For this purpose, as well as other purposes under the Plan, fair market value shall be deemed to be the closing selling price of a share of Common Stock as traded on the New York Stock Exchange on the date on which the Option is granted or, if there is no trade on such Exchange on that date, then on the next preceding date on which there was a trade of Common Stock on such Exchange. (In the event the Company's Common Stock is not listed on the New York Stock Exchange on the date of an Option grant, the fair market value shall be determined as stated above but with reference to trades on the largest stock exchange on which the stock is then traded.) (f) Nontransferability. An Option shall be nonassignable and ------------------ nontransferable other than by will or the laws of descent and distribution. An Option shall be exercisable during the Eligible Director's lifetime only by him or, in the event of his incompetence, by a duly appointed guardian. 5. OPTION EXERCISES. (a) Exercise Timing. Except as provided in Sections 5(c) and 6 below, --------------- each Option shall become exercisable for 25% of the shares of Common Stock covered by the Option after the expiration of one year following the date of grant and for an additional 25% of the shares after the expiration of each of the succeeding three years following the date of grant. (b) Method of Exercise. Options may be exercised by delivery of ------------------ written notice of exercise to the Secretary of the Company accompanied by the full purchase price of the shares being purchased. The price shall be paid at the time of exercise (i) in cash, (ii) by the transfer to the Company of shares of the Company's Common Stock acquired by the option holder prior to the exercise of the Option, or (iii) by any combination of cash or such shares of the Company's Common Stock. Each such share so transferred in full or part payment of the option price shall be deemed to have a value equal to the closing price of a share of the Common Stock of the Company, as traded on the New York Stock Exchange (or the largest stock exchange on which it is then traded), on the date of transfer to the Company, or if there is no trade on such Exchange on that date, on the nearest date preceding the date of transfer on which a trade on such Exchange 2 was made, and each such share at the time of such transfer shall be free and clear of any and all claims, pledges, liens and encumbrances, or any restrictions which would in any manner restrict the transfer of such shares to the Company in full or part payment of the Option price. (c) Effect of Change of Control. In the event of "Change of Control" of --------------------------- the Company, all Options held by Eligible Directors on the date of Change of Control shall be immediately exercisable in full, irrespective of the amount of time that has elapsed from the date of grant. "Change of Control" means a change of twenty-five percent (25%) or more of the membership of the Board (excluding membership changes resulting from normal retirement of directors) within a twenty-four (24) month period following the acquisition of beneficial ownership by any person or entity, or group of persons or entities and their affiliates acting in concert, of twenty percent (20%) or more of the voting securities of the Company. "Affiliates" and "beneficial ownership" shall be defined in accordance with Rules 12b-2 and 13d-3 of the Securities and Exchange Commission, as the same may from time to time be amended. 6. EXPIRATION OF OPTIONS. Except as hereinafter provided, all Options shall expire on the earlier of (i) the last day of the tenth year after the date of grant or (ii) the date that an Eligible Director ceases to be a member of the Board; provided, however, that to the extent any unexpired Options are otherwise exercisable on the date that an Eligible Director ceases to be a member of the Board for any reason other than "cause", death or retirement under a retirement plan of the Company, such Options shall remain exercisable for 210 days following the last day of the Eligible Director's Board membership and shall expire if not exercised within said 210-day period. If Board membership ceases on account of death or retirement under a retirement plan of the Company, all unexpired Options held by the Eligible Director on the last day of Board membership, which are then exercisable or would have become exercisable had the Director continued as a member of the Board for one additional year, shall be immediately exercisable and remain exercisable for 365 days following the last day of the Eligible Director's Board membership and shall expire if not exercised within said 365-day period. To the extent any otherwise unexpired Options are not exercisable in accordance with the immediately preceding sentence, they shall 3 expire as of the date of death or the effective date of retirement, as the case may be. All Options held by an Eligible Director whose membership on the Board ends after the occurrence of "cause" shall expire immediately on the last date of membership. "Cause", for the purposes of this paragraph 6, means any act or omission for which indemnification of the Director is prohibited by the Georgia Business Corporation Code (Sections 14-2-171 of the Code until July 1, 1989 and Section 14-2-856, as amended, on and after July 1, 1989). 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. If a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of Common Stock of the Company occurs, the number and kind of shares authorized by this Plan, and the number, Option price and kind of shares covered by the Options granted hereunder, shall be automatically adjusted as required in order to prevent an unfavorable effect upon the value of the shares covered by then outstanding Options and shares covered by Options subsequently granted. 8. TAX WITHHOLDING. Any exercise of an Option pursuant to the Plan shall be subject to withholding of state and federal income taxes, FICA tax or other taxes to the extent required by applicable law. 9. LAWS AND REGULATIONS. The Plan, the grant and exercise of Options, and the obligation of the Company to sell or deliver shares of Common Stock under the Plan shall be subject to all applicable laws, regulations and rules. In the event that the shares of Common Stock to be issued under this Plan are not registered under the Securities Act of 1933 and any applicable state securities laws prior to the delivery of such shares, the Company may require, as a condition to the issuance thereof, that the persons to whom such shares are to be issued represent and warrant in writing to the Company that the shares are being acquired by him or her for investment for his or her own account and not with a view to, for resale in connection with, or with an intent of participating directly or indirectly in, any distribution of such shares within the meaning of that Act, and a legend to that effect may be placed on the certificates representing such shares. 10. TERMINATION AND AMENDMENT OF THE PLAN. The Board may at any time terminate the Plan or may at any time or times amend the Plan or amend any outstanding Options for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which at the time may be permitted by law, provided that: 4 (i) no amendment of any outstanding Option shall contain terms or conditions inconsistent with the provisions contained in the Plan at the time the respective Option was granted, as determined by the Board; and (ii) except as provided in Section 7, no such amendment shall, without the approval of the shareholders of the Company: (a) increase the number of shares of Common Stock for which each Option may be granted under the Plan; (b) increase the frequency of Option grants; (c) reduce the price at which Options may be granted or exercised below the price provided for in Section 4(e); (d) extend the period during which any outstanding Option may be exercised; (f) materially increase in any other way the benefits accruing to Eligible Directors; (g) expand Plan eligibility beyond Eligible Directors as defined herein, or (h) disqualify an Eligible Director from being a "disinterested" administrator, within the meaning of Rule 16b-3 (or any successor rule) of the Securities and Exchange Commission, or any stock option plan or other stock-based plan of the Company. 11. EFFECTIVE DATE. The Plan shall become effective on the date of approval by the Board; provided, however, that the Plan shall be submitted to the shareholders of the Company for approval, and if not approved by the shareholders within one year from the date of approval by the Board, the Plan shall be of no force and effect. Options granted under the Plan before approval of the Plan by the shareholders shall be granted subject to such approval and shall not be exercisable before such approval. 5 EX-10.(C) 6 1981 INCENTIVE STOCK OPTION PLAN EXHIBIT 10(c) SCIENTIFIC-ATLANTA, INC. 1981 INCENTIVE STOCK OPTION PLAN AS AMENDED THROUGH NOVEMBER 1, 1990 SCIENTIFIC-ATLANTA, INC. (the "Company") hereby adopts for the benefit of certain of its selected key employees the following Incentive Stock Option Plan (the "Plan") set forth below. Within the meaning of the Plan, employees of the Company shall be deemed to include employees of corporations, the majority of the voting stock of which is owned or controlled directly or indirectly by the Company. 1. Purpose. The purposes of this Plan are as follows: ------- (a) To further the growth, success and interests of the Company and its shareholders by enabling key employees of the Company, who have been or will be given responsibility for the administration of the affairs of the Company, to acquire shares of its Common Stock under the terms and conditions and in the manner contemplated by this Plan, thereby increasing their personal involvement in the Company; and (b) To enable the Company to obtain and retain the services of key employees by providing them with an opportunity to become owners of Common Stock of the Company under the terms and conditions and in the manner contemplated by this Plan. 2. Administration. The Plan shall be administered by a Plan Administrator, -------------- who shall be an officer of the Company appointed by the Company's Board of Directors. The Plan Administrator shall have full power and authority to construe, interpret and administer this Plan, and, except as to matters which are herein expressly reserved for determination by the Company's Board of Directors, the Plan Administrator's decisions and determinations in the administration of the Plan shall be final, conclusive and binding upon all persons, including, without limitation, the Company, the shareholders and directors of the Company and any persons having any interests in any options which may be granted under this Plan. 3. Eligible Employees. Key employees of the Company, including officers ------------------ and Plan Administrator, who are selected from time to time during the term of the Plan by the Board of Directors of the Company, shall be eligible for participation under the Plan. However, no member of the Board of Directors of the Company who is not also an employee of the Company shall be eligible for participation under the Plan. 1 4. Shares to be Issued Under the Plan. An aggregate of three hundred ---------------------------------- thousand (300,000) shares of the Company's Common Stock will be subject to this Plan and will be available for purchase by participants upon the exercise of options granted to them hereunder. The shares which are subject to this Plan may be available from either authorized but theretofore unissued shares, treasury stock, or shares reacquired by the Company, including but not necessarily limited to shares purchased in the open market, as determined in any given instance by the Plan Administrator. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of stock of the Company, the number and kind of shares authorized by this Plan, and the number, option price and kind of shares covered by the options granted hereunder, shall be automatically adjusted as required in order to prevent an unfavorable effect upon the option holders hereunder, and the Plan Administrator shall notify the option holders hereunder of such adjustment and shall deliver to them such documentation as may be necessary or desirable to evidence same. 5. Allotment of Options and Shares. Options may be allocated and granted ------------------------------- to such eligible employees, in such amounts, at such times, and on such conditions not inconsistent with this Plan as may be determined from time to time by the Board of Directors of the Company in its sole discretion, a majority of whom at the time such determinations are made and a majority acting in making such determinations shall not be eligible to participate in this Plan. Notwithstanding the foregoing, no employee shall be granted incentive stock options in any calendar year (under all incentive stock option plans of the Company and its subsidiaries) for stock having an aggregate fair market value on the date of grant in excess of $100,000, plus any unused limit carryover to the year in which the grant is made. "Unused Limit Carryover" is defined in the Internal Revenue Code, as amended by the Economic Recovery Tax Act of 1981. "Fair market value on the date of grant" shall be the closing price of the Company's Common Stock as traded on the New York Stock Exchange (or the largest exchange on which it is traded) on the date the option is granted, or if there is no trade on such Exchange on such date, on the nearest date preceding the date of grant on which a trade on such Exchange was made. 6. Terms and Conditions of Options. Subject to the requirements ------------------------------- hereinafter set forth, all options granted under this Plan shall be in such form and shall contain such terms and conditions not inconsistent with this Plan, nor with conditions attached by the Board of 2 Directors of the Company to the grant, as the Plan Administrator, in his discretion, may from time to time determine. (a) Option Price. The option price per share with respect to each option ------------ granted hereunder shall be determined by the Board of Directors of the Company, in its sole discretion, at the time of grant, but such price shall in no event be less than 100% of the closing price of a share of the Common Stock of the Company as traded on the New York Stock Exchange (or the largest exchange on which it is traded) on the date the respective option is granted, or if there is no trade on such Exchange on that date, on the nearest date preceding the date of grant on which a trade on such Exchange was made. (b) Period of Option and Time for Exercise. The period of an option -------------------------------------- granted hereunder may be determined in the sole discretion of the Board of Directors of the Company or the committee of the Board to which the Board's authority is delegated; provided, however, that in no event may the period of any option granted hereunder exceed ten (10) years from the date of grant; and further provided, that if the Board of Directors or such committee does not determine otherwise with respect to any option granted hereunder, the period of such option shall be ten (10) years from the date of grant. Any option granted under this Plan prior to May 15, 1984, shall not be exercisable for the first three (3) years from the date of grant, but may be exercised at any time after the expiration of such three (3) year period and prior to the expiration of the option. Any option granted under this plan on or after May 15, 1984: (i) Shall not be exercisable during the first year following the date of grant; (ii) Shall be exercisable as to not more than 25% of the total number of shares covered by the option during the second year following the date of grant; (iii) Shall be exercisable as to not more than 50% of the total number of shares covered by the option during the third year following the date of grant; (iv) Shall be exercisable as to not more than 75% of the total number of shares covered by the option during the fourth year following the date of grant; and (v) Shall be fully exercisable during the fifth year following the date of grant and thereafter prior to expiration of the option. 3 In the event that the employment of the option holder by the Company or any subsidiary of the Company terminates for any reason whatsoever prior to the option(s) held by that person becoming fully exercisable as provided above, such option(s) shall automatically expire with respect to the unexercisable portion on the date of termination of employment without any further action or documentation. Notwithstanding the foregoing, in the case of (i) the dissolution or liquidation of the Company, (ii) the sale or exchange of all or substantially all of the assets of the Company, or (iii) a merger or consolidation of the Company into another corporation in which the Company is not the surviving corporation, the Company shall give written notice thereof to the option holder at least twenty (20) days prior to the effective date of any such transaction and all options granted under this Plan that are held by employees at the time of such notice shall become immediately exercisable in full, without regard to the years that have elapsed from the date of grant; (c) Payment. The option price of shares purchased upon exercise of an ------- option granted hereunder shall be paid fully at the time of exercise (i) in cash, (ii) subject to such limitations and conditions as may from time to time be imposed by the Board of Directors of the Company in its sole discretion, by the transfer to the Company of shares of the Company's Common Stock which were acquired by the option holder prior to the exercise of the respective option and which are owned by such option holder at the time of such transfer, or (iii) subject to such limitations and conditions as may from time to time be imposed by the Board of Directors of the Company in its sole discretion, by any combination of cash or such shares of the Company's Common Stock. Each such share so transferred in full or part payment of the option price shall be valued, for purposes of determining the amount of such price to be paid by means of the transfer of such shares, at the closing price of a share of the Common Stock of the Company, as traded on the New York Stock Exchange (or the largest stock exchange on which it is then traded), on the day preceding the date of transfer to the Company, or if there is no trade on such Exchange on such day, on the nearest day before date of transfer on which a trade on such Exchange was made, and each such share at the time of such transfer shall be free and clear of any and all claims, pledges, liens and encumbrances, or any restriction which would in any manner restrict the transfer of such shares to the Company in full or part payment of the option price. (d) Termination of Employment After Options Become Exercisable. Upon ---------------------------------------------------------- termination of an option holder's employment while holding a then exercisable option granted hereunder, for any reason other than termination for "cause" (as hereinafter defined) or disability (within the meaning of Section 105(d)(4) of the Internal Revenue Code), 4 such option shall be exercisable only with respect to the shares which could be purchased by the option holder at the time of such termination, and to the extent unexercised shall expire three (3) months after the date of such termination, or the date of expiration of the option set forth in the instrument evidencing the same, whichever first occurs. If an option holder's employment is terminated for "cause" (as hereinafter defined), his or her option(s) shall expire immediately upon the giving to him or her of the notice of such termination. "Cause", for purposes of this subsection 6(d), shall mean dishonest or fraudulent conduct which would normally be considered as sufficient basis for discharging an employee from a management and/or a supervisory position, or negligence, inaction or misconduct which constitutes failure by the option holder to meet his or her obligations and perform his or her duties of employment. Upon termination of an option holder's employment by reason of his disability within the meaning of Section 105(d)(4) of the Internal Revenue Code, his or her option shall be exercisable only with respect to the shares which he or she could have immediately purchased at the time of such disability, and to the extent unexercised, such option shall expire one (1) year after the date of termination of employment or the date of expiration of the option set forth in the instrument evidencing same, whichever first occurs. (e) Death of Option Holder. Upon the death of an employee who at the time ---------------------- of his or her death holds an option granted hereunder which is then exercisable, such option shall be exercisable (by the executor or the administrator of the deceased option holder's estate or by a person who acquired the right to exercise such option by bequest or inheritance or by reason of such death) only with respect to the shares which could have been purchased by the deceased option holder at the time of his or her death, and to the extent unexercised, such option shall expire (i) three (3) months after the date of such death, or (ii) in the event of death following termination of employment by reason of disability as described in subsection (d) immediately above, one (1) year after termination of employment or the date of expiration of the option as set forth in the instrument evidencing the same, whichever first occurs. Notwithstanding the foregoing, the Plan Administrator may permit a longer period for exercise of an option after death of an option holder, but in no event shall such period extend beyond the date of expiration of the option as set forth in the instrument evidencing same. (f) Nontransferability of Options. During an option holder's lifetime, an ----------------------------- option granted hereunder shall be exercisable only by such 5 option holder, and no option granted hereunder shall be assignable by an option holder to any party other than the deceased option holder's executor or administrator of his or her estate or the person who acquired the right to exercise such option by bequest or inheritance or by reason of the option holder's death, in which event exercise of such option shall be subject to the provisions of subsection (e) immediately above. (g) Change in Control of the Company. -------------------------------- (1) Contrary Provisions. Notwithstanding anything contained in the Plan ------------------- to the contrary, the provisions of this Subsection 6(g) shall govern and supersede any inconsistent terms or provisions of the Plan. (2) Change in Control. For purposes of this Plan a "Change in Control" ----------------- shall mean any of the following events: (a) The acquisition in one or more transactions by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities (the "Voting Securities"), provided, however, that -------- ------- for purposes of this Subsection 6(g) (2) (a), the Voting Securities acquired directly from the Company by any Person shall be excluded from the determination of such Person's Beneficial Ownership of Voting Securities (but such Voting Securities shall be included in the calculation of the total number of Voting Securities then outstanding); or (b) The individuals who are members of the Incumbent Board (as defined below, cease for any reason to constitute at least two-thirds of the Board. The "Incumbent Board" shall include the individuals who as of August 20, 1990 are members of the Board and any individual becoming a director subsequent to August 20, 1990 whose election, or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board; provided, however, that any individual who is -------- ------- not a member of the Incumbent Board at the time he or she becomes a member of the Board shall become a member of the Incumbent Board upon the completion of two full years as a member of the Board; provided, further, however, that -------- ------- ------- notwithstanding the foregoing, no individual shall be considered a member of the Incumbent Board if such individual initially assumed office (i) as a result of either an actual or threatened "election contest" (within the meaning of Rule 14A-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on 6 behalf of a Person other than the Board (a "Proxy Contest") or (ii) with the approval of the other Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; or (c) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation, do not own, directly or indirectly immediately following such merger or consolidation, more than eighty percent (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding Voting Securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided, that if a Change -------- in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 7 Notwithstanding anything contained in this Plan to the contrary, if a Participant's employment is terminated prior to the completed Change in Control and the option holder reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control who effectuates a Change in Control or (ii) otherwise occurred in connection with or in anticipation of a Change in Control which actually occurs, then for all purposes of the Plan, the date of a Change in Control in respect of such option holder shall mean the date immediately prior to the date of termination of such option holder's employment. (3) Time for Exercise Upon a Change in Control. ------------------------------------------ Notwithstanding anything contained in the Plan to the contrary, upon a Change in Control, all options granted under this Plan that are held by employees at the time of such Change in Control shall become immediately exercisable in full, without regard to the years that have elapsed from the date of grant. (4) Amendment or Termination. ------------------------ (i) Subsection 6(g) of the Plan shall not be amended or terminated at any time. (ii) Any amendment or termination of the Plan prior to a Change in Control which (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (2) otherwise arose in connection with or in anticipation of a Change in Control, shall be null and void and shall have no effect whatsoever. 7. Reallocation of Options. Shares covered by options which expire or ----------------------- are terminated for any reason prior to being exercised in full may be reallocated by the Board of Directors of the Company on or before the end of the term of this Plan. 8. Restrictions of Shares. The Board of Directors of the Company may ---------------------- impose such restrictions on any shares sold pursuant to the exercise of options granted under this Plan as it may deem advisable, including, without limitation, restrictions under the Securities Act of 1933, as amended, under the requirements of any stock exchange on 8 which such shares or shares of same class are then listed, and under any blue sky or securities laws applicable to such shares. 9. Registration and Listing of Common Stock. The Company shall use its ---------------------------------------- best efforts to cause the issuance of shares of Common Stock under this Plan to be registered under the Securities Act of 1933, on Form S-8 or a substantially similar form, and to be registered under any applicable state securities laws, prior to the delivery of such shares. In the event that the issuance of any such shares is not so registered, the Company may require, as a condition to the issuance thereof, that the Employee to whom such shares are to be issued represent and warrant in writing to the Company that the shares are being acquired by him for investment for his own account and not with a view to, for resale in connection with, or with an intent of participating directly or indirectly in, any distribution of such shares within the meaning of that Act, and a legend to that effect may be placed on the certificate(s) representing such shares. The Company shall cause the shares of the Common Stock to be issued under this Plan to be listed on each securities exchange on which the Common Stock is listed prior to the delivery of such shares. 10. Discontinuance or Amendment of the Plan. The Board of Directors of --------------------------------------- the Company may discontinue this Plan at any time, and may amend it from time to time, but no amendment, without further stockholder approval, may (i) increase the number of shares which may be purchased under the Plan, (ii) extend the period during which options may be granted hereunder, (iii) change the class of stock subject to the options, or (iv) change the class of employees to whom options may be granted under the Plan. Provided, however, that no then outstanding option may be revoked or altered in any manner unfavorable to the holder thereof without the consent of such holder. 11. Effective Date and Termination Date. Subject to approval of the ----------------------------------- stockholders of the Company, the term of this Plan shall commence on August 26, 1981 and shall terminate at the close of business on August 25, 1991. No option shall be granted pursuant to this Plan after August 25, 1991, but options theretofore granted may extend beyond that date and the terms of this Plan shall continue to apply to such options and shares acquired by exercise thereof. 9 EX-10.(D) 7 EXECUTIVE DEFERRED COMPENSATION PLAN EXHIBIT 10(d) EXECUTIVE DEFERRED COMPENSATION PLAN OF SCIENTIFIC-ATLANTA, INC. AS AMENDED THROUGH AUGUST 20, 1990 This Plan is adopted by Scientific-Atlanta, Inc. as of December 1, 1985, in order to provide specified benefits to certain selected key executive employees who contribute materially to the success of the Company and its subsidiaries. Article 1 - Definitions ----------------------- The following definitions apply to this Plan: 1.1 "Administrator" means a person designated by the Company to administer the performance of the Plan and Plan Agreements. 1.2 "Basic Compensation" means the total of (i) a Participant's annual gross salary payable in regular, equal, bi-weekly increments, before any deductions for amounts deferred under this Plan or other deductions whatsoever and (ii) a Participant's annual cash bonus, if any. Bonuses based on multi-year criteria, commissions, and other extraordinary payments, whether discretionary or pursuant to a Company plan, are not considered as part of Basic Compensation for the purposes of this Plan. 1.3 "Beneficiary" means the person or persons designated in accordance with paragraph 5.3 hereof to receive benefits under this Plan upon the death of a Participant. 1.4 "Committee" means the Human Resources and Compensation Committee of the Board of Directors of the Company or such other committee as may from time to time be authorized by the Company to manage and interpret this Plan. 1.5 "Company" means Scientific-Atlanta, Inc. and any subsidiary of Scientific- Atlanta, Inc. that adopts this Plan by resolution of the subsidiary's board of directors. 1.6 "Deferral Period" means the four Plan Years specified in the Plan Agreement, which must be within the first seven Plan Years following the date of the Plan Agreement, during which a portion of Participant's Basic Compensation is to be deferred. 1 1.7 "Deferred Compensation Account" or "DCA" means the account established on the books of the Company for each Participant showing the cumulative deferred compensation and interest equivalent credited to him or her. 1.8 "Effective Date of Plan" or "EDP" means December 1, 1985. 1.9 "Participant" means any executive employee with whom the Company has entered into a written Plan Agreement and who has not withdrawn from the Plan or received all amounts which he or she is entitled to receive in accordance with the provisions of the Plan Agreement and this Plan. 1.10 "Plan" means the Scientific-Atlanta, Inc. Executive Deferred Compensation Plan evidenced by this instrument, as it may be amended in writing from time to time. 1.11 "Plan Agreement" means the written agreement entered into by and between the Company and a Participant providing for a portion of a Participant's Basic Compensation to be deferred pursuant to this Plan. 1.12 "Plan Year" means each calendar year beginning on January 1. 1.13 "Retirement Plan" means the Company's Retirement Plan and Trust in effect on EDP, as it may be amended, and any successor plan as it may be amended. 1.14 "Total Disability" means the inability of a Participant to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment. The Committee shall have full and absolute discretion to determine whether a Participant is totally disabled and may secure such medical and other evidence as the Committee considers necessary or appropriate. Article 2 - Eligibility ----------------------- 2.1 The Committee shall have full and absolute discretion to select the key executive employees of the Company who will be offered an opportunity to become Participants in the Plan. 2.2 In order to become a Participant, a selected person must execute and return to the Administrator a Plan Agreement in the form tendered by the Company and otherwise comply with conditions established by the Committee. 2 Article 3 - Deferral Commitments -------------------------------- 3.1 The amount to be deferred shall be determined by agreement of the Company and the Participant. However, no Plan Agreement shall provide for less than $5,000 nor more than 50% of Basic Compensation to be deferred for each Plan Year in a Deferral Period. 3.2 A Participant may make a written request to the Committee to increase the portion of the Participant's Basic Compensation to be deferred for future services but any such increase shall be at least $5,000 per future Plan Year. If approved by the Committee, the increase shall be reflected in a written amendment to the Plan Agreement which shall be executed by the Participant and the Company. 3.3 A Participant may make a written request to the Committee to reduce future deferrals or withdraw from participation in the Plan. Any request to reduce deferral that, if granted, would result in less than $5,000 being deferred in each Plan Year of the Deferral Period shall be deemed a request to withdraw from participation in the Plan. Committee approval shall be required for the reduction or withdrawal to be effective. Article 4 - Deferred Compensation Account ----------------------------------------- 4.1 Each Participant's deferred compensation and the interest equivalent provided for in paragraph 4.2 below shall be credited on the books of the Company to his or her Deferred Compensation Account ("DCA"). Except as provided in the following sentences of this paragraph 4.1, a prorata portion of the Participant's annual deferred compensation shall be credited to the Participant's DCA as of each regular bi-weekly payday. A Participant may elect to have all or a portion of his or her deferred compensation for a Plan Year withheld from any annual cash bonus awarded to the Participant during the year. If the entire amount specified in a Plan Agreement to be deferred in a Plan Year has not been credited to a Participant's DCA on or before the second regular bi-weekly payday in September of that year, the amount yet to be deferred shall be deducted from the Participant's current compensation and credited to the Participant's DCA in prorata increments as of each regular bi-weekly payday during the remainder of the Plan Year. 4.2 As of the last day of each Plan Year, the amount in a Participant's DCA shall be increased by an interest equivalent equal to 14% of the amount in such account; provided, however, that if a Participant's employment by Scientific-Atlanta or participation in the Plan terminates within less than thirty-six (36) months after the 3 commencement of the Deferral Period for any reason other than death or retirement under a Retirement Plan of the Company, the interest equivalent credited to that Participant's account shall be reduced for each Plan Year to the applicable percentage specified below: (a) Twelve percent (12%) if such termination or withdrawal occurs after twenty-four (24) months and prior to thirty-six (36) months of the Deferral Period; (b) Ten percent (10%) if such termination or withdrawal occurs after twelve (12) months but prior to twenty-four (24) months of the Deferral Period; (c) Zero percent (0%) if such termination or withdrawal occurs within the first twelve (12) months of the Deferral Period. 4.3 The interest equivalent percentage shall not be reduced if termination of employment occurs because of death or retirement under a Retirement Plan of the Company. Article 5 - Payments -------------------- 5.1 Subject to paragraph 5.2 below, the amount in a Participant's DCA shall be paid in approximately equal semi-annual installments following the Deferred Payment Commencement Event ("DPCE") specified below or in accordance with such other payment schedule, such as monthly or quarterly, as may be specified in a Plan Agreement or requested in writing by Participant and approved by the Committee: (a) If the Participant retires under the Company's Retirement Plan, the DPCE shall be the last to occur of (i) the Participant's actual retirement date or (ii) January 1 next following the completion of ten Plan Years. (b) If the Participant's employment is terminated for any reason other than retirement under the Company's Retirement Plan and such termination occurs after the end of the Deferral Period, the DPCE shall be the first to occur of (i) the Participant's death, (ii) the Participant's sixty-fifth (65th) birthday or (iii) the date following the Participant's fifty-fifth (55th) birthday on which Participant retires from his or her principal occupation or employment (which date shall be established on the basis of an affidavit executed by Participant and such other supporting documentation as the Company may reasonably request). 4 (c) If a Participant withdraws from the Plan or if the Participant's employment is terminated for any reason other than retirement under the Company's Retirement Plan and such withdrawal or termination occurs before the end of the Deferral Period, the DPCE shall be the effective date of such withdrawal or termination. 5.2 After the occurrence of the Participant's DPCE, the Company shall make payments as follows until the entire amount in the Participant's DCA is paid: (a) If the total amount in the DCA is less than $10,000 on the date of the DPCE, the entire amount shall be paid in a lump sum; (b) If the total amount in the DCA on the date of the DPCE is $10,000 or more but less than $25,000, equal payments shall be made over a five-year period. (c) If the total amount in the DCA on the DPCE is $25,000 or more but less than $50,000, equal payments shall be made over a ten-year period. (d) If the total amount in the DCA on the DPCE is $50,000 or more, equal payments shall be made over a fifteen-year period. Balances remaining in a Participant's DCA on the last day of each calendar year shall continue to be credited with an interest equivalent as provided herein. 5.3 In the event the Participant dies before receiving the entire amount credited to the Participant's DCA, the balance of the DCA at the time of his or her death shall be paid to the Participant's Beneficiary. A Participant's Beneficiary shall be the person or persons designated by written notice, in a form acceptable to the Committee, delivered to the Company prior to Participant's death. A Participant may change a designation of Beneficiary from time to time by subsequent written notices to the Company, in a form acceptable to the Committee, delivered prior to Participant's death. If the Participant is an employee of the Company or a retiree under the Company's Retirement Plan at the time of his or her death and has not designated a Beneficiary pursuant to this Agreement, the Beneficiary under this Agreement shall be deemed to be the same as the beneficiary under the Company-provided life insurance then covering Participant as a Scientific-Atlanta employee or retiree. In the absence of such designation, payment shall be made to the 5 Participant's personal representative for distribution as an asset of Participant's estate in accordance with applicable law. The time and form of payments specified elsewhere herein shall not be altered on account of Participant's death, provided, however, that at the request of -------- ------- Participant's Beneficiary or personal representative, the Committee may authorize and direct an acceleration of such payments, including a lump sum payment, if it should choose in its absolute discretion to do so. Article 6 - Death Benefits -------------------------- 6.1 If a Participant dies while an employee of the Company and prior to withdrawal from the Plan, or after retirement under the Company's Retirement Plan and prior to the receipt of any payments under Article 5 above, the Participant's DCA will be credited as of the date of his or her death with an amount, if any, necessary to cause the balance in the DCA after such credit to be equal to five times the average of the four annual amounts specified in the Participant's Plan Agreement to be deferred during the Deferral Period; provided, however, that if the deceased Participant's employment by the Company had terminated by reason of Participant's retirement under the Company's Retirement Plan prior to the end of the Deferral Period, the amount credited under this Article 6 shall not exceed five times the Participant's annual average compensation actually deferred pursuant to this Plan during the Plan Years preceding the termination of Participant's employment. 6.2 No amount will be credited to the Participant's DCA under this Article 6 if: (a) the balance in the Participant's DCA on the date of his or her death is equal to or exceeds five times the average of the four annual amounts specified in the Participant's Plan Agreement to be deferred during the Deferral Period; (b) prior to death, the Participant had withdrawn from the Plan, the employment of Participant had been terminated by the Company for any reason other than retirement under the Company's Retirement Plan, or payments under Article 5 above have commenced; (c) the Participant's death is the result of suicide within two years after execution of the Plan Agreement; 6 (d) the Participant's death is determined to have resulted from a bodily or mental cause or causes, information about which was withheld, concealed, or falsely provided by the Participant in response to a request by the Company to furnish evidence of good health; or (e) proof of death in a form determined acceptable by the Committee is not furnished. Article 7 - Total Disability ---------------------------- 7.1 If a Participant has entered into a Plan Agreement prior to his or her sixtieth (60th) birthday and becomes Totally Disabled while an employee of the Company and prior to withdrawal from the Plan or the receipt of any payments under Article 5 of the Plan, the Participant shall be entitled to receive under the Plan, for so long as such Total Disability shall continue, annual disability benefits at a rate equal to one and one-half (1-1/2) time the average of the four annual amounts specified in the Participant's Plan Agreement to be deferred during the Deferral Period; provided, however, that the disability benefit shall not continue after the Participant's sixty-fifth (65th) birthday. 7.2 During the continuation of a Participant's Total Disability that commences prior to termination of Participant's employment for any reason, a Participant who has not requested withdrawal from the Plan shall continue to be deemed a Participant and an employee of the Company and the Company shall continue to credit the Participant's DCA with the applicable amount of deferred compensation in accordance with the Plan Agreement at each pay period as if the Participant were not Totally Disabled. Article 8 - Leave of Absence ---------------------------- 8.1 If a Participant is authorized by the Company for any reason to take a temporary leave of absence with Basic Compensation continuation throughout the period of absence, the Plan Agreement shall continue in full force and effect as if the Participant were not on leave of absence. 8.2 If a Participant is authorized by the Company for any reason to take a temporary leave of absence without pay at any time during the Deferral Period, the Plan Year in which the leave of absence begins and the Deferral Period shall be deemed suspended and no amounts shall be credited to the Participant's DCA during such 7 leave of absence. The calendar year in which the Participant returns to regular employment by the Company shall be deemed a resumption of the Plan Year in which the leave of absence began and during the balance of that year a sufficient amount of the Participant's Basic Compensation shall be deferred, in approximately equal increments on each regular pay day, to cause the amount deferred for the Plan Year, as so continued, to be equal to the amount specified in the Plan Agreement for that Plan Year. Notwithstanding the foregoing, the Company may deem the Participant to have withdrawn from the Plan at such time as (i) the Participant's leave of absence continues beyond the period authorized by the Company; or (ii) the Company determines that the Deferral Period will not be completed within the first seven Plan Years after execution of the Plan Agreement. 8.3 For the purposes of this Plan, a Participant's employment by the Company shall be deemed to continue throughout the authorized period of any leave of absence, paid or unpaid. Article 9 - Termination of the Plan ----------------------------------- 9.1 The Company shall have the right to terminate this Plan and any Plan Agreement at any time by written notice to each Participant to that effect; provided, however, that no such termination shall affect the rights of any Participant who is Totally Disabled on the effective date of termination nor the entitlement of any Beneficiary to receive a benefit payable on account of the death of any Participant occurring prior to the effective date of termination. 9.2 The termination of this Plan or a Plan Agreement by the Company shall be deemed a Deferred Payment Commencement Event within the meaning of Article 5 above. Article 10 - Restriction on Alienation of Benefits -------------------------------------------------- 10.1 No right or benefit under this Plan or a Plan Agreement shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to such benefit. 8 Article 11 - Limitation of Rights and Obligations ------------------------------------------------- 11.1 A Participant's right and the Company's sole obligations to a Participant or the Participant's Beneficiaries with respect to this Plan are as expressly set forth in this Plan and the Plan Agreement entered into between the Company and the Participant. No other rights or obligations shall be inferred. 11.2 The Participant and Beneficiaries must cooperate with the Company in furnishing all information requested by the Company related to the payment of benefits or any other action within the scope of the Company's responsibilities under this Plan. Such information may include the taking of a physical examination by Participant. Article 12 - Unsecured General Creditor --------------------------------------- 12.1 Amounts payable to a Participant shall be paid from the general assets of the Company exclusively; provided, however, nothing herein shall prevent -------- ------- or prohibit the Company from establishing a trust or other arrangement for the purpose of providing for the payment of the benefits payable under the Plan. Article 13 - Administration of the Plan --------------------------------------- 13.1 The general administration of this Plan, as well as construction and interpretation thereof, shall be vested in the Committee, the members of which shall be appointed from time to time by, and serve at the pleasure of, the Board of Directors of the Company. An administrator designated by the Company will assist the Committee. 13.2 Subject to the Plan, the Committee shall from time to time establish rules, forms and procedures for the administration of the Plan. Except as otherwise expressly provided, the Committee shall have the exclusive right to interpret the Plan and to decide any and all matters arising thereunder. The Committee's decisions shall be conclusive and binding upon all persons having or claiming to have any right or interest under the Plan. 13.3 No member of the Committee shall be liable for any act or omission of any other member of the Committee, nor for any act or omission on his own part, excepting his own willful misconduct. The Company shall indemnify and save harmless the Administrator and each member of the Committee against any and all expenses 9 and liabilities arising out of or related to his or her acts and omissions related to this Plan, with the exception of expenses and liabilities arising out of his or her own willful misconduct. 13.4 To enable the Committee to perform its functions, the Company and, on request, each Participant shall supply full and timely information to the Committee on all matters relating to the compensation of Participants, their retirement, death or other cause for termination of employment, and such other pertinent facts as the Committee may require. 13.5 The Administrator, the members of the Committee and the officers and directors of the Company shall be entitled to rely on all certificates and reports made by any duly appointed accountants and on all opinions given by any duly appointed legal counsel. Such legal counsel may be counsel for the Company. 13.6 In addition to the powers hereinabove specified, the Committee shall have the power to compute and certify under the Plan the amount and kind of benefits from time to time payable to Participants and their Beneficiaries and to authorize all disbursements for such purposes. Article 14 - General and Miscellaneous -------------------------------------- 14.1 Nothing in this Plan or in any Plan Agreement shall be construed as a contract of continuing employment or as obligating a Participant in any way to continue in the employ of Company or the Company to continue to employ a Participant. 14.2 Any notice permitted or required under this Plan or a Plan Agreement shall be in writing and shall be effective when actually received by the Participant or the Secretary of the Company or on the third business day after posting in the United States mails, postage prepaid, by certified mail, return receipt requested, addressed as follows: TO PARTICIPANT: TO COMPANY: Most recent Human Resources and address shown in Compensation Committee Company's personnel c/o Corporate Secretary records. Scientific-Atlanta, P. O. Box 105600 Atlanta, Georgia 30348 Notice of address changes shall be effective as aforesaid. 10 14.3 This Plan and Plan Agreements shall be binding upon the Company, its successors and assigns and upon Participant and Participant's Beneficiaries, assigns, heirs, executors and administrators. 14.4 This Plan and all Plan Agreements shall be interpreted in accordance with and governed by the laws of the State of Georgia; provided, however, that nothing in this paragraph shall be construed as limiting the discretion of the Committee or its power to render final and binding judgments and interpretations as provided herein and in Plan Agreements. 14.5 The Article headings are set forth only for convenience and are entitled to no weight in interpreting this Plan. The gender of pronouns used in this Plan has no significance. Singular pronouns shall be deemed to include plural pronouns. 14.6 If any provision of this Plan should be deemed illegal or invalid for any reason, the remaining provisions of the Plan shall remain in full force and effect and the Plan shall be construed and administered as if the illegal or invalid provision had never been included; provided, however, that if the essential purpose of the Plan would be frustrated by the invalidity or illegality of any provision, the Company may, by written notice to Plan Participants, add a replacement provision that is valid, conforms to applicable law and has a substantially similar effect to the provision determined to be invalid but if the Company deems the addition of such a replacement provision to be impossible, the Company shall terminate the Plan. Article 15 Change in Control ----------------------------- 15.1 Contrary Provisions. Notwithstanding anything contained in the Plan to the ------------------- contrary, the provisions of this Article 15 shall govern and supersede any inconsistent terms or provisions of the Plan. 15.2 Change in Control. For purposes of this Plan, a "Change in Control" shall ----------------- mean any of the following events: (a) The acquisition in one or more transactions by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 11 twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities (the "Voting Securities"), provided, -------- however, that for purposes of this Paragraph 15.2(a), the Voting ------- Securities acquired directly from the Company by any Person's shall be excluded from the determination of such Person's Beneficial Ownership of Voting Securities (but such Voting Securities shall be included in the calculation of the total number of Voting Securities then outstanding); or (b) The individuals who are members of the Incumbent Board (as defined below), cease for any reason to constitute at least two-thirds of the Board. The "Incumbent Board" shall include the individuals who as of August 20, 1990 are members of the Board and any individual becoming a director subsequent to August 20, 1990 whose election, or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board; provided, -------- however, that any individual who is not a member of the Incumbent Board at ------- the time he or she becomes a member of the Board shall become a member of the Incumbent Board upon the completion of two full years as a member of the Board; provided, further, however, that notwithstanding the foregoing, -------- ------- ------- no individual shall be considered a member of the Incumbent Board if such individual initially assumed office (i) as a result of either an actual or threatened "election contest" (within the meaning of Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") or (ii) with the approval of the other Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; or (c) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation, do not own, directly or indirectly immediately following such merger or consolidation, more than eighty percent (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. 12 Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding Voting Securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided, that if a Change in Control would occur (but for -------- the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. Notwithstanding anything contained in this Plan to the contrary, if a Participant's employment is terminated prior to a Change in Control and the Participant reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control who effectuates a Change in Control or (ii) otherwise occurred in connection with or in anticipation of a Change in Control which actually occurs, then for all purposes of this Plan, the date of a Change in Control in respect of such Participant shall mean the date immediately prior to the date of termination of such Participant's employment. No act, nor failure to act, on the Participant's part, shall be considered "willful" unless the Participant has acted, or failed to act, with an absence of good faith and without a reasonable belief that action or failure to act was in the best interest of the Company. 13 15.3 Termination of Employment. Notwithstanding any other provision of this Plan ------------------------- to the contrary, if a Participant's employment with the Company or participation in the Plan terminates other than for Cause (as defined in paragraph 15.4) and such termination occurs within two years following a Change in Control or the Participant reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (ii) otherwise occurs in connection with or in anticipation of a Change in Control; (a) The interest equivalent credited to such Participant's DCA shall equal fourteen percent (14%) of the amount in his DCA at the close of each Plan Year ending prior to such termination plus a pro rata interest equivalent at such rate for the portion of the Plan Year in which such termination occurs based on the number of days elapsed through the date of termination. This paragraph 15.3(a) shall not be applicable if a Participant's employment with the Company or participation in the Plan is terminated for Cause and the provisions of paragraph 4.2 shall govern the interest equivalent payable to such Participant. (b) The amount in the Participant's DCA including the interest equivalent determined under paragraph 15.3(a) shall be unconditionally payable in cash to the Participant. Unless the Committee directs as earlier payment, such amount shall be paid in cash on or before the date which is five (5) days following the Termination Date. 15.4 Cause. For purposes of this Plan, a termination for "Cause" is a ----- termination evidenced by a resolution adopted in good faith by two-thirds of the Board that the Participant (i) has been convicted of a felony, or (ii) has engaged in conduct which constitutes (A) willful neglect in carrying out his duties to the Company or (B) willful misconduct, in either case, which is demonstrably and materially injurious to the Company, monetarily or otherwise. 15.5 Continuation of the Plan. For a period of two (2) Years following a Change ------------------------ of Control, the Plan shall not be terminated or amended in any way (including, but not limited to, restricting or limiting the right to participant in the Plan of any person who is a Participant on the day prior to the date of the Change of 14 Control), nor shall the manner in which the Plan is administered be changed in a way that adversely affects the level of participation or the benefits accruing to any Participant. 15.6 Amendment or Termination. ------------------------ (i) This Article 15 shall not be amended or terminated at any time. (ii) Any amendment or termination of the Plan prior to a Change in Control which (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (2) otherwise arose in connection with or in anticipation of a Change in Control, shall be null and void and shall have no effect whatsoever. 15 EX-10.(E) 8 ANNUAL INCENTIVE PLAN FOR KEY EMPLOYEES EXHIBIT 10(e) SCIENTIFIC-ATLANTA, INC. ANNUAL INCENTIVE PLAN FOR KEY EMPLOYEES --------------------------------------- As amended August 23, 1993 1. PURPOSE The purpose of this Plan is to improve the return to the Company's stockholders by incenting key employees of the Company to superior performance, and by attracting and retaining in the employ of the Company, people of outstanding experience and ability. Quantitative and qualitative objectives, i.e. standards of performance, are set at such a level as to require the key employees to excel in attaining them. To these ends, the Plan provides a means of rewarding those who contribute through their individual performance to the objectives of the Company. 2. DEFINITIONS Unless the context otherwise requires, the words which follow shall have the following meaning: (a) "Plan" - This Annual Incentive Plan for Key Employees. (b) "Business Unit" - An organizational unit, i.e., business division or group. (c) "Board" - The Board of Directors of the Company. (d) "Company" - Scientific-Atlanta, Inc. (e) "Committee" - The Human Resources and Compensation Committee of the Board of Directors which has the exclusive authority to interpret and make awards under the Plan. (f) "Plan Year" - a fiscal year of the Company. (g) "Incentive Compensation Fund" - The total amount accrued during the Plan Year from which bonuses may be awarded to Participants. Page 1 (h) "Participant" - A person selected in accordance with paragraph 4 of the Plan to receive a cash bonus in accordance with this Plan. (i) "Target" - Goal in meeting 100% of quantitative and qualitative objectives. 3. ADMINISTRATION AND INTERPRETATION OF THE PLAN The Committee shall have the power to, (i) approve eligible Participants, (ii) approve payments under the Plan, (iii) establish the amount of the Incentive Compensation Fund, (iv) interpret the Plan, (v) adopt, amend and rescind rules and regulations relating to the Plan, and (vi) make all other determinations and take all other actions necessary or desirable for the Plan's administration. The decision of the Committee on any question concerning the interpretation and administration of the Plan shall be final and conclusive. The Committee's determinations may differ in the Committee's sole discretion between different Participants, irrespective of whether they are similarly situated. Subject to paragraph 8 hereof, nothing in the Plan shall give any employee, his legal representative or assigns, any right to a bonus or otherwise to participate in the Plan or share in the Incentive Compensation Fund except as the Committee may determine after the conclusion of a Plan Year. 4. ELIGIBLE PARTICIPANTS Participants will be those persons who are designated by the chief executive officer of the Company as being in a position to have a significant impact directly or indirectly on profits and Company performance and are approved by the Committee to receive a cash bonus under the Plan; provided, -------- however, that if a Change in Control (as defined in paragraph 8) occurs prior to - ------- the time Participants are determined for the Plan Year in which the Change in Control occurs, all persons who were Participants in the prior Plan Year and who are active employees of the Company as of the date of the Change in Control shall be Participants for such Plan Year. Except as the Committee may otherwise determine, Participants for any Plan Year must serve as a key employee of the Company and except as the Committee may otherwise determine or as provided in Section 8, Participants for any Plan Page 2 Year must be active employees of the Company when the Committee meets and approves cash bonuses after the end of the Plan Year. The Committee may decide to award a pro-rated bonus to a Participant who is newly hired or transferred from one organization within the Company to another during a Plan Year, based on each organization's results. Pro-rated bonuses may also be awarded to persons who retire under a retirement plan of the Company during a Plan Year and to the estates of persons who die during a Plan Year. 5. INCENTIVE COMPENSATION FUND ACCRUAL An amount representing the Incentive Compensation Fund will be accrued by the Company during each Plan Year on the basis of the Company's periodic forecasts of pre-tax earnings and earnings per share and related forecasts of amounts that will therefore become payable to Participants in this Plan. 6. DETERMINATION OF INCENTIVE COMPENSATION AWARDS. Company, Group and Division results and assessments of individual accomplishment of qualitative objectives are the bases on which awards will be made to Participants. Quantitative and qualitative objectives will have weightings of 60% and 40%, respectively, for corporate staff participants and 75% and 25%, respectively, for group and division participants in setting "target" awards. The quantitative objectives approved by the Committee will be used in determining the proportion of the award which is to be governed by Company, Group, or Division performance and the qualitative objectives will be used in determining the proportion to be governed by individual performance. Company, Group, Division and individual performance objectives shall be established as early in the Plan Year as practical. The following procedure will be used in making sound and fair appraisals of individual performance: A. At the beginning of the Plan Year, each person eligible to be a Participant and his superior will mutually establish individual performance objectives. These objectives should be specific and committed to writing. Copies of agreed to objectives for all Participants should be forwarded to the office of the chief executive officer. Page 3 B. If during the year objectives are modified, deleted or added, an amended list of objectives should be prepared, agreed and forwarded to the office of the chief executive officer. C. At the end of the Plan Year, eligible Participants and their superiors will be asked to assess the degree to which the stated performance objectives were achieved. These assessments will be combined with Company, Group and Division performance and translated into bonus awards to be recommended by the chief executive officer and approved by the Committee. The Committee reserves the authority to exercise its judgement and approve justifiable exceptions to award levels determined solely by strict application of weightings and calculations under Plan provisions. Subject to paragraph 8 hereof, in no event shall the sum of bonuses awarded to all Participants exceed the amount accrued during the Plan Year in the Incentive Compensation Fund plus such additional amount, if any, as the Committee may approve to cover the qualitative portion of awards. 7. PAYMENT OF INCENTIVE COMPENSATION AWARDS Except as provided in paragraph 8, bonuses awarded under this Plan will be fully paid in cash within 90 days after the end of the Plan Year, or deferred in whole or in part based on a written request for deferral submitted by the Participant and approved by the Company in accordance with procedures established by the Company. Any amounts paid as incentive compensation under this Plan shall be considered as compensation to the Participant for the purpose of Company's Retirement Plan and disability and life insurance programs unless and to the extent that such compensation is expressly excluded by the provisions of the Retirement Plan or the instruments establishing such programs, but such amounts shall not be considered as compensation for purposes of any other incentive plan or other benefits unless the written instrument establishing such other plan or benefits expressly includes compensation paid under this Plan. Page 4 8. CHANGE IN CONTROL OF THE COMPANY (a) Contrary Provisions. Notwithstanding anything contained in the Plan ------------------- to the contrary, the provisions of this Paragraph 8 shall govern and supersede any inconsistent terms or provisions of the Plan. (b) Change in Control. For purposes of the Plan, Change in Control shall ----------------- mean any of the following events: (1) The acquisition in one or more transactions by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities (the "Voting Securities"), provided, however, that for purposes of this Section 8(b)(1), -------- ------- the Voting Securities acquired directly from the Company by any Person shall be excluded from the determination of such Person's beneficial Ownership of Voting Securities (but such Voting Securities shall be included in the calculation of the total number of Voting Securities then outstanding); or (2) The individuals who are members of the Incumbent Board (as defined below), cease for any reason to constitute at least two-thirds of the Board. The "Incumbent Board" shall include the individuals who as of August 23, 1993 are members of the Board and any individual becoming a director subsequent to August 23, 1993 whose election, or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board; provided, however, that any individual who is not a -------- ------- member of the Incumbent Board at the time he or she becomes a member of the Board shall become a member of the Incumbent Board upon the completion of two full years as a member of the Board; provided, further, however, that notwithstanding the -------- ------- ------- foregoing, no individual shall be considered a member of the Incumbent Board if such individual initially assumed office (i) as a result of either an actual or threatened Page 5 "election contest" (within the meaning of Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") or (ii) with the approval of the other Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; or (3) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation, do not own, directly or indirectly immediately following such merger or consolidation, more than eighty percent (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding Voting Securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided, that if a -------- Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Page 6 Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the Percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. Notwithstanding anything contained in this Plan to the contrary, if a Participant's employment is terminated prior to a Change in Control and the Participant reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control who effectuates a Change in Control or (ii) otherwise occurred in connection with or in anticipation of a Change in Control which actually occurs, then for all purposes of this Plan, the date of a Change in Control in respect of such Participant shall mean the date immediately prior to the date of termination of such Participant's employment. (c) Payment Upon a Change in Control. Upon a Change in Control, the bonus for a -------------------------------- Plan Year ending prior to the date of the Change in Control for which payment has not previously been made shall be unconditionally payable in cash to each Participant. If a Change in Control occurs with approval of the Board granted prior to any such Change in Control, cash bonuses for the Plan Year during which the Change in Control occurs shall be unconditionally payable to each Participant, such bonuses to be the "target" percentage of each Participant's base salary or such higher percentage as may be approved by the Committee. If a Change in Control occurs without approval of the Board granted prior to any such Change in Control, cash bonuses for the Plan Year during which the Change in Control occurs shall be unconditionally payable to each Participant, such bonuses to be two (2) times the "target" percentage of each Participant's base salary; provided, however, that in any case, if a -------- ------- Change in Control occurs before "target" percentages shall have been established for a Plan Year, the "target" percentages for such Plan Year shall be no less favorable to the Participants than the "target" percentages for the prior Plan Year. Page 7 Unless the Committee directs an earlier payment, bonuses payable in accordance with this paragraph 8(c) shall be paid in cash on or before the earlier of the date which is five (5) days following the date of the Change in Control or the date determined in accordance with Paragraph 7 above. (d) Continuation of the Plan. For a period of two (2) Plan Years following the ------------------------ Plan Year in which a Change of Control occurs, the Plan shall not be terminated or amended in any way (including, but not limited to, restricting or limiting the right to participate in the Plan of any person who is a Participant on the day prior to the date of the Change of Control), nor shall the manner in which the Plan is administered be changed in a way that adversely affects the level of participation or reward opportunities of any participant; provided, however, that the Plan shall be -------- ------- amended as necessary to make appropriate adjustments for (i) any negative effect that the costs and expenses incurred by the Company and its Subsidiaries in connection with the Change in Control may have on the benefits payable under the Plan and (ii) any changes to the Company and/or its Subsidiaries (including, but not limited to, changes in corporate structure or capitalization, acquisitions or dispositions and increased interest expense as a result of the incurrence or assumption by the Company of acquisition indebtedness) following the Change in Control so as to preserve the reward opportunities and performance targets for comparable performance under the Plan as in effect on the date immediately prior to the Change in Control. (e) Amendment or Termination. ------------------------ (i) This paragraph 8 shall not be amended or terminated at any time. (ii) Any amendment or termination of the Plan prior to a Change in Control which (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (2) otherwise arose in connection with or in anticipation of a Change in Control, shall be null and void and shall have no effect whatsoever. Page 8 (f) Trust Arrangement. All benefits under the Plan shall be paid by the ----------------- Company. The Plan shall be unfunded and the benefits hereunder shall be paid only from the general assets of the Company; provided, however, nothing herein shall prevent or prohibit the -------- ------- Company from establishing a trust or other arrangement for the purpose of providing for the payment of the benefits payable under the Plan. 9. NON-ASSIGNABILITY No bonus awarded under this Plan nor any right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void and shall not be recognized or given effect by the Company. 10. NO RIGHT TO EMPLOYMENT Nothing in the Plan or in any notice of award pursuant to the Plan shall confer upon any person the right to continue in the employment of the Company nor affect the Company's right to terminate the employment of any person. 11. ANNUAL REVIEW OF PLAN Each year the Committee will review and approve or modify the criteria and "target" and maximum award percentages. Each Participant will be furnished with a copy of the foregoing provisions of the Plan. Page 9 EX-10.(F) 9 1978 NON-QUALIFIED STOCK OPTION PLAN EXHIBIT 10(f) SCIENTIFIC-ATLANTA, INC. 1978 NON-QUALIFIED STOCK OPTION PLAN FOR KEY EMPLOYEES AS AMENDED THROUGH NOVEMBER 1, 1990 SCIENTIFIC-ATLANTA, INC. (the "Company") hereby adopts for the benefit of certain of its key employees the following Non-Qualified Stock Option Plan (the "Plan"): 1. Purpose. The purposes of this Plan are as follows: ------- (a) To further the growth, success and interests of the Company and its shareholders by enabling key employees of the Company, who have been or will be given responsibility for the administration of the affairs of the Company, to acquire shares of its Common Stock under the terms and conditions and in the manner contemplated by this Plan, thereby increasing their personal involvement in the Company; and (b) To enable the Company to obtain and retain the services of key employees by providing them with an opportunity to become owners of Common Stock of the Company under the terms and conditions and in the manner contemplated by this Plan. 2. Administration. The Plan shall be administered by a Plan -------------- Administrator, who shall be an officer of the Company appointed by the Company's Board of Directors. The Plan Administrator shall have full power and authority to construe, interpret and administer this Plan, and, except as to matters which are herein expressly reserved for determination by the Company's Board of Directors, the Plan Administrator's decisions and determinations in the administration of the Plan shall be final, conclusive and binding upon all persons, including, without limitation, the Company, the shareholders and directors of the Company and any persons having any interests in any options which may be granted under this Plan. 3. Eligible Employees. Key employees of the Company, including officers ------------------ and the Plan Administrator, who are selected from time to time during the term of the Plan by the Board of Directors of the Company, shall be eligible for participation under the Plan. However, no member of the Board of Directors of the Company who is not also an employee of the Company shall be eligible for participation under the Plan. 1 4. Shares to be Issued Under the Plan. An aggregate of four million six ---------------------------------- hundred and fifty thousand (4,650,000) shares of the Company's Common Stock will be subject to this Plan and will be available for purchase by participants upon the exercise of options granted to them hereunder. The shares which are subject to this Plan may be available from either authorized but theretofore unissued shares, treasury stock, or shares reacquired by the Company, including but not necessarily limited to shares purchased in the open market, as determined in any given instance by the Plan Administrator. In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of stock of the Company, the number and kind of shares authorized by this Plan, or the number, option price and kind of shares covered by the options granted hereunder, shall be automatically adjusted as required in order to prevent an unfavorable effect upon the option holders hereunder, and the Plan Administrator shall notify the option holders hereunder of such adjustment and shall deliver to them documentation as may be necessary or desirable to evidence same. 5. Allotment of Options and Shares. Options may be allocated and granted ------------------------------- to such eligible employees, in such amounts and at such times, as may be determined from time to time by the Board of Directors of the Company in its sole discretion, a majority of whom at the time such determinations are made and a majority acting in making such determinations shall not be eligible to participate in this Plan. 6. Terms and Conditions of Options. Subject to the requirements ------------------------------- hereinafter set forth, all options granted under this Plan shall be in such form and shall contain such terms and conditions as the plan Administrator, in his discretion, may from time to time determine. (a) Option price. The option price per share with respect to each option ------------ granted hereunder shall be determined by the Board of Directors of the Company, in its sole discretion, at the time of the grant, but such price shall in no event be less than 50% of the closing price of a share of the Common Stock of the Company as traded on the New York Stock Exchange (or the largest exchange on which it is traded) on the date the respective option is granted, or if there is no trade on such Exchange on that date, on the nearest date preceding the date of grant on which a trade on such Exchange was made. (b) Period of Option and Time for Exercise. The period of an option -------------------------------------- granted hereunder may be determined in the sole discretion of the 2 Board of Directors of the Company or the committee of the Board to which the Board's authority is delegated; provided, however, that in no event may the period of any option granted hereunder exceed ten (10) years from the date of grant; and further provided, that if the Board of Directors or such committee does not determine otherwise with respect to any option granted hereunder, the period of such option shall be ten (10) years from the date of grant. Any option granted under this Plan prior to May 15, 1984, shall not be exercisable for the first three (3) years from the date of grant, but may be exercised at any time after the expiration of such three (3) year period and prior to the expiration of the option except as provided in Subsection 6(G). If the Board of Directors does not determine otherwise, any option granted under this Plan on or after May 15, 1984. (i) Shall not be exercisable during the first year following the date of the grant; (ii) Shall be exercisable as to not more than 25% of the total number of shares covered by the option during the second year following the date of grant; (iii) Shall be exercisable as to not more than 50% of the total number of shares covered by the option during the third year following the date of grant; (iv) Shall be exercisable as to not more than 75% of the total number of shares covered by the option during the fourth year following the date of grant; and (v) Shall be fully exercisable during the fifth year following the date of grant and thereafter prior to expiration of the option. If the Board of Directors does not determine otherwise with respect to any option granted hereunder, in the event that the employment of the option holder by the Company or any subsidiary of the Company terminates for any reason whatsoever, other than death or retirement under a retirement plan of the Company or any subsidiary of the Company, prior to the option(s) held by that person becoming fully exercisable as provided above, such options(s) shall automatically expire with respect to the unexercisable portion on the date of termination of employment without any further action or documentation. (c) Payment. The option price of shares purchased upon exercise of an ------- option granted hereunder shall be paid fully at the time of 3 exercise (i) in cash, (ii) by the transfer to the Company of shares of the Company's Common Stock which were acquired by the option holder prior to the exercise of the respective option and which are owned by such option holder at the time of such transfer, or (iii) by any combination of cash of such shares of the Company's Common Stock. Each such share so transferred in full or part payment of the option price shall be valued, for purposes of determining the amount of such price to be paid by means of the transfer of such shares, at the closing price of a share of the Common Stock of the Company, as traded on the New York Stock Exchange (or the largest stock exchange on which it is then traded), on the date of transfer to the Company, or if there is no trade on such Exchange on that date, on the nearest date preceding the date of transfer on which a trade on such Exchange was made, and each such share at the time of such transfer shall be free and clear of any and all claims, pledges, liens and encumbrances, or any restrictions which would in any manner restrict the transfer of such shares to the Company in full or part payment of the option price. Notwithstanding the foregoing, shares acquired by the exercise of an option under this plan or under any other stock option plan of the Company may not be transferred to the Company in full or in partial payment of the option price of shares purchased upon the exercise of any option granted on or after October 28, 1981 under this Plan unless and until such previously-acquired shares have been owned by the option holder for at least 365 days. The limitation in the preceding sentence may be made applicable, with the consent of the option holder, to any options granted prior to October 28, 1981. (d) Termination of Employment After Options Become Exercisable. If the ---------------------------------------------------------- Board of Directors does not determine otherwise with respect to any option granted hereunder, upon termination of an option holder's employment while holding a then exercisable option granted hereunder, for any reason other than death, termination for "cause" (as hereinafter defined) or retirement under a retirement plan of the Company or any subsidiary of the Company, such option shall be exercisable only with respect to the shares which could be purchased by the option holder at the time of such termination, and to the extent unexercised shall expire three (3) months after the date of such termination, or the date of expiration of the option set forth in the instrument evidencing same, whichever first occurs. If an option holder's employment is terminated for "cause" (as hereinafter defined), his or her option(s) shall expire immediately upon the giving to him or her of the notice of such termination. "Cause," for purposes of this Subsection 6(d), shall mean dishonest or fraudulent 4 conduct which would normally be considered as sufficient basis for discharging an employee from a management and/or a supervisory position, or negligence, inaction or misconduct which constitutes failure by the option holder to meet his or her obligations and perform his or her duties of employment. If the Board of Directors does not determine otherwise with respect to any option granted hereunder, upon termination of an option holder's employment by reason of his or her retirement under a retirement plan of the Company or any subsidiary of the Company, his or her option shall be exercisable immediately with respect to (i) the shares which he or she could have purchased at the time of such retirement and (ii) any shares which would have become available for purchase under such option if the option holder's employment had continued for one year after the date of such retirement. To the extent unexercised, such option shall expire two (2) years after the date of retirement or the date of expiration of the option as shown in the instrument evidencing same, whichever shall first occur. (e) Death of Option Holder. If the Board of Directors does not determine ---------------------- otherwise with respect to any option granted hereunder, upon the death of an employee who at the time of his or her death holds an option granted hereunder, such option shall be exercisable immediately (by the executor or the administrator of the deceased option holder's estate or by a person who acquired the right to exercise such option by bequest or inheritance or by reason of such death) with respect to (i) the shares which could have been purchased by the deceased option holder at the time of his or her death and (ii) any shares which would have become available for purchase under such option if the option holder's employment had continued for one year after the date of death. To the extent unexercised, such option shall expire (i) one year after the date of such death, or (ii) in the event of death following termination of employment by reason of retirement as described in Subsection 5(d) immediately above, the expiration date of the option after such retirement, whichever last occurs. Notwithstanding the foregoing, the Plan Administrator may, in a special case, permit a longer period for exercise of any option after death of an option holder, but in no event shall such period extend beyond the date of expiration of the option as set forth in the instrument evidencing same. (f) Nontransferability of Options. During an option holder's lifetime, ----------------------------- an option granted hereunder shall be exercisable only by such option holder, and no option granted hereunder shall be assignable by an option holder to any party other than the deceased option holder's 5 executor or administrator of his or her estate or the person who acquired the right to exercise such option by bequest or inheritance or by reason of the option holder's death, in which event exercise of such option shall be subject to the provisions of Subsection (e) immediately above. (g) Change in Control of the Company. -------------------------------- (1) Contrary Provisions. Notwithstanding anything contained in the Plan ------------------- to the contrary, the provisions of this Subsection 6(g) shall govern and supersede any inconsistent terms or provisions of the Plan. (2) Change in Control. For purposes of this Plan, a "Change in Control" ----------------- shall mean any of the following events: (a) The acquisition in one or more transactions by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities (the "Voting Securities"), provided, however, that -------- ------- for purposes of this Subsection 6(g) (2) (a), the Voting Securities acquired directly from the Company by any Person shall be excluded from the determination of such Person's Beneficial Ownership of Voting Securities (but such Voting Securities shall be included in the calculation of the total number of Voting Securities then outstanding); or (b) The individuals who are members of the Incumbent Board (as defined below), cease for any reason to constitute at least two-thirds of the Board. The "Incumbent Board" shall include the individuals who as of August 20, 1990 are members of the Board and any individuals becoming a director subsequent to August 20, 1990 whose election, or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board; provided, however, that any individual who is -------- ------- not a member of the Incumbent Board at the time he or she becomes a member of the board shall become a member of the Incumbent Board upon the completion of two full years as a member of the Board; provided, further, however, that -------- ------- ------- notwithstanding the foregoing, no individual shall be considered a member of the Incumbent Board if such individual initially assumed office (i) as a result of either an actual or threatened "election contest" (within the meaning of rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the board (a "Proxy Contest") or (ii) with 6 the approval of the other Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; or (c) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation, do not own, directly or indirectly immediately following such merger or consolidation, more than eighty percent (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding Voting Securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject person, provided, that if a Change in Control would occur (but for the operation of this - -------- sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. Notwithstanding anything contained in this Plan to the contrary, if a Change in Control takes place and an option holder's employment is terminated prior to the completed Change in Control and the option holder reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps 7 reasonably calculated to effect a Change in Control who effectuates a Change in Control or (ii) otherwise occurred in connection with or in anticipation of a Change in Control which actually occurs, then for all purposes of this Plan, the date of a Change in Control in respect of such option holder shall mean the date immediately prior to the date of termination of such option holder's employment. (3) Time for Exercise Upon a Change in Control. ------------------------------------------ Notwithstanding anything contained in the Plan to the contrary, upon a Change in Control, all options granted under this Plan that are held by employees at the time of such Change in Control shall become immediately exercisable in full, without regard to the years that have elapsed from the date of grant. (4) Termination of Employment Following Change in Control. ----------------------------------------------------- Notwithstanding anything contained in the Plan to the contrary, if an option holder's employment terminates following a Change in Control other than for "cause", the applicable provisions of Section 6(d) and 6(e) of the Plan shall apply except that as of and after the date of the Change in Control, the Board of Directors shall not make any determination nor take any action in connection with an option holder's termination of employment which would cause any option granted under this Plan (a) to not be exercisable in full or (b) to expire earlier than the latest date allowable under Sections 6(d) or 6(e), as applicable. (5) Amendment or Termination. ------------------------ (i) Subsection 6(g) of the Plan shall not be amended or terminated at any time. (ii) Any amendment or termination of the Plan prior to a Change in Control which (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (2) otherwise arose in connection with or in anticipation of a Change in Control, shall be null and void and shall have no effect whatsoever. 7. Reallocation of Options. Shares covered by options which expire or are ----------------------- terminated for any reason prior to being exercised in full may be reallocated by the Board of Directors of the Company on or before the end of the term of this Plan. 8. Restrictions on Shares. The Board of Directors of the Company may impose ---------------------- such restrictions on any shares sold pursuant to 8 the exercise of options granted under this Plan as it may deem advisable, including, without limitation, restrictions under the Securities Act of 1933, as amended, under the requirements of any stock exchange on which such shares or shares of the same class are then listed, and under any blue sky or securities laws applicable to such shares. 9. Registration and Listing of Common Stock. The Company shall use its ---------------------------------------- best efforts to cause the issuance of shares of Common Stock under this Plan to be registered under the Securities Act of 1933, on Form S-8 or a substantially similar form, and to be registered under any applicable state securities laws, prior to the delivery of such shares. In the event that the issuance of any such shares is not so registered, the Company may require, as a condition to the issuance thereof, that the employee to whom such shares are to be issued represent and warrant in writing to the Company that the shares are being acquired by him or her for investment for his or her own account and not with a view to, for resale in connection with, or with an intent of participating directly or indirectly in, any distribution of such shares within the meaning of that Act, and a legend to that effect may be placed on the certificate(s) representing such shares. 10. Discontinuance or Amendment of the Plan. The Board of Directors of the --------------------------------------- Company may discontinue this Plan at any time, and may amend it from time to time, but no amendment, without further shareholder approval, may (i) increase the number of shares which may be purchased under the Plan, (ii) extend the period during which options may be granted hereunder, (iii) change the class of stock subject to the options, or (iv) change the class of employees to whom options may be granted under the Plan. Provided, however, that no then outstanding option may be revoked or altered in any manner unfavorable to the holder thereof without the consent of such holder. 11. Effective Date and Termination Date. Subject to approval of the ----------------------------------- shareholders of the Company, the term of this Plan shall commence on June 28, 1978, and shall terminate at the close of business on June 27, 1993. No option shall be granted pursuant to this Plan after June 27, 1993, but options theretofore granted may extend beyond that date and the terms of this Plan shall continue to apply such options and shares acquired by exercise thereof. 12. Incentive Stock Options. This Section of the Plan applies only to ----------------------- options designated by the Board of Directors of the Company to be Incentive Stock Options in accordance with the provisions of Section 251 of the Economic Recovery Tax Act of 1981. This Section applies to such 9 Incentive Stock Options notwithstanding any provisions of this Plan to the contrary. (a) Subsection 6(c) of this Plan shall be as follows for all options determined to be Incentive Stock Options and granted under this Plan prior to August 20, 1980. (b) Payment. Shares purchased upon exercise of an option granted ------- hereunder shall be paid for fully in cash at the time of exercise. (c) Each option granted under this Plan that is designated by the Board of Directors as an Incentive Stock Option shall not be exercisable by the option holder while he or she holds an outstanding Incentive Stock Option granted prior to the date of grant of the Incentive Stock Option to be exercised. An Incentive Stock Option is "outstanding," within the meaning of the Internal Revenue Code, until it is either exercised in full or expires by reason of lapse of time. (d) Notwithstanding the provisions of Subsection 6(a) of this Plan, the option price per share with respect to each option granted hereunder that is designated by the Board of Directors to be an Incentive Stock Option shall be determined by the Board of Directors of the Company, in its sole discretion, at the time of grant, but such price shall in, no event be less than the closing price of a share of the Common Stock of the Company as traded on the New York Stock Exchange (or if not then traded on such Exchange, then on the largest stock exchange on which it is traded) on the date the respective option is granted, or if there is no trade on such Exchange on that day, on the next date preceding the date of grant on which a trade on such Exchange was made. (e) No employee shall be granted Incentive Stock Options in any calendar year after December 31, 1980 (under all Incentive Stock Option plans of the Company and its subsidiaries) for stock having an aggregate fair market value on the date of grant in excess of $100,000, plus any Unused Limit Carryover to the year in which the grant is made. The term "Unused Limit Carryover" shall have the meaning defined in Section 422A of the Internal Revenue Code, as amended. 10 EX-10.(G) 10 SENIOR OFFICER ANNUAL INCENTIVE PLAN EXHIBIT 10(g) SCIENTIFIC-ATLANTA, INC. SENIOR OFFICER ANNUAL INCENTIVE PLAN As adopted by the Board of Directors on June 22, 1994 and by the stockholders on October 3, 1994 As adopted June 22, 1994 SCIENTIFIC-ATLANTA, INC. SENIOR OFFICER ANNUAL INCENTIVE PLAN ------------------------------------ 1. PURPOSE The purpose of this Plan is to improve the return to the Company's stockholders by providing incentives for the Chief Executive Officer (and any other Plan Participants) of the Company for superior performance. Performance Objectives, i.e. standards of performance, are set at such a level as to require the Participants to excel in attaining them. To these ends, the Plan provides a means of rewarding the Participants for contributing through their individual performance to the objectives of the Company. 2. DEFINITIONS Unless the context otherwise requires, the words which follow shall have the following meaning: (a) "Plan" - This Senior Officer Annual Incentive Plan. (b) "Business Unit" - An organizational unit, i.e., business division or group. (c) "Board" - The Board of Directors of the Company. (d) "Code" - The Internal Revenue Code of 1986, as amended from time to time, and reference to any specific provisions of the Code shall refer to the corresponding provisions of the Code as it may hereafter be amended or replaced. (e) "Company" - Scientific-Atlantic, Inc. (f) "Committee" - The Human Resources and Compensation Committee of the Board of Directors or any other committee appointed by the Board whose members meet the requirements for eligibility to serve set forth in Section 3 of the Plan and which is vested by the Board with responsibility for the administration of the Plan; provided Page 1 however, that only those members of the Human Resources and Compensation Committee of the Board who participate in decisions relative to Performance Objectives and payments under this plan shall be deemed to be part of the "Committee" for the purposes of this Plan. (g) "Exchange Act" - The Securities Exchange Act of 1934, as amended. (h) "Plan Year" - A fiscal year of the Company. (i) "Performance Objectives" - The specific targets and objectives established by the Committee under any or all of the following four categories: profit before taxes, return on net assets, revenue growth and gross margin. Performance Objectives shall be determined and measured in accordance with generally accepted accounting principles as utilized by the Company in its reports filed under the Exchange Act. (j) "Participant" - A person selected in accordance with paragraph 4 of the Plan to receive a cash bonus in accordance with this Plan. (k) "Target" - Payment to be authorized by the Committee upon meeting 100% of Performance Objectives. 3. ADMINISTRATION AND INTERPRETATION OF THE PLAN The Board shall appoint the Committee, which shall consist of not less than two members of the Board. Unless the Board determines otherwise, the Committee shall be comprised solely of "outside" directors within the meaning of Section 162 (m)(4)(C)(i) of the Code. The Committee shall have the power to, (i) approve eligible Participant, (ii) approve payments under the Plan, (iii) interpret the Plan, (iv) adopt, amend and rescind rules and regulations relating to the Plan, and (v) make all other determinations and take all other actions necessary or desirable for the Plan's administration. The decision of the Committee on any question concerning the interpretation and administration of the Plan shall be final and conclusive. Subject to paragraph 7 hereof, nothing in the Plan shall give any employee, his legal representative or assigns, any right to a bonus or otherwise to participate in the Plan except as the Committee may determine after the conclusion of a Plan Year. Page 2 4. ELIGIBLE PARTICIPANTS Participants will be the Chief Executive Officer and any other senior officers who are designated and are approved by the Committee to receive a cash bonus under the Plan; provided, however, that if a Change in Control (as defined -------- ------- in paragraph 7) occurs prior to the time Participants are determined for the Plan Year in which the Change in Control occurs, all persons who were Participants in the prior Plan Year and who are active employees of the Company as of the date of the Change in Control shall be Participants for such Plan Year. Except as the Committee may otherwise determine, Participants for any Plan Year must serve as key officers of the Company and except as the Committee may otherwise determine or as provided in Section 7, Participants for any Plan Year must be active employees of the Company when the Committee meets and approves cash bonuses after the end of the Plan Year. Pro-rated bonuses may be awarded to persons who retire under a retirement plan of the Company or become disabled during a Plan Year and to the estates or beneficiaries of persons who die during a Plan Year. 5. DETERMINATION OF INCENTIVE COMPENSATION AWARDS The Committee shall establish one or more specific Performance Objectives for a Plan Year and such Performance Objectives shall be established within 90 days of the beginning of the Plan Year. The Committee shall also establish a schedule or schedules setting forth the amount to be paid based on the extent to which the Performance Objectives are actually achieved as determined by the Committee. The Committee may at any time adjust the Performance Objectives and any schedules of payments related thereto or adjust the way Performance Objectives are measured; provided, that this provision shall not apply to any payment that is intended to qualify as performance-based compensation under Code Section 162(m)(4)(C) if and to the extent that it6 would prevent the payment from so qualifying. The Committee shall have the right to reduce or eliminate the compensation payable upon the attainment of a Performance Objective but shall not have the discretion to increase a payment upon the attainment of a Performance Objective. Page 3 6. PAYMENT OF INCENTIVE COMPENSATION AWARDS Except as provided in paragraph 7, bonuses awarded under this Plan will be fully paid in cash within 90 days after the end of the Plan Year, or deferred in whole or in part based on a written request for deferral submitted by the Participant and approved by the Company in accordance with procedures established by the Company. Any amounts paid as incentive compensation under this Plan shall be considered as compensation to the Participant for the purpose of the Company's Retirement Plan and disability and life insurance programs unless and to the extent that such compensation is expressly excluded by the provisions of the Retirement Plan or the instruments establishing such programs, but such amounts shall not be considered as compensation for purposes of any other incentive plan or other benefits unless the written instrument establishing such other plan or benefits expressly includes compensation paid under this Plan. The maximum dollar value with respect to payments under this Plan to any Participant in any single Plan Year shall be $600,000. 7. CHANGE IN CONTROL OF THE COMPANY (a) Contrary Provisions. Notwithstanding anything contained in this Plan ------------------- to the contrary, the provisions of this Paragraph 7 shall govern and supersede any inconsistent terms or provisions of this Plan. (b) Change in Control. For purposes of this Plan, a Change in Control ----------------- shall mean any of the following events: (1) The acquisition in one or more transactions by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities (the "Voting Securities"), provided, however, that for purposes of this -------- ------- Section 7(b)(1), any Voting Securities acquired directly from the Company by any Person shall be excluded from the Page 4 determination of such Person's Beneficial Ownership of Voting Securities (but such Voting Securities shall be included in the calculation of the total number of Voting Securities then outstanding); or (2) The individuals who are members of the Incumbent Board (as defined below), cease for any reason to constitute at least two-thirds of the Board. The "Incumbent Board" shall include the individuals who as of August 20, 1990 were members of the Board and any individual becoming a director subsequent to August 20, 1990 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board; provided, however, that any individual who is not a -------- ------- member of the Incumbent Board at the time he or she becomes a member of the Board shall become a member of the Incumbent Board upon the completion of two full years as a member of the Board; provided, further, however, that notwithstanding the -------- ------- ------- foregoing, no individual shall be considered a member of the Incumbent Board if such individual initially assumed office (i) as a result of either an actual or threatened "election contest" (within the meaning of Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest"), or (ii) with the approval of the Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; or (3) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation, do not own, directly or indirectly immediately following such merger or consolidation, more than eighty (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation, or (ii) a complete liquidation or dissolution of the Page 5 Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding Voting Securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided, that if a Change in Control would occur (but for -------- the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the Percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. Notwithstanding anything contained in this Plan to the contrary, if a Participant's employment is terminated prior to a Change in Control and the Participant reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in control and who effectuates a Change in Control or (ii) otherwise occurred in connection with or in anticipation of a Change in Control which actually occurs, then for all purposes of this Plan, the date of a Change in Control in Page 6 respect of such Participant shall mean the date immediately prior to the date of termination of such Participant's employment. (c) Payment Upon a Change in Control. Upon a Change in Control, the bonus -------------------------------- for Performance Objectives which have been met in any Plan Year ending prior to the date of the Change in Control for which payment has not previously been made shall be unconditionally payable in cash to each Participant. If a Change in Control occurs with approval of the Board granted prior to any such Change in Control, cash bonuses for the Plan Year during which the Change in Control occurs shall be unconditionally payable to each Participant, such bonuses to be 50% of the Target for each such Participant or such higher amount as may be approved by the Committee. If a Change in Control occurs without approval of the Board granted prior to any such Change in Control, cash bonuses for the Plan Year during which the Change in Control occurs shall be unconditionally payable to each Participant, such bonuses to be 100% of the Target for each Participant; provided, however, that in any case, if a -------- ------- Change in Control occurs before Targets shall have been established for a Plan Year, the Targets for such Plan Year shall be no less favorable to the Participants than the Targets for the prior Plan Year. Unless the Committee directs an earlier payment, bonuses payable in accordance with this paragraph 7(c) shall be paid in cash on or before the earlier of the date which is five (5) days following the date of the Change of Control or the date determined in accordance with Paragraph 6 above. (d) Continuation of the Plan. For a period of two (2) Plan Years ------------------------ following the Plan Year in which a Change of Control occurs, the Plan shall not be terminated or amended in any way (including, but not limited to restricting or limiting the right to participate in the Plan of any person who is a Participant on the day prior to the date of the Change of Control), nor shall the manner in which the Plan is administered be changed in a way that adversely affects the level of Page 7 participation or reward opportunities of any participant; provided, -------- however, that the Plan shall be amended as necessary to make ------- appropriate adjustments for (i) any negative effect that the costs and expenses incurred by the Company and its Subsidiaries in connection with the Change in Control may have on the benefits payable under the Plan and (ii) any changes to the Company and/or its Subsidiaries (including, but not limited to, changes in corporate structure or capitalization, acquisitions or dispositions and increased interest expense as a result of the incurrence or assumption by the Company of acquisition indebtedness) following the Change in Control so as to preserve the reward opportunities and performance targets for comparable performance under the Plan as in effect on the date immediately prior to the Change in Control. (e) Amendment or Termination. ------------------------ (i) This paragraph 7 shall not be amended or terminated at any time following a Change in Control. (ii) Any amendment or termination of the Plan prior to a Change in Control which (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (2) otherwise arose in connection with or in anticipation of a Change in Control, shall be null and void and shall have no effect whatsoever. (f) Trust Arrangement. All benefits under the Plan shall be paid by the ----------------- Company. The Plan shall be unfunded and the benefits hereunder shall be paid only from the general assets of the Company; provided, -------- however, nothing herein shall prevent or prohibit the Company from ------- establishing a trust or other arrangement for the purpose of providing for the payment of the benefits payable under the Plan. 8. NON-ASSIGNABILITY No bonuses awarded under this Plan nor any right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or Page 8 charge the same shall be void and shall not be recognized or given effect by the Company. 9. AMENDMENT OF THE PLAN This Plan may be amended at any time and from time to time by the Board. Not withstanding the previous sentence, no amendment to the Plan shall be made without the approval of the stockholders of the Company which would change the material terms of performance goals that were previously approved by the Company's stockholders within the meaning of Proposed Treasury Regulation Section 1-162-27(e)(4)(vi) or a successor provision, unless the Board determines the such approval is not necessary to avoid loss of a deduction under Section 162(m) of the Code, such approval will not avoid such a loss of deduction or such approval is not advisable. 10. NO RIGHT TO EMPLOYMENT Nothing in this Plan or in any notice of award pursuant to this Plan shall confer upon any person the right to continue in the employment of the Company nor affect the Company's right to terminate the employment of any person. 11. PERFORMANCE - BASED COMPENSATION This Plan is intended to give the Committee the authority, in its discretion, to make payments that qualify as performance-based compensation under Code Section 162(m)(4)(C). 12. EFFECTIVENESS OF PLAN This Plan shall become effective when approved by the Board. This Plan shall thereafter be submitted to the Company's stockholders for approval and unless this Plan is approved by the affirmative votes of the holders of shares having a majority of the voting power of all shares represented at a meeting duly held in accordance with Georgia law within twelve (12) months after being approved by the Board, this Plan and all awards made under it shall be void and of no force and effect. Page 9 To record the adoption of this Plan by the Board on June 22, 1994, the Company has caused its authorized officers to affix the corporate name and seal hereto. SCIENTIFIC-ATLANTA, INC. By: /s/ Brian C. Koenig ----------------------------- Vice President - Human Resources Attest: /s/ William E. Eason, Jr. --------------------------- Secretary Page 10 EX-10.(H) 11 RESTORATION RETIREMENT PLAN EXHIBIT 10(h) ------------- SCIENTIFIC-ATLANTA, INC. ------------------------ RESTORATION RETIREMENT PLAN --------------------------- (Effective July 1, 1994) As Amended Through February 23, 1997 Article I. The Plan -------------------- 1.1 Establishment of Plan. Scientific-Atlanta, Inc. (the "Company") --------------------- hereby establishes this supplemental retirement plan for eligible Employees of the Company and participating Affiliates, effective as of July 1, 1994. This plan shall be known as the Scientific-Atlanta, Inc. Restoration Retirement Plan (the "Plan"). 1.2 Purpose of Plan. This Plan restores benefits that are curtailed as --------------- a result of legal limits applicable to the Scientific-Atlanta, Inc. Retirement Plan and Trust. The portion of the Plan that restores benefits affected by the limits described in Code section 415 is intended to be an "excess benefit plan" as defined in ERISA section 3(36). The portion of the Plan that restores benefits affected by changes made in 1993 legislation to the compensation limit described in Code section 401(a)(17) is intended to be a plan maintained for the purpose of providing deferred compensation to a "select group of management or highly compensated employees" within the meaning of ERISA section 201(2). The Plan is intended to be exempt from the participation, vesting, funding, and fiduciary requirements of Title I of ERISA. 1.3 Applicability of Plan. This Plan applies only to eligible Employees --------------------- who are in the active employ of the Company or a participating Affiliate on or after July 1, 1994. Article II. Definitions ------------------------ Whenever used in the Plan, the following terms shall have the meanings set forth below unless otherwise expressly provided. When the defined meaning is intended, the term is capitalized. The definition of any term in the singular shall also include the plural, whichever is appropriate in the context. 2.1 "Actuarial Equivalent" means a benefit having the same value as the -------------------- benefit that it replaces, computed on the bases of the actuarial equivalence assumptions in effect under the Retirement Plan. 1 2.2 "Affiliate" means --------- (a) any corporation while it is a member of the same "controlled group" of corporations (within the meaning of Code section 414(b)) as the Company; (b) any other trade or business (whether or not incorporated) while it is under "common control" (within the meaning of Code section 414(c)) with the Company; (c) any organization during any period in which it (along with the Company) is a member of an "affiliated service group" (within the meaning of Code section 414(m)); or (d) any other entity during any period in which it is required to be aggregated with the Company under Code section 414(o). 2.3 "Beneficiary" means any person (natural or otherwise) designated by ----------- a Participant to receive any Pre-retirement death benefits payable on the Participant's behalf under the Retirement Plan, or in the absence of any such designation, the person or entity determined to be the Participant's beneficiary under the Retirement Plan. 2.4 "Board" means the Company's Board of Directors. ----- 2.5 "Code" means the Internal Revenue Code of 1986, as amended, or as it ---- may be amended from time to time. A reference to a particular section of the Code shall also be deemed to refer to regulations and other regulatory guidance issued under that Code section. 2.6 "Committee" means the Human Resources and Compensation Committee of --------- the Board. 2.7 "Company" means Scientific-Atlanta, Inc. and any successor thereto ------- that agrees to adopt and continue this Plan. 2.8 "Employee" means any person who is employed by an Employer. -------- 2.9 "Employer" means the Company and each Affiliate that has adopted -------- this Plan for the benefit of its eligible Employees. 2.10 "ERISA" means the Employee Retirement Income Security Act of 1974, ----- as amended, or as it may be amended from time to time. A reference to a particular section of ERISA shall also be deemed to refer to regulations and other regulatory guidance issued under that section. 2 2.11 "Normal Retirement Date" means the first day of the month in which a ---------------------- Participant attains age sixty-five (65). 2.12 "Participant" means an Employee who has met, and continues to meet, ----------- the eligibility requirements of section 3.1. 2.13 "Pension Equity Benefit" means the benefit amount calculated as a ---------------------- Participant's "Pension Equity Benefit" pursuant to Article IV of the Retirement Plan. 2.14 "Plan" means this Scientific-Atlanta, Inc. Restoration Retirement ---- Plan, as amended from time to time. 2.15 "Plan Year" means initially the period beginning July 1, 1994 and --------- ending December 31, 1994. Thereafter, the Plan Year shall be the calendar year. 2.16 "Prior Plan Benefit" means the benefit amount calculated as a ------------------ Participant's "Prior Plan Benefit" (if any) pursuant to Article V of the Retirement Plan. 2.17 "Retirement Plan" means the Scientific-Atlanta, Inc. Retirement Plan --------------- and Trust, as amended from time to time. 2.18 "Severance from Service Date" means a Participant's "Severance from --------------------------- Service Date" as determined under the Retirement Plan. Article III. Participation --------------------------- 3.1 Eligibility. An Employee shall become a Participant on ----------- (a) July 1, 1994, provided that the Committee designates the Employee as eligible to participate in the Plan; or (b) any subsequent date on which the Committee determines that the Employee's benefits under the Retirement Plan will be curtailed by the limits described in Code section 401(a)(17) or 415 and the Committee designates the Employee as eligible to participate in the Plan. Participation in the part of this Plan that restores Retirement Plan 3 benefits curtailed under the compensation limit in effect under Code section 401(a)(17) shall be limited to Employees who are members of a "select group of management or highly compensated employees" within the meaning of ERISA section 201(2). Additionally, an Employee who participates in the Scientific-Atlanta, Inc. Supplemental Executive Retirement Plan shall not be eligible to participate in this Plan. 3.2 Duration. An Employee who becomes a Participant under section 3.1 -------- shall remain an active Participant until the earlier of (a) his or her Severance from Service Date; or (b) a declaration by the Committee that he or she is no longer eligible to participate in the Plan. An individual whose active participation is terminated under this section 3.2 shall continue to be an inactive Participant until all benefits to which he or she is entitled under this Plan have been paid. Article IV. Benefits --------------------- 4.1 Retirement Benefits. ------------------- (a) Eligibility. A Participant who has a vested interest in a retirement ----------- benefit under the Retirement Plan shall be eligible for a retirement benefit under this section 4.1. This benefit shall be calculated as: (1) a lump sum representing the Participant's entire interest in the Plan as of the first day of the month following his or her Severance from Service Date, in the case of a Participant whose benefit under the Retirement Plan is payable as a Pension Equity Benefit; or (2) a single life annuity commencing as of the first day of the month following the Participant's Severance from Service Date, in the case of a Participant whose benefit under the Retirement Plan is payable as a Prior Plan Benefit. However, if the commencement of a Participant's retirement benefit is delayed to any later month following his or her Severance from Service Date, the benefit determined under this section 4.1 shall be adjusted in accordance with section 4.2. (b) Amount. A Participant who is eligible for a retirement benefit under ------ 4 subsection (a) shall be entitled to receive a benefit equal to the difference between (1) and (2) where (1) is the benefit to which the Participant would be entitled under the Retirement Plan as of the first day of the month following his or her Severance from Service Date, calculated as if the term "Annual Pay" under the Retirement Plan included elective deferrals under the Scientific-Atlanta, Inc. Executive Deferred Compensation Plan in the year that the deferrals were made and calculated (A) as if the changes to Code section 401(a)(17) made by the Omnibus Budget Reconciliation Act of 1993 had not taken effect; and (B) without regard to the benefit limits in effect under Code section 415; and (2) is the benefit payable to the Participant under the Retirement Plan as of the first day of the month following his or her Severance from Service Date. The Committee shall adjust the compensation limit in paragraph (b)(1)(A) above in a manner consistent, as determined by the Committee, with the method used by the Secretary of the Treasury prior to the effective date of the changes made by the Omnibus Budget Reconciliation Act of 1993. (c) Commencement. Except as otherwise provided under section 4.2, ------------ payment of a Participant's retirement benefit shall commence as of the first day of the month following the Participant's Severance from Service Date. 4.2 Deferred Retirement Benefits. ---------------------------- (a) Delayed Commencement. The Committee, in its sole and absolute -------------------- discretion, may delay the commencement of a retirement benefit payable under section 4.1 beyond the first date of the month following the Participant's Severance from Service Date. Retirement benefits may begin as of the first day of any month following such date, as provided by the Committee, but in no event may the Committee delay the commencement of benefits beyond the Participant"s Normal Retirement Date. If the Committee elects to delay the commencement of a Participant's 5 retirement benefits under this subsection, the amount payable as of the delayed commencement date shall be adjusted in accordance with the Retirement Plan to reflect this delay. (b) Employment Beyond Age Sixty-Five (65). Notwithstanding any other ------------------------------------- provision in this Plan to the contrary, in the case of a Participant who remains an Employee after his Normal Retirement Date, the Committee may direct, in its sole and absolute discretion, that the Participant's retirement benefit shall commence as of any date on or after his or her Normal Retirement Date and prior to his or her Severance from Service Date. Any such Participant shall receive a retirement benefit calculated pursuant to section 4.1 as of the commencement date selected by the Committee. The retirement benefit payable to the Participant upon his or her subsequent Severance from Service Date shall be equal to the greater of: (1) the retirement benefit determined under section 4.1 as of the first day of the month following his or her Severance from Service Date, reduced by following the provisions of Code section 411(b)(1)(H)(iii)(I) for in-service distributions; or (2) the retirement benefit determined under section 4.1 as of his or her Normal Retirement Date, increased by applying interest at an annual rate of five percent (5%) (allocated quarterly) from his or her Normal Retirement Date until the benefit commencement date selected by the Committee. 4.3 Form of Payment. --------------- (a) Unmarried Participant. The form of payment for a Participant who is --------------------- not married on his or her benefit commencement date shall be a single life annuity. In the case of a benefit calculated as a lump sum payment pursuant to section 4.1(a)(1), this single life annuity shall be the Actuarial Equivalent of the lump sum benefit. (b) Married Participant. The form of payment for a Participant who is ------------------- married on his or her benefit commencement date shall be a joint and fifty percent (50%) surviving spouse annuity. A joint and fifty percent (50%) surviving spouse annuity provides (1) a monthly benefit to the Participant for life; and (2) upon the Participant's death, a monthly benefit to the Participant's surviving spouse for life equal to fifty percent (50%) of the amount payable during the Participant's lifetime. 6 This joint and fifty percent (50%) surviving spouse annuity shall be the Actuarial Equivalent of the single life annuity described in subsection (a). (c) Optional Payment Forms. In lieu of the normal form of payment ---------------------- described in subsection (a) or (b), the Committee may direct, in its sole and absolute discretion, that benefits shall be paid in one of the optional forms of payment available under the Retirement Plan. In that event, the benefit payable under the optional payment form shall be the Actuarial Equivalent of the single life annuity described in subsection (a). 4.4 Pre-retirement Death Benefits. ----------------------------- (a) Eligibility. The Beneficiary of a Participant shall be eligible to ----------- receive a Pre-retirement death benefit if the Participant dies after acquiring a vested interest in his or her accrued benefit under the Retirement Plan, but before starting to receive retirement benefits under this Plan. This benefit shall be calculated and paid as: (1) a single life annuity commencing as of the first day of the month following the Participant's death, in the case of a Beneficiary who is legally married to the Participant on the date of his or her death; or (2) a lump sum payment as of the first day of the month following the Participant's death, in the case of any other Beneficiary. (b) Amount. A Beneficiary who is eligible for a Pre-retirement death ------ benefit under subsection (a) shall be entitled to receive a benefit equal to the difference between (1) and (2) where (1) is the Pre-retirement death benefit which would have been payable to the Beneficiary under the Retirement Plan as of the first day of the month following the Participant's death, calculated as if the term "Annual Pay" under the Retirement Plan included elective deferrals under the Scientific-Atlanta, Inc. Executive Deferred Compensation Plan in the year in which the deferrals were made and calculated-- (A) as if the changes to Code section 401(a)(17) made by the Omnibus Budget Reconciliation Act of 1993 had not taken effect; and (B) without regard to the benefit limits in effect under Code section 415; and 7 (2) is the Pre-retirement death benefit payable to the Beneficiary under the Retirement Plan as of the first day of the month following the Participant's death. The Committee shall adjust the compensation limit in paragraph (b)(1)(A) above in a manner consistent, as determined by the Committee, with the method used by the Secretary of the Treasury prior to the effective date of the changes made by the Omnibus Budget Reconciliation Act of 1993. (c) Commencement. Payment of a Pre-retirement death benefit under this ------------ section shall commence as of the first day of the month following the date of the Participant's death. Notwithstanding the foregoing, the Committee, in its sole and absolute discretion, may delay the commencement of a Pre-retirement death benefit until the first day of any later month, but in no event beyond the first day of the month in which the Participant would have attained age sixty-five (65). If the Committee elects to delay the commencement of a Pre-retirement death benefit pursuant to this subsection, the amount payable as of the delayed commencement date shall be adjusted in accordance with the Retirement Plan to reflect this delay. (d) Optional Payment Forms. In lieu of the single life annuity payable to ---------------------- a Beneficiary who is a surviving spouse, the Committee may direct, in its sole and absolute discretion, that the Pre-retirement death benefit shall be paid in a single lump sum that is the Actuarial Equivalent of the single life annuity described in subsection (a). 4.5 Change in Control. Notwithstanding anything contained in this Plan ----------------- to the contrary, the provisions of this section 4.5 shall govern and supersede any inconsistent terms or provisions of this Plan in the event of a Change in Control of the Company. (a) Immediate Vesting. Each Participant shall be immediately vested in ----------------- his or her accrued benefit hereunder as of the date of any Change in Control. (b) Termination Following Change in Control. If a Participant's --------------------------------------- employment with the Employer is terminated during the two (2) year period following a Change in Control for any reason other than cause, the Participant shall receive a lump sum payment equal to the Actuarial Equivalent value of the Participant's accrued benefit as of the date of such termination. 8 (c) Amendment or Termination. For a period of two (2) Plan Years ------------------------ following the Plan Year in which a Change in Control occurs, the Plan shall not be terminated or amended in any way that would reduce or otherwise adversely affect the computation or amount of, or entitlement to, benefits hereunder (including, but not limited to, restricting or limiting the right to participate in the Plan of any person who is a Participant on the day prior to the date of the Change in Control). Any amendment or termination of the Plan prior to a Change in Control which a Participant who is an Employee at the time of the amendment or termination reasonably demonstrates (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, or (2) otherwise arose in connection with or in anticipation of a Change in Control, and which was not consented to in writing by such Participant, shall be null and void and shall have no effect whatsoever. (d) Definition of Change in Control. For purposes of this section, a ------------------------------- Change in Control shall mean any of the following events: (1) The acquisition in one or more transactions by any "Person" (as the term person is used for purposes of section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of "Beneficial Ownership" (within the meaning of Rule 13d- 3 promulgated under the Exchange Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities (the "Voting Securities"), provided, however, that for purposes of this section, any Voting Securities acquired directly from the Company by any Person shall be excluded from the determination of such Person's Beneficial Ownership of Voting Securities (but such Voting Securities shall be included in the calculation of the total number of Voting Securities then outstanding); (2) The individuals who are members of the Incumbent Board (as defined below) cease for any reason to constitute at least two- thirds of the Board. The "Incumbent Board" shall include the individuals who as of August 20, 1990 were members of the Board and any individual becoming a director subsequent to August 20, 1990 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds (2/3) of the directors then comprising the Incumbent Board, provided, however, that any individual who is not a member of the Incumbent Board at the time he or she becomes a member of the Board shall become a member of the Incumbent Board upon the completion of two full years as a member of the Board, provided further, however, 9 that notwithstanding the foregoing, no individual shall be considered a member of the Incumbent Board if such individual initially assumed office (A) as a result of either an actual or threatened "election contest" (within the meaning of Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest"), or (B) with the approval of the other Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; (3) Approval by stockholders of the Company of (A) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation, do not own, directly or indirectly immediately following such merger or consolidation, more than eighty percent (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation, or (B) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding Voting Securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its Affiliates, or (ii) any corporation that, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company that, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided, that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company the Subject Person becomes the Beneficial Owner of any additional Voting Securities that increase the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. Notwithstanding anything contained in this Plan to the contrary, if a Participant's employment is terminated prior to a Change in Control and the 10 Participant reasonably demonstrates that such termination (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control, or (2) otherwise occurred in connection with or in anticipation of a Change in Control that actually occurs, then for all purposes of this Plan, the date of a Change in Control in respect of such Participant shall mean the date immediately prior to the date of termination of such Participant's employment. Article V. Financing --------------------- 5.1 Financing. The benefits under this Plan shall be paid out of the --------- general assets of the Employers, except to the extent they are paid from the assets of a grantor trust established by an Employer to pay these benefits. 5.2 Unsecured Interest. No Participant shall have any interest whatsoever ------------------ in any specific asset of the Company or an Affiliate. To the extent that any person acquires a right to receive payments under this Plan, such right shall be no greater than the right of any unsecured general creditor of an Employer. Article VI. Administration --------------------------- 6.1 Administration. The Plan shall be administered by the Committee. -------------- The Committee shall have all powers necessary or appropriate to carry out the provisions of the Plan. It may, from time to time, establish rules for the administration of the Plan and the transaction of the Plan's business. In its sole discretion, the Committee may delegate any or all of its responsibilities relative to administration of the Plan to such officers of the Company as it designates. The Committee shall have the exclusive right to make any finding of fact necessary or appropriate for any purpose under the Plan including, but not limited to, the determination of eligibility for and amount of any benefit. The Committee shall have the exclusive right to interpret the terms and provisions of the Plan and to determine any and all questions arising under the Plan or in connection with its administration, including, without limitation, the right to remedy or resolve possible ambiguities, inconsistencies, or omissions by general rule or particular decision, all in its sole and absolute discretion. To the extent permitted by law, all findings of fact, determinations, interpretations, and decisions of the Committee shall be conclusive and binding upon all persons having or claiming to have any interest or right under the Plan. 11 6.2 Appeals from Denial of Claims. If any claim for benefits under the ----------------------------- Plan is wholly or partially denied, the claimant shall be given notice of the denial. This notice shall be in writing, within a reasonable period of time after receipt of the claim by the Committee. This period shall not exceed ninety (90) days after receipt of the claim, except that if special circumstances require an extension of time, written notice of the extension shall be furnished to the claimant, and an additional ninety (90) days will be considered reasonable. This notice shall be written in a manner calculated to be understood by the claimant and shall set forth the following information: (a) the specific reasons for the denial; (b) specific reference to the Plan provisions on which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why this material or information is necessary; (d) an explanation that a full and fair review by the Committee of the decision denying the claim may be requested by the claimant or an authorized representative by filing with the Committee, within sixty (60) days after the notice has been received, a written request for the review; and (e) if this request is so filed, an explanation that the claimant or an authorized representative may review pertinent documents and submit issues and comments in writing within the same sixty (60) day period specified in subsection (d). The decision of the Committee upon review shall be made promptly, and not later than sixty (60) days after the Committee's receipt of the request for review, unless special circumstances require an extension of time for processing. In this case the claimant shall be so notified, and a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review. If the claim is denied, wholly or in part, the claimant shall be given a copy of the decision promptly. The decision shall be in writing, shall include specific reasons for the denial, shall include specific references to the pertinent Plan provisions on which the denial is based, and shall be written in a manner calculated to be understood by the claimant. 6.3 Tax Withholding. The Employer may withhold from any payment under --------------- this Plan any federal, state, or local taxes required by law to be withheld with respect to the payment and any sum the Employer may reasonably estimate as necessary to cover any taxes for which the Employer may be liable and that may be assessed with regard to the payment. 6.4 Expenses. All expenses incurred in the administration of the Plan -------- shall be paid by the Employers. 12 Article VII. Adoption of the Plan by Affiliate; ------------------------------------------------ Amendment and Termination of the Plan ------------------------------------- 7.1 Adoption of the Plan by Affiliate. An Affiliate may adopt the Plan --------------------------------- by appropriate action of its board of directors or authorized officers or representatives, subject to the approval of the Board. 7.2 Amendment and Termination. The Company hereby reserves the right to ------------------------- amend, modify, or terminate the Plan at any time, and for any reason, by written resolution of the Board. However, no amendment or termination shall have the effect of reducing the benefits accrued by a Participant prior to the date of the amendment or termination. Article VIII. Miscellaneous Provisions --------------------------------------- 8.1 No Contract of Employment. Nothing contained in the Plan shall be ------------------------- construed to give any Participant the right to be retained in the service of the Company or its Affiliates or to interfere with the right of the Company or its Affiliates to discharge a Participant at any time. 8.2 Severability. If any provision of this Plan shall be held illegal ------------ or invalid, the illegality or invalidity shall not affect its remaining parts. The Plan shall be construed and enforced as if it did not contain the illegal or invalid provision. 8.3 Applicable Law. Except to the extent preempted by applicable -------------- federal law, this Plan shall be governed by and construed in accordance with the laws of the state of Georgia. IN WITNESS WHEREOF, SCIENTIFIC-ATLANTA, INC. has caused this instrument to be executed by its duly authorized officer, effective as of the date specified above. SCIENTIFIC-ATLANTA, INC. By: /s/ Brian C. Koenig ---------------------------------------- Title: Vice President, Human Resources ATTEST: By: /s/ William E. Eason, Jr. ------------------------------- Title: Secretary 13 EX-10.(R) 12 LETTER AMENDMENT TO CREDIT AGREEMENT [LETTERHEAD OF NATIONSBANK APPEARS HERE] EXHIBIT 10(r) April 23, 1997 Lenders Party to the $300,000,000 Scientific-Atlanta, Inc. Revolving Credit Facility Ladies and Gentlemen: Reference is made to the Credit Agreement dated as of May 11, 1995, as amended (the "Credit Agreement") by and among Scientific-Atlanta, Inc. (the "Borrower"), the financial institutions party thereto as Lenders (the "Lenders"), and NationsBank, N.A. (South), formerly known as NationsBank of Georgia, National Association, as Agent (the "Agent"). Capitalized terms not defined in this letter have the respective meanings given them in the Credit Agreement. As you are aware, the Borrower has requested that the Lenders agree to amend the Credit Agreement to effect an extension of (a) the Facility B Termination Date by 364 days from May 9, 1997 to May 8, 1998 and (b) the Termination Date from May 11, 2000 to May 11, 2002. Except for this amendment, the Credit Agreement remains in effect and is restated in its entirety. To confirm your agreement to such extension of the Facility B Termination Date and the Termination Date, on a copy of this letter, please type or write the name of your institution in the space provided below, sign below that and then return the same to the Agent no later than 5:00 p.m., May 7, 1997. Should you have any questions, please do not hesitate to call the undersigned at (404)607-5389. Sincerely yours, NATIONSBANK, N.A. (SOUTH), as Agent By: /s/ Daniel J. Rabbitt --------------------------------- Name: Daniel J. Rabbitt Title: Vice President AGREED AND ACCEPTED: NationsBank, N.A. (South) - ------------------------------- [Type/write Lender name] By: /s/ Luis A. Viera ---------------------------- Name: Luis A. Viera ----------------------- Title: Associate ------------------ AGREED AND ACCEPTED: ABN AMRO Bank, N.V. - ---------------------------------- [Type/write Lender name] By: /s/ Steven L. Hipsman ------------------------------- /s/ Steven B. Farley Name: STEVEN L. HIPSMAN -------------------------------- -------------------------- Steven B. Farley Title: Vice President Vice President AGREED AND ACCEPTED The Bank of New York - ------------------------------ [Type/write Lender name] By: /s/ Gregory L. Batson --------------------------- Name: GREGORY L. BATSON ---------------------- Title: Vice President AGREED AND ACCEPTED: Toronto Dominion (Texas), Inc. - ------------------------------- [Type/write Lender name] By: /s/ Frederic B. Hawley ---------------------------- Name: FREDERIC B. HAWLEY ----------------------- Title: Vice President AGREED AND ACCEPTED: Australia and New Zealand Banking Group Limited - ------------------------------------------------ [Type/write Lender name] By: /s/ Pamela Couch ----------------------------- Name: PAMELA COUCH ------------------------ Title: Vice President, Credit AGREED AND ACCEPTED: The Bank of Tokyo-Mitsubishi, Ltd. - ---------------------------------- [Type/write Lender name] By: /s/ Gary L. England ---------------------------- Name: GARY L. ENGLAND ----------------------- Title: Vice President and Manager AGREED AND ACCEPTED: Wachovia Bank of Georgia, N.A. - ------------------------------- [Type/write Lender name] By: /s/ Karen H. McClain ---------------------------- Name: KAREN H. MCCLAIN ----------------------- Title: Senior Vice President EX-10.(S) 13 CREDIT AND INVESTMENT AGREEMENT Exhibit 10(s) CREDIT AND INVESTMENT AGREEMENT Dated as of July 30, 1997 Among SCIENTIFIC-ATLANTA, INC., WACHOVIA CAPITAL MARKETS, INC., WACHOVIA BANK, N.A., as Agent, and THE LENDERS SIGNATORIES HERETO TABLE OF CONTENTS ARTICLE I Defined Terms and Accounting Matters................. 2 Section 1.01 Terms Defined Above......................................... 2 ------------------- Section 1.02 Certain Defined Terms....................................... 2 --------------------- Section 1.03 Accounting Terms and Determinations......................... 2 ----------------------------------- ARTICLE II Commitments............................. 3 Section 2.01 Loans; LI Fundings.......................................... 3 ------------------ Section 2.02 Fundings.................................................... 4 -------- Section 2.03 Changes of Commitments...................................... 5 ---------------------- Section 2.04 Fees........................................................ 5 ---- Section 2.05 Notes....................................................... 6 ----- Section 2.06 Several Obligations......................................... 6 ------------------- Section 2.07 Applicable Funding Offices.................................. 7 -------------------------- Section 2.09 Extension of Notes and Lessor Investment.................... 7 ---------------------------------------- Section 2.10 Application of Credit Agreement ------------------------------- Provisions Prior to Syndication Effective Date.............. 7 ---------------------------------------------- ARTICLE III Payment of Loans; Payment of Interest and Other Amounts....... 8 Section 3.01 Repayment of the Notes and the Lessor Investment............ 8 ------------------------------------------------ Section 3.02 Prepayments................................................. 9 ----------- Section 3.03 Interest on Notes; LI Yield; Overdue Amounts................ 10 -------------------------------------------- Section 3.04 Payments by Lessor.......................................... 11 ------------------ Section 3.05 Applications of Payments and Proceeds....................... 11 ------------------------------------- ARTICLE IV Payments; Computations; Etc. .................... 13 Section 4.01 Payments.................................................... 13 -------- Section 4.02 Pro Rata Treatment.......................................... 14 ------------------ Section 4.03 Computations................................................ 14 ------------ Section 4.04 Non-receipt of Funds by the Agent........................... 15 --------------------------------- Section 4.05 Sharing of Payments......................................... 15 ------------------- Section 4.06 Taxes....................................................... 16 ----- ARTICLE V Yield Protection and Illegality................... 18 Section 5.01 Basis for Determining Interest Rate Inadequate or Unfair.... 19 -------------------------------------------------------- Section 5.02 Illegality.................................................. 20 ---------- i Section 5.03 Increased Cost and Reduced Return........................... 21 --------------------------------- Section 5.04 Base Rate Substituted for Adjusted LIBO Rate................ 23 -------------------------------------------- Section 5.05 Compensation................................................ 24 ------------ Section 5.06 Payments and Computations................................... 24 ------------------------- Section 5.06 Transfer to Owner Trust..................................... 24 ----------------------- ARTICLE VI Conditions Precedent......................... 25 Section 6.01 Conditions Precedent to Effectiveness of this Agreement..... 25 ------------------------------------------------------- Section 6.02 Initial and Subsequent Loans and LI Fundings................ 26 -------------------------------------------- Section 6.03 Conditions Precedent to Syndication Effective Date.......... 29 -------------------------------------------------- ARTICLE VII Representations and Warranties.................... 31 Section 7.01 Company Representations and Warranties...................... 31 -------------------------------------- Section 7.02 Representations and Warranties of Lessor.................... 38 ---------------------------------------- ARTICLE VIII Covenants.............................. 40 Section 8.01 Information................................................. 40 ----------- Section 8.02 Maintenance and Inspection of Property, Books and Records... 41 --------------------------------------------------------- Section 8.03 Related Contracts........................................... 42 ----------------- Section 8.04 Consolidations, Mergers and Sales of Assets................. 42 ------------------------------------------- Section 8.05 Maintenance of Existence; Conduct of Business............... 43 --------------------------------------------- Section 8.06 Dissolution................................................. 43 ----------- Section 8.07 Use of Proceeds............................................. 43 --------------- Section 8.08 Compliance with Laws; Payment of Taxes...................... 44 -------------------------------------- Section 8.09 Insurance................................................... 44 --------- Section 8.10 Maintenance of Property..................................... 45 ----------------------- Section 8.11 Environmental Notices....................................... 45 --------------------- Section 8.12 Environmental Matters....................................... 45 --------------------- Section 8.13 Environmental Release....................................... 45 --------------------- Section 8.14 Transactions with Affiliates................................ 46 ---------------------------- Section 8.15 Agreement to Pledge, Etc.................................... 46 ------------------------ Section 8.16 Further Assurances.......................................... 46 ------------------ Section 8.17 Use of Proceeds; Etc........................................ 47 -------------------- Section 8.18 Maintenance; Etc............................................ 47 ---------------- Section 8.19 Encroachments............................................... 47 ------------- Section 8.20 Liens, Etc.................................................. 47 ---------- Section 8.21 Use of Facility............................................. 47 --------------- Section 8.22 Covenants of Lessor......................................... 48 ------------------- Section 8.23 Financial Covenants......................................... 48 ------------------- ii Section 8.24 Debt........................................................ 48 ---- Section 8.25 Investments: Acquisitions................................... 49 ------------------------- Section 8.26 Dividends and Other Restricted Payments..................... 51 --------------------------------------- Section 8.27 Hedging Obligations......................................... 51 ------------------- ARTICLE IX Events of Default........................... 51 Section 9.01 Events of Default........................................... 51 ----------------- Section 9.02 Remedies.................................................... 54 -------- ARTICLE X The Agent............................... 55 Section 10.01 Appointment, Powers and Immunities.......................... 55 ---------------------------------- Section 10.02 Reliance by Agent........................................... 56 ----------------- Section 10.03 Defaults.................................................... 56 -------- Section 10.04 Rights as a Lender.......................................... 57 ------------------ Section 10.05 Indemnification............................................. 57 --------------- Section 10.06 Non-Reliance on Agent and other Lenders..................... 57 --------------------------------------- Section 10.07 Failure to Act.............................................. 58 -------------- Section 10.08 Resignation or Removal of Agent............................. 58 ------------------------------- ARTICLE XI Miscellaneous............................. 58 Section 11.01 Amendments, Etc............................................. 58 ---------------- Section 11.02 Notices..................................................... 60 ------- Section 11.03 Payment of Expenses, Indemnities, etc....................... 60 ------------------------------------- Section 11.04 No Waiver; Remedies......................................... 66 ------------------- Section 11.05 Right of Set-Off............................................ 66 ---------------- Section 11.06 Assignments and Participations.............................. 66 ------------------------------ Section 11.07 Invalidity.................................................. 70 ---------- Section 11.08 Entire Agreement............................................ 70 ---------------- Section 11.09 References.................................................. 70 ---------- Section 11.10 Successors; Survivals....................................... 71 --------------------- Section 11.11 Captions.................................................... 71 -------- Section 11.12 Counterparts................................................ 71 ------------ Section 11.13 Confidentiality............................................. 71 --------------- Section 11.14 GOVERNING LAW; SUBMISSION TO JURISDICTION................... 72 ----------------------------------------- Section 11.15 Interest.................................................... 72 -------- Section 11.16 Characterization............................................ 74 ---------------- Section 11.17 Compliance.................................................. 75 ---------- Section 11.18 Facility.................................................... 75 -------- Section 11.19 The Lessor.................................................. 76 ---------- Section 11.20 Lenders..................................................... 76 ------- iii EXHIBITS -------- Exhibit A - Legal Description of Site Exhibit B - Form of Tranche A Note Exhibit C - Form of Tranche B Note Exhibit D - Form of Assignment and Acceptance Agreement Exhibit E - Form of Compliance Certificate Exhibit F - Form of legal opinion of counsel to the Company Exhibit G - Form of confidentiality agreement Exhibit H - Form of Lessor Mortgage Exhibit I - Form of Guaranty SCHEDULES --------- Schedule 1.02 - Defined Terms Schedule 1.02(a) - Requirements for Completion Schedule 1.02(b) - Pricing Schedule Schedule 7.01(e) - Litigation iv CREDIT AND INVESTMENT AGREEMENT (as the same may be amended, modified or supplemented from time to time, this "Agreement") dated as of July --------- 30, 1997 among SCIENTIFIC-ATLANTA, INC., a Georgia corporation (the "Company"), ------- WACHOVIA CAPITAL MARKETS, INC., a Georgia corporation (the "Lessor"); each of the Lenders that is a party hereto or becomes a party hereto as provided in Section 11.06 (individually, together with its successors and assigns, a "Lender," and collectively, together with their successors and assigns, the ------ "Lenders"); and WACHOVIA BANK, N.A., a national banking association (in its ------- individual capacity, "Wachovia"), as agent for the Lenders (in such capacity, -------- together with its successors in such capacity, the "Agent"). ----- RECITALS -------- WHEREAS, the Lessor has acquired, as of the date hereof, pursuant to the Ground Lease, a ground lease of certain real property located in Gwinnett County, Georgia, described in greater detail on Exhibit A (the "Site"), and ---- intends to construct on the Site two (2) buildings to be used for commercial office space and light assemblage facilities, and a parking deck and related enhancements and improvements; and WHEREAS, the Lessor has subleased the Site, and leased such buildings and other enhancements and improvements thereon, after completion, to the Company pursuant to the Lease; and WHEREAS, the Company, acting as the Lessor's Acquisition/Construction Agent under the Agency Agreement, will, on behalf of the Lessor, complete the construction and installation of such buildings and all such enhancements and improvements on the Site and provide operations, maintenance and management support; and WHEREAS, (i) in order to finance the acquisition of the Lessor's leasehold estate in the Site, and the construction of such buildings and related enhancements and improvements on the Site for the ultimate use and benefit of the Company in accordance with the Lease prior to the Syndication Effective Date, the Lessor has agreed to fund its Investment Commitment up to $38,000,000 of the Facility Cost, and the Company and the Lessor have agreed to execute and deliver this Agreement, and (ii) upon and after the Syndication Effective Date, the Lessor will retain a Lessor Investment of up to $1,140,000 and the Company will have obtained from the Lenders certain loans for the benefit of the Lessor to refinance the excess of such Lessor Investment in an aggregate principal amount of up to $36,860,000; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I Defined Terms and Accounting Matters Section 1.01 Terms Defined Above. As used in this Agreement, the ------------------- terms defined in the preamble and recitals above shall have the meanings indicated above. Section 1.02 Certain Defined Terms. As used herein, all --------------------- capitalized terms used but not otherwise defined herein shall have the meaning specified for such terms set forth in Schedule 1.02. As used in this Agreement ------------- and in any certificate delivered pursuant hereto, "knowledge" and "becomes aware" or words of similar meaning shall mean, with respect to the Company or any Subsidiary, that a Principal Officer (i) has knowledge of such matters, or (ii) from all the facts and circumstances actually known to him at the time in question he has reason to know such matters exist. Section 1.03 Accounting Terms and Determinations. Unless ----------------------------------- otherwise specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Company's independent public accountants or otherwise required by a change in GAAP) with the most recent audited consolidated financial statements of the Company and its Consolidated Subsidiaries delivered to the Lessor, the Agent and the Lenders unless with respect to any such change concurred in by the Company's independent public accountants or required by GAAP, in determining compliance with any of the provisions of this Agreement or any of the other Operative Documents: (a) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements, or (b) the Required Lenders shall so object in writing within thirty (30) days after the delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 8.01 hereof, shall mean the financial statements referred to in Section 7.01(d). 2 ARTICLE II Commitments Section 2.01 Loans; LI Fundings. ------------------ (a) Loans. Upon and after the Syndication Effective Date, (i) ----- each Tranche A Lender severally agrees, on the terms and conditions of this Agreement, to make Tranche A Loans to the Lessor during the period from and including the later of (y) the Syndication Effective Date or (z) the date that such Tranche A Lender becomes a party to this Agreement as provided in Section 11.06(b), up to and including the Completion Date, in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of such Tranche A Lender's Loan Percentage Share of the Aggregate Tranche A Loan Commitments; provided, however, that the aggregate principal amount of all -------- ------- Tranche A Loans by all Tranche A Lenders under this Section 2.01(a) at any one time outstanding shall not exceed the lesser of (y) eighty-five percent (85%) of the Facility Cost as incurred or invoiced or (z) the Aggregate Tranche A Loan Commitments. On the Syndication Effective Date, without request by the Company or the Lessor, Tranche A Loans shall be advanced by the Lenders as Borrowings by the Lessor hereunder in the amount of 85% of the Facility Cost incurred through the Syndication Effective Date. Tranche A Loans shall be guaranteed by the Company pursuant to the Guaranty and secured by the Collateral but shall be non-recourse as to the Lessor. (ii) Upon and after the Syndication Effective Date, (i) each Tranche B Lender severally agrees, on the terms and conditions of this Agreement, to make Tranche B Loans to the Lessor during the period from and including the later of (y) the Syndication Effective Date or (z) the date that such Tranche B Lender becomes a party to this Agreement as provided in Section 11.06(b), up to and including the Completion Date, in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of such Tranche B Lender's Loan Percentage Share of the Aggregate Tranche B Loan Commitments; provided, however, that the aggregate principal amount of all -------- ------- Tranche B Loans by all Tranche B Lenders under this Section 2.01(a) at any one time outstanding shall not exceed the lesser of (y) twelve percent (12%) of the Facility Cost as incurred or invoiced or (z) the Aggregate Tranche B Loan Commitments. On the Syndication Effective Date, without request by the Company or the Lessor, Tranche B Loans shall be advanced by the Lenders as Borrowings by the Lessor hereunder in the amount of 12% of the Facility Cost incurred through the Syndication Effective Date. Tranche B Loans shall be guaranteed by the Company pursuant to the Guaranty and secured by the Collateral but shall be non-recourse as to the Lessor. (b) LI Investments. The Lessor agrees, on the terms and -------------- conditions of this Agreement, to make LI Fundings consisting 3 of equity investments in the Facility with respect thereto on the Funding Date, up to and including the Completion Date, in an aggregate amount equal to the Lessor Investment Commitment. (c) Limitations on Loans and Lessor Investments. The aggregate ------------------------------------------- amount of all Lessor Investments shall not exceed the Lessor Investment Commitment and the aggregate amount of all Tranche A Loans and Tranche B Loans shall not exceed the amount of the Aggregate Tranche A Loan Commitments and Aggregate Tranche B Loan Commitments, respectively, or the Aggregate Loan Commitments. Loans repaid may not be reborrowed. Lessor Investments repaid may not be readvanced. All Loans and Lessor Investments shall be (i) made in such a manner so as to satisfy the Required Percentage Composition, and (ii) utilized only for items of Facility Cost, which utilization shall be evidenced or certified to the Lessor's and each Lender's reasonable satisfaction simultaneously with and as a condition to each Loan and Lessor Investments as provided herein. (d) Capitalized Interest, etc. After the Syndication Effective ------------------------- Date but prior to the Completion Date, all interest, commitment fees and other amounts (other than Accrued Construction Period LI Yield) payable under this Agreement shall be paid by the Borrowing of Loans and the application of the proceeds of LI Fundings. The Company, as Acquisition/Construction Agent for the Lessor, shall give Advance Notice in connection with any Loan made to pay such amounts or the amount of LI Fundings to be applied thereto. Notwithstanding the foregoing, the aggregate amount of all Loans and LI Fundings shall not exceed the Facility Cost. Section 2.02 Fundings. -------- (a) The Company, as Acquisition/Construction Agent for the Lessor, from time to time as the Company may determine in accordance with this Agreement and the Agency Agreement, shall give the Agent (which shall promptly notify the Lenders and the Lessor) Advance Notice (which may be telephonic if confirmed promptly in writing) of each requested funding of a Loan and/or a Lessor Investment, which notice shall be irrevocable and effective only upon receipt by the Agent, and shall specify the aggregate amount and the date of the Loans and/or Lessor Investments to be funded. The Advance Notice given shall request Lessor Investments in such amount as is necessary to cause the Required Percentage Composition to be satisfied on such date. Once given, an Advance Notice may be revoked only upon payment of any amounts due to the Lenders under section 5.05. Not later than 1:00 p.m., Atlanta, Georgia time, on the date specified for each funding hereunder, each Lender shall make available the amount of the Loan and/or Lessor Investment to be made by it on such date at an account which the Agent shall specify, in immediately available funds, for the account of the Lessor. The amounts so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company as 4 Acquisition/Construction Agent for the Lessor by depositing the same, in immediately available funds, in an account of the Company designated by the Lessor and maintained with the Agent at its Principal Office, not later than 4:30 p.m. on the date of requested Borrowing. There shall be no more than two Borrowings of Loans per calendar month. (b) All Borrowings shall be made in amounts of at least $500,000 or in integral multiples of $100,000 in excess thereof, or the remaining balance of the aggregate Commitments, if less. Section 2.03 Changes of Commitments. The Company, as ---------------------- Acquisition/Construction Agent for the Lessor, shall have the right to terminate or to reduce the amount of, or, prior to utilization thereof, terminate, the aggregate Commitments, at any time or from time to time upon not less than three (3) Business Days' prior written notice to the Agent (which shall promptly notify the Lenders and the Lessor) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which shall not be less than $1,000,000 or any multiple of $500,000 in excess thereof) and shall be irrevocable and effective only upon receipt by the Agent. Any request for a reduction in the amount of the Commitments shall be pro rata among the Aggregate Loan Commitments and the Lessor Investment Commitment so that, at all times 3% of the Commitments will be comprised of the Lessor Investment Commitment and 97% of the Commitments will be comprised of the Aggregate Loan Commitments. The Commitments once terminated or reduced may not be reinstated. In no event shall the aggregate Commitments be reduced below the aggregate outstanding principal amount of the Loans and Lessor Investments. The Company may elect to repay, pro rata, the Lessor Investment sufficient to maintain the Required Percentage Composition and/or to give effect to any proposed reduction of the Commitments. Section 2.04 Fees. ---- (a) The Company shall pay or cause to be paid to the Lessor and each Lender a commitment fee (the "Commitment Fee") on the daily average amount of the unused portion of the Lessor's and such Lender's Commitment, for the period from and including the later of (i) with respect to the Lessor, the Closing Date, (ii) with respect to each Lender, the Syndication Effective Date or (iii) the date such Lender becomes a party to this Agreement as provided in Section 11.06(b), up to and including the earlier of the date the unused aggregate Commitments are terminated by the Company, as agent for the Lessor, or the Completion Date, at a rate per annum equal to the Commitment Fee Rate determined by reference to the Pricing Schedule. Accrued commitment fees shall accrue from the Closing Date through the end of the Construction Period, all such accrued Commitment Fees to be paid by the proceeds of Tranche A Loans and Tranche B Loans on the First Quarterly Date after the Construction Period and thereafter be 5 payable on each Quarterly Date and on the earlier of the date the Aggregate Loan Commitments are terminated or the Completion Date. (b) The Company shall pay, or cause to be paid, (i) prior to the Syndication Effective Date, from the Company's own funds to the Lessor for the Lessor's account, and (ii) from the proceeds of Loans or application of Lessor Investments on and after the Closing Date to the Agent for the Agent's account, the fees payable to the Agent specified in the engagement letter dated June 6, 1997 between the Agent and the Company. The Company and the Agent hereby agree that the Lessor shall be a third party beneficiary of the terms of such engagement letter with respect thereto. Section 2.05 Notes. ----- (a) The Tranche A Loans made by each Tranche A Lender under Section 2.01(a) shall be evidenced by a single promissory note executed by the Lessor in substantially the form of Exhibit B (individually a "Tranche A Note" -------------- and collectively the "Tranche A Notes"), dated as of the date such Tranche A --------------- Lender becomes a party to this Agreement, payable to the order of such Tranche A Lender in a principal amount equal to the maximum amount of its Tranche A Loan Commitment as originally in effect and otherwise duly completed. The date and amount of each Tranche A Loan made by each Tranche A Lender, and all payments made on account of the principal thereof, shall be recorded by such Tranche A Lender on its books and, prior to any transfer of the Tranche A Note, on the schedules attached to its Tranche A Note or any continuation thereof. (b) The Tranche B Loans made by each Tranche B Lender under Section 2.01(a) shall be evidenced by a single promissory note executed by the Lessor, in substantially the form of Exhibit C (individually a "Tranche B Note" -------------- and collectively the "Tranche B Notes"), dated as of the date such Tranche B --------------- Lender becomes a party to this Agreement, payable to the order of such Tranche B Lender in a principal amount equal to the maximum amount of its Tranche B Loan Commitment as originally in effect and otherwise duly completed. The date and amount of each Tranche B Loan made by each Tranche B Lender, and all payments made on account of the principal thereof, shall be recorded by such Tranche B Lender on its books and, prior to any transfer of the Tranche B Note, on the schedules attached to its Tranche B Note or any continuation thereof. Section 2.06 Several Obligations. The failure of any Lender to ------------------- make any Loan or of the Lessor to make any LI Funding to be made by it on the date specified therefor shall not relieve any other Lender or the Lessor of its obligation to make its Loan or LI Funding on such date, but neither any Lender nor the Lessor shall be responsible for the failure of any other Lender or the Lessor to make a Loan or LI Funding to be made by such other Lender or the Lessor. 6 Section 2.07 Applicable Funding Offices. The Loans made by each Lender and -------------------------- the Lessor Investments made by the Lessor shall be made and maintained at such Lender's or the Lessor's Applicable Funding Office therefor. Section 2.08 Acquisition and Construction of Facility, Etc. The Lessor, --------------------------------------------- acting solely by and through the Company as its Acquisition/Construction Agent under the Agency Agreement and subject to the availability of funds under this Agreement, shall, on the terms and conditions set forth in the Operative Documents, acquire the Facility as described herein, cause to be constructed the improvements thereon, and sublease the Facility to the Lessee pursuant to the Lease. The Company shall enter into and perform its obligations under the Agency Agreement, the Lease and the other Operative Documents, all in accordance with the terms thereof. Section 2.09 Extension of Notes and Lessor Investment. On any day that is ---------------------------------------- not less than six (6) months and not more than twelve (12) months prior to the then current Maturity Date, the Company, as Acquisition/Construction Agent for the Lessor, may request in writing to the Agent (which shall promptly notify the Lenders and the Lessor) that the then current Maturity Date be extended (i) initially for a period up to five (5) years, and (ii) thereafter, for two (2) additional, individually-elected five (5) year extensions, but in no event shall any such extension extend beyond the Scheduled Lease Termination Date (as such date may be extended in accordance with Section 2(b) of the Lease). Any such extension shall require (i) the unanimous written consent of each Lender and the Agent, each acting in its sole and absolute discretion, and (ii) the agreement of the Lessor, acting in its sole and absolute discretion, to extend the term of the Lease in accordance with Section 2(b) thereof for an equivalent period. In the event such an extension is requested and the requirements set forth in the immediately preceding sentence are met, such extension shall be effective upon the execution of documentation evidencing the same and containing such additional terms as the Company, the Agent each Lender and the Lessor, each acting in its sole discretion, may agree. If any Lender, the Agent or the Lessor shall fail to respond to the Company's written request for extension within sixty (60) days of receipt, such failure to respond shall be deemed a denial of such request for extension. Section 2.10 Application of Credit Agreement Provisions Prior to --------------------------------------------------- Syndication Effective Date. (a) The Agent, the Company and the Lessor, by - -------------------------- entering into this Agreement, have agreed that at any time after the Closing Date, the Agent may, but shall not be obligated to do so, form a syndicate of lenders acceptable to the Agent, the Lessor and the Company, who may become Lenders party to this Agreement at such time in order to finance and/or refinance the acquisition of the Lessor's leasehold estate in the Site, and the construction of such buildings and related enhancements and improvements on the Site 7 and the Facility for the ultimate use and benefit of the Company in accordance with the Lease. (b) Solely for the period from the Closing Date through but not including the Syndication Effective Date, the Company agrees that all representations, warranties, covenants, agreements, obligations, duties, and other liabilities of the Company made for the benefit and in favor of, running to, or owed to the Agent or any of the Lenders hereunder shall inure to the benefit of the Lessor. Accordingly, any duplicative reference to the Lessor and any of the Lenders shall be disregarded during such period. Without limiting the foregoing, prior to the Syndication Effective Date, (i) all rights, remedies and powers hereunder of the Agent and the Lenders with respect to the Loans and Commitments shall be exercisable by the Lessor with respect to the Lessor's Investment Commitment and LI Fundings, (ii) all consents, approvals, waivers, amendments, or other agreements which may be requested or required of the Agent or the Lenders hereunder shall apply to the Lessor and may be effected by the Lessor, (iii) all payments to the Agent or any of the Lenders hereunder shall be payable to the order of the Lessor; and (iv) the Lessor shall assume all obligations of the Agent and the Lenders hereunder. (c) With respect to certain capitalized terms used herein, the Agent, the Company and the Lessor hereby agree that prior to the Syndication Effective Date, notwithstanding anything to contrary set forth herein (i) the Lessor's Investment Commitment shall equal the lesser of $38,000,000 or the Facility Cost; and (ii) accordingly, 97% of all LI Fundings made under the Lessor's Investment Commitment shall be allocated with the same percentages and priorities as if the same had been made as Tranche A Loans and Tranche B Loans (including, without limitation, with respect to allocations of payments and proceeds and for calculating the Purchase Price, Termination Value, and the Final Rent Payment under the Lease). ARTICLE III Payment of Loans; Payment of Interest and Other Amounts Section 3.01 Repayment of the Notes and the Lessor Investment. ------------------------------------------------ (a) The Company, as Acquisition/Construction Agent for the Lessor, will pay or cause to be paid to the Agent for the account of the Agent and the Lenders and to the Lessor the unpaid principal balance of the Loans, all accrued interest, LI Yield, (including Accrued Construction Period LI Yield), fees and other amounts owing under this Agreement, in full on the Maturity Date. (b) If, on or before the Maturity Date, the Company (or any of its Affiliates) shall exercise the option to purchase 8 the Facility in its entirety, then the purchase price for the Facility shall be equal to the Purchase Price and the proceeds of such sale, when received by the Lessor, or the Agent for the account of the Lessor under the Lease, shall be applied by the Lessor or the Agent, as applicable, in the order specified in Section 3.05(a). If, on the Maturity Date, no Event of Default, Loss Event, or Casualty Occurrence (which has not otherwise been repaired or restored as required by the terms of the Lease) shall have occurred and, with respect to an Event of Default, be continuing, and the Company (or any of its Affiliates) shall elect to pay the Final Rent Payment or Completion Costs Payment, as applicable, and not to purchase the Facility, and shall pay the Final Rent Payment or the Completion Costs Payment, as applicable, all amounts received by the Lessor, or the Agent for the amount of the Lessor, pursuant to or in connection with the Lease, this Agreement or any other Operative Document or as proceeds of the disposition of the Facility shall be applied by the Lessor or the Agent, as applicable, to pay the unpaid principal balance of the Loans and LI Fundings, all accrued interest, LI Yield (including Accrued Construction Period LI Yield), fees and other amounts owing under this Agreement in the order specified in Section 3.05(b). Section 3.02 Prepayments. (a) The Company, as Acquisition/Construction ----------- Agent for the Lessor, may, upon at least two (2) Business Days' notice to the Agent which specifies the proposed date and aggregate principal amount of the Basic Rent to be prepaid, and if such notice is given the Company, as Acquisition/Construction Agent for the Lessor, shall, as specified in such notice, prepay Basic Rent in such amount, such prepayment, when received by the Lessor, or the Agent for the account of the Lessor, shall be applied to prepay, the outstanding principal amounts of the Loans comprising the same Borrowing in whole or ratably in part, and/or LI Fundings, together with accrued interest and LI Yield to the date of such prepayment on the amount prepaid; provided, -------- however, that (i) each partial prepayment shall be in an aggregate principal - ------- amount not less than $500,000 or an integral multiple of $250,000 in excess thereof, and (ii) in the event of any such prepayment of any Loan and/or LI Fundings, on any day other than the last day of the Interest Period for such Loan and/or LI Fundings, the Company, as agent for the Lessor, shall be obligated to reimburse the Lenders and shall reimburse the Lessor in respect thereof pursuant to, and to the extent required by, Section 5.05. Any prepayment pursuant to this Section 3.02 shall be allocated among the Loans and/or LI Fundings to achieve or maintain the Required Percentage Composition; or if, after giving effect to such prepayment, it is not possible to achieve or maintain such ratio, then such prepayment will be allocated among the Loans and/or LI Fundings in the manner which most closely approximates, but does not violate, the Required Percentage Composition. In no event shall any prepayment be allowed which results in the Required Percentage Composition being violated. 9 (b) On each date on which the Aggregate Loan Commitments and/or the Lessor's Investment Commitment are reduced pursuant to Section 2.03, the Company, as Acquisition/Construc- tion Agent for the Lessor, shall repay or prepay such principal amount of the outstanding Loans (together with interest accrued thereon and/or LI Fundings (together with LI Yield accrued thereon), as may be necessary so that after such payment the aggregate unpaid principal amount of the Loans and LI Fundings does not exceed the aggregate Commitments as then reduced. Section 3.03 Interest on Notes; LI Yield; Overdue Amounts. -------------------------------------------- (a) The Lessor, and the Company, as the Acquisition/Construction Agent for the Lessor, have requested that interest and LI Yield accruing during the Construction Period be capitalized, and the Lenders have agreed thereto. Therefore, all interest and LI Yield accruing on the outstanding principal amount of the Loans and LI Fundings on each day during the Construction Period shall be capitalized (i) at the end of each Interest Period ending during the Construction Period and (ii) on the last day of the Construction Period (LI Yield accrued during the Construction Period as aforesaid, capitalized based on quarterly compounding at the implicit LI Yield rate, is "Construction Period LI Yield", and Construction Period LI Yield, together with yield on Construction Term LI Yield accruing during the Lease Term, determined as aforesaid, is collectively, "Accrued Construction Period LI Yield". The Company, as Acquisition/Construction Agent for the Lessor, will pay or cause to be paid to the Agent for the account of each Lender interest on the unpaid principal amount of its Loans for each day during the period commencing on the date of such Loan to but excluding the date such Loan shall be paid in full, for each Interest Period relating thereto, at a rate per annum equal to the Adjusted LIBO Rate for such Loan plus the Applicable Margin for such Loan, but in no event to exceed the Highest Lawful Rate. The Company will pay or cause to be paid to the Lessor LI Yield on the unpaid amount of such Lessor Investment for each day during the period from and including the date of the initial LI Funding comprising such Lessor Investment to but excluding the date such Lessor Investment shall be repaid or redeemed in full, for each LI Yield Period relating thereto, at a rate per annum equal to the Adjusted LIBO Rate for such LI Yield Period plus the Applicable Margin for such Lessor Investment, but in no event to exceed the Highest Lawful Rate. (b) Notwithstanding the foregoing, the Company, as Acquisition/Construction Agent for the Lessor, shall pay or cause to be paid to the Agent for the account of each Lender and the Lessor interest at the applicable Default Rate on any principal of any Loan, interest, Accrued Construction Period LI Yield, LI Funding, LI Yield, fees or other amounts owing by the Lessor with respect to Loans and by the Company with respect to LI Fundings under this Agreement or any other Operative Document which shall 10 not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period commencing on the due date thereof until the same is paid in full, in each case to the maximum extent permitted by applicable law. The Company shall pay to the Lessor, or to the Agent for the account of each Lender, as applicable, interest at the Default Rate on any amounts owing by the Company under this Agreement or any other Operative Document which shall not be paid in full when due (whether at stated due date, on acceleration or otherwise), for the period commencing on the due date thereof until the same is paid in full, in each case to the maximum extent permitted by applicable law. (c) Accrued interest on each Loan together with accrued LI Yield (other than Accrued Construction Period LI Yield) shall be payable on the last day of each Interest Period, therefor and on the Maturity Date, except as set forth in paragraph (a) above. Construction Period LI Yield shall be payable on the Maturity Date. Interest and LI Yield payable at the Default Rate shall be payable from time to time on demand. (d) Promptly after the determination of the rate of any interest or LI Yield provided for herein or any change therein, the Agent shall notify the Lenders to which such interest is payable, the Lessor and the Company of such determination or change. Section 3.04 Payments by Lessor. All moneys received by the Lessor, or by ------------------ the Agent for the account of the Lessor, pursuant hereto or pursuant to the Lease including, but not limited to, payments of Basic Rent, Interim Special Rent, Supplemental Rent, the Termination Value or the Final Rent Payment or the Completion Costs Payment, as applicable, except for amounts allocable to fees and expenses of the Lessor pursuant to the Operative Documents and amounts comprising Supplemental Rent payable to third Persons, if any, shall be paid to the Lessor, the Agent and the Lenders in accordance with, and to pay amounts owing pursuant to, the terms of this Agreement, including without limitation Section 4.01 and, if applicable, Section 3.05. Section 3.05 Applications of Payments and Proceeds. ------------------------------------- (a) Upon the occurrence of a Cancellation Event, a Termination Event, or a Non-Completion Event (and the Company elects pursuant to Section 15(a) or (b) of the Lease to exercise its option to purchase the Facility for the Purchase Price or elects pursuant to Section 15(b)(ii)(B) of the Lease to pay the Termination Value), or if the Company otherwise elects to acquire the Facility for the Purchase Price, the Purchase Price or the Termination Value, as the case may be, and all other monies received by the Lessor or the Agent pursuant to or in connection with the Lease, this Agreement or any other Operative Document, including, without limitation, the proceeds of any insurance or condemnation awards received as a result of any Casualty 11 Occurrence or Loss Event, shall be applied to prepay the Loans and LI Fundings: (1) first, to pay or reimburse all Supplemental Rent and other ----- costs and expenses, including, without limitation, those in connection with Indemnified Risks, increased costs, or Taxes, then due and owing to the Agent, the Lessor, the Lenders under the other Operative Documents, pro rata to each such Person (collectively, the "Other Transaction Expenses"); -------------------------- (2) second, to pay all accrued, unpaid interest and fees on the ------ Notes, pro rata, to the Lenders; (3) third, to pay the outstanding principal balance of the Tranche A ----- Loans, pro rata, to the Tranche A Lenders; (4) fourth, to pay the outstanding principal balance of the Tranche B ------ Loans, pro rata, to the Tranche B Lenders; (5) fifth, to pay all accrued, unpaid LI Yield, including, without ----- limitation, all Accrued Construction Period LI Yield, to the Lessor; and (6) sixth, to pay the unrecovered Lessor Investments to Lessor. ----- Any monies remaining after payment in full of the foregoing amounts and all other amounts owing by the Company from time to time under the Operative Documents shall be paid to the Lessor for distribution to the Company in accordance with the terms of the Lease. (b) If (i) a Termination Event or a Non-Completion Event has occurred, (ii) a Cancellation Event does not exist and (iii) the Company has not elected to purchase the Facility for the Purchase Price and has paid the Final Rent Payment or the Completion Costs Payment, as applicable, pursuant to Section 15(a) of the Lease, then the Final Rent Payment or the Completion Costs Payment, as applicable, shall be applied as follows: (1) first, to pay or reimburse all Other Transaction Expenses; ----- (2) second, to pay all accrued, unpaid interest and fees on the ------ Loans, pro rata, to the Lenders; (3) third, to pay the outstanding principal balance of the Tranche A ----- Loans, pro rata, to the Tranche A Lenders; and 12 (4) fourth, to pay all accrued, unpaid LI Yield, including, without ------ limitation, all Accrued Construction Period LI Yield, and fees to the Lessor. In such circumstances, all other monies received by the Lessor or the Agent pursuant to or in connection with the Lease, this Agreement or any other Operative Document or as proceeds of disposition of the Facility shall be applied as follows: (1) first, to pay the outstanding principal balance of the Tranche B ----- Notes, pro rata, to the Tranche B Lenders; and (3) second, to reimburse the Lessor for Support Expenses incurred by ------ it under the Agency Agreement; and (4) third, to pay the unrecovered Lessor Investments to the Lessor. ----- Any monies remaining after payment in full of the foregoing amounts and all other amounts owing by the Company from time to time under the Operative Documents shall be paid to the Lessor for distribution to the Company in accordance with the terms of the Lease. ARTICLE IV Payments; Computations; Etc. Section 4.01 Payments. The Company, as Acquisition/Construction -------- Agent for the Lessor (or, in the case of the principal amount of the Tranche B Loans and LI Fundings (in the circumstances described in Section 3.05(b) and if the Company shall have paid the Final Rent Payment or the Completion Costs Payment, as applicable), the Lessor), shall make each payment under this Agreement, the Notes, whether the amount so paid is owing to any or all of the Lenders or to the Agent, not later than 12:00 noon, Atlanta, Georgia time, without setoff, counterclaim, or any other deduction whatsoever, on the day when due in Dollars to the Agent at its address at 191 Peachtree Street, N. E., Atlanta, Georgia, 30303, Attention: Vice President, Southeast Corporate Division, Reference: Scientific Atlanta, or at such other location designated by notice to the Company from the Agent, in same day funds. The Agent will promptly thereafter cause to be distributed to the Lenders like funds relating to the payment of principal or interest ratably the Company will pay to the Lessor the principal amount of LI Fundings on LI Yield (other than amounts payable pursuant to Section 4.06 or 11.03 or Article V) according to the respective amounts of such principal, interest or LI Yield then due and owing to the Lenders or Lessor, respectively, and like funds relating to the payment of any other amount payable to any Lender to such Lender or to Lessor, in each case to be applied in 13 accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 11.06(d), from and after the effective date specified in such Assignment and Acceptance, the Agent shall make all payments under this Agreement or the Notes in respect of the interest assigned thereby to the assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. Any payments and prepayments received hereunder, other than after the occurrence and during the continuation of a Loss Event, Casualty Occurrence, Event of Default, Cancellation Event or Termination Event, shall be applied in accordance with the purpose for which such payment or prepayment is made. All payments by the Company under any Operative Document shall be made in the manner specified in this Article IV. Section 4.02 Pro Rata Treatment. Except to the extent otherwise ------------------ provided herein: (a) each Tranche A Loan and Tranche B Loan from the Lenders under Section 2.01 shall be made from the Lenders, each payment of commitment fees with respect to unfunded Tranche A Loan Commitments and Tranche B Loan Commitments under Section 2.04(a) shall be made to the account of the Lenders, and each termination or reduction of the Aggregate Loan Commitments under Section 2.03 shall be applied to the Tranche A Loan Commitment and Tranche B Loan Commitment of each Lender, pro rata according to the amount of the Lenders' respective Tranche A Loan Commitments and Tranche B Loan Commitments; (b) each payment of Tranche A Loans and of Tranche B Loans, respectively, by or for the account of the Lessor shall be made to the account of the Tranche A Lenders and Tranche B Lenders, respectively, pro rata in accordance with the respective unpaid principal amount of the Tranche A Notes and Tranche B Notes held by such Lenders; and (c) each payment of interest in respect of Tranche A Loans and of Tranche B Loans, respectively, by or for the account of the Lessor shall be made to the account of the Tranche A Lenders and Tranche B Lenders, respectively, pro rata in accordance with the amounts of interest due and payable to the Tranche A Lenders and Tranche B Lenders, respectively. Section 4.03 Computations. All computations of interest and LI ------------ Yield shall be made by the Agent, and computations of interest and LI Yield pursuant to Section 5.01 shall be made by each Lender with respect to its own Loans and the Lessor with respect to LI Fundings on the basis of a year of 360 days (or, in the case of computations based on the Prime Rate, 365/366 days), in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or LI Yield is payable. Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time in such case shall be included in the computation of 14 payment of interest or LI Yield; provided, however, that if such extension would -------- ------- cause payment of interest or LI Yield on or principal of any Loan or LI Funding to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. Section 4.04 Non-receipt of Funds by the Agent. Unless the Agent --------------------------------- shall have received notice from the Lessor or the Company, as Acquisition/Construction Agent for the Lessor, prior to the date on which any payment is due to the Lenders hereunder that the Company will not make such payment in full, the Agent may assume that the Lessor or the Company, as Acquisition/Construction Agent for the Lessor, has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, but shall not be obligated to, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Lessor or the Company, as Acquisition/Construction Agent for the Lessor, shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at a rate equal to (i) until the Business Day after the Business Day on which such demand is made, the Federal Funds Rate for such day and (ii) thereafter 50 basis points above the Federal Funds Rate for such day. Section 4.05 Sharing of Payments. If any Lender shall obtain any ------------------- payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Loans made by it (other than pursuant to Section 4.06 or 11.03 or Article V) in excess of its ratable share of payments then due and owing to it in accordance with the payment orders specified in Section 3.05 or Section 4.02 on account of the Loans obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders participations in such Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them (or, if necessary, to cause such purchasing Lender to assume the payment priority specified in Section 3.05), provided, however, that if all or any portion of -------- ------- such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and each Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (a) the amount of such Lender's required repayment to (b) the total amount so recovered from the purchasing Lender) of any interest, or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Company and the Lessor agree that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including any right of set-off) with respect to such 15 participation as fully as if such Lender were the direct creditor of Lessor and the Company in the amount of such participation. Section 4.06 Taxes. ----- (a) Any and all payments of principal, Lessor Investment interest, LI Yield and all other amounts to be paid by the Company, for its own account or as Acquisition/Construction Agent for the Lessor hereunder or under the Notes or any other Operative Document to each Indemnified Party shall be made, in accordance with Section 4.01, without deduction for, and free from, any tax, imposts, levies, duties, deductions, or withholdings of any nature now or at any time hereafter imposed by any Governmental Authority or by any taxing authority thereof or therein excluding in the case of each Lender and the Lessor, taxes imposed on or measured by the net income of any Lender or the Lessor, and franchise taxes imposed on such Lender or the Lessor, by the jurisdiction under the laws of which such Lender or the Lessor is organized or any political subdivision thereof, and taxes imposed on or measured by such Lender's or the Lessor's income, and franchise taxes imposed on such Lender or the Lessor, by the jurisdiction of such Lender's or the Lessor's Applicable Funding Office or any political subdivision thereof (all such non-excluded taxes, imposts, levies, duties, deductions or withholdings of any nature being "Taxes"). In the event ----- that the Company, as Acquisition/Construction Agent for the Lessor or for itself, is required by applicable law to make any such withholding or deduction of Taxes with respect to any Loan, Lessor Investment, or other amount, the Company, as Acquisition/Construction Agent for the Lessor or for itself, shall pay such deduction or withholding to the applicable taxing authority, shall promptly furnish to any Lender, the Lessor or other Person in respect of which such deduction or withholding is made all receipts and other documents evidencing such payment and shall pay to such Lender or other Person additional amounts as may be necessary in order that the amount received by such Lender or other Person after the required deduction or withholding shall equal the amount such Lender would have received had no such deduction or withholding been made. If no withholding or deduction of Taxes are payable in respect to any Loan, LI Funding, interest, LI Yield, or fee relating thereto, or any other amount payable under any Operative Document, the Company, for its own account or as Acquisition/Construction Agent for the Lessor, shall furnish to the Agent and each Lender, at its request, a certificate from each applicable taxing authority or an opinion of counsel acceptable to the Agent or such Lender, in either case stating that such payments are exempt from or not subject to withholding or deduction of Taxes. If the Company, as Acquisition/Construction Agent for the Lessor, fails to provide such original or certified copy of a receipt evidencing payment of Taxes or certificate(s) or opinions of counsel as to exemption as aforesaid, the Company, as Acquisition/Construction Agent for the Lessor, hereby agrees to compensate the Agent or such Lender, as the case may be, for, and indemnify them with respect to, the 16 tax consequences of the failure of the Company, as Acquisition/Construction Agent for the Lessor, to provide evidence of tax payments or tax exemption. (b) Each Lender that is not chartered and organized under the laws of the United States of America or a state thereof (each a "Non-U.S. Domestic ----------------- Lender"), prior to becoming a Lender hereunder, has filed all appropriate forms - ------ and taken other appropriate action to obtain a certificate or other appropriate document from the appropriate governmental authority in the jurisdiction imposing the relevant taxes, establishing that it is entitled to receive payments of principal, and interest under or in respect of this Agreement and the Notes without deduction and free from withholding of any Taxes imposed by such jurisdiction and has provided a copy of such forms to the Agent, the Lessor and the Company. Without limiting the foregoing, each Non-U.S. Domestic Lender agrees to deliver to the Lessor or the Company, as Acquisition/Construction Agent for the Lessor, promptly upon any reasonable request therefor from time to time after becoming a Lender hereunder, such additional forms, documents and other information as may be required by applicable law from time to time to establish that payment to such Non-U.S. Domestic Lender hereunder or under the Notes, or the Guaranty are exempt from Taxes. Without limiting the generality of the foregoing, each Non-U.S. Domestic Lender agrees, on the date of its execution of this Agreement (or, in the case of an Eligible Assignee, on the date on which such Eligible Assignee becomes a party to this Agreement), to deliver in duplicate to the Lessor, or the Company, as Acquisition/Construction Agent for the Lessor, accurate and duly completed and executed Internal Revenue Service Form 4224 or 1001 (as applicable), together with Internal Revenue Service Forms W-8 or W-9, as appropriate, establishing that such Non-U.S. Domestic Lender is entitled to a complete exemption from all Taxes imposed by the federal government of the United States by way of withholding, including without limitation, all backup withholding ("U.S. Withholding Taxes"). ---------------------- Thereafter, from time to time (i) upon any change by a Non-U.S. Domestic Lender of its Applicable Funding Office, (ii) before or promptly after any event occurs (including, without limitation, the passing of time) requiring a change in or update of the most recent Form 4224 or 1001 previously delivered by such Lender, or (iii) upon the reasonable request of the Lessor, or the Company, as Acquisition/Construction Agent for the Lessor, such Non-U.S. Domestic Lender shall deliver in duplicate to the Lessor, or the Company, as Acquisition/Construction Agent for the Lessor, accurate and duly completed and executed Form 4224 or 1001 (as applicable) (together with Forms W-8 or W-9, as aforesaid) in replacement of the forms previously delivered by such Non-U.S. Domestic Lender, establishing that such Non-U.S. Domestic Lender is entitled to an exemption in whole or in part from all U.S. Withholding Taxes except to the extent that a change in law has rendered all such forms inapplicable to such Non-U.S. Domestic Lender. 17 (c) If the Internal Revenue Service or any other taxation authority in the United States or in any other jurisdiction successfully asserts a claim that such Non-U.S. Domestic Lender, the Lessor or the Company, as Acquisition/ Construction Agent for the Lessor, did not properly withhold tax from amounts paid to or for the account of any Non-U.S. Domestic Lender or its participant (because the appropriate form was not properly executed, or because such Non- U.S. Domestic Lender failed to notify the Lessor or the Company, as Acquisition/Con struction Agent for the Lessor, of a change in circumstances which rendered the exemption from (or reduction in) U.S. Withholding Taxes ineffective), such Lender shall indemnify the Lessor, or the Company, as Acquisition/Construction Agent for the Lessor, as applicable, fully for all amounts paid, directly or indirectly, by the Lessor or the Company, as Acquisition/Construction Agent for the Lessor, as applicable, as tax or otherwise, including, without limitation, penalties and interest. (d) In the event any Lender or the Lessor receives a refund from the Governmental Authority to which such Taxes were paid of any Taxes paid by the Company, for itself or as Acquisition/Construction Agent for the Lessor, pursuant to this Section 4.06, it will pay to the Company, for itself or as Acquisition/Construction Agent for the Lessor, the amount of such refund promptly upon receipt thereof; provided, however, if at any time thereafter it -------- ------- is required to return such refund, the Company, for itself or as Acquisition/Construction Agent for the Lessor, shall promptly repay to it the amount of such refund. (e) Nothing in this Section shall require any Lender or the Lessor to disclose any information about its tax affairs or interfere with, limit or abridge the right of any Lender or the Lessor to arrange its tax affairs in any manner in which it desires. (f) Without prejudice to the survival of any other agreement of the Lessor and the Company hereunder, the agreements and obligations of the Lessor, the Company, and the Lenders contained in this Section 4.06 shall be applicable with respect to any Lender, Eligible Assignee or other transferee, and any calculations required by such provisions (i) shall be made based upon the circumstances of such Lender, Eligible Assignee or other transferee (subject to Section 11.06(j)), and (ii) constitute a continuing agreement and shall survive for a period of three (3) years after the termination of this Agreement and the payment in full or cancellation of the Commitments, and the Notes. ARTICLE V Yield Protection and Illegality 18 Section 5.01 Basis for Determining Interest Rate Inadequate or ------------------------------------------------- Unfair. The Agent shall give prompt notice to the Lessor, the Company and the - ------ Lenders of the applicable interest rate or LI Yield determined by the Agent for purposes of Sections 3.03(a) and (b). If on or prior to the first day of any Interest Period: (a) the Agent determines that deposits in Dollars (in the applicable amounts), are not being offered in the relevant market for such Interest Period or LI Yield Period, or (b) the Required Lenders or the Lessor, respectively, determine and give notice to the Agent that the rates or yield determined on the basis of the LIBO Rate for any Interest Period for Loans or any LI Yield Period for LI Fundings will not adequately and fairly reflect the cost to either the Required Lenders or the Lessor, respectively, of making, funding or maintaining their respective Loans or LI Fundings for such Interest Period or LI Yield Period, the Agent shall forthwith so notify the Lessor, the Company and the Lenders, whereupon, (i) in the case of such notice from the Required Lenders or the Lessor, each such Loan or LI Funding will automatically, on the last day of the then existing Interest Period accrue interest at a rate based upon the Base Rate plus the Applicable Margin as set forth in the Pricing Schedule. (ii) the obligation of the Required Lenders or Lessor to make Loans or LI Fundings at the Adjusted LIBO Rate shall be suspended until the Agent shall notify the Lessor, the Company and the Lenders that the circumstances causing such suspension no longer exist, and (iii) unless the Lessor, or the Company, for itself or as Acquisition/Construction Agent for the Lessor, notifies the Agent at least two (2) Business Days before the date of any Borrowing or Lessor Investment for which Advance Notice has previously been given that it elects not to effect a Borrowing or Lessor Investment on such date, such Borrowing or Lessor Investment shall instead be made at a rate of interest, or LI Yield, as applicable, based upon the Base Rate plus the Applicable Margin as set forth in the Pricing Schedule. Upon the written request of the Lessor or the Company, for itself or as Acquisition/Construction Agent for the Lessor, the Agent shall negotiate with the Lessor or the Company, as Acquisition/Construction Agent for the Lessor, and the relevant Lenders for a reasonable period of time, as determined in the Agent's discretion, to develop a substitute interest rate basis hereunder; provided, however, (x) -------- the Agent, the Lenders, the Lessor and the Company make no representation, warranty or covenant that any such agreement will be made, and (y) any relevant Loans or LI Fundings shall continue to have interest or yield accrue 19 thereon at the Base Rate during the continuance of any such negotiations and thereafter should no alternate interest rate be agreed to by the necessary parties. Section 5.02 Illegality. If, after the date hereof, the adoption of ---------- any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (any such agency being referred to as a "Banking ------- Authority" and any such event being referred to as a "Change of Law"), or - --------- ------------- compliance by any Lender or the Lessor (or their Applicable Funding Office) with any request or directive (whether or not having the force of law) of any Banking Authority shall make it unlawful or impossible for any Lender or the Lessor (or their Applicable Funding Office) to make, maintain or fund its Loans or LI Fundings and such Lender or the Lessor shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Lenders and to the Lessor and the Company, whereupon until such Lender notifies the Agent, the other Lenders, the Lessor and the Company that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make or maintain Loans based upon the Adjusted LIBO Rate shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Lender or the Lessor shall designate a different Applicable Funding Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Lender or the Lessor, be otherwise disadvantageous to such Lender or the Lessor. If such Lender or the Lessor shall determine that it may not lawfully continue to maintain and fund any of its outstanding Loans to maturity and shall so specify in such notice, the Lessor or the Company, for itself or as Acquisition/Construction Agent for the Lessor, shall immediately prepay in full the then outstanding principal amount of each Loan of such Lender or redeem such LI Funding to the Lessor, together with accrued interest or LI Yield thereon. Concurrently with prepaying each such Loan, the Company, as Acquisition/Construction Agent for the Lessor shall borrow as a Loan, provided that no Default or Event of Default -------- shall then exist, but without any requirement for the satisfaction of any of the other conditions precedent set forth herein, in an equal principal amount from such Lender at a rate based upon the Base Rate plus the Applicable Margin, if any, as set forth in the Pricing Schedule, and each Lender agrees to make such a Loan on the foregoing terms. If the Lessor shall determine that it may not lawfully continue to maintain and fund its Lessor Investment to the end of the Lease Term based on the Adjusted LIBO Rate and shall so specify in such notice, the Company shall immediately redeem in full the then outstanding amount of such Lessor Investment. Concurrently with, and as a condition to, redemption of such Lessor Investment, the Lessor shall make a new Lessor Investment in the same amount as the amount so redeemed, without any requirement for the satisfaction of any of the conditions precedent set forth herein, and LI Yield thereon shall be 20 computed based upon the Base Rate plus the Applicable Margin, as set forth in the Pricing Schedule. At any time within ninety (90) days after the giving of a notice by any Lender pursuant to this Section 5.02, so long as no Event of Default shall be in existence, the Company, as Acquisition/Construction Agent for the Lessor, may require by written notice to that Lender that (a) it assign its pro rata share of the Commitment to another Lender or to a bank or other financial institution selected by the Company, as Acquisition/Construction Agent for the Lessor, and reasonably acceptable to the Agent, which is willing to accept such assignment or (b) it surrender its pro rata share of the Commitment and terminate its rights and obligations as a Lender hereunder, concurrently with a reduction by the Company, as Acquisition/Construction Agent of the Lessor, of the Commitment by an amount equal to the pro rata share of the Commitment held by that Lender. Section 5.03 Increased Cost and Reduced Return. (a) If after the --------------------------------- date hereof, a Change of Law or compliance by any Lender, the Lessor (or their Applicable Funding Office) with any request or directive (whether or not having the force of law) of any Banking Authority: (i) shall subject any Lender, the Lessor (or their Applicable Funding Office) to any tax, duty or other charge on its Loans, LI Fundings, its Notes, or its obligation to make Loans or LI Fundings or shall change the basis of taxation of payments to any Lender, the Lessor (or their Applicable Funding Office) of the principal amount of or interest on its Loans, the amount of Lessor Investments or LI Yield thereon, or any other amounts due under this Agreement or any other Operative Document in respect of its Loans or LI Fundings (except for changes in the rate of tax on the overall net income or gross receipts of such Lender, the Lessor, or their Applicable Funding Office imposed by the jurisdiction in which such Lender's or Lessor's principal executive office or Applicable Funding Office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System (but excluding any such requirement included in an applicable Euro-Dollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Lender, the Lessor (or their Applicable Funding Office); or (iii) shall impose on any Lender, the Lessor (or their Applicable Funding Office) or on the United States market or the London interbank market any other condition affecting its Loans, LI Fundings, Notes, or obligation to make or maintain Loans or LI Fundings; 21 and the result of any of the foregoing is to increase the cost to such Lender, the Lessor (or their Applicable Funding Office) of making or maintaining any Loan, LI Funding or to reduce the amount of any sum received or receivable by such Lender, the Lessor (or their Applicable Funding Office) under this Agreement or under its relevant Notes or any other Operative Document with respect thereto, by an amount deemed by such Lender or the Lessor to be material, then, within fifteen (15) days after demand by such Lender or the Lessor (with a copy to the Agent), the Company, for itself and as Acquisition/Construction Agent for the Lessor, shall pay to such Lender or the Lessor such additional amount or amounts as will compensate such Lender or the Lessor for such increased cost or reduction; provided, however, that no such -------- ------- amount may be claimed by any Lender or Lessor which is attributable to periods prior to the date which is sixty (60) days preceding the date on which the officer of the Lender or Lessor having primary responsibility for asset liability management shall have obtained knowledge of such Change of Law or request or directive. At any time within ninety (90) days after payment by the Company, for itself and as Acquisition/Con struction Agent for the Lessor, of any material amount to any Lender or Lessor pursuant to paragraph (a) or (b) of this Section, so long as no Event of Default shall be in existence, the Company, for itself and as Acquisition/Construction Agent for the Lessor, may require by written notice to that Lender or the Lessor, respectively, that (i) it assign its pro rata share of the Commitment to another Lender or Lessor or to a bank or other financial institution selected by the Company, as Acquisition/ Construction Agent for the Lessor, and reasonably acceptable to the Agent which is willing to accept such assignment or (ii) it surrender its pro rata share of the Commitment and terminate its rights and obligations as a Lender hereunder, concurrently with a reduction by the Company, as Acquisition/Construction Agent of the Lessor, of the Commitment by an amount equal to the pro rata share of the Commitment held by that Lender or the Lessor. (b) If any Lender or the Lessor shall have determined that after the date hereof the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or official administration thereof, or compliance by any Lender or the Lessor (or their Applicable Funding Office) or any Person controlling such Lender or the Lessor with any request or directive regarding capital adequacy (whether or not having the force of law) of any Banking Authority, has or would have the effect of reducing the rate of return on such Lender's or the Lessor's or such controlling Person's capital as a consequence of its obligations hereunder to a level below that which such Lender or the Lessor or such controlling Person could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such controlling Person's policies with respect to capital adequacy) by an amount deemed by such Lender or the Lessor or such controlling Person to be material, then from time to time, within 15 days after demand by such Lender or the Lessor 22 or such controlling Person, the Company, as Acquisition/Construction Agent for the Lessor, shall pay to such Lender or the Lessor such additional amount or amounts as will compensate such Lender or the Lessor or such controlling Person for such reduction, subject to the proviso at the end of Section 5.03(a). (c) Each Lender will promptly notify the Lessor, the Company and the Agent, and the Lessor will promptly notify the Company and the Agent of any event of which its officer, respectively, having primary responsibility for asset liability management has knowledge, which occurs or is expected to occur after the date hereof, which will entitle such Lender or the Lessor to compensation pursuant to and subject to the limitations contained in this Section and will designate a different Applicable Funding Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the reasonable judgment of such Lender or the Lessor, be otherwise materially disadvantageous to such Lender or the Lessor. A certificate of any Lender or the Lessor claiming compensation under this Section and setting forth in reasonable detail the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Lender or the Lessor may use any reasonable averaging and attribution methods. Nothing in this Section shall require any Lender or the Lessor to disclose any information about its tax affairs or interfere with, limit or abridge the right of any Lender or the Lessor to arrange its tax affairs in any manner it desires, subject to Section 11.16(b). (d) The provisions of this Section 5.03 shall (i) be applicable with respect to any Lender or the Lessor, assignee or other transferee, and any calculations required by such provisions shall be made based upon the circumstances of such Lender or the Lessor, assignee or other transferee and (ii) constitute a continuing agreement and shall survive for a period of one year after the termination of this Agreement and the payment or redemption in full or cancellation of the Notes or the Lessor Investments. Section 5.04 Base Rate Substituted for Adjusted LIBO Rate. If (i) -------------------------------------------- the obligation of any Lender to make or maintain Loans or of the Lessor to make LI Fundings has been suspended pursuant to Section 5.02 or (ii) any Lender or the Lessor has demanded compensation under Section 5.03, and the Company, as Acquisition/Construction Agent for the Lessor, shall, by at least five (5) Business Days' prior notice to the Lessor or to such Lender through the Agent, have elected that the provisions of this Section shall apply to such Lender or the Lessor, then, unless and until such Lender or the Lessor notifies the Company, as Acquisition/Construction Agent for the Lessor, that the circumstances giving rise to such suspension or demand for compensation no longer apply: 23 (a) all Loans or LI Fundings that would otherwise be made or maintained by such Lender or the Lessor based upon the Adjusted LIBO Rate shall be made or, from the beginning of the next Interest Period be maintained instead based upon the Base Rate, plus the Applicable Margin (if any) (in all cases interest, and principal or other amounts payable on such Loans shall be payable contemporaneously with the related or comparable amount payable in respect of the other Lenders), and (b) after each of its Loans or LI Fundings made or maintained based upon the Adjusted LIBO Rate has been repaid, all payments of principal that would otherwise be applied to repay such Loans or LI Fundings shall be applied to repay its Loans or LI Fundings made or maintained based upon the Base Rate instead. Section 5.05 Compensation. Upon the request of any Lender ------------ (delivered to the Lessor, the Company and the Agent) or the Lessor (delivered to the Company and the Agent), the Company, for itself and as Acquisition/Construction Agent for the Lessor, shall pay to such Lender or the Lessor such amount or amounts as shall compensate such Lender or the Lessor for any loss, cost or expense incurred by such Lender or the Lessor as a result of: (a) any payment or prepayment (pursuant to Section 5.02 or otherwise) of a Loan or LI Funding on a date other than the last day of the Interest Period for such Loan or LI Funding; or (b) any failure by the Company, for itself or as Acquisition/Construction Agent for the Lessor, to borrow or take down (other than due to a refusal by the Agent or any of the Lenders to fund under Section 2.02(a) notwithstanding satisfaction of the conditions set forth in Article VI) a Loan or LI Funding on the date specified therefor in the applicable Advance Notice delivered pursuant to Section 2.02(a), including any such failure resulting from the revocation of such Advance Notice. Section 5.06 Payments and Computations. Each determination by the ------------------------- Agent (or, in the case of Section 5.01, 5.02, 5.03, 5.04 or 5.05 by each Lender with respect to its own Loans or Lessor with respect to LI Fundings) of an interest rate, LI Yield, or an increased cost or increased capital or of illegality hereunder shall be conclusive and binding for all purposes (absent manifest error) if made reasonably and in good faith, subject to Section 5.03(c). Section 5.06 Transfer to Owner Trust. The Company shall have the ----------------------- option at any time there is no Default or Event of Default in existence and provided that the transfer described below is permitted by all applicable laws and regulations, to send written notice to the Lessor and the Agent requesting that 24 the Lessor transfer all of its right, title and interest in and to the Site and the Facility, subject to the Lessor Mortgage and the other Operative Documents, to a "bankruptcy remote" owner trust created for the benefit of the Lessor, the Agent and the Lenders, as their interests may appear. Within 45 days (or within a longer period to the extent reasonably required by compliance with any application or other process required under applicable law or regulation) of receipt of such notice, the Lessor shall effect such transfer pursuant to documentation thereof satisfactory to the Agent, the Lenders, the Lessor and the Company in all respects and at the sole expense of the Company, including, without limitation, expenses arising from any applicable transfer and intangible taxes, recording fees, costs to create such owner trust and any other documentation therefor, including all reasonable attorney fees and expenses of the Agent and the Lessor incurred in connection therewith. Without limiting the foregoing, documentation of the transfer described above shall include a supplement to this Agreement and all other applicable Operative Documents whereby such owner trust becomes a party hereto and thereto, which shall provide that such owner trust shall assume all of the obligations of the Lessor hereunder and thereunder, provided that all payments with respect to fees, LI Yield, LI Advances and Lessor Investment shall continue to be paid to Wachovia Capital Markets, Inc. ARTICLE VI Conditions Precedent Section 6.01 Conditions Precedent to Effectiveness of this --------------------------------------------- Agreement. This Agreement shall become effective when (i) it shall have been - --------- executed by the Lessor, the Company and the Agent, and (ii) the Agent shall have received the following, each being in form and substance satisfactory to the Agent (the following being referred to herein as the "Closing Documentation"): (a) Certificates of Company. Certificates of the Secretary or ----------------------- Assistant Secretary of the Company setting forth (i) resolutions of its board of directors authorizing the execution, delivery and performance of the obligations contained in this Agreement, with respect to the Company, and the other Operative Documents to which it is a party, with respect to the Company, (ii) the officers of the Company specified in such Secretary's Certificates that are authorized to sign this Agreement and the other Operative Documents to which the Company is a party and, until replaced by another officer or officers duly authorized for that purpose, to act as its respective representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the Operative Documents to which it is a party and (iii) true and correct copies of the articles or certificate of incorporation and the bylaws of each of the Company. The parties to this 25 Agreement may conclusively rely on such certificate until the Agent (who shall promptly notify all other parties) receives notice in writing from the Company to the contrary. (b) Execution and Delivery of Operative Documents. Each of the other --------------------------------------------- Operative Documents (other than the Notes, the Guaranty, and the Lessor Mortgage), duly completed and executed in sufficient number of counterparts for recording where appropriate. (c) Other. Such other documents as the Agent or the Lessor may ----- reasonably request. Section 6.02 Initial and Subsequent Loans and LI Fundings. The -------------------------------------------- obligation of the Lenders to make the Initial Loans and each subsequent Loan and the Lessor to make the initial Lessor Advance and each subsequent Lessor Advance and to continue each Lessor Advance, all pursuant to this Agreement, is subject to the following further conditions precedent: (a) Receipt of Advance Notice. The Agent shall have received Advance ------------------------- Notice pursuant to a funding request with regard to each Initial Loan and LI Funding, and thereafter, each Loan and LI Funding, containing the information required by Section 2.02, which shall be true and correct and shall be duly and properly executed and completed by the Company as Acquisition/Construction Agent for the Lessor. Such Advance Notice shall specify the amount of the Loans or LI Fundings being utilized or applied to acquire work in progress and itemize such work in progress in reasonable detail. (b) No Default. The fact that immediately before and after such Loan ---------- and LI Funding, no Default or Event of Default shall have occurred and be continuing. (c) Accuracy of Representations, etc. The representations and --------------------------------- warranties of the Company and the Lessor contained in this Agreement, and the representations and warranties of the Lessor, the Company contained in any other Operative Document, are true and correct in all material respects on and as of the date of such Loan or LI Funding (except for any representations which were correct on the date of this Agreement but are not correct on the date of any Loan or LI Funding because of a change permitted by the terms of this Agreement or any other Operative Document). (d) Title. The Lessor shall have good and marketable leasehold ----- interest in the Site pursuant to the Ground Lease and the Lessor shall have good and marketable title to the Improvements, and the Ground Lease and all of the Lessor's contract rights under Related Contracts and all other contracts entered into in connection with the acquisition, renovation, construction, development and/or installation of the Facility by the Company as Acquisition/Construction Agent for the Lessor 26 pursuant to the Agency Agreement shall have been pledged to the Agent for the benefit of the Lenders so that the Agent shall have a first priority, perfected Lien on all such contract rights; and the Agent shall have received executed copies of all Related Contracts requested by it. (e) Receipt of Applicable Permits. All Permits that are or will ----------------------------- become Applicable Permits shall have been obtained, except Applicable Permits customarily obtained or which are permitted by Governmental Requirements to be obtained after the date of the requested Loan or LI Funding (in which case the Company, having completed all appropriate due diligence in connection therewith, shall have no reason to believe that such Permits will not be granted in the usual course of business prior to the date that such Permits are required by Governmental Requirements). All such obtained Permits shall be in proper form, in full force and effect and not subject to any appeal or other unsatisfied contest that may allow modification or revocation thereof. (f) Casualties. The Facility shall not have suffered (i) a Loss ---------- Event or (ii) a Casualty Occurrence other than a Casualty Occurrence for which a plan acceptable to the Agent for replacing, or causing to be replaced, the portions of the Facility that are the subject of such Casualty Occurrence has been provided to the Lessor. (g) No Material Adverse Change or Effect. No material adverse change ------------------------------------ shall have occurred in the financial condition of the Company its Subsidiaries on a consolidated basis since the date of the most recent Fiscal Quarter for which a financial statement of the Company was delivered to the Agent and the Lenders and no event, act, condition or occurrence shall exist or have occurred that has had, or would reasonably be expected to have, a Material Adverse Effect. (h) Recordation of Ground Lease, Lease and Easement. A legal ----------------------------------------------- property description of the Site, suitable for recordation in the land records and otherwise satisfactory to the Company, the Agent and the Lessor in all respects, shall have been attached to the Ground Lease and the Lease and the other Operative Documents, the Company hereby authorizing and directing the Lessor to so attach such property description upon receipt thereof. Absent the existence of an Event of Default, such property description may be modified by the Company during the period from the Closing Date through and including the Completion Date, and the Lessor (and the Agent, with respect to Exhibit A hereto) shall agree to and execute any such modifications, provided that the remaining property so described remains adequate (i) as a legal description thereof, and (ii) for the use, maintenance, and operation of the Facility. The Lease and all related financing statements and other requisite filing documents shall have been duly filed in the appropriate offices and, to the fullest extent allowed by applicable law, all costs 27 and taxes associated with such filing shall have been paid or provided for by the Company. An easement in favor of the Lessor, granting the Lessor all necessary access, ingress and egress to the Facility for its use, maintenance and operation, shall have been executed and delivered by the Company and duly filed in the appropriate offices and, to the fullest extent allowed by applicable law, all costs and taxes associated with such filing shall have been paid or provided for by the Company. (i) Insurance Certification. The Agent and the Lessor shall have ----------------------- received a report by a firm of independent insurance brokers or consultants chosen by the Company (i) setting forth the insurance obtained, and to be obtained pursuant to the Lease, with respect to the Facility and the Company's operations with respect thereto, and (ii) certifying that in the opinion of such firm, such insurance complies with the requirements of the Lease and, as to amounts, coverage and provisions, constitutes reasonable and customary coverage against risks customarily insured against affecting the Facility. (j) Soil Test Reports. The Agent shall have received the Soil Test ----------------- Reports. (k) Environmental Matters. The Agent and the Lessor shall have --------------------- received an Environmental Assessment on the Site, demonstrating to their satisfaction that there is no evidence of any hazardous or toxic material or substance which has been generated, treated, stored, released or disposed of on the Site, and that there is no evidence of any violation of any Environmental Requirement and no evidence of any Environmental Damages on or pertaining to the Facility, except as set forth in a written certificate delivered to and in favor of the Lessor and the Agent as the same are satisfactory to the Lessor and the Agent in all respects (the "Environmental Closing Certificate"). (l) Survey. The Agent shall have received the Survey of the Site. ------ (m) Title Insurance. A title insurance company acceptable to the --------------- Agent and the Lessor in their reasonable discretion shall have issued, or provided the Agent with evidence satisfactory to the Agent and the Lessor that such title insurance company is irrevocably obligated to issue immediately after closing of the acquisition of the Site by the Lessor, an owner's title policy issued to the Lessor insuring the Lessor as holder of the ground leasehold estate with respect to the Site and, in the event that the Lease is ever deemed to be a mortgage, as mortgagee of the Facility under the Lease. (n) Opinion of Company's Counsel. A favorable opinion or opinions of ---------------------------- Paul, Hastings, Janofsky & Walker, special counsel to the Company, in substantially the form of Exhibit F, and as to this Agreement, the Operative --------- Documents executed and delivered by 28 the Company on or before such date, and such other matters as the Agent, may reasonably request. (p) Taxes, Filings, Recordings. All filings or recordings reasonably -------------------------- considered necessary or desirable by the Agent or the Lessor have been completed and all taxes and fees in connection therewith, and all Impositions with respect to the Facility that are then due and payable, shall have been paid by the Company. (q) Certificate of Lessor. A certificate of the Secretary or --------------------- Assistant Secretary of the Lessor setting forth (i) resolutions of its board of directors authorizing the execution, delivery and performance of the obligations contained in this Agreement and the other Operative Documents to which it is a party, (ii) the officers of the Lessor specified in such Secretary's Certificate that are authorized to sign this Agreement and the other Operative Documents to which it is a party and, until replaced by another officer or officers duly authorized for that purpose, to act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the Operative Documents and (iii) true and correct copies of the articles or certificate of incorporation and the bylaws of the Lessor. The parties to this Agreement may conclusively rely on such certificate until the Agent (who shall promptly notify all other parties) receives notice in writing from the Lessor to the contrary. Each acceptance of a funding hereunder shall be deemed to be a representation and warranty by the Company on the date of such funding as to the facts specified in subsections (b), (c), (d), (e), (f), and (g) of this Section 6.02; provided, however, in no event shall the Company be deemed to make the representation and warranty contained in this Section 6.02(g) after the Completion Date. Notwithstanding any provision of this Agreement or of any of the other Operative Documents to the contrary, in the event that the conditions set forth in Sections 6.01 and 6.02 of this Agreement are not satisfied on or before September 30, 1997, then, in such event, this Agreement and the other Operative Documents shall be null and void and of no force or effect, except to the extent that any provisions of this Agreement or the Operative Documents by their express terms survive termination. Section 6.03 Conditions Precedent to Syndication Effective Date. The -------------------------------------------------- term "Syndication Effective Date" shall mean the date on which all of the following conditions are satisfied: (a) Counterpart Execution of this Agreement by the Lenders. The ------------------------------------------------------ Agent shall have obtained a syndicate of Lenders who have become a party to this Agreement pursuant to an executed and delivered counterpart agreement hereof satisfactory to the 29 Agent in all respects. The composition of such syndicate of Lenders shall be subject to the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed. (b) Delivery of Closing Documentation. Each of the Lenders shall have --------------------------------- received a complete copy of the Closing Documentation. (c) Execution of Notes and Guaranty. Each Lender shall have received ------------------------------- its Notes payable to such Lender and duly completed and executed. The Agent shall have received the Guaranty in the form attached hereto as Exhibit I duly executed and completed. (d) Recordation of Lessor Mortgage. The Lessor Mortgage in the form ------------------------------ attached hereto as Exhibit H and all related financing statements and other requisite filing documents shall have been duly filed in the appropriate offices and, to the fullest extent allowed by applicable law, all costs and taxes associated with such filing shall have been paid or provided for by the Company. (e) Execution and Delivery of Other Operative Documents. Each of the --------------------------------------------------- other Operative Documents to be delivered on the Syndication Effective Date, duly completed and executed in sufficient number of counterparts for recording where appropriate, and such other documents as the Agent or the Lessor may reasonably request. (f) Title Insurance. A title insurance company acceptable to the --------------- Agent and the Lessor in their reasonable discretion shall have issued, or provided the Agent with evidence satisfactory to the Agent and the Lessor that such title insurance company is irrevocably obligated to issue immediately after closing of the acquisition of the Site by the Lessor, an owner's title policy issued to the Lessor insuring the Agent as mortgagee under of the Lessor Mortgage. (g) Ground Lease Payments. The Lessor shall pay, or cause to be paid --------------------- or disbursed, to the Company, in immediately available funds, all amounts then due and payable under the Ground Lease, upon and subject to the receipt of funds from the Company sufficient to make such payment pursuant to the Lease and the Company, as agent for the Lessor, shall cause such Ground Lease to be delivered to the Agent for recording. All conditions precedent to the obligations of the Lenders to make any Loan are imposed hereby solely for the benefit of the Lenders, and no other Person may require satisfaction of any such condition precedent or be entitled to assume that the Lenders will refuse to make any Loan in the absence of strict compliance with such conditions precedent. 30 (h) Certificate of Lessor. A certificate of the Secretary or --------------------- Assistant Secretary of the Lessor setting forth (i) resolutions of its board of directors authorizing the execution, delivery and performance of the obligations contained in the Notes, the Lessor Mortgage and the other Operative Documents to which it is a party, (ii) the officers of the Lessor specified in such Secretary's Certificate that are authorized to sign the Notes, the Lessor Mortgage and the other Operative Documents to which it is a party and, until replaced by another officer or officers duly authorized for that purpose, to act as its representative for the purposes of signing documents and giving notices and other communications in connection with the Notes, the Lessor Mortgage and the Operative Documents and (iii) true and correct copies of the articles or certificate of incorporation and the bylaws of the Lessor. The parties to this Agreement may conclusively rely on such certificate until the Agent (who shall promptly notify all other parties) receives notice in writing from the Lessor to the contrary. (i) Certificates of Company. Certificates of the Secretary or ----------------------- Assistant Secretary of the Company setting forth (i) resolutions of its board of directors authorizing the execution, delivery and performance of the obligations contained in the Guaranty and the other Operative Documents to which it is a party, (ii) the officers of the Company specified in such Secretary's Certificates that are authorized to sign the Guaranty and the other Operative Documents to which the Company is a party and, until replaced by another officer or officers duly authorized for that purpose, to act as its respective representative for the purposes of signing documents and giving notices and other communications in connection with the Guaranty and the Operative Documents to which it is a party and (iii) true and correct copies of the articles or certificate of incorporation and the bylaws of each of the Company. The parties to this Agreement may conclusively rely on such certificate until the Agent (who shall promptly notify all other parties) receives notice in writing from the Company to the contrary. ARTICLE VII Representations and Warranties Section 7.01 Company Representations and Warranties. The Company -------------------------------------- represents and warrants to each Person who now is or hereafter becomes a party to this Agreement that: (a) Corporate Existence and Power. The Company is a corporation duly ----------------------------- incorporated, validly existing and in good standing under the laws of the State of Georgia. The Company is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary, except for any failure to comply with the foregoing which does not have a Material Adverse Effect, and has all corporate powers 31 and all government authorizations, licenses, consents and approvals required to engage in its business and operations as now conducted, except for any failure to comply with the foregoing which would not reasonably be expected to have or cause a Material Adverse Effect. (b) Corporate and Governmental Authorization; No Contravention. The ---------------------------------------------------------- execution, delivery and performance by the Company of this Agreement and the other Operative Documents to which it is a party (i) are within its corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or respect of or filing with, any governmental body, agency or official, (iv) do not contravene or constitute a default under, any material provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Company or, to the best of the Company's knowledge, any material agreement relating to Debt, judgment, injunction, order, decree or other instrument relating to Debt binding upon the Company or any Material Subsidiary of the Company and (v) do not result in the creation or imposition of any Lien on any asset of the Company or any Material Subsidiary of the Company or on the Facility. (c) Binding Effect. This Agreement and each of the other Operative -------------- Documents to which the Company is a party constitutes a valid and binding agreement of the Company, enforceable in accordance with their respective terms, provided that the enforceability hereof and thereof is subject in each case to - -------- general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditor's rights generally. (d) Financial Information. (i) The consolidated balance sheet of the --------------------- Company and its Consolidated Subsidiaries as of June 28, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for the Fiscal Year then ended, reported on by Arthur Andersen LLP, copies of which have been delivered to the Agent and the Lessor, and the unaudited consolidated financial statements of the Company for the interim period ended March 28, 1997 copies of which have been delivered to the Agent and the Lessor, fairly present, in conformity with GAAP, the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and the consolidated results of operations and cash flows for such Fiscal Year. (ii) Since March 28, 1997, there has been no event, act, condition or occurrence having a Material Adverse Effect. (e) No Litigation. Except as disclosed on Schedule 7.01(e), there is ------------- no action, suit or proceeding pending, or to the knowledge of the Company, threatened, against or affecting the Company or any Subsidiary of the Company before any court or arbitrator or any governmental body, agency or official which 32 would reasonably be expected to have or cause a Material Adverse Effect or which in any manner draws into question the validity of or could impair in any material respect the ability of the Company to perform its obligations under this Agreement or any of the Operative Documents executed by the Company. (f) Compliance with ERISA. (i) To the best of the Company's --------------------- knowledge, the Company and each member of the Controlled Group has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and has not incurred any liability to the PBGC or a Plan under Title IV of ERISA, provided, that the -------- Company makes no representation or warranty under this Section 7.01(f) as to any Subsidiary for matters pertaining to periods prior to the date on which such Subsidiary became a Subsidiary except to the extent that the Company received any such representations and/or warranties from the seller (or any of its affiliates) of any relevant Subsidiary in connection with the acquisition of any relevant Subsidiary. (ii) To the best of the Company's knowledge, neither the Company nor any member of the Controlled Group is or ever has been obligated to contribute to any Multiemployer Plan provided, that the Company makes no representation or -------- warranty under this Section 7.01(f) as to any Subsidiary for matters pertaining to periods prior to the date on which such Subsidiary became a Subsidiary except to the extent that the Company received any such representations and/or warranties from the seller (or any of its affiliates) of any relevant Subsidiary in connection with the acquisition of any relevant Subsidiary. (g) Compliance with Laws; Payment of Taxes. The Lessor, the Company -------------------------------------- and, to the best of the Company's knowledge, each Material Subsidiary, is in compliance with all applicable laws, regulations and similar requirements of governmental authorities, except where (i) such compliance is being contested in good faith through appropriate proceedings or (ii) the failure to be in compliance would not reasonably be expected to have or cause a Material Adverse Effect. There have been filed on behalf of the Company and, to the best of the Company's knowledge, each Material Subsidiary, all Federal, state and material local income, excise, property and other tax returns which are required to be filed by them and all taxes due pursuant to such returns or pursuant to any assessment received by or on behalf the Company, or to the best of the Company's knowledge, any Material Subsidiary, have been paid or are being contested in good faith or, if unpaid and uncontested, are in immaterial amounts. The charges, accruals and reserves on the books of the Company and, to the best of the Company's knowledge, each Material Subsidiary, in respect of taxes or other governmental charges are, in the opinion of the Company, adequate. To the best of the Company's knowledge, United States income tax returns each Subsidiary which 33 is a U.S. Person have been examined and closed through the Fiscal Year ended 1993. (h) Investment Company Act. Neither the Company nor any of the ---------------------- Company's Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (i) Public Utility Holding Company Act. Neither the Company nor any ---------------------------------- of the Company's Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. (j) Ownership of Property; Liens. The Company has title to or ---------------------------- leasehold or other interests in its material properties sufficient for the conduct of its business, and none of such property is subject to any Lien except Permitted Liens. (k) No Default. Neither the Company nor any of the Company's ---------- Subsidiaries is in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound which could have or cause a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. (l) Full Disclosure. To the best of the Company's knowledge, all --------------- written information heretofore furnished by the Lessor, the Company, for itself and as Acquisition/Construction Agent for the Lessor, to the Agent or any Lender for purposes of or in connection with this Agreement, any of the Operative Documents, or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by the Lessor, or the Company, for itself and as Acquisition/Construction Agent for the Lessor, to the Agent or any Lender will be, true, accurate and complete in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. (m) Environmental Matters. --------------------- (i) To the best of the Company's knowledge (without, as to Properties not located in the United States of America, having performed any further independent inquiry therefor solely in connection with this Agreement), neither the Company nor any Subsidiary of the Company is aware that it is subject to any Environmental Liability which could have or cause a Material Adverse Effect, neither the Company nor any Subsidiary of the Company (except in respect of immaterial Environmental Liabilities in de minimis -- ------- amounts) has received notice that it has been designated as a potentially responsible party under CERCLA or under any state statute similar to CERCLA, and neither the Facility, 34 nor any of the Properties located in the United States and owned by the Company or any Subsidiary of the Company, has been identified on any current or proposed (i) National Priorities List under 40 C.F.R. (S) 300, (ii) CERCLIS list or (iii) any list arising from a state statute similar to CERCLA. (ii) To the best of the Company's knowledge (without having performed with respect to Properties other than the Facility any further independent inquiry solely in connection with this Agreement), no Hazardous Materials have been or are being used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed or otherwise handled at, or shipped or transported to or from the Facility or from any of the Properties owned by the Company or any Subsidiary of the Company or are otherwise present at, on, in or under the Facility or any of the Properties owned by the Company or any Subsidiary of the Company, or, to the best of the knowledge of the Company, at or from any adjacent site or facility, except for Hazardous Materials, such as cleaning solvents, pesticides and other materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed, or otherwise handled in minimal amounts in the ordinary course of business in compliance with all applicable Environmental Requirements. (iii) The Company represents for itself, the Lessor, and each Subsidiary of the Company, that the Company, the Lessor, and each of the Company's Subsidiaries (A) has procured all Environmental Authorizations necessary for the conduct of its business and (B) is in compliance with all Environmental Requirements in connection with the operation of its Properties and businesses, in each case set forth in clause (A) or (B) where the failure to procure or non-compliance with which would reasonably be expected to have or cause a Material Adverse Effect. (iv) Except to the extent specified on the Environmental Closing Certificate, to the best of the Company's knowledge: (a) there are no Hazardous Materials on the Facility, other than minimal amounts of cleaning solvents, pesticides and other similar materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed, managed, or otherwise handled in the ordinary course of business or in management or maintenance of the Facility, (b) no Hazardous Material has migrated from the Facility to, upon, about or beneath other properties, (c) no Hazardous Material has migrated or threatened to migrate from other properties to, upon, about or beneath the Facility, and (d) all Hazardous Materials or solid wastes generated at the Facility have at all times been transported, treated and disposed of in compliance with Environmental Requirements. 35 (v) Except to the extent specified on the Environmental Closing Certificate, to the best of the Company's knowledge: (a) there is not, nor has there been, constructed, placed, deposited, stored, disposed of or located on the Facility any asbestos in any form, (b) no underground improvements, including treatment or storage tanks, pumps, or water wells, are or have been located on the Facility, (c) there are no polychlorinated biphenyls (PCBs) or transformers, capacitors, ballasts, machinery, fixtures or other equipment which contain PCBs constructed, placed, deposited, stored, disposed of or located on the Facility, (d) the uses and activities of, on or relating to the Facility have at all times complied in all material respects with all Environmental Requirements, and the use which the Company, and its Affiliates and/or Subsidiaries make of the Facility will not result in the disposal or other Environmental Release of any Hazardous Material, (e) the Company has obtained all permits necessary under applicable Environmental Requirements, and (f) the Facility has not been, and is not now, listed on CERCLIS, the Environmental Protection Agency's list of violating facilities established pursuant to the Clean Water Act or the National Priorities List established pursuant to CERCLA. (vi) Except to the extent specified on the Environmental Closing Certificate, (a) there exists no judgment, decree, order, writ or injunction outstanding, or litigation, action, suit, claim (including citation or directive) or proceeding pending or, to the knowledge of the Company or any of its Affiliates and/or Subsidiaries, threatened, relating to the ownership, use, maintenance or operation of the Facility by any person or entity, or arising from any alleged violation of Environmental Requirements, or any alleged liability for Environmental Damages, (b) to the knowledge of the Company or any of its Affiliates and/or Subsidiaries, there are no existing facts or conditions that could give rise to any such violation or liabilities, (c) there have been no written or, to the knowledge of the Company or any of its Affiliates and/or Subsidiaries, oral reports of environmental investigations, audits, studies, tests, reviews or other analyses conducted by or which have been presented to or are in the possession of the Company or any of its Affiliates and/or Subsidiaries, relating to the Facility, which have not been delivered to the Lessor, the Lenders, and the Agent and (d) neither the Company nor, to the knowledge of the Company or any of its Affiliates and/or Subsidiaries, any other person or entity has received any notice or other communication concerning any alleged violation of Environmental Requirements, whether or not corrected to the satisfaction of the appropriate authority, or any notice or other communication concerning alleged liability for Environmental Damages in connection with the Facility. 36 (vii) From the date hereof, there shall be no actual or threatened Environmental Release of a Hazardous Material on or from the Facility caused by the Company or any of its Affiliates and/or Subsidiaries. (viii) Except to the extent specified on the Environmental Closing Certificate, the Company: (a) has obtained all permits, licenses, and other authorizations which are required under Environmental Requirements in association with the Facility; and (b) will in full compliance with all terms and conditions of such required permits, licenses, and other authorizations associated with the Facility. (ix) No permits or licenses are required to be obtained or maintained in connection with the use, operation, or ownership of the Facility arising from any portion of the Facility which constitute (i) "wetlands" under any Environmental Requirement, or (ii) habitat for species which is deemed to be endangered under any Environmental Requirement, nor are there any ongoing or continuing obligations regarding any portion of the Facility which constitute wetlands. There are no species of plants or animals located on any portion of the Facility which are classified as threatened or endangered under any Environmental Requirement. There have been no written or, to the knowledge of the Company or any of its Affiliates and/or Subsidiaries, oral wetlands delineations conducted by or which have been presented to or are in the possession of the Company or any of its Affiliates and/or Subsidiaries relating to the Facility which have not been delivered to the Lessor, the Lenders and the Agent. (n) Capital Stock. All Capital Stock, debentures, bonds, notes and ------------- all other securities of the Company presently issued and outstanding are validly and properly issued in accordance with all applicable laws in all material respects, including but not limited to, the "Blue Sky" laws of all applicable states and the federal securities laws. (o) Use of Proceeds; Margin Stock. The proceeds of the Loans and ----------------------------- LI Fundings are being used to finance or refinance the Facility Cost with respect to the Facility, including the enhancements and improvements to be made thereto and the design, renovation, construction and installation thereof. Neither the Lessor nor the Company is engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan or LI Funding will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulations G, T, U or X. 37 (p) Insolvency. After giving effect to the execution and delivery of ---------- the Guaranty and the Lease, the Company will not be "insolvent," within the meaning of such term as used in O.C.G.A. (S) 18-2-22, defined in (S) 101 of Title 11 of the United States Code or Section 2 of the Uniform Fraudulent Transfer Act, or any other applicable state law pertaining to fraudulent transfers, as amended from time to time, or be unable to pay its debts generally as such debts become due, or have an unreasonably small capital to engage in any business or transaction, whether current or contemplated. Section 7.02 Representations and Warranties of Lessor. Lessor ---------------------------------------- represents and warrants to the Agent, the Company and the Lenders that: (a) Existence. The Lessor is a corporation duly organized, validly --------- existing and in good standing under the laws of the State of Georgia. (b) Litigation. There is no action, suit or proceeding pending, or ---------- to the knowledge of the Lessor, threatened, against or affecting the Lessor before any court or arbitrator or any governmental body, agency or official which contests the validity or enforceability of the Operative Documents or which in any manner draws into question the validity of or could impair in any material respect the ability of the Lessor to perform its obligations under this Agreement or any of the Operative Documents executed by it. (c) No Breach. The execution and delivery of this Agreement, the --------- Notes, and the other Operative Documents, the transactions herein and therein contemplated and compliance with the terms and provisions hereof and thereof will not conflict with, or result in a breach of, or require any consent of any Person not already obtained, under the charter or bylaws of the Lessor or any Governmental Requirement of the State of the Lessor or its state of incorporation or the United States of America governing its banking and trust powers, or any agreement or instrument to which the Lessor is a party or by which it is bound or to which it is subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien (except under the Operative Documents and other Permitted Liens) upon any of the revenues or Properties of the Lessor, including the Facility, pursuant to the terms of any such agreement or instrument. (d) Action. The Lessor has all necessary corporate power and ------ authority to execute, deliver and perform its obligations under this Agreement, the Notes, the other Operative Documents to which it is a party; and the execution, delivery and performance by it of this Agreement, the Notes, the other Operative Documents to which it is a party have been duly authorized by all necessary corporate action on its part; and this Agreement, the Notes, and the other Operative Documents 38 constitute the legal, valid and binding obligations of the Lessor, enforceable against it in accordance with their terms, except as may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by general principles of equity. (e) Approvals. No authorizations, approvals or consents of, and no --------- filings or registrations with, the United States of America or any other governmental authority governing its banking and trust powers are necessary for the execution, delivery or performance by the Lessor of this Agreement, the Notes, the other Operative Documents to which it is a party, or for the validity or enforceability thereof. (f) Ownership of Facility. As of the Initial Funding Date, the --------------------- Lessor owns a leasehold interest in the Site pursuant to the Ground Lease, free and clear of all Liens except Permitted Liens and the interest of the Company under the Lease. None of the Permitted Liens will interfere with the use or possession of the Facility or the use of or exercise by the Lessor of its rights under any Operative Document or with respect to the Facility, except to the extent such interference would not be reasonably expected to have a Material Adverse Effect. ARTICLE VIII Covenants The Company covenants and agrees with the Agent, the Lessor, and each Lender to comply with the following covenants until either (i) the Facility has been purchased by the Company (or one of its Affiliates) for the Purchase Price (ii) the Lease has been terminated, the Facility has been returned to the Lessor and the Termination Value or the Final Rent Payment, as the case may be, and all other amounts payable under the Lease and the other Operative Documents upon such occurrence have been paid in full, and the Lessor, with respect to itself, covenants and agrees with the Agent and each Lender to comply with the following covenants, as applicable to the Lessor, until all amounts payable under this Agreement have been paid in full: Section 8.01 Information. The Company will deliver to the Agent and ----------- each of the Lenders: (a) as soon as available and in any event within 90 days after the end of each Fiscal Year, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income, stockholders' equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous fiscal year, all certified by Arthur Andersen LLP or other independent public accountants of nationally recognized standing, with such certification to be free of 39 material exceptions and qualifications not reasonably acceptable to the Agent and the Lenders, except as permitted by Section 1.03; (b) as soon as available and in any event within 45 days after the end of each of the first three (3) Fiscal Quarters of each Fiscal Year, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such Fiscal Quarter and the related statement of income and statement of cash flows for such Fiscal Quarter and for the portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting forth in each case in comparative form the figures for the corresponding Fiscal Quarter (Fiscal Year only in the case of balance sheets) and the corresponding portion of the previous Fiscal Year, all certified (subject to the absence of footnotes and to normal year-end audit adjustments) as to fairness of presentation, GAAP and consistency by the chief financial officer or the chief accounting officer of the Company; (c) simultaneously with the delivery of each set of financial statements referred to in paragraphs (i) and (ii) above, a certificate, substantially in the form attached hereto as Exhibit E, executed by the Company's treasurer or chief financial officer (A) setting forth in reasonable detail the calculations required to establish whether or not the Company, and when appropriate its Consolidated Subsidiaries, were in compliance with the covenants contained in Sections 8.04, 8.23, 8.24, 8.25 and 8.26 as of the end of the applicable fiscal quarter or Fiscal Year; (B) the Leverage Ratio for the Four-Quarter Period ending as of the date of such financial statements and the calculations of such ratio in reasonable detail; and (C) stating that no Default or Event of Default has occurred and is continuing, or, if such is not the case, specifying such Default or Event of Default and its nature, when it occurred and the steps being taken or proposed to be taken by the Company with respect to these (a "Compliance Certificate"), of the chief financial officer or the chief ---------------------- accounting officer of the Company (a) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of Sections 8.04, 8.23 through 8.26, inclusive on the date of such financial statements and (b) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (d) promptly, and, in any event, within 15 Domestic Business Days after the Company, in its individual capacity or as Acquisition/Construction Agent for the Lessor becomes aware of any Default or Event of Default, a certificate of a senior financial or accounting officer or the chief financial officer or the chief accounting officer or the Treasurer of the Lessor or the Company setting forth the details thereof and the action which the Company, for itself or as Acquisition/Construction 40 Agent for the Lessor is taking or proposes to take with respect thereto; (e) promptly upon becoming aware of the occurrence of either a Loss Event or a Casualty Occurrence, or any other event or condition requiring notice under either Section 7 or Section 8 of the Lease, the Company shall give the Agent and each Lender written notice thereof, which notice shall specify the damage or loss to the Facility in reasonable detail; and (f) from time to time such additional information regarding the financial position or business of the Lessor, the Company and the Subsidiaries of the Company as the Agent, at the request of any Lender, may reasonably request. Section 8.02 Maintenance and Inspection of Property, Books and ------------------------------------------------- Records. The Lessor will keep proper books of record and account. The Company - ------- will keep books of record and account regarding the Lease and shall maintain, on a current basis, books of proper record and account in conformity with GAAP, consistently applied (to the extent applicable), which books shall include copies of all Related Contracts and any amendments thereto and the book value of the Facility and of each material item of Property comprising or included in the Facility, and shall provide copies of the foregoing to the Lessor, the Agent and the Lenders from time to time on request at the Company's expense. The Company will (i) keep proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities; and (ii) permit representatives of any Lender (x) at such Lender's expense and upon reasonable notice prior to the occurrence of a Default which remains uncured and (y) at the Company's expense after the occurrence of a Default, to visit and inspect the Facility and any of its properties, to examine and make abstracts from any of its books and records and to discuss its affairs, finances and accounts with its officers, employees and independent public accountants. The Company agrees to cooperate and assist in such visits and inspections, in each case at such reasonable times and as often as may reasonably be desired, subject, however, to the execution by any Lender so reviewing or inspecting the books or records of account or so visiting and inspecting the Facility, of a confidentiality agreement in the form of Exhibit G attached hereto. Section 8.03 Related Contracts. The Company, as agent for the ----------------- Lessor, will comply with, maintain execution counterparts of, and promptly upon request by the Agent from time to time deliver copies of, or after the occurrence of an Event of Default, originals of, all Related Contracts. 41 Section 8.04 Consolidations, Mergers and Sales of Assets. The ------------------------------------------- Company will not consolidate with or merge into, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person, provided that: (i) Subsidiaries of the Company may merge or consolidate with the - -------- Company and with other Subsidiaries of the Company; (ii) a Subsidiary may sell, transfer or dispose of its assets to the Company or another Subsidiary of the Company; (iii) the Company and its Subsidiaries may sell inventory in the ordinary course of business; (iv) the Company may sell its accounts receivable on a non-recourse basis in an aggregate amount not to exceed $100,000,000 at any time; (v) the Company and its Subsidiaries may, during any Fiscal Year, sell, transfer or otherwise dispose of assets (excluding the capital stock of any Subsidiary) having an aggregate book value in an amount not to exceed 10% of the total book value of the assets of the Company and its Subsidiaries taken as a whole; (vi) the Company or any Subsidiary may merge or consolidate with any other corporation, provided that (A) the Company or such Subsidiary shall be the continuing or surviving corporation or the surviving corporation becomes thereby a wholly-owned Subsidiary and (B) if instead of the Company or such Subsidiary merging or consolidating with such corporation, the Company were to acquire all of the issued and outstanding capital stock of such corporation, such acquisition would be permitted under Section 8.25; (vii) the Company and its Subsidiaries may, during any Fiscal Year, enter into sale and leaseback transactions covering fixed or capital property which collectively cover property having an aggregate fair market value, as determined for each item of property at the time such property became the subject of such a transaction, not in excess of 10% of the total book value of the assets of the Company and its Subsidiaries taken as a whole; (viii) the Company may re-incorporate as a Delaware corporation so long as the re-incorporation does not result in or effect any change in the ownership of the Company; and (ix) so long as all Merger Conditions are satisfied, the Company may merge with or consolidate into any Non-Hostile Successor, with such Non-Hostile Successor being the surviving corporation; and in each case identified in the immediately preceding clauses (i) through and including (ix), immediately prior to such merger or consolidation and immediately after such merger or consolidation and after giving effect thereto, no Default or Event of Default is or would be in existence. Section 8.05 Maintenance of Existence; Conduct of Business. The --------------------------------------------- Company shall (a) preserve and maintain, and cause each Subsidiary to preserve and maintain its respective existence (except as otherwise permitted under Section 8.04, rights, franchises, licenses and privileges in the jurisdiction of its formation and qualify and remain qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification and authorization and where the failure to be so authorized and qualified could have a Material Adverse Effect; and (b) at all times, carry on, and cause its Subsidiaries to 42 carry on, its respective businesses in the same fields and areas as engaged in on the Closing Date and not enter, and prohibit its Subsidiaries from entering, into any field or area of business not otherwise engaged in as of the Closing Date or any other field or area of business related thereto and carry on the major part of its business in substantially the same manner and in substantially the same fields as such business is now carried on and maintained, except as permitted by Section 8.04. Section 8.06 Dissolution. The Company shall not (a) liquidate, ----------- wind-up or dissolve itself (or suffer any liquidation or dissolution or permit any Subsidiary to do any of the foregoing, except with respect to Subsidiaries which are not Material Subsidiaries), or (b) except as expressly permitted by Section 8.04 hereof, convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business or assets, including capital stock of or other equity interests in any of its Subsidiaries, whether now owned or hereafter acquired, or permit any Subsidiary to do any of the foregoing. Section 8.07 Use of Proceeds. The proceeds of the Loans and LI --------------- Fundings will be used to fund the Facility Cost. Without limiting the generality of the foregoing, no portion of the proceeds of the Loans and LI Fundings will be used by the Lessor or the Company as Acquisition/Construction Agent for the Lessor, (i) in connection with, whether directly or indirectly, any tender offer for, or other acquisition of, stock of any corporation with a view towards obtaining control of such other corporation, except in a negotiated, consensual transaction (ii) to purchase or carry, or to reduce or refinance any credit incurred to purchase or carry, any margin stock (within the meaning of Regulation U and Regulation X) or to extend credit to others for the purpose of purchasing or carrying any such margin stock, or (iii) for any purpose in violation of any applicable Governmental Requirement. Section 8.08 Compliance with Laws; Payment of Taxes. The Company -------------------------------------- will comply in all material respects with applicable laws (including but not limited to ERISA), regulations and similar requirements of governmental authorities (including but not limited to PBGC), except where the necessity of such compliance is being contested in good faith through appropriate proceedings (as permitted in Section 13 of the Lease) or where the failure to comply would not reasonably be expected to have or cause a Material Adverse Effect. The Company will pay, prior to the date on which penalties attach thereto, all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which, if unpaid, might become a lien against the Facility or against Property of the Company, except liabilities being contested in good faith and against which, if requested by the Agent or the Company will set up reserves in accordance with GAAP and other than taxes, assessments, governmental charges and other amounts which are not material in 43 amount and could not reasonably be expected to have a Material Adverse Effect. Section 8.09 Insurance. The Company will maintain (either in the --------- name of the Lessor or the Company, as applicable), with financially sound and reputable insurance companies, insurance on such of its property in at least such amounts, and with such deductibles, and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or similar businesses. Without limitation of the foregoing, the Company shall maintain or cause to be maintained, with insurers acceptable to the Lessor and the Agent in their reasonable discretion, insurance with respect to the Facility and its business in connection therewith of the types and in the amounts specified in the Lease. The Company will deliver or cause to be delivered to the Agent and the Lessor promptly upon request of Agent, and in any event on January 1st of each calendar year, commencing with January 1, 1998 a report by a firm of independent insurance brokers or consultants chosen by the Company and acceptable to the Agent (a) setting forth the insurance or self-insurance obtained pursuant to the Lease, including, without limitation, the amounts thereof, the names of the insurers and the property, hazards and risks covered thereby, and certifying that the same comply with the requirements of the Lease, that all premiums then due and payable thereon have been paid and that the same are in full force and effect, that the Lessor and the Agent have been named as additional insureds and loss payees, as their interests may appear, under each such policy, and are not liable for payment of premiums thereunder, that such policies may not be cancelled without at least 30 days prior notice to the Lessor and the Agent with an opportunity to cure any default thereunder, and (b) certifying that in the opinion of such firm, such insurance or self-insurance complies with the requirements of the Lease and, as to amounts, coverage and provisions, constitutes reasonable and customary coverage against risks customarily insured against which would affect the Facility, or setting forth any recommendations of such independent insurance brokers or consultants as to additional insurance, if any, reasonably required for the protection of the interests of the Company, the Lessor, the Agent and the Lenders in light of available insurance coverage and practice in the business engaged in by the Company at the Facility. The Agent shall be entitled to rely on such reports without further investigation of the facts and circumstances set forth therein. Section 8.10 Maintenance of Property. The Company shall maintain ----------------------- and preserve the Facility in accordance with the requirements of the Lease. The Company shall maintain and preserve all of its properties and assets, in good condition, repair and working order, ordinary wear and tear excepted. Section 8.11 Environmental Notices. The Company, for itself and as --------------------- Acquisition/Construction Agent for the Lessor, and 44 the Lessor (if the Lessor directly receives written notice thereof) shall furnish to the Agent prompt written notice of all Environmental Liabilities, pending or threatened Environmental Proceedings, Environmental Notices, Environmental Judgments and Orders, and Environmental Releases of which the Lessor or the Company, as the case may be, shall have received actual notice or have knowledge at, on, in, under or in any way affecting the Facility or any of its Properties, and Properties of any Subsidiary, or any adjacent property, if the amount of liability or of remediation cost to the Company or any Subsidiary is or could reasonably be expected to have a Material Adverse Effect, and all facts, events, or conditions actually known to the Company that could reasonably be expected to lead to any of the foregoing. Section 8.12 Environmental Matters. The Company shall not, and --------------------- shall not knowingly permit any Third Party to, use, produce, manufacture, process, treat, recycle, generate, store, dispose of, manage at, or otherwise handle, or ship or transport to or from the Facility or the Properties any Hazardous Materials except for Hazardous Materials such as cleaning solvents, pesticides and other similar materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed, or otherwise handled in minimal amounts in the ordinary course of business or of management or maintenance of the Facility or the Properties in material compliance with all applicable Environmental Requirements, and will take commercially reasonable steps to prohibit any Third Party from doing any of the acts prohibited by the foregoing. Section 8.13 Environmental Release. The Company agrees that upon --------------------- its becoming aware of the occurrence of an Environmental Release, except for any Environmental Release which occurred in substantial compliance with all Environmental Requirements, at or on the Facility or any of the Properties owned or operated by it or any Material Subsidiary, it will act promptly to determine the extent of, and to take appropriate remedial action to eliminate, any such Environmental Release, whether or not ordered or otherwise directed to do so by any Environmental Authority, except to the extent that failure to take remedial action would not have a Material Adverse Effect. Section 8.14 Transactions with Affiliates. The Company shall not ---------------------------- enter into, or be a party to, any transaction with any Affiliate of Company (which Affiliate is not a Subsidiary, other than a Person in which the Company or such Subsidiary owns less than a majority interest and which, if it were a Subsidiary, would not be a Material Subsidiary), except as permitted by law and in the ordinary course of business and pursuant to reasonable terms which are no less favorable to the Company, as the case may be, than would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate; provided, that the foregoing shall not affect the ability of the Company from - -------- determining, in its sole discretion, 45 the amount or form of executive or directors compensation from time to time. Section 8.15 Agreement to Pledge, Etc. The Company acknowledges ------------------------ that the Lessor shall grant to the Agent for the benefit of the Lenders a first and prior Lien on and security interest in and to the Lease and the other Operative Documents and shall execute and deliver the Lessor Mortgage encumbering the Facility, in each case securing certain of the Notes and other amounts owing under the Operative Documents, subject only to Permitted Liens. The Lessor, the Agent and the Lenders agree that the Lessor Mortgage may not be modified or amended in any manner without the prior written consent of the Company, which consent shall not be unreasonably withheld; provided, however, ----------------- such consent of the Company shall not be required to the extent any such modification or amendment would constitute a further assurance of the type described in Section 8.16 hereof. Section 8.16 Further Assurances. The Company will cure promptly any ------------------ defects in the due execution and delivery by it of the Operative Documents, including this Agreement. The Company at its expense will promptly execute and deliver to the Agent upon request all such other and further documents, agreements and instruments in compliance with or accomplishment of the covenants and agreements of the Company in the Operative Documents, including this Agreement, or to further evidence and more fully describe the collateral relating to the Facility intended as security for the Notes, or to correct any item that the Company and the Agent agree constitutes an omission or error in the Operative Documents, or more fully to state the existing security obligations set out herein or in any of the Operative Documents, or to perfect, protect or preserve any Liens created pursuant to any of the Operative Documents, or to make any recordings, to file any notices, or obtain any consents, required by the terms of the Operative Documents, all as may be necessary or appropriate in connection therewith. Section 8.17 Use of Proceeds; Etc. The Lessor and the Company, as -------------------- agent for the Lessor, will use the proceeds of the Loans and the LI Fundings for the purposes specified in Section 7.01(o). The Company, as agent for the Lessor, will perform and observe in all material respects its obligations under all Applicable Permits the failure to perform or observe which will have a Material Adverse Effect. The Company, as Acquisition/Construction Agent for the Lessor, will preserve, protect and maintain in effect all Applicable Permits unless the failure to maintain such Applicable Permits could not be reasonably be expected to have a Material Adverse Effect. Section 8.18 Maintenance; Etc. The Company shall, as ----------------- Acquisition/Construction Agent for the Lessor, preserve, protect and maintain in accordance with prudent industry practices their rights in and to the Applicable Permits that are necessary for and material to the operation of the Facility the failure to have 46 or maintain which would have a Material Adverse Effect; and the Company shall defend and hold harmless the Lessor, the Agent and each Lender from and against any cost, liability or expense arising from any claim of infringement, misuse or misappropriation of any of the foregoing in accordance with the procedures set forth under Section 11.03(c). Section 8.19 Encroachments. The Facility shall be situated wholly ------------- within the boundary lines of the Site and shall not encroach upon any contiguous or adjoining Property (other than those portions of the Facility for which the Lessor has the right to locate and operate such portions pursuant to use or operating agreements); and the Facility shall not violate any other easements, rights-of-way, licenses or other agreements affecting the Site. Section 8.20 Liens, Etc. The Company covenants and agrees that it ----------- shall not directly or indirectly create or permit to be created or to remain, and at the Company's expense will discharge within ten (10) days of notice of the filing or assertion thereof, by bond, deposit or otherwise, any Lien upon the Lease or the Facility, except (i) any Lien being contested as permitted by and in accordance with Section 13 of the Lease, or (ii) Permitted Liens as provided in Section 12(a) of the Lease. Section 8.21 Use of Facility. The Company shall not under any --------------- circumstance undertake to operate or use or otherwise initiate the operations at or use of the Facility except for the Permitted Use. The Company shall be fully and solely responsible for funding all costs in connection with the acquisition of, and any development, renovation, construction and installation of any enhancements or improvements located or to be located on, the Facility in excess of the limits contained in Section 2.01, it being understood and agreed that neither the Lessor, the Agent nor any Lender shall under any circumstances whatsoever be obligated to fund any amount for any of the Facility Cost in excess of the limits contained in Section 2.01. Section 8.22 Covenants of Lessor. Lessor covenants and agrees that ------------------- so long as it remains Lessor hereunder and under the Lease, Lessor shall preserve and maintain its corporate existence and material rights, privileges and franchises, and perform every act and discharge all of its obligations hereunder and under the Operative Documents; provided the sole remedy of the -------- parties to this Agreement for breach by Lessor of its obligations shall be to cause a successor Person satisfactory to the Required Lenders to assume the rights, duties and obligations of the Lessor hereunder and under the other Operative Documents. Section 8.23 Financial Covenants. The Company shall not, directly ------------------- or indirectly, permit at any time: 47 (a) Maximum Leverage Ratio. The Leverage Ratio for the Four-Quarter Period ---------------------- ending on the date of determination to exceed 3.00 to 1.00. (b) Minimum Fixed Charge Coverage Ratio. The ratio of (i)(A) Consolidated ----------------------------------- EBITDA for the Four-Quarter Period ending on the date of determination plus (B) ---- Consolidated Operating Lease Expense for such Four-Quarter Period to (ii)(A) -- Consolidated Interest Expense for such Four-Quarter Period plus (B) dividends ---- declared by the Company (whether or not paid) during such Four-Quarter Period plus (C) Consolidated Operating Lease Expense for such Four-Quarter Period plus - ---- ---- (D) Consolidated Current Maturities for the Four-Quarter Period beginning on the date of determination, to be less than 3.0 to 1.0. Section 8.24 Debt. The Company shall not, directly or indirectly, ---- create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Debt other than the following: (a) obligations under the Operative Documents; (b) Debt set forth on Schedule 8.24 and any extension, renewal or replacement of such Debt that is on at least as favorable terms (adjusted for market conditions at the time of such extension, renewal or replacement) and that does not increase the aggregate principal of such Debt; (c) Debt owing by (i) the Company to any Subsidiary in any amount, (ii) the Material Subsidiaries to the Company in any amount and (iii) Subsidiaries that are not Material Subsidiaries to the Company in an aggregate outstanding amount not to exceed 10% of the Consolidated Tangible Net Worth at any time; (d) Debt in respect of Commercial Paper issued by the Company under a Commercial Paper Program for which the Revolving Credit Agent and Revolving Credit Lenders are providing credit enhancement as contemplated by Section 2.13 of the Revolving Credit Agreement; (e) Debt incurred as a result of endorsement of negotiable instruments for deposit or collection in the ordinary course of business; (f) Other Debt of the Company and its Subsidiaries (including any Subsidiary that is acquired by (or merged or consolidated into) the Company or a Subsidiary after the Closing Date) in an aggregate amount not to exceed $200,000,000 at any time outstanding; provided however, that: -------- ------- (A) The incurrence of any such Debt would not result in a violation of any term of this Agreement or any other Operative Document, including without limitation, Section 48 8.23 hereof, or otherwise result in a Default or Event of Default; (B) Such other Debt (including Debt in respect to standby letters of credit) of the Company and its Material Subsidiaries shall not exceed $175,000,000 in the aggregate at any one time outstanding and shall be pari passu in right of repayment with the obligations of the Company under the Operative Documents; (C) Such other Debt of Subsidiaries that are not Material Subsidiaries shall not exceed $50,000,000 in the aggregate at any one time outstanding; and (D) Such other Debt (1) secured by Purchase Money Liens, (2) constituting Capitalized Lease Obligations and (3) assumed by the Company or any Subsidiary in connection with any transaction of merger or consolidation with any Person or in connection with the acquisition by the Company or a Subsidiary of all or substantially all of the assets constituting the business or a division or operating unit of a Person and which such assumed Debt is secured by a Lien on assets acquired in connection with such merger, consolidation or acquisition, shall not exceed $50,000,000 in the aggregate at any one time outstanding. Section 8.25 Investments: Acquisitions. The Company shall not, ------------------------- directly or indirectly, do any of the following: (i) Acquire or purchase, or permit any Subsidiary to acquire or purchase, all or substantially all of the assets constituting the business or a division or operating unit of any Person or (ii) acquire, or make purchase, or permit any Subsidiary to acquire, make or purchase, any Investment or (iii) permit any Investment of the Company or any Subsidiary to be outstanding on and after the Closing Date other than the following: (a) Investments in Subsidiaries in existence on the Closing Date and disclosed in Schedule 8.25, together with any increases in such Investments after the Closing Date in Material Subsidiaries; (b) Investments that constitute Debt permitted under Section 8.24; (c) Loans and advances to employees for moving, entertainment, travel and other similar expenses in the ordinary course of business consistent with past practices not to exceed $10,000,000 in the aggregate at any one time; (d) Investments in "Eligible Investments" described in, and in accordance with the Company's Cash Investment Policy (as set forth on Exhibit M to the Revolving Credit Agreement), a 49 copy of which as in effect on the Closing Date has been furnished to the Agent, as such Cash Investment Policy is amended or otherwise modified from time to time on terms not inconsistent with such Cash Investment Policy as currently in effect; (e) Acquisitions or purchases by the Company or any Material Subsidiary of all or substantially all of the assets constituting the business or a division or operating unit of any Person, and the making of Investments in Material Subsidiaries which Investments are not otherwise subject to any of the preceding subsections; provided, however, that during any Fiscal Year, (A) the -------- ------- amount of cash paid, together with the fair market value of all other assets (excluding assets of the type described in the following clause (B)) conveyed, by the Company and its Material Subsidiaries in consideration for such acquisitions, purchases and Investments shall not exceed $150,000,000 in the aggregate and (B) the market value of all capital stock, warrants and options to acquire capital stock, of the Company conveyed by the Company in consideration for such acquisitions, purchases and Investments shall not exceed $400,000,000 in the aggregate; provided, further, however, neither the Company nor any -------- ------- ------- Material Subsidiary shall effect any one such acquisition, purchase or Investment (or series of related acquisitions, purchases or Investments) without the prior written consent of the Required Lenders if the market value of the capital stock, warrants and options to acquire capital stock, of the Company to be conveyed by the Company in consideration for such acquisition, purchase or Investment equals or exceeds $300,000,000 in the aggregate; and (f) Acquisitions or purchases by any Subsidiary that is not a Material Subsidiary of all or substantially all of the assets constituting the business or a division or operating unit of any Person, and the making by the Company or any Subsidiary after the Closing date of Investments in Persons that are not Material Subsidiaries; provided, however, (A) the aggregate consideration paid -------- ------- (excluding any Debt assumed in connection with such acquisition, purchase or Investment) for such acquisitions, purchases and Investments and (B) the aggregate amount of increases after the Closing Date in Investments in such Persons that are not Material Subsidiaries existing as of the Closing Date, shall not exceed $100,000,000 in the aggregate during any Fiscal Year and $300,000,000 during the term of this Agreement. All cash, the market value of all capital stock, warrants and options to acquire capital stock, of the Company and the fair market value of all other assets conveyed by the Company as consideration for any transaction of merger or consolidation effected by the Company or a Subsidiary and which is permitted under Section 8.04, shall be included in determinations of the Company's compliance with the immediately preceding subsections (e) and (f). Section 8.26 Dividends and Other Restricted Payments. Except for --------------------------------------- dividends or other distributions in respect of capital 50 stock payable solely in shares of such capital stock and dividends or other distributions payable by any Subsidiary to the Company or any of its other Subsidiaries, declare, make or pay, or incur any liability to declare, make or pay, and shall not permit any Subsidiary to declare, make or pay, or to incur any liability to declare, make or pay, any Restricted Payment if a Default or Event of Default (a) shall have occurred and be continuing or (b) would result after giving effect thereto. Section 8.27 Hedging Obligations. The Company will not, directly or ------------------- indirectly, create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any Hedging Obligations other than the following: (a) Hedging Obligations under Interest Rate Agreements for notional amounts not to exceed $300,000,000 in the aggregate at any one time. (b) Hedging Obligations under foreign currency exchange agreements, forward contracts and other foreign currency transactions that are intended to hedge identifiable foreign currency exposures consistent with the practice of the Company and its Subsidiaries as of the Closing Date; and (c) Hedging Obligations under commodity swap or option arrangements or other forward commodities contracts for notional amounts not to exceed $50,000,000 in the aggregate at any one time. Section 8.27 Facility Plan. The Company shall deliver the Facility ------------- Plan to the Lessor and the Agent on or before the Completion Date. The Facility Plan shall have been prepared in good faith on the basis of assumptions deemed reasonable by the Company and accurately reflect in all respects all material costs incurred and/or anticipated to be incurred in connection with achieving Completion. Section 8.27 Appraisal. The Company shall deliver the Approved --------- Appraisal to the Lessor and the Agent on or before the Completion Date. The Approved Appraisal shall indicate that the projected fair market value of the Facility as of the expiration of (A) the Construction Period and (B) the Basic Term (in each case after giving effect to the proposed improvements and enhancements to be renovated or constructed on the Site in accordance with the Facility Plan), is not less than the Facility Cost. ARTICLE IX Events of Default 51 Section 9.01 Events of Default. The occurrence and continuation of ----------------- any one or more of the following events shall constitute an "Event of Default". ---------------- (a) The Company, as Acquisition/Construction Agent for the Lessor, (i) shall default in the payment of any principal of any Loan or LI Funding when due; or (ii) shall default in the payment of any interest on any Loan or LI Yield and such failure shall continue for a period of five (5) Business Days following notice from the Agent or the Lessor of nonpayment; or (iii) shall default in the payment of any fees or other amounts payable by it hereunder or under the Operative Documents, to the Agent and the Lenders when due, or shall default in the payment of any other amounts payable hereunder or under any other Operative Documents to agents, attorneys and consultants of the Agent or any Lender when due, and the continuance of such nonpayment for thirty (30) days following notice thereof from the Agent or the Lessor; or (b) Any representation, warranty, certification or statement made by the Company or the Lessor in Article VII of this Agreement or in any other Operative Document or in any certificate, financial statement or other document delivered pursuant to this Agreement or any other Operative Document shall prove to have been incorrect or misleading in any material respect when made or reaffirmed (or deemed made or reaffirmed); or (c) The Company or the Lessor shall fail to observe or perform any covenant or agreement contained in Section 8.01(c), in clause (ii) of Section 8.02, in Sections 8.03 through 8.07 inclusive, or in Sections 8.23 through 8.27 inclusive, of this Agreement; or (d) The Company or the Lessor shall fail to observe or perform any covenant or agreement contained or incorporated by reference in this Agreement (other than those covered by paragraphs (a) and (c) above), and such failure shall not have been cured within 30 days, after the earlier to occur of (i) written notice thereof has been given to the Lessor and the Company by the Agent at the request of the Required Lenders or (ii) an executive, senior financial or accounting officer of the Company otherwise becomes aware of any such failure; or (e) An "Event of Default" under or as defined in (i) the Lease or (ii) any other Operative Document or (iii) the Revolving Credit Agreement (excluding, however, any such "Event of Default" arising from a material adverse change or a change of control thereunder) shall occur; or (f) The Company or any Material Subsidiary shall fail to make any payment in respect of Debt outstanding in an aggregate principal amount equal to or greater than $10,000,000 (excluding Debt incurred pursuant hereto) after the expiry of any applicable grace period; or 52 (g) Any other event or condition shall occur which (i) results in the acceleration of the maturity of Debt (other than Debt which would not constitute a "liability" in accordance with GAAP) outstanding of the Company or any Material Subsidiary in an aggregate principal amount equal to or greater than $10,000,000 (including, without limitation, any required mandatory prepayment or "put" of such Debt to the Company or any Material Subsidiary) or (ii) enables (or, with the giving of notice or lapse of time or both, would enable) the holders of such Debt or any Person acting on such holders' behalf to accelerate the maturity thereof (including, without limitation, any required mandatory prepayment or "put" of such Debt to the Company or any Material Subsidiary); or (h) The Company or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (i) An involuntary case or other proceeding shall be commenced against the Company or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Company or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; or (j) The Company or any member of the Controlled Group shall fail to pay when due any material amount which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by the Company, any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be 53 entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or (k) One or more judgments or orders for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered against the Company or any Material Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 60 days; or (l) A federal tax lien shall be filed against the Company under Section 6323 of the Code or a lien of the PBGC shall be filed against the Company under Section 4068 of ERISA and if in either case the amount involved is in an aggregate amount in excess of $10,000,000 and such lien shall remain undischarged for a period of 25 days after the date of filing; (m) Any of the Operative Documents shall cease, for any reason, to be in full force and effect or the Company shall so assert; (n) The Company shall abandon the Facility as contemplated by Section 17(a)(viii) of the Lease; or (o) A Hostile Change of Control shall occur or any Non-Hostile Successor shall no longer be an A-Rated Company; unless in any event, the Company (or any Affiliate thereof) pays the Termination - ------ Value or acquires the Facility by payment in full of the Purchase Price within five (5) Business Days after the occurrence of such event or existence of such condition. Section 9.02 Remedies. Upon the occurrence and continuation of any -------- Event of Default: (a) in the case of an Event of Default (other than one referred to in Sections 9.01(h) or (i)), the Agent may and, upon request of the Required Lenders, shall, by notice to the Lessor and the Company, cancel the Commitments and/or declare the principal amount then outstanding of and the accrued interest on the Loans and the principal amount and accrued LI Yield on the LI Fundings and all other amounts payable by the Lessor or by the Company, as Acquisition/Construction Agent for the Lessor, hereunder, under the Notes to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Company and the Lessor; and (b) in the case of the occurrence of an Event of Default referred to in Sections 9.01(h) or (i), the Commitments shall be automatically cancelled and the principal amount then outstanding of and the accrued interest on the Loans (including without limitation all Accrued Construction Period LI Yield) and 54 the principal amount and accrued LI Yield on the LI Fundings and all other amounts payable by the Lessor or the Company as Acquisition/Construction Agent for the Lessor hereunder, under the Notes, and under the other Operative Documents shall become automatically immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Company and the Lessor. (c) Notwithstanding Sections 9.02(a) and (b), the Company may cure any Default or Event of Default under Section 9.01 by paying the Termination Value or purchasing the Facility as provided in Section 15(c) of the Lease for the Purchase Price. (d) If the Required Lenders shall have instructed the Agent to foreclose on the Facility and other collateral in accordance with the Security Instruments and the Lease, then the net cash sales or foreclosure proceeds to be received must at least equal an amount equal to the Funded Amount, plus all other amounts then owing to the Lenders hereunder and under the other Operative Documents. In the event that all of the Lenders and the Lessor have been repaid in full in accordance with this Agreement with respect to amounts owing to them as Lenders and the Lessor, or if the Company or any of its Affiliates shall have acquired all of the Notes and redeemed the Lessor Investment, the Agent shall act or refrain from acting, and shall be fully protected in acting or refraining from acting, in accordance with instructions signed solely by the Required Lenders. Instructions of the Required Lenders and any action taken or failure to act pursuant thereto, shall be binding on all of the Lenders. (f) The Agent and the Lenders agree not to exercise their remedies against the Facility under the Security Instruments unless an Event of Default has occurred and is continuing hereunder and the Lease has terminated and the Company (or any Affiliate thereof) shall not have purchased the Facility on or before the Cancellation Date. ARTICLE X The Agent Section 10.01 Appointment, Powers and Immunities. Each Lender hereby ---------------------------------- appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement of this Agreement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the 55 Required Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Agent shall not be required to -------- ------- take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice given to it by the Lessor, the Company pursuant to the terms of this Agreement or any of the Operative Documents. Section 10.02 Reliance by Agent. None of the Agent or any of its ----------------- respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent: (a) may treat the payee of any Note as the holder thereof until the Agent receives and accepts an Assignment and Acceptance entered into by the Lender which is the payee of such Note as assignor, and an Eligible Assignee, as assignee, as provided in Section 11.06; (b) may consult with legal counsel (including counsel for the Company, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement or any of the other Operative Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any of the other Operative Documents on the part of the Company or to inspect the Facility or the property (including the books and records) of the Company; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Operative Documents or any other instrument or document furnished pursuant hereto; (f) shall incur no liability under or in respect of this Agreement or the Operative Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopier, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties; and (g) shall act or refrain from acting, and shall be fully protected in acting or refraining from acting, in foreclosing on the Facility in accordance with the Security Instruments, upon receiving instructions signed by the Required Lenders. Section 10.03 Defaults. The Agent shall not be deemed to have -------- knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans or of fees or of LI Fundings or of LI Yield) unless the Agent has received notice from a Lender, the Company or the Lessor specifying such Default and stating that such notice is a "Notice of Default." In the event that the Agent receives such a notice of the occurrence of 56 a Default, the Agent shall give prompt notice thereof to the Lenders (and shall give each Lender prompt notice of each such non-payment). The Agent shall (subject to Section 10.07) take such action with respect to such Default as shall be directed by the Required Lenders as provided in Section 10.02, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Lenders. Section 10.04 Rights as a Lender. With respect to its Commitment, ------------------ the Loans made by it and the Notes issued to it, Wachovia shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Wachovia in its individual capacity. Wachovia and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Company, any of its Subsidiaries and any Person who may do business with or own securities of the Company or any of its Subsidiaries, all as if Wachovia were not the Agent and without any duty to account therefor to the other Lenders. Section 10.05 Indemnification. The Lenders agree to indemnify the --------------- Agent (to the extent not reimbursed by the Lessor or the Company), ratably according to the respective principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding or if any Notes are held by Persons which are not Lenders, ratably according to the respective amounts of the Aggregate Loan Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, orders, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any of the Operative Documents or any action taken or omitted by the Agent under this Agreement or any of the Operative Documents, provided that no Lender shall be liable for any portion of such -------- liabilities, obligations, losses, damages, penalties, actions, judgments, orders, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings, in bankruptcy or insolvency proceedings, or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or the other Operative Documents, to the extent that the Agent is not reimbursed for such expenses by the Company. 57 Section 10.06 Non-Reliance on Agent and other Lenders. Each Lender --------------------------------------- acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements referred to in Section 7.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Company, the Lessor or the affiliates of either of them, which may come into the possession of the Agent or any of its affiliates. Section 10.07 Failure to Act. The Agent shall in all cases be fully -------------- justified in failing or refusing to act hereunder or under the Operative Documents unless it shall be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action. Section 10.08 Resignation or Removal of Agent. The Agent may resign ------------------------------- at any time by giving written notice thereof to the Lenders, the Lessor and the Company and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent with the Company's prior consent, which consent shall in no event be unreasonably withheld, provided that such consent ------------- by the Company shall not be required in the event that (i) a Default or Event of Default is in existence, or (ii) such successor Agent is then a Lender or an Affiliate of a Lender. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then such retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a Lender and a commercial bank organized, or authorized to conduct a banking business, under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, each successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement and the Operative Documents. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article XI shall inure to its 58 benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE XI Miscellaneous Section 11.01 Amendments, Etc. No amendment or waiver of any ---------------- provision of this Agreement or the Notes, and no consent to any departure by the Company or the Lessor therefrom, shall be effective against the Company, the Lessor, the Agent or the Lenders unless it shall be in writing and signed by the Company, the Required Lenders and the Lessor, and no amendment or waiver of any provision of any Operative Documents, and no consent to any departure by the Company or the Lessor therefrom, shall be effective against the Company, the Lessor, the Agent or the Lenders unless signed by the Persons executing such Operative Document, the Company, the Agent with the consent of the Required Lenders and the Lessor; and in any event, any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that (1) no such amendment, waiver or consent shall, -------- ------- unless in writing and signed by the Company, all the Lenders and the Lessor, be effective to: (a) waive any of the conditions specified in Article VI, (b) amend this Section 11.01, (c) except as otherwise permitted in this Agreement or the other Operative Documents, permit the creation of any Lien (other than Permitted Liens) on the Collateral equal to or prior to the interests of the Lenders and the Lessor, sell or otherwise dispose of any portion of the Collateral or release any Lien created under the Operative Documents, (d) waive the terms of any payment obligation, amend or modify the order of application of payments and proceeds, or (e) change the requirements set forth in Schedule 1.02(a) necessary ---------------- to achieve Completion; (2) no such amendment, waiver or consent shall, unless in writing and signed by the Company and all the Tranche A Lenders, be effective to: (a) increase the Tranche A Aggregate Loan Commitments or subject the Lenders to any additional obligations, (b) reduce the principal of, or interest on, the Tranche A Notes, or any commitment fees hereunder, (c) postpone any date fixed for any payment of principal of, or interest on, the Tranche A Notes, or any commitment fees hereunder, (d) change the percentage of the Tranche A Aggregate Loan Commitments or of the aggregate unpaid principal amount of the Tranche A Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Agreement; (3) no such amendment, waiver or consent shall, unless in writing and signed by the Company and all the Tranche B Lenders, be effective to: (a) increase the Tranche B Aggregate Loan Commitments or subject the Lenders to any additional obligations, (b) reduce the principal of, or interest on, the Tranche B Notes, or any commitment fees hereunder, (c) postpone any date fixed for any payment of principal of, or interest on, the Tranche B Notes, or any 59 commitment fees hereunder, (d) change the percentage of the Tranche B Aggregate Loan Commitments or of the aggregate unpaid principal amount of the Tranche B Notes, or the number of Lenders, which shall be required for the Lenders or any of them to take any action under this Agreement and (4) no such amendment, waiver or consent shall, unless in writing and signed by the Lessor and the Company, be effective to: (a) increase the Lessor's Investment Commitment, or subject the Lessor to any additional obligations, (b) reduce the principal amount of or LI Yield on LI Fundings, or any Fees payable with respect thereto, (c) postpone any date fixed for any payment of principal of LI Fundings, or LI Yield, or any fees payable; provided, further, that no amendment, waiver or -------- ------- consent shall, unless in writing and signed by the Agent in addition to the Lenders, the Lessor and other Persons required hereinabove to take such action, affect the rights or duties of the Agent under this Agreement, or any Note. Section 11.02 Notices. Except as otherwise provided in Article II or ------- Article V, all notices and other communications provided for hereunder shall be in writing (including by telecopier and other readable communication) and mailed by certified mail, return receipt requested, telecopied or otherwise transmitted or delivered, if to the Company, at One Technology Parkway, South, Norcross, Georgia 30092-2967, Attention: Harvey A. Wagner, Telecopier: (770) 903-4700, with a copy to Lessee at Lessee's address but to the Attention of William Eason, Esq., Telecopier (770) 903-4823 and a copy to Charles T. Sharbaugh, Esq., Paul, Hastings, Janofsky & Walker, Suite 2400, 600 Peachtree Street, Atlanta, Georgia 30308, Telecopier (404)815-2424; if to any Lender, at its address set forth under its name on its signature page hereto; if to the Agent, 191 Peachtree Street, N.E., Atlanta, Georgia 30303, Attention: Vice President, Southeast Corporate Division, Telecopier: 404-332-5016; if to the Lessor at 191 Peachtree Street, N.E., Atlanta, Georgia 30303, Attention: TOOL Product Manager, Telecopier: 404-332-4005; or, as to each party at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, if so mailed, telecopied or otherwise transmitted, be effective when received, if mailed, or when the appropriate answer back or other evidence of receipt is given, if telecopied or otherwise transmitted, respectively. A notice received by the Agent or a Lender by telephone pursuant to Article II or Article V shall be effective if the Agent or Lender believes in good faith that it was given by an authorized representative of the Company and acts pursuant thereto, notwithstanding the absence of written confirmation or any contradictory provision thereof. Section 11.03 Payment of Expenses, Indemnities, etc. ------------------------------------- (a) The Company as Acquisition/Construction Agent for the Lessor agrees to pay on demand (i) all reasonable fees and out-of-pocket expenses of counsel for the Agent in connection 60 with the preparation, execution and delivery of this Agreement, the Notes, the other Operative Documents and the other documents to be delivered hereunder and the fulfillment or attempted fulfillment of conditions precedent hereunder, (ii) all reasonable costs and expenses incurred by the Agent and its Affiliates in initially syndicating all or any portion of the Commitments hereunder, including, without limitation, the related reasonable fees and out-of-pocket expenses of counsel for the Agent or its Affiliates, travel expenses, duplication and printing costs and courier and postage fees, and excluding any syndication fees paid to other parties joining the syndicate and (iii) all out- of-pocket costs and expenses, if any, incurred by the Agent and the Lenders in connection with the enforcement (whether through negotiations, legal proceedings in bankruptcy or insolvency proceedings, or otherwise) of this Agreement, the Notes, the other Operative Documents and the other documents to be delivered hereunder and thereunder, including the reasonable fees and out-of-pocket expenses of counsel. In furtherance of and not in limitation of the foregoing, the Company shall pay all fees, costs and expenses incurred in obtaining the Facility Plan, the Approved Appraisal, the environmental report referred to in Section 6.01(i), the title policy referred to in Section 6.01(m), the Surveys and the Related Contracts. The Company shall indemnify the Lessor, the Agent and each Lender against any transfer taxes, documentary taxes, assessments or charges made by any Governmental Authority by reason of the execution and delivery of any of the Operative Documents. (b) The Company agrees, in addition to any other indemnity obligations set forth in any Operative Document, to indemnify and save harmless, the Lessor, the Agent, each Lender and any of their successors and assigns, and their respective officers, directors, incorporators, shareholders, employees, agents, partners, attorneys, affiliates and servants (individually an "Indemnified ----------- Party" and collectively the "Indemnified Parties") from and against all - ----- ------------------- liabilities, Liens, Taxes, losses, obligations, claims, damages (including, without limitation, penalties, fines, court costs and administrative service fees), penalties, demands, causes of action, suits, proceedings (including any investigations, litigation or inquiries), judgments, orders, sums paid in settlement of claims, and costs and expenses of any kind or nature whatsoever, including, without limitation, reasonable attorneys' fees and expenses and all other expenses incurred in connection with investigating, defending or preparing to defend any cause of action, suit or proceeding (including any investigations, litigation or inquiries) or claim which may be incurred by or asserted against or involve any of them (whether or not any of them is named as a party thereto) as a result of, arising directly or indirectly out of or in any way related to (i) any actual or proposed use by the Lessor or the Company of the proceeds of any of the Loans or LI Fundings, (ii) any other aspect of this Agreement, the Notes, and the other Operative Documents, (iii) the operations of the business of the Company, 61 (iv) the failure of the Company to comply with any Governmental Requirement (including, without limitation, design, construction, manufacture, engineering, assembly, installation, use, operation or ownership of the Facility or any portion thereof), (v) the breach of any representation or warranty set forth herein regarding Environmental Requirements, (vi) the failure of the Company as Acquisition/Construction Agent for the Lessor to pay any amount required to be paid hereunder, including, without limitation, principal and interest on the Notes or the Lessor Investment and LI Yield (whether or not the Lease has terminated), (vii) the failure of the Company to perform any obligation herein required to be performed pursuant to Environmental Requirements, or any act or omission which occurred or will occur at any prior or subsequent time, or any condition or state of facts in existence at any prior or subsequent time relating in any way to the Facility which gives rise to any liability or obligation under any Environmental Requirement or gives rise to any Environmental Damages, (viii) the Lessor's ownership and leasing of the Facility pursuant to the Lease, (ix) the sale of any portion of the Facility either to the Company or any other Person pursuant to the provisions of the Lease, (x) all acts or omissions of the Company, (xi) any Imposition, Lien, judgment, order, tax, or other payment owing in respect of the Facility or which the Company is obligated to discharge or pay to any Person, (xii) any action or omission of the Company pursuant to, or breach of or failure to perform under, the Agency Agreement, (xiii) any injury to, or death of, any Person, or damage to or loss of Property to the extent not reimbursed by insurance prior to the Indemnified Party having to make any payment in respect thereof, or any other thing occurring on or resulting from activities on the Facility or any portion thereof, (xiv) the renovation, construction, leasing, subleasing, operation, occupancy, possession, use or non-use by the Company (whether in its individual capacity or as Acquisition/Construction Agent for the Lessor) of the Facility or any portion thereof, or the condition of the Facility or any portion thereof, (xv) any Default or Event of Default under the Lease or this Agreement, (xvi) any act or omission of the Company or its agents, contractors, licensees, invitees, representatives or any other Person on or relating to, or in connection with, the ownership, renovation, construction, leasing, subleasing, operation, management, maintenance, occupancy, possession, use, non-use or condition of the Facility or any portion thereof, (xvii) performance of any labor or services or furnishing of any materials or other Property in respect of the Facility or any portion thereof, (xviii) any permitted contest referred to in Section 13 of the Lease, (xix) any claims for patent, trademark, trade name or copyright infringement or (xx) any violation by the Company of any Operative Document or any Related Contracts or any other contract or agreement to which the Company is a party, or of any Insurance Requirement, in each case affecting any Indemnified Party, the Facility or any portion thereof or the ownership, operation, occupancy, possession, use, non-use or condition thereof, in each case regardless of the acts or 62 omissions of any Indemnified Party, it being the intent of the Company, to the fullest extent permitted by applicable law, to indemnify the Indemnified Parties for their own negligent acts or omissions (other than gross negligence or wilful misconduct) in connection with any of the foregoing (collectively, the "Indemnified Risks"); provided, however, that no Indemnified Party shall be - ------------------ -------- ------- entitled to indemnity (or any other payment or reimbursement) for any Indemnified Risks to the extent such Indemnified Risks result from or arise out of one or more of the following: (1) any representation or warranty by such Indemnified Party in the Operative Documents being incorrect; (2) the willful misconduct or gross negligence of, or the violation of any law, rule or regulation binding upon such Indemnified Party; (3) the failure on the part of the Lessor or the Agent to distribute in accordance with this Agreement any amounts received and distributable by it hereunder; (4) a claim arising from the offer, sale or delivery of a Note or an interest in a Note or this Agreement by such Indemnified Party (other than the Lessor, subject nevertheless to clause (2) above) for a violation of any Governmental Requirement unless such violation was caused by some performance or nonperformance of the Company; (5) claims of such Indemnified Party which is a Lender or the Agent arising because of a claim against such Indemnified Party brought by another Lender or the Agent; (6) any claim for economic losses based upon the rate of return of the Loans; and (7) payment of the principal of the Tranche B Loans or the LI Fundings in the circumstances described in Section 3.05(b), if the Company shall have paid the Final Rent Payment or the Completion Costs Payment, as applicable, and complied with its other obligations under the Operative Documents. (c) If a claim is to be made by an Indemnified Party under this Section, the Indemnified Party shall give written notice to the Company promptly after the Indemnified Party receives actual notice of any cause of action, suit, proceeding, claims or expense incurred or instituted for which the indemnification is sought. If requested by the Company in writing, and so long as no Default or Event of Default shall have occurred and be continuing, the Company may, at its election, conduct the defense of any such cause of action, suit, proceeding or claim to the extent such contest may be conducted in good faith on legally supported grounds. If any lawsuit or enforcement action is filed against any Indemnified Party entitled to the benefit of indemnity under this Section, written notice thereof shall be given to the Company as soon as practicable (and in any event within 15 days after the service of the citation or summons). Notwithstanding the foregoing, the failure so to notify the Company as provided in this Section will relieve the Company from liability hereunder only if and to the extent that such failure results in the forfeiture by the Company of substantive rights and defenses. After such notice, the Company shall be entitled, if it so elects, to take control of the defense and investigation of such lawsuit or action and to employ and engage counsel of its own choice reasonably acceptable 63 to the Indemnified Party to handle and defend the same, at the Company's cost, risk and expense; provided, however, that the Company and its counsel shall -------- ------- proceed with diligence and in good faith with respect thereto. If (i) the engagement of such counsel by the Company would present a conflict of interest which would prevent such counsel from effectively defending such action on behalf of the Indemnified Party, (ii) the defendants in, or targets of, any such lawsuit or action include both the Indemnified Party and the Company, and the Indemnified Party reasonably concludes that there may be legal defenses available to it that are different from or in addition to those available to the Company, (iii) the Company fails to assume the defense of the lawsuit or action or to employ counsel reasonably satisfactory to such Indemnified Party, in either case in a timely manner, or (iv) a Default or Event of Default shall occur and be continuing, then such Indemnified Party may employ separate counsel to represent or defend it in any such action or proceeding and the Company will pay the reasonable fees and disbursements of such counsel; provided, however, -------- ------- that each Indemnified Party shall endeavor, but shall not be obligated, in connection with any matter covered by this Section which also involves other indemnitees, to use reasonable efforts to avoid unnecessary duplication of efforts by counsel for all indemnitees. The Indemnified Party shall cooperate (with all claims and expenses associated therewith to be paid by the Company) in all reasonable respects with the Company and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom and the Indemnified Party may participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. If (i) the Company is required to indemnify an Indemnified Party pursuant hereto and (ii) the Company has provided evidence reasonably satisfactory to such Indemnified Party that the Company has the financial wherewithal to reimburse such Indemnified Party for any amount paid by such Indemnified Party with respect to such indemnified proceeding, then such Indemnified Party shall not settle or compromise any such indemnified proceeding without the prior written consent of the Company (which consent shall not be unreasonable withheld or delayed) and shall only settle or compromise any such indemnified proceeding on reasonable terms. Any indemnity provided by the Company under any Operative Document, notwithstanding any provision contained therein to the contrary, shall be governed by the provisions of this Section 11.03. (d) The obligations of the Company under this Section 11.03 shall survive the expiration or any termination of this Agreement (whether by operation of law or otherwise) and the payment of amounts owed by the Lessor and the Company under this Agreement, the Notes and the other Operative Documents, and shall also expressly survive any sale, transfer or conveyance of the Facility made by the Lessor pursuant to the Lease. 64 (e) Upon demand for payment by any Indemnified Party of any Indemnified Risks incurred by it for which indemnification is sought, the Company shall pay when due and payable the full amount of such Indemnified Risks to the appropriate party, unless and only so long as: (i) the Company shall have assumed the defense of such action and is diligently prosecuting the same; (ii) the Company is financially able to pay all its obligations outstanding and asserted against the Company at that time, including the full amount of the Indemnified Risks; and (iii) the Company has taken all action as may be reasonably necessary to prevent (1) the collection of such Indemnified Risks from the Indemnified Party; (2) the sale, forfeiture or loss of the Facility or any portion thereof during such defense of such action; and (3) the imposition of any civil or criminal liability for failure to pay such Indemnified Risks when due and payable. (f) The Company acknowledges and agrees that (i) its obligations under this Section 11.03 are intended to include and extend to any and all liabilities, Liens, Taxes, losses, obligations, claims, damages (including, without limitation, penalties, fines, court costs and administrative service fees), penalties, demands, causes of action, suits, proceedings (including any investigations, litigation or inquiries), judgments, orders, sums paid in settlement of claims, costs and expenses (including, without limitation, response and remediation costs, stabilization costs, encapsulation costs, and treatment, storage or disposal costs), imposed upon or incurred by or asserted at any time against any Indemnified Party (whether or not indemnified against by any other party) as a result of, arising directly or indirectly out of or in any way related to (A) the treatment, storage, disposal, generation, use, transport, movement, presence, release, threatened release, spill, installation, sale, emission, injection, leaching, dumping, escaping or seeping of any Hazardous Materials at or from the Facility or any part thereof; (B) the violation or alleged violation of any Environmental Laws relating to or in connection with the Facility or any part thereof or any acts or omissions thereon or relating thereto; (C) all other federal, state and local laws designed to protect the environment or persons or property therein, whether now existing or hereinafter enacted, promulgated or issued by any governmental authority relating to or in connection with the Facility or any part thereof or any acts or omissions thereon or relating thereto; (D) the Company's failure to comply with its obligations under Section 7 of the Lease; and (E) any abandonment of the Facility by the Company; provided, however that no Indemnified Party shall be -------- ------- entitled to indemnity or any other payment or reimbursement for any of the types of claims enumerated in this Section 11.03(f) to the extent such claims result from or arise out of the willful misconduct or gross negligence of such Indemnified Party; and (ii) the indemnification provided for under this Section 11.03(f) shall be governed by the procedures set forth in Sections 11.03(c)-(e) above. 65 (g) Without limiting the generality of the foregoing provisions of this Section 11.03, the Company agrees to pay or reimburse, promptly upon demand, and protect, indemnify and save harmless, the Lessor, as Lessor under the Lease, following the occurrence of a Termination Event, from any action by any owner of an interest in the Facility (other than a Co-Lessee) which causes the Lessor, as Lessor under the Lease, any delay in exercising its remedies, or results in the reduction of the Lessor's remedies, under the Lease. Upon demand of the Lessor, as Lessor under the Lease, for indemnification pursuant to this Section 11.03(g), the Company agrees that it will, within twenty (20) days of such demand from the Lessor, (a) purchase the Notes from the Lenders for a purchase price equal to the principal balance, accrued, unpaid interest, fees and expenses, and all other amounts then owing by the Lessor to the Lenders as advised to the Company in writing by the Agent, and (b) redeem the Lessor Investment for a purchase price equal to the outstanding amount thereof, accrued and unpaid LI Yield, fees and expenses, and all other amounts then owing by the Lessor to the Lenders as advised to the Company and in writing to the Agent. (h) In case any action shall be brought against any Indemnified Party in respect of which indemnity may be sought against the Company, such Indemnified Party shall promptly notify the Company in writing, but the failure to give such prompt notice shall not relieve the Company from liability hereunder. Section 11.04 No Waiver; Remedies. No failure on the part of any ------------------- Lender, the Agent or the Lessor to exercise, and no delay in exercising, any right hereunder or under any Note, any Operative Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder or under any Note, or Operative Document preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 11.05 Right of Set-Off. Upon the declaration of the Notes as ---------------- due and payable pursuant to the provisions of Section 9.02, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Company against any and all of the obligations of the Company now or hereafter existing under this Agreement, the Notes of the Company held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement, such Notes and although such obligations may be unmatured. Each Lender agrees promptly to notify the Company after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the -------- validity of such set-off and application. The rights of each Lender under this Section 11.05 are in addition to 66 other rights and remedies (including, without limitation, other rights of set- off) which such Lender may have. Section 11.06 Assignments and Participations. ------------------------------ (a) Neither the Lessor nor the Company may assign its rights or obligations hereunder or under the Notes or any other Operative Document without the prior consent of all of the Lenders and the Agent. Except during the existence of an Event of Default, neither the Lessor nor the Agent may, without the prior written consent of the Company, assign any interest under the (i) Ground Lease, except in accordance with Section 9 thereof, or (ii) the Lease, except in accordance with Sections 12 and 21 thereof. (b) Each Lender may at any time assign to one or more banks or other financial institutions all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loan Commitment, the Loans owing to it and the Note held by it) and the assignee thereof shall assume all such rights and obligations pursuant to an Assignment and Acceptance; provided, however, that (i) each such assignment shall be of a -------- ------- constant, and not a varying, percentage of all rights and obligations under this Agreement, (ii) no interest may be sold by a Lender pursuant to this Section 11.06(b) unless the assignee shall agree to assume ratably equivalent portions of the assigning Lender's rights and obligations under this Agreement, (iii) the amount of the Loan Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000, or integral multiples of $1,000,000 in excess thereof, in the case of assignments of Loan Commitments (or, if less, the entire Commitment of the assigning Lender), (iv) each such assignment shall be to an Eligible Assignee, (v) a Lender may not have more than two (2) assignees that are not then Lenders at any one time and (vi) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note subject to such assignment and a processing and recordation fee of $2,500, and shall send to the Company an executed counterpart of such Assignment and Acceptance. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (A) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and 67 obligations under this Agreement, such Lender shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, each assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or the performance or observance by the Company of any of its obligations under this Agreement or any other Operative Document; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 7.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as either a Lender. (d) The Agent shall maintain at its address referred to in Section 11.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Loan Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be -------- conclusive and binding for all purposes, absent manifest error, and the Company, the Lessor, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. Upon the acceptance of any Assignment and Acceptance for recordation in the Register, Exhibit D hereto shall be deemed to be amended to reflect either --------- the revised Loan Commitments of the Lenders parties to such 68 Assignment and Acceptance as well as administrative information with respect to any new Lender as such information is recorded in the Register. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with any Note subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit D hereto, (i) accept such Assignment and Acceptance, (ii) record the - --------- information contained therein in the Register and (iii) give prompt notice thereof to the Lessor, the Company; within five (5) Business Days after its receipt of such notice and its receipt of an executed counterpart of such Assignment and Acceptance, the Lessor, at the expense of the Company, shall execute and deliver to the Agent in exchange for the surrendered Note, or a new Note, as appropriate, to the order of such Eligible Assignee in an amount equal to the Loan Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Loan Commitment, a new Note, to the order of the assigning Lender in an amount equal to the Loan Commitment retained by it hereunder. Such new Note shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note, shall be dated the date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit B or Exhibit C, as applicable. --------- --------- (f) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loan Commitment and the Loans owing to it and the Notes held by it); provided, -------- however, that (i) such Lender's obligations under this Agreement (including, - ------- without limitation, its Loan Commitment to the Lessor hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Notes for all purposes of this Agreement, (iv) the Company, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with its rights and obligations under this Agreement and the other Operative Documents, (v) such Lender shall continue to be able to agree to any modification or amendment of this Agreement or any waiver hereunder without the consent, approval or vote of any such participant or group of participants, other than modifications, amendments and waivers which (A) postpone any date fixed for any payment of, or reduce any payment of, principal of or interest on such Lender's Notes or (B) increase the amount of such Lender's Loan Commitment in a manner which would have the effect of increasing the amount of a participant's participation, or (C) reduce the interest rate payable under this Agreement and such Lender's Note, or (D) consent to the assignment or the transfer by the Company or the Lessor of any of its rights and obligations under this Agreement and (vi) except as contemplated 69 by the immediately preceding clause (v), no participant shall be deemed to be or to have any of the rights or obligations of a "Lender" hereunder. (g) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 11.06, disclose to the assignee or participant or proposed assignee or participant any information relating to the Company furnished to such Lender by or on behalf of the Company; provided that, prior to any such disclosure, the assignee or -------- participant or proposed assignee or participant shall agree in writing for the benefit of the Company to preserve the confidentiality of any confidential information relating to the Company received by it from such Lender in a manner consistent with Section 11.13. (h) Anything in this Agreement to the contrary notwithstanding, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Loans owing to it) and the Note issued to such Lender hereunder in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System (or any successor regulation) and the applicable operating circular of such Federal Reserve Bank. (i) Notwithstanding any other provision of this Agreement or any other Operative Document, neither the Company nor any of its respective Affiliates may acquire any of the Notes or the Lessor Investment unless the Company or such Affiliate acquires all of the Notes and the entire Lessor Investment in a single transaction and thereby becomes bound by the provisions hereof; and unless the Company or such Affiliate shall have acquired all of the Notes and the entire Lessor Investment, it shall not be entitled to exercise any rights or remedies of a Lender under any of the Operative Documents. (j) Notwithstanding any other provision of this Agreement to the contrary, no assignee or participant shall be entitled to receive any greater payment under Section 4.06 or 5.03 than the transferor Lender would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Company's prior written consent or by reason of the provisions of Section 5.02 or 5.03 hereof requiring such Lender to designate a different Applicable Funding Office under certain circumstances or at a time when the circumstances giving rise to such a greater payment did not exist. Section 11.07 Invalidity. In the event that any one or more of the ---------- provisions contained in the Notes, this Agreement or in any other Operative Document shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any 70 other provision of the Notes, this Agreement or any other Operative Document. Section 11.08 Entire Agreement. THE NOTES, THIS AGREEMENT AND THE ---------------- OTHER OPERATIVE DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE LENDERS, THE LESSOR, THE AGENT, THE COMPANY AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS AMONG SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN AGREEMENT, THE NOTES, AND THE OTHER OPERATIVE DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. Section 11.09 References. The words "herein," "hereof," "hereunder" ---------- and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. Any reference herein to an Article or Section shall be deemed to refer to the applicable Article or Section of this Agreement unless otherwise stated herein. Any reference herein to an exhibit or schedule shall be deemed to refer to the applicable exhibit or schedule attached hereto unless otherwise stated herein. Section 11.10 Successors; Survivals. This Agreement shall be binding --------------------- upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The obligations of the Lessor and the Company under Section 4.06, Article V, and Section 11.03 shall survive the repayment of the Loans, the LI Fundings and the termination of the Commitments. Section 11.11 Captions. Captions and section headings appearing -------- herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. Section 11.12 Counterparts. This Agreement may be executed in any ------------ number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Delivery to the Agent of a counterpart executed by a Lender shall constitute delivery of such counterpart to all of the Lenders. This Agreement may be delivered by facsimile transmission of the relevant signature pages hereof. Section 11.13 Confidentiality. Each Lender, the Agent and the Lessor --------------- (each, a "Party") agrees to exercise commercially reasonable efforts to keep any ----- information delivered or made available by the Company to it which is clearly indicated or stated to be confidential information (or when the circumstances under which such information is delivered or when the content thereof would cause a reasonable person to believe that such information is confidential), confidential from anyone other than Persons employed or retained by such Party who are or are expected to become engaged in evaluating, approving, structuring 71 or administering the Loans, the LI Fundings, or the Operative Documents (such Persons to likewise be under similar obligations of confidentiality with respect to such information); provided, however, that nothing herein shall prevent any -------- ------- Party from disclosing such information (a) to any other Party, (b) upon the order of any court or administrative agency, (c) upon the request or demand of any regulatory agency or authority having jurisdiction over such Party, (d) which has been publicly disclosed, (e) to the extent reasonably required in connection with any litigation to which any Party or its respective affiliates may be a party, (f) to the extent reasonably required in connection with the exercise of any remedy hereunder, (g) to such Party's legal counsel and independent auditors, and (h) to any actual or proposed Lender, Eligible Assignee or other transferee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section 11.13; provided -------- that should disclosure of any such confidential information be required by virtue of clause (b), (c) or (e) of the immediately preceding sentence, any relevant Party shall promptly notify the Company of same so as to allow the Company to seek a protective order or to take any other appropriate action; provided, further, that no Party shall be required to delay compliance with any - -------- ------- ---- directive to disclose beyond the last date such delay is legally permissible any such information so as to allow the Company to effect any such action. Section 11.14 GOVERNING LAW; SUBMISSION TO JURISDICTION. ----------------------------------------- (a) This Agreement, the Notes and the other Operative Documents (including, but not limited to, the validity and enforceability hereof and thereof) shall be governed by, and construed in accordance with, the laws of the State of Georgia, other than the conflict of laws rules thereof. (b) The Company hereby irrevocably submits to the jurisdiction of any Georgia or Federal court sitting in Atlanta, Georgia and any appellate court from any thereof in any action or proceeding by the Agent or any Lender in respect of, but only in respect of, any claims or causes of action arising out of or relating to this Agreement, the Notes, or the other Operative Documents (such claims and causes of action, collectively, being "Permitted Claims"), and ---------------- the Company hereby irrevocably agrees that all Permitted Claims may be heard and determined in such Georgia State court or in such Federal court. The Company hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding in any aforementioned court in respect of Permitted Claims. Service of process may be made by delivering a copy of such process to the Company by courier and by certified mail (return receipt requested), fees and postage prepaid at the Company's address specified pursuant to Section 11.02. The Company agrees that a final judgment in any such action or proceeding shall be conclusive and may be 72 enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Section 11.15 Interest; LI Yield. It is the intention of the parties ------------------ hereto that each Lender and the Lessor shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to any Lender or the Lessor under laws applicable to it (including the laws of the United States of America and the State of Georgia or any other jurisdiction whose laws may be mandatorily applicable to such Lender or the Lessor notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in the Notes, this Agreement or in any other Operative Document or any other agreement entered into in connection with or as security for the Notes or the Lessor Investment, it is agreed as follows: (i) the aggregate of all consideration (whether interest on the Loans or LI Yield) which constitutes interest under law applicable to any Lender or the Lessor that is contracted for, taken, reserved, charged or received by such Lender or the Lessor under the Notes, the Lessor Investment, this Agreement or under any of the other aforesaid Operative Documents or other agreements or otherwise in connection with the Notes or the Lessor Investment shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be cancelled automatically and if theretofore paid shall be credited by such Lender or the Lessor on the principal or face amount of the Notes or the unrecovered Lessor Investment (or, to the extent that the principal or face amount of the Notes or the unrecovered Lessor Investment shall have been or would thereby be paid in full, refunded by such holder thereof); and (ii) in the event that the maturity of the Notes is accelerated or the Lessor Investment called by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any holder thereof may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be cancelled automatically by such holder thereof as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal or face amount of the Notes, or the unrecovered Lessor Investment, as the case may be (or, to the extent that the principal or face amount of the Notes or the unrecovered Lessor Investment shall have been or would thereby be paid in full, refunded by the holder thereof). All sums paid or agreed to be paid to any Lender or the Lessor for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender or the Lessor, be amortized, prorated, allocated and spread in equal parts throughout the full term of the Loans evidenced by the Notes or Lessor Investment until payment in full so that the rate or amount of interest on account of any Loans or LI Yield hereunder does not exceed the maximum amount allowed by such 73 applicable law. If at any time and from time to time (i) the amount of interest or yield payable to any Lender or LI Yield payable to the Lessor on any date shall be computed at the Highest Lawful Rate applicable to such Lender or Lessor pursuant to this Section 11.15 and (ii) in respect of any subsequent interest or yield computation period the amount of interest or yield otherwise payable to such Lender or LI Yield payable to the Lessor would be less than the amount of interest or yield payable to such Lender or Lessor computed at the Highest Lawful Rate applicable to such Lender or Lessor, then the amount of interest or yield payable to such Lender or Lessor in respect of such subsequent interest or yield computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender or Lessor until the total amount of interest or yield payable to such Lender or Lessor shall equal the total amount of interest or yield which would have been payable to such Lender or Lessor if the total amount of interest or yield had been computed without giving effect to this Section. To the extent that Article 5069-1.04 of the Texas Revised Civil Statutes is relevant to any Lender or Lessor for the purpose of determining the Highest Lawful Rate, each such Lender or Lessor hereby elects to determine the applicable rate ceiling under such Article by the indicated (weekly) rate ceiling from time to time in effect. Section 11.16 Characterization. ---------------- (a) In order to protect the rights and remedies of the Lessor, the Agent and the Lenders for the purposes of Federal, state and local income and ad valorem taxes and Title 11 of the United States Code (or any other applicable Federal, state or local insolvency, reorganization, moratorium, fraudulent conveyance or similar law now or hereafter in effect), the parties hereto intend that (i) the Lease be treated as the repayment and security provisions of a loan by the Lessor to the Company in the amount of the Facility Cost, (ii) all payments of Basic Rent, Interim Special Rent, Supplemental Rent, the Final Rent Payment or the Completion Costs Payment, as applicable, the Termination Value and the Purchase Price be treated as payments of principal, interest and other amounts owing with respect to such loan and (iii) the Company be treated as entitled to all benefits of ownership of the Facility or any part thereof. In addition, the parties acknowledge that after payment in full of the Notes, the interest and yield accrued thereon and any other obligations of the Company under the Operative Documents, any remaining proceeds of the Facility shall be distributed to the Company. (b) The Company agrees that neither it nor any of its Affiliates (whether or not consolidated or combined returns are filed for any such Affiliate and the Company for federal, state or local income tax purposes) will at any time take any action, directly or indirectly, or file any return or other document 74 inconsistent with the intended income tax treatment set forth in the preceding sentence, and the Company agrees that the Company and any such Affiliates will file such returns, maintain such records, take such action and execute such documents (as reasonably requested by the Lessor, the Agent or the Lenders from time to time) as may be appropriate to facilitate the realization of such intended income tax treatment. Each of the Lessor, the Agent and the Lenders agrees that neither it nor any affiliate (whether or not consolidated or combined returns are filed for such affiliate and the Lessor, the Agent or any Lender, as the case may be, for federal, state or local income tax purposes) will at any time take any action, directly or indirectly, or file any return or other document claiming, or asserting that it is entitled to, the income tax benefits, deductions and/or credits which, pursuant to the intended income tax treatment set forth herein, would otherwise be claimed or claimable by the Company, and that it and any such affiliates will file such returns, maintain such records, take such actions, and execute such documents (as reasonably requested by the Company from time to time) as may be appropriate to facilitate the realization of, and as shall be consistent with, such intended income tax treatment, and if any such filing, maintenance, action or execution requested by the Company would result in any additional income tax liability payable by it or any affiliate, or could reasonably be expected to result in liability payable by it or any affiliate, unrelated to the intended income tax treatment set forth herein, then the Company will provide an indemnity against such unrelated income tax liability satisfactory to the Lessor, the Agent or any Lender, as the case may be, in its sole opinion. (c) The Company acknowledges that neither any Lender, the Agent, the Lessor or any Affiliate of any thereof is making any representation, nor is it required to make any disclosure, now or in the future, with respect to the parties' tax or accounting treatment of the Facility or the financing thereof, nor is any Lender, the Agent, the Lessor or any Affiliate or any thereof responsible, nor will it be responsible in the future, for tax and accounting advice with respect to the Facility or the financing thereof, and the Company has had or will have the benefit of the advice of its own independent tax and accounting advisors with respect to such matters. Section 11.17 Compliance. Neither the Lessor, the Agent nor any ---------- Lender has any responsibility for compliance by the Facility or the Company with any Governmental Requirement or other matters. The Company expressly assumes such responsibilities and shall indemnify and hold harmless the Lessor, the Agent and the Lenders with respect thereto in the manner provided in the Lease. Section 11.18 Facility. Upon payment by the Company of the Purchase -------- Price in connection with its purchase of all of the Facility in accordance with the Lease or the Agency Agreement, or the repayment in full of all amounts then due and 75 owing by the Company under the Operative Documents, and promptly upon the request of the Company, the Lessor will convey the Facility to the Company or its designee free and clear of any Lien or other adverse interest of any kind created by the Lessor or any Person claiming by, through or under the Lessor, including, without limitation, the Agent and the Lenders (except as consented to by the Company). Section 11.19 The Lessor. Except for liability for its own ---------- representations and warranties in Section 7.02 hereof, and for its own gross negligence and willful misconduct and as otherwise expressly provided in any of the Operative Documents, the Company, the Agent and the Lenders hereby agree that nothing contained herein or in the other Operative Documents shall be construed to create any liability of the Lessor, individually, to perform any obligation of the Lessor contained herein or in the other Operative Documents. The Company, the Agent and the Lenders hereby expressly waive all liability on the part of the Lessor except as provided in the preceding sentence and agree that the Lessor shall under no circumstances be personally liable for the payment of the Notes, or any other obligations of the Lessor or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Lessor under this Agreement or the other Operative Documents except as provided above. The Lessor agrees that all payments to be made to the Agent or the Lessor under any of the Operative Documents which originate from the Company shall be made directly by the Company to the Agent and all fundings to be made to the Lessor hereunder shall be made directly to the Company. Section 11.20 Lenders. No recourse under any obligation, covenant or ------- agreement of any Lender contained in this Agreement, any Operative Document or any agreement or document executed in connection herewith or therewith or the transactions contemplated hereby or thereby shall be had against any shareholder, employee, officer, director, affiliate or incorporator of the Lenders. The obligations, covenants and agreements of the Lenders under any of the foregoing agreements and documents are solely the corporate obligations of the Lenders, and the other parties hereto agree to look solely to the Lenders for payment of all obligations, including, without limitation, any fees or other amounts due hereunder or thereunder, and claims arising out of or relating to any of the foregoing agreements and documents. The provisions of this Section shall survive the termination of this Agreement. 76 The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. The Company: SCIENTIFIC-ATLANTA, INC. By: /s/ H. A. WAGNER ---------------------------------------------------- Name: Harvey A. Wagner Title: Senior Vice President-Finance, Chief Financial Officer & Treasurer Principal Place of Business: One Technology Parkway, South, ------------------------------ Norcross, Georgia 30092-2967 ------------------------------ Chief Executive Offices: One Technology Parkway, South, ------------------------------ Norcross, Georgia 30092-2967 ------------------------------ 77 Lessor: WACHOVIA CAPITAL MARKETS, INC. By: /s/ Joseph J. Thomas ---------------------------------------------------- Name: Joseph J. Thomas Title: Senior Vice President Applicable Funding Office for Lessor Investments: 191 Peachtree Street, N.E. Atlanta, Georgia 30303 Agent: WACHOVIA BANK, N.A., as Agent By: /s/ Karen H. McClain ---------------------------------------------------- 78 EXHIBITS AND SCHEDULES TO THIS AGREEMENT ARE NOT FILED WITH THIS EXHIBIT 10(s), BUT ARE AVAILABLE UPON REQUEST. EX-10.(T) 14 LEASE AGREEMENT Exhibit 10(t) AFTER RECORDING RETURN TO: Christopher L. Carson, Esq. Jones, Day, Reavis & Pogue 3500 One Peachtree Center 303 Peachtree Street Atlanta, Georgia 30308-3242 LEASE AGREEMENT Dated as of July 30, 1997 Between WACHOVIA CAPITAL MARKETS, INC., as the Lessor, and SCIENTIFIC-ATLANTA, INC., as the Lessee - -------------------------------------------------------------------------------- This Lease Agreement is also a deed to secure debt and security agreement between the Lessee, SCIENTIFIC-ATLANTA, INC., with an address at One Technology Parkway, South, Norcross, Georgia 30092-2967, as grantor and debtor, and the Lessor, WACHOVIA CAPITAL MARKETS, INC., with an address at 191 Peachtree Street, N.E., Atlanta, Georgia 30303, as grantee and secured party, securing indebtedness in the amount of THIRTY EIGHT MILLION AND NO/100 DOLLARS ($38,000,000.00). The collateral subject to the security interest includes personal property that is, or may become, fixtures attached to the real property described in this Lease Agreement. This Lease Agreement should be filed and recorded in the real estate records as a lease and as a deed to secure debt and fixture filing. WACHOVIA CAPITAL MARKETS, INC. should be indexed as the grantor of the lease and the grantee of the deed to secure debt and security interest. SCIENTIFIC-ATLANTA, INC. should be indexed as the grantee of the Lease and the grantor of the deed to secure debt and security interest. The maturity date (unless extended as provided herein) of this instrument is July 30, 2004. The addresses of the Lessee and the Lessor are set forth on the signature pages hereof. TABLE OF CONTENTS
PAGE Section 1. Certain Defined Terms........................ 1 Section 2. Lease of Facility............................ 2 Section 3. Payments..................................... 3 Section 4. Estate in Land............................... 7 Section 5. Credit Agreement; Agency Agreement........... 7 Section 6. Title to Remain in the Lessor................ 8 Section 7. Maintenance of the Facility; Operations...... 8 Section 8. Modifications................................ 9 Section 9. Further Assurances........................... 9 Section 10. Compliance with Governmental Requirements and Insurance Requirements: Related Contracts.... 10 Section 11. Condition and Use of Facility; Quiet Enjoyment.................................... 10 Section 12. Liens; Transfers............................. 12 Section 13. Permitted Contests........................... 13 Section 14. Insurance, etc............................... 14 Section 15. Termination; Cancellation; Purchase Option... 17 Section 16. Transfer of Title on Removal of Facility; Expenses of Transfer......................... 20 Section 17. Events of Default and Remedies............... 22 Section 18. Change in the Lessee's Name or Structure..... 26 Section 19. Inspection; Right to Enter Premises of the Lessee....................................... 26 Section 20. Right to Perform the Lessee's Covenants...... 26 Section 21. Participation by Co-Lessees or Sublessees.... 27
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TABLE OF CONTENTS ----------------- (continued) Page ---- Section 22. Notices...................................... 28 Section 23. Amendments and Waivers....................... 28 Section 24. Severability................................. 28 Section 25. Federal Income Tax Considerations............ 28 Section 26. Other Provisions............................. 29 Section 27. Miscellaneous................................ 33 Section 1. Certain Defined Terms........................ 1 Section 2. Lease of Facility............................ 1 Section 3. Payments..................................... 3 Section 4. [ RESERVED ]................................. 8 Section 5. Credit Agreement; Agency Agreement........... 8 Section 6. Title to Remain in the Lessor................ 8 Section 7. Maintenance of the Facility; Operations...... 9 Section 8. Modifications................................ 10 Section 9. Further Assurances........................... 11 Section 10. Compliance with Governmental Requirements and Insurance Requirements: Related Contracts.... 11 Section 11. Condition and Use of Facility; Quiet Enjoyment.................................... 12 Section 12. Liens........................................ 14 Section 13. Permitted Contests........................... 14 Section 14. Insurance, etc............................... 15 Section 15. Termination; Cancellation; Purchase Option... 17
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TABLE OF CONTENTS ----------------- (continued) Page ---- Section 16. Transfer of Title of Facility; Expenses of Transfer..................................... 20 Section 17. Events of Default and Remedies............... 23 Section 18. Change in the Lessee's Name or Structure..... 26 Section 19. Inspection; Right to Enter Premises of the Lessee....................................... 26 Section 20. Right to Perform the Lessee's Covenants...... 27 Section 21. Participation by Co-Lessees or Sublessees.... 27 Section 22. Notices...................................... 28 Section 23. Amendments and Waivers....................... 29 Section 24. Severability................................. 29 Section 25. Federal Income Tax Considerations............ 29 Section 26. Other Provisions............................. 29 Section 27. Option to Purchase Parcels................... 34 Section 28. Miscellaneous................................ 37 EXHIBIT A Description of Site
iii LEASE AGREEMENT This Lease Agreement dated as of July 30, 1997, (as the same may be amended, modified or supplemented from time to time, this "Lease") is between ----- WACHOVIA CAPITAL MARKETS, INC., a Georgia corporation (together with its successors and permitted assigns, the "Lessor"), and SCIENTIFIC-ATLANTA, INC., a ------ Georgia corporation (together with its successors and permitted assigns, the "Lessee"). - ------- RECITALS -------- WHEREAS, the Lessor has acquired, pursuant to the terms of the Ground Lease (defined in Schedule 1(b)), a leasehold interest in certain real property in Gwinnett County, Georgia, described in greater detail on Exhibit A (the "Site"), together with existing improvements thereon, and all appurtenances ---- thereto and has entered into certain agreements described in greater detail in that certain Credit and Investment Agreement bearing even date herewith entered into by and among Lessor, Lessee, Wachovia Bank, N.A. and certain other parties thereto from time to time (the "Credit Agreement") to construct certain ---------------- Improvements on the Site in accordance with the Permitted Use and applicable law consisting of 2 buildings, and a parking deck on the Site to be used for commercial office space and light assemblage facilities, together with related enhancements and improvements in accordance with the Permitted Use and applicable law; and WHEREAS, subject to the terms and conditions of this Lease, the Lessee desires to lease from the Lessor the Site and such enhancements and Improvements beginning on the Lease Commencement Date for the purpose of occupying and using the Site and such enhancements and improvements as commercial office space and light assemblage facilities in accordance with the terms and conditions set forth in this Lease. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Lessor and the Lessee agree as follows: Section 1. Certain Defined Terms. --------------------- (i) In this Lease, the terms "Lease," "Lessee," and "Lessor" shall have the meanings indicated above. (ii) As used in this Lease, all other capitalized terms shall have the meanings assigned such terms in Schedule 1(b) attached hereto and by reference made a part hereof. Section 2. Lease of Facility. ----------------- (a) During the term of and subject to the terms and conditions of this Lease, the Lessor hereby leases to the Lessee, and the Lessee hereby leases from the Lessor, the Facility for the Lease Term to be occupied and used (i) to cause Completion of the Facility during the portion of the Lease Term consisting of the Construction Term in accordance with the Agency Agreement and (ii) for and only for the Permitted Use with respect to the Basic Term. The entire Facility shall become subject to this Lease as of the effective date hereof; provided that the Lessor will deliver possession of the Facility to Lessee for occupancy and operation in accordance with the Permitted Use in conjunction with and to the extent permitted by certificates of occupancy issued by the applicable Governmental Authority. (b) Unless earlier terminated in accordance with the other provisions hereof, including without limitation, Sections 15 and 17, this Lease shall terminate on the Scheduled Lease Termination Date. If, but only if, (i) the Maturity Date of the Loans and Lessor Investment shall have been extended pursuant to Section 2.09 of the Credit Agreement to the extended Scheduled Lease Termination Date proposed by the Lessee as provided herein, and (ii) the Lessee, on any day that is not less than six (6) months and no more than twelve (12) months prior to the then current Scheduled Lease Termination Date shall have requested in writing to the Lessor and the Agent the extension of the then current Scheduled Lease Termination Date for up to five (5) years expiring on or before the fifth (5th) year anniversary of the then current Scheduled Lease Termination Date, then the Lessor shall consent to such extension in writing and the Scheduled Lease Termination Date shall be extended to the date requested by the Lessor which date shall be on or prior to (as requested by the Lessee) the fifth (5th) year anniversary of the then current Scheduled Lease Termination Date; provided, that in no case shall there be more than 3 such extensions. Any -------- such extension shall be effective upon the execution of documentation evidencing the same (which the Lessor agrees to execute promptly upon request of the Lessee if the Lessor's consent to such extension is to be given pursuant hereto), and containing such additional terms as the Agent, acting in its sole discretion, may require; provided that no such documentation or additional terms shall impose any additional liability on Lessor. In the event it is determined at any time that the term of this Lease will not be extended beyond the original Scheduled Lease Termination Date, or if Agent declares an Event of Default, the Lessee shall give to the Lessor and the Agent written notice as provided below specifying which of the options under Section 2 15(a)(ii) of this Lease the Lessee intends to exercise upon the applicable Lease Termination Date: (x) if the Scheduled Lease Termination Date is not to be extended because the Agent or any Lender (or assignee thereof) has refused or is deemed to have refused the Lessee's request for extension, then the Lessee shall give the Lessor notice within thirty (30) days of the earlier to occur of (A) the date the Lessee receives written notice of said refusal or (B) the date of such deemed refusal pursuant to Section 2.09 of the Credit Agreement; (y) if the Scheduled Lease Termination Date is not to be extended because the Lessee chooses not to request such extension, the Lessee shall give the Lessor notice on any date that is not less than six (6) months and no more than twelve (6) months prior to the then current Scheduled Lease Termination Date; and (z) if the Agent declares an Event of Default, the Lessee shall give the Lessor notice within five (5) Business Days of the date the Lessee receives written notice of the Agent's declaration of an Event of Default. In the event the Lessee fails to give timely written notice to the Lessor on or before the dates herein provided, the Lessee shall be deemed to have elected to purchase the Facility on the Lease Termination Date for the Purchase Price. Section 3. Payments. -------- (a) Basic Rent. The Lessee shall pay to the Agent, for the account of ---------- the Lessor, the Agent or the Lenders, as the case may be, on the Rent Payment Date for each Rental Period the amount of Basic Rent due for such Rental Period. (b) Interim Special Rent. In the event that the Lessee, the Agent and -------------------- the Lessor, after receipt of the Approved Appraisal and consultation with Arthur Andersen LLP (or such other "Big 6" accounting firm as the Lessee may select), determine that GAAP will require additional rent to be paid in addition to Basic Rent in order to effectuate the Lessor's and Lessee's intentions with respect to the characterization of this Lease under GAAP, then, in such event, Lessee shall pay to the Agent, for the account of the Lessor such additional rent as may be agreed upon among the Lessee, the Agent and the Lessor ("Interim Special Rent"). -------------------- (c) Final Rent Payment. In addition to Basic Rent, Interim Special ------------------ Rent and Supplemental Rent, on the Lease Termination Date (whether on the Scheduled Lease Termination Date 3 or due to the occurrence of a Cancellation Event or a Termination Event or otherwise), the Lessee shall pay to Lessor the Final Rent Payment or, if the Lease Termination Date occurs by reason of the occurrence of a Non-Completion Event, the Completion Costs Payment. (d) Supplemental Rent. In addition to Basic Rent, Interim Special ----------------- Rent and the Final Rent Payment, the Lessee will also pay to the Agent, for the account of the Lessor, the Agent or the Lenders, as the case may be, from time to time, on the First Business Day of each month after accrual (if any) thereof, upon demand by the Agent or the Lessor, as additional rent ("Supplemental Rent") ----------------- the following (but without duplication of any amounts included in the calculation of Rent): (i) all out-of-pocket costs and expenses reasonably incurred by the Lessor or the Agent in connection with the preparation, negotiation, execution, delivery, performance and administration of this Lease and the other Operative Documents, including, but not limited to, the following: (A) fees and expenses of the Lessor and the Agent, including, without limitation, reasonable attorneys' fees and expenses and the fees and expenses for the Approved Appraisal, the Related Contracts, and the Surveys, the Environmental Assessment, the Soil Test Reports, the title policy referred to in Section 28(a)(xi); (B) all other amounts, owing to the Lessor, the Agent and the Lenders pursuant hereto or any other Operative Documents, including, without limitation, fees, indemnities, expenses, compensation in respect of increased costs of any kind or description payable under the Credit Agreement or any other Operative Document; (C) all yield maintenance, capital adequacy and other costs contemplated under Article V of the Credit Agreement, and (D) all out-of- pocket costs and expenses incurred by the Lessor or the Agent (and, in the case of clause (3) below, any Lender) after the date of this Lease (including, without limitation, reasonable attorneys' fees and expenses and other expenses and disbursements reasonably incurred) associated with (1) negotiating and entering into, or the giving or withholding of, any future amendments, supplements, waivers or consents with respect to this Lease; (2) any Loss Event, Casualty Occurrence or termination of this Lease; (3) any Default or Event of Default and the enforcement and preservation of the rights or remedies of the Lessor under this Lease and the other Operative Documents; and all reasonable costs and expenses incurred by the Agent or any of its affiliates in initially syndicating all or any portion of their interests under the Operative Documents, including, without limitation, the related reasonable fees and out-of-pocket expenses of counsel for the Lessor or the Agent or their affiliates, travel expenses, duplication and printing costs and courier 4 and postage fees, and excluding any fees paid to the Lessor or the Agent; and (ii) all other amounts that the Lessee agrees herein to pay other than Basic Rent, Interim Special Rent, the Final Rent Payment and amounts described in clause (i) above. (e) Computations. All computations of Basic Rent shall be made by the ------------ Lessor on the basis of a year of 360 days (or, in the case of computations based on the Prime Rate, 365/366 days), in each case for the actual number of days (including the first day but excluding the last day) occurring in the Rental Period for which such Basic Rent payments are payable. Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of Rent; provided, however, that if such extension would cause payment of Basic Rent to - -------- ------- be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (f) No Offsets. This Lease is an absolute net lease, and Rent and all ---------- other sums payable by the Lessee hereunder shall be paid without notice except as otherwise expressly provided herein, and the Lessee shall not be entitled to any abatement, reduction, setoff, counterclaim, defense or deduction with respect to any Rent or other sums payable hereunder. The obligations of the Lessee to pay Rent and all other sums payable hereunder shall not be affected by reason of: (i) any damage to, or destruction of, the Facility or any part thereof by any cause whatsoever (including, without limitation, fire, casualty or act of God or enemy or any other force majeure event); (ii) any condemnation, including, without limitation, a temporary condemnation of the Facility or any part thereof; (iii) any prohibition, limitation, restriction or prevention of the Lessee's use, occupancy or enjoyment of the Facility or any part thereof by any Person (other than by the Lessor in violation of this Lease); (iv) any matter affecting title to the Facility or any part thereof; (v) any eviction of the Lessee from, or loss of possession by the Lessee of, the Facility or any portion thereof, by reason of title paramount or otherwise (other than by the Lessor in violation of this Lease); (vi) any default by the Lessor hereunder or under any other Operative Document; (vii) the invalidity or unenforceability of any provision hereof or the impossibility or illegality of performance by the Lessor or the Lessee or both; (viii) any action of any Governmental Authority; or (ix) any other Loss Event, Casualty Occurrence or other cause or occurrence whatsoever, whether similar or dissimilar to the foregoing. The Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this 5 Lease, except as expressly provided in Section 15, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting the Lessor or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court. The Lessee waives all rights to terminate or surrender this Lease, except as expressly provided in Section 15, or to any abatement or deferment of Rent or other sums payable hereunder. The Lessee hereby waives any and all rights now or hereafter conferred by law or otherwise to modify or to avoid strict compliance with its obligations under this Lease. All payments made to the Lessor hereunder as required hereby shall be final and irrevocable, and the Lessee shall not seek to recover any such payment or any part thereof for any reason whatsoever, absent manifest error. (g) Taxes. Subject to the Lessee's contest rights under Section 13, ----- the Lessee agrees that it will promptly pay all Impositions imposed upon or levied or assessed against the Facility or any portion thereof, or against the Lessor, the Agent or any Lender in connection with the transactions contemplated by this Lease and the other Operative Documents, or imposed or levied upon, assessed against or measured by any Rent or other sums payable hereunder, or any sums levied in connection with the execution, delivery or recording of the Operative Documents, and will furnish to the Lessor upon request copies of official receipts or other proof evidencing such payment; provided, however, -------- ------- that the Lessee shall not be obligated to pay (i) any Impositions that are based upon or measured by the Lessor's, the Agent's or any Lender's overall net income, or which are in substitution for, or relieve the Lessor, the Agent or any Lender from, any actual Imposition based upon or measured by the Lessor's, the Agent's or any Lender's overall net income (excluding, however, Impositions imposed with respect to the payment, receipt or accrual of any indemnity payment under this Lease or any other Operative Document); (ii) Impositions constituting franchise taxes imposed on Lessor, Agent or any Lender by the jurisdiction under the laws of which such Lender is organized or qualified or any political subdivision thereof or by the jurisdiction in which such Lender's lending office is located; or (iii) any Impositions attributable to the gross negligence or willful misconduct of the Lessor, Agent or any Lender. The Lessee further agrees that, subject to its rights under Section 13, it will, at its expense, do all things required to be done by the Lessor in connection with the levy, assessment, billing or payment of any Impositions that it is required to pay pursuant to the preceding sentence, and is hereby authorized by the Lessor to act for and on behalf of the Lessor in any and all such respects and to prepare and file, on behalf of the Lessor, all tax returns and reports required to be filed by the Lessor (other than federal income tax returns and documents related thereto, subject to Section 25) concerning the Facility. The Lessee's payment and 6 other obligations under this Section 3(f) shall survive the termination of this Lease. In the event that any withholding or deduction from any payment to be made by the Lessee hereunder is required in respect of any Imposition pursuant to any Governmental Requirement, then the Lessee will: (1) pay directly to the relevant Governmental Authority the full amount required to be so withheld or deducted; (2) promptly forward to the Lessor, if available, an official receipt or other documentation satisfactory to the Lessor evidencing such payment to such Governmental Authority; and (3) pay to the Lessor such additional amount or amounts as is necessary to ensure that the net amount actually received by the Lessor will equal the full amount the Lessor would have received had no such withholding or deduction been required. (h) Payments to the Lessor. All payments by the Lessee pursuant to ---------------------- this Lease shall be made by the Lessee to the Agent, for the account of the Lessor, the Agent or the Lenders, as the case may be. All such payments required to be made to the Agent shall be made not later than 12:00 noon, Atlanta, Georgia time, on the date due, in immediately available funds, to such account with the Agent as the Agent shall specify from time to time by notice to the Lessee. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, except as otherwise expressly provided herein or in the Credit Agreement, such payment shall be made on the next succeeding Business Day and such extension shall be included in computing Rent, interest, yield and fees, if any, in connection with such payment; provided, however, that if such ----------------- extension would cause such payment to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (i) Default Interest. The Lessee shall pay on demand to the Lessor ---------------- interest at the Default Rate on all amounts payable by the Lessee to the Lessor hereunder on or before the date which is 5 days after the due date thereof until paid in full. Section 4. Estate in Land. This Lease creates an estate in land for -------------- the benefit of Lessee subject to the applicability of the provisions set forth in Section 26. Section 5. Credit Agreement; Agency Agreement. The Lessee and the ---------------------------------- Lessor are entering into the Credit Agreement with the Agent (and, upon the Syndication Effective Date, the Lenders) pursuant and subject to which the Lenders, upon the Syndication 7 Effective Date, will fund for the account of the Lessor the Lenders' pro rata share of the Funded Amount as therein provided up to but not exceeding, for the entire Facility, the Aggregate Loan Commitments, and the Lessor will fund its pro rata share of the Funded Amount as therein provided up to but not exceeding, for the entire Facility, the Lessor Investment Commitment. In addition, the Lessee is entering into the Agency Agreement with the Lessor pursuant to which the Lessee will act as the Acquisition/ Construction Agent for the Lessor in causing the completion of certain enhancements and improvements to the Site and Facility, and the purchase, manufacture, construction, improvement, renovation, assembly and installation of, the Facility, including negotiation and performance of all Related Contracts, obtaining all Applicable Permits and complying with all Governmental Requirements (including all Environmental Requirements) relating to the Facility. Upon funding pursuant to the Credit Agreement, title to all components of the Facility purchased with such funding shall be and remain in the Lessor, and such components, shall be subject to the terms and conditions of this Lease. The Facility and all components thereof shall be purchased, manufactured, constructed, improved, renovated, assembled or installed, as applicable, in accordance with the Related Contracts entered into by the Lessee pursuant to the Agency Agreement. Section 6. Title to Remain in the Lessor. The Lessor shall own 100% ----------------------------- of the Lessor's leasehold estate with respect to the Site and the legal and beneficial interest in the Facility during the term of the Lessor's leasehold estate created pursuant to the Ground Lease. All accessories, equipment, parts, fixtures and devices affixed or placed on the Facility from time to time by the Lessee and all modifications, alterations, renovations or improvements to the Facility made by the Lessee shall be and become part of the Facility for all purposes of this Lease and shall be Property of the Lessor and subject to the terms of this Lease. This Lease shall not give or grant to the Lessee any right, title or interest in or to the Facility, except the rights expressly conferred by this Lease. Section 7. Maintenance of the Facility; Operations. --------------------------------------- (a) Subject to the Lessee's contest rights under Section 13, the Lessee shall, and it shall require and cause any and all employees, contractors, subcontractors, agents, representatives, affiliates, consultants and occupants at the Lessee's own cost and expense to: (i) cause the Facility to be maintained in all material respects in good order, repair and condition, subject to normal wear and tear, and take all action, and make all changes and repairs, structural and non-structural, foreseen and unforeseen, ordinary and extraordinary, which are required pursuant to any Governmental Requirement or Insurance Requirement at any time in 8 effect to assure full compliance therewith in all material respects; and (ii) cause the Facility to continue to have at all times, in all material respects, and in compliance with all applicable Governmental Requirements and Insurance Requirements, the ability to be utilized commercially for the Permitted Use. (b) The Lessor shall not be required in any way to maintain, repair or rebuild the Facility or any portion thereof and the Lessee waives any right it may now or hereafter have to make any repairs at the expense of the Lessor pursuant to any Governmental Requirement at any time in effect or otherwise. (c) Subject to the Lessee's contest rights under Section 13, the Lessee shall, and it shall require and cause any and all employees, contractors, subcontractors, agents, representatives, affiliates, consultants and occupants at the Lessee's own cost and expense to: (i) comply with all applicable Environmental Requirements with regard to the Facility and all parts thereof; and (ii) use, employ, process, emit, generate, store, handle, transport, dispose of and/or arrange for the disposal of, any and all Hazardous Materials in, on or, directly or indirectly, related to or in connection with the Facility or any part thereof in a manner consistent with prudent industry practice and in compliance with any applicable Environmental Requirement. The Lessor and the Lessee hereby acknowledge and agree that the Lessee's obligations hereunder with respect to Environmental Requirements are intended to bind the Lessee with respect to matters and conditions involving the Facility or any part thereof. Section 8. Modifications. The Lessee shall make no modifications, ------------- alterations, renovations or improvements to the Facility without the prior written consent of the Lessor, provided however, the Lessee shall have the right to make modifications, alterations, renovations or improvements to the Facility so long as such modifications, alterations, renovations or improvements do not (except as may be required by any Governmental Requirement) (i) materially reduce the value of the Facility as a whole; or (ii) materially and adversely affect the viability of the Facility consistent with its Permitted Uses. Within ten (10) Business Days of the end of each calendar quarter, an Authorized Officer of the Lessee shall deliver to the Lessor and the Agent a schedule certifying to the Agent's satisfaction: (x) the nature of the repairs, replacements, modifications, alterations, renovations or improvements to the Facility made during such quarter which constitute part of a project having a cost of at least $100,000.00 at the time made, and (y) that the Facility continues to remain, in all material respects, viable consistent with its Permitted Uses. Section 9. Further Assurances. The Lessee, at its expense, shall ------------------ execute, acknowledge and deliver from time to time 9 such further counterparts of this Lease or such affidavits, certificates, certificates of title, bills of sale, financing and continuation statements, consents and other instruments as may be required by applicable law or reasonably requested by the Lessor in order to evidence the Lessor's ground lease of the Site and title to remainder of the Facility and the Lessor's interests in this Lease, and shall, at the Lessee's expense, cause such documents to be recorded, filed or registered in such places as the Lessor may request and to be re-recorded, refiled or re-registered in such places as may be required by applicable law or at such times as may be required by applicable law in order to maintain and continue in effect the recordation, filing or registration thereof. The Lessor shall not grant or create pursuant to agreement any Lien on the Facility to any Person except Permitted Liens, Liens in favor of the Agent and the Lenders and Liens pursuant to this Lease, the Security Instruments and the other Operative Documents. Section 10. Compliance with Governmental Requirements and Insurance ------------------------------------------------------- Requirements: Related Contracts. The Lessee, at its expense, will comply with - ------------------------------- all Governmental Requirements applicable to the Facility or any part thereof or the ownership, construction, operation, mortgaging, occupancy, possession, use, non-use or condition of the Facility or any part thereof, all Insurance Requirements, and all instruments, contracts or agreements affecting title to ownership of the Facility or any part thereof. In addition, the Lessee, so long as no Event of Default has occurred and is continuing, is hereby authorized by the Lessor to, and shall, fully and promptly keep, observe, perform and satisfy on behalf of the Lessor any and all obligations, conditions, covenants and restrictions of or on the Lessor or the Lessee under any and all Related Contracts so that there will be no default thereunder and so that the other parties thereunder shall be, and remain at all times, obliged to perform their obligations thereunder, and the Lessee, to the extent within its control, shall not permit to exist any condition, event or fact that could allow or serve as a basis or justification for any such Person to avoid such performance. So long as no Event of Default has occurred and is continuing, the Lessee shall have complete right and authority to terminate or monitor performance under the Related Contracts as the Lessee may deem appropriate, all without the approval of any other party to this Lease or any other Operative Document. 10 Section 11. Condition and Use of Facility; Quiet Enjoyment. ---------------------------------------------- (a) THE FACILITY IS LEASED AND THE LESSEE ACCEPTS AND TAKES POSSESSION OF THE FACILITY AS IS, WHERE IS, AND WITH ALL FAULTS AND IN THE CONDITION THEREOF AND SUBJECT TO THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, THE STATE OF THE TITLE THERETO, THE RIGHTS OF OWNERSHIP THEREIN AND SUBJECT TO ALL GOVERNMENTAL REQUIREMENTS NOW IN EFFECT OR HEREAFTER ADOPTED, IN EACH CASE AS IN EXISTENCE WHEN THE SAME FIRST BECOMES SUBJECT TO THIS LEASE, WITHOUT REPRESENTATIONS AND WARRANTIES OF ANY KIND AS TO TITLE BY THE LESSOR, THE AGENT, ANY LENDER OR ANY PERSON ACTING ON BEHALF OF ANY OF THEM. THE LESSEE ACKNOWLEDGES AND AGREES THAT THE FACILITY HAS NOT BEEN SELECTED BY THE LESSOR, THE AGENT OR ANY LENDER, THAT NONE OF THE LESSOR, THE AGENT OR ANY LENDER HAS SUPPLIED ANY SPECIFICATIONS WITH RESPECT TO THE FACILITY AND THAT NONE OF THE LESSOR, THE AGENT OR ANY LENDER (I) IS A VENDOR OF, OR MERCHANT OR SUPPLIER WITH RESPECT TO, ANY OF THE PROPERTY COMPRISING THE FACILITY OR ANY PROPERTY OF SUCH KIND, (II) HAS MADE ANY RECOMMENDATION, GIVEN ANY ADVICE OR TAKEN ANY OTHER ACTION WITH RESPECT TO THE CHOICE OF ANY MANUFACTURER, SUPPLIER OR TRANSPORTER OF, OR ANY VENDOR OF OR OTHER CONTRACTOR, INCLUDING, WITHOUT LIMITATION, WITH RESPECT TO ANY OF THE PROPERTY COMPRISING THE FACILITY, (III) HAS AT ANY TIME HAD PHYSICAL POSSESSION OF ANY SUCH PROPERTY, (IV) HAS MADE OR IS MAKING ANY WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE FACILITY, INCLUDING WITHOUT LIMITATION, WITH RESPECT TO TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, THE DESIGN, CONDITION, QUALITY OF MATERIAL OR WORKMANSHIP, CONFORMITY TO SPECIFICATIONS, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, ABSENCE OF ANY LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, WHETHER ARISING PURSUANT TO THE UCC OR ANY OTHER PRESENT OR FUTURE LAW OR OTHERWISE, OR COMPLIANCE WITH APPLICABLE PERMITS OR OTHER GOVERNMENTAL REQUIREMENTS, OR (V) SHALL BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LIABILITY IN TORT, STRICT OR OTHERWISE). IN THE EVENT OF ANY DEFECT OR DEFICIENCY OF ANY NATURE IN THE FACILITY OR ANY PROPERTY OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER PATENT OR LATENT, NONE OF THE LESSOR, THE AGENT, OR ANY LENDER SHALL HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION 11 HAVE BEEN NEGOTIATED AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, BY THE LESSOR, THE AGENT AND THE LENDERS WITH RESPECT TO THE FACILITY OR ANY PROPERTY OR OTHER ITEM CONSTITUTING A PORTION THEREOF, WHETHER ARISING PURSUANT TO THE UCC OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT. THE PROVISIONS OF THIS SECTION 11 ARE INTENDED FOR THE BENEFIT OF THE LESSOR, THE AGENT AND THE LENDERS AND SHALL NOT BENEFIT ANY THIRD PARTY WHATSOEVER. IN PARTICULAR, THE PROVISIONS OF THIS SECTION 11 SHALL NOT BE APPLICABLE TO OR FOR THE BENEFIT OF ANY CONTRACTING PARTY UNDER ANY RELATED CONTRACT. (b) The Lessor hereby assigns to the Lessee, until the termination of this Lease upon the occurrence of an Event of Default, Cancellation Event or Termination Event hereunder, the benefits in respect of any Vendor's warranties or undertakings, express or implied, relating to the Facility (including any labor, equipment or parts supplied therewith), and, to the extent 11 assignment of the same is prohibited or precludes enforcement of any such warranty or undertaking, the Lessor hereby subrogates the Lessee to its rights in respect thereof. The Lessor hereby authorizes the Lessee, at the Lessee's expense, to assert any and all claims and to prosecute any and all suits, actions and proceedings, in its own name or in the name of the Lessor, in respect of any such warranty or undertaking and, except during the continuance of an Event of Default, or after the occurrence of a Cancellation Event or Termination Event hereunder, to retain the proceeds received, and after the termination of this Lease or after the occurrence and during the continuation of an Event of Default, or after the occurrence of a Cancellation Event or Termination Event, to pay the same in the form received (with any necessary endorsement) to the Agent, for the account of the Lessor. (c) The Lessee may use the Facility for the Permitted Use provided that the value of the Facility is not diminished by any such use other than as a result of normal wear and tear in the ordinary course of business. During the term of this Lease, the Lessor covenants that unless an Event of Default, a Cancellation Event or a Termination Event has occurred and is continuing and except as may arise under a Permitted Lien or as may otherwise be contemplated under the Operative Documents, the Lessor will not, and will not permit any party claiming by, through or under the Lessor to, interfere with the peaceful and quiet possession and enjoyment of the Facility by the Lessee; provided, -------- however, that the Lessor, the Agent, the Lenders and their respective - ------- successors, assigns, representatives and agents may, upon reasonable notice to the Lessee, and upon execution of customary nondisclosure agreements, enter upon and examine the Facility or any part thereof at reasonable times, subject to the provisions of Section 19; and provided further, however, that the Lessor is not ---------------- ------- hereby warranting the state or quality of the title to any part of the Facility. Any failure by the Lessor to comply with the foregoing provisions of this Section 11(c) shall not give the Lessee any right to cancel or terminate this Lease, or to abate, reduce or make reduction from or offset against any Rent or other sum payable under this Lease or any other Operative Document, or to fail to perform or observe any other covenant, agreement or obligation hereunder or thereunder. The Lessee will not do, or fail to do, or permit or suffer to exist any act or thing, which action or thing or failure might impair the value, use or usefulness of the Facility for the Permitted Use in accordance with the design of the Facility, ordinary wear and tear excepted. 12 Section 12. Liens; Transfers. ---------------- (a) The Lessee will not directly or indirectly create, or permit to be created or to remain, and at the Lessee's expense will discharge within ten (10) days of notice of the filing or assertion thereof, by bond, deposit or otherwise, any Lien upon the Lease or any of the Facility except (i) any Lien being contested as permitted by and in accordance with Section 13, or (ii) Permitted Liens. The Lessor agrees that the Lessee shall have during the term of this Lease the exclusive right (so long as no Default has occurred and is continuing) to grant, create or suffer to exist Permitted Liens in the ordinary course of business and in accordance with prudent industry practices, provided that the fair market value or use of the Facility or the applicable part thereof for the Permitted Use is not materially lessened thereby. The Lessor agrees to execute such documents and take all other actions as shall be reasonably necessary, and otherwise to cooperate with the Lessee in connection with the matters described above, provided that all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred by the Lessor in connection therewith shall be borne by the Lessee, and the Lessor shall not be required to execute any document that would, in the opinion of the Lessor, materially and adversely affect the value or use of the Facility or any part thereof for the Permitted Use or otherwise materially and adversely affect the transactions contemplated by the Operative Documents or the interests of the Lessor, the Agent or the Lenders in the Facility or under the Operative Documents or otherwise. (b) The Lessor will not directly or indirectly or create, or permit to be created or to remain, and will discharge, any Lien of any nature whatsoever on, in or with respect to, its interest in the Facility arising by or through it or its actions, except Permitted Liens. (c) The Lessee will not directly or indirectly sell, transfer, or otherwise dispose of its interest in the Facility; provided, however, (A) the ----------------- foregoing clause (c) shall not apply to the creation of Permitted Liens, and (B) the Lessee may sublet the Facility or any portion thereof so long as (i) no Event of Default is in existence and (ii) each such sublease remains a Permitted Use. 13 (d) The Lessee acknowledges and agrees that this Lessee is subsequent, inferior, junior and subordinate in all respects to the Liens created pursuant to the Security Instruments. The Lessee will not contest or otherwise challenge through litigation or by any other means the agreement of the parties hereto that the right, title and interest of the Agent, on behalf of the Lenders, as the secured party under the Security Instruments in and to the Facility is senior and superior to the right, title and interest of the Lessee under this Lease. Section 13. Permitted Contests. Notwithstanding any other ------------------ provision of this Lease to the contrary, after prior written notice to the Lessor and provided there is no material risk of sale, forfeiture or loss of the Facility or any material part thereof or interest therein, the Lessee may at its expense contest any Imposition, Governmental Requirement, Environmental Notice, Environmental Judgments and Orders or any nonconsensual Lien which it is required to pay or comply with hereunder, by appropriate proceedings conducted in good faith and with due diligence, so long as such proceedings are effective to prevent the collection of such Imposition, Governmental Requirement, Environmental Notice, Environmental Judgments and Orders or Lien from the Lessor, the Agent, or the Lenders or against the Facility or any part thereof; provided, however, that the actions of the Lessee, as authorized by this Section - -------- ------- 13, shall be subject to the express written consent of the Agent and the Lessor if such actions would subject the Agent, the Lessor or any such Lender or the Facility or any part thereof to any liability or loss not indemnified in full by the Lessee hereunder or any sanction, criminal or otherwise, for failure to pay any such Imposition or to comply with such requirement. The Lessee will pay, and save the Lessor, the Agent and each such Lender harmless against, all losses, Judgments and reasonable costs, including attorneys' fees and expenses, in connection with any such contest and will, promptly after the final determination of such contest, comply with such requirements and pay and discharge the amounts which shall be imposed or determined to be payable therein, together with all penalties, costs and expenses incurred in connection therewith. The Lessee shall prevent any foreclosure, judicial sale, taking, loss or forfeiture of the Facility or any part thereof, or any interference with or deductions from any Rent or any other sum required to be paid by the Lessee hereunder by reason of such nonpayment or nondischarge of an Imposition, or noncompliance with a requirement contemplated herein. The Lessor shall cooperate with the Lessee in any contest and shall allow the Lessee to conduct such contest (in the name of the Lessor, if necessary) at the Lessee's sole cost and expense; and the Lessee shall indemnify and hold the Lessor harmless (subject to the provisions relating to indemnities set forth in Section 11.03 of the Credit Agreement) from and against all 14 liabilities, costs and expenses in connection with such contest. The Lessee shall notify the Lessor of each such proceeding within ten (10) days after the commencement thereof, which notice shall describe such proceeding in reasonable detail. Section 14. Insurance, etc. --------------- (a) The Lessee will, at its own expense, purchase and maintain, or cause to be purchased and maintained, throughout the term of this Lease, with financially sound and reputable insurance companies, insurance with respect to its business and the Facility in at least such amounts and against at least such risks (including on all its property, builder's risk during the Construction Term, public liability, and worker's compensation) as are usually insured against in the same general area by companies of established repute engaged in the same or similar business. (b) The Lessee shall bear all risk of loss (including any Loss Event or Casualty Occurrence), whether by casualty, theft, taking, confiscation or otherwise, with respect to the Facility or any part thereof, at all times during the term of this Lease until possession of the Facility has been accepted by the Lessor pursuant to Section 17. (c) So long as no Termination Event or Cancellation Event shall have occurred and no Event of Default shall have occurred and be continuing, any payments, whether constituting insurance proceeds, amounts paid by any Governmental Authority or otherwise, received by the Lessee or the Lessor upon the occurrence of any loss with respect to the Facility or part thereof (other than a Casualty Occurrence), whether as a result of casualty, theft, taking or other confiscation, shall be applied in payment for necessary repairs and replacement to the Facility to the extent permitted under the terms of this Lease, or to the extent the costs of such repairs and replacement shall have been paid by the Lessee, to the extent permitted under the terms of this Lease, to reimburse the Lessee. The Lessee shall be entitled to retain any excess funds remaining after necessary repairs and replacements have been completed and all costs therefor paid in full. Upon the occurrence of any Termination Event or Cancellation Event or upon the occurrence and during the continuance of any Event of Default, the Lessor shall be entitled to receive and retain any such payments for application to the obligations of the Lessee hereunder. (d) Upon a Casualty Occurrence, the Lessee shall give prompt notice thereof to the Lessor and shall within thirty (30) days of the date of such Casualty Occurrence either (i) offer to purchase the whole of the Facility for the Purchase Price as provided in Section 15(c) or (ii) provide the Lessor and the Agent with a replacement plan reasonably acceptable to the Lessor and the 15 Agent setting forth how the Lessee shall replace, or cause to be replaced, the portion of the Facility damaged by such Casualty Occurrence at the Lessee's own cost and expense, within six (6) months after the date of such Casualty Occurrence (but (x) in no event later than the Scheduled Lease Termination Date, and (y) if the Casualty Occurrence occurs during the Construction Term, in no event later than the last day of the Construction Term), such part of the Facility that is the subject of a Casualty Occurrence in accordance with this Section 14(d). If the Lessee chooses the option set forth in clause (ii) of the preceding sentence, within the later to occur of (x) sixty (60) days after the date of the Casualty Occurrence and (y) satisfaction of all applicable Governmental Requirements, and obtaining all authorizations of Governmental Authorities, required therefor (but in no event later than ninety (90) days after the date of the Casualty Occurrence), the Lessee shall have commenced repairs or replacements as specified in the replacement plan and shall thereafter proceed diligently with such repairs and replacements to completion. After completion of the repairs and replacements, the Lessee shall demonstrate to the satisfaction of the Lessor and the Agent that operations, capacity and production from the Facility have been restored to the standards required for Completion. (e) All replacement Property of the Facility (other than temporary replacement parts and equipment installed pending installation of permanent replacement Property) installed pursuant to Section 14(d) shall be free and clear of all Liens except Permitted Liens, and shall be in as good operating condition as, and shall have a value and utility at least equal to, the Property replaced immediately prior to the Casualty Occurrence to which such Property was subject. All amounts of insurance proceeds for Property losses and all other proceeds (whether resulting from damage or destruction or from condemnation, confiscation or seizure) relating to the Facility shall be deposited into the Restoration Account from any losses exceeding $3,500,000 per occurrence and held and released, together with accrued interest thereon, as hereinafter provided. So long as a Cancellation Event or Termination Event shall not have occurred and an Event of Default shall not have occurred and be continuing, and provided that the Lessor and the Agent shall have received a written application of the Lessee accompanied by a certificate of an Authorized Officer of the Lessee showing in reasonable detail the nature of any necessary repair, rebuilding and restoration, the actual cash expenditures necessary for such repair, rebuilding and restoration, the expected total expenditures required to complete such work and evidence that sufficient funds are or will be available to complete such work on a timely basis (such certificate to be acceptable to the Agent in all respects), then the amounts available in the Restoration Account, together with accrued interest thereon, shall be released by the Lessor immediately upon 16 receipt of such certification or, if applicable, from time to time on the last Business Day of each month during the period of repair, rebuilding and restoration in payment therefor against presentation to the Lessor of a certificate executed by an Authorized Officer of the Lessee to the effect that expenditures have been made, or costs incurred, by or for the account of the Lessee or are reasonably anticipated to be made during the immediately following one month period in a specified amount for the purposes of making repairs, rebuilding and restoration in the amounts specified, that no Event of Default, Cancellation Event or Termination Event exists and all conditions precedent herein provided relating to such withdrawal and payment have been satisfied. Upon the occurrence of any Event of Default, Termination Event or Cancellation Event, the Lessor shall be entitled to retain all amounts in the Restoration Account for application to the obligations of the Lessee hereunder. (f) If any Loss Event or Casualty Occurrence shall occur, the Lessee shall promptly notify the Lessor and the Agent of such event in writing. Section 15. Termination; Cancellation; Purchase Option; Application ------------------------------------------------------- of Payments. - ----------- (a) (i) The termination of this Lease (A) in accordance with Section 2(b) (whether upon the scheduled expiration hereof or by the refusal to agree to extend the then current Scheduled Lease Termination Date), or (B) as a result of the declaration by the Agent of an Event of Default, or Non- Completion Event, shall be a "Termination Event," the effect of which shall ----------------- be to cause this Lease to terminate on the applicable Lease Termination Date. (ii) If a Termination Event occurs, the Lessee, on the Lease Termination Date, shall, in accordance with the terms of Section 2(b), without further notice or demand to the Lessee, either (A) purchase the Facility from the Lessor for the Purchase Price; or (B) so long as no Event of Default, Loss Event, Casualty Occurrence or Change of Control has occurred: (1) pay to the Lessor, or at the Lessor's option, to the Agent for the account of the Lessor, the Final Rent Payment or, if the Termination Event is a Non-Completion Event, the Completion Costs Payment and provide to the Lessor and the agent a satisfactory update of the Environmental Report; and 17 (2) attempt to sell, in accordance with the terms of the Agency Agreement (until such Agency Agreement has been terminated by the Lessor in accordance with its terms), the Facility, as agent for the Lessor, without recourse or warranty by the Lessor, for a net cash purchase price not less than, and remit to the Lessor the net cash sales proceeds equal to, the Termination Value less any amount paid pursuant to Section 15(a)(ii)(B)(1). In accordance with the terms of the Agency Agreement after the Exclusivity Period (defined in the Agency Agreement) is over, the Lessor and/or the Agent shall also have the right (but not the obligation) to sell the Facility and/or solicit bids, each in its sole and absolute discretion. (b) (i) Each of the following events shall be a "Cancellation Event", ------------------ the effect of which shall be to cause this Lease to be terminated in accordance with the following provisions on the "Cancellation Date" ----------------- specified: (A) the occurrence of (1) an Event of Default (other than an Event of Default under Section 17(a)(iv) hereof or Section 9.01(h) or (i) of the Credit Agreement) and the delivery by the Agent to the Lessee of a notice stating that the Lessor elects to terminate this Lease by reason of the existence of such Event of Default, in which case the Cancellation Date will be the fifth (5th) Business Day after the date of delivery of said notice to the Lessee, or (2) an Event of Default under Section 17(a)(iv) hereof or Section 9.01(h) or (i) of the Credit Agreement in which case the Cancellation Date shall occur immediately upon the occurrence of such Event of Default; or (B) the occurrence of a Loss Event, in which case the Cancellation Date shall be the fifth (5th) Business Day after such event occurs; or (C) the occurrence of a Casualty Occurrence in respect of the Facility and the failure of the Lessee to purchase the Facility or to replace or repair the Facility or such part thereof in accordance with, and within the time required by, Section 14(d), including, without limitation, subsections (i) and (ii) thereof, and the delivery by the Agent to the Lessee of a notice after the expiration of such time stating that the Lessor elects to terminate this Lease by reason of the existence of such Casualty Occurrence, in which case the Cancellation Date shall be the fifth (5th) Business Day after the date of delivery of said notice; or (D) the occurrence of Change of Control and the delivery by the Agent (acting at the direction of the Required Lenders) 18 to the Lessee of a notice stating that the Lessor elects to terminate this Lease by reason of the occurrence of such Change of Control, in which case the Cancellation Date will be the fifth (5th) Business Day after the date of delivery of said notice to the Lessee. (ii) If a Cancellation Event occurs, the Lessee, on the Cancellation Date, shall, without further notice or demand to the Lessee, either (A) purchase the Facility from the Lessor for the Purchase Price, or (B) pay to the Lessor the Termination Value. If requested by the Lessor, the Lessee shall pay the Purchase Price or the Termination Value, as the case may be, to the Agent for the account of the Lessor. (c) The Lessee may at any time deliver to the Lessor and the Agent notice of its intent to terminate this Lease on any Rent Payment Date that is not less than thirty (30) nor more than sixty (60) days after such notice (the "Option Date"), in which case the Lessee shall purchase the Facility from the - ------------ Lessor for the Purchase Price on the Option Date. Upon payment in full of the Purchase Price, this Lease shall terminate. (d) This Lease shall cease and terminate on the Lease Termination Date, Cancellation Date or Option Date, as applicable, except with respect to (i) obligations and liabilities of the Lessee, actual or contingent, which arose under this Lease, or by reason of events or circumstances occurring or existing, on or prior to its termination, and which have not been satisfied (which obligations shall continue until satisfied and which include, but are not limited to, obligations for Rent and the Termination Value or the Purchase Price and amounts owing pursuant to Section 16), (ii) all rights and remedies of the Lessor under or in respect of this Lease, including without limitation the provisions of Section 26 hereof and (iii) obligations of the Lessee which by the terms of this Lease expressly survive termination. Promptly after the Lessee or the Lessor shall learn of the happening of any Termination Event or Cancellation Event, such party shall give notice thereof to the other party hereto and to the Agent. (e) In the event the Lessee elects to purchase the Facility upon the occurrence of a Termination Event (other than the expiration of this Lease on a Scheduled Lease Termination Date) or a Cancellation Event, Lessor in its sole discretion in order to ensure the orderly conveyance of the Facility may postpone the closing date for such conveyance (whether or not extended, the "Purchase Closing Date") to a reasonable date within sixty (60) days following the Lease Termination Date or Cancellation Date, as applicable; provided however, that notwithstanding any such postponement the Lessee shall nonetheless be required to deposit on or before the Lease Termination Date or Cancellation Date, as 19 applicable, the Purchase Price (estimated at the time of the deposit) with the nationally recognized title insurance company which insured Lessor's leasehold interest in the Facility (or if such title company is unable or unwilling to serve in such capacity, a replacement nationally recognized title insurance company designated by the Lessor) to be held in escrow pending consummation of the closing on or before the extended Purchase Closing Date. The Lessor or Agent shall notify Lessee of any such postponement and the proposed extended Purchase Closing Date in writing on or before the Lease Termination Date or Cancellation Date, as applicable. Provided that the Lessee deposits the estimated Purchase Price on or before the applicable Lease Termination Date or Cancellation Date, as appropriate, the Lessee shall be deemed to have been granted a temporary license by the Lessor entitling the Lessee to retain possession of the Facility through the Purchase Closing Date provided that the Lessee complies with all obligations of the Lessee under this Lease with respect thereto as though this Lease were still in full force and effect (including without limitation, compliance with Permitted Use, maintenance and insurance coverage requirements). In the event of an extension of the Purchase Closing Date as herein contemplated, the Purchase Price (including the Completion Costs component thereof, if applicable) will be calculated as of such extended Purchase Closing Date. This Section 15(e) shall survive the termination of this Lease. Section 16. Transfer of Title on Removal of Facility; Expenses of ----------------------------------------------------- Transfer. - -------- (a) Upon any sale or purchase of the Facility permitted by Section 15, the Lessor will transfer to the Lessee or the appropriate Third Party all of its title to and legal and beneficial ownership interest in the Facility (i) free and clear of any Lien created by, through or under the Lessor other than Permitted Liens or Liens created at the request of or as a result of the actions of the Lessee or anyone acting by, through or under the Lessee (whether as lessee under this Lease or as ground lessor under the Ground Lease), or a result of the failure of the Lessee to carry out any of its obligations under this Lease or the other Operative Documents, and (ii) without recourse, representation or warranty of any nature whatsoever (except as to the absence of such Liens as aforesaid). (b) Whenever the Lessee has the right to purchase or transfer to itself the Facility (or any part thereof) pursuant to any provision of this Lease, the Lessee may cause such purchase to be effected by, or such transfer to be effected to, any other Person specified by the Lessee, but in no event shall the Lessee be relieved from any of its obligations hereunder as a result thereof. 20 (c) Upon any sale or transfer of the Facility pursuant to any provision of this Lease, the Lessee shall pay the expenses of the Agent and the Lessor, including, without limitation, reasonable attorneys' fees and expenses, in connection with such sale or transfer. (d) If, on the Lease Termination Date or on the Cancellation Date, as applicable, the Lessee or any of its Affiliates has not elected to acquire the Facility, the Lessee shall surrender the Facility to the Lessor free from all Liens except Permitted Liens (other than those described in clause (i)(b) of the definition of Permitted Liens), in the same operating condition (except for ordinary wear and tear) and in compliance in all material respects with all Governmental Requirements and Insurance Requirements. To evidence the foregoing and accomplish the surrender of the Facility, the Lessee shall provide the following items: (x) in the event of a Termination Event under Section 15(a)(i)(A) within three (3) months following notice by the Lessee to the Lessor under Section 2(b) of its election not to purchase the Facility, with final confirmation of the same at least thirty (30) days but not more than sixty (60) days prior to the then current Lease Termination Date, and (y) in the event of a Termination Event under Section 15(a)(i)(B), as soon as practicable but in any event at least three (3) Business Days prior to the Lease Termination Date or Cancellation Date, as applicable: (i) evidence satisfactory to the Lessor and the Agent that all Applicable Permits, Related Contracts, and all other rights and services obtained by the Lessee and related to the development and maintenance of the Facility (to the extent transferable) have been, or on or prior to the Lease Termination Date shall be, transferred to the Lessor (or the Lessor has been, or on or prior to the Lease Termination Date or Cancellation Date, as applicable, shall be, given the right to use each such item) and can be transferred to (or used by) any successor or assignee of the Lessor without further consent or approval by any Person (subject only to normal Governmental Requirements); (ii) conveyancing, assignment, transfer, termination and other documents that, in the sole discretion of the Lessor, the Agent and the Lenders, are sufficient to (A) vest in the Lessor good and marketable title to the Facility, free and clear of all Liens except Permitted Liens (other than those described in clause (ii)(b) of the definition of Permitted Liens) and (B) terminate the rights of the Lessee and all other Persons in and to the Facility; (iii) evidence satisfactory to the Lessor and the Agent that the Facility has been developed and maintained in 21 accordance with the requirements of the Operative Documents, all Governmental Requirements, all Applicable Permits and prudent industry practices; (iv) evidence satisfactory to the Lessor and the Agent, in their sole discretion, that (A) no default exists under the Agency Agreement, (B) all agreements and arrangements to provide the services and rights contemplated by the Agency Agreement are in place, executed by the parties thereto, and are valid, enforceable and in full force and effect on or before the Lease Termination Date or Cancellation Date therefor, as applicable and (C) such agreements and arrangements adequately provide for the services and other rights contemplated by the Agency Agreement; (v) an Environmental Assessment; and (vi) such other documents, instruments, assessments, investigations, legal opinions, surveys and other items as the Lessor and/or the Agent may reasonably request to evidence to the satisfaction of each of the Lessor, the Agent and the Lenders (in each case, in their sole discretion) that (A) the Lessor has all Property, services, Permits, assets and rights necessary to own, operate and maintain the Facility and to complete any development of the Facility commenced by the Lessee, as agent for the Lessor under the Agency Agreement, from and after the Lease Termination Date or Cancellation Date, as applicable, and (B) no Default, Loss Event or Casualty Occurrence then exists. To the extent the Facility is not in the condition required by this Section 16(d), the Lessee will pay to the Lessor such additional amounts as are reasonably required to place it in compliance. The Lessee shall also pay all costs and expenses relating to the surrender and clean-up in connection with the surrender of the Facility as may be required by Governmental Requirements or Insurance Requirements or which are otherwise necessary to consummate the delivery of possession of the Facility to the Lessor hereunder. Section 17. Events of Default and Remedies. ------------------------------ (a) Each of the following acts or occurrences shall constitute an "Event of Default" hereunder: - ----------------- (i) default in the payment of the Purchase Price on the Option Date, or in the payment of the Purchase Price or in the Termination Value on the Cancellation Date or the Purchase Closing Date, as applicable, or in the payment of the Purchase Price or the Final Rent Payment or Completion Costs Payment, 22 as applicable, on the Lease Termination Date or the Purchase Closing Date, as applicable; or the default in the payment when due of any Basic Rent or Interim Special Rent and the continuance of such default for five (5) Business Days following notice from the Lessor or the Agent of nonpayment thereafter; or the default in the payment when due of any Supplemental Rent, the amount of any Indemnified Risk or any other amount due hereunder or under any other Operative Document and the continuance of such default for thirty (30) days following notice thereof from the Lessor or the Agent; or (ii) any representation or warranty made or deemed made by the Lessee herein, in any other Operative Document or otherwise in writing in connection with or pursuant to this Lease or any other Operative Document, shall be false or misleading in any material respect on the date made or deemed made; or (iii) an Event of Default under the Credit Agreement; (iv) The Lessee or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its Property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (v) an involuntary case or other proceeding shall be commenced against the Lessee or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its Property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against the Lessee or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; or (vi) The Lessee shall fail to observe or perform any covenant or agreement contained in Sections 12, 14 and 26 of this Lease; or 23 (vii) The Lessee shall fail to observe or perform any covenant or agreement contained or incorporated by reference in this Lease (other than those covered by subsections (i) or (v) above), shall fail to observe or perform any covenant or agreement contained or incorporated by reference in any Operative Document (other than those covered by subsections (i) or (v) above or giving rise to an Event of Default pursuant to subsection (iii) above), and in either case such failure shall not have been cured within thirty (30) days after the earlier to occur of (A) written notice thereof has been given to the Lessee by the Agent at the request of the Required Lenders or (B) the chief financial, chief operating, chief legal or an executive, senior financial or accounting officer of the Lessee otherwise becomes aware of any such failure; or (viii) The Lessee shall abandon the Facility; provided however that for purposes of this Section 17(a)(vii), the term "abandon" shall not include the mere failure of the Lessee to occupy the Facility so long as Lessee continues to perform its obligations hereunder and other Operative Documents including without limitation maintenance of the Facility, maintenance of required insurance, compliance with Governmental Requirements and Insurance Requirements and payment of all Rent. (b) Upon the occurrence and during the continuance of any Event of Default, the Lessor may do any one or more of the following (without prejudice to the obligations of the Lessee under Section 15(b)(ii)): (i) proceed by appropriate judicial proceedings, either at law, in equity or in bankruptcy, to enforce performance or observance by the Lessee of the applicable provisions of this Lease, or to recover damages for the breach of any such provisions, or any other equitable or legal remedy, all as the Lessor shall deem necessary or advisable; and/or (ii) by notice to the Lessee, either (x) terminate this Lease in accordance with Section 15, whereupon the Lessee's interest and all rights of the Lessee to the use of the Facility shall forthwith terminate subject to the Lessee's rights under such Section 15 to acquire the Facility on the Purchase Closing Date as provided herein, but the Lessee shall remain liable with respect to its obligations and liabilities hereunder; or (y) terminate the Lessee's right to possession of the Facility or any part thereof; and/or (iii) exercise any and all other remedies available under applicable law or at equity. 24 (c) After the occurrence and during the continuance of a Cancellation Event or Termination Event, in the event the Lessor elects not to terminate this Lease and the Lessee has not exercised its option under Section 15(c), this Lease shall continue in effect and the Lessor may enforce all of the Lessor's rights and remedies under this Lease, including, without limitation, the right to recover the Interim Rent Basic Rent and Supplemental Rent, any Completion Costs and all other yield protection payments and other amounts with respect thereto, as it becomes due under this Lease. For the purposes hereof, the following do not constitute a cancellation or termination of this Lease: (i) acts of maintenance or preservation of the Facility or any part thereof, (ii) efforts by the Lessor or the Agent to relet the Facility or any part thereof, including, without limitation, termination of any sublease of the Facility and removal of any subtenant from the Facility, (iii) or the appointment of a receiver upon the initiative of the Lessor to protect the Lessor's interest under this Lease. (d) If (i) on the Lease Termination Date, the Facility is not acquired by the Lessee or its designee by payment of the Purchase Price, or (ii) on the Cancellation Date or Option Date, the Lessee or its designee has defaulted in its obligation to acquire the Facility and pay the Purchase Price, or if applicable, the Termination Value, in accordance with the Lessee's election under Section 15(b)(ii), then the Lessor shall have the immediate right of possession of the Facility and the right to enter onto the Site, and the Lessor may thenceforth hold, possess and enjoy such Facility free from any rights of the Lessee and any Person claiming by, through or under the Lessee. The Lessor shall be under no liability by reason of any such repossession or the Facility or entry onto the Site. (e) Should the Lessor elect to repossess the Facility or any part thereof upon cancellation or termination of this Lease or otherwise in the exercise of the Lessor's remedies, the Lessee shall peaceably quit and surrender the Facility or any such part thereof to the Lessor and either (i) deliver possession of the Facility to the Lessor or (ii) allow the Lessor or its agents or assigns to enter onto the Site to remove any and all of the Property comprising the Facility at the expense of the Lessee, and neither the Lessee nor any Person claiming through or under the Lessee shall thereafter be entitled to possession or to remain in possession of the Facility or any part thereof but shall forthwith peaceably quit and surrender the Facility to the Lessor. (f) At any time after the repossession of the Facility or any part thereof, whether or not this Lease shall have been cancelled or terminated, the Lessor may (but shall be under no obligation to) relet the Facility or the applicable portion thereof without notice to the Lessee, for such term or terms and on such 25 conditions and for such usage as the Lessor in its sole and absolute discretion may determine. The Lessor may collect and receive any rents payable by reason of such reletting, and the Lessor shall not be liable for any failure to relet the Facility or for any failure to collect any rent due upon any such reletting. (g) The remedies herein provided in case of an Event of Default are in addition to, and without prejudice to, the Lessee's continuing obligations under Section 15(b)(ii), and shall not be deemed to be exclusive, but shall be cumulative and shall be in addition to all other remedies existing at law, in equity or in bankruptcy. The Lessor may exercise any remedy without waiving its right to exercise any other remedy hereunder or existing at law, in equity or in bankruptcy. (h) No waiver by the Lessor hereunder of any Default or Event of Default shall constitute a waiver of any other or subsequent Default or Event of Default. To the extent permitted by applicable law, the Lessee waives any right it may have at any time to require the Lessor to mitigate the Lessor's damages upon the occurrence of a Default or Event of Default by taking any action or exercising any remedy that may be available to the Lessor, the exercise of remedies hereunder being at the discretion of the Lessor. Section 18. Change in the Lessee's Name or Structure. The Lessee ---------------------------------------- will not change its name, identity or corporate structure (including, without limitation, by any merger, consolidation or sale of substantially all of its assets) without notifying Lessor of such change in writing at least sixty (60) days prior to the effective date of such change. Section 19. Inspection; Right to Enter Premises of the Lessee. ------------------------------------------------- Subject to the provisions of Section 11.13 of the Credit Agreement, the Lessee shall permit, and cause each of its Subsidiaries to permit, the Agent, the Lessor, any Lender or their respective authorized representatives may (but without any obligation to do so) (i) enter upon the Site or any premises of the Lessee at which books and records relating to the Site are located at reasonable times upon reasonable advance notice and upon execution of customary nondisclosure agreements in order to inspect the Facility (subject to compliance with applicable safety requirements of the Lessee and applicable Governmental Requirements) and to examine, audit and make abstracts from any such books and records and to discuss the condition, compliance with Governmental Requirements, performance of the Facility and the respective affairs, finances and accounts of the Lessee and its Subsidiaries with their respective officers, employees and independent accountants. The Lessee agrees to coordinate and 26 assist in such visits and inspections, in each case at such reasonable times and as often as reasonably may be desired. Section 20. Right to Perform the Lessee's Covenants. Subject to --------------------------------------- Section 13, if the Lessee shall fail to make any payment or perform any act required to be made or performed by it hereunder, the Agent or the Lessor, upon notice to or demand upon the Lessee but without waiving or releasing any obligation or Default or Event of Default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of the Lessee as, at the Lessor's sole discretion, may be necessary or appropriate therefor and, upon the occurrence and during the continuance of a Cancellation Event or Termination Event, may enter upon the Site for such purpose and take all such action thereon as, at the Lessor's sole discretion, may be necessary or appropriate therefor. No such entry shall be deemed an eviction of the Lessee. All sums so paid by the Lessor and all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses so incurred) shall be paid by the Lessee to the Lessor on demand as Supplemental Rent. Section 21. Participation by Co-Lessees or Sublessees. ----------------------------------------- (a) Except as permitted or required by the Credit Agreement or otherwise permitted in this Section 21 or Section 12(c), neither the Lessor nor the Lessee may assign its rights or obligations under this Lease without the prior consent of all of the Lenders and the Agent. Unless an Event of Default is then in existence, the Lessor may not assign its rights or obligations under this Lease without the prior consent of the Lessee. The Lessor has granted a Lien on this Lease to the Agent for the benefit of the Lenders to secure the obligation of the Lessor under the Credit Agreement. The Agent, acting on behalf of the Lenders, shall be entitled to exercise all of the rights, remedies, powers and privileges herein conferred upon Lessor (including, without limitation, in any bankruptcy proceeding), to give or withhold all consents required to be obtained from Lessor hereunder, to give all notices on behalf of the Lessor including notices regarding Rent, Interim Special Rent, the Final Rent Payment or Completion Costs Payment, as applicable, and Supplemental Rent due hereunder, to receive all payments to be made to the Lessor hereunder and to approve any sale of the Facility pursuant to Section 15 to a Person other than the Lessee or any designee of the Lessee or for a price less than the Termination Value; provided, however, that nothing herein shall be deemed to -------- ------- be a waiver or relinquishment of the right of the Lessor to receive Supplemental Rent for its out of pocket costs and expenses as described in Section 3(d)(i) or to be indemnified for any matter for which Lessor is entitled to indemnification hereunder. 27 (b) The Lessor and the Lessee may from time to time, so long as no Default, Event of Default, Cancellation Event or Termination Event shall have occurred and be continuing, enter into documentation amending this Lease and, as necessary, the other Operative Documents, to evidence the undertaking of a Person (a "Co-Lessee") to be responsible for all or certain obligations of the --------- Lessee and the attendant reduction in the obligations of the Lessee hereunder, subject in every case to (i) the prior written approval of the Lessor, the Agent and each Lender, each acting in its sole discretion in approving said Co-Lessee and the documentation amending this Lease and the Operative Documents, it being understood that any of the Lessor, the Agent or the Lenders may for any reason whatsoever elect not to grant such approval, in which case this Lease shall not be amended; (ii) such documentation shall expressly state that such assignment is subject and subordinate to the terms of this Lease and the Liens created by the Security Instruments; and (iii) the Lessee remaining primarily liable for all obligations of the tenant of the Facility under this Lease. Any assignment made otherwise than as expressly permitted by this Section 21(b) shall be null and void and of no force and effect. Section 22. Notices. Except as otherwise provided herein, all ------- notices and other communications provided for hereunder shall be in writing (including telecopier and other readable communication) and mailed by certified mail, return receipt requested, telecopied or otherwise transmitted or delivered, if to the Lessee, at One Technology Parkway, South, Norcross, Georgia 30092-2967, Attention: Harvey A. Wagner, Telecopier: (770) 903-4700, with a copy to Lessee at Lessee's address but to the Attention of William Eason, Esq., Telecopier (770) 903-4823 and a copy to Charles T. Sharbaugh, Esq., Paul, Hastings, Janofsky & Walker, Suite 2400, 600 Peachtree Street, Atlanta, Georgia 30308, Telecopier (404)815-2424; if to the Lessor, at 191 Peachtree Street, N.E., Atlanta, Georgia 30303, Attention: Operations Manager, Telecopier: (404) 332-4005; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, if so mailed, telecopied or otherwise transmitted, be effective when received, if mailed, or when the appropriate answer back or other evidence of receipt is given, if telecopied or otherwise transmitted, respectively. A notice received by the Lessor or the Agent by telephone shall be effective if the Lessor or the Agent believes in good faith that it was given by an authorized representative of the Lessee and acts pursuant thereto, notwithstanding the absence of written confirmation or any contradictory provision thereof. 28 Section 23. Amendments and Waivers. The provisions of this Lease may ---------------------- from time to time be amended, modified or waived only if such amendment, modification or waiver is in writing and consented to by the Lessee, the Lessor and the Agent. Section 24. Severability. Any provision of this Lease which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 25. Federal Income Tax Considerations. It is the --------------------------------- understanding of the parties that for income tax purposes this transaction will be treated as a financing and the Lessee will be treated as the owner of the Facility; and the Lessee and the Lessor agree not to take any action inconsistent with such treatment, subject to the following sentence. Notwithstanding anything in this Section 25 to the contrary, the Lessor and/or the Agent retain the right to assert that it is the owner of the Facility subject to this Lease for income tax purposes in the event that there is a determination (within the meaning of Section 1313 of the Code, or with respect to state or local income tax, a comparable determination under state or local law) that the Lessee is not to be treated as the owner of the Facility; provided, however, with the prior written approval of the Agent and the Lenders - ----------------- exercised in their sole discretion, Lessor and Lessee agree that as a result of any such income tax determination, Lessor and Lessee will endeavor to amend this Lease to eliminate such determination, provided that Lessor shall in no event be obligated to amend any provision of this Lease. Section 26. Other Provisions. In order to protect the rights and ---------------- remedies of the Lessor and the Lessee for the purposes of Federal, state and local income and taxes, ad valorem taxes, state and local sales taxes, documentary stamp and intangible taxes and other taxes relating to or assessable as a result of the execution, delivery or recording of any of the Operative Documents and for purposes of Title 11 of the United States Code (or any other applicable Federal, state or local insolvency, reorganization, moratorium, fraudulent conveyance or similar law now or hereafter in effect), the parties hereto intend that (a) this Lease be treated as the repayment and security provisions of loans by Lessor to Lessee in the face amount of the Facility Cost, (b) all payments of Rent, the Purchase Price and the Termination Value be treated as payments of principal, interest and other amounts owing with respect to such loans, respectively, (c) the Lessee should be treated as entitled to all benefits of ownership of the Facility or any part thereof, (d) this Lease be treated as 29 a deed to secure debt and security agreement or other similar instrument (this Lease, as so treated, is the "Mortgage") from Lessee, as grantor, to the Lessor, -------- as grantee, passing title to, on that part of the Facility constituting real property and is made under those provisions of the existing laws of the State of Georgia relating to deeds to secure debt, and not as a mortgage and that the Lessee, as grantor, hereby grants, bargains, sells, conveys, assigns, transfers and sets over unto the Lessor, as grantee, for the use and benefit of the Agent and the Lenders, Lessee's right, title and interest in and to any real property of any kind or character comprising the Facility and all proceeds therefrom, to have and to hold said real property and all parts, rights, members and appurtenance thereof to the use, benefit and behoof of the Lessor, for the use and benefit of the Agent and the Lenders, in fee simple forever and Lessee covenants that Lessee is lawfully seized and possessed of the aforesaid real property and has good right to convey the same, that the same is unencumbered except for the Permitted Liens and that Lessee does warrant and will forever defend title thereto against the claims of all persons whomsoever; and (ii) as a security agreement from the Lessee, as debtor, to the Lessor, as secured party, encumbering the Facility and all fixtures comprising the Facility, and that the Lessee, as debtor, hereby grants to the Lessor, for the use and benefit of the Agent, the Lenders and the Lessor, as beneficiaries, as secured parties (collectively, the "Secured Party") a first and prior Lien on and security ------------- interest in the fixtures comprising the Facility and all proceeds therefrom, in each case being effective as of the date of this Lease. In such event, the Lessor shall have all of the rights, powers and remedies of a grantee and a secured party available under applicable law, including, without limitation, judicial or nonjudicial foreclosure or power of sale, as and to the extent available under applicable law, and the amounts secured by the Liens and security interests shall be the collective amount of the aggregate unpaid Loans together with unpaid interest thereon, and the aggregate unpaid LI Advances and unpaid LI Yield, plus any other amounts owing to the Lessor, the Agent or the Lenders under the Operative Documents (including, without limitation, Supplemental Rent, any Completion Costs and all indemnification amounts) (collectively, the "Secured Amount"). The filing of this Lease (or a memorandum hereof) shall be deemed to constitute the filing of a deed to secure debt and the filing of any financing statement in connection with this Lease shall be deemed to constitute the filing of a financing statement to perfect the deed to secure debt security title and security interests in the Facility as aforesaid to secure the payment of all amounts due from time to time from the Lessee to the Lessor under this Lease and the other Operative Documents. If this transaction is treated as a financing, the obligation arising hereunder shall be with full recourse to the Lessee and shall not be treated as recourse only to the Facility. To the fullest extent permitted by applicable law, 30 the Lessor and the Lessee intend that the Facility (other than the real property constituting the Site) be and remain at all times personal property regardless of the manner or extent to which any of the Facility (other than the real property constituting the Site) may be attached or affixed to any real property. Except as required by applicable law, the Lessee shall not under any circumstances take any action or make any filing or recording which would cause the Facility (other than the real property constituting the Site) to be deemed to be real property or permit any Person to obtain any interest in the Facility (other than the real property constituting the Site) as a result of the Facility (other than the real property constituting the Site) being deemed to be in whole or in part real property. This Mortgage secures and shall be security for any and all future advances made by Secured Party to Lessee. Nothing contained herein shall be deemed an obligation on the part of the Secured Party to make any further advances. In order to preserve the security interest and security title provided for herein, each of the Lessor and the Lessee agrees to abide by the following provisions with regard to the Facility (for purposes of this Section, hereinafter referred to as "Collateral"): ---------- (a) Change in Location of Collateral or the Lessee. The Lessee (i) ---------------------------------------------- will notify the Secured Party on or before the date of any change in (A) the location of the Collateral (B) the location of Lessee's chief executive office or address, (C) the name of the Lessee and (D) the corporate structure of the Lessee, and (ii) will, on or before the date of any such change, prepare and file new or amended financing statements as necessary so that the Secured Party shall continue to have a first and prior perfected Lien (subject only to Permitted Liens) in the Collateral after any such change. (b) Documents; Collateral in Possession of Third Parties. If ---------------------------------------------------- certificates of title or other documents evidencing ownership or possession of the Collateral are issued or outstanding, the Lessee will cause the interest of the Secured Party to be properly noted thereon and will, forthwith upon receipt, deliver same to the Secured Party. If any Collateral is at any time in the possession or control of any warehouseman, bailee, agent or independent contractor, the Lessee shall notify such Person of the Secured Party's security interest in such Collateral. Upon the Secured Party's request, the Lessee shall instruct any such Person to hold all such Collateral for the Secured Party's account subject to the Lessee's instructions, or, if an Event of Default shall have occurred and be continuing, subject to the Secured Party's instructions. 31 (c) Sale, Disposition or Encumbrance of Collateral. Except for ---------------------------------------------- Permitted Liens, subleases permitted under Section 12(c), as permitted by any of the Operative Documents or with the Secured Party's prior written consent, the Lessee will not in any way encumber any of the Collateral (or permit or suffer any of the Collateral to be encumbered) or sell, assign, lend, rent, lease or otherwise dispose of or transfer any of the Collateral to or in favor of any Person other than the Secured Party. (d) Proceeds of Collateral. Except pursuant to the express provisions ---------------------- of any of the Operative Documents, the Lessee will deliver to the Secured Party promptly upon receipt all proceeds delivered to the Lessee from the sale or disposition of any Collateral. This Section shall not be construed to permit sales or dispositions of the Collateral except as may be elsewhere expressly permitted by this Lease or the other Operative Documents. (e) Further Assurances. Upon the request of the Secured Party, Lessee ------------------ shall (at Lessee's expense) execute and deliver all such mortgages, deeds of trust, deeds to secure debts, assignments, certificates, financing statements or other documents and give further assurances and do all other acts and things as the Secured Party may reasonably request to perfect the Secured Party's interest in the Collateral or to protect, enforce or otherwise effect the Secured Party's rights and remedies hereunder, all in form and substance satisfactory to the Secured Party. (f) Collateral Attached to Other Property. In the event that the ------------------------------------- Collateral is to be attached or affixed to any real property, the Lessee hereby agrees that a financing statement which is a fixture filing may be filed for record in any appropriate real estate records. If the Lessee is not the record owner of such real property, it will provide the Secured Party with any additional security documents or financing statements necessary for the perfection of the Secured Party's Lien in the Collateral, as requested by the Secured Party. (g) Secured Amount. Should the Secured Amount be paid according to -------------- the tenor and effect thereof when the same becomes due and payable hereunder, and should Lessee perform all covenants contained in the Operative Documents in a timely manner, then the Mortgage shall be cancelled and surrendered. (h) Lease. The Lease will not be amended, supplemented or modified ----- without the written consent of the Secured Party. All payments under the Lease shall be made only to such account as specified by the Secured Party. 32 (i) Mortgage Remedies. If an Event of Default shall have occurred, ----------------- the Lessor, at the direction of Agent, may sell the part of the Facility constituting real property (the "Real Property") or any part of the Real ------------- Property, at one or more public sale or sales before the door of the courthouse of the county in which the Site or any part of the Site is situated, to the highest bidder for cash, in order to satisfy the Secured Amount and all expenses of sale and of all proceedings in connection therewith, including reasonable attorneys' fees, after advertising the same, place and terms of sale once a week for four (4) weeks immediately proceeding such sale (but without regard to the number of days) in a newspaper in which Sheriffs' Sales are advertised in said county. At any such public sale, Lessor, as grantee, may execute and deliver to the purchaser a conveyance of the Real Property or any part of the Real Property in fee simple with full warranties of title, and to this end, Lessee, as grantor, hereby constitutes and appoints Lessor the agent and attorney-in-fact of Lessee to make such sale and conveyance, and thereby to divest Lessee of all right, title and equity that Lessee may have in and to the Real Property and to vest the same in the purchaser or purchasers at such sale or sales and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Lessee. The aforesaid power of sale and agency hereby granted or coupled with an interest and are irrevocable by death or otherwise, are granted as cumulative of the other remedies provided hereby or by law for collection of the Secured Amount and shall not be exhausted by one exercise thereof but may be exercised until full payment and performance of all the Secured Amount. In the event of any sale under this subsection (i) by virtue of the exercise of the powers herein granted, pursuant to any order and any judicial proceeding or otherwise, the Real Property may be sold as an entirety or in separate parcels and in such manner or order as Lessor, upon direction by Agent in its sole discretion may elect, and if Lessor so elects, until the entire Real Property is sold or the Secured Amount then payable are paid and performed in full. If the Secured Amount is now or hereafter further secured by any chattel mortgages, pledges, conflicts of guaranty, assignments of lease or security instruments, Lessor, as grantee, may at its option exhaust the remedies granted under any of said security instruments either concurrently or independently, and in such order as Lessee, as grantee, may determine. Upon any foreclosure sale pursuant to the power herein granted or otherwise, Lessor, as grantee, may bid for and purchase the Real Property and shall be entitled to apply all or any part of the Secured Amount secured hereby as a credit to the purchase price. Section 27. Miscellaneous. ------------- 33 (A) ENTIRE AGREEMENT. THIS LEASE AND THE OTHER OPERATIVE DOCUMENTS ---------------- EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE LESSEE AND THE LESSOR AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF. THIS WRITTEN LEASE AND THE OTHER OPERATIVE DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. (B) LESSOR EXCULPATION. NOTWITHSTANDING ANYTHING TO THE CONTRARY ------------------ CONTAINED IN THIS LEASE, THE EXECUTION OF THIS LEASE AND ANY OTHER INSTRUMENT OR DOCUMENT EXECUTED IN CONNECTION HEREWITH SHALL NOT IMPOSE UPON ANY DIRECTOR, OFFICER OR EMPLOYEE OF THE LESSEE, THE AGENT OR THE LESSOR PERSONAL LIABILITY FOR THE LESSEE'S, THE AGENT'S AND THE LESSOR'S RESPECTIVE OBLIGATIONS UNDER THIS LEASE OR ANY OTHER INSTRUMENT OR DOCUMENT EXECUTED IN CONNECTION HEREWITH; PROVIDED THE FOREGOING SHALL NOT RELIEVE ANY SUCH DIRECTOR, OFFICER OR EMPLOYEE OF PERSONAL LIABILITY FOR HIS OR HER FRAUD OR INTENTIONAL MISCONDUCT. THE SOLE RECOURSE OF LESSEE HEREUNDER SHALL BE AGAINST LESSOR'S RIGHTS AND INTERESTS IN THE SITE AND THE FACILITY. (c) Interpretation. Captions and section headings appearing herein -------------- are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. (D) GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS LEASE AND THE ----------------------------------------- RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO RELATING TO THE FACILITY SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA. (e) No Third Party Beneficiaries. Nothing in this Lease, express or ---------------------------- implied, shall give to any Person, other than the parties hereto and the Agent and their respective successors and permitted assigns, any benefit or any legal or equitable right, remedy or claim under this Lease including, without limitation, under any provision of this Lease regarding the priority or application of any amounts payable hereunder. (f) Counterparts. This Lease may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. (g) Lessee Obligations with Respect to Ground Lease. In addition to ----------------------------------------------- its obligations under this Lease, so long as this Lease remains in effect, Lessee shall pay, as lessee thereunder, and perform, as lessee thereunder, all of Lessor's obligations under the Ground Lease. 34 (h) Invalidity. In the event that any one or more of the provisions ---------- contained in this Lease shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of the Lease. (i) Usury. Notwithstanding anything to the contrary contained in this ----- Lease or any of the Operative Documents, the amounts which the Lessee is obliged to pay pursuant to this Lease and the other Operative Documents, and the amounts which the Lessor, the Agent and the Lenders are entitled to receive pursuant to this Lease and the other Operative Documents, are subject to the limitations set forth in Section 11.15 of the Credit Agreement. (j) Time is of the Essence. Time is of the essence in connection with ---------------------- the payment of Rent and all other amounts payable hereunder and the performance of the Lessee's other obligations hereunder. (k) Any indemnification obligations of the Lessee for the benefit of the Lessor, the Agent or any Lender set forth in this Lease shall be governed by the procedures established pursuant to Section 11.03(c) of the Credit Agreement. IN WITNESS WHEREOF, the parties have caused this Lease to be executed by their respective officers thereunto duly authorized as of the date first above written. LESSOR: Signed, sealed and delivered in the presence of: WACHOVIA CAPITAL MARKETS, INC. /s/ Karen H. McClain - ------------------------------ Witness By: /s/ Joseph J. Thomas ------------------------------- Notary Public Name: Joseph J. Thomas Title: Senior Vice President /s/ Maxine Crawford - ------------------------------ My Commission Expires: August 2, 1998 - ------------------------------ [NOTARY SEAL] 35 LESSEE: Signed, sealed and delivered in the presence of: SCIENTIFIC-ATLANTA, INC. a Georgia corporation /s/ Julia S. Keating - ------------------------------ Witness By: /s/ H.A. Wagner ---------------------------- Notary Public Name: Harvey A. Wagner Title: Senior Vice President- Finance, Chief Financial Officer & Treasurer My Commission Expires: September 26, 1999 [NOTARY SEAL APPEARS HERE] [CORPORATE SEAL] 36 EXHIBIT A TO THIS AGREEMENT IS NOT FILED WITH THIS EXHIBIT 10(t), BUT IS AVAILABLE UPON REQUEST. EX-10.(U) 15 ACQUISITION, AGENCY, INDEMNITY & SUPPORT AGREEMENT Exhibit 10(u) ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT Between SCIENTIFIC-ATLANTA, INC. and WACHOVIA CAPITAL MARKETS, INC. Dated as of July 30, 1997 ACQUISITION, AGENCY, INDEMNITY AND SUPPORT AGREEMENT dated as of JULY 30, 1997 (as it may be amended or supplemented from time to time, this "Agreement"), --------- by and between SCIENTIFIC-ATLANTA, INC., a Georgia corporation (the "Company"), ------- and WACHOVIA CAPITAL MARKETS, INC. a Georgia corporation (the "Lessor"). All ------ capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in Schedule 1.02 to that certain Credit and Investment Agreement dated of even date herewith (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement") by and among the ---------------- Lessor, the Company, the lenders party thereto upon the Syndication Effective Date (the "Lenders"), and Wachovia Bank, N.A., as agent for the Lenders (the ------- "Agent"). ----- RECITALS -------- A. The Lessor and the Company are parties to that certain Lease dated of even date herewith (as amended, supplemented or otherwise modified, the "Lease") pursuant to which the Company, as Lessee, has agreed to lease the ----- Facility for the Permitted Use in accordance with the terms and conditions set forth in the Lease. B. To induce the Lessor to enter into the Lease and the other Operative Documents, the Company has agreed to assume all obligations with respect to the design, acquisition, construction and fit up, maintenance and operation of the Facility and all components thereof, and has agreed to indemnify Lessor, Agent and the Lenders for certain environmental risks relating to the Facility, all as hereinafter provided. NOW, THEREFORE, in consideration of the premises and intending to be legally bound by this Agreement, the Company and the Lessor hereby agree as follows: ARTICLE I Agency Appointment ------------------ Section 1.1 Appointment of Acquisition/Construction Agent. The Lessor --------------------------------------------- hereby appoints the Company, as its agent and attorney-in-fact (in such capacity, the "Acquisition/Construction Agent"), and the ------------------------------ Acquisition/Construction Agent hereby agrees to act as the Lessor's agent and attorney-in-fact, to perform certain of the obligations and responsibilities of the Lessor under the Credit Agreement, to cause the Facility to be purchased and designed and to be constructed and completed substantially in accordance with the Permitted Use and in accordance with all Governmental Requirements and Insurance Requirements and to undertake such other powers, duties and obligations as are set forth herein. Section 1.2 Term of Agency Relationship. The agency relationship created --------------------------- herein between the Acquisition/Construction Agent and the Lessor shall commence as of the date hereof and shall end on the sooner to occur of: (a) the date that the Lessor no longer owns any interest in any portion of the Facility, (b) an "Event of Default" occurs under Section 17 of the Lease, or (c) the date the Company gives the Agent and the Lessor notice that it will not exercise the option to purchase the Facility pursuant to the terms of the Lease, on which any such date or event the Lessor revokes the Company's right to act as Acquisition/Construction Agent hereunder except to the extent and solely to the extent that such agency relationship expressly continues under Section 1.3(k) hereof and provided that the Acquisition/Construction Agent pays the Final Rent Payment when due. The Lessor may, but is not obligated to, revoke the Company's right and obligation to act as Acquisition/Construction Agent hereunder, any time after a Cancellation Date, Lease Termination Date or Option Date. Section 1.3 Powers, Duties and Obligations. The Acquisition/Construction ------------------------------ Agent shall have the following powers, duties and obligations: (a) To make all funding requests for Loans and LI Fundings under Section 2.02 of the Credit Agreement in compliance with the terms of the Credit Agreement and use the proceeds of each funding received by it only to pay the actual costs set forth in the Advance Notice, make all elections to terminate or to reduce the Commitments under Section 2.03 of the Credit Agreement, and make all elections to continue the Loans and LI Fundings under Section 2.09 of the Credit Agreement and to make any request for extension of the Maturity Date under Section 2.10 of the Credit Agreement; (b) To make all payments due under the Lease directly to the Agent for the account of the Lessor; (c) To perform all acts which the Acquisition/Construction Agent may deem necessary on behalf of the Lessor, as agent for but only in the name of the Lessor, in connection with Completion, including, without limitation, performing or arranging the purchasing, designing, construction, engineering, assembling and installing of the Facility, and execution and delivery to the Lessor and the Agent of the Completion Certificate in the form attached hereto as Exhibit A upon Completion of the Facility; (d) To perform or cause to be performed all work in connection with Completion to be done in a good and workmanlike manner and in compliance with all Governmental Requirements and Insurance Requirements, and in accordance with the Permitted Use; (e) (i) To take all actions in effecting the Completion in accordance with the requirements set forth on Schedule 1.3 hereto and in operating and managing the Facility as it would take as a reasonably prudent operator in the management and operation of its own Properties consistent with applicable Governmental Requirements, including, without limitation, fencing or otherwise 2 securing the Site and maintaining with financially sound and reputable insurers, insurance against loss or damage of the kinds and in the amounts customarily insured against by corporations engaged in the ownership and occupancy of Property for the Permitted Use (including without limitation such insurance as may be required pursuant to the Lease), and (ii) to construct, or cause to be constructed by entering into Related Contracts with Vendors, the Facility in a manner necessary to meet Completion on or before the Completion Date. (f) To pay, or cause to be paid, in accordance with prudent industry practices in compliance with applicable Governmental Requirements all costs and expenses of Completion and perform all obligations of such Completion, and to perform or cause to be performed all contracts and other agreements, including without limitation all Related Contracts, entered into by or on behalf of the Lessor, and to preserve the Lessor's rights in the Facility and under all Related Contracts; (g) To keep the Facility free of all Liens except Permitted Liens, provided that the Company shall have the right to contest Impositions and certain other nonconsensual Liens in accordance with Section 13 of the Lease; (h) To transfer and hold all of the evidence of ownership of the Facility in the name of the Lessor; (i) To cause all contracts and other agreements, including without limitation all Related Contracts, entered into by the Acquisition/Construction Agent on behalf of the Lessor to be assignable, including, without limitation, the right to be subject to the Security Instruments; (j) To avoid purchasing Property from or entering into any agreement with Affiliates of the Acquisition/Construction Agent in connection with the Facility unless upon fair and reasonable terms that are not less favorable to the Lessor than those which might be obtained in an arm's-length transaction between unaffiliated Persons in the same business at the time such terms are agreed upon; (k) In the event the Company does not exercise its option to purchase the Facility pursuant to Section 15 of the Lease, to attempt to sell the Facility for cash upon the termination or cancellation of the Lease (with the exclusive right with respect to effecting any such sale for a period not to exceed six (6) months after the Lease Termination Date (the "Exclusivity Period"), but subject to (i) payment of the Final Rent Payment when due, and (ii) the Lessor's and Agent's prior written approval of the terms of any such sale, unless the net proceeds of such sale are determined by the Agent and the Lessor to be sufficient to pay in full all Tranche B Loans, interest thereon, all unrecovered Lessor Investment, LI Yield, Support Expenses, and all other amounts owed hereunder at such time), and to grant, bargain, sell, 3 convey or contract for the sale or conveyance of the Facility in connection with the duties in this paragraph (k), provided that the Lessor and the Agent shall also have the right (but not the obligation) to sell the Facility and/or solicit bids, each in its sole and absolute discretion, after the Exclusivity Period; and (l) To substantially complete the Facility during the Construction Term and if the cost of the Facility exceeds the sum of the Commitments, use the Acquisition/Construction Agent's own funds to complete the Facility during the Construction Term up to the amount of the Completion Costs Payment Limitation, and assign all Property necessary for Completion of the Facility and purchased with the funds of the Acquisition/Construction Agent or its Affiliates to the Lessor to be owned as part of the Facility, provided, however, only such -------- ------- Property as is necessary to fulfill the requirements of Completion shall be assigned to the Lessor; (m) To contract with all Vendors and contractors for supplies, equipment, materials and services, including, without limitation, necessary design work affecting the Facility; (n) To keep and maintain proper books and records relating to the accounts of the Facility and the book value of the Facility and the Property comprising the Facility; (o) To pay for, exchange or otherwise settle accounts for the acquisition of supplies, equipment, materials or services affecting the Facility; (p) To ask for, demand, collect, recover, and receive all moneys which may become due and owing by reason of conveyances, whether by deed, contract, bill of sale or other instruments or to pay for, exchange or otherwise settle accounts for the acquisition of supplies, equipment, materials or services affecting the Facility. (q) To ask for, demand, collect, and recover, each in the name of Lessor, any and all sums that may be due on account of any damage to any of the Facility; (r) To manage correspondence and conduct communications with all Governmental Authorities with regard to matters affecting the Facility, including, but not limited to, the acquisition of all Permits and satisfaction of all Governmental Requirements and Insurance Requirements and with regard to rights of way and easements, if any, affecting the Facility; and (s) To provide the Lessor and the Acquisition/Construction Agent with copies of material Related Contracts executed by the Acquisition/Construction Agent on behalf of the Lessor promptly following such execution. Section 1.4 Disclosure. The Facility Plan will be developed solely by the ---------- Company. The Acquisition/Construction 4 Agent shall act in its sole discretion in choosing materials for the Facility and hiring any contractors and subcontractors to work on the Facility. The Lessor, the Agent and the Lenders have no liability for or in respect of the Facility as provided in Section 11 of the Lease and shall be indemnified and held harmless by the Company as provided herein, in the Lease, the Credit Agreement and the other Operative Documents. ARTICLE II Basic Services, Contracts and Rights, Etc. ------------------------------------------ Section 2.1 Plans and Design Specifications. As soon as available, the ------------------------------- Company, at no cost to the Lessor, shall deliver, or cause to be delivered, to the Lessor the Facility Plan and promptly following completion a complete set of all "as-built" plans, drawings and specifications for the Facility, as well as all design information on all equipment, safety systems, and associated improvements and amenities which comprise a portion of the Facility, which items and information to the best of the Company's knowledge shall be true, correct and complete. Section 2.2 Access and Parking. Subject to and in compliance with ------------------ existing safety regulations on the Site and applicable Governmental Requirements and Insurance Requirements, the Company, at no cost to the Lessor, shall provide or cause to be provided, either on site or via easement agreements acceptable to the Lessor and the Agent with adjacent property owners, vehicular (including maintenance and construction equipment) and pedestrian access routes to the Site from a public street and shall make such parking space available thereon as may be necessary for the full use and enjoyment of the Site and the Facility. Section 2.3 Easements, Utilities, Services and Contracts. Within 120 days --------------------------------------------- prior to the Scheduled Lease Termination Date (or immediately if the Lease terminates on any Cancellation Date or Lease Termination Date which is not a Scheduled Lease Termination Date), and provided that the Company shall not have elected to purchase, or purchased, the Facility pursuant to the terms of the Lease, at all times thereafter for the term of this Agreement, the Company, at no cost to the Lessor, shall provide, either directly or indirectly, to the Lessor, in compliance with all Governmental Requirements (including, without limitation, all Environmental Requirements, Environmental Authorizations and Environment Judgments and Orders and Insurance Requirements), as confirmed by the Agent, (a) all rights of ingress and egress, rights-of-way, easements (which easements shall be reasonably direct and shall provide for access over any servient estate created thereby, including the rights to use existing transmission lines), access and real property licenses and rights in real property over or to the Site, (b) access to storage, transportation and maintenance facilities, fixtures and appurtenances, (c) an inventory of supplies necessary for the full and efficient operation of the 5 Facility, and (d) services (whether on- or off-Site, including any shared off- site facilities), including, without limitation, water, electricity, heating, ventilation, air conditioning, lighting, security, steam, waste water treatment and sanitation, receiving and shipping facilities as such rights, licenses, easements, services and utilities are or may be necessary for the full and efficient operation of the Facility. Section 2.4 Compliance with Governmental Requirements. The Company ----------------------------------------- represents and warrants to the Lessor that as of the Closing Date, and the Completion Date, and at all times thereafter during the term of this Agreement, the construction, assembly, ownership, use, occupancy, maintenance and operation of the Facility and Property included therein does not and will not cause a violation of any Governmental Requirements or Insurance Requirements. Section 2.5 Cost of Services and Rights. Any and all services described --------------------------- in Section 2.3(d) and all easements and other rights in real property existing or necessary for the full and efficient operation of the Facility during the term of this Agreement shall be provided (x) to the Lessor at the cost specified in Section 2.3, and (y) in the case of such easements and other rights in real property as aforesaid, on the terms set forth in Section 2.5(b) to any Person acquiring title or use of the Facility other than the Lessor (or the Agent and the Lenders). ARTICLE III Operation and Management of the Facility Following Lease Termination. -------------------------------------------------------------------- Section 3.1 Engagement. From the date on which the Lease terminates as ---------- provided therein, including any Lease Termination Date or Cancellation Date, through the date this Agreement terminates in accordance with Section 8.4, the Company hereby agrees to (a) provide and perform, or cause to be provided or performed, all services, labor, supervision, management, maintenance, repairs, common facilities and consumables necessary for the operation of the Facility for the Permitted Use, in accordance with all Governmental Requirements and Insurance Requirements, and (b) to perform the additional duties as set forth in this Agreement. In consideration for the Company's performance of its obligations under this Article III, the Lessor agrees to pay the Company a fair market monthly operation and management fee. In the event that the Company and the Lessor are unable to agree on such fee within 15 days of the Lease Termination Date, such fee shall be determined by arbitration proceedings conducted in accordance with the terms of Section 12 of the Ground Lease. Section 3.2 Duties and Responsibilities of the Company as Operator of the ------------------------------------------------------------- Facility. - -------- 6 During the period specified in Section 3.1: (a) Services. The Company shall (i) perform, or cause to be performed -------- on behalf of Lessor, all operation and maintenance of the Facility whatsoever, (ii) supply, or cause to be supplied, all services, goods and materials required to operate and maintain the Facility, including without limitation, those services, goods and materials referenced in Article II, and (iii) provide such additional services as may be reasonably requested by the Lessor or the Agent for the full and efficient operation of the Facility, all of the foregoing to be done or performed in accordance with the terms and conditions set forth herein. (b) Standard of Care. The Company shall perform all of its duties and ---------------- obligations under Article II and this Article III in accordance with the standards mandated under Section 7 of the Lease as if fully set forth herein (which standards are hereby incorporated, with any necessary changes in points of detail, herein by reference) and in a good, workmanlike and commercially reasonable manner. The Company shall exercise such care and in the same manner as a prudent Person engaged in the business of managing and operating Property similar to the Facility and used in a similar location for the Permitted Use would in the advancement and protection of such Person's own economic interests. Maintenance shall be scheduled so as to minimize interference with the use, occupation and operation of the Facility and cost consistent with good industry operating and safety standards and all Governmental Requirements and Insurance Requirements. (c) Compliance with Governmental Requirements and Insurance ------------------------------------------------------- Requirements. The Company shall comply with, and cause the Facility (including - ------------ the maintenance, use, occupation and operation thereof) and all personnel of the Company, and all contractors or other entities, to comply with, the Insurance Requirements (which Insurance Requirements are hereby incorporated, with any necessary changes in points of detail, herein by reference as if fully set forth herein) and all Governmental Requirements in effect from time to time. (d) Personnel. The Company shall at all times employ, or cause to be --------- employed, qualified and properly trained personnel to perform the Company's obligations under this Agreement, and shall pay all wages and benefits required by law or contract. The Company shall be responsible for all matters relating to labor relations, working conditions, training, employee benefits, safety programs and related matters pertaining to such employees. The Lessor and the Agent shall have the right to request the removal from the Facility of any personnel deemed unqualified by the Lessor or the Agent. (e) Warranties and Guarantees. The Company shall use its best ------------------------- reasonable efforts consistent with good industry practices to obtain warranties for the Lessor for parts, equipment, materials or services provided by third- party suppliers in fulfilling the 7 Company's obligations under this Agreement. The Company shall comply with all applicable warranties and guarantees presented by Vendors or contractors, and shall take no action that in any way impairs any rights or claims of the Lessor under this Agreement or any Vendor's or other Person's warranty. (f) Consultations. Notwithstanding any other provision of this ------------- Agreement, the Company will consult with the Lessor and/or the Agent and any other independent experts appointed by or on behalf of the Lessor or the Agent to review any matter pertaining directly or indirectly to the performance of the Company's obligations under this Agreement and the Company shall provide them with access, during normal business hours and upon no less than two (2) days' prior written notice, to the Facility and shall make available to such experts, at the Company's expense, all information, reports, logs and other documents, and shall make the Company's personnel available for consultation with such experts, all as requested by the Lessor or the Agent. (g) Permits. The Company shall apply for and maintain in full force ------- and effect, at the cost and expense of the Company, any and all Applicable Permits required to be obtained, maintained or held by either the Company or the Lessor as and when required by law to be obtained and in proper form therefor and maintain all such Applicable Permits in full force and effect. (h) Compliance with Law; Certain Agreements. --------------------------------------- (i) The Company shall also comply with, and cause the Facility (and its operation) to comply with, the various requirements imposed on the Lessee set forth in Sections 7, 9, 10, 12, 13, 14, 16 and 20 of the Lease (which sections are hereby incorporated, with any necessary changes in points of detail, herein by reference as if fully set forth herein). (ii) The Company shall also not take or fail to take any action which would result in the failure of the Facility to be operated on a continuing basis for the Permitted Use in accordance with in the Facility design as specified in the Facility Plan. (i) Removal. The Lessor, with the prior written consent of the Agent, ------- may at any time, terminate its engagement of the Company under this Article III to maintain and operate the Facility, without terminating this Agreement pursuant to Section 8.4; provided, however, that the Lessor shall, upon two -------- ------- week's written notice to the Company, be entitled to request the Company to resume its duties under this Agreement for the duration of the term of this Article III to maintain and operate the Facility and the Company shall comply with such request. (j) Independent Contractor Status. The Lessor acknowledges that the ----------------------------- Company, in performing its duties under this Article III to maintain and operate the Facility, is acting as an independent contractor and except as otherwise expressly provided 8 by this Agreement, the Lessor shall have no right to control the conduct of the Company or its personnel in the proper performance of the obligations of the Company under this Agreement. The Company acknowledges that the Lessor is the owner of the Facility and, as such, is entitled to control the Facility and its use, subject to the provisions of this Agreement and of the Lease. ARTICLE IV Environmental Due Diligence --------------------------- The Company hereby certifies and represents to the Lessor, the Agent and the Lenders that the Company (both in its individual capacity and in its capacity as Acquisition/Construction Agent) has performed or caused to be performed an Environmental Assessment and such other inspections, investigations and analyses of the Facility as is necessary to carry out its obligations hereunder and under the other Operative Documents and to enable the Company to provide knowledgeably the warranties, representations and covenants regarding environmental matters affecting or which could affect the Facility under Sections 8.11, 8.12 and 8.13 of the Credit Agreement and under applicable provisions of the other Operative Documents, including without limitation, representations, warranties and covenants relating any environmental conditions existing prior to the acquisition of the Ground Lease pertaining to the Site and of the Improvements, by the Lessor. The Company further understands and agrees that Lessor's willingness to acquire the Ground Lease pertaining to the Site and the Improvements and enter into the Operative Documents is, inter, alia, in ----- ---- reliance upon and in consideration of the fulfillment by the Company of the environmental due diligence requirements required herein, the representations, warranties and covenants set forth in the Credit Agreement and the other Operative Documents and the indemnities set forth under Article V below. ARTICLE V Indemnification --------------- Section 5.1 Indemnities; Defending Claims. The Company agrees that its ----------------------------- obligations and liabilities set forth in clauses (b) through and including (h) of Section 11.03 of the Credit Agreement survive the termination of the Credit Agreement and, without limitation, apply to the agreements set forth in this Agreement between the Company and the Lessor. Section 5.2 Survival. The obligations of the Company under this Article -------- V shall survive the expiration or any termination of this Agreement (whether by operation of law or otherwise) and the payment of amounts owed by the Lessor and the Company under this Agreement, the Credit Agreement, the Notes, and the other Operative Documents. 9 Section 5.3 Payment upon Demand. Upon demand for payment by any ------------------- Indemnified Party of any Indemnified Risks incurred by it for which indemnification is sought, the Company shall pay when due and payable the full amount of such Indemnified Risks to the appropriate party as provided in Section 11.03 of the Credit Agreement. Section 5.4 Acknowledgement of Scope of Indemnity. The Company ------------------------------------- acknowledges and agrees that (a) its obligations under this Article V are intended to include and extend to (without limitation) any and all liabilities, Liens, Taxes, losses, obligations, claims, damages (including, without limitation, penalties, fines, court costs and administrative service fees), penalties, demands, causes of action, suits, proceedings (including any investigations, litigation or inquiries), judgments, orders, sums paid in settlement of claims, costs and expenses (including, without limitation, response and mediation costs, stabilization costs, encapsulation costs, and treatment, storage or disposal costs), imposed upon or incurred by or asserted at any time against any Indemnified Party (whether or not indemnified against by any other party) as a result of, arising directly or indirectly out of or in any way related to (i) the treatment, storage, disposal, generation, use, transport, movement, presence, release, threatened release, spill, installation, sale, emission, injection, leaching, dumping, escaping or seeping of any Hazardous Materials containing or alleged to contain hazardous substance at, under, onto, above, within or from the Facility or any part thereof or any business conducted on or related to the Facility or the Site; (ii) the violation or alleged violation of any Environmental Requirements relating to or in connection with the Facility or any part thereof or any acts or omissions thereon or relating thereto; (iii) all other federal, state and local laws designed to protect the environment or persons or property therein, whether now existing or hereinafter enacted, promulgated or issued by any governmental authority relating to or in connection with the Facility or any part thereof or any acts or omissions thereon or relating thereto; (iv) the Company's failure to comply with its obligations under Section 7 of the Lease; and (v) any abandonment of the Facility by the Company. Section 5.5 Best Efforts Notice. In case any action shall be brought ------------------- against any Indemnified Party in respect of which indemnity may be sought against the Company, such Indemnified Party shall use best efforts to promptly notify the Company in writing, but the failure to give such prompt notice shall not relieve the Company from liability hereunder. ARTICLE VI Reversion of Rights and Contracts. --------------------------------- Upon payment of the Purchase Price as provided in Section 15 of the Lease: (a) the various agreements, licenses, Applicable 10 Permits and contracts, including without limitation Related Contracts, to be provided hereunder by Company to the Lessor shall revert to the Company (or be transferred to the Company), (b) service contracts with the Company, property rights and licenses granted by the Company to the Lessor shall terminate or be transferred to the Company, and (c) third-party service contracts shall be assigned by the Lessor to the Company, all the foregoing transfers and assignments to be made without recourse and without any representation or warranty whatsoever. Upon the termination of the Lease and the failure of the Company or one of its Affiliates to purchase the Facility as provided in Section 15 of the Lease, all such agreements, Applicable Permits, contracts, property rights and licenses and Third Party service contracts, including without limitation Related Contracts, shall remain in place unless terminated by the Lessor with the consent of the Agent. ARTICLE VII Additional Support. ------------------ In the event that none of the Company, or any of its Affiliates purchases the Facility from the Lessor pursuant to the Lease, the parties hereto agree to negotiate in good faith to provide to the Lessor such support in addition to that provided for in this Agreement as the Lessor or the Agent may deem necessary to maintain, use, occupy and operate the Facility for the Permitted Use or any other purpose requested by the Lessor. ARTICLE VIII Miscellaneous. ------------- Section 8.1 Governing Law; Assignability, etc. This Agreement (including, ---------------------------------- but not limited to, the validity and enforceability hereof) shall be construed in accordance with the laws of the State of Georgia. This Agreement supersedes all prior agreements among or between the parties with respect to the matters addressed herein and shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, subject to Section 11.06 of the Credit Agreement. After the expiration or the termination of the Lease, and provided that the Company (or an Affiliate thereof) shall not have purchased the Facility in accordance with the terms of the Lease, the Lessor may, at any time, assign its rights hereunder to any permitted sublessee of the Site or assignee of the Lessor under the Lease, without the prior written consent of the Company. The Company may not delegate all or any part of its obligations or assign any of its rights hereunder without the prior written consent of the Lessor and the Agent. 11 Section 8.2 Jurisdiction. Jurisdiction hereunder shall be governed by the ------------ provisions governing jurisdiction set forth in Section 11.14 of the Credit Agreement which provisions are hereby incorporated herein, with any necessary ------------------ changes in points of detail, by reference as if fully set forth herein. - --------------------------- Section 8.3 Amendments. No change, waiver, amendment or modification of ---------- any of the provisions of this Agreement shall be valid unless set forth in a written instrument signed by the parties hereto, in compliance with the requirements set forth in the Credit Agreement. Section 8.4 Term; Option. Except as otherwise expressly provided herein, ------------ this Agreement and the parties' obligations hereunder shall commence on the date hereof and shall terminate upon the expiration or other termination of the Exclusivity Period, subject to the provisions of Section 3.2 hereof. Section 8.5 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, and all of which together shall constitute but one and the same instrument. This Agreement may be delivered by facsimile transmission of the relevant signature pages hereof. Section 8.6 Further Assurances. The Company shall take all appropriate ------------------ actions and shall execute any documents, instruments or conveyances of any kind which may be necessary or advisable to carry out the provisions hereof, including, without limitation, all actions and documents required by Governmental Authorities, and respond to all inquiries of Governmental Authorities concerning the Facility. IN WITNESS WHEREOF, the parties hereto have caused this Agency Agreement hereto to be entered into by one of its officers thereunto duly authorized. SCIENTIFIC-ATLANTA, INC. By: /s/ H.A. Wagner ------------------------------------ Name: Harvey A. Wagner Title: Senior Vice President-Finance, Chief Financial Officer and Treasurer 12 WACHOVIA CAPITAL MARKETS, INC. By: /s/ Joseph J. Thomas ------------------------------------ Name: Joseph J. Thomas ---------------------------- Title: Senior Vice President --------------------------- 13 EX-10.(V) 16 GROUND LEASE Exhibit 10(v) AFTER RECORDING RETURN TO: Christopher L. Carson, Esq. Jones, Day, Reavis & Pogue 3500 One Peachtree Center 303 Peachtree Street Atlanta, Georgia 30308-3242 GROUND LEASE Dated as of July 30, 1997 Between SCIENTIFIC-ATLANTA, INC. a Georgia corporation, as Ground Lessor, and WACHOVIA CAPITAL MARKETS, INC., a Georgia corporation, as Ground Lessee GROUND LEASE THIS GROUND LEASE (the "Ground Lease") dated as of July 30, 1997 (the ------------ "Effective Date") is between SCIENTIFIC-ATLANTA, INC., a Georgia corporation - --------------- ("Ground Lessor"), and WACHOVIA CAPITAL MARKETS, INC., a Georgia corporation, - --------------- its successors and assigns ("Ground Lessee"). ------------- RECITALS -------- WHEREAS, Ground Lessor holds fee simple title to the Site (as hereinafter defined); and WHEREAS, Ground Lessor desires to lease to Ground Lessee, and Ground Lessee desires to lease from Ground Lessor, the Site in accordance with the terms and conditions set forth in this Ground Lease. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Ground Lessor and Ground Lessee hereby covenant and agree as follows: SECTION 1. CERTAIN DEFINED TERMS. All capitalized terms used in this Ground --------------------- Lease and not otherwise defined herein shall have the following meanings: "Agency Agreement" means that certain Acquisition, Agency, Indemnity ---------------- and Support Agreement dated as of even date herewith between the Ground Lessor and the Ground Lessee, as the same is amended or otherwise modified from time to time. "Arbitration" as defined in Section 12. ----------- "Award" as defined in Section 8. ----- "Condemnation" as defined in Section 8. ------------ "Default" as defined in Section 11. ------- "Effective Date" means the date of this Ground Lease as set forth in -------------- the first paragraph hereof. "Event of Default" as defined in Section 11. ---------------- "Ground Lease" means this Ground Lease. ------------ "Ground Lessee" means Wachovia Capital Markets, Inc., a Georgia ------------- corporation, the ground lessee under this Ground Lease, and its successors and assigns. "Ground Lessor" means Scientific-Atlanta, Inc., a Georgia corporation, ------------- the ground lessor under this Ground Lease. "Impositions" means all taxes, assessments, use and occupancy taxes, ----------- water and sewer charges, charges for public utilities, excises, levies, license and permit fees and other charges, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever, which shall or may during the Term be assessed, levied, charged, confirmed or imposed upon or accrue or become due or payable out of or on account of or become a lien on the Site or any portion thereof. Impositions shall not include any income taxes, capital levy, estate, succession, inheritance or transfer taxes or similar tax of Ground Lessor, or any franchise taxes imposed upon any owner of the fee of the Site or any income, profits or revenue tax, assessment or charge imposed upon the rent or other benefit received by Ground Lessor under this Ground Lease. "Lease Years" means successive one (1) year periods during the Term, ----------- with the first Lease Year commencing on the Effective Date and subsequent Lease Years commencing on each anniversary of the Effective Date. "Leasehold Mortgage" as defined in Section 10. ------------------ "Leasehold Mortgagee" as defined in Section 10. ------------------- "Permitted Exceptions" means those matters affecting Ground Lessor's -------------------- title to the Site as set forth in Exhibit "A" mutually agreeable to and ----------- attached hereto by the Ground Lessor and the Ground Lessee on or prior to the Lease Commencement Date (defined in the Sublease) and by this reference made a part hereof, to which Ground Lessee's interest under this Ground Lease is expressly subject. "Site" means the land and easements described in Exhibit "B" attached ---- ----------- hereto and by this reference made a part hereof, including, without limitation, any and all improvements now or hereafter constructed thereon and any and all appurtenances thereto. "Sublease" means that certain Lease Agreement dated as of even date -------- herewith between WCMI, as sublessor, and Scientific-Atlanta, Inc., as sublessee, as the same is amended or otherwise modified from time to time. "Term" as defined in Section 2. ---- "Third Party Occupancy Period" means the period commencing on the date ---------------------------- on which WCMI has transferred its interests hereunder to another person or entity. "WCMI" as defined in Section 13. ---- "WCMI Occupancy Period" means the period commencing on the latter to --------------------- occur of (i) the payment of the Final Rent Payment under the Sublease, and (ii) the surrender of possession of the Site to WCMI, and ending on the date on which WCMI has transferred its interests hereunder to another person or entity. SECTION 2. LEASE OF SITE; TERM. ------------------- (a) Subject to the terms and conditions of this Ground Lease, Ground Lessor hereby leases to Ground Lessee, and Ground Lessee hereby leases from Ground Lessor the Site for a period (the "Term") of ninety-nine (99) years commencing ---- on the Effective Date and ending, unless sooner terminated pursuant to the terms of this Ground Lease, on July 14, 2096. (b) So long as Ground Lessee observes and performs all of the terms, covenants and conditions of this Ground Lease to be observed and performed on Ground Lessee's part, Ground Lessee shall peaceably and quietly enjoy the Site, subject to the terms and conditions of this Ground Lease and subject to the Permitted Exceptions, and Ground Lessee's possession shall not be disturbed by anyone. (c) Upon termination of this Ground Lease in accordance with the terms of this Ground Lease, Ground Lessee's rights in the Site created in this Ground Lease shall revert to Ground Lessor, and Ground Lessee shall no longer have any rights or obligations with respect to the Site. (d) Ground Lessor will grant or join in granting and, if necessary, modifying such rights-of-way, easements and other interests as may be required to provide the Site with ingress and egress, and electric, telephone, gas, water, sewer and other public utilities necessary to the operation of the Site (including any improvements hereafter erected thereon). Any such easements shall be in such locations as the Ground Lessor may 3 reasonably determine to be appropriate in order to permit the use and development of the property owned by the Ground Lessor adjacent to the Site. SECTION 3. Rent. Upon the earlier to occur of (x) that date which is 6 months ---- after the end of the Exclusivity Period, or (y) the commencement of any Third Party Occupancy Period, Ground Lessee shall pay to Ground Lessor rental for the use and occupancy of the Site in an amount equal to a fair market rental as agreed upon by the Ground Lessor and the Ground Lessee and documented by an amendment to this Ground Lease (the "Rent"). In the event that the Ground Lessor and the Ground Lessee are unable to agree on the amount of Rent within 15 days, the amount of Rent shall be determined by arbitration in accordance with the terms of Section 12 of this Ground Lease. SECTION 4. Impositions. (a) After the commencement of the WCMI Occupancy ----------- Period and during any Third Party Occupancy Period, in addition to the Rent, during the Term, Ground Lessee will pay or cause to be paid, subject to the Ground Lessee's contest rights under Section 4(b) hereof, all Impositions imposed upon or levied or assessed against the Site or any portion thereof, or against the Ground Lessor in connection with the transactions contemplated by this Ground Lease, or imposed or levied upon, assessed against or measured by any Rent or other sums payable hereunder, or any sums levied in connection with the execution, delivery or recording hereof, and will furnish to the Ground Lessor upon request copies of official receipts or other proof evidencing such payment; provided, however, that the Ground Lessee shall not be obligated to pay -------- ------- (i) any Impositions that are based upon or measured by the Ground Lessor's overall net income, or which are in substitution for, or relieve the Ground Lessor from, any actual Imposition based upon or measured by the Ground Lessor's overall net income; (ii) Impositions constituting franchise taxes imposed on Ground Lessor by the jurisdiction under the laws of which Ground Lessor is organized or qualified or any political subdivision thereof; or (iii) any Impositions attributable to the gross negligence or willful misconduct of the Ground Lessor. The Ground Lessee further agrees that, subject to its rights under Section 4(b), it will, at its expense, do all things required to be done by the Ground Lessor in connection with the levy, assessment, billing or payment of any Impositions that it is required to pay pursuant to the preceding sentence, and is hereby authorized by the Ground Lessor to act for and on behalf of the Ground Lessor in any and all such respects and to prepare and file, on behalf of the Ground Lessor, all tax returns and reports required to be filed by the Ground Lessor (other than federal income tax returns and documents related thereto) concerning the Facility. The Ground Lessee's payment and other 4 obligations under this Section 4 shall survive the termination of this Ground Lease. (b) Notwithstanding any other provision of this Ground Lease to the contrary, after prior written notice to the Ground Lessor and provided there is no material risk of sale, forfeiture or loss of the Site or any material part thereof or interest therein, the Ground Lessee may at its expense contest any Imposition or any nonconsensual lien which it is required to pay or comply with hereunder, by appropriate proceedings conducted in good faith and with due diligence, so long as such proceedings are effective to prevent the collection of such Imposition or lien from the Ground Lessor or against the Site or any part thereof; provided, however, that the actions of the Ground Lessee, as -------- ------- authorized by this Section 4(b), shall be subject to the express written consent of the Ground Lessor if such actions would subject the Ground Lessor or the Site or any part thereof to any liability or loss not indemnified in full by the Ground Lessee hereunder or any sanction, criminal or otherwise, for failure to pay any such Imposition or to comply with such requirement. The Ground Lessee will pay, and save the Ground Lessor harmless against, all losses, judgments and reasonable costs, including attorneys' fees and expenses, in connection with any such contest and will, promptly after the final determination of such contest, comply with such requirements and pay and discharge the amounts which shall be imposed or determined to be payable therein, together with all penalties, costs and expenses incurred in connection therewith. The Ground Lessee shall prevent any foreclosure, judicial sale, taking, loss or forfeiture of the Site or any part thereof, or any interference with or deductions from any Rent or any other sum required to be paid by the Ground Lessee hereunder by reason of such nonpayment or nondischarge of an Imposition, or noncompliance with a requirement contemplated herein. The Ground Lessor shall cooperate with the Ground Lessee in any contest and shall allow the Ground Lessee to conduct such contest (in the name of the Ground Lessor, if necessary) at the Ground Lessee's sole cost and expense; and the Ground Lessee shall indemnify and hold the Ground Lessor harmless from and against all liabilities, costs and expenses in connection with such contest. The Ground Lessee shall notify the Ground Lessor of each such proceeding within ten (10) days after the commencement thereof, which notice shall describe such proceeding in reasonable detail. SECTION 5. Improvement of Site. ------------------- (a) Ground Lessee shall have the right, at Ground Lessee's expense, from time to time to construct improvements to become part of the Site. Ground Lessee shall have the right, at Ground Lessee's expense, to demolish and remove any existing 5 improvements on the Site and any improvements hereafter erected, from time to time, on the Site. The salvage, if any, which Ground Lessee may be able to recover from such demolition shall belong to Ground Lessee. (b) Any improvements erected on the Site during the Term after the commencement of the WCMI Occupancy Period and during any Third Party Occupancy Period shall be and remain the property of the Ground Lessee then in possession of the Site, and Ground Lessee shall retain all rights to depreciation deductions and tax credits arising from the ownership thereof. Upon termination of this Ground Lease, all such improvements shall be and become a part of the realty and the property of Ground Lessor (except for any termination followed by a substitute lease from Ground Lessor to the Leasehold Mortgagee as hereinafter provided). SECTION 6. Use of Premises; Repairs; Alterations. ------------------------------------- (a) Ground Lessee may use the Site, including any improvements now or hereafter erected thereon, for (i) the occupation and use of the Site for commercial office space and light assemblage in compliance with all applicable laws and insurance policy requirements. (b) Ground Lessee will obey and comply with in all material respects all lawful requirements, rules, regulations and ordinances of all legally constituted authorities, existing at any time during the Term, in any way affecting the Site or the use of the Site or any demolition, excavation or construction being done on the Site or in any way affecting this Ground Lease. The right to contest the validity thereof in good faith is hereby reserved to Ground Lessee. (c) Ground Lessee accepts the Site in its present condition and as suited for the use intended by Ground Lessee. Ground Lessor shall not be required to make any repairs or improvements to the Site during the term of this Ground Lease, or in any manner to supply maintenance for the Site or any improvements thereon. SECTION 7A. Insurance. After the commencement of the WCMI Occupancy Period and --------- during any Third Party Occupancy Period: (a) The Ground Lessee will, at its own expense, purchase and maintain, or cause to be purchased and maintained, throughout the Term, with financially sound and reputable insurance companies, insurance with respect to its business and the Site in at least such amounts and against at least such risks (including on all its property, and public liability and worker's compensation) as are usually insured against in the same general 6 area by companies of established repute engaged in the same or similar business. (b) The Ground Lessee shall bear all risk of loss, whether by condemnation, casualty, theft, taking, confiscation or otherwise, with respect to the Site or any part thereof, at all times during the Term. (c) So long as no Default shall have occurred and be continuing, any payments, whether constituting insurance proceeds, amounts paid by any governmental authority or otherwise, received by the Ground Lessee or the Ground Lessor upon the occurrence of any loss with respect to the Site or part thereof (other than as a result of a casualty), whether as a result of casualty, theft, taking or other confiscation, shall be applied in payment for necessary repairs and replacement to the Site to the extent permitted under the terms of this Ground Lease, or to the extent the costs of such repairs and replacement shall have been paid by the Ground Lessee, to the extent permitted under the terms of this Ground Lease, to reimburse the Ground Lessee. The Ground Lessee shall be entitled to retain any excess funds remaining after necessary repairs and replacements have been completed and all costs therefor paid in full. Upon the occurrence of any Default, the Ground Lessor shall be entitled to receive and retain any such payments for application to the obligations of the Ground Lessee hereunder. SECTION 7B. Hazardous Materials. The Ground Lessee shall not place, ------------------- manufacture or store or permit to be placed, manufactured or stored any Hazardous Materials on the Site, except for reasonable quantities of necessary supplies for use by the Ground Lessee in the ordinary course of business and stored, used and disposed in accordance with applicable Laws. "Hazardous Materials" means (a) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976, as amended from time to time, and regulations promulgated thereunder; (b) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, and regulations promulgated thereunder; (c) any substance the presence of which on any property now or hereafter owned or acquired by the Ground Lessee is prohibited by any applicable law similar to those set forth in this definition; and (d) any other substance which by Law requires special handling in its collection, storage, treatment or disposal. During any Third Party Occupancy Period, and during the WCMI Occupancy Period in the event WCMI occupies the Site as a tenant, the Ground Lessee shall defend, indemnify and hold harmless the Ground Lessor and its agents, employees, trustees, successors and assigns from any and all claims which may now or in the future (whether before or after the termination of this 7 Ground Lease) be asserted as a result of the presence of any Hazardous Materials on the Site unless caused by the Ground Lessor's gross negligence or wilful misconduct. The Ground Lessee acknowledges and agrees that this indemnification shall survive the termination of this Ground Lease. SECTION 8. Condemnation. At any time during which the Sublease is in effect ------------ (i) in the event of a Loss Event (defined in the Sublease), upon payment by the Ground Lessor of either (A) the Purchase Price (defined in the Sublease) for the Site, or (B) the payment of the Termination Value (defined in the Sublease), then this Ground Lease shall terminate, and (ii) any and all Awards (defined below) received with respect to any Condemnation (defined below) shall be applied in accordance with Sections 14 and 15 of the Sublease. After the commencement of the WCMI Occupancy Period and during any Third Party Occupancy Period, if during the Term, the Site or any part thereof be condemned or taken (a "Condemnation") by the United States, the State of Georgia, or any subdivision or municipality thereof, or any corporation, public or private, or by any other body having power of eminent domain, then: (a) The court in such Condemnation shall, if not prohibited by law, be required to make separate awards ("Award" or "Awards") to Ground Lessor and Ground Lessee and Ground Lessor and Ground Lessee agree to require such action by the court. This paragraph shall be construed as superseding any statutory provisions now in force or hereafter enacted concerning Condemnation proceedings to the extent permitted by law. (b) If such court is prohibited by law from making separate Awards to Ground Lessor and Ground Lessee or declines to do so, and if all of the Site or such portion thereof, as makes the residue of the Site of substantially no commercial value is so condemned, the Award in such Condemnation proceeding shall be divided between Ground Lessor and Ground Lessee, as follows: (i) The following values shall be determined as of the time of Condemnation by agreement of the parties or by Arbitration: (x) The value of the Site excluding the value of buildings and improvements thereon. In determining the value of the Site, the Rent payable hereunder by Ground Lessee had there been no Condemnation and the fact that any buildings or improvements on the Site would belong to Ground Lessor upon the expiration of the Term shall be taken into consideration. 8 (y) The value of the improvements placed on the Site by Lessee. In determining the value of such improvements, the obligation of Ground Lessee to pay the Rent hereunder had there been no Condemnation and the fact that such improvements would belong to Ground Lessor upon the expiration of the Term shall be taken into consideration. (ii) The Ground Lessor shall receive that percentage of the total Award which the value of the Site as determined in subparagraph (x) above bears to the sum of the values of the Site and improvements as determined in subparagraphs (x) and (y) above. (iii) The Ground Lessee shall receive the remainder of such Award. (c) If such court is prohibited by law from making separate Awards to Ground Lessor and Ground Lessee or declines to do so, and if the residue of the Site after such Condemnation is of some commercial value, then the Award in such Condemnation proceeding shall be divided between Ground Lessor and Ground Lessee, as follows: (i) The following amounts shall be determined by agreement of the parties or by Arbitration: (x) The difference between the value of the Site immediately prior to such Condemnation and the value of the residue of such Site; the value of the Site, in each instance excluding the value of the building and improvements thereon. In determining said difference the abatement of Rent otherwise payable by Ground Lessee, as hereinafter provided, and the loss of Ground Lessor's right to any improvements so Condemned upon the expiration of the Term shall be taken into consideration. (y) The difference between the value of the improvements placed on the Site by Ground Lessee immediately prior to such Condemnation and the value of the residue of said improvements after such Condemnation. In determining this difference, the abatement of Rent, if any, otherwise payable by Ground Lessee hereunder, as hereinafter provided, and Ground Lessor's right to any such 9 buildings or improvements so Condemned upon the expiration of the Term shall be taken into consideration. (ii) Ground Lessor shall receive that percentage of the total Award which the amount determined under subparagraph (x) above bears to the sum of the amounts determined under subparagraphs (x) and (y) above. (iii) The Ground Lessee shall receive the remainder of such award. (d) If all of the Site, or such portion thereof as makes the residue of substantially no commercial value, is so Condemned, this Ground Lease shall automatically terminate on the date of Condemnation. In the event that such residue of the Site is of some commercial value, then the percentage which the value of said residue bears to the value of the Site immediately prior to such Condemnation, shall be determined by agreement of the parties or by Arbitration, and that percentage of the Rent otherwise payable under this Ground Lease shall thereafter be payable as the Rent hereunder. (e) Any other provision of this Ground Lease to the contrary notwithstanding, should there be in existence at the time of any such Condemnation any Leasehold Mortgage, then the Leasehold Mortgagee shall be entitled to receive all such Awards up to the full amount due the Leasehold Mortgagee under its Leasehold Mortgage (including, without limitation, all principal, interest, fees, prepayment fees, late payments and curative advances), before either Ground Lessor or Ground Lessee shall be entitled to receive any such Award. Any such Award received by the Leasehold Mortgagee shall be deducted first from the portion of the Award otherwise payable to Ground Lessee and any excess due the Leasehold Mortgagee shall be deducted from the portion of the Award otherwise payable to Ground Lessor. Section 9. Assignments And Subleases. ------------------------- (a) Prior to the WCMI Occupancy Period, Ground Lessee shall not make any assignment, sublease or other conveyance of the Site or of Ground Lessee's interest in this Ground Lease, except as permitted in the Credit Agreement (defined in the Sublease). (b) After commencement of the WCMI Occupancy Period and during any Third Party Occupancy Period, upon prior written notice to Ground Lessor, Ground Lessee is hereby authorized to sell or assign its leasehold estate in its entirety or for any portion of the unexpired Term at any time, without the necessity 10 of obtaining any further consent or approval of Ground Lessor. Any purchaser or assignee of Ground Lessee's leasehold estate, immediate or remote, unless restrained by the muniments of title under which he holds, shall have like power of sale, assignment and transfer. If any such sale or assignment shall be evidenced by an instrument in writing, properly executed and acknowledged by all of the parties thereto and duly recorded in the Office of the Clerk of the Superior Court of Gwinnett County, Georgia, wherein and whereby the grantee or assignee assumes all of the obligations of Ground Lessee hereunder and if a copy of such instrument is delivered to Ground Lessor, the grantor or assignor shall be relieved from all further liability hereunder, and the grantee or assignee shall hold the leasehold estate and all of the rights of the Ground Lessee in and to the Site in accordance with the terms and conditions of this Ground Lease. Ground Lessee shall have the right to sublet all or any portion of the Site as Ground Lessee may deem proper, it being expressly understood and agreed that any such subletting shall have no effect on the obligations and covenants imposed hereunder upon Ground Lessee. Section 10. Leasehold Mortgages. ------------------- (a) Solely to the extent required by the terms of the Credit Agreement and the Operative Documents, Ground Lessee shall at all times have the right to encumber by the Mortgage (defined in the Credit Agreement; hereinafter, the "Leasehold Mortgage") as security for any debt, all of Ground Lessee's right, title and interest hereunder including, without limiting the generality of the foregoing, its right to use and occupy the Site together with its rights and interests in and to all buildings, improvements, and fixtures now or hereafter placed on the Site; in all respects, however (except as herein expressly provided), subordinate and inferior to Ground Lessor's rights, title, privileges, liens and interests as provided in this Ground Lease; and Ground Lessee shall, in no event, have the right to, in any way, encumber Ground Lessor's fee simple title and reversionary interest in and to the Site. Ground Lessee shall not amend or otherwise modify the Leasehold Mortgage except as permitted by the Credit Agreement or the Operative Documents. (b) The Agent (defined in the Credit Agreement) as mortgagee under the Leasehold Mortgage (the "Leasehold Mortgagee") may, at its option, at any time before this Ground Lease shall have been terminated, pay any amount or do any act or thing required of Ground Lessee by the terms of this Ground Lease and shall be thereby subrogated to any and all of the rights of Ground Lessee under the terms and provisions of this Ground Lease; and all payments so made and all acts or things so done and performed by the Leasehold Mortgagee shall be as effective to prevent a forfeiture of the rights of Ground Lessee as the same 11 would have been if done and performed by Ground Lessee instead of the Leasehold Mortgagee. (c) In the event of the termination of this Ground Lease or of any new lease made pursuant to the provisions of this paragraph (e) prior to its stated expiration date, Ground Lessor will notify the Leasehold Mortgagee and certify in writing to the Leasehold Mortgagee all amounts then due to Ground Lessor under this Ground Lease (or such new lease), and Ground Lessor will enter into a new lease of the Site with the Leasehold Mortgagee (or its designee or nominee) for the remainder of the Term, to commence as of the date of the termination of this Ground lease (or any new lease) at the same Rent and upon all of the other terms, provisions, covenants and agreements in this Ground Lease contained, upon condition that (i) the Leasehold Mortgagee shall make written request to Ground Lessor for such new lease not later than thirty (30) days from the date such notice by Ground Lessor is given to the Leasehold Mortgagee, (ii) the Leasehold Mortgagee shall pay to Ground Lessor at the time of the execution and delivery of said new lease all sums which, as at the date of execution and delivery of such new lease, were past due and owing under this Ground Lease, and (iii) such new lease shall require the lessee thereunder to perform any obligation of Ground Lessee under this Ground Lease not then performed. (d) Ground Lessor will not modify, amend, cancel or accept a surrender of this Ground Lease, nor shall this Ground Lease be terminated by Ground Lessee (including a termination pursuant to the express provisions hereof), nor shall Ground Lessee elect any option granted to it under this Ground Lease, without the prior written consent of all the Leasehold Mortgagee. Any such modification, amendment, cancellation, surrender, termination or option election without the written consent of the Leasehold Mortgagee shall be void and of no force or effect. (e) No union of the interests of Ground Lessor and Ground Lessee shall result in a merger of this Ground Lease and the fee interests in the Site without the prior written consent of the Leasehold Mortgagee. Section 11. Default - Forfeiture - Termination. ---------------------------------- (a) This Ground Lease is granted on the condition that if an Event of Default shall occur, and in accordance with the terms and provisions hereof, a Default shall then occur, this Ground Lease may be terminated. (b) There shall be an event of default, (an "Event of Default") only if and when: 12 (i) there shall have been a failure to pay, when due, any item of Rent herein provided to be paid by Ground Lessee to Ground Lessor, or any item of Impositions required by the terms of this Ground Lease to be paid by Ground Lessee; or (ii) there shall have been a failure to comply with any provision hereof; or (iii) the Ground Lessee shall have commenced a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (iv) an involuntary case or other proceeding shall be commenced against the Ground Lessee seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days, or an order for relief shall be entered against the Ground Lessee under the federal bankruptcy laws as now or hereafter in effect. Before a Default shall ripen from or out of any of the foregoing Events of Default, there shall have been: (i) given to Ground Lessee and to the Leasehold Mortgagee a notice of the failure to pay, when due, any item of Rent at least thirty (30) days in advance of a Default becoming effective and a notice of any other Event of Default in writing at least (A) ninety (90) days in advance of a Default becoming effective during the WCMI Occupancy Period, and (B) forty-five (45) days in advance of a Default becoming effective during any Third Party Occupancy Period; and 13 (ii) no cure of the Event of Default specified in said notice, which cure, however, may be effected during the period of said notice by the payment of any money which would have avoided the Event of Default, if made in due course. If and whenever any such Event of Default, of which notice shall have been given, shall have thus been cured within the applicable notice periods described in clause (i) above, there shall be no Default, but if not cured as provided in this paragraph, then upon the expiration of such applicable notice periods, a Default shall exist. (c) A Default having occurred, then and in any such event Ground Lessor shall have the right, at its election, upon giving ten (10) days' notice of such election: (i) As Ground Lessee's legal representative, without terminating this Ground Lease, to enter upon and rent the Site at the best price obtainable by reasonable effort without advertisement and by private negotiations and for any term and on such conditions as Ground Lessor deems proper. Ground Lessee shall be liable to Ground Lessor for the deficiency, if any, between the Rent hereunder and the price obtained by Ground Lessor on reletting; or (ii) to terminate this Ground Lease and to enter into and upon the Site and take possession of the same, and Ground Lessor may hold and retain the Site as of its first or former estate. After commencement of the WCMI Occupancy Period and during any Third Party Occupancy Period, after a Default shall have occurred with respect to any payment obligations hereunder, the Ground Lessee shall pay to the Ground Lessor, upon demand by Ground Lessor, a late charge not to exceed 4% of the amount of such payment. Provided, however, in the event that any Default or Event of Default hereunder has occurred as a result of (i) Ground Lessor's failure to comply with the terms of the Sublease or the Agency Agreement, or (ii) a Default or Event of Default having occurred under the Sublease (as both terms are defined in the Sublease), then the Ground Lessor shall not be permitted to exercise any rights or remedies under this Section 11 with respect to such Default or Event of Default hereunder. The foregoing proviso shall not apply to the Ground Lessor's exercise of any such rights or remedies against the Ground Lessee (A) arising during the WCMI Occupancy Period in the event that the Agency Agreement has been terminated, or (B) during any Third Party Occupancy Period. 14 (c) Upon the expiration of the Term of this Ground Lease, or upon the prior termination of this Ground Lease from any cause, all rights of the Ground Lessee, and all persons whomsoever claiming by, through or under Ground Lessee, whether by grant, assignment, Leasehold Mortgage, sublease, foreclosure proceedings or other conveyance or encumbrance to the Site, including all improvements thereon, shall eo instante, wholly cease and terminate; and the -- -------- Site, including all improvements thereon, shall thence forward constitute and belong to and be the absolute property of Ground Lessor, Ground Lessor's successors and assigns, without further act or conveyance, and without liability to make compensation to Ground Lessee or to anyone whatever, and free and discharged from all and every lien, encumbrance and charge of any character created or attempted to be created by Ground Lessee at any time. SECTION 12. Arbitration. If the parties are unable to agree on any matter, ----------- which, in accordance with the terms of this Ground Lease, is to be settled by arbitration ("Arbitration"), then such Arbitration proceeding shall be conducted in the following manner: (a) A party shall notify the other in writing of the exact matter in dispute and of the name of the arbitrator appointed by the party giving such notice. Within ten (10) days after receipt of such notice, the party so receiving it shall, in writing, notify the other party of an arbitrator appointed by it. Within thirty (30) days after the appointment of the second arbitrator, the arbitrators so appointed shall determine the matter in dispute, or failing so to do shall jointly appoint a third arbitrator. If the two arbitrators are unable to determine the matter in dispute or agree upon a third arbitrator within thirty (30) days after the appointment of the second arbitrator, then both parties or either of them shall immediately, by petition to the senior Judge of the Superior Court of Gwinnett County, Georgia, request the appointment of five (5) persons, each of whom shall be qualified to serve as a third arbitrator, and none of whom shall have any interest in or be in any way affiliated with or related to either party as a stockholder, officer, employee, or agent of any party, or a relative of any such person. From the five (5) persons thus appointed, Ground Lessor and Ground Lessee shall, within fifteen (15) days after such appointment, alternately strike two names each, Ground Lessee striking one first. The remaining person shall act as the third arbitrator. If either party shall fail or refuse to appoint an arbitrator within the time provided, then the other party shall petition the then senior Judge of the Superior Court of Gwinnett County, Georgia, to appoint an arbitrator for such party and any arbitrator so appointed shall be considered as having been appointed by the party so failing or refusing to appoint an 15 arbitrator. If either party shall fail or refuse within the time provided to strike from the list of the five (5) persons appointed by the court as set forth above, the other party shall proceed to select the third arbitrator from said list. (b) After a third arbitrator has been appointed as provided above, the arbitrators shall hold such meeting as any party may reasonably request and at such meetings, hear and consider any evidence which a party desires to present. Within thirty (30) days after the appointment of the third arbitrator, the arbitrators shall make their determinations. (c) All determinations made by the arbitrators shall be in writing, signed by at least two arbitrators. Such written determinations shall be in all respects final and no party shall have any right to appeal therefrom to the courts or otherwise. (d) Each party shall pay the fees and expenses of the arbitrator appointed by it. The fees and expenses of the third arbitrator shall be divided equally between Ground Lessor and Ground Lessee. SECTION 13. Limited Liability of Wachovia Capital Markets, Inc. ("WCMI"). ------------------------------------------------------------ Anything in this Ground Lease to the contrary notwithstanding, after such time as WCMI shall have expended, directly or indirectly, at least $100,000 toward improvement of the Site (including both "hard" costs and "soft" costs), all claims, demands or causes of action, whether reduced to judgment or not, which Ground Lessor may then or at any time thereafter have against WCMI for the payment of Rent or any other amounts which may become due hereunder, or because of WCMI's failure to comply with any provision hereof, shall be enforceable solely against WCMI's right, title and interest under this Ground Lease, and no other property of WCMI shall be subject to any such claim, demand or cause of action, nor shall Ground Lessor have the right to force WCMI by mandatory injunction or by extraordinary remedy personally to perform any of the covenants or agreements of this Ground Lease. Any provision of the Ground Lease to the contrary notwithstanding, WCMI at its sole option shall be entitled upon sixty (60) days prior written notice to Ground Lessor to terminate the Ground Lease effective immediately following the expiration of such sixty (60) day notice period; provided, however, this Section 13 shall not inure to the benefit of any assignee of WCMI (other than any Affiliate (defined in the Sublease) of WCMI or any Person approved by the Ground Lessor) and any such assignee shall remain fully liable for the payment of Rent and all other amounts which may become due hereunder and all other obligations of the Ground Lessee hereunder. 16 Section 14. Estoppel Certificates. Each party agrees from time to time, upon --------------------- no less than ten (10) days' prior notice from the other, to execute, acknowledge and deliver, without charge, to the other party, or to any person designated by the other party, a statement in writing certifying that this Ground Lease is unmodified and in full force and effect (or if there have been modifications, identifying the same by the date thereof and specifying the nature thereof), that to the knowledge of such party no uncured default or event of default exists hereunder (or if any such uncured default or event of default does exist, specifying the same) and the dates to which the Rent and other sums and charges payable hereunder have been paid. Section 15. Notices. Except as otherwise provided herein, all notices and ------- other communications provided for hereunder shall be in writing (including telecopier and other readable communication) and mailed by certified mail, return receipt requested, telecopied or otherwise transmitted or delivered, if to the Ground Lessor, at One Technology Parkway, South, Norcross, Georgia 30092- 2967, Attention: Harvey A. Wagner, Telecopier: (770) 903-4700, with a copy to Ground Lessor at its address but to the Attention of William Eason, Esq., Telecopier (770) 903-4823 and a copy to Charles T. Sharbaugh, Esq., Paul, Hastings, Janofsky & Walker, Suite 2400, 600 Peachtree Street, Atlanta, Georgia 30308, Telecopier (404)815-2424; and if to the Ground Lessee, at 191 Peachtree Street, N.E., Atlanta, Georgia 30303, Attention: Operations Manager, Telecopier: (404) 332-4005; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, if so mailed, telecopied or otherwise transmitted, be effective when received, if mailed, or when the appropriate answer back or other evidence of receipt is given, if telecopied or otherwise transmitted, respectively. Section 16. Severability. If any provision hereof or the application thereof ------------ to any Person or circumstance shall be invalid or unenforceable, then the remaining provisions or the application of such provisions to persons or circumstances other than those as to which it is invalid or enforceable, shall continue to be valid and enforceable. Section 17. Governing Law. This Ground Lease shall be governed by, interpreted ------------- under and construed in accordance with the laws of the State of Georgia. Section 18. Counterparts. This Ground Lease may be executed in any number of ------------ counterparts, each of which shall be an original, and all of which together shall constitute but one and the same instrument. 17 Section 19. Successors and Assigns. This Ground Lease shall be binding upon ---------------------- and inure to the benefit of Ground Lessor and Ground Lessee and their respective heirs, successors and assigns. IN WITNESS WHEREOF, this instrument has been executed under seal as of date first written above. GROUND LESSOR: Signed, sealed and delivered in the presence of: SCIENTIFIC-ATLANTA, INC., /s/ William E. Eason, Jr. a Georgia corporation - ------------------------------------ Witness /s/ Julia S. Keating By: /s/ H. A. Wagner - ------------------------------------ ----------------------------------- Notary Public Name: Harvey A. Wagner --------------------------------- Title: Senior Vice President-Finance, -------------------------------- Chief Financial Officer & -------------------------------- Treasurer -------------------------------- My Commission Expires: September 26, 1999 - ------------------------------------ [CORPORATE SEAL] [NOTARY SEAL] GROUND LESSEE: Signed, sealed and delivered in the presence of: WACHOVIA CAPITAL MARKETS, INC., a Georgia corporation /s/ Karen H. McClain - ------------------------------------ Witness /s/ Maxine Crawford By: /s/ Joseph J. Thomas - ------------------------------------ -------------------------------- Notary Public Name: Joseph J. Thomas ------------------------------ Title: Senior Vice President ----------------------------- My Commission Expires: August 2, 1998 - ------------------------------------ [NOTARY SEAL] 18 EXHIBITS TO THIS AGREEMENT ARE NOT FILED WITH THIS EXHIBIT 10(v), BUT ARE AVAILABLE UPON REQUEST. EX-11 17 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 27, 1997 (In Thousands, Except Earnings Per Share)
1997 1996 1995 - ------------------------------------------------------------------------------ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 77,319 76,666 76,194 Add--Shares of common stock assumed issued upon exercise of options using the "treasury stock" method as it applies to the computation of primary earnings per share 879 1,192 2,098 ------- ------- ------- NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 78,198 77,858 78,292 Add--Additional shares of common stock assumed is upon exercise of options using the "treasury stock" method as it applies to the computation of fully diluted earnings per share 185 47 92 ------- ------- ------- NUMBER OF SHARES OUTSTANDING ASSUMING FULL DILUTION 78,383 77,905 78,384 ======= ======= ======= - ------------------------------------------------------------------------------ NET EARNINGS (LOSS) FOR PRIMARY AND FULLY DILUTED COMPUTATION $64,042 $(6,034) $63,540 ======= ======= ======= EARNINGS (LOSS) PER COMMON SHARE AND COMMON EQUIVALENT SHARE (1) Primary $ 0.82 $ (0.08) $ 0.83 Fully diluted $ 0.82 $ (0.08) $ 0.83 - ------------------------------------------------------------------------------
(1) In 1996 and 1995 the dilutive effect of equivalent shares derived from stock options was less than 3 percent and therefore, the equivalent shares were not included in the computation of earnings per share. EX-21 18 LIST OF SUBSIDIARIES EXHIBIT 21 LIST OF SIGNIFICANT SUBSIDIARIES
STATE OR COUNTRY NAME OF INCORPORATION - ---- ---------------- SAMMEX, Inc. Texas Scientific-Atlanta Canada Inc. Canada Scientific-Atlanta Export Corporation Barbados Scientific-Atlanta Europe Ltd. England
EX-23 19 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report appearing on page 13 of this Form 10-K, into the Company's previously filed registration statements as listed below. 1. Registration Statements on Form S-8 covering the Scientific-Atlanta, Inc. 1978 Non-Qualified Stock Option Plan for Key Employees, as amended (File Nos. 2-72029, 33-5623, 33-20858, and 33-36926); 2. Registration Statements on Form S-8 covering the Scientific-Atlanta, Inc. Employee Stock Purchase Plan, as amended (File Nos. 33-5621 and 33-36925); 3. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. 1981 Incentive Stock Option Plan (File No. 33-781); 4. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. Non-Employee Directors Stock Option Plan (File No. 33-35313); 5. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. Voluntary Employee Retirement and Investment Plan (File No. 33- 69827); 6. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. 1992 Employee Stock Option Plan (File No. 33-69218); 7. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. 1993 Restricted Stock Awards (File No. 33-52135); 8. Registration Statement on Form S-8 covering the Long-Term Incentive Plan of Scientific-Atlanta, Inc. (File No. 33-56449); 9. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. Stock Plan for Non-Employee Directors (File No. 33-64065); 10. Registration Statement on Form S-8 covering the 1996 Employee Stock Option Plan (File No. 333-18893); 11. Registration Statement on Form S-8 covering the Non-Qualified Stock Option Agreement with Employee (File No. 333-18891); and 12. Registration Statement on Form S-8 covering the Non-Qualified Stock Option Agreement with Employee (File No. 333-23083). /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Atlanta, Georgia September 19, 1997 EX-27 20 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Form 10-K for the fiscal year ended June 27, 1997, and is qualified in its entirety by reference to such financial statements. 1,000 YEAR JUN-27-1997 JUN-29-1996 JUN-27-1997 107,143 0 242,381 4,202 209,570 597,101 258,843 92,423 823,615 249,761 1,810 0 0 38,998 493,652 823,615 1,168,245 1,168,245 809,081 809,081 114,344 391 484 89,179 28,537 60,642 3,400 0 0 64,042 0.82 0.82
EX-99 21 CAUTIONARY STATMENTS EXHIBIT 99 CAUTIONARY STATEMENTS From time to time, the Company may publish, verbally or in written form, forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. In fact, this Form 10-K (or any other periodic reporting documents required by the 1934 Act) may contain forward-looking statements reflecting the current views of the Company concerning potential future events or developments. The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements. These Cautionary Statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the "safe harbor" provisions of the Act. In order to comply with the terms of the "safe harbor," the Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties which may affect the operations, performance, development and results of the Company's business include, but are not limited to, the following: uncertainties relating to the development and ownership of intellectual property; uncertainties relating to the ability of the Company and other companies to enforce their intellectual property rights; uncertainties relating to economic conditions; uncertainties relating to government and regulatory policies; uncertainties relating to customer plans and commitments; the Company's dependence on the cable television industry and cable television spending; signal security; the pricing and availability of equipment, materials and inventories; technological developments; performance issues with key suppliers and subcontractors; governmental export and import policies; global trade policies; worldwide political stability and economic growth; regulatory uncertainties; delays in testing of new products; rapid technology changes; the highly competitive environment in which the Company operates; the entry of new, well-capitalized competitors into the Company's markets; changes in the financial markets relating to the Company's capital structure and cost of capital; and uncertainties inherent in international operations and foreign currency fluctuations. The words "believe," "expect," "anticipate," "project," "plan" and similar expressions identify forward- looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. -----END PRIVACY-ENHANCED MESSAGE-----