Deeds Of Trust

RECORDING REQUESTED BY ) AND WHEN RECORDED, RETURN TO: )
) Morgan, Lewis & Bockius ) 801 South Grand Avenue ) 22nd Floor ) Los Angeles, CA 90017 )
) Attn: Douglas A. Dodds )


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SANTA BARBARA COUNTY


FIRST DEED OF TRUST, ASSIGNMENT OF RENTS, AND FIXTURE FILING


THIS FIRST DEED OF TRUST, ASSIGNMENT OF RENTS, AND FIXTURE FILING (this "Deed of Trust"), is made as of the 24th day of March, 1995, by APPLIED MAGNETICS CORPORATION, a Delaware corporation, as trustor ("Trustor"), whose address is 75 Robin Hill Road, Goleta, California 93117, to CHICAGO TITLE COMPANY, as trustee ("Trustee"), for the benefit of HITACHI METALS, LTD., a juridical person duly organized and existing under the laws of Japan (the "Beneficiary"), with its head office at 2-1-2 Marunouchi, Chiyoda-Ku, Tokyo, Japan.


1. GRANT IN TRUST
--------------


Trustor hereby grants and assigns to Trustee, in trust, with power of sale and right of entry and possession, all of that certain real property (the "Land") located in an unincorporated area of the County of Santa Barbara, State of California, described on Exhibit A attached hereto and by this reference
--------- incorporated herein, together with all of Trustor's right, title and interest in and to:


1.1 Streets, etc. All streets, roads and public places, opened or
------------- proposed, adjoining the Land, all easements and rights of way, public or private, now or hereafter created and used in connection with the Land;


1.2 Improvements, etc. All improvements (the "Improvements") of every
------------------ kind and description now or hereafter constructed or erected upon or made to the Land;


1.3 Fixtures. All of the "Collateral" described in Section 6.2 of this
-------- Deed of Trust and replacements of any thereof, now or


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at any time hereafter owned by Trustor and affixed to or attached to or used in construction upon or used in any other way in connection with or located upon, under or within said Land and Improvements (such items as are affixed to and deemed a part of the Land or Improvements being hereinafter collectively referred to as the "Fixtures";


1.4 Reversions, Rents, etc. All reversions, remainders, rents, issues,
----------------------- profits and other benefits arising or issuing from, and all leases of, all or any portion of said Land, Improvements and Fixtures;


1.5 Awards, etc. All awards, damages, payments and other compensation
------------ (including, but not limited to, insurance proceeds) received by or payable to Trustor, and all claims of Trustor therefor and rights of Trustor thereto, which may result:


1.5.1 from any Condemnation (as defined in Section 4.6 below);


1.5.2 from any damage, injury or destruction in any manner caused to the Land, Improvements, or Fixtures; or


1.5.3 from any change of grade or vacation of any street abutting the Land. All of the foregoing are to be deemed to be part of the real estate, such that all right, title and interest of Trustor thereto shall pass absolutely to the purchaser at any trustee's sale or foreclosure sale;


1.6 Certificates, etc. All Certificates of Occupancy, other governmental
------------------ permits, and all water stock appurtenant to the Land or any portion thereof;


1.7 Insurance, etc. All of Trustor's right, title and interest in and to
--------------- all insurance policies required to be maintained under the terms of this Deed of Trust, or otherwise carried by Trustor covering the Property or any portion thereof, together with all unearned premiums paid thereon and all other benefits received or to be received therefrom; and


1.8 Tax Refunds, etc. All refunds of taxes, assessments, levies and other
----------------- charges related to the Land or Improvements, whether governmental or nongovernmental, and including, but not limited to, water and sewer rents and assessments on appurtenant water stock (collectively, the "Tax Refunds").


The Land and all other property herein described in Sections 1.1 through 1.8 above shall be referred to collectively as the "Property."


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2. ASSIGNMENT OF RENTS
-------------------


2.1 Trustor absolutely and irrevocably assigns to Beneficiary the rents, issues, profits and royalties of the Property upon the terms and conditions hereinafter set forth. The foregoing assignment shall not impose upon Beneficiary any duty to produce rents from the Property, and said assignment shall not cause Beneficiary to be a "mortgagee in possession" for any purpose. This assignment of the rents, issues, profits, royalties, production and other payments and proceeds, of the Property is intended to be an absolute assignment from Trustor to Beneficiary and not merely the passing of a security interest. Beneficiary is hereby authorized to collect and receive the foregoing rents, issues, profits and royalties to give proper receipts and acquittances therefor and to apply the same to the payment of the obligations secured hereby. However, Beneficiary hereby grants Trustor an exclusive and (upon the occurrence of an Event of Default, as defined in Section 5 hereof), revocable, license to collect and receive such rents, issues, profits and royalties.


2.2 Upon the revocation of such license, and without the necessity of Beneficiary entering upon and taking and maintaining full control of the Property in person, by agent or by a court appointed receiver, Beneficiary shall immediately be entitled to possession of all rents and revenues of the Property as the same shall become due and payable, including, but not limited to, rents then due and unpaid. All such rents, issues, profits and royalties thereafter collected by Trustor shall be held by Trustor as trustee in a constructive trust for the benefit of Beneficiary only. Trustor agrees that commencing upon the revocation of such license, each tenant of the Property shall make such rents payable to and pay such rents to Beneficiary or Beneficiary's agents on Beneficiary's written demand to each tenant, without any liability on the part of said tenant to inquire further as to the existence of a default or license by Trustor.


3. OBLIGATIONS SECURED
-------------------


Trustor makes the grant described above for the purpose of securing:


3.1 The complete and full performance of all of Trustor's obligations under that certain Letter Agreement, dated September 25, 1992, as amended by that certain Letter Agreement dated August 24, 1994 between Trustor and Beneficiary (as amended and modified from time to time, the "Reimbursement Agreement"), including, but not limited to, payment to the Beneficiary of any and all Drawdowns (as defined in the Reimbursement Agreement), interest and other sums due or to become due under the


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Reimbursement Agreement (and any amendments, extensions, modifications, renewals, or replacements thereof);


3.2 The observance and performance of each agreement, covenant and obligation of Trustor herein contained or incorporated herein by reference and payment of each fee, cost and expense by Trustor as herein set forth; and


3.3 Payment of such further sums and/or performance of such further obligations as the then record owner of the Property may undertake to pay and/or perform (whether as principal, surety or guarantor), for the benefit of Beneficiary, its successors or assigns, when said borrowing and/or obligation is evidenced by a writing or writings reciting that it or they are so secured.


4. RIGHTS AND DUTIES OF THE PARTIES
--------------------------------


TO PROTECT THE SECURITY OF THIS DEED OF TRUST, THE PARTIES AGREE AS FOLLOWS:


4.1 Title.
-----


4.1.1 Trustor represents and warrants that it lawfully holds and possesses the real property described on Exhibit A attached hereto, in fee
--------- simple, free and clear of any mortgage, deed of trust, lien, or other charge or encumbrance, except for existing encumbrances previously approved in writing by the Beneficiary, and without limitation on the right to encumber.


4.1.2 Trustor agrees not to create, incur, assume, or suffer to exist, or permit any related individual, association or entity to create, incur, assume or suffer to exist, any mortgage, deed of trust, lien, or other charge or encumbrance (including, without limitation, the lien or retained security title of a conditional vendor) of any nature upon or with respect to all or any portion or portions of the Property.


4.2 Taxes and Assessments. Trustor shall pay, prior to delinquency, all
--------------------- taxes, assessments, levies and charges imposed by any public or quasi-public authority or utility company which are or may become a lien upon the Property, any part thereof or interest therein. Trustor shall also pay, after notice and prior to delinquency, all taxes, assessments, levies and charges imposed by any public authority upon Beneficiary by reason of its interest in the Property created hereby or by reason of any payment, or portion thereof, made to Beneficiary hereunder or pursuant to any obligation hereby secured; provided, however, that Trustor shall have no obligation to pay or discharge Beneficiary's business or franchise taxes, federal or state income taxes or other taxes and which are measured by and imposed


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upon Beneficiary's net or gross income or receipts. Trustor's obligations hereunder may be discharged pursuant to Section 4.4. If requested by Beneficiary, Trustor shall cause to be furnished to the Beneficiary a tax reporting service covering the Property of a type and duration and with a company satisfactory to the Beneficiary.


4.3 Insurance. For the purpose of protecting Beneficiary's interest
--------- granted herein, the Trustor shall maintain at all times so long as the Reimbursement Agreement is in effect, and at the sole cost and expense of Trustor, the following insurance with insurers qualified and licensed to do business in the state where the Property is located:


4.3.1 "All risk" or equivalent property hazard insurance for an insured value of no less than 100% of the replacement cost value of the Improvements (excluding foundations, but including Fixtures owned by Trustor);


4.3.2 Debris removal insurance;


4.3.3 If the premises are located in an area identified by the United States Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as the same may have been or may hereafter be amended or modified (and any successor acts thereto), the Trustor shall also keep the Improvements and the equipment located therein insured against loss by flood in an amount at least equal to the outstanding indebtedness secured by this Deed of Trust or the maximum limit of coverage available with respect to the Improvements under said Act, whichever is less.


With respect to insurance policies obtained by Trustor as required by Sections 4.3.1 through 4.3.3 above:


(i) Trustor also agrees to name Beneficiary as mortgagee/loss payee, under a standard mortgage clause or its equivalent and include an agreed amount endorsement and a joint loss agreement in such policies;


(ii) Deductibles shall be no greater than customary for similar properties in the area; and


(iii) Any loss shall not reduce the limit insured under such policies.


4.3.4 Boiler and machinery insurance with a joint loss agreement and at limits adequate to cover repair and replacement expenses;


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4.3.5 General liability insurance covering third party bodily injury and property damage, with respect to the Property, and including contractual liability and auto liability, if applicable. Said insurance shall name the Beneficiary, including its directors, officers, representatives, attorneys, agents and employees, as additional insureds. It shall also provide that all of the provisions in the policy shall operate in the same manner as if there were a separate policy covering each additional insured (without, however, operating to increase the insurer's limit of liability as set forth in such policies). Beneficiary shall have no obligations to pay premiums. The policy shall also provide that the insurer waives all rights of subrogation against the Beneficiary. Limits shall be at all times on a per location basis in amounts agreed to by Beneficiary, and shall be based on customary limits to be determined based on practices by risks of a similar nature. No blanket insurance shall be used to satisfy this requirement without Beneficiary's prior written consent; and


4.3.6 Each of the above policies shall provide:


4.3.6.1 for 30-days prior written notice of cancellation or material change;


4.3.6.2 Beneficiary has the option, with no obligation, but on prior written notice to Trustor, to purchase insurance at the Trustor's expense in the event of policy lapse, cancellation and/or Trustor's failure to purchase the appropriate insurance;


4.3.6.3 if any loss significantly reduces the amount insured under the policies, the insurer and Trustor will provide written notification of same to Beneficiary;


4.3.6.4 such insurance shall be primary without right of contribution from any other insurance which may be carried by the Beneficiary; and


4.3.6.5 Beneficiary's interest in coverage shall not be invalidated or made voidable by any act, neglect or omission by the Trustor.


4.3.7 Trustor shall provide Beneficiary with evidence of property and primary liability insurance as soon as possible but in no event later than April 21, 1995 and upon renewal. The evidence shall be in the form of certified duplicate policies. Evidence of all other insurance policies required to be maintained by Trustor hereunder shall be in certificate form and shall state deductible limits, inclusion of coverages, and shall contain all special provisions specified herein. Beneficiary shall have the option to receive certified


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duplicate policies at any time. Certificates, binders and/or policies are to be available no later than April 21, 1995. If Trustor is not able to provide certificates or certified duplicate policies on or before March 27, 1995, Trustor may provide, at Beneficiary's discretion, a binder signed by the insurer. Nonetheless, certified policy copies are to be sent to the Beneficiary as soon as available, but in no case later than April 21, 1995.


4.4 Security Account. Upon the occurrence and during the continuance of
---------------- an Event of Default, at Beneficiary's option and upon its demand and except where and to the degree prohibited by law, Trustor shall, until the Reimbursement Agreement is terminated and every indebtedness secured hereby has been paid in full or until such Event of Default is cured, pay to Beneficiary each month an amount estimated by Beneficiary to be equal to: (i) the taxes, assessments, levies, and charges referred to in Section 4.2, and (ii) premiums for fire, other hazard and other insurance referred to in Section 4.3 next due. Said tax and insurance estimate shall be calculated by dividing the amount next due by, in each instance, the number of months to lapse preceding the month in which the same, respectively, will become due. If at any time the funds deposited with Beneficiary are or will be for any reason insufficient, in the opinion of Beneficiary, to pay such amounts as may then be or subsequently become due, Beneficiary shall notify Trustor and Trustor shall immediately deposit an amount equal to such deficiency with Beneficiary. All sums paid pursuant to this Section shall not bear interest, except to the extent and in the minimum amount required by law, and Beneficiary shall, unless Trustor is otherwise in default hereunder or under any obligation secured hereby, apply said funds to the payment of, or at the sole option of Beneficiary release said funds to Trustor for application to and payment of, such taxes, assessments, levies, charges and insurance premiums. However, upon the occurrence of an Event of Default by Trustor hereunder or under any obligation secured hereby, Beneficiary may, at its sole option, apply all or any part of said sums to any indebtedness secured hereby or to cure such default. Nothing contained herein shall cause Beneficiary to be deemed a trustee of said funds or to be obligated to pay any amount in excess of the amount of funds deposited with Beneficiary pursuant to this Section. At Beneficiary's request, Trustor agrees to cause all bills, statements and other documents relating to all taxes, assessments, levies and charges and insurance premiums to be sent or mailed directly to Beneficiary. The receipt, use or application of any sums paid by Trustor to Beneficiary hereunder shall not be construed to affect the maturity of any indebtedness secured by this Deed of Trust, or any of the rights or powers of Beneficiary or Trustee or any of the obligations of Trustor under the terms of the Reimbursement Agreement.


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4.5 Liens and Encumbrances. Trustor shall pay or remove (as appropriate),
---------------------- at or prior to maturity, all obligations secured by or reducible to liens or encumbrances which shall now or hereafter encumber or appear to encumber the Property or any part thereof or interest therein, whether senior or subordinate hereto, including without limitation all claims for work or labor performed, or materials or suppliers furnished, in connection with any work of demolition, alteration, improvement of or construction upon the Property. Trustor shall have the right to contest in good faith any such obligation or claim provided such contest shall be prosecuted diligently and in a manner not prejudicial to Beneficiary, and if a judgment adverse to Trustor is obtained, such judgment shall be fully paid or discharged within ten (10) days after the entry of such judgment. Upon demand by Beneficiary, Trustor shall protect, defend, indemnify and hold Beneficiary harmless from and against any such obligation or claim, so contested by Trustor, and upon demand by Beneficiary, Trustor shall make suitable provision by payment to Beneficiary or by posting a bond or other security satisfactory to Beneficiary for the possibility that the contest will be unsuccessful, including, if Beneficiary requests, a one-and-one half times bond with respect to mechanics' or materialmens' liens, if available. Such provision shall be made within ten (10) days after demand therefor and, if made by payment of funds to Beneficiary, the amount so deposited shall be disbursed in accordance with the resolution of the contest either to Trustor or the adverse claimant. If Trustor fails to post a suitable bond or other acceptable security as provided, Beneficiary may remove or pay such lien or encumbrance at Trustor's expense and any amount so advanced by Beneficiary shall be secured by this Deed of Trust. Notwithstanding anything in the foregoing to the contrary, if the lien or encumbrance contested or to be contested is senior to the lien of this Deed of Trust, Trustor shall, within ten (10) days after Beneficiary's demand, remove or pay or otherwise satisfactorily provide for such lien or encumbrance (on terms and conditions satisfactory to Beneficiary), and, if Trustor shall fail to do so, Beneficiary may do so at Trustor's expense, and any amount so advanced by Beneficiary shall be secured by this Deed of Trust.


4.6 Disposition of Insurance and Condemnation Proceeds.
--------------------------------------------------


4.6.1 Should the Property or any part thereof or interest therein be taken or damaged by reason of any public improvement or condemnation proceeding or in any similar manner ("Condemnation") or should Trustor receive any notice or other information regarding any such Condemnation, then, in any such event, Trustor shall give prompt written notice thereof to the Beneficiary. All proceeds of any Condemnation, casualty or other loss affecting the Property (including, without limitation, any insurance proceeds) are hereby assigned, transferred and paid


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over to the Trustor, provided however at any time after the occurrence and during the continuance of an Event of Default, all such proceeds shall be paid to Beneficiary. If, prior to the receipt by the Beneficiary of said Condemnation proceeds, the Property shall have been sold by power of sale or judicial foreclosure of this Deed of Trust, the Beneficiary shall have the right, at its option, whether or not a deficiency judgement shall have been sought, recovered or denied, to receive said sums to the extent of the obligations remaining unsatisfied under such sale with interest thereon at the rate per annum provided for in the Reimbursement Agreement, as such rate changes from time to time, plus two percentage points (the "Default Rate"); if such option is exercised by the Beneficiary, the right to collect such proceeds shall not be conveyed at such sale as part of the Property, any other provisions of this Deed of Trust to the contrary notwithstanding. Trustee or the Beneficiary, as the case may be, shall be reimbursed by the Trustor with interest at the Default Rate for all attorneys' fees, costs and disbursements incurred by the Trustee or the Beneficiary in connection with the collection of said proceeds.


4.6.2 At any time after the occurrence and during the continuance of an Event of Default the following shall apply: In the event of any damage to or destruction of the Property or any part thereof, or any Condemnation, the Beneficiary may, at the Beneficiary's option but without obligation so to do, commence, appear in and prosecute either in its own name or in the name of Trustor, any action or proceeding arising in connection with such casualty or Condemnation, to the extent which Beneficiary reasonably believes necessary to protect the security hereof, and may adjust, compromise or settle any claim made in connection with such casualty or Condemnation. The Beneficiary may, at its option, but with no obligation so to do, make any necessary proof of loss to any insurance company with respect to any such casualty, or negotiate a sale or other transfer of the Property or any portion thereof in lieu of Condemnation. The Beneficiary shall be entitled to receive all proceeds, and Trustor hereby authorizes and directs any affected insurance company or other Person to pay all proceeds directly and solely to the Beneficiary, and should any proceeds be paid to Trustor or jointly to Trustor and Beneficiary, the Beneficiary shall have the authority, as attorney in fact for Trustor, to endorse and negotiate any check, draft or other instrument by which such proceeds are paid.


4.7 Covenants Concerning the Property and Trustor.
---------------------------------------------


4.7.1 Trustor covenants and agrees:


4.7.1.1 to keep the Property in good condition and repair, normal wear and tear excepted;


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4.7.1.2 not to remove or demolish the Property or any part thereof in any material way or manner;


4.7.1.3 to complete or restore promptly and in good and workmanlike manner the Property or any part thereof which may be damaged or destroyed;


4.7.1.4 to pay when due all claims for work performed and for materials furnished on or to the Property, and to pay any and all liens or encumbrances arising out of or resulting from work performed or materials supplied on or to the Property;


4.7.1.5 to comply with and not suffer any material violations of, as to the Property and/or Trustor's activities in connection with the Property:


4.7.1.5.1 any and all laws, ordinances, regulations and standards;


4.7.1.5.2 any and all covenants, conditions, restrictions and equitable servitudes, whether public or private, of every kind and character; and


4.7.1.5.3 all requirements of insurance companies and any bureau or agency which establishes standards of insurability;


4.7.1.6 not to:


4.7.1.6.1 except in the ordinary course of Trustor's business, cause or permit any of the Improvements to be removed, demolished or structurally altered, in whole or in part, or cause or permit any Fixture to be removed or destroyed without the prior written consent of the Beneficiary; or


4.7.1.6.2 abandon or leave vacant the Property or cause or permit any waste thereto;


4.7.1.7 to cultivate, irrigate, fertilize, fumigate, prune and do all other acts which from the character or use of the Property may be reasonably necessary to maintain, preserve and enhance its value, the specific enumerations herein not excluding the general;


4.7.1.8 to perform and observe all of the terms, covenants, conditions and obligations required to be performed or observed in all instruments affecting the Property (including, but not limited to, leases and conditional sales contracts) or the operation, occupation or use thereof except for such non-performance or non-observance that would not have a material


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adverse affect on the business and financial condition of Trustor;


4.7.1.9 not to create (or allow to exist at any time) any deed of trust, lien, or other encumbrance upon the Property without the prior written approval of the Beneficiary;


4.7.1.10 to make no further assignment of rents of the Property;


4.7.1.11 to provide that so long as the Reimbursement Agreement secured by this Deed of Trust is in force, any subordinate claim, lien, encumbrance, deed of trust or mortgage shall be subordinate to any and all leases of the Property or any part thereof, and no such subordinate claim, lien, encumbrance, deed of trust or mortgage shall be enforced or foreclosed by the holder, beneficiary or the mortgagee thereof without the prior written consent of Beneficiary if the effect thereof would be to terminate any lease of the Property or any part thereof, to evict or oust the tenant thereof under such a lease, to cut off such a tenant's obligations to pay rental, or to permit such a tenant to terminate its lease and its obligations to pay rent;


4.7.1.12 with respect to any areas of adjacent property now or hereafter owned by Trustor and used in connection with the Property, not to discontinue such use without the prior written consent of the Beneficiary;


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