-----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, GBNDiAMizro6YIlljHKBXG4X8RXe6/nNiP8uAjlgj7b78BFRQMOFgoE5klciZNcC EB6qlrINFgL4pXz9ju3x8g== 0000891618-99-002972.txt : 19990702 0000891618-99-002972.hdr.sgml : 19990702 ACCESSION NUMBER: 0000891618-99-002972 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19990402 FILED AS OF DATE: 19990701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMANTEC CORP CENTRAL INDEX KEY: 0000849399 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770181864 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17781 FILM NUMBER: 99657873 BUSINESS ADDRESS: STREET 1: 10201 TORRE AVE CITY: CUPERTINO STATE: CA ZIP: 95014 BUSINESS PHONE: 4082539600 MAIL ADDRESS: STREET 1: 10201 TORRE AVENUE STREET 2: 10201 TORRE AVENUE CITY: CUPERTINO STATE: CA ZIP: 95014 10-K 1 FORM 10-K FOR FISCAL YEAR ENDED 4/2/99 1 ================================================================================ 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 APRIL 2, 1999. 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 0-17781 - -------------------------------------------------------------------------------- SYMANTEC CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 77-0181864 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10201 TORRE AVENUE, CUPERTINO, CALIFORNIA 95014-2132 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (408) 253-9600 - -------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: NONE NONE (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.01 PER SHARE, AND RELATED STOCK PURCHASE RIGHTS (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filer 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. [ ] Aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Symantec common stock on June 15, 1999 as reported on the Nasdaq National Market and with respect to the Delrina exchangeable stock on the Toronto Stock Exchange: $1,391,941,376 Number of shares outstanding of each of the registrant's classes of common stock, including 1,659,684 shares of Delrina exchangeable stock, as of June 15, 1999: 56,098,393 DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held September 15, 1999 are incorporated by reference into Part III. ================================================================================ 2 SYMANTEC CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED APRIL 2, 1999 TABLE OF CONTENTS
Page ---- PART I. Item 1. Business.............................................................................. 1 Item 2. Properties............................................................................ 10 Item 3. Legal Proceedings..................................................................... 11 Item 4. Submission of Matters to a Vote of Security Holders................................... 11 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 12 Item 6. Selected Financial Data............................................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................... 14 Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................ 33 Item 8. Financial Statements and Supplementary Data........................................... 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................................................ 34 PART III. Item 10. Directors and Executive Officers of the Registrant.................................... 35 Item 11. Executive Compensation................................................................ 37 Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 37 Item 13. Certain Relationships and Related Transactions........................................ 37 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 38 Signatures....................................................................................... 75
3 "Symantec," "we," "us," and "our" refer to Symantec Corporation and all of its subsidiaries. This document contains references to trademarks and trade names of other companies. PART I ITEM 1: BUSINESS. FORWARD-LOOKING STATEMENTS. The following discussion contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others things, those risk factors set forth in this section and in the section of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." We identify forward-looking statements by words such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or similar terms that refer to the future. We cannot guarantee future results, levels of activity, performance or achievements. INTRODUCTION. Symantec is a world leader in utility software for business and personal computing. Symantec products and solutions make users productive and keep their computers safe and reliable anywhere and anytime. Our predecessor, C&E Software, Inc., a California corporation and its operating subsidiary, Symantec Corporation, a California corporation, were formed in September 1983 and March 1982, respectively. We were incorporated in Delaware in April 1988 in connection with the September 1988 reincorporation and combination of our predecessor and its operating subsidiary into a single Delaware corporation. Since our initial public offering on June 23, 1989, we have completed acquisitions of 19 businesses. During fiscal 1999, we completed our acquisition of: o Quarterdeck Corporation in the March 1999 quarter; o Intel Corporation's anti-virus business during the September 1998 quarter; o Binary Research Limited's operations in the June 1998 quarter; and o International Business Machine's anti-virus business also in the June 1998 quarter; We accounted for each of these four acquisitions as a purchase and, accordingly, we have included the operating results of these businesses in our consolidated financial statements since their respective dates of acquisition. See Note 3 of Notes to Consolidated Financial Statements in this Form 10-K. Other companies that we have acquired during the past five years include: o Fast Track, Inc., on May 28, 1996; o Delrina Corporation, on November 22, 1995; o Intec Systems Corporation, on August 31, 1994; o Central Point Software, Inc., on June 1, 1994; and o SLR Systems, Inc., on May 31, 1994. We acquired Peter Norton Computing, Inc. on August 31, 1990 and continue to use the Norton brand name for products subsequently developed and marketed by us. We accounted for each of these five acquisitions as poolings of interests. Accordingly, we have restated all financial information to reflect the combined operations of these companies and Symantec, with the exception of Fast Track, Intec and SLR, each of which had results of operations that were not material to our consolidated financial statements. During fiscal 1997, in a move to focus our product offerings on specific customer needs, we sold our electronic forms product line, acquired as part of the Delrina acquisition, to JetForm Corporation and sold our network administration technologies to the Hewlett-Packard Company. See further discussion in Note 13 of Notes to Consolidated Financial Statements and Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations. We have a 52/53-week fiscal accounting year. Accordingly, all references as of and for the periods ended March 31, 1999, 1998 and 1997 reflect amounts as of and for the periods ended April 2, 1999, April 3, 1998 and 1 4 March 28, 1997, respectively. The fiscal accounting years ended April 2, 1999 and March 28, 1997 each comprised 52 weeks of operations and the fiscal accounting year ended April 3, 1998 comprised 53 weeks of operations. PRODUCTS AND SERVICES. Our products, comprising utility software for business and personal computing, are currently organized into the following three primary business units: Security and Assistance; Remote Productivity Solutions; and Internet Tools. The following table summarizes our principal products by business unit: Principal Products. The principal products of each of our business units include: o SECURITY AND ASSISTANCE Norton AntiVirus(R) and Norton AntiVirus(R) for Macintosh Norton Utilities(R) and Norton Utilities for Macintosh Norton SystemWorks(TM) Norton Ghost(TM) Norton Cleansweep(TM) Norton Web Services(TM) Norton 2000(TM) o REMOTE PRODUCTIVITY SOLUTIONS pcANYWHERE(R) WinFax PRO(TM) ACT!(R) ProComm Plus(R) TalkWorks PRO(TM) Norton Mobile Essentials(TM) o INTERNET TOOLS Symantec Visual Cafe(TM) (Database Edition) Symantec Visual Cafe(TM) (Professional Edition) Symantec Visual Cafe(TM) (Standard Edition) Symantec Visual Cafe(TM) (Enterprise Suite) Most of the products that we are currently developing or marketing feature LiveUpdate(TM). This feature enables users to download from our corporate website, free of cost, software corrections or "patches" that fix reported errors or "bugs" in the products. SECURITY AND ASSISTANCE Our Security and Assistance business unit is dedicated to providing products that are indispensable in customers' daily use of computers by increasing their productivity and keeping their computers safe and reliable. Net revenues from this business unit were approximately 57%, 54% and 50% of our net revenues for fiscal 1999, 1998 and 1997, respectively. Norton AntiVirus runs in a computer's background and is designed to protect against, detect and eliminate computer viruses. This software covers multiple sources of infection, including the Internet, email attachments, floppy disks, shared files and networks. Norton AntiVirus also enables the user to download, via our LiveUpdate function, new virus definitions created by the Symantec AntiVirus Research Center (SARC)(TM). Versions of this software run on the Windows, Windows 95, Windows 98, Windows NT, MS-DOS, Macintosh and Power Macintosh operating systems. Our Norton AntiVirus product line also includes support for Lotus Notes, through Norton AntiVirus for Notes and Novell NetWare, through Norton AntiVirus NetWare. Norton Utilities is a set of "tools" that are designed to fix and prevent computer problems, optimize system performance, recover lost files and rescue unresponsive systems. The latest versions of Norton Utilities have extended data protection capabilities, including crash protection and, for our Windows versions, registry repair. In addition, Norton Utilities provides an advanced and thorough disk optimization system, which optimizes the system based upon the way the particular computer is used. Versions of Norton Utilities run on the Windows, Windows 95, Windows 98, Windows NT, MS-DOS, Macintosh and Power Macintosh operating systems. 2 5 Norton SystemWorks is a fully integrated suite of system utilities designed to give personal computer, or PC, users protection from viruses and crashes, solve problems, remove unneeded files and update users' applications. Included in this suite are the latest complete versions of five of our products: Norton Utilities, Norton AntiVirus, Norton CleanSweep, Norton CrashGuard and Norton Web Services. Norton SystemWorks is based on proprietary technologies that work together to integrate these five Symantec products. Versions of Norton SystemWorks run on the Windows 95 and Windows 98 operating systems. Norton Ghost is designed to allow easy roll out of new personal computers in a corporate environment by speeding and simplifying the disk cloning process. Norton Ghost reduces the time to install a typical 300 megabyte Windows 95 system, without requiring operator input. Multiple workstations may be installed simultaneously. This software gives administrators the ability to store an image on another hard drive, network drive, CD-ROM, JAZ or ZIP drive and supports FAT12, FAT16, FAT32, NTFS, HPFS, UNIX and Novell file systems. Versions of Norton Ghost run on DOS, yet can handle Windows 95 and Windows NT long file names, NTFS partitions, OS/2 extended attributes and OS/2 boot manager partitions. Norton CleanSweep is designed to remove unneeded software programs and files from a user's hard drive. The software removes unneeded Internet files, cleans thoroughly yet safely, speeds hard drive cleanup and makes file removal easy. Versions of Norton CleanSweep run on the Windows 95, Windows 98 or Windows NT operating systems. Norton Web Services is designed to deliver an online subscription-based service site that downloads Norton technology to Windows 95 and Windows 98 users via an Internet connection. Norton Web Services features our LiveUpdate Pro, a service that is designed to locate and install patches, updates and drivers specific to users' installed hardware and software. VitalCheck is designed to ensure that critical system components are problem free. Norton 2000 is designed to address the three main Year 2000 issues for desktop personal computers: o hardware problems, such as the computer's basic input/output system, or BIOS; o commercial off-the-shelf application compliance; and o end user created data. It includes a BIOS testing and fixing component, as well as a data-scanning component that discovers Year 2000 problems in spreadsheets and database files. Norton 2000 will also audit installed applications on each personal computer against a database of Year 2000 compliant applications, as reported by each vendor. Our LiveUpdate technology ensures that the user's application database is kept current. Norton 2000 for the consumer runs on the Windows 95, Windows 98 and Windows NT operating systems. In addition to the features of Norton 2000 for the consumer, our Norton 2000 Corporate Edition provides a comprehensive solution for desktop and laptop computers in distributed computing environments. It integrates with Norton System Center to provide single-console administration. Norton 2000 Corporate Edition provides detailed reporting and administrative options to help track the remediation effort of a user's organization. Norton 2000 Corporate Edition runs on the Windows 3.1, Windows 95, Windows 98 and Windows NT operating systems. REMOTE PRODUCTIVITY SOLUTIONS Our Remote Productivity Solutions business unit focuses on helping information systems/information technology, or IS/IT, organizations reduce the expense of supporting remote workers. This business unit focuses on the need of corporate helpdesk and support organizations to handle more efficiently the additional work required to support mobile workers, telecommuters and remote offices. Net revenues from this business unit were approximately 39%, 41% and 37% of our net revenues for fiscal 1999, 1998 and 1997, respectively. pcANYWHERE is designed to offer secure, reliable, fast and flexible point-to-point remote computing via a multitude of communications media including Internet, serial, local area network, ISDN, cable modems and infrared. pcANYWHERE enables users to control and transfer data to and from a host PC from another remote PC. The remote PC, laptop or PC terminal controls the operation of the often distant host PC. In addition to enabling a remote user to run a distant PC, pcANYWHERE allows users at the host machine to view the operations being conducted from the remote site. Versions of this software support Windows, Windows 95, Windows 98, Windows NT, Windows CE or MS-DOS applications. pcANYWHERE also provides a pcANYWHERE JAVA client, a Netscape browser plug-in and an Internet Explorer ActiveX control. 3 6 WinFax PRO is designed to enable users to send, receive and manage faxes. WinFax PRO provides background faxing, which allows users to continue working on other applications while sending or receiving a fax. WinFax PRO can send faxes via the Internet or a regular phone line, using enhanced fax compression, increasing the speed at which faxes are transmitted. Other features include a paging function, which enables the computer to notify users via their pagers or PCS cell phones of the receipt of an incoming fax. WinFax PRO also enables users to send laser-quality faxes, supports a non-dedicated fax host and allows faxes to be automatically forwarded to another fax number or an e-mail address. Versions of WinFax PRO run on the Windows 95, Windows 98 and Windows NT operating systems. ACT! is designed to provide a ready-to-use contact database and integrated calendar, making it a complete solution for effectively managing business relationships. ACT! has extensive search capabilities that provide instant access to critical customer information. Utilizing ACT!'s built-in network support and remote two-way data synchronization for mobile users, important customer data can be leveraged across teams. ACT! also provides communication methods via mail merge, telephone, email and fax in a single product. ACT! also enables users to find customers and additional customer information to supplement their database on the Internet. Versions of ACT! run on the Windows, Windows 95, Windows NT, Windows CE and Macintosh operating systems. Procomm Plus is an integrated data communications solution that is designed to enable users to reliably send and receive information between a PC and a mainframe or minicomputer. Flexible asynchronous terminal emulation allows users to run full-screen mainframe or minicomputer applications on legacy systems by simply using the PC as the remote terminal. Users are offered the convenience of a centralized connection directory as well as a specialized communications scripting language to quickly access a wide range of corporate hosts and on-line systems via terminal emulations, standard file transfer protocols, FTP or Telnet. Versions of Procomm Plus support Windows, Windows 95, Windows 98, Windows NT 4.0 and MS-DOS applications. TalkWorks PRO is a voice-messaging product designed for very small businesses and home offices. TalkWorks PRO's voicemail features include multiple mailboxes, personalized greetings and fax on demand. Its paging and notification features enable instant access to urgent messages and customers for TalkWorks users. TalkWorks PRO's logging and message management gives the users the capability to track and manage their messages and calls. TalkWorks PRO also includes the completely integrated faxing capabilities of WinFax PRO 9.0. Versions of TalkWorks PRO run on Windows 95, Windows 98 and Windows NT operating systems. Norton Mobile Essentials is designed to enable users to setup quickly in multiple locations. It is a tool used by IS/IT departments to create and deploy location profiles to their mobile workforce. A location profile consists of every setting that end-users adjust when traveling to different locations such as at client sites, hotels, home or the office. This product is especially suited for companies with a highly mobile workforce and allows users to adjust to different locations without having to manually adjust multiple Windows settings at each location. This product also assists IS/IT professionals in creating and distributing dial-up networking settings and static and DHCP Internet settings in addition to location profiles. Versions of Norton Mobile Essentials run on Windows 95, Windows 98 and Windows NT operating systems. INTERNET TOOLS Our Internet Tools business unit includes products providing an easy to use Java development environment. Net revenues from this business unit were approximately 4% of our net revenues for each fiscal 1999, 1998 and 1997. In June 1999, we announced our intent to spin out the Internet Tools business unit as an independent company within the next three to nine months. Symantec Visual Cafe (Database Edition) is designed to provide a solution for building business critical Java applications with database connectivity. This program includes a forms designer for drag-and-drop Graphical User Interface design. It also includes dbAWARE project wizards that walk users through defining data sources and adding components as well as controlling the interactions between them. This program also builds Java applications and connects to multiple databases without requiring the user to write source code. The Database Edition includes 200+ JavaBeans, which are series of pre-written source code and database templates. It connects to over 30 commercially available databases via industry standard protocols. Symantec Visual Cafe (Professional Edition) is designed to provide a Java Integrated Development Environment solution for creating Java applications and JavaBeans with features geared toward professional Java developers. Advanced power tools include native compilation, advanced JFC/Swing capabilities, support for both Java 4 7 Development Kit 1.1.X and Java Development Kit 1.2 through the pluggable VM feature and Visual Page. To facilitate easier discovery of problems with source code, this program supports "debugging" directly within a web browser. Symantec Visual Cafe (Standard Edition) is designed to provide a Rapid Application Java Development and a HTML Web authoring solution that supports Java Development Kit 1.1.7, JavaBeans and JFC/Swing. This program includes a drag-and-drop interface, professional templates and Java applet and JavaBeans libraries. Symantec Visual Cafe (Enterprise Suite) is designed to simplify the development of complex, distributed applications. It includes Single-View, which presents a single image of the distributed development environment and masks the complexities of a multi-platform computing environment. The Enterprise Suite also addresses a heterogeneous environment through support for both CORBA and RMI, multiple ORBs including Iona OrbixWeb 3.1 and Inprise VisiBroker 3.3 as well as debugging on a wide range of platforms (Sun Solaris, Hewlett-Packard HP/UX, Compaq's Tru64 UNIX, IBM AIX, Windows NT/9x and Linux). Versions of the Visual Cafe products run on Windows 95, Windows 98 and Windows NT operating systems. The Java program code developed with these products, however, can be deployed on any platform that supports a Java Virtual Machine compliant with Sun Microsystem's JDK standards. CORPORATE SUNSET Symantec also reports revenues under a segment called Corporate Sunset. This segment's revenues are generated from sales of products that are nearing the end of their life cycles. Net revenues from this segment were less than 1% of our net revenues in fiscal 1999 and 1% and 9% of our net revenues for fiscal 1998 and 1997, respectively. SALES AND MARKETING, INTERNATIONAL SALES AND CUSTOMER SUPPORT. We market our products worldwide utilizing a multi-channel strategy of direct and indirect sales through independent software distributors, major retail chains and resellers. SALES AND MARKETING We sell our products to individuals and corporate users primarily through distributors and resellers. Our products are available to customers through channels that include: distributors, retail, mail order, corporate resellers, value added resellers, original equipment manufacturers, partnerships, education and consulting. We also sell product upgrades and some of our products through the use of direct mail and over the Internet. We sell corporate site licenses through our distribution and corporate reseller channels. We maintain distribution relationships with major independent distributors. These distributors stock our products for redistribution to independent dealers, consultants and other resellers. We also maintain relationships with major retailers, while marketing to these retailers through independent distributors. Our sales force works closely with our major distributor and reseller accounts to manage the flow of orders, inventory levels and sell-through to customers. We also work closely with them to manage promotions and other selling activities. Our agreements with distributors are generally nonexclusive and may be terminated by either party without cause. These distributors are not within our control and are not obligated to purchase products from us. These distributors also represent other vendors' product lines. For information with respect to customers that represent more than 10% of our revenues, see Note 19 of the Notes to Consolidated Financial Statements of this Form 10-K. Our return policy allows distributors, subject to various limitations, to return purchased products in exchange for new products or for credit towards future purchases. End users may return products through dealers and distributors for a full refund, within a reasonable period from the date of purchase. Retailers may return older versions of products. Various distributors and resellers have different return policies that may negatively impact the level of products that are returned to us. Product returns occur when we introduce upgrades and new versions of products or when distributors order too much product. In addition, competitive factors often require us to offer rights of return for products that distributors or retail stores are unable to sell. 5 8 Our marketing activities include: o advertising in trade, technical and business publications; o on-line advertising; o public relations; o cooperative marketing with distributors, resellers and dealers; o direct mailings to existing and prospective end users; and o participation in trade and computer shows. We typically offer two types of rebate programs: volume incentive rebates and rebates to end users. Volume incentive rebates are made available to our distributors and resellers. The distributor or reseller earns a rebate based upon their purchases and their sale of products to end users. Volume incentive rebates are accrued when revenue is recorded. From time to time, we also make rebates available to end users of various products acquired through major retailers. End user rebates are accrued when revenue is recorded. INTERNATIONAL REVENUES International revenues, or revenues outside of North America, represented approximately 37%, 34% and 30% of our net revenues for fiscal 1999, 1998 and 1997, respectively. The majority of our net revenues from various European regions are derived from sales by affiliates of our major United States distributors. In other countries, we sell our products through authorized distributors. In some countries, these distributors are restricted to specified territories. We typically adapt products for local markets. We adapt products by translating the documentation and software, where necessary, and preparing marketing programs for each local market. We have marketing offices in Argentina, Australia, Brazil, Canada, China, Czech Republic, Denmark, France, Germany, Holland, Hong Kong, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, Norway, Russia, Singapore, South Africa, Sweden, Switzerland, Taiwan, United Arab Emirates and the United Kingdom. These local offices facilitate our marketing and distribution in international markets. Our international operations are subject to various risks common to international operations, including: o government regulations; o import restrictions; o currency fluctuations; o repatriation restrictions; and o in some jurisdictions, reduced protection for our copyrights and trademarks. CUSTOMER SUPPORT Our product support program provides a wide variety of free and fee-based technical support services to our customers. We provide customers with free support via electronic and automated services as well as 30 to 90 days free telephone support for selected products. In August 1996, we introduced LiveUpdate, which provides online access to application bug fixes and/or patches for most of our currently marketed and developed products. In addition, we offer both domestic individual users and domestic corporate customers a variety of fee-based options designed to meet their technical support requirements. We revise these fee-based support programs from time to time as customer requirements change and as market trends dictate. Fee-based technical support services did not generate material revenues in any fiscal year presented and are not expected to generate material revenues in the near future. PRODUCT DEVELOPMENT, PARTNERSHIPS AND ACQUISITIONS. We use a multiple product sourcing strategy that includes, as necessary: o internal development; o licensing from third parties; and o acquisitions of technologies, product lines or companies. We develop software products that are designed to operate on a variety of operating systems. We typically develop new products and enhancements of existing products through our business units. Each unit is responsible for design, development, documentation and quality assurance. 6 9 Independent contractors are used for aspects of the product development process. In addition, elements of some of our products are licensed from third-party developers. We use strategic acquisitions, as necessary, to provide certain technology, people and products for our overall product strategy. We have completed a number of acquisitions and dispositions of technologies, companies and products and may acquire and dispose of other technologies, companies and products in the future. As discussed in the Introduction to this Item, during fiscal 1999, we acquired Quarterdeck, Intel's and IBM's anti-virus businesses, and Binary's operations. For further discussion, see Note 3 of Notes to Consolidated Financial Statements in this Form 10-K. COMPETITION. The microcomputer software market is intensely competitive and is subject to rapid changes in technology. It is influenced by the strategic direction of major microcomputer hardware manufacturers and operating system providers. Our competitiveness depends on our ability to enhance existing products and to offer successful new products on a timely basis. We have limited resources and must restrict product development efforts to a relatively small number of projects. Examples of key competitors for products of our Security and Assistance unit include: o VirusScan and Dr. Solomon Anti-Virus Tool-Kit from Network Associates, Inoculan from Computer Associates International, Inc., Trend Micro, Inc.'s InterScan VirusWall and PC-cillin Corp. Edition, which compete with our Norton AntiVirus product; o Virex and McAfee VirusScan from Network Associates, which compete with our Norton AntiVirus for Macintosh product; o Uninstaller from Network Associates and WinDelete from IMSI Corporation, which compete with our Norton CleanSweep product; o Drive Image Pro from PowerQuest Corporation, RapiDeploy from Altiris, Inc. and Micro House International's ImageCast IC3, which compete with our Norton Ghost product; o McAfee Office from Network Associates, which competes with our Norton SystemWorks product; o McAfee First Aid 2000 and McAfee Nuts & Bolts from Network Associates, Mijenix Corporation's Fix-It Utilities 99, TechTool PRO from MicroMat, Inc. and Executive Software International, Inc.'s Diskeeper, which compete with our Norton Utilities product; o PC Clinic from Network Associates and Updates.com from Updates.com, which compete with our Norton Web Services product; o TransCentury Office from Platinum Technology IP, Inc., Greenwich Mean Time's Check 2000 Client Server and WRQ, Inc.'s Express 2000 Software Manager, which compete with our Norton 2000 Corporate Edition product; and o Greenwich Mean Time's Check 2000, McAfee 2000 Toolbox from Network Associates and Intelliquis' IntelliFix 2000, which compete with our Norton 2000 product for the consumer. Examples of key competitors for products of our Remote Productivity Solutions unit include: o Contact managers, such as GoldMine from GoldMine Software Corporation and Maximizer from Multiactive Software, Inc. and less directly, personal information managers, such as Organizer from IBM's Lotus division, Outlook from Microsoft Corporation and Sidekick 99 from Starfish Software, Inc., which compete with our ACT! product; o DynamicAccess from 3Com Corporation and NetSwitcher from NetSwitcher, which compete with our Norton Mobile Essentials product; o pcANYWHERE competes with LapLink from Traveling Software, Inc., ReachOut from Stac Software, Inc., Carbon Copy from Compaq Computer Corporation and Timbuktu from Netopia, Inc. o HotFax MessageCenter by Smith Micro Software, Inc., Communicate! PRO and Communicate! by 01Communique, which compete with our TalkWorks PRO product; and o HotFax MessageCenter from Smith Micro Software and 01Communique's Communicate! products in the broader fax and voice messaging market, which compete with our WinFax PRO product. 7 10 Examples of key competitors for products of our Internet Tools unit include: o JBuilder Client/Server from Inprise Corporation, VisualAge for Java Enterprise from IBM and PowerJ from Sybase, Inc., which compete with our Symantec Visual Cafe (Database Edition) and Symantec Visual Cafe (Enterprise Suite) products; o Microsoft's Visual J++, Inprise's JBuilder Professional, IBM's VisualAge for Java Professional, SuperCede by SuperCede Inc. and Sun Microsystems, Inc.'s Java WorkShop, which compete with our Symantec Visual Cafe (Professional Edition) product; and o Microsoft's Visual J++, Inprise's JBuilder Professional and IBM's VisualAge for Java Standard, which compete with our Symantec Visual Cafe (Standard Edition) product. Price competition is sometimes intense with some products in the microcomputer business software market. We expect price competition to continue to increase and become even more significant in the future, which may reduce our profit margins. We also face competition from a number of other products that offer levels of functionality different from those offered by our products or that were designed for a somewhat different group of end users than those targeted by us. Operating system vendors such as Microsoft have added features to new versions of their products that provide some of the same functions traditionally offered in our products. Microsoft has incorporated advanced utilities in Windows 95 and Windows 98 and we believe this trend will continue. While we plan to continue to improve our products with a view toward providing enhanced functionality over that provided in current and future operating systems, these efforts may be unsuccessful and any improved products may not be commercially accepted by users. We will also continue to attempt to work with operating system vendors in an effort to make our products compatible with those operating systems. At the same time, we intend to differentiate our utility products from features included in operating systems. However, our efforts may be unsuccessful. The demand for some of our products, including those currently under development, may decrease, if, among other reasons: o Microsoft includes additional product features in future releases of Windows; o hardware vendors incorporate additional server-based network management and security tools into network operating systems; or o competitors license certain of their products to Microsoft or original equipment manufacturers for inclusion in their operating systems or products. In addition, we compete with other microcomputer software companies for access to retail distribution channels and for the attention of customers at the retail level and in corporate accounts. We also compete with other software companies to acquire products or companies and to publish software developed by third parties. Many of our existing and potential competitors have greater financial, marketing and technological resources than we do. We believe that competition in the industry will continue to intensify as most major software companies expand their product lines into additional product categories. MANUFACTURING. Our product development organization produces a set of master CD-ROMs or diskettes and documentation for each product that are then duplicated and packaged into products by the manufacturing organization. All of our domestic manufacturing and order fulfillment is performed by an outside contractor under the supervision of our manufacturing organization. Domestic purchasing of all raw materials is done by Symantec personnel in our Cupertino, California facility. The manufacturing steps that are subcontracted to outside organizations include the duplication of diskettes and replication of CD-ROMs, printing of documentation materials and assembly of the final packages. We perform diskette duplication and assembly of the final package in our Dublin, Ireland manufacturing facility for most products distributed outside of the United States and Canada. All of our international CD-ROM replication is performed by outside contractors in Dublin, Ireland. INTELLECTUAL PROPERTY. We regard our software as proprietary. We attempt to protect our software technology by relying on a combination of copyright, patent, trade secret and trademark laws, restrictions on disclosure and other methods. Litigation may be 8 11 necessary to enforce our intellectual property rights, to protect trade secrets or trademarks or to determine the validity and scope of the proprietary rights of others. Furthermore, other parties have asserted and may, in the future, assert infringement claims against us. See Note 16 of Notes to Consolidated Financial Statements of this Form 10-K. These claims and any resultant litigation, may result in invalidation of our proprietary rights. Litigation, even litigation that is not meritorious, could result in substantial costs and diversion of resources and management attention. EMPLOYEES. As of March 31, 1999, we employed approximately 2,400 people, including 1,300 in sales, marketing and related staff activities, 600 in product development and 500 in management, manufacturing, administration and finance. None of our employees is represented by a labor union and we have experienced no work stoppages. We believe that relations with our employees are good. Competition in recruiting personnel in the software industry is intense. We believe that our future success will depend in part on our ability to recruit and retain highly skilled management, marketing and technical personnel. We believe that we must provide personnel with a competitive compensation package, which necessitates the continued availability of stock options and shares to be issued under our employee stock option and purchase plans and requires ongoing shareholder approval of such incentive programs. 9 12 ITEM 2: PROPERTIES. Our principal locations, all of which are leased, are as follows:
Approximate Expiration Size of Location Purpose (in square feet) Lease - ---------------------------- ------------------------------------ ---------------- ----------- North America Cupertino, California Corporate Headquarters Administration, sales and marketing World Headquarters * Plan to vacate by November 1, 1999 187,000 2006 City Center 2 * Move-in by November 1, 1999 145,000 2006 Emerging Business and Research and development 161,000 2006 Remote Productivity Solutions (City Center 1) Santa Monica, California Research and development 114,336 2000 and marketing Eugene, Oregon Customer service and technical 150,000 2006 support Beaverton, Oregon Research and development, sales 56,000 2001 and marketing Melville, New York Research and development and 27,000 2000 marketing Sunnyvale, California Sub-leased space 78,000 2000 Toronto, Canada Research and development, sales 79,187 2005 and technical support International Leiden, Holland Administration, sales, marketing 27,480 2003 and technical support Dublin, Ireland Administration, manufacturing 77,000 2026 and translations
Our principal administrative, sales and marketing facility, as well as certain research and development and support facilities, are located in Cupertino, California. We lease a number of additional facilities for marketing and research and development in the United States, Canada and New Zealand and for marketing in Argentina, Australia, Brazil, China, Czech Republic, France, Germany, Holland, Hong Kong, Italy, Japan, Korea, Malaysia, Mexico, Norway, Russia, Singapore, South Africa, Sweden, Switzerland, Taiwan, United Arab Emirates and the United Kingdom. We believe that our facilities are adequate for current needs and that additional or substitute space will be available as needed to accommodate any future expansion of our operations. 10 13 ITEM 3: LEGAL PROCEEDINGS. Information with respect to this Item may be found in Note 16 of Notes to Consolidated Financial Statements of this Form 10-K. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the security holders during the quarter ended March 31, 1999. 11 14 PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our common stock is traded on the Nasdaq National Market under the Nasdaq symbol "SYMC". The high and low closing sales prices set forth below are as reported on the Nasdaq National Market.
Fiscal 1999 Fiscal 1998 -------------------------------------------- -------------------------------------------- Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 1999 1998 1998 1998 1998 1997 1997 1997 -------- ------- ------- ------- -------------------------------------------- High $ 22.88 $ 21.81 $ 28.00 $ 32.13 $ 29.00 $ 27.00 $ 25.50 $ 20.38 Low 14.47 8.69 10.13 22.63 20.88 19.19 19.44 12.50
Delrina exchangeable stock has been traded on the Toronto Stock Exchange under the symbol "DE" since the acquisition of Delrina by Symantec on November 22, 1995. The high and low closing sales prices set forth below are in Canadian dollars as reported on the Toronto Stock Exchange. Delrina exchangeable stock is exchangeable at the option of the stockholders on a one-for-one basis into our common stock.
Fiscal 1999 Fiscal 1998 -------------------------------------------- -------------------------------------------- Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 1999 1998 1998 1998 1998 1997 1997 1997 -------- ------- ------- ------- -------------------------------------------- (In Canadian dollars) High $ 34.60 $ 33.00 $ 41.75 $ 46.5 $ 40.10 $ 39.00 $ 35.00 $ 28.00 Low 22.45 13.20 16.60 32.75 29.50 26.75 26.25 16.50
As of March 31, 1999, there were approximately 662 stockholders of record, including approximately 28 holders of record of Delrina exchangeable shares. We have not paid cash dividends in the last three years. In addition, our bank line of credit does not allow for the payment of cash dividends on common stock. See Note 7 of Notes to Consolidated Financial Statements of this Form 10-K. 12 15 ITEM 6: SELECTED FINANCIAL DATA. The following selected financial data is qualified in its entirety by and should be read in conjunction with the more detailed consolidated financial statements and related notes included elsewhere herein. During fiscal 1999, we acquired Quarterdeck, Intel's and IBM's anti-virus businesses and the operations of Binary. See Note 3 of Notes to Consolidated Financial Statements in this Form 10-K. Each of these acquisitions was accounted for as a purchase and, accordingly, the operating results of these businesses have been included in our consolidated financial statements since their respective dates of acquisition. We did not complete any acquisitions during fiscal 1998. During fiscal 1997, we acquired Fast Track, Inc. in a transaction accounted for as a pooling of interests. Since the results of operations of Fast Track were not material to our consolidated financial statements, amounts prior to the date of acquisition were not restated to reflect the combined operations of the companies. In fiscal 1996, we acquired Delrina Corporation. In fiscal 1995, we acquired Intec Systems Corporation, Central Point Software, Inc. and SLR Systems, Inc. The fiscal 1996 and 1995 acquisitions were accounted for as poolings of interests. We have not paid cash dividends on our stock in the last three years. FIVE YEAR SUMMARY
Year Ended March 31, (In thousands, except ---------------------------------------------------------- net income (loss) per share) 1999 1998* 1997* 1996 1995 - ---------------------------------------- -------- -------- -------- -------- -------- Statements of Operations Data: Net revenues $592,628 $532,940 $452,933 $445,432 $431,268 Acquisition, restructuring and other expenses 38,395 -- 8,585 27,617 9,545 Operating income (loss) 27,841 54,924 17,550 (48,279) 40,286 Net income (loss) 50,201 85,089 26,038 (39,783) 33,409 Net income (loss) per share - basic $ 0.89 $ 1.52 $ 0.48 $ (0.76) $ 0.68 Net income (loss) per share - diluted $ 0.86 $ 1.42 $ 0.47 $ (0.76) $ 0.64 Shares used to compute net income (loss) per share - basic 56,601 56,097 54,705 52,664 49,338 Shares used to compute net income (loss) per share - diluted 59,289 60,281 55,407 52,664 54,303
Year Ended March 31, (In thousands, except ---------------------------------------------------------- net income (loss) per share) 1999 1998 1997 1996 1995 - ---------------------------------------- -------- -------- -------- -------- -------- Balance Sheet Data: Working capital $ 99,555 $175,537 $129,569 $134,643 $143,405 Total assets 563,476 476,460 339,398 282,674 305,356 Long-term obligations, less current portion 1,455 5,951 15,066 15,393 25,413 Stockholders' equity 345,113 317,507 217,979 180,317 184,874
* We have reclassified our financial results related to the sale of certain product lines and technologies. Although there was no impact to our net income, we have restated our fiscal 1998 and 1997 financials to reflect these reclassifications from net revenue to income, net of expense, from sale of technologies and product lines. See further discussion in our Summary of Significant Accounting Policies section in this Form 10-K. 13 16 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS The following discussion contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others things, those risk factors set forth in this section and elsewhere in this report. We identify forward-looking statements by words such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or similar terms that refer to the future. We cannot guarantee future results, levels of activity, performance or achievements. OVERVIEW Symantec is a world leader in utility software for business and personal computing. Symantec products and solutions make users productive and keep their computers safe and reliable anywhere and anytime. Founded in 1982, we have offices in 26 countries worldwide. During the last three fiscal years, we completed the following acquisitions: In November 1998 we completed a tender offer for the common stock of Quarterdeck, obtaining 63% of the outstanding shares. In March 1999, Quarterdeck shareholders approved the acquisition by Symantec of 100% of the outstanding shares of Quarterdeck. The acquisition of Quarterdeck was accounted for as a purchase and was paid for with cash. We recorded intangible assets of developed software, tradename, customer base, goodwill, workforce in place and in-process research and development for the respective purchases. We wrote off the in-process research and development acquired. We are amortizing the value of the workforce in place over 2 years. We are amortizing the value of the remaining intangibles, developed software, tradename, customer base and goodwill over 5 years. See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K. In September 1998 we entered into an agreement with Intel to acquire its anti-virus business and to license its systems management technology. The acquisition was accounted for as a purchase and was paid for with cash. We recorded intangible assets of developed software, customer base and in-process research and development as of the date of the acquisition. We wrote off the in-process research and development acquired. We are amortizing the value of the customer base and developed software over 5 years. See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K. In June 1998 we acquired the operations of Binary. The acquisition was accounted for as a purchase and was paid for with cash. We recorded intangible assets of developed software, workforce in place and in-process research and development as of the date of the acquisition. We wrote off the in-process research and development acquired. We are amortizing the value of the workforce in place and developed software over 4 years. See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K. In May 1998 we entered into an agreement with IBM to acquire its immune system technology and related anti-virus patents. The acquisition was accounted for as a purchase and was paid for with cash. We recorded intangible assets of prepaid research and development, customer base, goodwill and in-process research and development. We wrote-off the in-process research and development as of the date of the purchase. We are amortizing the value of prepaid research and development over 1 year. We are amortizing the value of both the goodwill and customer base over 5 years. See Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K. We did not complete any acquisitions during fiscal 1998. During fiscal 1997, we acquired Fast Track in a transaction accounted for as a pooling of interests. In conjunction with our acquisition of Fast Track, we issued 600,000 shares of our common stock. The results of operations of Fast Track were not material to our consolidated financial statements and we did not restate amounts prior to the date of acquisition to reflect the combined operations of the companies. On January 6, 1999, we received a comment letter from the Securities and Exchange Commission with respect to our Form 10-K for the fiscal year ended March 31, 1998 and Form 10-Q for the quarter ended September 30, 1998. The comment letter contained questions related to accounting for certain acquisitions, including questions related to the write-off of associated in-process research and development costs. We re-evaluated the Binary and IBM transactions 14 17 and the related in-process research and development costs as well as the other questions raised in the comment letter. As a result, final operating results for the quarters ended June, September and December 1998 and the related year-to-date amounts were restated for the adjustments made to our acquisitions of Binary and IBM's anti-virus business. In addition, we have reclassified our financial results related to the sales of our electronic forms product line to JetForm Corporation and our network administration technologies to Hewlett-Packard Corporation from revenue to income, net of expense, from sale of technologies and product lines. Although there was no impact to our net income, we have restated our fiscal 1999, 1998 and 1997 financials to reflect these reclassifications from revenue to non-operating income. RESULTS OF OPERATIONS The following table sets forth each item from our consolidated statements of operations as a percentage of net revenues and the percentage change in the total amount of each item for the periods indicated.
Period-to-Period Percentage Increase (Decrease) -------------------- Year Ended March 31, 1999 1998 ------------------------ Compared Compared 1999 1998 1997 to 1998 to 1997 ---- --- --- -------- -------- Net revenues 100% 100% 100% 11% 18% Cost of revenues 16 16 18 10 5 --- --- --- Gross margin 84 84 82 11 20 Operating expenses: Research and development 17 17 20 11 3 Sales and marketing 48 49 49 10 18 General and administrative 6 7 7 (6) 12 In-process research and development 5 -- 1 * (100) Amortization of goodwill and other intangibles 1 -- -- * -- Litigation judgment 1 -- -- * -- Restructuring and other expenses 1 -- 1 * (100) --- --- --- Total operating expenses 79 73 78 20 11 --- --- --- Operating income 5 11 4 (49) 213 Interest income 2 2 1 3 83 Interest expense -- -- -- -- -- Income, net of expense, from sale of technologies and product lines 7 8 2 (9) 420 Other income (expense), net -- -- -- -- -- --- --- --- Income before income taxes 14 21 7 (26) 269 Provision for income taxes 6 5 1 22 522 --- --- --- Net income 8% 16% 6% (41) 227 === === ===
* Percentage change is not meaningful NET REVENUES. Net revenues increased 11% from $533 million in fiscal 1998 to $593 million in fiscal 1999. Net revenues increased 18% from $453 million in fiscal 1997 to $533 million in fiscal 1998. The increase in fiscal 1999 as compared to fiscal 1998 was largely due to increased sales to our corporate customers, introductions of new products and increased sales outside of North America. The increase in fiscal 1998 as compared to fiscal 1997 was largely due to sales of Windows 95 and Windows NT versions of our principal products, as well as introduction of new products and growth in sales outside of North America. BUSINESS UNITS. During fiscal 1999 and 1998, we experienced increased net revenues over the prior fiscal year from our Security and Assistance, Remote Productivity Solutions and Internet Tools segments, while our Corporate Sunset segment had declining revenues. 15 18 Our Security and Assistance business unit represented approximately 57%, 54% and 50% of total net revenues for fiscal 1999, 1998 and 1997, respectively. Increased net revenues for this business unit in fiscal 1999 were primarily due to sales of Norton AntiVirus. New product releases of Norton SystemWorks and Norton Ghost also contributed to the fiscal 1999 net revenue increase. These year over year increases were partly offset by reductions in net revenues for Norton Utilities. Increased net revenues for this business unit in fiscal 1998 as compared to fiscal 1997 were primarily due to sales of Windows 95, Windows NT and Macintosh versions of Norton Utilities, as well as the multi-platform workstations/servers version of Norton AntiVirus. New product releases of Norton CrashGuard Deluxe and Norton Uninstall contributed to the fiscal 1998 net revenue increase. Our Remote Productivity Solutions business unit represented approximately 39%, 41% and 37% of total net revenues for fiscal 1999, 1998 and 1997, respectively. Despite the reduced percentage of revenue from this business unit, absolute net revenues for this business unit increased in fiscal 1999 over fiscal 1998. This increase was primarily due to increased sales of pcANYWHERE. Increased net revenues for this business unit in fiscal 1998 as compared to fiscal 1997 were primarily due to increased sales of WinFax PRO for Windows 95, pcANYWHERE and ACT! Our Internet Tools business unit represented approximately 4% of total net revenues in each of the fiscal years 1999, 1998 and 1997. This business unit's net revenues in absolute dollars increased in fiscal 1999 as compared to fiscal 1998, and also increased in fiscal 1998 as compared to fiscal 1997. The increases in both comparative years were due to increased sales of our Visual Cafe Database and Professional Editions. Our Corporate Sunset segment's revenues are generated from sales of products that are nearing the end of their life cycles. Net revenues from this segment were less than 1% of net revenues for fiscal 1999 and 1% and 9% of our net revenues for fiscal 1998 and 1997, respectively. During fiscal 1999, 1998 and 1997, the financial impact of product price reductions for certain of our principal products was more than offset by the increase in the volume of products sold, resulting in increased net revenues. INTERNATIONAL. Net revenues from international sales, or revenues outside of North America, were $219 million and $179 million and represented 37% and 34% of net revenues in fiscal 1999 and 1998, respectively. The increase was largely due to stronger sales to Europe and Japan. Net revenues from international sales increased by $42 million in fiscal 1998, from $137 million in fiscal 1997. This increase in net revenues was the result of our penetration of new and emerging markets in Latin America and Asia/Pacific, as well as increased sales in Europe. Foreign exchange rate fluctuations during fiscal 1999, 1998 and 1997 did not materially affect annual revenue. PRODUCT RETURNS. We estimate and maintain reserves for product returns. Product returns principally relate to stock balancing and the replacement of obsolete products which are offset by orders of equal or greater value for the current versions of the products. The mix of products returned from the distributors/resellers as compared to products sold to the distributors/resellers does not impact the gross margins, as Symantec's gross margins are consistent across its various product families. Changes in the level of product returns and related product returns provision are generally offset by a change in the level of gross revenue. As a result, the product returns provision did not have a material impact on reported net revenues in any period presented. GROSS MARGIN. Gross margin represents net revenues less cost of revenues. Cost of revenues consists primarily of manufacturing expenses, costs for producing manuals, packaging costs, royalties paid to third parties under publishing contracts and amortization and write-off of capitalized software. Gross margin was 84% of net revenues in fiscal 1999 and fiscal 1998 and 82% in fiscal 1997. Factors contributing to an increase in gross margin percentage during fiscal 1998 as compared to fiscal 1997 include reduction of direct material costs, which were accomplished by shifting product media from more expensive diskettes to lower priced CD-ROMs and reductions in the size of bound manuals, accomplished through a shift in documentation for our principal products from paper manuals to electronic manuals. Additional cost reductions occurred in manufacturing overhead costs due to improved economies of scale and reductions in capitalized software amortization and write-offs as discussed below. PURCHASED PRODUCT RIGHTS AND CAPITALIZED SOFTWARE. As indicated in the overview, during fiscal 1999 we acquired Quarterdeck, Intel's anti-virus business and Binary's operations, as a result of these transactions we recorded purchased product rights and technology of approximately $8 million, $11 million and $17 million, respectively. See 16 19 Note 3 of Notes to Consolidated Financial Statements in this Form 10-K. During fiscal 1998, software development costs did not materially affect us. Amortization of purchased product rights and capitalized software totaled approximately $11 million, $1 million and $2 million in fiscal 1999, 1998 and 1997, respectively. The increase in fiscal 1999 from fiscal 1998 is primarily due to additional amortization related to developed technologies acquired from Intel's anti-virus business, Binary and Quarterdeck from the date of acquisition. The amortization will occur over the next 3 to 5 years. See Note 4 of Notes to Consolidated Financial Statements in this Form 10-K RESEARCH AND DEVELOPMENT EXPENSES. We charge research and development expenditures to operations as incurred. Research and development expenses remained flat at 17% for fiscal 1999 compared to fiscal 1998 as a percentage of net revenues and represented 20% of total company net revenues in fiscal 1997. The decrease in research and development expenses as a percentage of net revenues in fiscal 1998 from fiscal 1997 largely resulted from our decision to cease development of certain software products no longer actively marketed by us. Research and development expenses increased 11% to $102 million in fiscal 1999 from $91 million in fiscal 1998 and increased 3% in fiscal 1998 from $89 million in fiscal 1997. The increase in both years was a result of increased spending on new product development. SALES AND MARKETING EXPENSES. Sales and marketing expenses were 48% as a percentage of net revenues for fiscal 1999, and remained flat at 49% as a percentage of net revenues for both fiscal 1998 and 1997. The sales and marketing expenses were approximately $286 million, $261 million and $221 million in fiscal 1999, 1998 and 1997, respectively. This absolute increase in sales and marketing dollars for fiscal 1999 over fiscal 1998 is primarily due to increased headcount, as well as increased spending in advertising and promotional expenses. The increase in sales and marketing expenses in fiscal 1998 as compared to fiscal 1997 is primarily related to increased international sales and marketing. IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSES. As indicated in the overview, in fiscal 1999, we acquired IBM's and Intel's anti-virus businesses, Binary's operations and Quarterdeck. The following table outlines the value of the intangible assets recorded in connection with these acquisitions:
Allocated Purchase Price Components (in thousands) ------------------------------------------------------------------------------------------------------- Purchase In-Process Developed Customer Prepaid- Price R&D Software Goodwill Base Workforce Tradename R&D -------- ---------- --------- -------- -------- --------- --------- -------- IBM $ 20,250 $ 7,100 $ -- $11,850 $ 100 $ -- $ -- $1,200 Binary 27,871 7,100 16,900 3,751 -- 120 -- -- Intel 16,525 5,017 10,697 -- 811 -- -- -- 63% of Quarterdeck 59,347 7,560 4,410 45,588 882 25 862 -- 37% of Quarterdeck 25,960 740 4,070 20,210 407 15 518 -- -------- ------- ------- ------- ------ ---- ------ ------ Total $149,953 $27,517 $36,077 $81,399 $2,200 $160 $1,400 $1,200 ======== ======= ======= ======= ====== ==== ====== ======
We wrote-off approximately $28 million in in-process research and development associated with the IBM, Binary, Intel and Quarterdeck purchases. These write-offs were necessary because the acquired technologies had not yet reached technological feasibility and there were no alternative uses. We are using the acquired in-process research and development associated with these acquisitions to create new anti-virus products and enhanced management and administrative capabilities to be integrated into our suite of anti-virus offerings and other corporate products over the next two years. This in-process technology will also be used to create new Uninstall and Disk Cloning products. The efforts required to develop the purchased in-process technology principally relate to the completion of all planning, designing, development and testing activities that are necessary to establish that the product or service can be produced to meet its design specifications including features, functions and performance. We expect the acquired in-process technology to be developed into commercially feasible products. However, there are no assurances that this will occur. If we fail to complete these products in their entirety, or in a timely manner, we may not continue to attract new users, we may be unable to retain our existing users and the value of the other intangible assets may become impaired. 17 20 We determined the fair value of the in-process technology for each of the purchases by estimating the projected cash flows related to these projects, including the cost to complete the in-process technologies and future revenues to be earned upon commercialization of the products. We discounted the resulting cash flows back to their net present values. We based the net cash flows from such projects on our analysis of the respective markets and estimates of revenues and operating profits related to these projects. IBM. The in-process technology acquired in the IBM purchase primarily consisted of the IBM immune system technology and related anti-virus patents. This technology is designed to detect previously unknown viruses, analyze them and distribute a cure, all automatically and faster than existing methods. We intend to integrate this technology into our suite of anti-virus products and engage in considerable amount of infrastructure enhancement required for its deployment throughout 1999. We assumed that revenue attributable to this in-process technology would increase substantially during the first year and then decrease at rates of 35% to 14% during the remaining three years of the four year projection. We projected annual revenues to range from approximately $17 million to $8 million over the term of the projection. We based these projections on: o penetration into IBM's and our existing installed base of customers; o anticipated growth rates of the anti-virus markets; o an accelerated growth of new customers during the first year of delivering immune system technology; and o the estimated life of the underlying technologies. Based on our historical experience with similar products, we estimated marketing and sales expenses for the in-process technology to be 40% as a percentage of revenue throughout the valuation period. Based on our historical general and administrative expenses, we estimated general and administrative expenses to be 7% throughout the period of analysis. We assumed operating profit before acquisition related amortization charges would be approximately $4 million during the first year. We assumed that it would decrease at annual rates ranging from 35% to 14% during the remaining periods, resulting in annual operating profits ranging between approximately $4 million and $2 million. We estimated costs to be incurred to reach technological feasibility of in-process technologies from IBM as of the date of the agreement to total approximately $2 million. We estimated the in-process technology to be approximately 78% complete at that time. We projected the introduction of acquired in-process technologies in early/mid 1999 and now expect the introduction to take place in the second half of 1999. We used a discount rate of 30% for valuing the in-process technology from IBM, which we believe to reflect the risk associated with the completion of these research and development projects and the estimated future economic benefits to be generated subsequent to their completion. This discount rate is higher than our weighted average cost of capital of 17% due to the fact that the technology had not reached technological feasibility as of the date of the valuation. The assumptions and projections discussed for the immune system and related anti-virus technology acquired from IBM were made based on information available at the time and should not be taken as indications of actual results, which could vary materially based on the risks and uncertainties identified in the risk factors set forth in this Form 10-K. BINARY. The in-process technology acquired in the Binary acquisition primarily consisted of disk cloning technologies associated with Ghost, the flagship product of Binary. Ghost software is designed to create a complete image of a hard drive in the form of a single file that can be copied to another computer connected via a network. We assumed that revenue attributable to Binary's in-process technology will increase in the first three years of the five year projection period at annual rates ranging from 1108% to 88% and then decrease at rates of 3% to 74% over the remaining periods as other technologies enter the marketplace. We projected annual revenues to range from approximately $1 million to $14 million over the projected period. We based these estimates on: o aggregate growth rates for the business as a whole; o individual product revenues; o anticipated product development cycles; and o the life of the underlying technology. 18 21 We estimated marketing and sales expenses for the in-process technology to be 31% as a percentage of revenue throughout the valuation period. Based on our historical general and administrative expenses, we estimated general and administrative expenses to be 7% throughout the period of analysis. We projected operating profit before acquisition related amortization charges to increase from less than $1 million during the first year to approximately $7 million during the third year. We projected that operating profits would then decrease from 4% to 74% during the remaining two years, resulting in profits of approximately $7 million and $2 million. Because we assumed that most product development costs would be incurred in the first year, reducing operating expenses as a percentage of revenue in later years, we anticipate operating profit to increase faster than revenue in the early years. We estimated costs to be incurred to reach technological feasibility of in-process technologies from Binary as of the date of the acquisition to total approximately $2 million. We estimated the in-process technology to be approximately 50% complete at that time. We projected the introduction of acquired in-process technologies in early/mid 1999 and this has been completed. We used a discount rate of 30% for valuing the in-process technologies from Binary, which we believe to reflect the risk associated with the completion of these research and development projects and the estimated future economic benefits to be generated subsequent to their completion. This discount rate is higher than our weighted average cost of capital of 17% due to the fact that the technology had not reached technological feasibility as of the date of the valuation. The assumptions and projections discussed for the disk cloning technologies acquired from Binary were made based on information available at the time and should not be taken as indications of actual results, which could vary materially based on the risks and uncertainties identified in the risk factors set forth in this Form 10-K. INTEL. The in-process technology acquired in the Intel purchase consists of the LANDesk anti-virus technology which resides in the LANDesk virus protect product line, LDVP. The LDVP product offers centrally managed virus protection to computer networks. We intend to initially sell the next version of LDVP software on a standalone basis. We anticipate that during 1999 this technology will be integrated into our suite of corporate anti-virus offerings, in addition to future corporate products. We assumed revenue attributable to Intel's in-process technology to be approximately $12 million during the first year, increasing to approximately $13 million during the second year and then declining at annual rates ranging from 35% to 77% during the remaining three years of the five year projection as other technologies enter the marketplace. We projected annual revenues to range from approximately $13 million to $1 million over the projected period. We based these estimates on: o revenue estimates of the acquired LDVP business; o aggregate growth rates for the anti-virus business as a whole; o anticipated revenue to be earned from future corporate product offerings; o anticipated product development cycles; and o the life of the underlying technology. Based on our historical experience with similar products, we estimated marketing and sales expenses for the in-process technology to be 43% as a percentage of revenue throughout the valuation period. Based on our historical general and administrative expenses, we estimated general and administrative expenses to be 8% throughout the period of analysis. We assumed operating profit before acquisition related amortization charges to be approximately $5 million during the first year, increasing by 7% during the second year and then declining at annual rates ranging from 34% to 77% during the remaining periods, resulting in annual operating profits ranging between approximately $5 million and less than $1 million. We assumed a growth rate for operating profits, which are slightly higher than revenue projections, when projecting the operating profit during the early years. The higher growth rate is attributable to the increase in revenues discussed above as the technology is integrated more deeply into our product offerings, while research costs remain constant. 19 22 We estimated costs to be incurred to reach technological feasibility of in-process technologies from Intel as of the date of the product being delivered to us to total approximately $1 million. We estimated the in-process technology to be 88.1% complete at that time. We projected the introduction of acquired in-process technologies in early/mid 1999 and this has been completed. We used a discount rate of 30% for valuing the in-process technology from Intel, which we believe reflected the risk associated with the completion of these research and development projects and the estimated future economic benefits to be generated subsequent to their completion. This discount rate is higher than our weighted average cost of capital of 17% due to the fact that the technology had not reached technological feasibility as of the date of the valuation. The assumptions and projections discussed for the LANDesk anti-virus technology acquired from Intel were made based on information available at the time and should not be taken as indications of actual results, which could vary materially based on the risks and uncertainties identified in the risk factors set forth in this Form 10-K. QUARTERDECK. The in-process technology acquired in our acquisition of Quarterdeck consisted of projects related to Quarterdeck's CleanSweep product line. The CleanSweep product line is designed to enhance the performance of the Windows operating system by finding and removing outdated, unnecessary, or unwanted files, applications and system components, thereby freeing up disk space. The following discussion relates to our purchase of a 63% interest in November 1998: We assumed revenue attributable to the in-process technology to be approximately $24 million during the first year and then declining at annual rates of 5% to 65% during the remaining periods of the six year projection period as other technologies are released into the marketplace. We projected annual revenues to range from approximately $24 million to $3 million over the projected period. We based these projections on: o aggregate revenue estimates for the business as a whole; o anticipated revenue derived from being able to increase our penetration in the uninstaller market; o anticipated growth rates in the utilities suites markets; o anticipated product development cycles; and o the life of the underlying technology. Based on indications from similar companies, we estimated overall sales, marketing and general and administrative expenses to be 30% throughout the valuation period. We assumed operating profit before acquisition related amortization charges to be approximately $11 million during the first year, increasing by 1% during the second year and then declining at annual rates ranging from 17% to 69% during the remaining periods, resulting in annual operating profits ranging between approximately $11 million and $1 million. Because we assumed that most product development costs would be incurred in the first year, reducing operating expenses as a percentage of revenue in later years, operating profit in early years increases as revenue declines. We estimated costs to be incurred to reach technological feasibility as of the date of acquisition for Quarterdeck in-process technologies to total approximately $1 million. We estimated the in-process technology to be 80% complete as of the date of the acquisition. We projected the introduction of acquired in-process technologies in early/mid 1999 and this is now expected to take place in the second half of 1999. We used a discount rate of 20% for valuing the in-process technology from Quarterdeck, which we believe reflected the risk associated with the completion of these research and development projects and the estimated future economic benefits to be generated subsequent to their completion. This discount rate reflects a premium above that of the risk associated with the acquired developed technology and is higher than our weighted average cost of capital. The following discussion relates to our purchase of the remaining 37% interest in March 1999: We assumed revenue attributable to the in-process technology to be approximately $9 million during the first year, increasing to approximately $23 million during the second year and then declining at annual rates of 14% to 45% during the remaining periods of the six year projection period as other technologies are released into the marketplace. We projected annual revenues to range from $9 million to $23 million over the projected period. We based these projections on: 20 23 o aggregate revenue estimates for the business as a whole; o anticipated revenue derived from being able to increase our penetration in the uninstaller market; o anticipated growth rates in the utilities suites markets; o anticipated product development cycles; and o the life of the underlying technology. Based on indications from similar companies, we estimated overall sales, marketing and general and administrative expenses to be 30% throughout the valuation period. We assumed operating profit before acquisition related amortization charges to be approximately $4 million during the first year, increasing by 208% during the second year and then declining at annual rates ranging from 14% to 45% during the remaining periods, resulting in annual operating profits ranging between approximately $7 million and $2 million. Because we assumed that most product development costs would be incurred in the first year, reducing operating expenses as a percentage of revenue in later years, operating profit in early years increases as revenue declines. We estimated costs to be incurred to reach technological feasibility as of the date of acquisition for Quarterdeck in-process technologies to total approximately $1 million. We estimated the in-process technology to be 20% complete as of the date of the acquisition. We project introduction of acquired in-process technologies in mid/late 1999. The percent completion is significantly lower than the percent completion of the previous purchase due to significant changes in product features, R&D investment levels and introduction dates. We used a discount rate of 20% for valuing the in-process technology from Quarterdeck, which we believe reflected the risk associated with the completion of these research and development projects and the estimated future economic benefits to be generated subsequent to their completion. This discount rate reflects a premium above that of the risk associated with the acquired developed technology and is higher than our weighted average cost of capital. The assumptions and projections discussed for the projects related to Quarterdeck's CleanSweep product line were made based on information available at the time and should not be taken as indications of actual results, which could vary materially based on the risks and uncertainties identified in the risk factors set forth in this Form 10-K. There was no in-process research and development expenses in fiscal 1998. In fiscal 1997, Symantec entered into a purchase agreement to acquire certain software technologies to enable Web Authoring for the Mac OS environment. The terms of the purchase agreement provided that Symantec pay $3 million upon the signing of the agreement and the delivery of the then in-process, pre-beta software technologies to Symantec. At the time of this purchase, no revenues had been derived from any of the technologies acquired and revenues were not anticipated from these technologies until calendar 1997. In accordance with FAS 86, we utilized a working model of the desktop software product (essentially a beta version of the product) as its point of technological feasibility for desktop products because a detailed program does not exist. Symantec had consistently utilized this point in a desktop product's development life cycle for purposes of the capitalization of software. In accordance with the requirements of SFAS 86, we evaluated the purchased software for technological feasibility and determined that a detailed program design did not exist. Accordingly, we accounted for the cost of the purchased computer software the same as the costs incurred to develop such software internally. Additionally, these software technologies had no alternate future use beyond the continuing development efforts of the Web Authoring product. Accordingly, the Company expensed the cost of these software technologies and recorded an approximately $3 million charge for the write-off of in-process research and development in fiscal 1997. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were 6% of net revenues in fiscal 1999 and 7% of net revenues for both fiscal 1998 and 1997. General and administrative expenses decreased by 6% to $36 million in fiscal 1999 from $38 million in fiscal 1998. In fiscal 1998, general and administrative expenses increased by 12% from $34 million in fiscal 1997. 21 24 General and administrative expenses decreased in fiscal 1999 as compared to fiscal 1998. This decrease was primarily due to reductions in our information system costs. General and administrative expenses increased in fiscal 1998 as compared to fiscal 1997 at a rate proportionate to net revenue growth. This increase was the result of increased personnel expenses associated with the growth of the Company. LITIGATION JUDGMENT. Litigation expenses that related to a judgment by a Canadian court on a decade-old copyright action assumed by us as a result of our acquisition of Delrina Corporation totaled approximately $6 million for fiscal 1999. See Note 16 of the Notes to Consolidated Financial Statements in this Form 10-K. RESTRUCTURING AND OTHER EXPENSES. During the September quarter of fiscal 1999, we implemented a plan to restructure certain of our operations, which included outsourcing our domestic manufacturing operations. We recorded approximately $4 million of employee severance and outplacement expenses to reduce the workforce by approximately 5% in both domestic and international operations. We recorded approximately $1 million for excess facilities and equipment from the abandonment of our manufacturing facility lease. As of March 31, 1999, these activities were substantially completed. See Note 14 of the Notes to Consolidated Financial Statements in this Form 10-K. There were no acquisition, restructuring and other expenses incurred in fiscal 1998. In fiscal 1997, we recorded total acquisition charges of approximately $1 million in connection with the acquisition of Fast Track. We also recorded a charge of approximately $3 million for costs related to the restructuring of certain domestic and international sales and research and development operations, certain legal settlements and other expenses. Other charges recorded in fiscal 1997 included approximately $2 million in connection with the write-off of an equity investment. See Summary of Significant Accounting Policies and Note 14 of Notes to Consolidated Financial Statements of this Form 10-K. Remaining acquisition, restructuring and other expense accruals as of March 31, 1999 were approximately $4 million. INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE). Interest income was approximately $14 million, $13 million and $7 million in fiscal 1999, 1998 and 1997, respectively. Interest income increased 3% in fiscal 1999 over fiscal 1998. This increase was primarily due to higher average invested cash balances, gains on the sale of investments and interest income received from income tax refunds. Interest income increased 83% in fiscal 1998 over fiscal 1997. This increase was due to higher average invested cash balances. Interest expense was approximately $2 million in 1999 and $1 million in both fiscal 1998 and 1997. The interest expense was principally related to our convertible subordinated debentures, which were converted in February 1999 and Quarterdeck's subordinated notes, that were paid off in March 1999. See Note 6 of Notes to Consolidated Financial Statements of this Form 10-K. Other income (expense) is primarily comprised of foreign currency exchange gains and losses from fluctuations in currency exchange rates. Foreign currency exchange gains and losses accounted for approximately $2 million in income in 1999, which primarily resulted from the payoff of an intercompany loan. In fiscal 1998 there was less than $1 million in expense and in 1997 there was approximately $2 million in expense. INCOME, NET OF EXPENSE, FROM SALE OF TECHNOLOGIES AND PRODUCT LINES. Income from sale of technologies and product lines was approximately $41 million, $45 million and $9 million for the fiscal years 1999, 1998 and 1997, respectively. This income is related to the sale of our electronic forms product line to JetForm Corporation and our network administration technologies to Hewlett-Packard, both of which took place in fiscal 1997. For fiscal 1997 the income is net of expenses related to the sale of these technologies and product lines, which is comprised of approximately $8 million for the write-off of purchased intangibles and developed software costs and approximately $3 million in legal , accounting and other expenses. See Note 13 of Notes to Consolidated Financial Statements of this Form 10-K. INCOME TAXES. Our effective tax rate on income before income taxes for fiscal 1999, excluding charges for acquired in-process research and development expenses, was 32%. Our effective tax rate was 24% and 14% for fiscal 1998 and 1997, respectively. Our 1999 income tax rate of 32% is lower than the U.S. federal and state combined statutory rate of 22 25 40% primarily due to a lower statutory tax rate for our Irish operations. The effective tax rate for fiscal 1998 and 1997 was lower due to the utilization of previously unbenefitted losses and credits. Our tax provision for fiscal 1999 consists of two items: 1) a $35 million tax provision (or 32% effective tax rate) on income before income taxes of $110 million, which excludes a $27 million charge for acquired in-process research and development expenses and 2) a $2 million tax benefit on the $27 million charge for in-process research and development. We have established a valuation allowance for the portion of the deferred tax asset attributable to the acquired in-process research and development expenses that is not expected to be realized within five years. Realization of the $28 million of net deferred tax assets is dependent upon our ability to generate sufficient future U.S. taxable income. Based on our forecast of U.S. earnings, we believe that it is more likely than not that we will realize this asset. The net deferred tax asset includes a valuation allowance of approximately $30 million. Approximately $21 million of the valuation allowance for deferred tax assets is attributable to unbenefitted stock option deductions, the benefit of which we will credit to equity when realized. Approximately $7 million of the valuation allowance for deferred tax assets is attributable to the charge for acquired in-process research and development expenses, the benefit of which we do not expect to realize within five years. The remaining $2 million of the valuation allowance represents net operating loss and tax credit carryforwards of various acquired companies that are limited by separate return limitations under the "change of ownership" rules of Internal Revenue Code Section 382. We project our effective tax rate to be 32% in fiscal 2000. This rate is lower than the expected U.S. federal and state combined statutory rate of 40% due primarily to a lower tax rate from our Irish operations. However, this projection is subject to change due to fluctuations in and the geographic allocation of earnings. See Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Fluctuations in Quarterly Operating Results; Foreign Operations. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents, short-term investments and long-term investments decreased approximately $63 million to $197 million at the end of fiscal 1999 from $260 million at the end of fiscal 1998. This decrease was largely due to the acquisitions of Quarterdeck, Binary and Intel's and IBM's anti-virus businesses and the repurchase of approximately 3 million shares of our stock during the September and December quarters. Quarterdeck had issued $25 million of 6% convertible senior subordinated notes, or Notes, due in 2001. These Notes were issued to an institutional investor in a private placement pursuant to the terms of a Note Agreement dated March 1, 1996. These Notes were paid in full on March 30, 1999. In addition to cash, short-term investments and long-term investments of $197 million, we have approximately $71 million of restricted investments related to collateral requirements under lease agreements entered into by us during fiscal 1997 and 1999. In accordance with the lease terms, these funds are not available to meet operating cash requirements. In addition, we are obligated to comply with certain financial covenants. Future acquisitions may cause us to be in violation of these financial covenants. Net cash provided by operating activities was approximately $124 million and was comprised of our net income of approximately $50 million, plus non-cash related expenses of $57 million and a net increase in assets and liabilities of $17 million. Net trade accounts receivable increased $11 million to approximately $76 million and to 39 days sales outstanding at March 31, 1999 from approximately $65 million and 38 days sales outstanding at March 31, 1998. On June 9, 1998, the Board of Directors of Symantec authorized the repurchase of up to 5% of our outstanding common stock before December 31, 1998. The repurchased shares were used for employee stock purchase programs and option grants. We completed the repurchase as of October 31, 1998, repurchasing approximately 3 million shares for approximately $56 million at prices ranging from $13.10 to $27.21 per share. As of March 31, 1999, we were in compliance with all covenants under our bank line of credit agreement. There were no borrowings under this line and we had less than $1 million of standby letters of credit outstanding under this line. Future acquisitions may cause us to be in violation of the line of credit covenants. However, we believe that if the line of credit was canceled or amounts were not available under the line, there would not be a material adverse impact on the liquidity or capital resources of the Company. 23 26 If we were to sustain significant losses, we could be required to reduce operating expenses, which could result in: o product delays; o reassessment of acquisition opportunities, which could negatively impact our growth objectives; and/or o the requirement to pursue further financing options. We believe that existing cash and short-term investments and cash generated from operating results will be sufficient to fund operations for the next year. RECENT ACCOUNTING PRONOUNCEMENTS In October 1997 and March 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statements of Position ("SOP") 97-2, "Software Revenue Recognition," and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition," respectively, which provide guidance on applying generally accepted accounting principles in recognizing revenue on software transactions and were effective for Symantec beginning with the June 30, 1998 quarter. In December 1998, AcSEC issued SOP 98-9, which amends certain provisions of SOP 97-2 and extends the deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4 until the beginning of Symantec's fiscal 2000. Symantec early adopted SOP 98-9 for its financial statements and related disclosures beginning in the March 1999 quarter. SOP 98-9 did not have a material affect on our results. The Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 will be effective for Symantec at the beginning of the June 2000 quarter for both annual and interim reporting periods. Symantec is evaluating the potential impact of this accounting pronouncement on required disclosures and accounting practices. AcSec issued its SOP 98-1, Accounting for Costs of Computer Software Developed For or Obtained for Internal-Use, under which, qualifying computer software costs incurred during the application development stage are required to be capitalized and amortized to expense over the software's estimated useful life. Symantec adopted SOP 98-1 for its financial statements and related disclosures in fiscal 1999. SOP 98-1 did not materially affect our results. BUSINESS RISK FACTORS The following discussion contains forward-looking statements that involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among others things, those risk factors set forth in this section and elsewhere in this report. We identify forward-looking statements by words such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or similar terms that refer to the future. We cannot guarantee future results, levels of activity, performance or achievements. OUR EARNINGS AND STOCK PRICE ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. Due to the factors noted below, our earnings and stock price have been and may continue to be subject to significant volatility, particularly on a quarterly basis. We have previously experienced shortfalls in revenue and earnings from levels expected by securities analysts and investors, which have had an immediate and significant adverse effect on the trading price of our common stock. This may occur again in the future. OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND WE WILL NEED TO ADAPT OUR DEVELOPMENT TO THESE CHANGES. We participate in a highly dynamic industry characterized by rapid change and uncertainty related to new and emerging technologies and markets. The recent trend toward server-based applications in networks and applications distributed over the Internet could have a material adverse affect on sales of our products. Future technology or market changes may cause certain of our products to become obsolete more quickly than expected. The use of a Web browser, running on either a PC or network computer, to access client/server systems is emerging as an alternative to traditional desktop access through operating systems that are resident on personal computers. If the functionality associated with this type of system access reduce the need for our products, our future net revenues and operating results could be adversely affected. 24 27 THE MARKET FOR OUR PRODUCTS IS INTENSELY COMPETITIVE AND WE EXPECT THAT COMPETITION WILL CONTINUE AND MAY INCREASE. The microcomputer software market is intensely competitive and is subject to rapid changes in technology. It is influenced by the strategic direction of major microcomputer hardware manufacturers and operating system providers. Our competitiveness depends on our ability to enhance existing products and to offer successful new products on a timely basis. We have limited resources and must restrict product development efforts to a relatively small number of projects. See Item 1: Business-Competition, for examples of key competitors for our products in each of our business units. Many of our existing and potential competitors have greater financial, marketing and technological resources than we do. We believe that competition in the industry will continue to intensify as most major software companies expand their product lines into additional product categories. INTRODUCTION OF NEW OPERATING SYSTEMS MAY CAUSE SIGNIFICANT FLUCTUATIONS IN OUR FINANCIAL RESULTS AND STOCK price. The release and subsequent customer acceptance of current or enhanced operating systems are particularly important events that increase the uncertainty and volatility of our results. If we are unable to successfully and timely develop products that operate under existing or new operating systems, or if pending or actual releases of the new operating systems delay the purchase of our products, our future net revenues and operating results could be materially adversely affected. Microsoft has incorporated advanced utilities into Windows 95, including: o telecommunications capabilities; o facsimile capabilities, which were later dropped from Windows 98; and o data recovery utilities. Microsoft has included additional product features in Windows 98, including: o enhanced disk repair; o disk defragmentation; o system file maintenance; o ISDN support; and o PPTP virtual private networking. Inclusions of features such as these and any additional features by Microsoft in new versions of Windows, including Windows 2000 and Windows 98 Second Edition, may decrease the demand for certain of our products, including those currently under development and products specifically intended for Windows 2000. Microsoft's Windows 98 operating system was introduced during the June 1998 quarter and Windows 98 Second Edition is anticipated to be introduced at the end of 1999. We believe that weak retail software sales during the June and September 1998 quarters compared to the March 1998 quarter may have been due, in part, to the release of Windows 98 at the end of the June 1998 quarter. Our ability to generate revenue from many of our current products and products currently under development could be less than anticipated in future periods due to reported incompatibilities by end-users and delays in the purchase of our products as end-users first deploy Windows 98 and Windows 98 Second Edition. In addition, we may face declining sales following Microsoft's introduction of Windows 2000, which was formerly known as Windows NT 5.0, currently scheduled for the end of 1999. Our financial results and our stock price declined significantly within approximately 6 months after the releases of Windows 3.1, Windows 95 and Windows 98, which in some cases also caused the additional requirement for hardware upgrades, resulting in shifts in customer spending from software to hardware. We could face adverse financial results and additional stock price declines following future releases of operating systems. Additionally, as hardware vendors incorporate additional server-based network management and security tools into network operating systems, the demand may decrease for some of our products, including those currently under development. Moreover, functionality previously provided only by software may be incorporated directly into hardware, potentially reducing demand for our products. Furthermore, our competitors may license certain of their products to Microsoft and OEMs for inclusion with their operating systems, add-on products or hardware, which may also reduce the demand for certain of our products. 25 28 Shifts in customer spending from software to hardware as the result of technological advancements in hardware or price reductions of hardware have in the past and may in the future, result in reduced revenues which have had and would have a material adverse affect on operating results. THE TREND TOWARD CONSOLIDATION IN OUR INDUSTRY MAY IMPEDE OUR ABILITY TO COMPETE EFFECTIVELY. Consolidation in the software industry continues to occur, with competing companies merging or acquiring other companies in order to capture market share or expand product lines. As this consolidation occurs, the nature of the market may change as a result of fewer players dominating particular markets, potentially providing consumers with fewer choices. Also, some of these companies offer a broader range of products than Symantec, ranging from desktop to enterprise solutions. We may not be able to compete effectively against these competitors. Any of these changes may have a significant adverse effect on our future revenues and operating results. Furthermore, we use strategic acquisitions, as necessary, to acquire technology, people and products for our overall product strategy. We have completed a number of acquisitions and dispositions of technologies, companies and products and may acquire and dispose of other technologies, companies and products in the future. The trend toward consolidation in our industry may result in increased competition in acquiring these technologies, people or products, resulting in increase acquisition costs or the inability to acquire the desired technologies, people or products. WE MUST EFFECTIVELY ADAPT TO CHANGES IN THE DYNAMIC TECHNOLOGICAL ENVIRONMENT OF THE INTERNET IN A TIMELY MANNER. Critical issues concerning the commercial use of the Internet, including security, reliability, cost, ease of use, accessibility, quality of service or potential tax or other government regulation, remain unresolved and may affect the use of the Internet as a medium to distribute or support our software products and the functionality of some of our products. If we are unsuccessful in timely assimilating changes in the Internet environment into our business operations and product development efforts, our future net revenues and operating results could be adversely affected. WE FACE INTENSE PRICE BASED COMPETITION FOR SALES OF OUR PRODUCTS. Price competition is often intense in the microcomputer software market, especially for utility and anti-virus products. Many of our competitors have significantly reduced the price of utility and anti-virus products. Price competition may continue to increase and become even more significant in the future, resulting in reduced profit margins. If competitive pressures in the industry continue to increase in regards to utility and anti-virus products, we may be required to reduce prices and/or increase our spending on sales, marketing and research and development of these products as a percentage of net revenues, resulting in lower profit margins. These actions may be insufficient to offset the impact of price competition on our business and net revenues, and may result in reduced revenue, income and available cash. THE TRANSITION TO INTEGRATED SUITES OF UTILITIES MAY RESULT IN REDUCED REVENUES. Symantec and our competitors now provide integrated suites of utility products. The price of integrated utility suites is significantly less than the total price of stand-alone products that are included in these utility suites when sold separately. As a result of the shift to integrated utility suites, price competition is intense and we have experienced cannibalization of our stand-alone products that are included within the suite. As a result, there may be a negative impact on our revenues and operating income from selling integrated utility suites rather than individual products, as the lower price of integrated utility suites may not be offset by increases in the total volume of utility suites sold. Additionally, our products may not compete effectively with competitors' products or integrated utility suites introduced in the future. OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS. While our diverse product line has tended to lessen fluctuations in quarterly net revenues, these fluctuations have occurred and may occur in the future. Fluctuations may be caused by a number of factors, including: o the timing of announcements and releases of new or enhanced versions of our products and product upgrades; o the introduction of competitive products by existing or new competitors; o reduced demand for any given product; o seasonality in the end-of-period buying patterns of foreign and domestic software markets; and o the market's transition between operating systems. A significant proportion of our revenues are generated during the last month of the quarter. Most resellers tend to make a majority of their purchases at the end of the fiscal quarter. In addition, many corporate customers negotiate site licenses near the end of each quarter. In part, this is because these two groups are able, or believe that they are able, to negotiate lower prices and more favorable terms. Our reliance on a large proportion of revenue occurring at the end of the quarter and the increase in the dollar value of transactions that occur at the end of the quarter results in 26 29 increased uncertainty relating to quarterly revenues. Due to this end-of-period buying pattern, forecasts may not be achieved, either because expected sales do not occur or because they occur at lower prices or on terms that are less favorable to us. In addition, these factors increase the chances that our results could diverge from the expectations of investors and analysts. ABSENCE OF BACKLOG MAY IMPACT OUR QUARTERLY FINANCIAL RESULTS. We operate with relatively little backlog. Therefore, if near-term demand for our products weakens in a given quarter, there could be an immediate, material reduction in net revenues, which would likely result in a significant and precipitous drop in our stock price. We have not experienced any difficulties in acquiring material or delays in production of our software and related documentation and packaging. We normally ship products within one week after receiving an order and do not consider backlog to be a significant indicator of future performance. However, shortages may occur in the future. WE ARE DEPENDENT UPON THE RETAIL DISTRIBUTION CHANNEL. A large portion of our sales are made through the retail distribution channel, which is subject to events that create unpredictable fluctuations in consumer demand. Our retail distribution customers also carry our competitors' products. These retail distributors may have limited capital to invest in inventory. Their decisions to purchase our products are partly a function of pricing, terms and special promotions offered by us and our competitors, over which we have no control and which we cannot predict. Our agreements with distributors are generally nonexclusive and may be terminated by the distributors or by us without cause. Some distributors and resellers have experienced financial difficulties in the past. Distributors that account for a significant portion of our sales may experience financial difficulties in the future. When our distributors have experienced financial difficulties in the past, we have successfully moved these inventories to other distributors. However, we may not be able to do so in the future. If these distributors do experience financial difficulties and we are unable to move their inventories to other distributors, we may experience reduced sales or increased write-offs, which would adversely affect our operating results. WE MAY BE UNSUCCESSFUL IN UTILIZING NEW DISTRIBUTION CHANNELS. We currently offer a broad range of products and services over the Internet. We may not be able to effectively adapt our existing, or adopt new, methods of distributing our software products utilizing the rapidly evolving Internet and related technologies. The adoption of new channels may adversely impact existing channels and/or product pricing, which may reduce our future revenues and profitability. CHANNEL FILL MAY AFFECT OUR NET REVENUES. Our pattern of net revenues and earnings may be affected by "channel fill." Distributors may fill their distribution channels in anticipation of price increases, sales promotions or incentives. Distributors, dealers and end users often delay purchases, cancel orders or return products in anticipation of the availability of the new version or new product. As a result, distributor inventories may decrease between the date we announce a new version or new product and the date of release. Channels may also become filled simply because the distributors do not sell their inventories to retail distribution or retailers to end users as anticipated. If sales to retailers or end-users do not occur at a sufficient rate, distributors will delay purchases or cancel orders in later periods or return prior purchases in order to reduce their inventories. The impact of channel fill is somewhat mitigated by our deferral of revenue associated with distributor and reseller inventories estimated to be in excess of appropriate levels. However, net revenues may still be materially affected favorably or adversely by the effects of channel fill, particularly in periods where a large number of new products are simultaneously introduced. PRODUCT RETURNS MAY AFFECT OUR NET REVENUES. Product returns can occur when we introduce upgrades and new versions of products or when distributors or retailers have excess inventories. Our return policy allows distributors, subject to various limitations, to return purchased products in exchange for new products or for credit towards future purchases. End users may return our products through dealers and distributors within a reasonable period from the date of purchase for a full refund. In addition, retailers may return older versions of our products. We estimate and maintain reserves for product returns. However, future returns could exceed the reserves we have established, which could have a material adverse affect on our operating results. OUR INCREASED SALES OF SITE LICENSES MAY INCREASE FLUCTUATIONS IN OUR FINANCIAL RESULTS AND COULD AFFECT OUR BUSINESS. We sell corporate site licenses through the distribution channel and through corporate resellers. We are increasingly emphasizing sales to corporations and small businesses through volume licensing agreements. These licensing arrangements tend to involve a longer sales cycle than sales through other distribution channels, require greater investment of resources in establishing the enterprise relationship and can sometimes result in lower operating 27 30 margins. The timing of the execution of volume licenses, or their nonrenewal or renegotiation by large customers, could cause our results of operations to vary significantly from quarter to quarter and could have a material adverse impact on our results of operations. In addition, if the corporate marketplace grows and becomes a larger component of the overall marketplace, we may not be successful in expanding our corporate segment to take advantage of this growth. WE OFTEN DEPEND ON JOINT BUSINESS ARRANGEMENTS FOR PRODUCT DEVELOPMENT. We have entered into various development or joint business arrangements for the purpose of developing new software products and enhancements to existing software products as well as creating a presence in new markets. We may continue this strategy in the future. Depending on the nature of each such arrangement, the development, distribution, sale or marketing of the resulting product may be controlled either by us or by our business partner. The products that result from joint business arrangements may not be technologically successful, may not achieve market acceptance and/or may not be able to compete with products either currently in the market or introduced in the future. WE DEPEND ON DISTRIBUTION BY VALUE-ADDED RESELLERS AND INDEPENDENT SOFTWARE VENDORS FOR A SIGNIFICANT PORTION OF OUR REVENUES. We distribute some of our products through value-added resellers and independent software vendors under arrangements through which our products are included with these resellers' and vendors' hardware products prior to sale by them through retail channels. These licensing agreements are generally non-exclusive and do not require these resellers or vendors to make minimum purchases. If we are unsuccessful in maintaining our current relationships and securing license agreements with additional value-added resellers and independent software vendors, or if these resellers and vendors are unsuccessful in selling their products, our future net revenues and operating results may be adversely affected. WE MAY EXPERIENCE DIFFICULTY INTEGRATING ACQUISITIONS. We have completed a number of acquisitions including four acquisitions in fiscal 1999 and may acquire other companies and technology in the future. Acquisitions involve a number of special risks, including: o difficulties of integrating the operations of the acquired companies in an efficient and timely manner; o diversion of management's attention from day-to-day operations; o potential disruption of our existing businesses; o difficulties in successfully incorporating acquired technologies with our existing products; o difficulties of integration, training, retention and motivation of key employees of the acquired company; o the burden of presenting a unified corporate image; and o obstacles to the integration of acquired products, research and development and sales efforts. In addition, because the employees of acquired companies have frequently remained in their existing geographically diverse locations, we have not achieved certain economies of scale that we might otherwise have realized. Further economies of scale may not be realized in the future. We may need to secure financing to pay for future acquisitions. Acquisition financing may not be available on favorable terms or at all. We typically incur significant expenses in connection with our acquisitions. Future acquisitions may have a significant adverse impact on our future profitability and financial resources. WE FACE RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS. We transact a significant portion of our revenues, manufacturing costs and operating expenses outside of the United States, often in foreign currencies. As a result, our operating results may be materially and adversely affected by: o fluctuations in currency exchange rates; o increases in duty rates; o exchange or price controls or other repatriation restrictions on foreign currencies; o political and economic instability; o government regulations; o import restrictions; o economic volatility; and o reduced protection for the Company's copyrights and trademarks in certain jurisdictions. We utilize natural hedging to mitigate our foreign currency transaction exposure. We also hedge certain residual balance sheet positions through the use of one-month forward contracts. These strategies may be ineffective in the future. We may be unsuccessful in accurately forecasting transaction gains or losses. We expect an increase of our 28 31 activities that are not denominated in U.S. dollars in the future. If there are continued fluctuations in the currency markets, our revenues could be materially and adversely affected. INCREASED UTILIZATION AND COSTS OF OUR TECHNICAL SUPPORT SERVICES MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS. Technical support costs comprise a significant portion of our operating costs and expenses as with many companies in the software industry. We base our technical support levels, in a large part, on projections of future sales levels. Over the short term, we may be unable to respond to fluctuations in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors. While we perform extensive quality control review over the technical support services provided by our corporate personnel and, to a lesser extent, over the support services outsourced to third-party vendors, customers may be dissatisfied with these services. If we have not satisfied our customers technical support needs, future product and upgrade sales to these customers may be reduced. THE RESULTS OF OUR RESEARCH AND DEVELOPMENT EFFORTS ARE UNCERTAIN. We believe that we will need to make significant research and development expenditures to remain competitive. While we perform extensive usability and beta testing of new products, the products we are currently developing or may develop in the future may not be technologically successful. If they are not technologically successful, our resulting products may not achieve market acceptance and our products may not compete effectively with products of our competitors currently in the market or introduced in the future. THE LENGTH OF THE PRODUCT DEVELOPMENT CYCLE IS DIFFICULT TO PREDICT. The length of our product development cycle has generally been greater than we originally expected. Although such delays have undoubtedly had a material adverse affect on our business and because we are unable to predict the amount of net revenues that would have been obtained had the original development expectations been met, we are unable to quantify the magnitude of net revenues that were deferred or lost as a result of any particular delay. We are likely to experience delays in future product development. These delays could have a material adverse affect on the amount and timing of future revenues. Due to the inherent uncertainties of software development projects, we do not generally disclose or announce the specific expected shipment dates of our product introductions. WE MAY BE UNABLE TO ADJUST EXPENSES TO FLUCTUATIONS IN REVENUES. As with many companies in the software industry, our employee and facility related expenditures comprise a significant portion of our operating expenses. We base our expense levels, in a large part, on projections of future revenue levels. Due to the fixed nature of these expenses over the short term, if revenue levels fall below expectations, our operating results are likely to be significantly adversely affected. WE MUST MANAGE AND RESTRUCTURE OUR EXPANDING OPERATIONS EFFECTIVELY. We continually evaluate our product and corporate strategy. We have in the past undertaken and will in the future undertake organizational changes and/or product and marketing strategy modifications. These changes and modifications are designed to: o maximize market penetration; o maximize use of limited corporate resources; o develop new products; and o develop new product channels. These organizational changes increase the risk that objectives will not be met due to the allocation of valuable limited resources to implement changes. Further, due to the uncertain nature of any of these undertakings, these efforts may not be successful and the Company may not realize any benefit from these efforts. WE MUST ATTRACT AND RETAIN PERSONNEL WHILE COMPETITION FOR PERSONNEL IN OUR INDUSTRY IS INTENSE. We believe that our future success will depend in part on our ability to recruit and retain highly skilled management, marketing and technical personnel. Competition in recruiting personnel in the software industry is intense. We may be unable to attract or retain our key employees or to attract, assimilate and retain other highly qualified employees. We have from time to time in the past experienced and we expect in the future to experience difficulty in hiring and retaining skilled employees with appropriate qualifications. To accomplish this, we believe that we must provide personnel with a competitive compensation package, including stock options, which requires ongoing stockholder approval. WE DEPEND ON OUR INTERNAL COMMUNICATIONS SYSTEMS THAT MAY BE DISRUPTED. Our order entry and product shipping centers are geographically dispersed. If our communications between these centers are disrupted, particularly at the end of a fiscal quarter, we will suffer an unexpected shortfall in net revenues and a resulting adverse impact on our 29 32 operating results. If communications and Internet connectivity are disrupted, disruptions in communications and Internet connectivity may also cause delays in customer access to our Internet-based services or product sales. A business disruption could occur as a result of natural disasters or the interruption in service by communications carriers and may cause delays in product development that could adversely impact our future net revenues. WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. We regard our software as proprietary and underlying technology as proprietary. We seek to protect our proprietary rights through a combination of confidentiality agreements and copyright, patent, trademark and trade secret laws. However, we do not employ technology to prevent copying of our products. Despite our precautionary measures, third parties may copy aspects of our products or otherwise obtain and use our proprietary information without authorization or develop similar technology independently. All of our products are protected by copyright and we have a number of patents and patent applications pending. We may not achieve the desired protection from, and third parties may design around, our patents. In addition, existing copyright laws afford limited practical protection. Furthermore, the laws of some foreign countries do not offer the same level of protection of our proprietary rights as the laws of the United States. Any legal action that we may bring to protect proprietary information could be expensive and may distract management from day-to-day operations. WE ARE INVOLVED IN LITIGATION WHICH COULD, AND ANY FUTURE LITIGATION MAY, AFFECT OUR FINANCIAL RESULTS. From time to time, we may be subject to claims that we have infringed the intellectual property rights of others, that our products are not Year 2000 compliant or other product liability claims, or other claims incidental to our business. We are involved in a number of judicial and administrative proceedings incidental to our business. For a more complete discussion of our current litigation, see Note 16 of Notes to Consolidated Financial Statements in this Form 10-K. We intend to defend and/or pursue all of these lawsuits vigorously. We may suffer an unfavorable outcome in one or more of the cases. We do not expect the final resolution of these lawsuits to have a material adverse effect on our financial position, individually or in the aggregate. However, depending on the amount and timing of unfavorable resolutions of these lawsuits, our future results of operations or cash flows could be materially adversely affected in a particular period. INTELLECTUAL PROPERTY LITIGATION We believe that software developers will become increasingly subject to claims of intellectual property infringement as the number of software products in the industry increases and the functionality of these products further overlap. In addition, an increasing number of patents are being issued that may apply to software. Allegations of patent infringement are becoming increasingly common in the software industry. We are unable to ascertain all possible patent infringement claims because: o new patents are being issued continually; o the subject of patent applications is confidential until a patent is issued; and o when a patent has been issued, the potential applicability of the patent to a particular software product is not apparent. We have been involved in disputes claiming patent infringement in the past and are currently involved in a number of patent disputes and litigation. We believe we, like other companies that obtain some of their products through publishing agreements or acquisitions, face potentially greater risks of infringement claims since we have less direct control over the development of those products. Although infringement claims may ultimately prove to be without merit, they are expensive to defend and may consume our resources or divert our attention from day-to-day operations. If a third party alleges that we have infringed their intellectual property rights, we may choose to litigate the claim and/or seek an appropriate license from the third party. If we engage in litigation and the third party is found to have a valid patent claim against us and a license is not available on reasonable terms, our business, operating results and financial condition may be materially adversely affected. YEAR 2000 - PRODUCT LIABILITY LITIGATION We believe the software products that we currently develop and actively market are Year 2000 compliant for significantly all functionality. However, these products could contain errors or defects related to the Year 2000. In addition, earlier versions of our products, those that are not the most currently released or are not currently being developed, may not be Year 2000 compliant. We have sold some of our older product lines, which are not being actively developed and updated. These older products are also not necessarily Year 2000 compliant and will no longer be sold after June 29, 1999. 30 33 We are currently party to a lawsuit related to the alleged inability of pre-version 4.0 Norton AntiVirus products to function properly in respect to Year 2000. We believe that this lawsuit has no merit and we intend to defend against this claim vigorously. We do not expect the final resolution of this lawsuit to have a material adverse affect on the results of operations and financial condition of the Company. However, depending on the amount and timing of an unfavorable resolution of this lawsuit, our future results of operations or cash flows could be materially adversely affected in a particular period. SOFTWARE DEFECTS AND PRODUCT LIABILITY Software products frequently contain errors or defects, especially when first introduced or when new versions or enhancements are released. For example, in the past, our anti-virus software products have incorrectly detected viruses that do not exist. We have not experienced any material adverse effects resulting from any of these defects or errors to date and we test our products prior to release. Nonetheless, defects and errors could be found in current versions of our products, future upgrades to current products or newly developed and released products. Software defects could result in delays in market acceptance or unexpected reprogramming costs, which could materially adversely affect our operating results. Most of our license agreements with customers contain provisions designed to limit our exposure to potential product liability claims. It is possible, however, that these provisions limiting our liability may not be valid as a result of federal, state, local or foreign laws or ordinances or unfavorable judicial decisions. A successful product liability claim could have a material adverse affect on Symantec's business, operating results and financial condition. OUR SOFTWARE PRODUCTS AND WEB SITE MAY BE SUBJECT TO INTENTIONAL DISRUPTION. While we have not been the target of software viruses specifically designed to impede the performance of the our products, such viruses could be created and deployed against our products in the future. Similarly, experienced computer programmers, or hackers, may attempt to penetrate our network security or the security of our web site from time to time. A hacker who penetrates our network or web site could misappropriate proprietary information or cause interruptions of our services. We might be required to expend significant capital and resources to protect against, or to alleviate, problems caused by virus creators and hackers. THE CONVERSION OF THE EUROPEAN CURRENCIES TO THE EURO MAY IMPACT OUR FOREIGN EXCHANGE HEDGING PROGRAM. On January 1, 1999, the euro became the common currency of 11 of the 15 member countries of the European Union. The national currencies of these 11 countries will coexist with the euro at fixed exchange rates through December 31, 2001. Euro denominated bills and coins will be introduced on January 1, 2002 and, by July 1, 2002, the national currencies will no longer be legal tender. We established a euro task force to address the business implications of the euro. The task force implemented changes to our system and processes in order to be euro-ready on January 1, 1999. We will continue to evaluate the impact of the euro and expect to make further changes to accommodate doing business in the euro. We expect that the euro will dictate changes in our foreign exchange hedging program. These changes may lead to increased fluctuations in foreign currency hedging results. Based on current information, we do not believe that the euro will have a material adverse impact on our operations or financial condition. WE MAY EXPERIENCE REDUCED DEMAND FOR OUR PRODUCTS DUE TO CHANGES IN CUSTOMER BEHAVIOR RESULTING FROM YEAR 2000 PREPARATION. With the emerging requirements on Year 2000 compliance and functionality, many enterprise customers may use their Information Technology budgets in 1999 to focus on Year 2000 issues. In addition, our customer's Information Technology organizations may be unwilling to deploy new software until after the Year 2000 in order to reduce the complexity of any changes in their systems required by any actual Year 2000 failures. Either of these factors could reduce sales of our products and could have an adverse affect on revenues. WE MAY EXPERIENCE DISRUPTION OF OUR INTERNAL SYSTEMS AS A RESULT OF THE YEAR 2000. We have completed a major evaluation of our internal applications, systems and databases. We are modifying or replacing portions of our hardware and associated software to enable our operational systems and networks to function properly with respect to dates leading up to January 1, 2000 and thereafter. We continue to evaluate interfaces between our systems and third-party systems, such as those of key suppliers, distributors and financial institutions, for Year 2000 functionality. In addition, the systems of other companies with which we do business may not address Year 2000 problems on a timely basis. We expect the process of evaluating third-party Year 2000 compliance to be an ongoing process. We are 31 34 evaluating Year 2000 exposures of our key suppliers, as well as our buildings and related facilities. We expect that the costs to complete the Year 2000 project to be approximately $2 million and will be expensed as incurred. Our Year 2000 Project is divided into several phases: Assessment - where the vulnerability of the hardware, software, process or service element is identified. Planning - where corrective action is determined for each vulnerable element. Remediation and Unit Test - where the corrective action is taken and initial testing is performed. Limited System Test - where related elements are tested together, using dates in the vulnerable range and any necessary follow-up remediation is completed. We track the progress of the Year 2000 on a sub-project level. The following table is a summary of the completion status and currently expected completion date of each phase for each sub-project. The expected completion dates are subject to the risks and uncertainties of locating and correcting errors in complex computer systems. The actual dates on which we complete each phase may vary significantly. Some sub-project completion dates have shifted since our last 10-Q filing. We have realized that our principal software vendor will be providing delayed Year 2000 patches throughout 1999. These patches need to be tested before installing them into our environment. In order to optimize the usage of our special test environment and people resources, we have conservatively extended our Limited Systems Test phase. Again, we realized that some of our primary hardware vendors would continue to supply delayed Year 2000 fixes through 1999 and therefore we will need to prepare accordingly. Building and related facilities dates were modified to address the resources involved in the physical move of our World Headquarters in the latter half of 1999. We believe that these conservative date modifications will not impair our ability to remain in business before, throughout and beyond the transition into the new millenium. Periodic updates regarding the Year 2000 status are provided to both the Executive Staff and Board of Directors.
SUB-PROJECT PHASE AND STATUS OR DUE DATE - ------------------------------------ --------------------------------------------------- Limited Assessment Planning Remediation System Test ---------- -------- ----------- ------------ Business Systems Complete Complete Complete Jul-Dec 1999 Networks, Servers & Communications Americas Complete Complete Complete Jul-Dec 1999 EMEA Complete Complete Sep 1999 Oct-Dec 1999 Japan & Asia/Pacific Complete Complete Sep 1999 Oct-Dec 1999 Desktop and Mobile Computers Complete Complete Sep 1999 Jul-Dec 1999 Buildings and Related Facilities Complete Sep 1999 Dec 1999 Jul-Dec 1999 Suppliers and Outside Services Complete Aug 1999 Oct 1999 Oct-Dec 1999
If our electric power or telephone services are interrupted for significant periods, some of our facilities might be unable to operate. We maintain business recovery plans for our major locations to provide for an orderly response to various disaster scenarios. We are reviewing and augmenting these plans to provide contingency plans for potential internal and external Year 2000 related problems. We have scheduled completion of the analysis and the associated contingency plans for September 1999. We believe that, following our conversion to new software and modifications of existing computer hardware and software, we will not suffer significant operational problems with our computer systems due to the Year 2000. However, if we are unable to complete remaining modifications and conversions in a timely manner, Year 2000 noncompliance might materially adversely impact our operations. Because testing of the Year 2000 functionality of our systems must occur in a simulated environment, we are unable to test fully all Year 2000 interfaces and capabilities prior to the Year 2000. We have not deferred any other information systems projects as a result of our focus on Year 2000 compliance issues. We believe that our exposure from Year 2000 issues is not material to our business as a whole. However, if certain key suppliers or distributors should suffer business interruptions due to Year 2000 problems, we could be forced to delay product shipments. 32 35 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We do not have significant exposure to changing interest rates because of the low levels of marketable securities on our balance sheet. We do not undertake any specific actions to cover our exposure to interest rate risk and we are not a party to any interest rate risk management transactions. We do not purchase or hold any derivative financial instruments for trading purposes. INTEREST RATE SENSITIVITY. As of March 31, 1999, the fair market value of our financial instruments with exposure to interest risk was approximately $249 million. Sensitivity analysis for a six-month horizon was performed on our floating rate and fixed rate financial investments and floating rate liabilities. Parallel shifts in the yield curve of both +/-50 basis point (+/-10% of our weighted average interest rate) would result in fair market values for investments of approximately $255 million as well as with a 50 basis point increase and 50 basis point decrease in interest rates. Fair market values of floating rate financial obligations would increase by less than $1 million for a 50 basis point rise and decrease by less than $1 million with a 50 basis point decrease in interest rates. EXCHANGE RATE SENSITIVITY. We conduct business in 31 international currencies through our worldwide operations. We have established a foreign currency hedging program, utilizing foreign currency forward exchange contracts, or forward contracts, of one fiscal month duration to hedge various foreign currency transaction exposures. Under this program, increases or decreases in our foreign currency transactions are offset by gains and losses on the forward contracts to mitigate the risk of material foreign currency transaction losses. We do not use forward contracts for trading purposes. At the end of each fiscal month, all foreign currency assets and liabilities are revalued using the month end spot rate of the maturing forward contracts and the realized gains and losses are recorded and included in net income as a component of other income (expense). We believe that the use of foreign currency financial instruments should reduce the risks that arise from conducting business in international markets. We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks. We use sensitivity analysis to quantify the impact market risk exposure may have on the fair market values of our financial instruments. The financial instruments included in the sensitivity analysis consist of all of our foreign currency assets and liabilities and all derivative instruments, principally forward contracts. The sensitivity analysis assesses the risk of loss in fair market values from the impact of hypothetical changes of instantaneous, parallel shifts in exchange rates and interest rates yield curves on market sensitive instruments over a six month horizon. Exchange rates rarely move in the same direction. The assumption that exchange rates change in a parallel fashion may overstate the impact of changing exchange rates on assets and liabilities denominated in a foreign currency. As of March 31, 1999, the net fair value liability of our financial instruments with exposure to foreign currency risk was approximately $86 million. A 10% movement in the levels of foreign currency exchange rates against the U.S. dollar would result in a decrease in the fair value of our financial instruments by approximately $8 million or an increase in the fair value of our financial instruments by approximately $9 million. This quantification of exposure to the market risk associated with foreign exchange financial instruments does not take into account the offsetting impact of changes in the fair value of our foreign denominated assets, liabilities and firm commitments. 33 36 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ANNUAL FINANCIAL STATEMENTS. See Part IV, Item 14 of this Form 10-K. SELECTED QUARTERLY DATA. We have a 52/53-week fiscal accounting year. Accordingly, we have presented quarterly fiscal periods comprised of 13 weeks, with the exception of the quarter ended June 30, 1997, which was comprised of 14 weeks. (In thousands, except net income per share; unaudited)
Fiscal 1999 Fiscal 1998 -------------------------------------------- -------------------------------------------- Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 1999 1998 1998 1998 1998 1997 1997 1997 -------- -------- -------- -------- -------- -------- -------- -------- Net revenues $169,618 $155,206 $130,034 $137,770 $142,792 $137,784 $129,305 $123,059 Gross margin 141,168 128,718 108,697 117,487 121,261 115,193 106,916 102,139 Acquisition, restructuring and other expenses ** 740 7,560 10,122 19,973 -- -- -- -- Net income 24,758 15,883 1,945 7,615 24,138 21,836 20,580 18,535 Net income per share - basic $ 0.44 $ 0.29 $ 0.03 $ 0.13 $ 0.43 $ 0.39 $ 0.37 $ 0.33 diluted $ 0.43 $ 0.28 $ 0.03 $ 0.13 $ 0.40 $ 0.37 $ 0.35 $ 0.32
** Acquisition, restructuring and other expenses, net income and net income per share are different from the amounts previously reported on Symantec's Form 10-Qs for fiscal 1999 as a result of changes in the companies allocation of purchase price in connection with the acquisition of Binary's operations and IBM anti-virus business. See Note 14 of Notes to Consolidated Financial Statements. Note: Additionally, we have reclassified our financial results related to the sale of certain product lines and technologies. There was no impact to our net income, we have restated our Form 10Qs for fiscal 1999 and 1998 to reflect the reclassifications from net revenue to income, net of expense, from sale of technologies and product lines. See further discussion in our Summary of Significant Accounting Policies section in this Form 10-K. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 34 37 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information required by this Item with respect to Directors may be found in the section captioned "Election of Symantec Directors" appearing in the definitive Proxy Statement that we will deliver to stockholders in connection with the Annual Meeting of Stockholders to be held on September 15, 1999. That information is incorporated herein by reference. Information required by this Item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, may be found in the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" appearing in the Proxy Statement. EXECUTIVE OFFICERS OF THE REGISTRANT: The executive officers of the Company are as follows:
NAME AGE POSITION - --------------------- --- ------------------------------------------------ John W. Thompson 50 Chairman, President and Chief Executive Officer Greg Myers 49 Chief Financial Officer, Vice President of Finance Christopher Calisi 39 Vice President, Remote Productivity Solutions Business Unit Dieter Giesbrecht 55 Vice President, Europe, Middle East and Africa ("EMEA") Keith Robinson 42 Vice President, Americas Enrique T. Salem 33 Vice President, Security and Assistance Business Unit and Chief Technical Officer Dana E. Siebert 39 Executive Vice President, Worldwide Sales, Marketing and Services Derek Witte 42 Vice President, Worldwide Operations
The Board of Directors chooses executive officers, who then serve at the Board's discretion. There is no family relationship between any of our directors or executive officers and any other director or executive officer of Symantec. JOHN W. THOMPSON has served as President, Chief Executive Officer and Chairman of the Board of Directors, since May 1999. Mr. Thompson joined Symantec after 28 years at IBM Corporation. In his most recent position as General Manager of IBM Americas, he was responsible for sales and support of IBM's technology products and services in the United States, Canada and Latin America. Prior to his position with IBM Americas, he was General Manager, Personal Software Products, responsible for the development and marketing of O/S2, IBM's Intel-based operating systems and other products. Mr. Thompson is a member of the board of directors, Fortune Brands, Inc. and the Northern Indiana Public Service Company (NIPSCO). He has served as chairman of the Florida A&M University Industry Cluster and the Illinois Governor's Human Resource Advisory Council. Mr. Thompson holds an undergraduate degree in business administration from Florida A&M University and a master's degree in management science from MIT's Sloan School of Management. GREG MYERS has served as Vice President of Finance and Chief Financial Officer for Symantec Corporation since January 1999. Mr. Myers is responsible for worldwide finance, business development and investor relations. Previous to his appointment as the Company's CFO in January 1999, Mr. Myers was Symantec's Vice President of Finance, where he was responsible for world-wide accounting, financial and strategic planning and business development. From 1997 through mid-1998 Mr. Myers was Vice President of financial planning and analysis for Symantec. In this role, Mr. Myers managed the Company's strategic planning process, the Company's budget and financial planning function and the worldwide financial controller organization. From 1993 to 1996, Mr. Myers was the director of financial planning and analysis function, where he was responsible for the budget, forecasting and financial analysis functions within Symantec. Before joining Symantec in 1993, Mr. Myers was with Novell Corporation for five years as their director of financial planning and analysis. Prior to Novell, Mr. Myers has held various financial management positions for a number of companies within Silicon Valley since 1975. Mr. Myers holds an undergraduate degree from Cal-State University at Hayward and Masters in Business Administration from the University of Santa Clara. 35 38 CHRISTOPHER CALISI has served as Vice President, Remote Productivity Solutions Business Unit of Symantec since September 1996. From July 1992 to August 1996, Mr. Calisi held several positions within Symantec's Remote Access Business Unit, including Development Manager, Director of Development, General Manager and most recently, Vice President, Communication Products. Mr. Calisi joined Symantec in 1992 from Unify Corporation, a relational database and 4GL tools vendor where he served as the Manager of Sales Engineers. Prior to Unify Corporation, Mr. Calisi held development positions with several relational database vendors, including Britton Lee, Oracle and Computer Associates. Mr. Calisi holds a Bachelor of Science degree from the State University of New York at Empire State and has received executive training at the Wharton School. He is also a Graduate of Harvard Business School's 1997 Executive Management Program/TGM3. Mr. Calisi holds several copyrights for software innovations from 1981 through 1986 and is an associate of the IEEE Committee. Mr. Calisi became an executive officer of Symantec in May 1996. DIETER GIESBRECHT has served as Vice President, EMEA (Europe, Middle East and Africa) of Symantec since September 1996. From January 1996 until joining Symantec, he was Vice President of Attachmate Europe based in Paris, France and was responsible for the EMEA region. From 1991 to October 1995, he held several executive functions within Lotus Development Europe including Managing Director UK and Managing Director Central Europe. He has a degree in Electronics Engineering from the Technical University of Furtwangen located in Germany. Mr. Giesbrecht is a member of the Institute of Directors. KEITH ROBINSON has been Vice President for the Americas region since September 1998. From November 1995 to August 1996, Mr. Robinson was Vice President of Sales for the Americas region. Prior to this, Mr. Robinson served as Vice President and General Manager of the Pacific Rim. Mr. Robinson was also General Manager of Symantec Canada, an organization he helped establish. Prior to joining Symantec he was employed by Ashton-Tate since 1982, where he held various management positions in the United States and in other international offices. Mr. Robinson holds a bachelors degree with honors from Sheffield University in England and a masters degree from the University of California at Los Angeles. ENRIQUE T. SALEM is Vice President, Security and Assistance Business Unit and Chief Technical Officer. Mr. Salem joined Symantec in April 1990 and has held numerous positions including Director of Development and General Manager of Advanced Utilities Group. Previous to joining Symantec, he was Vice President of Security Pacific National Bank, Merchant Bank Division, where he was responsible for the development and deployment of a global trading system. Mr. Salem holds a Bachelor of Arts degree in Computer Science from Dartmouth College. He is a member of the Board of Directors of the Software Council of Southern California and a member of the IEEE. Mr. Salem became an executive officer of Symantec in October 1996. DANA E. SIEBERT is Executive Vice President for Worldwide Sales, Marketing and Services. Previously, Mr. Siebert served as Vice President, Americas and prior to that, Vice President, Worldwide Sales of Symantec and has also held the position of Vice President, Worldwide Services of Symantec. Early at Symantec, Mr. Siebert lead the team that built Symantec's international presence. Mr. Siebert joined Symantec in September 1987. From 1985 to 1987, he was a Sales Manager at THINK Technologies where he was responsible for U.S. corporate, OEM and international sales. Previously, he held a number of sales management positions in high technology companies including Wang Laboratories, Computerland Corporation and Burroughs Corporation. Mr. Siebert is a member of the Board of Directors of TimeLine Solutions and Percon, Inc. Mr. Siebert holds a Bachelor of Science degree in Business Administration from the University of New Hampshire and is a member of the Software Publishers Association. DEREK WITTE is Vice President Worldwide Operations. In this role, the Global Information Systems, Facilities, Manufacturing, Purchasing and Legal departments report to Mr. Witte. Previously, Mr. Witte served as Vice President, General Counsel and Secretary of Symantec. Mr. Witte joined Symantec in October 1990. From October 1987 until joining Symantec, Mr. Witte was Associate General Counsel and later Director of Legal Services for Claris Corporation, a software subsidiary of Apple Computer, Inc. Between January and October 1987, Mr. Witte was Assistant General Counsel at Worlds of Wonder, Inc. Previously, Mr. Witte practiced law with the San Francisco-based law firms of Brobeck, Phleger & Harrison and Heller Ehrman White and McAuliffe during the periods between 1981 and 1983, and 1983 and 1987, respectively. Mr. Witte holds a law degree and a Bachelor of Arts degree in Economics from the University of California at Berkeley. Mr. Witte has been a member of the California bar since 1981. 36 39 ITEM 11: EXECUTIVE COMPENSATION. Information with respect to this Item may be found in the section captioned "Executive Compensation" appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on September 15, 1999. Such information is incorporated herein by reference. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information with respect to this Item may be found in the section captioned "Security Ownership of Certain Beneficial Owners and Management" appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on September 15, 1999. Such information is incorporated herein by reference. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information with respect to this Item may be found in the section captioned "Executive Compensation - Certain Transactions" appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on September 15, 1999. Such information is incorporated herein by reference. 37 40 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. Upon written request, Symantec will provide, without charge, a copy of our annual report on Form 10-K, including the consolidated financial statements, financial statement schedules and any exhibits for our most recent fiscal year. All requests should be sent to: Shelley Wilson Investor Relations Symantec Corporation 10201 Torre Avenue Cupertino, California 95014-2132 408-446-8891 (a) The following documents are filed as part of this report:
Page Number ------ 1. Consolidated Financial Statements. Report of Ernst & Young LLP, Independent Auditors.......................... 46 Consolidated Balance Sheets as of March 31, 1999 and 1998.................. 47 Consolidated Statements of Operations for the Years Ended March 31, 1999, 1998 and 1997.......................................... 48 Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 1999, 1998 and 1997.................................... 49 Consolidated Statements of Cash Flow for the Years Ended March 31, 1999, 1998 and 1997.......................................... 50 Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements...................................... 52 2. Financial Statement Schedules. The following financial statement schedule of Symantec Corporation for the years ended March 31, 1999, 1998 and 1997 is filed as part of this Form 10-K and should be read in conjunction with the Consolidated Financial Statements of Symantec Corporation. Schedule II Valuation and Qualifying Accounts................................. 76
Schedules other than that listed above have been omitted since they are either not required, not applicable, or the information is otherwise included. 3. Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Form 10-K: 3.01 The Registrant's Restated Certificate of Incorporation. (Incorporated by reference to Annex G filed with the Registrant's Joint Management Information Circular and Proxy Statement (No. 000-17781) dated October 17, 1995.) 3.02 The Registrant's Bylaws. (Incorporated by reference to Exhibit 3.02 filed with the Registrant's Registration Statement on Form S-1 (No. 33-28655) originally filed May 19, 1989, and amendment No. 1 thereto filed June 21, 1989, which Registration Statement became effective June 22, 1989.) 3.03 The registrant's Bylaws, as amended and restated effective August 11, 1998. (Incorporated by reference to Exhibit 3.1 filed with the Registrant's Current Report 8-K filed August 19, 1998.) 4.01 Registration Rights Agreement. (Incorporated by reference to Exhibit 4.02 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 4.02 Amendment No. One to Registration Rights Agreement. (Incorporated by reference to Exhibit 4.03 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 4.03 Amendment No. Two to Registration Rights Agreement (Incorporated by reference to Exhibit 4.04 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 38 41 4.04 Plan of Arrangement and Exchangeable Share Provisions related to the acquisition of Delrina. (Incorporated by reference to Annex D filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 4.05 Support Agreement dated November 22, 1995 between Symantec and Delrina. (Incorporated by reference to Annex E filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 4.06 Form of Voting and Exchange Trust Agreement dated November 22, 1995 between Symantec and Delrina. (Incorporated by reference to Annex F filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 4.07 Rights agreement, dated as of August 12, 1998, between Symantec Corporation and BankBoston, N.A., as Rights Agent, which includes as Exhibit A the form of Certificate of Designations of Series A Junior Participating Preferred Stock, as Exhibit B the Form of Right Certificate and as Exhibit C the Summary of Rights to Purchase Preferred Shares. (Incorporated by reference to Exhibit 4.1 filed with the Registrant's Form 8-A filed August 19, 1998.) 10.01 Amended Agreement Respecting Certain Rights of Publicity. (Incorporated by reference to Exhibit 10.04 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.02 Non-Competition and Non-Solicitation Agreement between Registrant and Peter Norton and Ronald Posner. (Incorporated by reference to Exhibit 10.06 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.03* 1988 Employees Stock Option Plan, as amended to date. (Incorporated by reference to Exhibit 4.02 filed with the Registrant's Registration Statement on Form S-8 (No. 33-88694) filed January 23, 1995.) 10.04* 1989 Employee Stock Purchase Plan, as amended to date. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-18353) filed December 20, 1996.) 10.05* Form of Stock Option Agreement and Form of Stock Option Exercise Request, as currently in effect, under the Registrant's 1988 Employees Stock Option Plan. (Incorporated by reference to Exhibit 10.10 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.06* 1988 Directors Stock Option Plan, as amended to date. (Incorporated by reference to Exhibit 10.09 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.07* 1993 Directors Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.07 filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994) 10.08* Form of Stock Option Grant and Stock Option Exercise Notice and Agreement under the Registrant's 1988 Directors Stock Option Plan. (Incorporated by reference to Exhibit 10.12 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.09* 1994 Patent Incentive Plan. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 33-60141) filed June 9, 1995.) 10.10* Symantec Corporation 1996 Equity Incentive Plan. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-18355) filed December 20, 1996.) 10.11* Symantec Corporation 1996 Equity Incentive Plan, as amended. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-39175) filed October 31, 1997.) 10.12* Symantec Corporation Deferred Compensation Plan dated as of November 7, 1996. (Incorporated by reference to Exhibit 10.11 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.13 Participation Agreement dated as of October 18, 1996, by and among Symantec Corporation, Sumitomo Bank Leasing and Financing, Inc., The Sumitomo Bank, Limited, San Francisco Branch and the other Various Financial Institutions Identified Herein and the Sumitomo Bank, Limited, San - ----------------- * Indicates a management contract or compensatory plan or arrangement. 39 42 Francisco Branch. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.14 Participation agreement, as amended by that certain Master Amendment No. 2, dated as of September 21, 1998, between Symantec Corporation, Sumitomo Bank Leasing and Finance, Inc. and The Sumitomo Bank, Limited. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended October 2, 1998.) 10.15 Amended and Restated Participation Agreement, dated as of February 9, 1999 by and among Symantec Corporation, Sumitomo Bank Leasing and Financing, Inc, The Bank of Nova Scotia, the other Various Financial Institutions Identified Herein and the Sumitomo Bank, Limited, Los Angeles Branch. 10.16 Appendix A to Participation Agreement, Master Lease, Lease Supplements Loan Agreements, Pledge Agreement, Lessor Mortgages, and Guaranty. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.17 Restated and amended Appendix A to Participation Agreement, Master Lease, Lease Supplements Loan Agreements, Pledge Agreement, Lessor Mortgages, and Guaranty. 10.18 Master Lease and Deed of Trust, as amended, dated as of October 18, 1996 between Symantec Corporation and Sumitomo Bank Leasing and Finance, Inc. (Incorporated by reference to Exhibit 10.14 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.19 Amended and Restated Master Lease and Deed of Trust, dated as of February 9, 1999 between Symantec Corporation and Sumitomo Bank Leasing and Finance, Inc. 10.20 Guaranty dated as of October 18, 1996, made by Symantec Corporation in favor of Various Financial Institutions and The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.05 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996). 10.21 Amended and Restated Guaranty, dated as of February 9, 1999, made by Symantec Corporation in favor of Various Financial Institutions Identified Herein and The Sumitomo Bank, Limited, San Francisco Branch. 10.22 Pledge Agreement dated as of October 18, 1996, made by Symantec Corporation, in favor of Sumitomo Bank, Limited, San Francisco Branch for the benefit of the Lenders, and Donaldson, Lufkin, Jenrette Securities Corporations, as collateral agent. (Incorporated by reference to Exhibit 10.06 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.23 Pledge Agreement, as amended, by that certain Master Amendment No. 2, dated as of September 21, 1998, between Symantec Corporation, the Bank, and Donaldson, Lufkin & Jenrette Securities Corporation. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended October 2, 1998.) 10.24 Amended and Restated Pledge Agreement, dated as of February 2, 1999, made by Symantec Corporation and Delrina Corporation, in favor of Sumitomo Bank, Limited, Los Angeles Branch for the benefit of the Lenders, and Donaldson, Lufkin, Jenrette Securities Corporations, as collateral agent. 10.25 Assignment of Lease and Rent, as amended, dated as of October 18, 1996, from Sumitomo Bank Leasing and Finance, Inc., to The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.17 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.26 Amended and Restated Assignment of Lease and Rent, dated as of February 9, 1999, from Sumitomo Bank Leasing and Finance, Inc., to The Sumitomo Bank, Limited, San Francisco Branch. 10.27 Agreement of Purchase and Sale of Cupertino City Center One between Cigna Property and Casualty Insurance Company and Symantec Corporation. (Incorporated by reference to Exhibit 10.18 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.28 Agreement for Purchase and Sale and Escrow Instructions of 10201 Torre Avenue, Cupertino, CA. (Incorporated by reference to Exhibit 10.19 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.29 Agreement for Purchase and Sale and Escrow Instructions, as amended, dated as of May 31, 1996. (Incorporated by reference to Exhibit 10.20 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.30 Agreement for Exchange and Purchase and Escrow Instructions, dated September 22, 1998, between Symantec Corporation with respect to CCC5 and WHQ and TST Development, L.L.C. with respect 40 43 to CCC2. (Incorporated by reference to Exhibit 10.06 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended October 2, 1998.) 10.31 Agreement for Exchange and Purchase and Escrow Instructions, as amended, dated November 4, 1998 between Symantec Corporation and TST Development, L.L.C. (Incorporated by reference to Exhibit 10.07 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended October 2, 1998.) 10.32 Amendment No. 1 of Agreement for Exchange and Purchase and Escrow Instructions, dated as of November 4, 1998 between Symantec Corporation and TST Development, L.L.C. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended January 1, 1999.) 10.33 Amendment No. 2 of Agreement for Exchange and Purchase and Escrow Instructions, dated as of November 20, 1998 between Symantec Corporation and TST Development, L.L.C. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended January 1, 1999.) 10.34 Amendment No. 3 of Agreement for Exchange and Purchase and Escrow Instructions, dated as of December 4, 1998 between Symantec Corporation and TST Development, L.L.C. (Incorporated by reference to Exhibit 10.03 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended January 1, 1999.) 10.35 Amendment No. 4 of Agreement for Exchange and Purchase and Escrow Instructions, dated as of December 15, 1998 between Symantec Corporation and TST Development, L.L.C. (Incorporated by reference to Exhibit 10.04 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended January 1, 1999.) 10.36 Loan Agreement dated as of October 18, 1996, among Sumitomo Bank Leasing and Finance, Inc., Various Financial Institutions Identified Herein and The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.21 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.37 Amended and Restated Loan Agreement, dated as of February 9, 1999, among Sumitomo Bank Leasing and Finance, Inc., Various Financial Institution Identified Herein, The Bank of Nova Scotia and The Sumitomo Bank, Limited, Los Angeles Branch. 10.38 Construction Agency Agreement dated as of March 3, 1997, between Sumitomo Bank Leasing and Finance, Inc., and Symantec Corporation. (Incorporated by reference to Exhibit 10.22 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.39 Construction Agency Agreement dated as of February 9, 1999, between Sumitomo Bank Leasing and Finance, Inc., and Symantec Corporation. 10.40 Symantec - CC5 Office Building and Parking Structure, as amended, dated as of May 5, 1997, made by and between Symantec Corporation and Webcor Builders. (Incorporated by reference to Exhibit 10.23 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.41 Office building lease dated as of April 10, 1991, between the Registrant and Maguire Thomas Partners Colorado Place regarding property located in Santa Monica, California. (Incorporated by reference to Exhibit 10.25 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1991.) 10.42 Office building lease, as amended, dated as of September 1, 1997 between Colorado Place Partners, LLC and Symantec Corporation regarding property located in Santa Monica, California. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 3, 1998.) 10.43 Office building lease dated as of February 27, 1991, between the Registrant and Kim Camp No. VII regarding property located in Sunnyvale, California. (Incorporated by reference to Exhibit 10.26 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1991.) 10.44 Office building lease, as amended, dated as of May 1, 1998, by and between RND Funding Company I and Symantec Corporation regarding property located in Sunnyvale, California. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended October 2, 1998.) 10.45 Office building lease dated as of April 19, 1995, between the Registrant and CIGNA Property and Casualty Insurance Company regarding property located in Cupertino, California. (Incorporated by 41 44 reference to Exhibit 10.16 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1995.) 10.46 Office building lease, as amended, dated as of December 1, 1995 between Delrina (Canada) Corporation and Sherway Centre Limited regarding property located in Toronto, Canada. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended December 29, 1995.) 10.47 Office building lease, as amended, dated as of December 17, 1996 between Delrina (Canada) Corporation, Delrina Corporation, and Sherway Centre Limited regarding property located in Toronto, Canada (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 3, 1998.) 10.48 Office building lease, dated as of April 9, 1998 between hill Samuel Bank Limited and Symantec (UK) Limited and Symantec Corporation regarding property located in Maidenhead, United Kingdom. (Incorporated by reference to Exhibit 10.03 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 3, 1998.) 10.49 Form of Indemnity Agreement with Officers and Directors. (Incorporated by reference to Exhibit 10.17 filed with the Registrant's Registration Statement on Form S-1 (No. 33-28655) originally filed May 19, 1989, and amendment No. 1 thereto filed June 21, 1989, which Registration Statement became effective June 22, 1989.) 10.50* Full Recourse Promissory Note and Pledge Agreement between the Company and Gordon E. Eubanks, Jr. (Incorporated by reference to Exhibit 10.19 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.51* Form of Promissory Note and Pledge Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.20 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.52* Promissory Note between the Company and Mansour Safai 10.53* Promissory Note between the Company and Keith Robinson 10.54* Promissory Note between the Company and John W. Thompson 10.55* Form of Housing Assistance Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.26 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.56 Note Purchase Agreement, dated April 2, 1993, among Symantec Corporation, Morgan Guaranty Trust Company of New York, as Trustee, J. P. Morgan Investments Management, Inc., as Investment Manager and The Northwestern Mutual Life Insurance Company, including Form of Convertible Subordinated Notes. (Incorporated by reference to Exhibit 10.30 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.57 The Registrant's Section 401(k) Plan, as amended. (Incorporated by reference to Exhibit 10.25 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.58* Form of Executive Compensation Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.25 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.59 Assignment of Copyright and Other Intellectual Property Rights. (Incorporated by reference to appendix to Prospectus/Proxy Statement filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.60* Employment and Consulting Agreement among Symantec Corporation, Symantec Acquisition Corp. and Charles M. Boesenberg. (Incorporated by reference to Exhibit 10.32 filed with the Registrant's Annual Report of Form 10-K for the year ended April 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.61* Stock Option Grant between the Company and Charles Boesenberg. (Incorporated by reference to Exhibit 10.29 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.62* Retirement and Consulting Agreement between the Company and Gordon E. Eubanks, Jr. - ----------------- * Indicates a management contract or compensatory plan or arrangement. 42 45 10.63* Supplemental Option Vesting and Severance Arrangement terms and conditions between the Company and Greg Myers. 10.64 Authorized Distributor Agreement between Symantec Corporation and Ingram Micro, Inc. (Incorporated by reference to Exhibit 10.34 filed with the Registrant's Quarterly Report of Form 10-Q for the quarter ended July 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.65 Authorized Distributor Agreement between Symantec Corporation and Merisel Americas, Inc. (Incorporated by reference to Exhibit 10.35 filed with the Registrant's Quarterly Report of Form 10-Q for the quarter ended July 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.66* Employment and Non-competition Agreement between Symantec Corporation and Dennis Bennie. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended December 29, 1995.) 10.67* Employment Agreement between Symantec Corporation and John W. Thompson. 10.68 Combination Agreement between Symantec Corporation and Delrina Corporation dated July 5, 1995. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.) 10.69 Asset Purchase Agreement dated as September 26, 1996, by and between Delrina and JetForm. (Incorporated by reference to Exhibit 2.01 filed with the Registrant's Current Report of Form 8-K filed September 26, 1996.) 10.70 Asset Purchase Agreement, as amended, dated as of March 28, 1998, by and between Delrina and JetForm. (Incorporated by reference to Exhibit 10.44 filed with the Registrants Annual Report on Form 10-K for the year ended April 3, 1998.) 10.71 Asset purchase agreement, as amended, dated as of June 29, 1998 by and between Delrina and JetForm. (Incorporated by reference to Exhibit 10.05 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 3, 1998.) 10.72 Asset Purchase Agreement, as amended, dated as of March 27, 1997 by and between Hewlett-Packard Company and Symantec Corporation. (Incorporated by reference to Exhibit 10.43 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997. 10.73 Master agreement, dated May 18, 1998, between International Business Machines Corporation and Symantec Corporation. (Confidential treatment has been requested with respect to portions of this exhibit.) (Incorporated by reference to Exhibit 10.46 filed with the Registrant's Annual Report on Form 10-K for the year ended April 3, 1998) 10.74 Asset purchase agreement, dated as of June 24, 1998, among Symantec Corporation and its wholly-owned subsidiary, Symantec Limited and Binary Research Ltd. and its wholly-owned subsidiary, Binary Research International, Inc. (Incorporated by reference to Exhibit 10.04 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 3, 1998.) 10.75 Software license agreement, dated as of September 27, 1998, between Symantec Corporation and Intel Corporation. (Incorporated by reference to Exhibit 10.1 filed with the Registrant's Current Report of Form 8-K filed October 5, 1998.) 10.76 Class action complaint filed by the law firm of Milberg Weiss Bershad Hynes & Lerach in Superior Court of the State of California, County of Santa Clara against the Company and several of its current and former officers and directors. (Incorporated by reference to Exhibit 10.35 filed with the Registrant's Annual Report of Form 10-K for the year ended March 31, 1996.) 21.01 Subsidiaries of the Registrant. 23.01 Consent of Ernst & Young LLP, Independent Auditors. 27.01 Financial Data Schedule for the Year Ended March 31, 1997 (restated) 27.02 Financial Data Schedule for the Year Ended March 31, 1998 (restated) 27.03 Financial Data Schedule for the Year Ended March 31, 1999 - ----------------- * Indicates a management contract or compensatory plan or arrangement. 43 46 (b) Reports on Form 8-K: A report on Form 8-K was filed by Symantec on January 22, 1999. It reported that Symantec had received a comment letter from the Securities and Exchange Commission with respect to its Form 10-K for the fiscal year ended March 31, 1998 and Form 10-Q for the quarter ended October 2, 1998. The comment letter included questions that related to accounting for certain acquisitions, including questions relating to the write-off of associated in-process research and development costs. A report on Form 8-K was filed by Symantec on April 1, 1999. It reported that Symantec completed its tender offer for all of the outstanding shares of Common Stock of Quarterdeck Corporation, pursuant to its Agreement and Plan of Merger dated as of October 15, 1998 by and among Symantec Corporation, Oak Acquisition Corporation and Quarterdeck Corporation. (incorporated by reference to Exhibit c(1) to the Registrant's Schedule 14D-1 (Commission File No. 5-45153) initially filed on October 19, 1998.) (c) Exhibits: The Registrant hereby files as part of this Form 10-K the exhibits listed in Item 14(a)3, as set forth above. (d) Financial Statement Schedules: The Registrant hereby files as part of this Form 10-K the schedule listed in Item 14(a) 2, as set forth on page 76. 44 47 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Ernst & Young LLP, Independent Auditors................................................ 46 Consolidated Balance Sheets as of March 31, 1999 and 1998........................................ 47 Consolidated Statements of Operations for the years ended March 31, 1999, 1998 and 1997.......... 48 Consolidated Statements of Stockholders' Equity for the years ended March 31, 1999, 1998 and 1997............................................................................... 49 Consolidated Statements of Cash Flow for the years ended March 31, 1999, 1998 and 1997........... 50 Summary of Significant Accounting Policies....................................................... 52 Notes to Consolidated Financial Statements....................................................... 56
45 48 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Symantec Corporation We have audited the accompanying consolidated balance sheets of Symantec Corporation as of March 31, 1999 and 1998 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial position of Symantec Corporation at March 31, 1999 and 1998 and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /S/ ERNST & YOUNG LLP San Jose, California April 30, 1999 46 49 SYMANTEC CORPORATION CONSOLIDATED BALANCE SHEETS
March 31, ----------------------- (In thousands) 1999 1998 - ----------------------------------------------------------------------------- --------- --------- ASSETS Current assets: Cash, cash equivalents and short-term investments $ 192,755 $ 225,883 Trade accounts receivable 76,386 65,158 Inventories 6,377 3,175 Deferred income taxes 28,155 19,677 Other 12,790 14,646 --------- --------- Total current assets 316,463 328,539 Long-term investments 4,270 34,258 Restricted investments 71,405 59,370 Equipment and leasehold improvements 52,887 50,030 Purchased product rights and capitalized software 36,209 1,470 Goodwill 75,224 -- Other 7,018 2,793 --------- --------- $ 563,476 $ 476,460 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 45,862 $ 34,171 Accrued compensation and benefits 20,788 21,332 Other accrued expenses 131,919 64,532 Income taxes payable 18,339 24,634 Current portion of convertible subordinated debentures -- 8,333 --------- --------- Total current liabilities 216,908 153,002 Convertible subordinated debentures -- 5,951 Long-term obligations 1,455 -- Commitments and contingencies Stockholders' equity: Preferred stock (par value: $0.01 authorized: 1,000; issued and outstanding: none) -- -- Common stock (par value: $0.01 authorized: 100,000; issued and outstanding: 56,872 and 57,109 shares) 569 571 Capital in excess of par value 315,698 310,949 Notes receivable from stockholders (144) (144) Accumulated other comprehensive loss (19,110) (12,559) Retained earnings 48,100 18,690 --------- --------- Total stockholders' equity 345,113 317,507 --------- --------- $ 563,476 $ 476,460 ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of these statements. 47 50 SYMANTEC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31, ------------------------------------- (In thousands, except net income per share) 1999 1998 1997 - ------------------------------------------------------- --------- --------- --------- Net revenues $ 592,628 $ 532,940 $ 452,933 Cost of revenues 96,558 87,431 83,033 --------- --------- --------- Gross margin 496,070 445,509 369,900 Operating expenses: Research and development 101,563 91,332 88,924 Sales and marketing 286,144 261,190 220,811 General and administrative 35,722 38,063 34,030 In-process research and development 27,465 -- 3,050 Amortization of goodwill and other intangibles 6,405 -- -- Litigation judgment 5,825 -- -- Restructuring and other expenses 5,105 -- 5,535 --------- --------- --------- Total operating expenses 468,229 390,585 352,350 --------- --------- --------- Operating income 27,841 54,924 17,550 Interest income 13,552 13,160 7,182 Interest expense (1,839) (1,218) (1,402) Income, net of expense, from sale of technologies and product lines 41,155 45,421 8,739 Other income (expense), net 2,464 (190) (1,691) --------- --------- --------- Income before income taxes 83,173 112,097 30,378 Provision for income taxes 32,972 27,008 4,340 --------- --------- --------- Net income $ 50,201 $ 85,089 $ 26,038 ========= ========= ========= Net income per share - basic $ 0.89 $ 1.52 $ 0.48 ========= ========= ========= Net income per share - diluted $ 0.86 $ 1.42 $ 0.47 ========= ========= ========= Shares used to compute net income per share - basic 56,601 56,097 54,705 ========= ========= ========= Shares used to compute net income per share - diluted 59,289 60,281 55,407 ========= ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of these statements. 48 51 SYMANTEC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Notes Receivable Accum. Total Capital in from Other Retained Stock- Common Excess of Stock- Comp. Earnings holders' (In thousands) Stock Par Value holders Loss (Deficit) Equity -------- ----------- ------- -------- -------- --------- Balances, March 31, 1996 $ 536 $ 279,745 $(144) $ (7,828) $(91,992) $ 180,317 Components of comprehensive income: Net income -- -- -- -- 26,038 26,038 Unrealized gain on short term investments -- -- -- 213 -- 213 Translation adjustment -- -- -- 11 -- 11 --------- Total comprehensive income 26,262 --------- Acquisition of Fast Track: Issued 600 shares of common stock 6 (5) -- -- -- 1 Acquired company's accumulated deficit -- -- -- -- (445) (445) Issued common stock: 1,191 shares under stock plans 12 11,832 -- -- -- 11,844 -------- --------- ----- -------- -------- --------- Balances, March 31, 1997 554 291,572 (144) (7,604) (66,399) 217,979 Components of comprehensive income: Net income -- -- -- -- 85,089 85,089 Unrealized gain on short term investments -- -- -- 181 -- 181 Translation adjustment -- -- -- (5,136) -- (5,136) --------- Total comprehensive income 80,134 --------- Issued common stock: 2,622 shares under stock plans 26 32,998 -- -- -- 33,024 60 shares from conversion of convertible debentures 1 715 -- -- -- 716 Repurchase 1,000 shares of common stock (10) (21,336) -- -- -- (21,346) Income tax benefit related to stock options -- 7,000 -- -- -- 7,000 -------- --------- ----- -------- -------- --------- Balances, March 31, 1998 571 310,949 (144) (12,559) 18,690 317,507 Components of comprehensive income: Net income -- -- -- -- 50,201 50,201 Unrealized loss on short term investments -- -- -- (461) -- (461) Translation adjustment -- -- -- (6,090) -- (6,090) --------- Total comprehensive income 43,650 --------- Issued common stock: 1,447 shares under stock plans 15 19,798 -- -- -- 19,813 1,990 shares from conversion of convertible debentures 12 14,272 -- -- -- 14,284 Repurchase 2,875 shares of common stock (29) (35,521) -- -- (20,791) (56,341) Income tax benefit related to stock options -- 6,200 -- -- -- 6,200 -------- --------- ----- -------- -------- --------- Balances, March 31, 1999 $ 569 $ 315,698 $(144) $(19,110) $ 48,100 $ 345,113 ======== ========= ===== ======== ======== =========
The accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of these statements. 49 52 SYMANTEC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW
Year Ended March 31, ----------------------------------- (In thousands) 1999 1998 1997 - --------------------------------------------------------------------------- --------- --------- --------- OPERATING ACTIVITIES: Net income $ 50,201 $ 85,089 $ 26,038 Acquired company's accumulated deficit -- -- (445) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of equipment and leasehold improvements 23,988 25,231 22,770 Amortization and write-off of purchased product rights and capitalized software costs 6,031 1,466 10,477 Amortization of goodwill 6,176 -- -- Write-off of equipment and leasehold improvements 1,209 1,225 4,010 Acquired in-process research and development and capitalized software development costs 27,465 -- (7,656) Deferred income taxes (8,528) (6,915) 21 Net change in assets and liabilities, excluding effects of acquisitions: Trade accounts receivable (6,487) (22,873) 11,621 Inventories (2,997) 1,040 3,432 Other current assets 4,386 (1,839) 1,304 Other assets (716) (556) 2,720 Accounts payable 869 5,568 7,373 Accrued compensation and benefits (2,363) 5,371 1,502 Other accrued expenses 24,611 14,018 6,182 Income taxes payable (6,511) 17,051 5,031 Income tax benefit from stock options 6,200 7,000 -- --------- --------- --------- Net cash provided by operating activities 123,534 130,876 94,380 --------- --------- --------- INVESTING ACTIVITIES: Capital expenditures (25,141) (26,339) (27,195) Purchased intangibles (4,555) (948) (698) Purchase of IBM's anti-virus business (8,000) -- -- Purchase of Binary Research Limited's operations (27,500) -- -- Purchase of Intel's anti-virus business (11,889) -- -- Purchase of Quarterdeck Corporation (32,857) -- -- Cash acquired in business purchases 922 -- -- Purchases of marketable securities (157,036) (230,891) (180,000) Proceeds from sales of marketable securities 238,480 174,087 203,098 Purchases of long-term, restricted investments (12,035) (11,922) (47,448) --------- --------- --------- Net cash used in investing activities (39,611) (96,013) (52,243) --------- --------- --------- FINANCING ACTIVITIES: Repayment of convertible subordinated debentures (25,000) -- -- Repurchase of Company's common stock (56,341) (21,346) -- Net proceeds from sale of common stock and other 19,352 33,108 11,703 --------- --------- --------- Net cash used in financing activities (61,989) 11,762 11,703 --------- --------- --------- Effect of exchange rate fluctuations on cash and cash equivalents (7,074) (3,370) 141 Increase in cash and cash equivalents 14,860 43,255 53,981 Beginning cash and cash equivalents 139,013 95,758 41,777 --------- --------- --------- Ending cash and cash equivalents $ 153,873 $ 139,013 $ 95,758 ========= ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of these statements. 50 53 SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes paid (net of refunds) during the year $ 39,923 $ 6,037 $ 392 Interest paid on convertible subordinated debentures and long-term obligations $ 1,616 $ 1,150 $ 1,182 Conversion of subordinated debentures $ 14,284 $ -- $ --
The accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of these statements. 51 54 SYMANTEC CORPORATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Symantec is a world leader in utility software for business and personal computing. Our products and solutions make users productive and keep their computers safe and reliable anywhere and anytime. Founded in 1982, we have offices in 26 countries worldwide. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Symantec Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Basis of Presentation During the March 1999 quarter, we acquired Quarterdeck. During the September 1998 quarter, we acquired Intel's anti-virus business. During the June 1998 quarter, we acquired IBM's anti-virus business and Binary's operations. See Note 3 of Notes to Consolidated Financial Statements in this Form 10-K. Each of these acquisitions was accounted for as a purchase and, accordingly, the operating results have been included in our consolidated financial statements since the respective dates of acquisition. During fiscal 1998, no companies were acquired by Symantec. During fiscal 1997 and 1996, we acquired Delrina Corporation and Fast Track, Inc. in transactions accounted for as poolings of interests. All financial information has been restated to reflect the combined operations of Symantec and the acquired entities. The results of operations of Fast Track were not material to our consolidated financial statements and therefore, amounts prior to the year of acquisition were not combined with Symantec's financial statements. On January 6, 1999, we received a comment letter from the Securities and Exchange Commission with respect to our Form 10-K for the fiscal year ended March 31, 1998 and Form 10-Q for the quarter ended September 30, 1998. The comment letter contained questions related to accounting for certain acquisitions, including questions related to the write-off of associated in-process research and development costs. We re-evaluated the Binary and IBM transactions and the related in-process research and development costs as well as the other questions raised in the comment letter. As a result, final operating results for the quarters ended June, September and December 1998 and the related year-to-date amounts were restated for the adjustments made to our acquisitions of Binary and IBM's anti-virus business. In addition, we have reclassified our financial results related to the sales of our electronic forms product line to JetForm Corporation and our network administration technologies to Hewlett-Packard Corporation from revenue to income, net of expense, from sale of technologies and product lines. Although there was no impact to our net income, we have restated our fiscal 1998 and 1997 financials to reflect these reclassifications from revenue to non-operating income. Symantec has a 52/53-week fiscal accounting year. Accordingly, all references as of and for the periods ended March 31, 1999, 1998 and 1997 reflect amounts as of and for the periods ended April 2, 1999, April 3, 1998 and March 28, 1997, respectively. The fiscal accounting years ended April 2, 1999 and March 28, 1997 each comprised 52 weeks of operations and the fiscal accounting year ended April 3, 1998 comprised 53 weeks of operations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Foreign Currency Translation The functional currency of our foreign subsidiaries is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rate on the balance sheet dates. The cumulative translation adjustments resulting from this process are shown separately as a component of stockholders' equity. Revenues and expenses are translated using average exchange rates prevailing during the year. Foreign currency transaction gains and losses are included in the determination of net income. Revenue Recognition Under Statement of Positions (SOP) 97-2 as modified by SOP 98-4 and SOP 98-9, we recognize revenue upon persuasive evidence of an arrangement, delivery of software to the customer, determination that there are no significant post-delivery obligations and collection of a fixed or determinable license fee is considered probable. 52 55 SYMANTEC CORPORATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED We defer revenue relating to all distribution and reseller channel inventory in excess of defined inventory levels in these channels. We offer the right of return of its products under various policies. We estimate and maintain reserves for product returns. Under SOP 97-2, we recognize revenue upon shipment when no significant vendor obligations remain and collection of the receivable, net of provisions for estimated returns, is probable. Revenues related to significant post-contract support agreements (generally product maintenance agreements) are deferred and recognized over the period of the agreements. The estimated cost for providing insignificant post-contract support (generally telephone support) is accrued at the time of the sale and is included in sales and marketing expense. Royalty revenues are recognized as earned unless collection of such revenues is not assured. When collection is not assured, revenues are recognized as payments are received. Cash Equivalents, Investments and Restricted Investments Symantec considers investments in highly liquid instruments purchased with an original maturity of 90 days or less to be cash equivalents. All of our cash equivalents, short-term investments, long-term investments and restricted investments are classified as available-for-sale as of the balance sheet dates. These securities are reported at fair market value and any unrealized gains and losses are included in stockholders' equity. Realized gains and losses and declines in value judged to be other-than-temporary are included in interest income. The cost of securities sold is based upon the specific identification method. Derivative Financial Instruments Symantec utilizes natural hedging to mitigate our foreign currency exposures and hedges certain residual exposures through the use of one-month foreign exchange forward contracts. We enter into foreign exchange forward contracts with financial institutions primarily to minimize currency exchange risks associated with certain balance sheet positions. Gains and losses on the contracts are included in other income (loss) in the period as gains and losses on the underlying transactions are recognized and generally offset. The fair value of foreign currency exchange forward contracts approximates cost due to the short maturity periods. Inventories Inventories are valued at the lower of cost or market. Cost is principally determined using currently adjusted standards, which approximate actual cost on a first-in, first-out basis. Equipment and Leasehold Improvements Equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization is provided on a straight-line basis over the estimated useful lives of the respective assets, generally the shorter of the lease term or three to seven years. Purchased product rights and capitalized software Purchased product rights, technologies and capitalized software are comprised of acquired software ("product rights") and are stated at cost less accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful lives of the respective assets, generally three to five years. Goodwill Goodwill is created through acquisitions and is stated at cost less accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful lives of the respective assets, generally four to five years. Income Taxes Income taxes are computed in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Net Income Per Share In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128, "Accounting for Earnings Per Share," ("SFAS 128"). SFAS 128 replaced the calculation of primary and fully diluted net income per share with basic and diluted net income per share. Basic net income per share is computed using the weighted average number of common shares outstanding during 53 56 SYMANTEC CORPORATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED the periods. Diluted net income per share is computed using the weighted average number of common shares outstanding and potentially dilutive common shares during the periods. Diluted earnings per share includes the assumed conversion of all of the outstanding convertible subordinated debentures and assumed exercising of options, if dilutive in the period. Concentrations of Credit Risk Symantec's product revenues are concentrated in the personal computer software industry, which is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities or technologies, could adversely affect operating results. In addition, a significant portion of our revenue and net income is derived from international sales and independent agents and distributors. Fluctuations of the U.S. dollar against foreign currencies, changes in local regulatory or economic conditions, piracy or nonperformance by independent agents or distributors could adversely affect operating results. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of short-term and long-term investments, restricted investments and trade accounts receivable. Our investment portfolio is diversified and consists of investment grade securities. Symantec is exposed to credit risks in the event of default by these institutions to the extent of the amount recorded on the balance sheet. The credit risk in our trade accounts receivable is substantially mitigated by our credit evaluation process, reasonably short collection terms and the geographical dispersion of sales transactions. We generally do not require collateral and maintain reserves for potential credit losses and such losses have been within management's expectations. Legal Expenses Symantec accrues estimated legal expenses for lawsuits only when both of the conditions of SFAS No. 5 are met. Costs for external attorney fees are accrued when the likelihood of the incurrence of the related costs are probable and management has the ability to estimate such costs. If both of these conditions are not met, management records the related legal expenses when incurred. This policy has been consistently applied for all periods presented. The material assumptions used to estimate the amount of legal expenses include: o The monthly legal expense incurred by our external attorneys on the particular case being evaluated; o Communication between Symantec and our external attorneys on the expected duration of the lawsuit and the estimated expenses during that time; o Management's intentions regarding these lawsuits, e.g. to defend vigorously, take to trial, minimum amounts within the estimated range for which we would be willing to settle if settlement discussions were to occur; o Deductible amounts under our insurance policies; and o Past experiences with similar lawsuits. Amounts accrued by Symantec are not discounted. Recent Accounting Pronouncements In October 1997 and March 1998, the Accounting Standards Executive Committee ("AcSEC") issued SOP 97-2, "Software Revenue Recognition," and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition," respectively, which provide guidance on applying generally accepted accounting principles in recognizing revenue on software transactions and were effective for Symantec beginning with the June 30, 1998 quarter. In December 1998, AcSEC issued SOP 98-9, which amends certain provisions of SOP 97-2 and extends the deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4 until the beginning of Symantec's fiscal 2000. Symantec early adopted SOP 98-9 for its financial statements and related disclosures beginning in the March 1999 quarter. SOP98-9 did not have a material affect on our results. The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 will be effective for Symantec at the beginning of the June 2000 quarter for both annual and interim reporting periods. Symantec is evaluating the potential impact of this accounting pronouncement on required disclosures and accounting practices. 54 57 SYMANTEC CORPORATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED AcSec issued its SOP 98-1, Accounting for Costs of Computer Software Developed For or Obtained for Internal-Use, under which, qualifying computer software costs incurred during the application development stage are required to be capitalized and amortized to expense over the software's estimated useful life. Symantec adopted SOP 98-1 for its financial statements and related disclosures in fiscal 1999. SOP 98-1 did not materially affect our results. Reclassifications Certain previously reported amounts have been reclassified to conform to the current presentation format with no impact on net income. All financial information has been restated to conform to this presentation. 55 58 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BALANCE SHEET INFORMATION
March 31, ----------------------- (In thousands) 1999 1998 - --------------------------------------------------------- --------- --------- Cash, cash equivalents and short-term investments: Cash $ 41,031 $ 28,236 Cash equivalents 112,842 110,777 Short-term investments 38,882 86,870 --------- --------- $ 192,755 $ 225,883 ========= ========= Trade accounts receivable: Receivables $ 81,332 $ 69,574 Less: allowance for doubtful accounts (4,946) (4,416) --------- --------- $ 76,386 $ 65,158 ========= ========= Inventories: Raw materials $ 1,887 $ 1,091 Finished goods 4,490 2,084 --------- --------- $ 6,377 $ 3,175 ========= ========= Equipment and leasehold improvements: Computer hardware and software $ 134,745 $ 107,724 Office furniture and equipment 33,705 29,407 Leasehold improvements 22,516 21,038 --------- --------- 190,966 158,169 Less: accumulated depreciation and amortization (138,079) (108,139) --------- --------- $ 52,887 $ 50,030 ========= ========= Purchased product rights and capitalized software: Purchased product rights and technologies $ 47,181 $ 1,358 Capitalized software development costs 2,377 2,414 Less: accumulated amortization of purchased product rights and technologies (11,112) (563) Less: accumulated amortization of capitalized software development costs (2,237) (1,739) --------- --------- $ 36,209 $ 1,470 ========= ========= Other accrued expenses: Deferred revenue $ 55,965 $ 25,537 Marketing development funds 8,268 12,815 Current obligations related to the purchase of IBM anti-virus business 8,000 -- Other 59,686 26,180 --------- --------- $ 131,919 $ 64,532 ========= ========= Accumulated other comprehensive (loss): Unrealized (loss) gain on available-for-sale investments $ (304) $ 157 Cumulative translation adjustment (18,806) (12,716) --------- --------- $ (19,110) $ (12,559) ========= =========
NOTE 2. INCOME STATEMENT INFORMATION
Year Ended March 31, ----------------------------- (In thousands) 1999 1998 1997 - ------------------------------------------------------- ------- ------- ------- Technical support costs included in sales and marketing $34,219 $38,582 $35,111 Advertising expense $50,779 $46,814 $39,147
Technical support costs included in sales and marketing relate to the estimated cost of providing insignificant post-contract support (generally telephone support) that is accrued at the time of product sale. 56 59 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Advertising expenditures are charged to operations as incurred except for certain direct mail campaigns, which are deferred and amortized over the expected period of benefit. Deferred advertising costs have not been material in all periods presented. NOTE 3. BUSINESS COMBINATIONS Effective May 18, 1998, we entered into a Master Agreement with IBM to acquire rights to IBM's digital immune technology. In addition, we assumed the majority of IBM's license arrangements with customers of IBM anti-virus products. In return for the various rights we acquired from IBM, we agreed to pay $16 million in installments over a specified period as well as pay royalties on revenues received by us from distribution of immune-enabled Symantec products and immune services provided by us using the digital immune technology. The royalties are subject to specified maximums and vary by time periods with ultimate termination of royalties as of a specified date. We also entered into a patent cross-licensing agreement under which the parties licensed to each other their respective patent portfolios. The transaction was accounted for as a purchase. As of March 31, 1999, we paid IBM $8 million in cash with the remaining $8 million payable in two equal installments in August 1999 and November 1999. In addition, we assumed liabilities of $3 million and incurred additional expenses of approximately $1 million as part of the transaction. Under the transaction, we recorded approximately $7 million for in-process research and development, $12 million for goodwill and $1 million for certain prepaid research and development and other assets. A valuation specialist used our management's estimates to establish the amount of in-process research and development. Goodwill will be amortized over 5 years. As of March 31, 1999, we incurred approximately $2 million in goodwill amortization expense related to this asset. On June 24, 1998, we purchased the operations of Binary, an Auckland, New Zealand based company, for approximately $28 million, which included approximately $1 million of acquisition related costs. The transaction was accounted for as a purchase. Under the transaction, we recorded approximately $7 million for in-process research and development and $17 million for capitalized software technology, with the remaining $4 million of the purchase price allocated to goodwill, net tangible and intangible assets. A valuation specialist used our management's estimates to establish the amount of in-process research and development. The capitalized software, goodwill and intangibles are being amortized over a 4 year period. As of March 31, 1999, we incurred approximately $4 million of amortization expense related to these assets. On September 28, 1998, we entered into an agreement whereby we purchased Intel Corporation's anti-virus business for approximately $17 million. We also licensed Intel's systems management technology. Intel will promote Norton AntiVirus through its worldwide reseller channels. As of March 31, 1999, we had paid approximately $12 million under the agreement. The transaction was accounted for as a purchase. Under the transaction, we recorded approximately $5 million for in-process research and development, $11 million for capitalized software technology and $1 million for certain intangible assets. A valuation specialist used our management's estimates to establish the amount of in-process research and development. The capitalized software and intangibles are being amortized over a 5 year period. As of March 31, 1999, we incurred approximately $1 million of amortization expense related to these assets. On October 15, 1998, we signed a definitive merger agreement to acquire Quarterdeck. On November 17, 1998, we completed our tender offer for the common stock of Quarterdeck acquiring an approximately 63% interest. On March 29, 1999, we acquired Quarterdeck's remaining shares through a cash merger at the tender offer price of $0.52 per share in accordance with the definitive merger agreement. The transaction was accounted for as a purchase. Under the transaction, we recorded approximately $8 million of acquired in-process research and development, $8 million of capitalized software technology, $66 million of goodwill and $3 million of other intangibles. A valuation specialist used our management's estimates to establish the amount of in-process research and development. As of March 31, 1999, we had incurred less than $1 million of capitalized software amortization expense and approximately $3 million of goodwill amortization expense related to this acquisition. The amounts related to workforce in place is being amortized over 2 years. The capitalized software, goodwill and other intangibles will be amortized over a 5 year period. In addition, Quarterdeck had issued $25 million of 6% convertible senior subordinated notes, due in 2001, to an institutional investor in a private placement pursuant to the terms of a Note Agreement dated March 1, 1996. The Notes were paid in full without any premium on March 30, 1999. 57 60 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The following table outlines the value of the above referenced acquisition's intangible assets (in thousands):
Allocated Purchase Price Components (in thousands) ------------------------------------------------------------------------------------------------ Purchase In-Process Developed Customer Prepaid- Price R&D Software Goodwill Base Workforce Tradename R&D -------- ------- ------- ------- ------ ---- ------ ------ IBM $ 20,250 $ 7,100 $ -- $11,850 $ 100 $ -- $ -- $1,200 Binary 27,871 7,100 16,900 3,751 -- 120 -- -- Intel 16,525 5,017 10,697 -- 811 -- -- -- 63% of Quarterdeck 59,347 7,560 4,410 45,588 882 25 882 -- 37% of Quarterdeck 25,960 740 4,070 20,210 407 15 518 -- -------- ------- ------- ------- ------ ---- ------ ------ Total $149,953 $27,517 $36,077 $81,399 $2,200 $160 $1,400 $1,200 ======== ======= ======= ======= ====== ==== ====== ======
Symantec did not complete any acquisitions during fiscal 1998. During fiscal 1997, we acquired Fast Track, Inc. in a transaction accounted for as a pooling of interests. In conjunction with Fast Track, we issued 600,000 shares of Symantec stock on May 28, 1996, the date of acquisition. As the results of operations of Fast Track were not material to our consolidated financial statements, amounts prior to the date of acquisition were not restated to reflect the combined operations of the companies. PRO FORMA. The following unaudited pro forma results of operations for fiscal 1999 and 1998 are as if the acquisition of Binary and Quarterdeck had occurred at the beginning of each period presented. The pro forma information excludes approximately $15 million of in-process research and development. The pro forma information has been prepared for comparative purposes only and is not indicative of what operating results would have been if the acquisition had taken place at the beginning of each period presented or of future operating results. Financial information for IBM's and Intel's anti-virus businesses were not available and as such have not been included in this pro forma information.
Year Ended March 31, (In thousands, except per share data; -------------------------------- unaudited) 1999 1998 ============= =========== Net revenues $ 615,189 $ 613,844 ============= =========== Net income $ 28,384 $ 64,149 ============= =========== Basic net income per share $ 0.63 $ 0.89 ============= =========== Diluted net income per share $ 0.61 $ 0.84 ============= ===========
NOTE 4. PURCHASE PRODUCT RIGHTS AND CAPITALIZED SOFTWARE During fiscal 1999 we recorded approximately $46 million of purchased product rights and technology and capitalized software, primarily related to our acquisitions of Binary, Intel's anti-virus business and Quarterdeck. See Note 3 of Notes to Consolidated Financial Statements. Amortization of purchased product rights and capitalized software expense totaled approximately $11 million in fiscal 1999 and $1 million in fiscal 1998. The increase for fiscal 1999 over fiscal 1998 is primarily due to additional amortization related to the purchase of Intel's anti-virus business and the acquisitions of Binary and Quarterdeck. The amortization will occur over the next 3 to 5 years. See Note 3 of Notes to Consolidated Financial Statements in this Form 10-K. In fiscal 1998, capitalization of certain software development costs in accordance with SFAS No. 86 did not materially affect us. In fiscal 1997, Symantec capitalized approximately $8 million of software development costs, primarily related to network administration technology, which was sold to Hewlett-Packard in March 1997, resulting in the write off of approximately $7 million of unamortized costs during the fourth quarter of fiscal 1997. See Note 13 of Consolidated Financial Statements in this Form 10-K. Amortization expense for capitalized software development costs was approximately $3 million in fiscal 1997. 58 61 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Prior to fiscal 1997, capitalization of certain software development costs in accordance with SFAS No. 86 did not materially affect us, expect for amounts capitalized by Delrina prior to its acquisition by Symantec in fiscal 1996. The related amortization expense was approximately $6 million in fiscal 1996. NOTE 5. CASH EQUIVALENTS, INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS Available-For-Sale Investments and Trading Investments All cash equivalents, short-term investments, long-term investments and restricted investments have been classified as available-for-sale securities, except for $ 0.5 million of trading securities. During fiscal 1999, we maintained a trading asset portfolio to generate returns that offset changes in certain liabilities related to deferred compensation arrangements. The trading assets, which consist of marketable equity securities and have a fair value of approximately $0.5 million, have been included in the available-for-sale tabular disclosure, due to immateriality. As of March 31, 1999 and 1998, the estimated fair value of the cash equivalents, short-term investments and long-term investments consisted of the following:
Cash equivalents, short and long-term investments (in thousands) 1999 1998 - ---------------------------------------------------------------- -------- -------- Money market funds $ 19,891 $ 15,685 Corporate securities 53,839 161,848 Bank securities and deposits 60,322 41,655 Taxable Auction Rate Securities 10,010 -- US government and government sponsored securities 11,932 12,717 -------- -------- Total available-for-sale and trading investments $155,994 $231,905 ======== ========
The estimated fair value of marketable securities by contractual maturity as of March 31, 1999 are as follows:
Cash equivalents, short and long-term investments (in thousands) 1999 - ---------------------------------------------------------------- -------- Due in one year or less $151,724 Due after one year through three years 3,330 Due after three years 940 -------- $155,994 ========
Fair values of cash equivalents, short-term investments and long-term investments and trading assets approximate cost due to one or more of the following: the short-term maturities of the investments, absence of changes in underlying interest rates or the absence of changes in security credit ratings. As of March 31, 1999 and 1998, the estimated fair value of the restricted investments consisted of the following:
Restricted Investments (in thousands) 1999 1998 - -------------------------------------------------- -------- -------- US government and government sponsored securities $ 71,405 $ 59,370 ======== ========
The estimated fair value of restricted marketable securities by contractual maturity as of March 31, 1999 are as follows:
Restricted Investments (in thousands) 1999 - -------------------------------------- -------- Due in one year or less $ 45,562 Due after one year through three years 25,843 -------- $ 71,405 ========
Our available-for-sale restricted investments relate to certain collateral requirements for lease agreements associated with our corporate facilities in Cupertino, California. Fair values of the restricted investments approximate cost due to one or more of the following: the short-term maturities of the investments, absence of changes in underlying interest rates or the absence of changes in security credit ratings. Unrealized gains (losses) on all available-for-sale securities are reported as a component of stockholders' equity and are not material. During the period covered by the financial statements, we did not used any derivative instrument for trading 59 62 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED purposes. Symantec utilizes some natural hedging to mitigate the Company's foreign currency exposures and the Company hedges certain residual exposures through the use of one-month foreign exchange forward contracts. We enter into foreign exchange forward contracts with financial institutions primarily to protect against currency exchange risks associated with certain balance sheet positions. The fair value of foreign exchange forward contracts are based on quoted market prices. At March 31, 1999, outstanding forward exchange contracts had a notional amount of approximately $100 million, all of which mature in 35 days or less. The net liability of forward contracts was a notional amount of approximately $9 million at March 31, 1999. The fair value of foreign currency exchange forward contracts approximates cost due to the short maturity periods and the minimal fluctuations in foreign currency exchange rates. We do not hedge its translation risk. NOTE 6. CONVERTIBLE SUBORDINATED DEBENTURES On April 2, 1993, Symantec issued convertible subordinated debentures totaling $25 million. The debentures bore interest at 7.75% payable semiannually and were convertible into Symantec common stock at $12 per share at the option of the investor. The debentures were due in three equal annual installments beginning in 1999 and were redeemable at the option of the investors in the event of a change in control of Symantec or the sale of all or substantially all of its assets. At our option, we could redeem the notes at any time with 30 to 60 days notice; however, we would have incurred a prepayment penalty for early redemption. The holders were entitled to certain registration rights relating to the shares of common stock resulting from the conversion of the debentures. We reserved 2,083,333 shares of common stock to be issued upon conversion of these debentures. The debentures limited the payment of cash dividends and the repurchase of capital stock to a total of $10 million plus 25% of cumulative net income subsequent to April 2, 1993. On April 26, 1995, convertible subordinated debentures totaling $10 million were converted into 833,333 shares of Symantec common stock, leaving 1,250,000 shares of common stock reserved for future conversion as of March 31, 1997. During October 1997, convertible subordinated debentures totaling $0.7 million were converted into 59,666 shares of Symantec common stock, leaving 1,190,332 shares of common stock reserved for future conversions as of March 31, 1998. During February 1999, the holders of Symantec's convertible subordinated debentures converted the entire remaining $14.3 million principal amount into 1,190,332 shares of Symantec common stock. The conversion of these shares of common stock were issued in a transaction which was exempt from registration under the Securities Act of 1933. Symantec's acquired subsidiary, Quarterdeck, had issued 6% convertible senior subordinated notes totaling $25 million, due in 2001, to an institutional investor in a private placement pursuant to the terms of a Note Agreement dated March 1, 1996. These Notes were paid in full on March 30, 1999. NOTE 7. LINE OF CREDIT Symantec has a $10 million bank line of credit, which expires in May 2000. The line of credit is available for general corporate purposes and bears interest at the banks' reference (prime) interest rate, the U.S. offshore rate plus 1.25%, a CD rate plus 1.25% or LIBOR plus 1.25%, at our discretion, which was 7.75% at March 31, 1999. As of March 31, 1999, we are in compliance with all covenants under this credit agreement and there were no borrowings and less than $1 million in standby letters of credit outstanding under this line. Future acquisitions by Symantec may cause us to be in violation of the line of credit covenants. However, we believe that if the line of credit were canceled or amounts were not available under the line, there would not be a material adverse impact on the financial results, liquidity or capital resources of the Company. 60 63 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 8. ACQUISITION RELATED CASH FLOW INFORMATION
March 31, (In thousands; unaudited) 1999 - ------------------------------------ -------- Binary Fair value of assets acquired $ 27,871 ======== Cash paid $ 27,871 ======== IBM's anti-virus business Fair value of assets acquired $ 20,250 ======== Expenses incurred $ 1,250 Liabilities assumed 3,000 Current obligation 8,000 Cash paid 8,000 -------- Total $ 20,250 ======== Intel's anti-virus business Fair value of assets acquired $ 16,525 ======== Current obligations $ 3,181 Long-term obligations 1,455 Cash paid 11,889 -------- Total $ 16,525 ======== Quarterdeck Fair value of assets acquired $ 85,307 ======== Expenses incurred $ 1,253 Net liabilities assumed 10,825 Balance due to Quarterdeck Shareholders 16,294 Cash and convertible debenture paid 56,935 -------- Total $ 85,307 ========
NOTE 9. COMMITMENTS Symantec leases all of its facilities and certain equipment under operating leases that expire at various dates through 2026. We currently sublease some space under various operating leases that will expire at various dates through 2001. The future fiscal year minimum operating lease commitments were as follows at March 31, 1999: (In thousands) - ---------------------- 2000 $ 12,067 2001 8,777 2002 4,985 2003 4,241 2004 3,424 Thereafter 21,936 -------- Operating lease commitments 55,430 Sublease income (3,215) -------- Net operating lease commitments $ 52,215 ========
Rent expense charged to operations totaled approximately $15 million, $14 million and $12 million for the years ended March 31, 1999, 1998 and 1997, respectively. 61 64 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED In fiscal 1997, we entered into lease agreements for two existing office buildings, City Center One (CC1) and World Headquarters (WHQ), land and one office building under construction in Cupertino, California, City Center Five (CC5). In fiscal 1999, the landlord exchanged CC5 for another building, City Center Two (CC2) in Cupertino, California and committed to sell WHQ. Once the appropriate leasehold improvements are made to CC2, we will vacate WHQ and move into CC2 and be relieved of the lease liability associated with WHQ. Lease payments are based on the three-month LIBOR in effect at the beginning of each fiscal quarter. Symantec has the right to acquire the related properties at any time during the seven-year lease period. If, at the end of the lease term we do not renew the lease, purchase the property under lease or arrange a third party purchase, then we will be obligated to the lessor for a guaranteed residual amount equal to a specified percentage of the lessor's purchase price of the property. We would also be obligated to the lessor for all or some portion of this amount if the price paid by the third party is below the guaranteed residual amount. The guaranteed residual payment on the lease agreements for the two existing office buildings totals approximately $42 million. The guaranteed residual payment on the lease agreements for CC2 and the associated leaseholds under construction was approximately $28 million at March 31, 1999. As security against these guaranteed residual payments, we are required to maintain a corresponding investment in U.S. Treasury securities with maturities not to exceed three years. Symantec is restricted in its use of these investments per the terms of the lease agreement. At March 31, 1999, the investments total approximately $71 million and are classified as non-current restricted investments within the financial statements. We currently occupy a portion of these office buildings and have assumed the right to sub-lease income provided by the other tenants. The sub-lease agreements have terms expiring in August 1999 through February 2001. NOTE 10. INCOME TAXES The components of the provision for income taxes were as follows:
Year Ended March 31, --------------------------------------- (In thousands) 1999 1998 1997 - ------------------------------ -------- -------- ------- Current: Federal $ 11,649 $ 13,615 $ 514 State 5,335 4,879 302 International 22,226 15,368 3,472 -------- -------- ------- 39,210 33,862 4,288 Deferred: Federal (1,949) (5,788) 565 State (597) (2,247) 126 International (3,692) 1,181 (639) -------- -------- ------- (6,238) (6,854) 52 -------- -------- ------- $ 32,972 $ 27,008 $ 4,340 ======== ======== =======
The difference between Symantec's effective income tax rate and the federal statutory income tax rate as a percentage of income before income taxes was as follows:
Year Ended March 31, --------------------------------------- 1999 1998 1997 -------- -------- ------- Federal statutory rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 3.5 1.5 2.9 Acquired in-process research and development charges with no current tax benefit 7.1 -- -- Impact of international operations (3.9) (4.0) (9.2) Benefit of pre-acquisition losses of acquired entities -- (10.1) (16.5) Other, net (2.1) 1.7 2.1 -------- -------- ------- 39.6% 24.1% 14.3% ======== ======== =======
62 65 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The principal components of deferred tax assets were as follows:
March 31, ----------------------- (In thousands) 1999 1998 -------- -------- Tax credit carryforwards $ 232 $ 6,821 Net operating loss carryforwards 2,927 3,161 Inventory valuation accounts 3,057 2,806 Other reserves and accruals not currently tax deductible 10,943 8,521 Accrued compensation and benefits 3,722 3,512 Deferred revenue 6,019 4,155 Sales incentive programs 5,195 5,555 Allowance for doubtful accounts 1,478 1,365 Reserve for returns and allowances 9,536 4,307 Acquired in-process research and development expenses, other intangible assets 9,135 1,139 Accrued acquisition, restructuring and other expenses 1,545 931 Other 4,831 2,599 -------- -------- 58,620 44,872 Valuation allowance (30,465) (25,195) -------- -------- $ 28,155 $ 19,677 ======== ========
Realization of the approximately $28 million of net deferred tax asset that is reflected in the financial statements is dependent upon our ability to generate sufficient future U.S. taxable income. Management believes that it is more likely than not that the asset will be realized based on forecasted U.S. earnings. Approximately $21 million of the valuation allowance for deferred tax assets is attributable to unbenefitted stock option deductions, the benefit of which will be credited to equity when realized. Approximately $7 million of the valuation allowance for deferred tax assets is attributable to the charge for acquired in-process research and development expenses, the benefit of which is not expected to be realized within five years. The remaining $2 million of the valuation allowance represents net operating loss and tax credit carryforwards of various acquired companies that are limited by separate return limitations and under the "change of ownership" rules of Internal Revenue Code Section 382. The change in the valuation allowance for the years ended March 31, 1999, 1998 and 1997 was a net increase of approximately $5 million and net decreases of approximately $15 million and $5 million, respectively. Pretax income from international operations was approximately $64 million, $65 million and $25 million for the years ended March 31, 1999, 1998 and 1997, respectively. No provision has been made for federal or state income taxes on unremitted earnings of certain of our foreign subsidiaries (cumulative $90 million at March 31, 1999) since Symantec plans to indefinitely reinvest all such earnings. At March 31, 1999, the unrecognized deferred tax liability for these earnings was approximately $23 million. NOTE 11. EMPLOYEE BENEFITS 401(k) Plan Symantec maintains a salary deferral 401(k) plan for all of its domestic employees. The plan allows employees to contribute up to 15% of their pretax salary up to the maximum dollar limitation prescribed by the Internal Revenue Code. Symantec matches 100% of the first $500 of employees' contributions and then 50% of the employee's contribution up to 6% of the employees' eligible compensation. Company contributions under the plan were approximately $2 million for each of the years ended March 31, 1999, 1998 and 1997, respectively. Employee Stock Purchase Plan In October 1989, we established the 1989 Employee Stock Purchase Plan ("89 Plan") and a total of approximately 3.4 million shares of common stock had been reserved for issuance under this plan. Subject to certain limitations, our employees may purchase, through payroll deductions of 2% to 10% of compensation, shares of common stock 63 66 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED at a price per share that is the lesser of 85% of the fair market value as of the beginning of the offering period or the end of the purchase period. As of March 31, 1999, approximately 2.8 million shares had been issued and approximately 0.6 million shares had remained available under the 89 Plan. On September 17, 1998, Symantec stockholders approved the 1998 Employee Stock Purchase Plan (the "98 Plan"). The terms of the 98 Plan are substantially similar to the terms of the 89 Plan for which it supersedes and makes available 500,000 shares. As of March 31, 1999, no shares had been issued under the 98 Plan. Stock Award Plans During fiscal 1996, we registered 400,000 shares to be issued under the terms of the 1994 Patent Incentive Plan. The purpose of this plan is to increase awareness of the importance of patents to our business and to provide employees with incentives to pursue patent protection for new technologies that may be valuable to Symantec. Our executive officers are not eligible for awards under the 1994 Patent Incentive Plan. As of March 31, 1999, a total of 21,351 shares had been issued under this plan. In March 1998, the Board of Directors approved the terms of the 1998 Star Award Bonus Plan, under which Symantec may grant up to 5,000 shares of common stock to employees who perform exceptionally in a given quarter. Directors and executive officers are not eligible to receive awards under this plan. Stock awards under this plan are recorded as compensation expense at the time of issuance. The Board of Directors reserved 20,000 shares of common stock for issuance under this plan. As of March 31, 1999, a total of 1,300 shares had been issued under this plan. Stock Option Plans Symantec maintains stock option plans pursuant to which an aggregate total of approximately 22.3 million shares of common stock have been reserved for issuance as incentive and nonqualified stock options to employees, officers, directors, consultants, independent contractors and advisors to the Company (or of any parent, subsidiary or affiliate of the Company as the Board of Directors or committee may determine). The purpose of these plans are to attract, retain and motivate eligible persons whose present and potential contributions are important to our success by offering them an opportunity to participate in the Symantec's future performance through awards of stock options and stock bonuses. Under the terms of these plans, the option exercise price may not be less than 100% of the fair market value on the date of grant, the options have a maximum term of ten years and generally vest over a four-year period. On May 14, 1996, Symantec stockholders approved the 1996 Equity Incentive Plan and a total of approximately 6.7 million shares of common stock had been reserved for issuance under this plan. On September 17, 1998, stockholders approved an amendment to increase the number of shares reserved for issuance by approximately 2.3 million to 9.0 million shares. As of March 31, 1999 a total of 7.8 million had been issued under this plan. Stock option and warrant activity was as follows:
Weighted Average (In thousands, except weighted average Number Exercise exercise price per share) of Shares Price Per Share --------- --------------- Outstanding at March 31, 1996 9,718 13.43 Granted 2,681 13.90 Exercised (684) 9.89 Canceled (2,673) 14.21 ------ Outstanding at March 31, 1997 9,042 13.61 Granted 3,857 22.74 Exercised (2,158) 12.73 Canceled (1,413) 15.29 ------ Outstanding at March 31, 1998 9,328 17.32 Granted 3,331 20.18 Exercised (991) 13.40 Canceled (1,140) 19.28 ------ Outstanding at March 31, 1999 10,528 18.37 ======
64 67 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Stock option balances are as follows:
(In thousands) March 31, ------------------------ 1999 1998 ------ ------ Authorized and/or outstanding 11,707 10,785 Available for future grants 1,179 1,457 Exercisable and vested 3,965 3,173
The following tables summarize information about options outstanding at March 31, 1999:
Outstanding options Exercisable options -------------------------------------- ------------------------- Weighted average Weighted Weighted Number of contractual average Number of average shares (in life exercise shares (in exercise Range of Exercise Prices thousands) (in years) price thousands) price - -------------------------------------- --------- ---------- ---------- ---------- ---------- $ 3.14 - $ 15.25 4,078 6.62 $ 12.57 2,462 $12.34 $ 15.26 - $ 22.63 3,509 8.56 19.01 865 17.84 $ 22.64 - $ 39.13 2,941 8.66 25.66 638 25.88 ---------- ---------- 10,528 7.84 18.37 3,965 15.72 ========== ==========
These options will expire if not exercised by specific dates ranging from April 1999 to March 2009. Prices for options exercised during the three-year period ended March 31, 1999 ranged from $1.00 to $26.91. We elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for our employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of our employee stock options generally equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in our financial statements. Pro forma information regarding net income and earnings per share is required by SFAS No. 123. This information is required to be determined as if we had accounted for our employee stock options (including shares issued under the Employee Stock Purchase Plan, collectively called "options") granted subsequent to March 31, 1995 under the fair value method of that statement. The fair value of options granted in fiscal 1998 and 1999 reported below has been estimated at the date of grant using Black-Scholes option pricing model assuming no expected dividends and the following weighted average assumptions:
Employee Employee Stock Stock Options Purchase Plan ------------------------------------ ------------------------------------- 1999 1998 1997 1999 1998 1997 ---------- ---------- ---------- ---------- --------- ---------- Expected life (years) 5.27 4.84 4.34 0.50 0.50 0.50 Expected volatility 0.66 0.61 0.63 0.79 0.55 0.74 Risk free interest rate 5.1% 5.4% 6.7% 4.8% 5.2% 5.4%
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because our options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. The weighted-average estimated fair values of employee stock options for fiscal 1999 and 1998 were $12.56 and $13.44 per share, respectively. The weighted-average estimated fair value of employee stock purchase rights granted under the Employee Stock Purchase Plan during fiscal 1999 and 1998 were $10.47 and $14.71, respectively. 65 68 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED For purposes of pro forma disclosures, the estimated fair values of the options is amortized to expense over the options' vesting period (for employee stock options) and the six-month purchase period (for stock purchases under the Employee Stock Purchase Plan). The Company's pro forma information is as follows:
Year Ended March 31, ---------------------------------------------- (In thousands, except per share information) 1999 1998 1997 - ------------------------------------------------- ----------- ----------- ----------- Net income - Basic - Pro forma $ 25,100 $ 68,601 $ 14,123 Net income - Diluted - Pro forma 25,727 69,293 14,123 Net income per share - Basic - Pro forma 0.47 1.29 0.28 Net income per share - Diluted - Pro forma 0.45 1.19 0.27
The effects on pro forma disclosures of applying SFAS No. 123 are not likely to be representative of the effects on pro forma disclosures of future years. Because SFAS 123 is applicable only to options granted subsequent to March 31, 1995, its pro forma effect will not be fully reflected until approximately fiscal 2000. NOTE 12. COMMON STOCK REPURCHASE On April 29, 1997, the Board of Directors of Symantec, the Board, authorized the repurchase of up to 1,000,000 shares of Symantec common stock by June 13, 1997. As of June 13, 1997, management completed the repurchase of 500,000 shares at prices ranging from $16.57 to $17.00 per share. Authorization to repurchase the remaining 500,000 shares expired as of March 31, 1998. On November 24, 1997, the Board authorized the repurchase of up to 500,000 shares of Symantec common stock. As of December 4, 1997, management completed the repurchase of 500,000 shares at prices ranging from $25.25 to $26.81 per share. On June 9, 1998, the Board authorized the repurchase of up to 5% of Symantec's outstanding common stock before December 31, 1998. The Company completed the repurchase as of October 30, 1998, repurchasing a total of 2.875 million shares at prices ranging from $13.10 to $27.21, for an aggregate amount of approximately $56 million. On March 22, 1999, the Board authorized the repurchase of up to $75 million of the Company's common stock. As of June 15, 1999, the Company has repurchased 1,000,000 shares at prices ranging from $17.90 to $19.87, for an aggregate amount of approximately $19 million. NOTE 13. SALE OF TECHNOLOGIES AND PRODUCT RIGHTS During September 1996, Symantec sold its electronic forms software product line and related tangible assets to JetForm for approximately $100 million, payable over four years in quarterly installments through the June 2000 quarter. During February 1998, the purchase agreement was amended to accelerate certain quarterly payments during the remaining payment term in exchange for a reduction in the total sale price to approximately $93 million. During June 1998, the purchase agreement was amended once again to modify certain payments, however, the total sales price remained at $93 million. JetForm has the option to tender payment in either cash or in registered JetForm common stock, within a contractually defined quantity threshold. Due to the uncertainty regarding the ultimate collectibility of these installments, we are recognizing the related revenue as payments are due and collectibility is assured from JetForm. We recognized income of approximately $34 million, $24 million and $18 million from JetForm during fiscal 1999, 1998 and 1997, respectively. In March 1997, Symantec sold its network administration technologies and related tangible assets to Hewlett-Packard, resulting in the receipt of approximately $1 million of revenue and a $2 million research and development reimbursement in fiscal 1997. Additionally, a two-year quarterly royalty payment stream, not to exceed a present value of $27 million as of March 1997, commenced in fiscal 1998, which was solely contingent on future sales of certain Hewlett-Packard products. Due to the uncertainty regarding the amounts upon which these royalties will be determined, Symantec recognized these amounts as they were received from Hewlett-Packard. We recognized income of approximately $7 million and $22 million from Hewlett-Packard during fiscal 1999 and 1998, respectively. Royalty payments from Hewlett-Packard ended during the December 1998 quarter. In connection with the sale to Hewlett-Packard during fiscal 1997, Symantec wrote off approximately $7 million of 66 69 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED unamortized software development costs and less than $1 million of unamortized purchased product rights, as well as incurred approximately $2 million of legal, accounting and other costs associated with the transaction. NOTE 14. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES Acquisition, restructuring and other expenses consist of the following:
Year Ended March 31, ---------------------------------------------- (In thousands) 1999 1998 1997 - ------------------------------------------------------ ----------- ----------- ----------- Centralization and restructuring expenses $ -- $ -- $ 3,185 Write off of equity investment -- -- 1,750 Fast Track, Inc. acquisition -- -- 600 Employee severance and out-placement 3,800 -- -- Excess facilities and equipment 1,305 -- -- ----------- ----------- ----------- Total acquisition, restructuring and other expenses $ 5,105 $ -- $ 5,535 =========== =========== ===========
On September 29, 1998, Symantec's CEO announced a reduction in work force and the outsourcing of Symantec's domestic short-run manufacturing, product distribution and return teams which resulted in the closure and vacancy of the Sunnyvale, California site in February 1999 and the termination of related employees. The exit plan associated with the reduction in work force and facility closure specifically identified all the significant actions, including: o the number and categories of individuals who would not continue employment with Symantec; o the termination dates and severance packages for each terminating employee; o the planned date we would vacate the Sunnyvale, California building which was under an existing operating lease; and o the excess equipment, furniture, fixtures and leasehold improvements to be disposed of. Details of the restructuring charge are as follows:
(In thousands) Cash/ Restructuring Amount Balance Description Non-cash Charge Paid at 3/31/99 - ----------------------------- -------- ------------ ---------- ---------- Employee severance and out-placement Cash $ 3,800 $ 3,132 $ 668 Excess facilities and equipment Cash & Non-cash 1,305 310 995 ------------ ---------- ------- Total restructuring and other expenses $ 5,105 $ 3,442 $ 1,663 ============ ========== =======
Employee severance and out-placement was primarily comprised of severance packages for employees who were to be terminated as a result of the restructuring. As part of the restructuring plan, we specifically identified those individuals who would not continue employment with Symantec. The severance periods ranged from one to six months. Symantec's Human Resource Department met with each terminating employee and presented them with their termination date and severance package. The total cost of the severance packages was accrued and included in restructuring charge after the identified employees had their severance packages communicated to them. Additionally, Symantec accrued estimated costs associated with outplacement services to be provided to terminating employees as these costs have no future economic benefit to us. The remaining accrual at March 31, 1999 was for outstanding severance and outplacement costs . Excess facilities and equipment included remaining lease payments associated with building leases for the Sunnyvale, California site subsequent to the planned abandonment date. The cash outlays for the lease are to be made over the remaining term of the lease. In addition, Symantec reserved for the write-off of the site-specific equipment, furniture, fixtures and leasehold improvements that would no longer be utilized. The accrual at March 31, 1999 relates to the remaining lease payments, which will be paid over the remaining lease term subsequent to the abandonment of the facility. No acquisition, restructuring and other expenses were incurred during fiscal 1998. During fiscal 1997, Symantec recorded charges of approximately $2 million in connection with the write-off of an equity investment in a privately held company. Additionally, during fiscal 1997, we recorded a charge of approximately $3 million for centralization and restructuring costs, which is outlined below. Symantec recorded 67 70 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED total acquisition charges of less than $1 million in the quarter ended June 30, 1996 in connection with the acquisition of Fast Track, Inc. CENTRALIZATION AND RESTRUCTURING COSTS
(In thousands) Cash/ Restructuring Amount Balance Description Non-cash Charge Paid at 3/31/99 - ----------------------------- -------- ------------ ---------- ---------- Employee severance and out-placement Cash $ 2,434 $ 1,680 $ 754 Excess facilities and equipment Cash & Non-cash 276 250 26 Legal and other Cash 475 410 65 ---------- -------- ------- Total restructuring and other expenses $ 3,185 $ 2,340 845 ========== ======== =======
In June and September 1996, Executive Management approved and committed Symantec to close the Bedford, Massachusetts and St. Louis, Missouri facilities. The facility closures were part of the Company's plan to consolidate certain research and development activities. These exit plans specifically identified the following significant actions to complete the closures: o the number and categories of individuals who would not continue employment with Symantec; o the termination date and severance package for each terminating employee; o the date the Bedford and St. Louis facilities would be vacated; and o the excess equipment, furniture, fixtures and leasehold improvements to be disposed of. Employee severance and out-placement expenses were primarily comprised of severance packages for employees who were to be terminated as a result of the closure of the Bedford and St. Louis sites. The severance reserve was computed based on an estimated severance compensation, benefits and related employer payroll taxes. The severance periods ranged from one to six months. Prior to amounts being accrued, Symantec's Human Resource Department met with each terminating employee and presented them with their termination date and severance package. Additionally, Symantec accrued estimated costs associated with out-placement services provided to terminating employees as these costs had no future economic benefit to the Company. The actual cash outlays for these accrued expenses were made during the terminated employees' severance period. The remaining accrual is a result of the following: o Certain employees who were identified for termination found employment at other Symantec locations and therefore were not eligible to receive the severance packages. At the time of the site closures, Symantec had determined that these individuals would not find employment elsewhere within the Company. o Symantec determined that most employees had not availed themselves of the out-placement services offered by the Company at the time of their termination. Excess facilities and equipment included remaining lease payments associated with the building leases for the Bedford and St. Louis sites. The cash outlays for these leases were made over the remaining lives of the leases. The Company expensed to operations lease rental costs until the time the facilities were vacated. In addition, Symantec reserved for the write-off of excess equipment, furniture, fixtures and leasehold improvements which would not be utilized. Such equipment, furniture, fixtures and leasehold improvements were either not utilized or were scrapped. Legal and other primarily included Symantec's legal expenses related to the site closures and the settlement of a lawsuit. These costs and expenses were incurred in the period of the restructuring charge. As of March 31, 1999, total accrued cash related to acquisition and restructuring expenses were approximately $4 million and included $1 million for excess facilities and equipment and $3 million for other acquisition related expenses. 68 71 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 15. NET INCOME PER SHARE The components of the net income per share were as follows:
Year Ended March 31, --------------------------------- (In thousands, except per share data) 1999 1998 1997 ------- ------- ------- BASIC NET INCOME PER SHARE Net income $50,201 $85,089 $26,038 ======= ======= ======= Weighted average number of common shares outstanding during the period 56,601 56,097 54,705 ======= ======= ======= Basic net income per share $ 0.89 $ 1.52 $ 0.48 ======= ======= ======= DILUTED NET INCOME PER SHARE Net income $50,201 $85,089 $26,038 Interest on convertible subordinated debentures, net of income tax effect 627 692 -- ------- ------- ------- Net income, as adjusted $50,828 $85,781 $26,038 ======= ======= ======= Weighted average number of common shares outstanding during the period 56,601 56,097 54,705 Shares issuable from assumed exercise of options 1,684 2,964 702 Shares issuable from assumed conversion of convertible subordinated debentures 1,004 1,220 -- ------- ------- ------- Total shares for purpose of calculating diluted net income per share 59,289 60,281 55,407 ======= ======= ======= Diluted net income per share $ 0.86 $ 1.42 $ 0.47 ======= ======= =======
For the twelve months ended March 31, 1997, 1,250,000 shares of convertible subordinated debentures and $708,000 of interest expense were excluded from the computation of diluted net income per share because the effect would have been anti-dilutive. NOTE 16. LITIGATION On March 18, 1996, a class action complaint was filed by the law firm of Milberg, Weiss, Bershad, Hynes & Lerach in Superior Court of the State of California, County of Santa Clara, against the Company and several of its current and former officers and directors. The complaint alleges that Symantec insiders inflated the stock price and then sold stock based on inside information that sales were not going to meet analysts' expectations. The complaint seeks damages in an unspecified amount. The complaint has been refiled twice in state court, most recently on January 13, 1997, following Symantec's demurrers directed to previous complaints. The parties are currently conducting discovery. On January 7, 1997, the same plaintiffs filed a complaint in the United States District Court, Northern District of California, based on the same facts as the state court complaint, for violation of the Securities Exchange Act of 1934. The district court dismissed that complaint and plaintiffs served an amended complaint in April 1998. Symantec's motion to dismiss the new federal complaint was granted in part, substantially narrowing the complaint. Symantec believes that neither the state court complaint nor the federal court complaint has any merit and will vigorously defend itself against both complaints. On April 23, 1997, Symantec filed a lawsuit against McAfee Associates, Inc., which pursuant to a merger has become Network Associates, Inc. ("Network Associates"), in the United States District Court, Northern District of California, for copyright infringement and unfair competition. On October 6, 1997, the court found that Symantec had demonstrated a likelihood of success on the merits of certain copyright claims and issued a preliminary injunction (i) prohibiting Network Associates from infringing Symantec's rights in specified materials by marketing, selling, transferring or directly or indirectly copying into any new Network Associates product or new version of an existing product that has Symantec code, (ii) requiring Network Associates to notify distributors who are still selling versions of PC Medic 97 that have Symantec's code to tell customers that they should upgrade to versions that do not contain Symantec code and (iii) requiring Network Associates to provide Symantec and the court with a sample of the notice to be used. On October 17, 1997, Symantec amended its complaint to include additional claims for copyright infringement and misappropriation of trade secrets, based on additional evidence 69 72 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED found in the discovery process. On April 1, 1998, Symantec amended its complaint to add claims for misappropriation of trade secrets, RICO (Racketeer Influenced and Corrupt Organizations Act) and related claims based on additional evidence uncovered in the litigation. Following motions by Network Associates, the court dismissed Symantec's unfair competition and trade secret claims regarding the copyrighted code and its RICO and interference claims. On October 22, 1998, the court consolidated this case with the case against Network Associates and the case brought by CyberMedia, both of which are described below. On September 4, 1998, Symantec filed a new lawsuit against Network Associates in the United States District Court, Northern District of California, for copyright infringement, trade secret misappropriation and unfair competition. Symantec continues to investigate the extent to which Network Associates may have misappropriated Symantec's intellectual property and plans to aggressively pursue its remedies under this lawsuit, which include both injunctive relief and monetary damages. On September 15, 1997, Hilgraeve Corporation ("Hilgraeve") filed a lawsuit in the United States District Court, Eastern District of Michigan, against Symantec, alleging that unspecified Symantec products infringe a patent owned by Hilgraeve. The lawsuit requests damages, injunctive relief and costs and attorney fees. Symantec believes this claim has no merit and intends to defend the action vigorously. On February 4, 1998, CyberMedia, Inc. ("CyberMedia,"), which in September 1998 was acquired by Network Associates, filed a lawsuit in the United States District Court, Northern District of California, against Symantec, ZebraSoft Inc. and others, alleging that Symantec's Norton Uninstall Deluxe infringes CyberMedia's copyright and asserting related state law claims. The suit requests damages, injunctive relief, costs and attorneys fees. In May 1998, CyberMedia filed a motion seeking a preliminary injunction prohibiting sale or development of the challenged code, which preliminary injunction was granted with respect to Symantec's domestic activities in September 1998. Subsequently, Symantec ceased selling the Norton Uninstall Deluxe product. Symantec intends to defend the action vigorously. On February 19, 1998, a class action complaint was filed by the Milberg, Weiss, Bershad, Hynes & Lerach law firm in Santa Clara County Superior Court, on behalf of a class of purchasers of pre-version 4.0 Norton AntiVirus products. A similar complaint was filed in the same court on March 6, 1998 by an Oregon law firm. Those actions were consolidated and a consolidated amended complaint was filed in late October 1998. The complaint originally purported to assert claims for breach of implied warranty, fraud, unfair business practices and violation of California's Consumer Legal Remedies Act, among others, arising from the alleged inability of earlier versions of Norton AntiVirus to function properly after the year 2000; all but the unfair business practice claims have been dismissed following Symantec's demurrer. The complaint seeks unspecified damages and injunctive relief. Symantec believes that these actions have no merit and intends to defend itself vigorously. In July 1998, the Ontario Court of Justice (General Division) ruled that Symantec should pay a total of approximately $6.8 million for damages and legal costs to Triolet Systems, Inc. and Brian Duncombe in a decade-old copyright action, for damages arising from the grant of a preliminary injunction against the defendant. The damages were awarded following the court's ruling that evidence presented later in the case showed the injunction was not warranted. Symantec inherited the case through its 1995 acquisition of Delrina Corporation, which was the plaintiff in this lawsuit. Symantec has appealed the decision. Symantec recorded a charge of $5.8 million in June 1998 representing the unaccrued portion of the judgment plus costs. In March 1997, a class action complaint was filed against Quarterdeck in San Diego County Superior Court. The case was later transferred to and is currently pending in Los Angeles County Superior Court. The complaint, purportedly on behalf of a class of purchasers of Quarterdeck's MagnaRAM2 product, seeks damages and injunctive relief under the Consumers Legal Remedies Act and Business and Professions Code sections beginning with 17200 and 17500. Symantec believes these claims to be without merit and intends to defend itself vigorously. In October 1997, a complaint was filed in the United States District Court for the District of Utah on behalf of PowerQuest Corporation against Quarterdeck. The complaint alleges that Quarterdeck's partitioning software (included in Partition-It and Partition-It Extra Strength) violates a patent held by PowerQuest. In January 1998, PowerQuest obtained a second patent relating to partitioning and has amended its complaint to allege infringement of that patent as well. The plaintiff seeks an injunction against distribution of Partition-It and Partition-It Extra Strength and monetary damages. Symantec believes this action has no merit and intends to defend the lawsuit 70 73 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED vigorously. On July 30, 1998, a class action complaint was filed against Quarterdeck in the Supreme Court of the State of New York, County of New York, on behalf of a purported class of purchasers of Procomm Plus version 4.0 for Windows product (the "Product"). The complaint purported to assert claims for breach of warranty and violation of New York's Consumer Protection From Deceptive Acts and Practices Act arising from the Product's inability to process dates containing the year 2000. The complaint was dismissed and the court entered judgment in Quarterdeck's favor in April 1999. Over the past few years, it has become common for software companies, including Symantec, to receive claims of patent infringement. Symantec is currently evaluating claims of patent infringement asserted by several parties, with respect to certain of the Company's products. While the Company believes that it has valid defenses to these claims, the outcome of any related litigation or negotiation could have a material adverse impact on the Company's future results of operations or cash flows. Symantec is involved in a number of other judicial and administrative proceedings incidental to its business. The Company intends to defend all of the aforementioned pending lawsuits vigorously and although adverse decisions (or settlements) may occur in one or more of the cases, the final resolution of these lawsuits, individually or in the aggregate, is not expected to have a material adverse affect on the financial condition of the Company, although it is not possible to estimate the possible loss or losses from each of these cases. Depending, however, on the amount and timing of an unfavorable resolution of these lawsuits, it is possible that the Company's future results of operations or cash flows could be materially adversely affected in a particular period. The Company has accrued certain estimated legal fees and expenses related to certain of these matters; however, actual amounts may differ materially from those estimated amounts. The legal expenses accrued by the Company are deemed probable because the lawsuits have been filed, management has determined its plans of action with regards to the cases and accordingly knows that it will incur legal expenses related to the particular lawsuit. Utilizing the assumptions noted in the accounting policy, management is able to estimate a minimum amount of legal fees to be incurred in these lawsuits. The total amount of legal expenses accrued as of the respective year ends and the amounts expensed for the years ended are reflected below: Balance as of March 31, 1997 $1.0 million Amount expensed in 1997 $2.6 million Balance as of March 31, 1998 $2.5 million Amount expensed in 1998 $4.9 million Balance as of March 31, 1999 $7.2 million Amount expensed in 1999 $10.1 million
NOTE 17. LEASE BUILDINGS In fiscal 1997, Symantec entered into lease agreements for two existing office buildings (Cupertino City Center One, or CC1, and World HeadQuarters, or WHQ), one parcel of land and one office building under construction (Cupertino City Center Five, or CC5) in Cupertino, California. During fiscal 1999 Symantec's landlord, exchanged CC5 for another leased building (Cupertino City Center Two, or CC2) located in Cupertino, California and committed to sell WHQ to an unrelated third party on or before November 1, 1999, thus relieving Symantec of its responsibility for its lease of WHQ. Symantec will move both personnel and equipment into CC2 once certain tenant improvements are completed, which is currently scheduled to occur before November 1, 1999. In connection with these leases, Symantec is required to maintain a restricted cash balance invested in U.S. Treasury securities with maturities not to exceed three years. In accordance with the lease terms, these funds are not available to meet operating cash requirements. In addition, we are obligated to comply with certain financial covenants. Future acquisitions may cause us to be in violation of these financial covenants. NOTE 18. ADOPTION OF STOCKHOLDER RIGHTS PLAN On August 11, 1998, Symantec's Board of Directors, the Board, adopted a stockholder rights plan designed to ensure orderly consideration of any future unsolicited acquisition attempt to ensure fair value of the Company for its stockholders. In connection with the plan, the Board declared a dividend of one preferred share purchase right for each share of Symantec's common stock outstanding on August 21, 1998 (the "Record Date"). The Board further directed the 71 74 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED issuance of one such right with respect to each share of Symantec's common stock that is issued after the Record Date, except in certain circumstances. The rights will expire on August 12, 2008. The rights are initially attached to Symantec's common stock and will not trade separately. If a person or a group (an "Acquiring Person") acquires 20% or more of the Company's common stock, or announces an intention to make a tender offer for 20% or more of Symantec's common stock, the rights will be distributed and will thereafter trade separately from the common stock. Each right will be exercisable for 1/1000th of a share of a newly designated Series A Junior Participating Preferred Stock at an exercise price of $150.00. The preferred stock has been structured so that the value of 1/1000th of a share of such preferred stock will approximate the value of one share of common stock. Upon a person becoming an Acquiring Person, holders of the rights (other than the Acquiring Person) will have the right to acquire shares of Symantec's common stock at a substantially discounted price. If a person becomes an Acquiring Person and Symantec is acquired in a merger or other business combination, or 50% or more of its assets are sold to an Acquiring Person, the holder of rights (other than the Acquiring Person) will have the right to receive shares of common stock of the acquiring corporation at a substantially discounted price. After a person has become an Acquiring Person, the Board, at its option, require the exchange of outstanding rights (other than those held by the Acquiring Person) for common stock at an exchange ratio of one share of Symantec's common stock per right. The Board may redeem outstanding rights at any time prior to a person becoming an Acquiring Person at a price of $0.001 per right. Prior to such time, the terms of the rights may be amended by the Board. In addition, the Board also amended Symantec's bylaws to: permit only the Chairman, President or the Board to call a special meeting of the stockholders; require that the Board be given prior notice of a stockholder proposal to take action by written consent so that a record date for such action can be established; require advance notice to the Board of stockholder-sponsored proposals for consideration at annual meetings and for stockholder nominations for the election of directors; permit the Board to meet on one- rather than two-day advance notice; and conform the bylaws to applicable provisions of Delaware law regarding the inspection of elections at stockholder meetings. NOTE 19. SEGMENT INFORMATION Symantec markets its products in North America and international countries primarily through retail and distribution channels. Symantec's reportable segments are significant strategic business units that offer different products and services, distinguished by customer needs. We have four reportable segments: Remote Productivity Solutions, Security and Assistance, Internet Tools and Corporate Sunset. The Remote Productivity Solutions business unit focuses on helping Information Technology organizations reduce the expense of supporting remote workers. This business unit focuses on corporate helpdesk and support organizations' need to more efficiently handle the additional work required to support mobile workers, telecommuters and remote offices. The Security and Assistance business unit is dedicated to being indispensable in customers' daily use of computers by increasing productivity and keeping computers safe and reliable. The Internet Tools business unit includes products providing an easy to use Java development environment. The Corporate Sunset segment includes revenues from products nearing the end of their life cycle. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Symantec's business units are aligned by discrete products. There are no intersegment sales. Symantec's Chief Executive Officer and his staff evaluate performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses, foreign exchange gains and losses and miscellaneous other income and expenses. Non-segment items included all general and administrative expenses and charges that are one-time in nature, such as in-process research and development, judgment settlements and restructuring and other expenses, and are not allocated to the business units. Assets and liabilities are not discretely reviewed by segment. 72 75 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(In Thousands) Remote Security Non- Productivity and Internet Corporate Total Segment Total Solutions Assistance Tools Sunset Segments Items Company ----------------------------------------------------------------------------------------------- FISCAL 1999 Revenue from external customers $228,322 $338,703 $ 24,077 $ 1,526 $592,628 $ -- $592,628 Operating income (loss) 69,613 67,376 (10,413) (10,577) 115,999 (88,158) 27,841 Depreciation & amortization expense 1,112 7,377 762 27,721 36,972 -- 36,972 FISCAL 1998 Revenue from external customers 216,318 288,931 20,392 7,299 532,940 -- 532,940 Operating income (loss) 62,972 65,689 (14,167) (14,899) 99,595 (44,671) 54,924 Depreciation & amortization expense 1,693 1,843 709 22,849 27,094 -- 27,094 FISCAL 1997 Revenue from external customers 166,380 225,726 19,224 41,603 452,933 -- 452,933 Operating income (loss) 18,168 46,744 (1,540) 2,195 65,567 (48,017) 17,550 Depreciation & amortization expense 1,929 2,012 657 32,573 37,171 -- 37,171
GEOGRAPHICAL INFORMATION
March 31, ------------------------------------ (In thousands) 1999 1998 1997 -------- -------- -------- Net revenues from external customers: United States $353,734 334,976 300,884 Other foreign countries 238,894 197,964 152,049 -------- -------- -------- $592,628 $532,940 $452,933 ======== ======== ======== Long-lived assets: United States $151,942 $ 36,126 $ 40,771 Canada 2,017 3,142 5,770 Ireland 6,335 6,943 4,272 Other foreign countries 11,031 8,082 5,215 -------- -------- -------- $171,325 $ 54,293 $ 56,028 ======== ======== ========
SIGNIFICANT CUSTOMERS The following customers covered all segments and accounted for more than 10% of net revenues during fiscal 1999, 1998 and 1997:
March 31, ------------------------------------ (In thousands) 1999 1998 1997 -------- -------- -------- Ingram Micro, Inc. 47% 36% 28% Tech Data Corp. 19 12 * Merisel 13 11 *
* Amount is less than 10%. 73 76 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 20. COMPREHENSIVE INCOME Symantec adopted SFAS No. 130, "Reporting Comprehensive Income," beginning with the quarter ended June 30, 1998. SFAS No. 130 establishes new rules for the reporting and disclosure of comprehensive income and its components; however, it has no impact on net income or stockholders' equity. The components of comprehensive income, net of tax, are as follows:
Year ended March 31, ------- ------- ------- (In thousands) 1999 1998 1997 - -------------------------------------------------------- ------- ------- ------- Other comprehensive income (loss): Add: change in unrealized gain (loss) on available-for-sale investments, net of a tax provision (benefit) of ($290), $35 and $26. (616) 181 213 Less: reclassification adjustment for gains included in net income, net of a tax provision of $73, $0 and $0. 155 -- -- Add: change in cumulative translation adjustment ("CTA"), a tax provision (benefit) of ($1,476), ($993)and $1. (6,090) (5,136) 11 ------- ------- ------- Total other comprehensive income (loss) (6,551) (4,955) 224 ------- ------- -------
NOTE 21. SUBSEQUENT EVENT On June 10, 1999 Symantec announced that it intends to establish our Internet Tools Business Unit as a separate company. Symantec will be the initial sole investor, however, additional third party investors are expected. The transition is in its early stages and details will be determined over the next three to nine months. 74 77 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. SYMANTEC CORPORATION (Registrant) By /s/ John W. Thompson ------------------------------------ (John W. Thompson, Chairman, President and Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below.
Signature Title Date --------- ----- ---- CHIEF EXECUTIVE OFFICER: /s/ John W. Thompson. Chairman, President, Chief June 30, 1999 - -------------------------------------------- Executive Officer and Director (John W. Thompson.) CHIEF FINANCIAL OFFICER AND CHIEF ACCOUNTING OFFICER: /s/ Gregory Myers Chief Financial Officer June 30, 1999 - -------------------------------------------- (Gregory Myers) DIRECTORS: /s/ Carl D. Carman Director June 30, 1999 - -------------------------------------------- (Carl D. Carman) /s/ Tania Amochaev Director June 30, 1999 - -------------------------------------------- (Tania Amochaev) /s/ Charles M. Boesenberg Director June 30, 1999 - -------------------------------------------- (Charles M. Boesenberg) /s/ Walter W. Bregman Director June 30, 1999 - -------------------------------------------- (Walter W. Bregman) /s/ Robert R. B. Dykes Director June 30, 1999 - -------------------------------------------- (Robert R. B. Dykes) /s/ Robert S. Miller Director June 30, 1999 - -------------------------------------------- (Robert S. Miller)
75 78 SCHEDULE II SYMANTEC CORPORATION VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
Balance at Charged to Balance at Beginning Costs and End of Period Expenses Deductions of Period ---------- ---------- ---------- ----------- Allowance for doubtful accounts: Year ended March 31, 1997 5,016 1,599 (2,315) 4,300 Year ended March 31, 1998 4,300 1,036 (920) 4,416 Year ended March 31, 1999 4,416 609 (79) 4,946
79 EXHIBIT INDEX 3.01 The Registrant's Restated Certificate of Incorporation. (Incorporated by reference to Annex G filed with the Registrant's Joint Management Information Circular and Proxy Statement (No. 000-17781) dated October 17, 1995.) 3.02 The Registrant's Bylaws. (Incorporated by reference to Exhibit 3.02 filed with the Registrant's Registration Statement on Form S-1 (No. 33-28655) originally filed May 19, 1989, and amendment No. 1 thereto filed June 21, 1989, which Registration Statement became effective June 22, 1989.) 3.03 The registrant's Bylaws, as amended and restated effective August 11, 1998. (Incorporated by reference to Exhibit 3.1 filed with the Registrant's Current Report 8-K filed August 19, 1998.) 4.01 Registration Rights Agreement. (Incorporated by reference to Exhibit 4.02 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 4.02 Amendment No. One to Registration Rights Agreement. (Incorporated by reference to Exhibit 4.03 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 4.03 Amendment No. Two to Registration Rights Agreement (Incorporated by reference to Exhibit 4.04 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 4.04 Plan of Arrangement and Exchangeable Share Provisions related to the acquisition of Delrina. (Incorporated by reference to Annex D filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 4.05 Support Agreement dated November 22, 1995 between Symantec and Delrina. (Incorporated by reference to Annex E filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 4.06 Form of Voting and Exchange Trust Agreement dated November 22, 1995 between Symantec and Delrina. (Incorporated by reference to Annex F filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 4.07 Rights agreement, dated as of August 12, 1998, between Symantec Corporation and BankBoston, N.A., as Rights Agent, which includes as Exhibit A the form of Certificate of Designations of Series A Junior Participating Preferred Stock, as Exhibit B the Form of Right Certificate and as Exhibit C the Summary of Rights to Purchase Preferred Shares. (Incorporated by reference to Exhibit 4.1 filed with the Registrant's Form 8-A filed August 19, 1998.) 10.01 Amended Agreement Respecting Certain Rights of Publicity. (Incorporated by reference to Exhibit 10.04 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.02 Non-Competition and Non-Solicitation Agreement between Registrant and Peter Norton and Ronald Posner. (Incorporated by reference to Exhibit 10.06 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.03* 1988 Employees Stock Option Plan, as amended to date. (Incorporated by reference to Exhibit 4.02 filed with the Registrant's Registration Statement on Form S-8 (No. 33-88694) filed January 23, 1995.) 10.04* 1989 Employee Stock Purchase Plan, as amended to date. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-18353) filed December 20, 1996.) 10.05* Form of Stock Option Agreement and Form of Stock Option Exercise Request, as currently in effect, under the Registrant's 1988 Employees Stock Option Plan. (Incorporated by reference to Exhibit 10.10 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.06* 1988 Directors Stock Option Plan, as amended to date. (Incorporated by reference to Exhibit 10.09 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.07* 1993 Directors Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.07 filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994) 10.08* Form of Stock Option Grant and Stock Option Exercise Notice and Agreement under the Registrant's 1988 Directors Stock Option Plan. (Incorporated by reference to Exhibit 10.12 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.09* 1994 Patent Incentive Plan. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 33-60141) filed June 9, 1995.) 10.10* Symantec Corporation 1996 Equity Incentive Plan. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-18355) filed December 20, 1996.) 80 10.11* Symantec Corporation 1996 Equity Incentive Plan, as amended. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-39175) filed October 31, 1997.) 10.12* Symantec Corporation Deferred Compensation Plan dated as of November 9, 1996. (Incorporated by reference to Exhibit 10.11 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.13 Participation Agreement dated as of October 18, 1996, by and among Symantec Corporation, Sumitomo Bank Leasing and Financing, Inc., The Sumitomo Bank, Limited, San Francisco Branch and the other Various Financial Institutions Identified Herein and the Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.14 Participation agreement, as amended by that certain Master Amendment No. 2, dated as of September 21, 1998, between Symantec Corporation, Sumitomo Bank Leasing and Finance, Inc. and The Sumitomo Bank, Limited. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended October 2, 1998.) 10.15 Amended and Restated Participation Agreement, dated as of February 9, 1999 by and among Symantec Corporation, Sumitomo Bank Leasing and Financing, Inc, The Bank of Nova Scotia, the other Various Financial Institutions Identified Herein and the Sumitomo Bank, Limited, Los Angeles Branch. 10.16 Appendix A to Participation Agreement, Master Lease, Lease Supplements Loan Agreements, Pledge Agreement, Lessor Mortgages, and Guaranty. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.17 Restated and amended Appendix A to Participation Agreement, Master Lease, Lease Supplements Loan Agreements, Pledge Agreement, Lessor Mortgages, and Guaranty. 10.18 Master Lease and Deed of Trust, as amended, dated as of October 18, 1996 between Symantec Corporation and Sumitomo Bank Leasing and Finance, Inc. (Incorporated by reference to Exhibit 10.14 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.19 Amended and Restated Master Lease and Deed of Trust, dated as of February 9, 1999 between Symantec Corporation and Sumitomo Bank Leasing and Finance, Inc. 10.20 Guaranty dated as of October 18, 1996, made by Symantec Corporation in favor of Various Financial Institutions and The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.05 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996). 10.21 Amended and Restated Guaranty, dated as of February 9, 1999, made by Symantec Corporation in favor of Various Financial Institutions Identified Herein and The Sumitomo Bank, Limited, San Francisco Branch. 10.22 Pledge Agreement dated as of October 18, 1996, made by Symantec Corporation, in favor of Sumitomo Bank, Limited, San Francisco Branch for the benefit of the Lenders, and Donaldson, Lufkin, Jenrette Securities Corporations, as collateral agent. (Incorporated by reference to Exhibit 10.06 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.23 Pledge Agreement, as amended, by that certain Master Amendment No. 2, dated as of September 21, 1998, between Symantec Corporation, the Bank, and Donaldson, Lufkin & Jenrette Securities Corporation. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended October 2, 1998.) 10.24 Amended and Restated Pledge Agreement, dated as of February 2, 1999, made by Symantec Corporation and Delrina Corporation, in favor of Sumitomo Bank, Limited, Los Angeles Branch for the benefit of the Lenders, and Donaldson, Lufkin, Jenrette Securities Corporations, as collateral agent. 10.25 Assignment of Lease and Rent, as amended, dated as of October 18, 1996, from Sumitomo Bank Leasing and Finance, Inc., to The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.17 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.26 Amended and Restated Assignment of Lease and Rent, dated as of February 9, 1999, from Sumitomo Bank Leasing and Finance, Inc., to The Sumitomo Bank, Limited, San Francisco Branch. 10.27 Agreement of Purchase and Sale of Cupertino City Center One between Cigna Property and Casualty Insurance Company and Symantec Corporation. (Incorporated by reference to Exhibit 10.18 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.28 Agreement for Purchase and Sale and Escrow Instructions of 10201 Torre Avenue, Cupertino, CA. (Incorporated by reference to Exhibit 10.19 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 81 10.29 Agreement for Purchase and Sale and Escrow Instructions, as amended, dated as of May 31, 1996. (Incorporated by reference to Exhibit 10.20 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.30 Agreement for Exchange and Purchase and Escrow Instructions, dated September 22, 1998, between Symantec Corporation with respect to CCC5 and WHQ and TST Development, L.L.C. with respect to CCC2. (Incorporated by reference to Exhibit 10.06 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended October 2, 1998.) 10.31 Agreement for Exchange and Purchase and Escrow Instructions, as amended, dated November 4, 1998 between Symantec Corporation and TST Development, L.L.C. (Incorporated by reference to Exhibit 10.07 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended October 2, 1998.) 10.32 Amendment No. 1 of Agreement for Exchange and Purchase and Escrow Instructions, dated as of November 4, 1998 between Symantec Corporation and TST Development, L.L.C. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended January 1, 1999.) 10.33 Amendment No. 2 of Agreement for Exchange and Purchase and Escrow Instructions, dated as of November 20, 1998 between Symantec Corporation and TST Development, L.L.C. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended January 1, 1999.) 10.34 Amendment No. 3 of Agreement for Exchange and Purchase and Escrow Instructions, dated as of December 4, 1998 between Symantec Corporation and TST Development, L.L.C. (Incorporated by reference to Exhibit 10.03 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended January 1, 1999.) 10.35 Amendment No. 4 of Agreement for Exchange and Purchase and Escrow Instructions, dated as of December 15, 1998 between Symantec Corporation and TST Development, L.L.C. (Incorporated by reference to Exhibit 10.04 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended January 1, 1999.) 10.36 Loan Agreement dated as of October 18, 1996, among Sumitomo Bank Leasing and Finance, Inc., Various Financial Institutions Identified Herein and The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.21 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.37 Amended and Restated Loan Agreement, dated as of February 9, 1999, among Sumitomo Bank Leasing and Finance, Inc., Various Financial Institution Identified Herein, The Bank of Nova Scotia and The Sumitomo Bank, Limited, Los Angeles Branch. 10.38 Construction Agency Agreement dated as of March 3, 1997, between Sumitomo Bank Leasing and Finance, Inc., and Symantec Corporation. (Incorporated by reference to Exhibit 10.22 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.39 Construction Agency Agreement dated as of February 9, 1999, between Sumitomo Bank Leasing and Finance, Inc., and Symantec Corporation. 10.40 Symantec - CC5 Office Building and Parking Structure, as amended, dated as of May 5, 1997, made by and between Symantec Corporation and Webcor Builders. (Incorporated by reference to Exhibit 10.23 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.41 Office building lease dated as of April 10, 1991, between the Registrant and Maguire Thomas Partners Colorado Place regarding property located in Santa Monica, California. (Incorporated by reference to Exhibit 10.25 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1991.) 10.42 Office building lease, as amended, dated as of September 1, 1997 between Colorado Place Partners, LLC and Symantec Corporation regarding property located in Santa Monica, California. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 3, 1998.) 10.43 Office building lease dated as of February 27, 1991, between the Registrant and Kim Camp No. VII regarding property located in Sunnyvale, California. (Incorporated by reference to Exhibit 10.26 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1991.) 82 10.44 Office building lease, as amended, dated as of May 1, 1998, by and between RND Funding Company I and Symantec Corporation regarding property located in Sunnyvale, California. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended October 2, 1998.) 10.45 Office building lease dated as of April 19, 1995, between the Registrant and CIGNA Property and Casualty Insurance Company regarding property located in Cupertino, California. (Incorporated by reference to Exhibit 10.16 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1995.) 10.46 Office building lease, as amended, dated as of December 1, 1995 between Delrina (Canada) Corporation and Sherway Centre Limited regarding property located in Toronto, Canada. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended December 29, 1995.) 10.47 Office building lease, as amended, dated as of December 17, 1996 between Delrina (Canada) Corporation, Delrina Corporation, and Sherway Centre Limited regarding property located in Toronto, Canada (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 3, 1998.) 10.48 Office building lease, dated as of April 9, 1998 between hill Samuel Bank Limited and Symantec (UK) Limited and Symantec Corporation regarding property located in Maidenhead, United Kingdom. (Incorporated by reference to Exhibit 10.03 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 3, 1998.) 10.49 Form of Indemnity Agreement with Officers and Directors. (Incorporated by reference to Exhibit 10.17 filed with the Registrant's Registration Statement on Form S-1 (No. 33-28655) originally filed May 19, 1989, and amendment No. 1 thereto filed June 21, 1989, which Registration Statement became effective June 22, 1989.) 10.50* Full Recourse Promissory Note and Pledge Agreement between the Company and Gordon E. Eubanks, Jr. (Incorporated by reference to Exhibit 10.19 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.51* Form of Promissory Note and Pledge Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.20 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.52* Promissory Note between the Company and Mansour Safai 10.53* Promissory Note between the Company and Keith Robinson 10.54* Promissory Note between the Company and John W. Thompson 10.55* Form of Housing Assistance Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.26 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.56 Note Purchase Agreement, dated April 2, 1993, among Symantec Corporation, Morgan Guaranty Trust Company of New York, as Trustee, J. P. Morgan Investments Management, Inc., as Investment Manager and The Northwestern Mutual Life Insurance Company, including Form of Convertible Subordinated Notes. (Incorporated by reference to Exhibit 10.30 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.54.1 10.57 The Registrant's Section 401(k) Plan, as amended. (Incorporated by reference to Exhibit 10.25 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.58* Form of Executive Compensation Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.25 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.59 Assignment of Copyright and Other Intellectual Property Rights. (Incorporated by reference to appendix to Prospectus/Proxy Statement filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.60* Employment and Consulting Agreement among Symantec Corporation, Symantec Acquisition Corp. and Charles M. Boesenberg. (Incorporated by reference to Exhibit 10.32 filed with the Registrant's Annual Report of Form 10-K for the year ended April 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.61* Stock Option Grant between the Company and Charles Boesenberg. (Incorporated by reference to Exhibit 10.29 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.62* Retirement and Consulting Agreement between the Company and Gordon E. Eubanks, Jr. 10.63* Supplemental Option Vesting and Severance Arrangement terms and conditions between the Company and Greg Myers. 83 10.64 Authorized Distributor Agreement between Symantec Corporation and Ingram Micro, Inc. (Incorporated by reference to Exhibit 10.34 filed with the Registrant's Quarterly Report of Form 10-Q for the quarter ended July 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.65 Authorized Distributor Agreement between Symantec Corporation and Merisel Americas, Inc. (Incorporated by reference to Exhibit 10.35 filed with the Registrant's Quarterly Report of Form 10-Q for the quarter ended July 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.66* Employment and Non-competition Agreement between Symantec Corporation and Dennis Bennie. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended December 29, 1995.) 10.67* Employment Agreement between Symantec Corporation and John W. Thompson. 10.68 Combination Agreement between Symantec Corporation and Delrina Corporation dated July 5, 1995. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.) 10.69 Asset Purchase Agreement dated as September 26, 1996, by and between Delrina and JetForm. (Incorporated by reference to Exhibit 2.01 filed with the Registrant's Current Report of Form 8-K filed September 26, 1996.) 10.70 Asset Purchase Agreement, as amended, dated as of March 28, 1998, by and between Delrina and JetForm. (Incorporated by reference to Exhibit 10.44 filed with the Registrants Annual Report on Form 10-K for the year ended April 3, 1998.) 10.71 Asset purchase agreement, as amended, dated as of June 29, 1998 by and between Delrina and JetForm. (Incorporated by reference to Exhibit 10.05 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 3, 1998.) 10.72 Asset Purchase Agreement, as amended, dated as of March 27, 1997 by and between Hewlett-Packard Company and Symantec Corporation. (Incorporated by reference to Exhibit 10.43 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997. 10.73 Master agreement, dated May 18, 1998, between International Business Machines Corporation and Symantec Corporation. (Confidential treatment has been requested with respect to portions of this exhibit.) (Incorporated by reference to Exhibit 10.46 filed with the Registrant's Annual Report on Form 10-K for the year ended April 3, 1998) 10.74 Asset purchase agreement, dated as of June 24, 1998, among Symantec Corporation and its wholly-owned subsidiary, Symantec Limited and Binary Research Ltd. and its wholly-owned subsidiary, Binary Research International, Inc. (Incorporated by reference to Exhibit 10.04 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended July 3, 1998.) 10.75 Software license agreement, dated as of September 27, 1998, between Symantec Corporation and Intel Corporation. (Incorporated by reference to Exhibit 10.1 filed with the Registrant's Current Report of Form 8-K filed October 5, 1998.) 10.76 Class action complaint filed by the law firm of Milberg Weiss Bershad Hynes & Lerach in Superior Court of the State of California, County of Santa Clara against the Company and several of its current and former officers and directors. (Incorporated by reference to Exhibit 10.35 filed with the Registrant's Annual Report of Form 10-K for the year ended March 31, 1996.) 21.01 Subsidiaries of the Registrant. 23.01 Consent of Ernst & Young LLP, Independent Auditors. 27.01 Financial Data Schedule for the Year Ended March 31, 1997 (restated) 27.02 Financial Data Schedule for the Year Ended March 31, 1998 (restated) 27.03 Financial Data Schedule for the Year Ended March 31, 1999 - ----------------- * Indicates a management contract or compensatory plan or arrangement. EX-10.15 2 AMENDED AND RESTATED PARTICIPATION AGREEMENT 1 EXHIBIT 10.15 EXECUTION COPY ================================================================================ AMENDED AND RESTATED PARTICIPATION AGREEMENT dated as of February 9, 1999 among SYMANTEC CORPORATION, as Lessee, Construction Agent, Pledgor and Guarantor, SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor, VARIOUS FINANCIAL INSTITUTIONS IDENTIFIED HEREIN, as Lenders, THE BANK OF NOVA SCOTIA, as Documentation Agent, and THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH as Agent ------------------------------------ Lease Financing of Properties for Symantec Corporation ================================================================================ 2 AMENDED AND RESTATED PARTICIPATION AGREEMENT THIS AMENDED AND RESTATED PARTICIPATION AGREEMENT (this "Participation Agreement"), dated as of February 9, 1999, is entered into by and among SYMANTEC CORPORATION, a Delaware corporation, as the Lessee, Pledgor and Guarantor (together with its permitted successors and assigns, the "Lessee"; in its capacity as Pledgor, the "Pledgor"; and in its capacity as Guarantor, the "Guarantor"); SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation, as Lessor (together with its permitted successors and assigns, the "Lessor"); the various financial institutions as are or may from time to time become lenders (the "Lenders") under the Loan Agreement; THE BANK OF NOVA SCOTIA, as Documentation Agent, and THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH, as Agent (in such capacity, the "Agent"). W I T N E S E T H: WHEREAS, on each Acquisition Date, the Lessor will purchase from one or more third parties designated by the Lessee parcels of Land, together with all Improvements thereon, if any; WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Lessor, each Property; and WHEREAS, the Lessor is willing to provide a portion of the funding of the costs of the acquisition of Land and all Improvements thereon, if any, Fees and the Transaction Expenses incurred in connection therewith; WHEREAS, the Lenders are willing to provide financing of the remaining portion of the costs of acquisition of Land and all Improvements thereon, if any, Fees and the Transaction Expenses incurred in connection therewith; and WHEREAS, to secure such financing (a) the Lessor will have the benefit of a first priority Lien on the Properties and (b) the Lenders will have the benefit of (i) a Lien on the Lessor's right, title and interest in the Properties, (ii) a guaranty of all of the obligations of the Lessor under the Loan Agreement, and (iii) a pledge of certain marketable securities of the Lessee; WHEREAS, the Lessee and the Lessor, with the consent of the Lenders wish to provide for exchange of: (i) the Property subject to Lease Supplement No. 3 and (ii) one million three 3 Participation Agreement hundred twenty five thousand dollars ($1,325,000.00) for certain new property to be subjected to the Master Lease pursuant to Lease Supplement No. 4; WHEREAS, the Lenders and the Lessor wish to finance the refurbishment and construction of certain Improvements located on the Land which shall be subject to Lease Supplement No. 4; WHEREAS, the Lessee, as Construction Agent, will cause to be refurbished and constructed certain Improvements on the Land subject to Lease Supplement No. 4 and such Improvements, as constructed, will be the property of the Lessor; WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Lessor, such Improvements; WHEREAS, the Lessee, the Lessor, the Lenders and the Agent now desire to amend and create an amended and restated: (a) Participation Agreement, (b) Appendix A to the Participation Agreement, (c) Master Lease, (d) Lease Supplement No. 2, (e) Loan Agreement, (f) Guaranty and (g) Assignment of Lease and Rent; In consideration of the mutual agreements contained in this Participation Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS; INTERPRETATION Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix A hereto for all purposes hereof; and the rules of interpretation set forth in Appendix A hereto shall apply to this Participation Agreement. ARTICLE II CONDITIONS PRECEDENT TO DOCUMENTATION AND ACQUISITION DATES; CONDITIONS PRECEDENT TO EACH CONSTRUCTION ADVANCE; CONDITIONS TO SUBSTANTIAL COMPLETION SECTION 2.1. Documentation Date. The date of effectiveness of this Participation Agreement (the "Documentation Date") shall be deemed to have occurred on the earliest date on which the following conditions precedent shall -2- 4 Participation Agreement have been satisfied or waived, in the reasonable discretion of the Lessor and Agent: (a) Participation Agreement. This Participation Agreement shall have been duly authorized, executed and delivered by the parties hereto. (b) Master Lease. The Master Lease shall have been duly authorized, executed and delivered by the parties thereto. (c) Loan Agreement. The Loan Agreement shall have been duly authorized, executed and delivered by the parties thereto. (d) Assignment of Lease and Rent. The Assignment of Lease and Rent, shall have been duly authorized, executed and delivered by the Lessor, as assignor, to the Lenders, as assignees, and the Assignment of Lease and Rent, shall have been consented to and acknowledged by the Lessee. (e) Guaranty. The Guaranty shall have been duly authorized, executed and delivered by the Company. (f) Pledge Agreement. The Pledge Agreement shall have been duly authorized, executed and delivered by the parties thereto. (g) Corporate Documents. The Lessee shall have delivered to the Agent, the Lessor and each Lender (i) a certificate of its Secretary or an Assistant Secretary attaching and certifying as to (A) the resolutions of the Board of Directors duly authorizing the execution, delivery and performance by it of each Operative Document to which it is or will be a party, (B) its certificate of incorporation and by-laws, and (C) the incumbency and signature of persons authorized to execute and deliver on its behalf the Operative Documents to which it is a party; and (ii) a certificate of good standing with respect to it issued by the Secretary of State of the State of Delaware. (h) Legal Opinion. The Agent and the Lessor shall have received, with a copy for each Lender, an opinion of -3- 5 Participation Agreement counsel for the Lessee, covering the matters set forth in Exhibit C, dated the Documentation Date and addressed to the Agent, the Lessor and the Lenders, and otherwise in form and substance reasonably satisfactory to the Agent, the Lessor and the Lenders. (i) Representations and Warranties. On the Documentation Date, the representations and warranties of each of the Lessee and in each of the other Operative Documents shall be true and correct in all material respects as though made on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date. (j) Fees. The Agent and the Lessor shall have received all Fees then due and payable pursuant to the Fee Letter. (k) Certain Transaction Expenses. Counsel for each of the Participants shall have received, to the extent then invoiced, payment in full in cash of all Transaction Expenses payable to such counsel pursuant to Section 9.1. All documents and instruments required to be delivered pursuant to this Section 2.1 shall be delivered at the offices of Mayer, Brown & Platt, 1675 Broadway, New York, New York, or at such other location as may be determined by the Lessor, the Lenders and the Lessee, provided that this Agreement shall have no effect if the Documentation Date does not occur on or prior to February 15, 1999. SECTION 2.2. Acquisition Dates/Restructuring Date. Each closing date with respect to the acquisition of Land (and the Improvements existing thereon, if any), including specifically the Restructuring Date (each, an "Acquisition Date"), shall occur on the date on which all of the conditions precedent thereto set forth in this Section 2.2 with respect to such acquisition (or exchange) shall have been satisfied or waived by the applicable parties as set forth herein. The parties hereto agree that the Lessor's obligations to acquire any parcel of Land (and Improvements thereon, if any) and the obligation of the Lessor to make available any related Lessor Amount shall not be subject to any conditions precedent set forth in this Section 2.2 to the extent such conditions are actions required of the Lessor. Subject to the preceding sentence, the obligation of the Lessor to acquire any Land -4- 6 Participation Agreement (and/or Improvements, if any) on an Acquisition Date, the obligation of the Lessor to make available any related Lessor Amount on such Acquisition Date and the obligation of each Lender to make any related Loan on such Acquisition Date, are subject to satisfaction or waiver of the following conditions precedent: (a) Funding Request. Each of the Lenders, the Lessor and the Agent shall have received a fully executed counterpart of the applicable Funding Request or Exchange Request in accordance with Section 3.4. Each of the delivery of a Funding Request or Exchange Request and the acceptance of the proceeds of such Advance or Exchange shall constitute a representation and warranty by the Lessee that on such Acquisition Date (both immediately before and after giving effect to the making of such Advance and the application of the proceeds thereof), the statements made in Section 8.1 are true and correct. (b) Responsible Officer's Certificate. The Lessor and the Lenders shall each have received a Responsible Officer's Certificate of the Lessee, in substantially the form of Exhibit B attached hereto, dated as of the Acquisition Date, stating that (i) to such Responsible Officer's knowledge each and every representation and warranty of the Lessee contained in each Operative Document to which it is a party is true and correct in all material respects on and as of such Acquisition Date; (ii) to such Responsible Officer's knowledge no Default or Event of Default has occurred and is continuing under any Operative Document to which it is a party with respect to the Lessee; (iii) to such Responsible Officer's knowledge each Operative Document to which the Lessee is a party is in full force and effect with respect to it; and (iv) the Lessee has duly performed and complied with all conditions contained herein or in any other Operative Document required to be performed or complied with by it on or prior to such Acquisition Date. (c) Deed. On or prior to such Acquisition Date, the Lessor shall have received a Deed with respect to such Property (and/or all Improvements located thereon) being purchased on such Acquisition Date, conveying fee simple title to the applicable Land, and all Improvements existing thereon, if any, to the Lessor and subject only to Permitted Liens. -5- 7 Participation Agreement (d) Bill of Sale. On or prior to the Acquisition Date, the Lessor shall have received a bill of sale (a "Bill of Sale"), conveying title to the Lessor in any Improvements and other personal property (other than inventory) comprising part of the applicable Property. (e) Lease Supplement Lessor and Financing Statements; Recordation. On or prior to the Acquisition Date (i) the Lessee and the Lessor shall have delivered to the Agent and the Lenders the original counterpart of each of the Lease Supplement executed by the Lessee and the Lessor with respect to the applicable Property; (ii) the Lessee shall have delivered to the Lessor all Lessor Financing Statements relating to such Property as the Lessor or any other Participant may reasonably request in order to protect the Lessor's interest under the Master Lease and the Lease Supplement relating to the applicable Property to the extent the Master Lease and such Lease Supplement constitute security agreements; and (iii) each of the Participants shall have received evidence reasonably satisfactory to it that each of (i) the Lease Supplement and any other instrument constituting a Lessor Mortgage, and (ii) the Lessor Financing Statements, in each case relating to such Property, has been, or are being, recorded in a manner sufficient to properly secure each of their interests therein. (f) Appraisal. On or prior to the Acquisition Date, the Lessor and the Lenders shall have received an Appraisal of the applicable Property, in form and substance satisfactory to the Agent and the Lessor, which Appraisal shall show that, as of the Acquisition Date, the Fair Market Sales Value of such Property shall not be less than 100% of the sum of the Property Acquisition Costs for such Property. On or prior to the Restructuring Date with respect to City Center II, the Lessor and the Lenders shall have received such an Appraisal with respect to City Center II and a new Appraisal with respect to City Center I dated within 60 days of such Acquisition Date. If either of the Appraisals referred to in the preceding sentence indicate that the Fair Market Sales Values of -6- 8 Participation Agreement either City Center I or City Center II as of the Maturity Date will be less than 90% of the Lease Balance therefor, then the parties hereto shall modify the Basic Rent payments due with respect to such Properties so that the Lease Balance as of the Final Maturity Date (assuming payment of all Basic Rent payments as and when due) will equal such appraised Fair Market Sales Values. (g) Evidence of Insurance. The Lessor and the Lenders shall have received evidence that the insurance maintained by the Lessee with respect to such Property satisfies the requirements set forth in Article XIII of the Master Lease, setting forth the respective coverage, limits of liability, carrier, policy number and period of coverage. (h) Environmental Audit. The Lessor and each Lender shall have received an Environmental Audit with respect to the applicable Property in form and Substance reasonably satisfactory to the Lessor and the Agent. On or prior to the Acquisition Date with respect to City Center II, the Lessor and Lenders shall have received an Environmental Audit with respect to City Center II dated within 90 days of such Acquisition Date and reasonably satisfactory in form and substance to the Lessor and the Agent. (i) Property Survey and Title Insurance. On or prior to the Acquisition Date and on the Restructuring Date, the Lessee shall have delivered to each of the Lessor and the Agent, on behalf of the Lenders, an American Land Title Association ("ALTA")/1992 (Urban) Survey of such Property certified to the Participants and the title company and otherwise in form reasonably acceptable to the Participants and a commitment to deliver an ALTA extended owners and lenders title insurance policy covering such Property in favor of the Lessor and the Agent, on behalf of the Lenders, respectively, such policy in an amount not less than the sum of the related Property Acquisition Costs and to be reasonably satisfactory to the Agent and the Lessor with such customary endorsements issued by the title company as a routine matter, if requested by the Agent. (j) Subleases. With respect to any Property that as of the Acquisition Date is subject to a sublease between the Lessee, as sublessor, and the sublessee thereof, then on or prior to such Acquisition Date (i) the Lessee shall -7- 9 Participation Agreement have delivered a copy of each such sublease to the Lessor and the Agent, and (ii) with respect to each such sublease, except for the sublease to Apple Computer, Inc., the Lessee shall have executed and delivered, and caused each such sublessee to execute and deliver, to the Lessor and the Agent, a Subordination, Nondisturbance and Attornment agreement in the form of Exhibit D. (k) Governmental Approvals. All necessary Governmental Actions required by any Requirement of Law or any Property Legal Requirements for the purpose of authorizing the Lessor to acquire the applicable Property shall have been obtained or made and be in full force and effect. (l) Litigation. No action or proceeding shall have been instituted, nor shall any action or proceeding be threatened, before any Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Authority (i) to set aside, restrain, enjoin or prevent the full performance of any Operative Document or any transaction contemplated hereby or thereby or (ii) which is reasonably likely to materially and adversely affect the Lessee. (m) Requirements of Law. The transactions contemplated by the Operative Documents do not and will not violate any Material Requirement of Law and do not and will not subject the Lessor to any Material adverse regulatory prohibitions or constraints. (n) No Default. There shall not have occurred and be continuing any Default or Event of Default under any of the Operative Documents, and no Default or Event of Default under any of the Operative Documents will have occurred after giving effect to the acquisition of the Land and Improvements located thereon, if any, requested by such Funding Request. (o) No Material Adverse Change. As of the Acquisition Date, there shall not have occurred any Material adverse change in the consolidated assets, liabilities, results of operations, or financial condition of the Lessee from that set forth in the Submitted Financial Statements. (p) Supplement to Assignment of Lease and Rent. On or prior to such Acquisition Date, the Lessor shall have delivered to the Agent a Supplement to the Assignment of -8- 10 Participation Agreement Lease and Rent with respect to the applicable Property substantially in the form of Exhibit A thereto, together with a consent to and acknowledgement of such Supplement duly executed by the Lessee. (q) Opinion of Counsel to the Lessee. On the initial Acquisition Date only, the Participants shall have received an opinion of counsel located in the jurisdiction in which the applicable Land is situated in form and substance reasonably acceptable to the Lessor and the Agent. (r) Exchange Request Procedure. In the event that an Exchange Request is submitted by the Lessee regarding an exchange of (i) the Property subject to Lease Supplement No. 3 and (ii) one million three hundred twenty five thousand dollars ($1,325,000.00) for certain new property to be subjected to the Master Lease pursuant to Lease Supplement No. 4, then prior to such exchange there shall be deposited in an account designated by the Lessor one million three hundred twenty five thousand dollars ($1,325,000.00). Upon receipt of such funds the Lessor shall apply such funds to the Lessee's outstanding Lease Balance with respect to City Center I and City Center II in such proportion as requested in writing by the Lessee, provided that if no such request is received by the Lessor prior to the exchange such amount shall be applied to the Lease Balance for City Center II. After the application of such funds the Lease Balance for the Property subject to Lease Supplement No. 3 shall become the Lease Balance for the Property subject to Lease Supplement No. 4 and the Property subject to Lease Supplement No. 3 shall be released from the Lease. All documents and instruments required to be delivered pursuant to this Section 2.2 shall be delivered to the Lessor at the offices of Mayer, Brown & Platt, 1675 Broadway, New York, New York, or at such other locations as may be determined by the Lessor, the Lenders and the Lessee. SECTION 2.3. Conditions Precedent to each Construction Advance. The obligations of the Lessor to make a Construction Advance on a Construction Payment Date is subject to satisfaction or waiver of the following conditions precedent: (a) Funding Request. The Agent shall have received a fully executed counterpart of the applicable Funding Request in accordance with Section 3.4 (except that the -9- 11 Participation Agreement Funding Request shall be substantially in the form of Exhibit E to Master Amendment No. 1) executed by the Lessee, as Construction Agent. Each of the delivery of a Funding Request and the acceptance of the proceeds of the applicable Construction Advance shall constitute a representation and warranty by the Lessee that on such Construction Payment Date (both immediately before and after giving effect to the making of such Construction Advance and the application of the proceeds thereof), the statements made in Section 8.2 are true and correct. (b) Fees. The Agent and the Lessor shall have received all fees then due and payable pursuant to Section 4.3. (c) Accuracy of Representations and Warranties. On the applicable Construction Payment Date the representations and warranties of the Lessee contained herein and in each of the other Operative Documents shall be true and correct in all Material respects as though made on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all Material respects on and as of such earlier date. (d) Litigation. On the applicable Construction Payment Date there shall not be any actions, suits or proceedings pending or, to the knowledge of the Lessee, threatened by or against the Lessee (i) that are reasonably likely to have a Material adverse effect on City Center II or (ii) that question the validity of the Operative Documents or the rights or remedies of the Lessor with respect to the Lessee or City Center II under the Operative Documents. (e) No Default. There shall not have occurred and be continuing any Default or Event of Default under the Master Lease, and no Default or Event of Default under the Master Lease will have occurred after giving effect to the making of the Construction Advance requested by such Funding Request. (f) Commitment Amount. After giving effect to the applicable Construction Advance, (x) the condition set forth in Section 3.1(c) shall not be violated, (y) the Property Improvement Costs for City Center II shall not exceed the Construction Commitment therefor. -10- 12 Participation Agreement (g) Cost of Completion. After giving effect to the applicable Construction Advance, the estimated as yet unpaid cost to the Construction Agent of completing the Construction pursuant to the Construction Documents shall not exceed the Available Construction Commitment. (h) Building Permits. All building permits required by any Governmental Authority in connection with the Construction for which the applicable Construction Advance is being made shall have been obtained. (i) Prime Construction Contract. With respect to all Construction Advances, the Prime Construction Contract shall have been duly executed and delivered by the parties thereto and shall be in form and substance satisfactory to the Lessor. The Prime Construction Contract for City Center II shall provide for completion of Construction by the Outside Completion Date for a fixed price not in excess of the Available Construction Commitment therefor and shall permit the Construction Agent to withhold at least 10% of amounts due under such contract until Substantial Completion. (j) Title Policy Endorsement. The Lessor shall have received on the date of such Construction Advance an endorsement to the title policy delivered pursuant to the Lease (i) indicating that since the date of the preceding Construction Advance there has been no change in the state of title, and (ii) updating the title policy to the date of such Construction Advance. SECTION 2.4. Conditions to Substantial Completion of the Property. Substantial Completion shall be deemed to have occurred for purposes of the Operative Documents at such time as the Construction shall have been substantially completed in accordance with the Plans and Specifications and all Applicable Law, as evidenced by certificates of the Architect, the Prime Contractor and the Construction Agent, all in form and substance reasonably satisfactory to the Lessor. ARTICLE III FUNDING OF ADVANCES SECTION 3.1. Advances. (a) Subject to the conditions and terms hereof, the Lessor and the Lenders shall take the following actions at the written request of the Lessee on the Acquisition Date for each Property: -11- 13 Participation Agreement (i) the Lessor and the Lenders shall make an Advance (out of the funds provided by the Lessor and the Lenders) to the Lessee, for the purpose of financing, if required, the acquisition of Land and Improvements existing thereon, if any, and the Fees and the Transaction Expenses incurred in connection therewith, and the proceeds of such Advances shall be made directly to the Lessee or to such payees designated in writing by the Lessee; (ii) the Lessor shall acquire the Land and Improvements, if any (using the funds provided by the Lessor and the Lenders or in exchange for City Center V); and (iii) the Lessor shall lease the Land and Improvements to the Lessee under the Master Lease and the respective Lease Supplements. (b) Subject to the conditions and terms hereof, (including, without limitation, receipt of a Funding Request (or Exchange Request) in accordance with Section 3.4), the Lessor and the Lenders shall make a Construction Advance on a Construction Payment Date (out of funds provided by the Lessor and the Lenders) to the Lessee, for the purpose of financing the Construction of Improvements prior to the Restructuring Date, for City Center V, and after the Restructuring Date, for City Center II, and the proceeds of such Construction Advances shall be paid directly to the Construction Agent or its designee(s) for the purpose of paying or reimbursing itself for Property Improvement Costs, and paying Capitalized Interest, the Arrangement Fee, the Commitment Fees, Transaction Expenses paid or payable by the Lessee in connection therewith, and all fees paid or payable by the Lessee to the Lessor in connection with the Operative Documents. (c) Notwithstanding any other provision hereof, the Participants shall not be obligated to make any Advance if, after giving effect thereto, the aggregate outstanding amounts of each of the Loans and the Lessor Amounts would exceed the Maximum Commitment Amount. SECTION 3.2. Lessor Commitment. Subject to the conditions and terms hereof, the Lessor shall make available to the Lessee on each Funding Date an amount (each such amount, a "Lessor Amount") in immediately available funds equal to the -12- 14 Participation Agreement Commitment Percentage of the Lessor of the amount of the Advance being funded on such Funding Date. Notwithstanding any other provision hereof, the Lessor shall not be obligated to make available any Lessor Amount if, after giving effect to the proposed Lessor Amount, the outstanding aggregate amount of the respective Lessor Amounts of the Lessor would exceed the Lessor's Commitment. SECTION 3.3. Lenders' Commitments. Subject to the conditions and terms hereof, the Lenders severally shall make Loans to the Lessor at the request of the Lessee on each Funding Date for each Property in an amount in immediately available funds equal to such Lender's Commitment Percentage of the amount of the Advance being funded to Lessee on such Funding Date. Notwithstanding any other provision hereof, no Lender shall be obligated to make any Loan if, after giving effect to the proposed Loan, the outstanding aggregate amount of such Lender's Loans would exceed such Lender's Commitment. SECTION 3.4. Procedures for Advances. -13- 15 Participation Agreement (a) With respect to each funding of an Advance, the Lessee shall give the Lessor and the Agent prior written notice pursuant to a Funding Request substantially in the form of Exhibit A (a "Funding Request"), which Funding Request shall be delivered not later than 10:00 a.m., five (5) Business Days prior to the proposed Funding Date, specifying: (i) the proposed Funding Date, (ii) the amount of Advance requested,(iii) to which Properties such Advance is being allocated and the amount allocated to each Property. The Agent and the Lessor shall calculate the amounts of the Lessor Amounts and the Loans required to fund the requested Advance as it relates to each Property. In the event that the Lessor and the Lenders are unable to obtain a LIBO Rate (Reserve Adjusted) for the period of the Advance requested in any Funding Request, the Lessor and the Lenders shall make available Lessor Amounts and Loans, as the case may be, at the Alternate Base Rate equal to the Advance requested in such Funding Request and (iv) in the case of a Construction Advance, requesting that the proceeds of such Construction Advance be wire transferred to the accounts and Persons specified therein. Such Lessor Amounts and Loans shall accrue Yield or Interest, as the case may be, at the Alternate Base Rate until the date on which the Lessor and the Lenders shall be able to obtain a LIBO Rate (Reserve Adjusted) for the amount of such Advance, at which time such Lessor Amounts and Loans shall convert and thereafter accrue Yield and Interest, as the case may be, at the LIBO Rate (Reserve Adjusted); provided, however, that no such conversion shall occur unless the Lessee shall have submitted an Interest Period Selection Notice in connection therewith. (b) The proceeds of each Advance shall be used solely to provide the Lessee with funds with which to pay or reimburse itself for Property Acquisition Costs and Property Improvement Costs. -14- 16 Participation Agreement ARTICLE IV YIELD; INTEREST; FEES SECTION 4.1. Yield. (a) The amount of the Lessor Amounts outstanding from time to time shall accrue yield ("Yield") at the Yield Rate, calculated using the actual number of days elapsed and, when the Yield Rate is based on the LIBO Rate (Reserve Adjusted), a 360-day year basis and, if calculated at the Alternate Base Rate, a 360-day year basis if the Alternate Base Rate is calculated at the Federal Funds Rate, and a 365-, or, if applicable, 366-, day year basis if the Alternate Base Rate is calculated at the Prime Rate. If all or any portion of the Lessor Amounts, any Yield payable thereon or any other amount payable hereunder shall not be paid when due (whether at stated maturity, acceleration thereof or otherwise), such overdue amount shall bear interest at a rate per annum which is equal to the Overdue Rate. (b) The Agent shall distribute, in accordance with Article VII, the Lessor Basic Rent and all other amounts due with respect to the Lessor Amounts paid to the Agent by the Lessee under the Lease from time to time. (c) During the Base Lease Term, Yield shall accrue on outstanding Lessor Amounts and shall be paid on each Scheduled Payment Date. (d) During the Base Lease Term, the Lessee shall make an amortization payment, if any, with respect to the aggregate Lessor Amounts, on the date and in the amount(s) set forth in the Master Rent Schedule. (e) The outstanding aggregate Lessor Amounts shall be repaid in full on the Maturity Date. SECTION 4.2. Interest on Loans. (a) Each Loan shall accrue interest computed and payable in accordance with the terms of the Loan Agreement. (b) The Agent shall distribute, in accordance with the Article VII, the Lender Basic Rent and all other amounts due with respect to the Loans paid to the Lessor by the Lessee under the Lease from time to time. -15- 17 Participation Agreement SECTION 4.3. Fees; Break Costs. The Lessee hereby agrees to pay the fees set forth in this Section 4.3. All such fees shall be non-refundable. (a) Commitment Fees. The Lessee shall pay to the Lessor, for the period (including any portion thereof when the Lessor's obligations pursuant to Section 3.2 are suspended by reason of the Lessee's inability to satisfy any condition of Article II) (x) with respect to City Center V, commencing on (and including) the Improvements Closing Date for City Center V and continuing through (but excluding) the earlier of the Restructuring Date or the last day of the Construction Commitment Period with respect to City Center V, a Commitment Fee at a rate of 0.275% per annum on the average daily unused portion of the Lessor Commitment amount and (y) with respect to City Center II, from the Restructuring Date) to the last day of the Construction Commitment Period, a Commitment Fee at a rate of 0.80% per annum on the average daily unused portion of the Lessor Commitment. The Lessee shall pay to the Agent for distribution to the Lenders in proportion to their respective Loan Commitments, with respect to City Center II, commencing from the Restructuring Date and continuing to the last day of the Construction Commitment Period, a Commitment Fee at a rate of 0.20% per annum on the average daily unused portion of the Loan Commitment. Collectively or individually, as the context may require, the above Commitment Fees payable by the Lessee to either the Lessor or the Agent (for the benefit of the Lenders) shall be referred to as a "Commitment Fee". The Commitment Fee shall be payable by the Lessee in arrears on each Construction Payment Date and on the last day of the Construction Commitment Period. The Commitment Fee, including that portion payable to the Lenders, shall be paid from the proceeds of Advances and the Agent shall instruct the Lessor and the Lenders to make notations in their records that such fees have been paid, capitalized and added to the Lease Balance. (b) Arrangement Fee. The Lessee has paid to the Lessor an Arrangement Fee (the "Arrangement Fee"), with respect to City Center V which fee was capitalized and included in the Property Improvement Costs of City Center V. In addition, the Lessee shall pay to the Lessor with respect to City Center II, for distribution by it to the Lenders in proportion to their respective Loan Commitments, an amount equal to 0.10% of the Loan Commitment Amount. Such amounts for City Center II shall be payable on the Restructuring Date and shall be paid from the proceeds of Advances and the Agent shall instruct -16- 18 Participation Agreement the Lessor and the Lenders to make notations in their records that such fees have been paid, capitalized and added to the Lease Balance. (c) Break Costs. To the extent any Participant incurs Break Costs as a result of the occurrence of the Restructuring Date, such Break Costs shall be paid from the proceeds of Advances and the Agent shall instruct the Lessor and the Lenders to make notations in their records that such Break Costs have been paid, capitalized and added to the Lease Balance. ARTICLE V CERTAIN INTENTIONS OF THE PARTIES SECTION 5.1. Nature of Transaction. (a) The parties hereto intend that (i) for financial accounting purposes with respect to the Lessee, the Lessor will be treated as the owner and the lessor of the Properties and the Lessee will be treated as the lessee of the Properties and (ii) for all other purposes, including federal and all state and local income tax purposes, state real estate and commercial law and bankruptcy purposes, (A) the Lease will be treated as a financing arrangement, (B) the Lessor and the Lenders will be deemed lenders making loans to the Lessee in an amount equal to the sum of the Lessor Amounts and the outstanding principal amount of the Loans, which loans are secured by the Properties and (C) the Lessee will be treated as the owner of the Properties and will be entitled to all tax benefits ordinarily available to an owner of properties like the Properties for such tax purposes. Nevertheless, the Lessee acknowledges and agrees that neither the Lessor nor any of the Lenders has made any representations or warranties to the Lessee concerning the tax, accounting or legal characteristics of the Operative Documents and that the Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents as it deems appropriate. (b) Specifically, without limiting the generality of clause (a) of this Section 5.1, the parties hereto intend and agree that in the event of any insolvency or receivership proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency laws or statute of the United States of America or any State or Commonwealth thereof affecting the Lessee, the -17- 19 Participation Agreement Lessor, or the Lenders or any collection actions, the transactions evidenced by the Operative Documents shall be regarded as loans made by the Lessor and the Lenders as unrelated third party lenders of the Lessee. SECTION 5.2. Amounts Due Under Lease. Anything else herein or elsewhere to the contrary notwithstanding, it is the intention of the Lessee, the Lessor and the Lenders that: (i) the amount and timing of installments of Basic Rent due and payable from time to time from the Lessee under the Lease shall be equal to the aggregate payments due and payable as interest on the Loans and Yield on the Lessor Amounts on each Basic Rent Payment Date; (ii) if the Lessee elects the Purchase Option or becomes obligated to purchase any of the Properties under the Lease, the Loans, the Lessor Amounts, all interest, Yield and Fees thereon and all other obligations of the Lessee owing to the Lessor and the Lenders shall be paid in full by the Lessee; (iii) if the Lessee properly elects the Remarketing Option, the Lessee shall only be required to pay to the Lessor the proceeds of the sale of each of the Properties, the Loan Balance and any amounts due pursuant to Article XIII hereof and Section 20.2 of the Master Lease (which aggregate amounts may be less than the Lease Balance); and (iv) upon an Event of Default resulting in an acceleration of the Lessee's obligation to purchase the Properties under the Lease, the amounts then due and payable by the Lessee under the Lease shall include all amounts necessary to pay in full the Lease Balance, plus all other amounts then due from the Lessee to the Participants under the Operative Documents. SECTION 5.3. Purchase of World Headquarters. In the event that the Purchase Option for World Headquarters is exercised by the Lessee or an assignee thereof and the purchase price paid therefor is in excess of the Lease Balance applicable thereto, the Lessee may deliver all or a portion of such excess to the Lessor and direct the Lessor to apply the amount of such excess to the partial payment of the outstanding Lease Balance for either or both of City Center I or City Center II as agreed upon with the Lessor at the time of such purchase and the Lessor shall comply with such direction. ARTICLE VI ADDITIONAL COLLATERAL SECTION 6.1. Deficiency. If the fair market value, as determined by the Collateral Agent, of the Additional Collateral held by the Collateral Agent shall be less than 102.0% of the Loan Balance then outstanding (any such day of -18- 20 Participation Agreement determination, a "Deficiency Date"), and the Lessee has been given notice of such deficiency by the Collateral Agent pursuant to the terms and conditions of the Pledge Agreement, then, within two Business Days of such Deficiency Date, the Lessee shall deposit with the Collateral Agent such Additional Collateral ("Deficiency Collateral") so as to cause the fair market value, as determined by the Collateral Agent, of Additional Collateral then held by the Collateral Agent pursuant to the terms and conditions of the Pledge Agreement, and after giving effect to the deposit of such Deficiency Collateral, to be equal to or in excess of 102.0% of the then outstanding Loan Balance. SECTION 6.2. Surplus. If on any day the fair market value of the Additional Collateral held by the Collateral Agent pursuant to terms and conditions of the Pledge Agreement shall exceed 102.0% of the then outstanding Loan Balance, and provided that no Default or Event of Default has occurred and is continuing, then the Lessee may request in writing to the Agent and the Lessor that the Lessor and the Agent cause the Collateral Agent to release to the Lessee Additional Collateral in an amount such that after giving effect to such release, the fair market value, as determined by the Collateral Agent of the remaining Additional Collateral held by the Collateral Agent subject to the terms and conditions of the Pledge Agreement shall equal or exceed 102.0% of the then outstanding Loan Balance (such released Additional Collateral, "Surplus Collateral"). Upon receipt of such notice, and subject to the terms and conditions of the Pledge Agreement, the Agent and the Lessor promptly shall cause the Collateral Agent to release such Surplus Collateral to the Lessee; provided, however, that after giving effect to such release, no Default of Event of Default shall occur; and provided further, that no release of Surplus Collateral shall in any way affect the obligations of the Lessee pursuant to Section 6.1. ARTICLE VII DISTRIBUTIONS SECTION 7.1. Basic Rent. Each payment of Basic Rent (and any payment of interest on overdue installments of Basic Rent) received by the Agent shall be distributed by the Agent to the Lessor and the Lenders pro rata, without priority, in accordance with, and for application to, the Lender Basic Rent and Lessor Basic Rent then due, as well as any overdue interest or yield due to the Lenders (to the extent permitted by applicable law). -19- 21 Participation Agreement SECTION 7.2. Purchase Payments by the Lessee. (a) Any payment received by the Agent as a result of: (i) the purchase of any or all of the Properties in connection with the exercise of the Purchase Option under Section 18.1 of the Master Lease, (ii) compliance with the obligation to purchase (or cause its designee to purchase) all of the Properties in accordance with Section 18.2 of the Master Lease, (iii) compliance with the obligation to purchase all unsold Properties in accordance with Section 16.2(e) of the Master Lease, (iv) failure to fulfill one or more of the conditions to exercise of the Remarketing Option with respect to any Property pursuant to Section 20.1 of the Master Lease and Lessor's receipt of the Lease Balance pursuant to the next-to-last paragraph of Section 20.1 of the Master Lease, (v) the payment of the Property Balance with respect to any Property in accordance with Section 15.1 of the Master Lease, shall be distributed by the Agent to the Lessor and the Lenders pro rata without priority of one over the other, in the proportion that the Participant Balance of each of the Lenders and the Lessor bears to the aggregate of all of the Participant Balances. SECTION 7.3. Payment of Loan Balance. The payment of the Loan Balance to the Agent in accordance with Section 20.1(k) of the Master Lease upon the exercise of the Remarketing Option shall be distributed to the Lenders for application to pay in full the Participant Balance of each Lender. SECTION 7.4. Sales Proceeds of Remarketing of Properties. Any payments received by the Agent as proceeds from the sale of the Properties sold pursuant to the exercise of the Remarketing Option pursuant to Article XX of the Master Lease, together with any payment made as a result of an -20- 22 Participation Agreement appraisal pursuant to Section 13.2, shall be distributed by Agent in the funds so received in the following order of priority: first, to the Lessor for application to pay in full the Participant Balance of the Lessor, and second, the balance, if any, shall be promptly paid to the Lessor to be distributed as provided in the Lease. SECTION 7.5. Supplemental Rent. All payments of Supplemental Rent received by the Agent (excluding any amounts payable pursuant to the preceding provisions of this Article VII) shall be distributed promptly by the Agent upon receipt thereof to the Persons entitled thereto pursuant to the Operative Documents. SECTION 7.6. Additional Collateral Realizations. All amounts realized and received by the Agent on account of the exercise of its remedies with respect to the Additional Collateral shall be distributed by the Agent in the following order of priority: first, so much of such payment or amount as shall be required to reimburse the Agent or Collateral Agent for any tax, expense or other loss incurred by the Agent or Collateral Agent, as the case may be (to the extent not previously reimbursed and to the extent incurred in connection with any duties as the Agent or Collateral Agent, as the case may be), shall be distributed to the Agent for its own account; second, so much of such payments or amounts as shall be required to pay the Agent or the Collateral Agent the amounts payable to it pursuant to any expense reimbursement or indemnification provisions of the Operative Documents shall be distributed to the Agent or the Collateral Agent, as the case may be; third, so much of such payments or amounts as shall be required to pay the then existing or prior Lenders the amounts payable to them pursuant to any expense reimbursement or indemnification provisions of the Operative Documents shall be distributed to each such Lender without priority of one over the other in accordance with the amount of such payment or payments payable to each such Person; -21- 23 Participation Agreement fourth, to the Lenders for application to pay in full the Participant Balance of each Lender and, in the case where the amounts so distributed shall be insufficient to pay in full as aforesaid, then pro rata among the Lenders without priority of one over the other in the proportion that the Participant Balance of each such Lender bears to the aggregate Participant Balances of all Lenders; and fifth, the balance, if any, of such payment or amounts remaining thereafter shall be promptly distributed to, or as directed by, the Lessee. Notwithstanding the foregoing, (i) proceeds derived from the liquidation of the Additional Collateral shall be distributed first, among the Lenders without priority of one over the other in the proportion that the Participant Balance of each such Lender bears to the aggregate Participant Balances of all Lenders, second, to the Lessor in satisfaction of the Lessor Balance and third, to the extent of any excess, to the Lessee and (ii) proceeds derived from the sale of Properties shall be distributed first, to the Lessor in satisfaction of the Lessor Balance, second, among the Lenders as provided in foregoing clause (i) and third, to the extent of any excess, to the Lessee. SECTION 7.7. Distribution of Payments after Lease Event of Default. (a) All amounts received by the Agent during the continuance of a Lease Event of Default, shall, except as provided in Section 7.6, be distributed by the Agent in the following order of priority: first, so much of such payment or amount as shall be required to reimburse the Agent for any tax, expense or other loss incurred by the Agent (to the extent not previously reimbursed and to the extent incurred in connection with any duties as the Agent), shall be distributed to the Agent for its own account; second, so much of such payments or amounts as shall be required to pay the Agent the amounts payable to it pursuant to any expense reimbursement or indemnification provisions of the Operative Documents shall be distributed to the Agent; -22- 24 Participation Agreement third, so much of such payments or amounts as shall be required to pay the then existing or prior Lenders and the Lessor the amounts payable to them pursuant to any expense reimbursement or indemnification provisions of the Operative Documents shall be distributed to each such Lender and Lessor without priority of one over the other in accordance with the amount of such payment or payments payable to each such Person; fourth, to the Lessor to pay in full the Lessor Balance then to the Lenders to pay in full any outstanding Loan Balance; and fifth, the balance, if any, of such payment or amounts remaining thereafter shall be promptly distributed to, or as directed by, the Lessee. (b) All payments received and amounts realized by the Agent in connection with any Condemnation during the continuance of a Lease Event of Default shall be distributed by the Agent as follows: (i) in the event that Lessor and the Agent elect to pay all or a portion of such amounts to the Lessee for the repair of damage caused by such Condemnation in accordance with Section 14.1(a) of the Master Lease, then such amounts shall be distributed to the Lessee, and (ii) in the event that the Lessor and the Agent elect to apply all or a portion of such amounts to the purchase price of the related Property in accordance with Section 14.1(a) and Article XV of the Master Lease, then such amounts shall be distributed in accordance with clause (a). SECTION 7.8. Other Payments. (a) Except as otherwise provided in Sections 7.1, 7.2, 7.6, 7.7 and clause (b) below, any payment received by the Agent for which no provision as to the application thereof is made in the Operative Documents or elsewhere in this Article VII shall be distributed pro rata among the Lenders and the Lessor without priority of one over the other, in the proportion that the Participant Balance of each bears to the aggregate of all the Participant Balances. -23- 25 Participation Agreement (b) Except as otherwise provided in Sections 7.1, 7.2, 7.6 and 7.7, all payments received and amounts realized by Lessor under the Master Lease or otherwise with respect to the Properties to the extent received or realized at any time after indefeasible payment in full of the Participant Balances of all of the Lenders and the Lessor and any other amounts due and owing to the Lenders or the Lessor, shall be distributed forthwith by the Agent in the order of priority set forth in Section 7.7. (c) Except as otherwise provided in Sections 7.1 and 7.2, any payment received by Lessor for which provision as to the application thereof is made in an Operative Document but not elsewhere in this Article VI shall be distributed forthwith by the Agent to the Person and for the purpose for which such payment was made in accordance with the terms of such Operative Document. SECTION 7.9. Casualty and Condemnation Amounts. Subject to Section 7.7(b), any amounts payable to the Agent as a result of a Casualty or Condemnation pursuant to Section 14.1 of the Master Lease and the Assignment of Lease and Rent shall be distributed as follows: (a) all amounts payable to a Lessee for the repair of damage caused by such Casualty or Condemnation in accordance with Section 14.1(a) of the Master Lease shall be distributed to the Lessee, and (b) all amounts that are to be applied to the purchase price of the related Property in accordance with Section 14.1(a) and Article XV of the Master Lease shall be distributed by the Agent to the Lenders and the Lessor pro rata without priority of one over the other, in the proportion that the Participant Balance of each bears to the aggregate of all of the Participant Balances. Section 13.10 shall not apply to any distribution or prepayment made pursuant to this Section 7.9(b). SECTION 7.10. Order of Application. To the extent any payment made to any Lender or the Lessor pursuant to Section 7.2, 7.3, 7.4, 7.6 or 7.7 is insufficient to pay in full the Participant Balance of such Lender or the Lessor, then each such payment shall first be applied to accrued interest or Yield and then to principal or the Lessor Amount, as applicable. -24- 26 Participation Agreement ARTICLE VIII REPRESENTATIONS SECTION 8.1. Representations of the Participants. Each Participant represents and warrants to each other Participant and the Lessee that: (a) ERISA. Such Participant is not and will not be making its Loans or funding its Lessor Amounts hereunder, and is not performing its obligations under the Operative Documents, with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code). (b) Status. Such Participant is a commercial bank, savings and loan association, savings bank, pension plan, depository institution, insurance company, branch or agency of a foreign bank or other similar financial institution, or an Affiliate thereof. (c) Power and Authority. Such Participant has the requisite power and authority to enter into and perform under the Operative Documents to which it is a party. SECTION 8.2. Representations of the Lessee. The Lessee hereby represents and warrants to each Participant and the Agent that: (a) Corporate Status. The Lessee (i) is a duly organized and validly existing corporation in good standing under the laws of the State of Delaware and (ii) has duly qualified and is authorized to do business and is in good standing in all jurisdictions where the failure to do so might have a Material adverse effect on it or its properties. (b) Corporate Power and Authority. The Lessee has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Operative Documents to which it is or will be a party and has taken all necessary corporate action to authorize the execution, delivery and performance of the Operative Documents to which it is a party and has duly executed and delivered each Operative Document required to be executed and delivered by it and, assuming the due authorization, execution and delivery thereof on the part of each other party thereto, each such Operative Document constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms, except as the same may be -25- 27 Participation Agreement limited by insolvency, bankruptcy, reorganization or other laws relating to or affecting the enforcement of creditors' rights or by general equitable principles and except as the same may be limited by certain circumstances under law or court decisions in respect of provisions providing for indemnification of a party with respect to liability where such indemnification is contrary to public policy. (c) No Violation. Neither the execution, delivery and performance by the Lessee of the Operative Documents to which it is or will be a party nor compliance with the terms and provisions thereof, nor the consummation by the Lessee of the transactions contemplated therein (i) will result in a violation by the Lessee of any provision of any Applicable Law or Materially adversely affect (x) the validity or enforceability of the Operative Documents to which the Lessee is a party, or the title to, or value or condition of, any Property, or (y) the consolidated financial position, business or consolidated results of operations of the Lessee or the ability of the Lessee to perform its obligations under the Operative Documents, (ii) will conflict with or result in any breach which would constitute a default under, or (other than pursuant to the Operative Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Lessee pursuant to the terms of any indenture, loan agreement or other agreement for borrowed money to which the Lessee is a party or by which it or any of its property or assets is bound or to which it may be subject (other than Permitted Liens), or (iii) will violate any provision of the certificate of incorporation or by-laws of the Lessee. (d) Litigation. There are no actions, suits or proceedings pending (except for the actions which have been disclosed to the Lessor in the Lessee's 10-K for the fiscal year ending on April 1, 1998 and 10-Q for the quarterly period ending on October 2, 1998 or, to the knowledge of the Lessee, threatened (i) that are reasonably likely to have a Materially Adverse Effect on any Property or on the businesses, operations, financial condition or Material Assets of the Lessee or (ii) that question the validity of the Operative Documents or the rights or remedies of any Participant with respect to the Lessee or any Property under the Operative Documents. There is no action, suit or proceeding (including any proceeding in condemnation or eminent domain or under any Environmental Law) pending or, to the best of the Lessee's -26- 28 Participation Agreement knowledge, threatened with respect to the Lessee or any Property which adversely Materially affects the title to, or the use, operation or value of, such Property. (e) Governmental Approvals. No Governmental Action by any Governmental Authority having jurisdiction over the Lessee or any Property is required to authorize or is required in connection with (i) the execution, delivery and performance by the Lessee of any Operative Document to which it is a party, (ii) the Construction (other than those that have been obtained or will be obtained as needed), or (iii) the legality, validity, binding effect or enforceability against the Lessee of any Operative Document to which it is a party. (f) Investment Company Act. The Lessee is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act. (g) Public Utility Holding Company Act. The Lessee is not a "holding company" or a "subsidiary company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Company Act of 1935, as amended. (h) Provided Information. The information and materials which have been provided by the Lessee or on its behalf by any Person to any Participant with respect to each Property, in each case as supplemented or amended prior to the Funding Date, are true and accurate in all Material respects on the date as of which such information and materials are dated or certified and are not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. (i) Taxes. All United States Federal income tax returns and all other tax returns which are required to have been filed have been or will be filed by or on behalf of the Lessee by the respective due dates, including extensions, and all taxes due with respect to the Lessee pursuant to such returns or pursuant to any assessment received by the Lessee have been or will be paid. The charges, accruals and reserves on the books of the Lessee in respect of taxes or other governmental charges are, in the opinion of the Lessee adequate. -27- 29 Participation Agreement (j) Compliance with ERISA. Each member of the ERISA 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 with respect to the Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has resulted or could result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. No Plan Termination Event has occurred with respect to any Plan or Multiple Employer Plan. No member of the ERISA Group has any knowledge of any event that could result in a liability of any such member to the PBGC, whether under a Plan, a Multiemployer Plan, a Multiple Employer Plan, or otherwise. There have not been any nor are there now existing any events or conditions that would permit any Plan to be terminated under circumstances that would cause the lien provided under Section 4068 of ERISA to attach to the Material Assets of the Lessee or its ERISA Affiliates. The value of the Plans' benefits guaranteed under Title IV of ERISA on the date hereof does not exceed the value of such Plans' assets allocable to such benefits as of the date of this Agreement. No "Prohibited Transaction" within the meaning of Section 406 of ERISA exists or will exist upon the execution and delivery of this Agreement or any Operative Document. (k) Environmental Laws. The Lessee is in compliance with all Environmental Laws relating to pollution and environmental control in all domestic jurisdictions in which all real property of the Lessee, including the Land, are located, other than those the non-compliance with which would not have a Material adverse effect on such real property, including the Land, or the consolidated results of operations, business, or consolidated financial position of the Lessee. (l) Offer of Securities, etc. Neither the Lessee nor any Person authorized to act on the Lessee's behalf has, directly or indirectly, offered any interest in each Property or any other interest similar thereto (the sale or offer of which would be integrated with the sale or offer of such interest in each such Property), for sale to, or solicited any offer to acquire any of the same -28- 30 from, any Person other than each Participant and the Agent and other "accredited investors" (as defined in Regulation D of the Securities and Exchange Commission). (m) Financial Statements. (i) The Submitted Financial Statements, copies of which have been delivered to the Agent and each Participant, present fairly, in conformity with GAAP subject to the disclosures in the Lessee's Form 8-K dated January 6, 1999 filed with the SEC, the financial position of the Lessee as of such date and its results of operations and cash flows for such fiscal year. (ii) The unaudited consolidated statement of financial position of the Lessee as of the quarterly period ending on October 2, 1998 and the related unaudited consolidated statements of income, and cash flows for the year to date, copies of which have been delivered to the Agent and each Participant, present fairly, in conformity with GAAP subject to the disclosures in the Lessee's Form 8-K dated January 6, 1999 filed with SEC applied on a basis substantially consistent with the financial statements referred to in clause (i) of this subsection (m), the consolidated financial position of the Lessee as of such date and its consolidated results of operations and cash flows for such year-to-date period (subject to normal year-end adjustments). (n) Property. Each Property and the contemplated use thereof by the Lessee and its agents, assignees, employees, lessees, licensees and tenants complies with all Material Requirements of Law (including, without limitation, all zoning and land use laws and Environmental Laws) and Material Insurance Requirements, except for such Requirements of Law as the Lessee shall be contesting in good faith by appropriate proceedings. There is no action, suit or proceeding (including any proceeding in condemnation or eminent domain or under any Environmental Law) pending or, to the best of the Lessee's knowledge, threatened with respect to the Lessee, its Affiliates, or any Property which Materially adversely affects the title to, or the use, operation or value of, any Property. (o) Utilities, etc.. All water, sewer, electric, gas, telephone and drainage facilities and all other utilities required to adequately service the applicable Improvements for such Property's intended use are available pursuant to adequate permits (including any that -29- 31 Participation Agreement may be required under applicable Environmental Laws). No fire or other casualty with respect to any Property has occurred which fire or other casualty has had a Material adverse effect on any such Property. Each Property has available all Material services of public facilities and other utilities necessary for use and operation of each Property for its intended purposes including, without limitation, adequate water, gas and electrical supply, storm and sanitary sewerage facilities, telephone, other required public utilities and means of access between such Improvements and public highways for pedestrians and motor vehicles. All utilities serving each Property are located in, and vehicular access to the Improvements on each Property is provided by, either public rights-of-way abutting each Property or Appurtenant Rights. All Material licenses, approvals, authorizations, consents, permits (including, without limitation, building, demolition and environmental permits, licenses, approvals, authorizations and consents), easements and rights-of-way, including proof and dedication, required for the use, treatment, storage, transport, disposal or disposition of any Hazardous Substance on, at, under or from each Property during the use thereof have either been irrevocably obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, or will be irrevocably obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, prior to commencing any use and operation of such Property. (p) Title. The applicable Deed will be in form and substance sufficient to convey good and marketable title to the applicable Property in fee simple, subject only to Permitted Liens. The Lessor will at all times during the applicable Term have good title to all Equipment located on each Property and in any Improvements on each Property, subject only to Permitted Liens. (q) Insurance. The Lessee has obtained insurance coverage covering the applicable Property which meets the requirements of the Master Lease, and such coverage is in full force and effect. The Lessee carries insurance with reputable insurers in respect of its Material Assets, in such manner, in such amounts and against such risks as is customarily maintained by other Persons of similar size engaged in similar business. (r) Flood Hazard Areas. Except as otherwise identified on the applicable survey delivered pursuant to Section 2.1(q), no portion of any Property is located in -30- 32 Participation Agreement an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency. If any Property is located in an area identified as a special flood hazard area by the Federal Emergency Management Agency or other applicable agency, then flood insurance has been obtained for such Property in accordance with Article XIII of the Lease and in accordance with the National Flood Insurance Act of 1968, as amended. (s) Outstanding Debt. As of the date hereof, the Lessee has no outstanding Indebtedness, other than Indebtedness arising or permitted hereunder or under the Operative Documents, except as reflected on the balance sheets in the Submitted Financial Statements. (t) Title to Properties. The Lessee has good and marketable title to all of its Material Assets reflected on the balance sheets in the Submitted Financial Statements, except for such Material Assets as have been disposed of in the ordinary course of business, and all such Material Assets are free and clear of any Lien, except as reflected in the Submitted Financial Statements and/or notes thereto or as otherwise permitted by the provisions hereof or under the Operative Documents, and except for Permitted Liens. The Lessee has such trademarks, trademark rights, trade names, trade name rights, franchises, copyrights, patents, patent rights and licenses as to allow it to conduct its business as now operated, without known conflict with the rights of others. (u) Defaults. The Lessee is not in default under (and no event has occurred which with the lapse of time or notice or action by a third party could result in a default under) any instrument evidencing any Indebtedness in excess of $1,000,000.00 or under any agreement relating thereto or any indenture, mortgage, deed of trust, security agreement, lease, franchise or other agreement or other instrument to which any such Person is a party or by which any such Person or any of its Material Assets is subject to or bound. (v) Use of Advances. No part of any Advance will be used directly or indirectly for the purpose of purchasing or carrying, or for payment in full or in part of Debt that was incurred for the purposes of purchasing or carrying, any margin security as such term is defined in Section 207.2 of Regulation G of the Board of Governors of the Federal Reserve System (12 C.F.R., Chapter II, Part 207). -31- 33 Participation Agreement (w) Solvency. The Lessee is Solvent. ARTICLE IX PAYMENT OF CERTAIN EXPENSES The Lessee agrees, for the benefit of the Lessor, the Agent and the Lenders, that: SECTION 9.1. Transaction Expenses. (a) The Lessee shall pay, or cause to be paid, from time to time all Transaction Expenses in respect of the transactions on the Documentation Date and each Funding Date; provided, however, that, if the Lessee has not received written invoices therefor prior to such date, such Transaction Expenses shall be paid within ten (10) days after the Lessee has received written invoices therefor. (b) The Lessee shall pay or cause to be paid (i) all Transaction Expenses incurred by the Lessor, the Agent or any Lender in entering into any future amendments or supplements with respect to any of the Operative Documents, whether or not such amendments or supplements are ultimately entered into, or giving or withholding of waivers of consents hereto or thereto, in each case which have been requested by or approved by the Lessee, (ii) all Transaction Expenses incurred by the Lessor, the Agent or the Lenders in connection with any purchase of any Property by the Lessee or other Person pursuant to Articles XVIII and XXI of the Master Lease and (iii) all Transaction Expenses incurred by any of the other parties hereto in respect of enforcement of any of their rights or remedies against the Lessee or any other Affiliate of the Lessee in respect of the Operative Documents. SECTION 9.2. Brokers' Fees and Stamp Taxes. The Lessee shall pay or cause to be paid any brokers' fees and any and all stamp, transfer and other similar taxes, fees and excises, if any, including any interest and penalties, which are payable in connection with the transactions contemplated by this Participation Agreement and the other Operative Documents. SECTION 9.3. Loan Agreement and Related Obligations. The Lessee shall pay, without duplication of any other obligation of the Lessee to pay any such amount under the Operative Documents, before the due date thereof, all costs, expenses and other amounts (other than principal and interest -32- 34 Participation Agreement on the Loans which are payable to the extent otherwise required by the Operative Documents) required to be paid by the Lessor under the Loan Agreement. ARTICLE X OTHER COVENANTS AND AGREEMENTS SECTION 10.1. Affirmative Covenants of Lessee. The Lessee hereby agrees that so long as this Participation Agreement is in effect, the Lessee shall: (a) Information. The Lessee will deliver to the Agent, and each Participant: (i) as soon as available and in any event within one hundred (100) days after the end of each fiscal year of the Lessee, consolidated statements of financial position of the Guarantor and its consolidated subsidiaries as of the end of such fiscal year and the related consolidated statements of income and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, with such consolidated financial statements reported on by Ernst & Young or other independent public accountants of nationally recognized standing reasonably acceptable to the Required Participants; (ii) as soon as available and in any event within sixty (60) days after the end of each of the first three quarters of each fiscal year of the Guarantor, a consolidated statement of financial position of the Guarantor as of the end of such quarter and the related consolidated statements of income and cash flows for such quarter and for the portion of the Guarantor's fiscal year ended at the end of such quarter; (iii) if and when any member of the ERISA Group (1) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV or ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (2) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is -33- 35 Participation Agreement in reorganization, is insolvent or has been terminated, a copy of such notice; (3) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (4) applies for a waiver of the minimum funding standard under Section 412 of the Code, a copy of such application; (5) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (6) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (7) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which has resulted or could result in the imposition of a Lien or the posting of a bond or other security, a certificate of the chief financial officer or the chief accounting officer of the Lessee setting forth details as to such occurrence and action, if any, which the Lessee or applicable member of the ERISA Group is required or proposes to take; (iv) as soon as possible and in any event within five days after the occurrence of each Event of Default or each event that, with the giving of notice or time elapse, or both, would constitute an Event of Default continuing on the date of such statement, a statement of the authorized officer setting forth details of such Event of Default or event and the action that the Lessee proposes to take with respect thereto; (v) immediately upon any change of the Lessee's independent public accountants, notification thereof and such further information as the Agent or the Lessor may reasonably request concerning the resignation, refusal to stand for reappointment after completion of the current audit or dismissal of such accountants; (vi) promptly upon becoming aware thereof, written notice of any Material adverse change in the business, or operations of the Lessee; (vii) promptly upon becoming aware thereof, written notice of the commencement or existence of any proceeding against the Lessee or any Affiliate of the Lessee by or before any court or governmental -34- 36 Participation Agreement agency that might, in the reasonable judgment of the Lessee, result in a Material adverse effect on the business, operations or financial conditions of the Lessee or the ability of the Lessee to perform its obligations under the Operative Documents; (viii) as soon as possible and in any event within five days after the occurrence of any material violation or alleged violation of an Environmental Law, a statement of an authorized officer setting forth the details of such violation and the action which the Lessee proposes to take with respect thereto; (ix) promptly but no later than five Business Days after a Change in Control shall have occurred, provide written notice to the Lessor and the Agent of such occurrence; and (x) from time to time such additional information regarding the business, properties, condition or operations, financial or otherwise, of the Lessee, or regarding any Property or the status of any construction thereon, as the Agent or the Lessor may reasonably request. (b) Compliance with Laws. The Lessee will comply in all Material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) with respect to its Material Assets, including each Property, except where the necessity of compliance therewith is contested in good faith by appropriate proceedings. (c) Further Assurances. The Lessee shall take or cause to be taken from time to time all action necessary to assure that the intent of the parties pursuant to the Operative Documents is given effect as contemplated by this Lease and that the Lessor holds a perfected Lien on each Property securing the Lease Balance as contemplated by Article V. The Lessee shall execute and deliver, or cause to be executed and delivered, to the Lessor and the Agent from time to time, promptly upon request therefor, any and all other and further instruments (including correction instruments and supplemental mortgages, deeds of trust and security agreements) that may be reasonably requested by the any Participant to cure any deficiency in the execution and delivery of any Operative Document to which it is a party. -35- 37 Participation Agreement (d) Preservation of Existence, Etc. The Lessee will preserve and maintain its existence and all rights, privileges and franchises necessary and desirable in the normal conduct of its business and the performance of its obligations hereunder and under the Operative Documents. (e) Payment of Taxes, Etc. The Lessee shall pay and discharge before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its Material Assets, and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its Material Assets; provided, however, that the Lessee shall not be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings, so long as no public tax sale divesting Lessee of its interest in the Lessor Property can occur during such proceedings. (f) Financial Covenants. (i) Quick Ratio. The Lessee shall maintain as of the last day of any fiscal quarter (on a consolidated basis) a ratio of "A" to "B" where: "A" means the sum of cash, short-term investments, marketable securities not classified as long-term investments, accounts receivable and restricted investments held as collateral under the Pledge Agreement with Sumitomo Bank dated as of October 18, 1996, as amended or restated from time to time ("Restricted Investments"), less the aggregate amount of outstanding liabilities secured or supported by all security interests, liens, encumbrances or rights of others (including any agreement to grant such a security interest, lien or encumbrance in the future, whether contingent or not, and including any lien on the Restricted Investments permitted under subsection 9.03 of the Credit Agreement) on such assets; and "B" means current liabilities, including all funded obligations, outstanding Letter of Credit Obligations and guaranties issued by Borrower (as defined in the Credit Agreement) to the Bank (as defined in the Credit Agreement) outstanding under the Credit Agreement and all similar unfunded instruments outstanding under the Credit Agreement and, in each case, any instrument and agreement required under the Credit Agreement; at least equal to the following number with respect to the following fiscal quarters -36- 38 Participation Agreement ending: (a) on January 1, 1999 and on April 2, 1999 - 0.75; (b) on July 7, 1999 and thereafter - 1.00. (ii) Tangible Net Worth. The Lessee shall maintain as of the last day of any fiscal quarter (on a consolidated basis) Tangible Net Worth during the period beginning on April 3, 1999, in an amount equal to at least 85% of Tangible Net Worth as of April 2, 1999, plus the sum of (i) 75% of net income after income taxes (without subtracting losses) earned in each quarterly accounting period commencing after April 2, 1999 and (ii) 100% of Equity Proceeds (as defined in the Credit Agreement); (iii) Total Debt to Adjusted EBITDA Ratio. Permit as of the last day of any fiscal quarter the ratio (determined on a consolidated basis) of (a) total debt (which shall include Letter of Credit Obligations under the Credit Agreement) to (b) Adjusted EBITDA not to exceed 1.00 : 1:00, where Adjusted EBITDA shall mean the aggregate net income for the immediately preceding four fiscal quarters ending as of that day plus (A) to the extent deducted from gross revenues in computing such net income (i) interest expense, (ii) tax expense, (iii) depreciation, (iv) amortization of goodwill, software development expenses, and other intangibles of any kind, and (v) post-closing, non-cash restructuring charges taken in conjunction with, and within three months following the closing of, each Acquisition (as defined in the Credit Agreement) permitted under the Credit Agreement, minus (B) (i) software development expenses capitalized during such period and (ii) capital expenditures during such period. ARTICLE XI LESSEE DIRECTIONS SECTION 11.1. Lessee Directions. The Lessor and the Lenders hereby agree that, so long as no Lease Default or Lease Event of Default exists, the Lessee shall have the exclusive right to exercise any right of the Lessor under the Loan Agreement upon not less than two (2) Business Days' prior written notice from the Lessee to the Lessor. -37- 39 Participation Agreement ARTICLE XII TRANSFERS OF PARTICIPANTS' INTERESTS SECTION 12.1. Assignments. All or any part of the interest of any Participant in, to or under this Participation Agreement, the other Operative Documents, the Properties or the Notes may be assigned or transferred by such Participant at any time; provided, however, that (a) each assignment or transfer shall comply with all applicable securities laws, (b) any assignment or transfer by a Lender to a Person that is not an Affiliate of the transferor thereof shall be subject to the consent of the Lessee (which consent shall not be unreasonably withheld, and no such consent being required with respect to the interest of the Lessor under the Operative Documents), and (c) any assignee or transferee (i) acknowledges that the obligations to be performed from and after the date of such transfer or assignment under this Participation Agreement and all other Operative Documents are its obligations, including the obligations imposed by this Section 12.1 (and the transferor and transferee Participant shall deliver to the Lessee, the Lessor and the Agent an Assignment Agreement, in substantially the form of Exhibit E, executed by the assignee or transferee) and (ii) further represents and warrants to the Lessor, each Participant and the Lessee that: (A) it is a commercial bank, savings and loan association, savings bank, pension plan, depository institution, insurance company, branch or agency of a foreign bank or other similar financial institution, in each case, having a minimum capital and surplus of $50,000,000; (B) it has the requisite power and authority to accept such assignment or transfer; (C) it will not transfer such Note or interest in a Lessor Amount, as the case may be, unless the proposed transferee makes the foregoing representations and covenants; (D) it will not take any action with respect to such Note or interest in a Lessor Amount, as the case may be, that would violate any applicable securities laws; and (E) it will not assign or transfer any interest such Note or interest in a Lessor Amount, as the case may be, except in compliance with this Section 12.1. Notwithstanding the foregoing, the Lessor shall not sell, transfer, assign or otherwise encumber title to any Property, or any portion of any Property, except as expressly permitted by the Operative Documents or enter into any lease or easement with respect to any Property, or portion of any Property, except as expressly permitted by the Operative Documents. -38- 40 Participation Agreement SECTION 12.2. Participations. Any Participant may at any time sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Sub-Participant"), participating interests in all or a portion of its rights and obligations under this Participation Agreement, the other Operative Documents, the Properties or its Notes (including, without limitation, all or portion of the Rent owing to it); provided, however, that (a) no participation contemplated in this Section 12.2 shall relieve such Participant from its obligations hereunder or under any other Operative Document; (b) such Participant shall remain solely responsible for the performance of its Commitment and such other obligations; (c) the Lessee shall continue to deal solely and directly with such Participant in connection with such Participant's rights and obligations under this Participation Agreement and each of the other Operative documents; (d) such Participant shall notify the Lessee of any proposed Sub-Participant; and (e) no Sub-Participant shall be entitled to require such Participant to take or refrain from taking any action hereunder or under any other Operative Document except with respect to (i) any change to the amount or timing of the payment of any fees, principal or interest; or (ii) the release of any Lien under the Operative Document. Each Participant agrees that it will notify the Lessee and Agent promptly of the identity of each Sub-Participant to which it sells a participating interest hereunder and the amount of such participating interest. The Lessee acknowledges and agrees that each Sub-Participant, for purposes of Article XIII, shall be considered a Participant. SECTION 12.3. Withholding Taxes; Disclosure of Information; Pledge Under Regulation A. (a) If any Participant (or the assignee of or sub-participant of a Participant, each a "Transferee") is organized under the laws of any jurisdiction other than the United States or any State thereof, then such Participant or the Transferee of such Participant, as applicable, shall (as a condition precedent to acquiring or participating in such Loan or lessor Amount and as a -39- 41 Participation Agreement continuing obligation to the Lessor and the Lessee) (i) furnish to the Lessor and the Lessee in duplicate, for each taxable year of such Participant or Transferee during the term of the Lease, a properly completed and executed copy of either Internal Revenue Service Form 4224 or Internal Revenue Service Form 1001 and Internal Revenue Service Form W-8 or Internal Revenue Service Form W-9 and any additional form (or such other form) as is necessary to claim complete exemption from United States withholding taxes (wherein such Transferee claims entitlement to complete exemption from United States withholding taxes on all payments hereunder), and (ii) provide to the Lessor and the Lessee a new Internal Revenue Service Form 4224 or Internal Revenue Service Form 1001 and Internal Revenue Service Form W-8 or Internal Revenue Service Form W-9 and any such additional form (or any successor form or forms) upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable United States laws and regulations and amendments duly executed and completed by such Participant or Transferee, and to comply from time to time with all applicable United States laws and regulations with regard to such withholding tax exemption. By its acceptance of a participation or assignment of a Participant's Note, each Transferee shall be deemed bound by the provisions set forth in this Article XII. (b) Any Participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Article XII, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Lessee, subject to any confidentiality requirements relating to such information. (c) Anything in this Article XII to the contrary notwithstanding, any Participant may without the consent of the Lessee assign and pledge all or any portion of the Notes held by it to any Federal Reserve Bank, the United States Treasury or to any other financial institution as collateral security pursuant to Regulation A of the F.R.S. Board and any operating circular issued by the Federal Reserve System and/or the Federal Reserve Bank or otherwise; provided, any payment by the Lessee for the benefit of the assigning or pledging Participant shall be deemed to satisfy the Lessee's obligations with respect thereto. -40- 42 Participation Agreement ARTICLE XIII INDEMNIFICATION SECTION 13.1. General Indemnification. (a) Interim Term. The Construction Agent agrees, whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and to indemnify, protect, defend, save and keep harmless the Lessor (which right to indemnify may be assigned by the Lessor to the Lenders), on an After Tax Basis, from and against, any and all Claims relating to City Center II and arising during the Interim Term for such Property that may be imposed on, incurred by or asserted against the Lessor (whether because of action or omission by the Lessor), whether or not the Lessor shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Restructuring Date or after the Expiration Date, in any way relating to or arising out of any of the circumstances described in clauses (i) through (vii) of Section 13.1(b) below, where such Claims relate to the action or omission of the Lessee or its Affiliates while located, on, in possession of, controlling or acting or failing to act with respect to such Property or arise from fraud, misapplication of funds, illegal acts or willful misconduct of the Lessee or its Affiliates. The Lessee acknowledges and agrees in this connection that (x) such Property (other than City Center II which shall not be in the exclusive control of the Lessee until March 5, 1999) is in its exclusive control and possession during the Interim Term therefor, (y) it is responsible as Construction Agent for the acts and omissions of its subcontractors and agents and (z) it has agreed to maintain such Property free from injury or mishap to third persons. (b) Basic Term. The Lessee agrees, whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and to indemnify, protect, defend, save and keep harmless each Indemnitee, on an After Tax Basis, from and against, any and all Claims that may be imposed on, incurred by or asserted against such Indemnitee (whether because of action or omission by such Indemnitee or otherwise), whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Acquisition Date or after the Expiration Date, in any way relating to or arising out of: (i) any of the Operative Documents or any of the transactions contemplated thereby, and any amendment, modification or waiver in respect thereof; -41- 43 Participation Agreement (ii) the Properties or any part thereof or interest therein; (iii) the purchase, design, construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, ownership, management, possession, operation, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition or substitution, storage, transfer of title, redelivery, use, financing, refinancing, disposition, operation, condition, sale (including, without limitation, any sale pursuant to Section 16.2(c), 16.2(e) or 18.3 of the Master Lease or any sale pursuant to Article XV, XVIII or XX of the Master Lease), return or other disposition of all or any part or any interest in the Properties or the imposition of any Lien (or incurring of any liability to refund or pay over any amount as a result of any Lien) thereon, including, without limitation: (1) Claims or penalties arising from any violation of law or in tort (strict liability or otherwise), (2) latent or other defects, whether or not discoverable, (3) any Claim based upon a violation or alleged violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to the Properties, (4) the making of any Modifications in violation of any standards imposed by any insurance policies required to be maintained by Lessee pursuant to the Lease which are in effect at any time with respect to the Properties or any part thereof, (5) any Claim for patent, trademark or copyright infringement, and (6) Claims arising from any public improvements with respect to the Properties resulting in any change or special assessments being levied against any Property or any plans to widen, modify or realign any street or highway adjacent to any of the Properties, or any Claim for utility "tap-in" fees; (iv) the breach by the Lessee of any covenant, representation or warranty made by it or deemed made by it in any Operative Document or any certificate required to be delivered by any Operative Document; (v) the retaining or employment of any broker, finder or financial advisor by the Lessee to act on its behalf in connection with this Participation Agreement; (vi) the existence of any Lien on or with respect to the Properties, the Improvements, any Basic Rent or Supplemental Rent, title thereto, or any interest therein including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of any -42- 44 Participation Agreement Property or by reason of labor or materials furnished or claimed to have been furnished to the Lessee, or any of its contractors or agents or by reason of the financing of any personalty or equipment purchased or leased by the Lessee or Modifications constructed by the Lessee, except Lessor Liens and Liens in favor of the Lender or the Lessor; or (vii) subject to the accuracy of any Participant's representation set forth in Section 8.1(a), as to such Participant, the transactions contemplated by the Lease or by any other Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction described in Section 4975(c) of the Code; Notwithstanding Section 13.1 (a) or 13.1(b) the Lessee shall not be required to indemnify any Indemnitee under this Section 13.1 for any of the following: (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee or any member of its Indemnitee Group (it being understood that the Lessee shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim) or the breach of any representation, warranty or covenant of such Indemnitee set forth in any Operative Document, (2) any Claim resulting from Lessor Liens which the Lessor is, or the Lenders are responsible for discharging under the Operative Documents, (3) any Claim to the extent attributable to acts or events occurring after the Expiration Date or the return or remarketing of any Property so long as the Lessor or the Lenders are not exercising remedies against the Lessee in respect of the Operative Documents, and (4) any Claim arising from a breach or alleged breach by the Lenders or the Lessor of any agreement entered into in connection with the assignment or participation of any Loan or Lessor Amount. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Lease or any other Operative Document. Without limiting the express rights of any Indemnitee under this Section 13.1, this Section 13.1 shall be construed as an indemnity only and not a guaranty of residual value of the Properties or as a guaranty of the Notes. SECTION 13.2. End of Term Indemnity. (a) If the Lessee elects the Remarketing Option and there would, after giving effect to the proposed remarketing transactions, be a Shortfall Amount, then prior to the Expiration Date and as a condition to the -43- 45 Participation Agreement Lessee's right to complete the remarketing of the Properties pursuant to Section 20.1 of the Master Lease, the Lessee shall cause to be delivered to the Lessor at least one hundred twenty (120) days prior to the Expiration Date, at the Lessee's sole cost and expense, a report from the Appraiser in form and substance satisfactory to the Participants (the "End of the Term Report") which shall state the appraiser's conclusions as to the reason for any decline in the Fair Market Sales Value of the applicable Property from that anticipated for such date in the Appraisal delivered on the Acquisition Date/Restructuring Date. (b) If the Lessee elects the Remarketing Option, then on or prior to the Expiration Date the Lessee shall pay to the Lessor an amount (not to exceed the Shortfall Amount) equal to the portion of the Shortfall Amount that the End of the Term Report demonstrates was the result of a decline in the Fair Market Sales Value of the applicable Property due to (i) any rebuilding of the applicable Properties or any part thereof by the Lessee (except in connection with a Casualty, unless such rebuilding failed to restore the Property as required under the Lease), or any failure to restore a Property after a Condemnation where the proceeds derived therefrom were made available to the Lessee for restoration, or (ii) the existence of any Hazardous Activity, Hazardous Materials or Environmental Violations, the indemnity for which shall not exceed the cost of the remediation thereof, or (iii) any restoration or rebuilding carried out by the Lessee, or (iv) any condemnation of any portion of any of the applicable Properties pursuant to Article XIV of the Master Lease, or (v) any use of any of the applicable Properties or any part thereof by the Lessee or any sublessee other than as contemplated by the applicable Appraisal, or (vi) any grant, release, dedication, transfer, annexation or amendment made pursuant to Section 11.2 of the Master Lease, or -44- 46 Participation Agreement (vii) the failure of the Lessor to have good and marketable title to any of the applicable Properties free and clear of all Liens (excluding Permitted Liens), or (viii) the existence of any sublease relating to any of the applicable Properties that shall survive the Expiration Date. SECTION 13.3. Environmental Indemnity. Without limitation of the other provisions of this Article XIII, the Lessee hereby agrees to indemnify, hold harmless and defend each Indemnitee from and against any and all claims (including without limitation third party claims for personal injury or real or personal property damage), losses (including but not limited to, to the extent the Lease Balance has not been fully paid, any loss of value of the Property related thereto), damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including informal proceedings) and orders, judgments, remedial action, requirements, enforcement actions of any kind, and all reasonable and documented costs and expenses incurred in connection therewith (including but not limited to reasonable and documented attorneys' and/or paralegals' fees and expenses), including, but not limited to, all costs incurred in connection with any investigation or monitoring of site conditions or any clean-up, remedial, removal or restoration work by any federal, state or local government agency, arising in whole or in part, out of (a) the presence on or under any of the Properties of any Hazardous Materials, or any releases or discharges of any Hazardous Materials on, under, from or onto any of the Properties, (b) any activity, including, without limitation, construction, carried on or undertaken on or off any of the Properties, and whether by the Lessee or any predecessor in title or any employees, agents, contractors or subcontractors of the Lessee or any predecessor in title, or any other Persons (including such Indemnitee), in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport or disposal of any Hazardous Materials that at any time are located or present on or under or that at any time migrate, flow, percolate, diffuse or in any way move onto or under any of the Properties, (c) loss of or damage to any property or the environment (including, without limitation, clean-up costs, response costs, remediation and removal costs, cost of corrective action, costs of financial assurance, fines -45- 47 Participation Agreement and penalties and natural resource damages), or death or injury to any Person, and all expenses associated with the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required by or under Hazardous Materials Laws, (d) any claim concerning lack of compliance with Hazardous Materials Laws, or any act or omission causing an environmental condition that requires remediation or would allow any Governmental Authority to record a Lien on the land records, or (e) any residual contamination on or under any of the Land, or affecting any natural resources, and to any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Materials, and irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances; provided, however, the Lessee shall not be required to indemnify any Indemnitee under this Section 13.3 for (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee or (2) any Claim to the extent attributable to acts or events occurring after the expiration of the Term or the return or remarketing of any such Property so long as the Lessor and the Lenders are not exercising remedies against the Lessee in respect of the Operative Documents. It is expressly understood and agreed that the indemnity provided for herein shall survive the expiration or termination of and shall be separate and independent from any remedy under the Lease or any other Operative Document. SECTION 13.4. Proceedings in Respect of Claims. With respect to any amount that the Lessee is requested by an Indemnitee to pay by reason of Section 13.1 or 13.3, such Indemnitee shall, if so requested by the Lessee and prior to any payment, submit such additional information to the Lessee as the Lessee may reasonably request and which is in the possession of such Indemnitee to substantiate properly the requested payment. In case any action, suit or proceeding shall be brought against any Indemnitee, such Indemnitee shall notify the Lessee of the commencement thereof, and the Lessee shall be entitled, at its expense, to participate in, and, to the extent that the Lessee desires to, assume and control the defense thereof; provided, however, that the Lessee shall have acknowledged in writing its obligation to fully indemnify such Indemnitee in -46- 48 Participation Agreement respect of such action, suit or proceeding, and, the Lessee shall keep such Indemnitee fully apprised of the status of such action, suit or proceeding and shall provide such Indemnitee with all information with respect to such action, suit or proceeding as such Indemnitee shall reasonably request, and provided, further, that the Lessee shall not be entitled to assume and control the defense of any such action, suit or proceeding if and to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) such action, suit or proceeding involves any risk of imposition of criminal liability or will involve a risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Property or any part thereof unless, in the case of civil liability, the Lessee shall have posted a bond or other security satisfactory to the relevant Indemnitees in respect to such risk or (y) the control of such action, suit or proceeding would involve an actual or potential conflict of interest, (B) such proceeding involves Claims not fully indemnified by the Lessee which the Lessee and the Indemnitee have been unable to sever from the indemnified claim(s), or (C) a Lease Event of Default has occurred and is continuing. The Indemnitee will join in the Lessee's efforts to sever such action. The Indemnitee may participate in a reasonable manner at its own expense and with its own counsel in any proceeding conducted by the Lessee in accordance with the foregoing. The Lessee shall not enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 13.1 or 13.3 without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld in the case of a money settlement not involving an admission of liability of such Indemnitee. Each Indemnitee shall at the expense of the Lessee supply the Lessee with such information and documents reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by Section 13.1 or 13.3. Unless an Event of Default under the Lease shall have occurred and be continuing, no Indemnitee shall enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 13.1 or 13.3 without the prior written consent of the Lessee, which consent shall not be unreasonably withheld, unless such Indemnitee waives its right to be indemnified under Section 13.1 or 13.3 with respect to such Claim. Upon payment in full of any Claim by the Lessee pursuant to Section 13.1 or 13.3 to or on behalf of an Indemnitee, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained -47- 49 Participation Agreement by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be necessary to preserve any such claims and otherwise cooperate with the Lessee and give such further assurances as are necessary or advisable to enable the Lessee vigorously to pursue such claims. Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.3 shall be paid to such Indemnitee promptly upon receipt of a written demand therefor from such Indemnitee, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable. SECTION 13.5. General Tax Indemnity. (a) Indemnification. The Lessee shall pay and assume liability for, and does hereby agree to indemnify, protect and defend the applicable Property and all Tax Indemnitees, and hold them harmless against, all Impositions on an After Tax Basis. (b) Contests. If any claim shall be made against any Tax Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee (including a written notice of such proceeding) for any Imposition as to which the Lessee may have an indemnity obligation pursuant to this Section 13.5, or if any Tax Indemnitee shall determine that any Imposition to which the Lessee may have an indemnity obligation pursuant to this Section 13.5 may be payable, such Tax Indemnitee shall promptly (and in any event, within 30 days) notify the Lessee in writing (provided that failure to so notify the Lessee within 30 days shall not alter such Tax Indemnitee's rights under this Section 13.5 except to the extent such failure precludes or materially adversely affects the ability to conduct a contest of any indemnified Taxes) and shall not take any action with respect to such claim, proceeding or Imposition without the written consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for 30 days after the receipt of such notice by the Lessee; provided, however, that in the case of any such claim or proceeding, if such Tax Indemnitee shall be required by law or regulation to take action prior to the end of such 30-day period, such Tax Indemnitee shall in such notice to the Lessee, so inform the Lessee, and such Tax Indemnitee shall not take any action with respect to such claim, proceeding or Imposition without the consent of the Lessee (such consent not to be unreasonably withheld or unreasonably delayed) for 10 days after the -48- 50 Participation Agreement receipt of such notice by the Lessee unless such Tax Indemnitee shall be required by law or regulation to take action prior to the end of such 10-day period. The Lessee shall be entitled for a period of 30 days from receipt of such notice from such Tax Indemnitee (or such shorter period as such Tax Indemnitee has notified the Lessee is required by law or regulation for such Tax Indemnitee to commence such contest), to request in writing that such Tax Indemnitee contest the imposition of such Tax, at the Lessee's expense. If (x) such contest can be pursued in the name of the Lessee and independently from any other proceeding involving a Tax liability of such Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax Indemnitee, (y) such contest must be pursued in the name of such Tax Indemnitee, but can be pursued independently from any other proceeding involving a Tax liability of such Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax Indemnitee or (z) such Tax Indemnitee so requests, then the Lessee shall be permitted to control the contest of such claim, provided that in the case of a contest described in clause (y), if such Tax Indemnitee determines reasonably and in good faith that such contest by the Lessee could have a material adverse impact on the business or operations of such Tax Indemnitee and provides a written explanation to the Lessee of such determination, such Tax Indemnitee may elect to control or reassert control of the contest, and provided, that by taking control of the contest, the Lessee acknowledges that it is responsible for the Imposition ultimately determined to be due by reason of such claim, and provided, further, that in determining the application of clauses (x) and (y) of the preceding sentence, each Tax Indemnitee shall take any and all reasonable steps to segregate claims for any Taxes for which the Lessee indemnifies hereunder from Taxes for which the Lessee is not obligated to indemnify hereunder, so that the Lessee can control the contest of the former. In all other claims requested to be contested by the Lessee, such Tax Indemnitee shall control the contest of such claim, acting through counsel reasonably acceptable to the Lessee. In no event shall the Lessee be permitted to contest (or such Tax Indemnitee required to contest) any claim, (A) if such Tax Indemnitee provides the Lessee with a legal opinion of counsel reasonably acceptable to the Lessee that such action, suit or proceeding involves a risk of imposition of criminal liability or will involve a material risk of the sale, forfeiture or loss of, or the creation of any Lien (other than a Permitted Lien) on any Property or any part of any thereof unless the Lessee shall have posted and maintained a bond or other security satisfactory to the relevant Tax Indemnitee in respect to such risk, (B) if an Event of Default has occurred and is continuing unless the Lessee shall have posted and maintained a bond or other security -49- 51 Participation Agreement satisfactory to the relevant Tax Indemnitee in respect of the Taxes subject to such claim and any and all expenses for which the Lessee is responsible hereunder reasonably foreseeable in connection with the contest of such claim, (C) unless the Lessee shall have agreed to pay and shall pay, to such Tax Indemnitee on demand all reasonable out-of-pocket costs, losses and expenses that such Tax Indemnitee may incur in connection with contesting such Imposition including all reasonable legal, accounting and investigatory fees and disbursements, or (D) if such contest shall involve the payment of the Tax prior to the contest, unless the Lessee shall provide to such Tax Indemnitee an interest-free advance in an amount equal to the Imposition that the Indemnitee is required to pay (with no additional net after-tax costs to such Tax Indemnitee). In addition for Tax Indemnitee controlled contests and claims contested in the name of such Tax Indemnitee in a public forum, no contest shall be required: (A) unless the amount of the potential indemnity (taking into account all similar or logically related claims that have been or could be raised in any audit involving such Tax Indemnitee with respect to any period for which the Lessee may be liable to pay an indemnity under this Section 13.5(b)) exceeds $75,000 or (B) unless, if requested by such Tax Indemnitee, the Lessee shall have provided to such Tax Indemnitee an opinion of counsel selected by the Lessee (which may be in-house counsel) (except, in the case of income taxes indemnified hereunder which shall be an opinion of independent tax counsel selected by such Tax Indemnitee and reasonably acceptable to the Lessee) that a reasonable basis exists to contest such claim. In no event shall a Tax Indemnitee be required to appeal an adverse judicial determination to the United States Supreme Court. The party conducting the contest shall consult in good faith with the other party and its counsel with respect to the contest of such claim for Taxes (or claim for refund) but the decisions regarding what actions to be taken shall be made by the controlling party in its sole judgement, provided, however, that if such Tax Indemnitee is the controlling party and the Lessee recommends the acceptance of a settlement offer made by the relevant Governmental Authority and such Tax Indemnitee rejects such settlement offer then the amount for which the Lessee will be required to indemnify such Tax Indemnitee with respect to the Taxes subject to such offer shall not exceed the amount which it would have owed if such -50- 52 Participation Agreement settlement offer had been accepted. In addition, the controlling party shall keep the noncontrolling party reasonably informed as to the progress of the contest, and shall provide the noncontrolling party with a copy of (or appropriate excerpts from) any reports or claims issued by the relevant auditing agents or taxing authority to the controlling party thereof, in connection with such claim or the contest thereof. Each Tax Indemnitee shall at the Lessee's expense supply the Lessee with such information and documents reasonably requested by the Lessee as are necessary or advisable for the Lessee to participate in any action, suit or proceeding to the extent permitted by this Section 13.5(b). Notwithstanding anything in this Section 13.5(b) to the contrary, no Tax Indemnitee shall enter into any settlement or other compromise or fail to appeal an adverse ruling with respect to any claim which is entitled to be indemnified under this Section 13.5 (and with respect to which contest is required under this Section 13.5(b)) without the prior written consent of the Lessee, unless such Tax Indemnitee waives its right to be indemnified under this Section 13.5 with respect to such claim. Notwithstanding anything contained herein to the contrary, a Tax Indemnitee will not be required to contest (and the Lessee shall not be permitted to contest) a claim with respect to the imposition of any Tax if such Tax Indemnitee shall waive its right to indemnification from Lessee under this Section 13.5 with respect to such claim (and any claim with respect to such year or any other taxable year the contest of which is materially adversely affected as a result of such waiver). (c) Reimbursement for Tax Savings. If (x) a Tax Indemnitee or any Affiliate thereof realizes a deduction, offset, credit or refund of any Taxes or any other savings or benefit as a result of any indemnity paid by the Lessee pursuant to this Section 13.5 or (y) by reason of the incurrence or imposition of any Tax (or the circumstances or event giving rise thereto) for which a Tax Indemnitee is indemnified hereunder or any payment made to or for the account of such Tax Indemnitee by the Lessee pursuant to this Section 13.5 or any payment made by a Tax Indemnitee to the Lessee by reason of this Section 13.5(c), such Tax Indemnitee at any time actually realizes a reduction in any Taxes for which the Lessee is not required to indemnify such Tax Indemnitee pursuant to this Section 13.5 which reduction in Taxes was not taken into account in computing such payment by the Lessee to or for the -51- 53 Participation Agreement account of such Tax Indemnitee or by such Tax Indemnitee to the Lessee, then such Tax Indemnitee shall promptly pay to the Lessee (xx) the amount of such deduction, offset, credit, refund, or other savings or benefit together with the amount of any interest received by such Tax Indemnitee on account of such deduction, offset, credit, refund or other savings or benefit or (yy) an amount equal to such reduction in Taxes, as the case may be, in either case together with an amount equal to any reduced Taxes payable by such Tax Indemnitee as a result of such payment; provided that no such payment shall be made so long as a Default or Event of Default shall have occurred and be continuing but shall be paid promptly after cure of such Default or Event of Default. Each Tax Indemnitee agrees to take such actions as the Lessee may reasonably request (provided in the good faith judgment of such Tax Indemnitee, such actions would not result in a material adverse effect on such Tax Indemnitee for which such Tax Indemnitee is not entitled to indemnification from the Lessee) and to otherwise act in good faith to claim such refunds and other available Tax benefits, and take such other actions as may be reasonable to minimize any payment due from the Lessee pursuant to this Section 13.5 and to maximize the amount of any Tax savings available to it. The disallowance or reduction of any credit, refund or other tax savings with respect to which a Tax Indemnitee has made a payment to the Lessee under this Section 13.5(c) shall be treated as a Tax for which the Lessee is obligated to indemnify such Tax Indemnitee hereunder without regard to the exclusions set forth in the definition of Impositions except the exclusions set forth in (iv), (v), (vi), (vii), (ix), (x), (xi), (xiv) and (xvi). (d) Payments. Any Imposition indemnifiable under this Section 13.5 shall be paid directly when due to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to a Tax Indemnitee pursuant to Section 13.5 shall be paid within thirty (30) days after receipt of a written demand therefor from such Tax Indemnitee accompanied by a written statement describing in reasonable detail the amount so payable, but not before two Business Days prior to the date that the relevant Taxes are due. Any payments made pursuant to this Section 13.5 shall be made directly to such Tax Indemnitee entitled thereto or the Lessee, as the case may be, in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, -52- 54 by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address as set forth in Schedule II hereto. Upon the request of any Tax Indemnitee with respect to a Tax that the Lessee is required to pay, the Lessee shall furnish to such Tax Indemnitee the original or a certified copy of a receipt for the Lessee's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Tax Indemnitee. (e) Reports. In the case of any report, return or statement required to be filed with respect to any Taxes that are subject to indemnification under this Section 13.5 and of which the Lessee has knowledge, the Lessee shall promptly notify such Tax Indemnitee of such requirement and, at the Lessee's expense (i) if the Lessee is permitted (unless otherwise requested by such Tax Indemnitee) by Applicable Law, timely file such report, return or statement in its own name or (ii) if such report, return or statement is required to be in the name of or filed by such Tax Indemnitee or such Tax Indemnitee otherwise requests that such report, return or statement for filing by such Tax Indemnitee in such manner as shall be satisfactory to such Tax Indemnitee and send the same to such Tax Indemnitee for filing no later than 15 days prior to the due date therefor. In any case in which such Tax Indemnitee will file any such report, return or statement, the Lessee shall, upon written request of such Tax Indemnitee, provide such Tax Indemnitee with such information as is reasonably necessary to allow such Tax Indemnitee to file such report, return or statement. (f) Verification. At the Lessee's request, the amount of any indemnity payment by the Lessee or any payment by a Tax Indemnitee to the Lessee pursuant to this Section 13.5 shall be verified and certified by an independent public accounting firm mutually acceptable to the Lessee and such Tax Indemnitee. The costs of such verification shall be borne by the Lessee unless such verification shall result in an adjustment in the Lessee's favor of the lesser of (i) $10,000, and (ii) 5 percent of the payment as computed by such Tax Indemnitee, in which case such fee shall be paid by such Tax Indemnitee. In no event shall the Lessee have the right to review such Tax Indemnitee's tax returns or receive any other confidential information from such Tax Indemnitee in connection with such verification. Any information provided to such accountants by any Person shall be and remain the exclusive property of such Person and shall be deemed by the parties to be (and the accountants will confirm in writing that they will treat such information as) the -53- 55 Participation Agreement private, proprietary and confidential property of such Person, and no Person other than such Person and the accountants shall be entitled thereto and all such materials shall be returned to such Person. Such accounting firm shall be requested to make its determination within 30 days of the Lessee's request for verifications and the computations of the accounting firm shall be final, binding and conclusive upon the Lessee and such Tax Indemnitee. The parties agree that the sole responsibility of the independent public accounting firm shall be to verify the amount of a payment pursuant to this Master Lease and that matters of interpretation of this Master Lease are not within the scope of the independent accounting firm's responsibilities. (g) Tax Ownership. Each Tax Indemnitee represents and warrants that it will not, prior to the termination of the Master Lease, claim ownership of (or any tax benefits, including depreciation, with respect to) any Property for any income tax purposes, it being understood that the Lessee is and will remain the owner of the applicable Property for such income tax purposes until the termination of the Master Lease. If, notwithstanding the income tax intentions of the parties as set forth herein, any Tax Indemnitee actually receives any income tax deductions, reductions in income tax or other income tax benefit as a result of any claim for, or recharacterization requiring such party to take, any tax benefits attributable to ownership of any Property for income tax purposes, such Tax Indemnitee shall pay to the Lessee, together with an amount equal to any reduced Taxes payable by such Tax Indemnitee as a result of such payment, the amount of such income tax savings actually realized by such Tax Indemnitee (less the amount of any anticipated increase in income tax which such Tax Indemnitee determines is currently payable as a result of such claim or recharacterization), provided that the Lessee shall agree to reimburse such Tax Indemnitee for any subsequent increase in such Tax Indemnitee's income taxes resulting from such claim or recharacterization not taken into account in the payment made to the Lessee, up to the net amount paid to the Lessee by each Tax Indemnitee. The parties agree that this Section 13.5(g) is intended to require a payment to the Lessee if and only if each Tax Indemnitee shall have actually received an unanticipated tax savings with respect to any Property that would not have been received if each Tax Indemnitee had advanced funds to the Lessee in the form of a loan secured by such Property in an amount equal to the applicable Property Cost. Nothing in this Section 13.5(g) shall be construed to require each Tax Indemnitee to take -54- 56 Participation Agreement any affirmative action to realize any tax savings if in its good faith reasonable judgment such action may have a material adverse affect on each Tax Indemnitee. SECTION 13.6. Indemnity Payments in Addition to Lease Obligations. The Lessee acknowledges and agrees that the Lessee's obligations to make indemnity payments under this Article XIII are separate from, in addition to, and do not reduce, the Lessee's obligation to pay under the Lease that portion of the Lease Balance constituting the Loan Balance. SECTION 13.7. LIBO Rate Lending Unlawful. If, on or 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, or compliance by any Participant (or its Funding Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Participant (or its Funding Office) to make, maintain or fund Loans or Lessor Amounts, as applicable, and such Participant shall so notify the Lessee, whereupon until such Participant notifies the Lessee that the circumstances giving rise to such suspension no longer exist, the obligation to make Loans or Lessor Amounts, as applicable, shall be suspended. Such Participant, with the consent of the Lessee (which consent shall not unreasonably be withheld), will designate a different Funding Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Participant, be otherwise disadvantageous to such Participant. If such notice is given (i) each Lessee shall be entitled upon its request to a reasonable explanation of the factors underlying such notice and (ii) each Advance then outstanding shall begin to bear interest at the Alternate Base Rate either (a) on the last day of the then current Interest Period applicable thereto, if such Participant may lawfully continue to maintain and fund such Advance to such day or (b) immediately, if such Participant shall determine that it may not lawfully continue to maintain and fund such Advance to such day. SECTION 13.8. Deposits Unavailable. If any of the Participants shall have determined that (i) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to the Participant in its relevant market; or (ii) by reason of circumstances affecting the Participant's relevant market, adequate means do not exist for ascertaining the interest rate or Yield, as the case -55- 57 Participation Agreement may be, applicable to such Participant's Loans or Lessor Amounts, then, upon notice from such Participant to the Lessee and the other Participants, (i) the obligations of the Participants to make Loans or Lessor Amounts, as the case may be, shall be suspended and (ii) each outstanding Loan or Lessor Amount, as the case may be, shall begin to bear interest or accrue Yield at the Alternate Base Rate on the last day of the then current Interest Period applicable thereto. SECTION 13.9. Increased Costs, etc. (a) In the event that the adoption of any applicable law, rule or regulation, or any change therein or in the interpretation or application thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by any Participant with any request or directive after the date hereof (whether or not having the force of law) of any such authority, central bank or comparable agency: (i) does or shall subject any Participant to any additional tax of any kind whatsoever with respect to the Operative Documents or any Loan or Lessor Amount, as applicable, made by it, or change the basis or the applicable rate of taxation of payments to such Participant of principal, interest or any other amount payable hereunder (except for the imposition of or change in any tax on or measured by or with respect to the overall gross or net income, or gross or net receipts (including, without limitation, any minimum taxes, income or capital gains taxes, or taxes on, or measured by or with respect to or in the nature of capital, net worth, excess profits, items of tax preference, capital stock, business privilege or doing business or any other similar taxes) of such Participant (other than any such tax imposed by means of withholding and specifically excluding income taxes merely collected by means of withholding) or any tax imposed in lieu thereof); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, insurance assessment, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Participant which are not otherwise included in -56- 58 determination of the rate of interest on Loan or Lessor Amount, as applicable, hereunder; or (iii) does or shall impose on such Participant any other condition; and the result of any of the foregoing is to increase the cost to such Participant of making or maintaining Loan or Lessor Amount, as applicable, or to reduce any amount receivable hereunder, then in any such case, the Lessee shall promptly pay to such Participant, upon demand, any additional amounts necessary to compensate such Participant for such increased cost or reduced amount receivable which such Participant deems to be material as determined by such Participant with respect to Loan or Lessor Amount, as applicable. (b) If any Participant 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 administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Participant (or any entity directly or indirectly controlling such Participant) as a consequence of such Participant's obligations under the Operative Documents to a level below that which such Participant (or any entity directly or indirectly controlling such Participant) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Participant to be material, then from time to time, within fifteen (15) days after demand by such Participant, the Lessee shall pay to such Participant such additional amount or amounts as will compensate such Participant (or its Parent) for such reduction. (c) Each Participant will promptly notify the Lessee of any event of which it has knowledge, occurring after the date hereof, which will entitle such Participant to compensation pursuant to this Section and will, if practicable, with the consent of the Lessee (which consent shall not unreasonably be withheld), designate a different Funding Office or take any other reasonable action if such designation or action will avoid the need for, or reduce the amount of, such compensation and will not, in the -57- 59 Participation Agreement reasonable judgment of such Participant, be otherwise disadvantageous to such Participant. A certificate of such Participant claiming compensation under this Section and setting forth in reasonable detail its computation of the additional amount or amounts to be paid to it hereunder shall be presumed correct in the absence of demonstrable error. In determining such amount, such Participant may use any reasonable averaging and attribution methods. (d) Notwithstanding the foregoing clauses (a) and (b) of this Section 13.9, the Lessee shall only be obligated to compensate such Participant for any amount arising or accruing both: (i) during (A) any time or period commencing (x) in the case of subsection (a), not earlier than the first day of any Interest Period in effect on the date which, and (y) in the case of subsection (b), not earlier than the date on which such Participant notifies the Lessee that it proposes to demand such compensation and identifies to the Lessee the statute, regulation or other basis upon which the claimed compensation is or will be based and (B) any time or period during which, because of the retroactive application of such statute, regulation or other basis, such Participant did not know that such amount would arise or accrue; and (ii) within six months prior to any demand therefor, accompanied by a certificate of such Participant claiming compensation and setting forth in reasonable detail its computation of the additional amount or amounts to be paid to it hereunder. SECTION 13.10. Funding Losses. If any payment of principal amount of any Loan or Lessor Amount is made on any day other than the last day of an Interest Period applicable thereto, the Lessee shall reimburse the party claiming reimbursement therefor within fifteen (15) days after demand for any resulting loss or expense incurred by it, including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow or prepay, provided that the such party shall have delivered to the Lessee a certificate as to the amount of such loss or expense, which certificate shall be presumed correct in the absence of demonstrable error. Such party will, at the request of the Lessee, furnish such -58- 60 Participation Agreement additional information concerning the determination of such loss as the Lessee may reasonably request. ARTICLE XIV MISCELLANEOUS SECTION 14.1. Survival of Agreements. The representations, warranties, covenants, indemnities and agreements of the parties provided for in the Operative Documents, and the parties' obligations under any and all thereof, shall survive the execution and delivery of this Participation Agreement, the transfer of any Property to the Lessor, any disposition of any interest of the Lessor in any Property or any Improvements and the payment of the Notes and any disposition thereof and shall be and continue in effect notwithstanding any investigation made by any party and the fact that any party may waive compliance with any of the other terms, provisions or conditions of any of the Operative Documents. Except as otherwise expressly set forth herein or in other Operative Documents, the indemnities of the parties provided for in the Operative Documents shall survive the expiration or termination of any thereof for a period not to exceed one year after the later of (x) the Expiration Date and (y) the payment in full in cash of the Lease Balance. SECTION 14.2. No Broker, etc. Each of the parties hereto represents to the others that it has not retained or employed any broker, finder or financial adviser, except Lund Financial Corporation to act on its behalf in connection with this Participation Agreement or the transactions contemplated herein, nor has it authorized any broker, finder or financial adviser retained or employed by any other Person so to act. Any party who is in breach of this representation shall indemnify and hold the other parties harmless from and against any liability arising out of such breach of this representation. SECTION 14.3. Notices. Unless otherwise specifically provided herein, all notices, consents, directions, approvals, instructions, requests and other communications required or permitted by the terms hereof to be given to any Person shall be given in writing by United States mail, by nationally recognized courier service, by hand or by facsimile transmission and any such notice shall become effective five Business days after being deposited in the mails, certified or registered with appropriate postage prepaid or one Business Day after delivery to a nationally recognized courier service specifying overnight delivery or, if delivered by hand or facsimile transmission, when received, and shall be directed to -59- 61 Participation Agreement the address of such Person as indicated on Schedule II. From time to time any party may designate a new address for purposes of notice hereunder by written notice to each of the other parties hereto in accordance with this Section. SECTION 14.4. Counterparts. This Participation Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 14.5. Amendments. (a) The provisions of this Participation Agreement may from time to time be amended, modified or waived, provided, however, that such amendment, modification or waiver is in writing and consented to by the Lessee and the Required Participants; provided, further, however, that no amendment or waiver of any provision relating to payment or performance of an obligation owed to any Participant shall be effective against such Participant unless it has been consented to in writing by such Participant. (b) Neither any Operative Document nor any of the terms thereof may be terminated (except upon payment in full of the Lease Balance or effective exercise and consummation of the Remarketing Option in accordance with Article XX of the Master Lease and payment in full of all amounts due in accordance therewith), amended, supplemented, waived or modified without the written agreement or consent of each party thereto and, regardless of whether the Lenders and the Lessor are parties thereto, the Required Participants. SECTION 14.6. Headings, etc. The Table of Contents and headings of the various Articles and Sections of this Participation Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. SECTION 14.7. Parties in Interest. Except as expressly provided herein, none of the provisions of this Participation Agreement is intended for the benefit of any Person except the parties hereto. The Lessee shall not assign or transfer any of its rights or obligations under the Operative Documents except in accordance with the terms and conditions thereof. SECTION 14.8. GOVERNING LAW. THIS PARTICIPATION AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE -60- 62 Participation Agreement STATE OF CALIFORNIA (EXCLUDING ANY CONFLICT-OF-LAW OR CHOICE- OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. SECTION 14.9. Severability. Any provision of this Participation Agreement that 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 14.10. Liability Limited. (a) The parties hereto agree that except as specifically set forth herein or in any other Operative Document, Lessor shall have no personal liability whatsoever to the Lessee or any Participant or their respective successors and assigns for any claim based on or in respect hereof or any of the other Operative Documents or arising in any way from the transactions contemplated hereby or thereby and the recourse shall be solely had against the Lessor's interest in any Property; provided, however, that Lessor shall be liable in its individual capacity (a) for its own willful misconduct or gross negligence (or negligence in the handling of funds), (b) breach of any of its representations, warranties or covenants under the Operative Documents, or (c) for any Tax based on or measured by any fees, commission or compensation received by it for acting as the Lessor as contemplated by the Operative Documents. It is understood and agreed that, except as provided in the preceding sentence: (i) Lessor shall have no personal liability under any of the Operative Documents as a result of acting pursuant to and consistent with any of the Operative Documents; (ii) all obligations of Lessor to the Lessee are solely nonrecourse obligations except to the extent that it has received payment from others; and (iii) all such personal liability of Lessor is expressly waived and released as a condition of, and as consideration for, the execution and delivery of the Operative Documents by Lessor. (b) No Participant shall have any obligation to any other Participant or to the Lessee, the Lessor or the Lenders with respect to transactions contemplated by the Operative Documents, except those obligations of such Participant expressly set forth in the Operative Documents or except as set forth in the instruments delivered in connection therewith, and no Participant shall be liable for performance by any other party hereto of such other party's obligations under the Operative Documents except as otherwise so set forth. -61- 63 Participation Agreement SECTION 14.11. Further Assurances. The parties hereto shall promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of the Lessee, all such further acts, conveyances, documents and assurances as the other parties may from time to time reasonably request in order to carry out and preserve the security interests and liens (and the priority thereof) intended to be created pursuant to this Participation Agreement, the other Operative Documents, and the transactions thereunder (including, without limitation, the preparation, execution and filing of any and all Uniform Commercial Code financing statements and other filings or registrations which the parties hereto may from time to time request to be filed or effected); provided, however, that the Lessee shall not be required to pay expenses pursuant to this Section to the extent arising from a breach or alleged breach by the Lenders or the Lessor of any agreement entered into in connection with the assignment or participation of any Loan or Lessor Amount. The Lessee, at its own expense and without need of any prior request from any other party, shall take such action as may be necessary (including any action specified in the preceding sentence), or as so requested, in order to maintain and protect all security interests provided for hereunder or under any other Operative Document. SECTION 14.12. Submission to Jurisdiction. The Lessee hereby submits to the nonexclusive jurisdiction of any United States District Court located in the State of California for purposes of all legal proceedings arising out of or relating to the Operative Documents or the transactions contemplated hereby. The Lessee irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 14.13. Setoff. The Lenders and the Lessor shall, upon the occurrence of any Lease Event of Default, have the right to appropriate and apply to the payment of the Lessee's obligations under the Lease as security for the payment of such obligations, any and all balances, credits, deposits, accounts or moneys of the Lessee then or thereafter maintained with any Lender or Lessor. The rights of the Lenders and the Lessor under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Person may have. SECTION 14.14. Replacement of Lender. If a Lender fails to fund its share of the Loans, and such failure is not based on a right granted thereto under the Operative Documents, then the Lessee shall have the right (but not the obligation) to -62- 64 Participation Agreement require such Lender to assign and delegate in accordance with Section 12.1 all of such Lender's total Loans and Commitment to any of the Lenders or to any other financial institution selected by Lessee that, in each case, is willing to accept such assignment and delegation and if no such Lender or financial institution will accept such assignment and delegation, the Lessee shall (in addition to any other right Lessee may have at law or in equity) have the right to prepay all outstanding amounts with respect to such Lender and terminate such Lender's Commitment. SECTION 14.15. WAIVER OF JURY TRIAL. THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PARTICIPATION AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY OF THE PARTIES HERETO. THE PARTIES HERETO HEREBY AGREE THAT THEY WILL NOT SEEK TO CONSOLIDATE ANY SUCH LITIGATION WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL HAS NOT OR CANNOT BE WAIVED. THE PROVISIONS OF THIS SECTION 14.15 HAVE BEEN FULLY NEGOTIATED BY THE PARTIES HERETO AND SHALL BE SUBJECT TO NO EXCEPTIONS. THE LESSEE ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER OPERATIVE DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTICIPANTS ENTERING INTO THIS PARTICIPATION AGREEMENT AND EACH SUCH OTHER OPERATIVE DOCUMENT. -63- 65 Participation Agreement IN WITNESS WHEREOF, the parties hereto have caused this Participation Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. SYMANTEC CORPORATION, as Lessee, Construction Agent, Pledgor and Guarantor By /s/ Greg Myers ------------------------------- Name: Greg Myers Title: VP, Finance S-1 66 Participation Agreement SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By /s/ William M. Ginn -------------------------------------- Name: William M. Ginn Title: President S-2 67 Participation Agreement THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH, as Agent By /s/ Azar Shakeri ---------------------------------- Name: Azar shakeri Title: Vice President S-3 68 Participation Agreement THE BANK OF NOVA SCOTIA, as Lender and Documentation Agent By /s/ EDWARD KOFMAN ------------------------------------ Name: Edward Kofman Title: Relationship Manager S-4 69 Participation Agreement COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "Rabobank Nederland," New York Branch By /s/ IAN REECE ------------------------------------ Name: Ian Reece Title: Senior Credit Officer By /s/ M. CHRISTINA DEBLER ------------------------------------ Name: M. Christina Debler Title: Vice President S-5 70 SCHEDULE I TO PARTICIPATION AGREEMENT COMMITMENTS
================================================================================ PARTICIPANT COMMITMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Lender - -------------------------------------------------------------------------------- The Bank of Nova Scotia [ ] - -------------------------------------------------------------------------------- Rabobank Nederland [$50,000,000.00] - -------------------------------------------------------------------------------- Lessor - -------------------------------------------------------------------------------- Sumitomo Bank Leasing [ ] and Finance, Inc. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TOTAL: $94,000,000.00 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================
71 SCHEDULE II TO PARTICIPATION AGREEMENT Notice Information, Wire Instructions and Funding Offices Lessee, Construction Agent and Guarantor Notice Information, Wire Instructions and Funding Offices Lessee, Construction Agent and Guarantor SYMANTEC CORPORATION 10201 Torre Avenue Cupertino, California 95014 Attn: Treasury Department Facsimile No: (408) 252-3446 Wire Transfer Instructions: Bank: Bank of America ABA Number: 121000358 Account Number: 12338-10287 Ref: Symantec Lease Lessor: SUMITOMO BANK LEASING AND FINANCE, INC. 277 Park Avenue - 5th Floor New York, New York 10172 Attention: Chief Credit Officer Facsimile No.: (212) 224-5222 Wire Transfer Instructions: Bank: Citibank, N.A. New York ABA Number: 021000089 F/B/O: The Sumitomo Bank, Ltd., N.Y. Account Number: 36023837 Further Credit to: Sumitomo Bank Leasing and Finance, Inc. A/C Number 283572 Ref: Symantec Lease 72 Agent: THE SUMITOMO BANK, LTD., LOS ANGELES BRANCH C|O SUMITOMO BANK LEASING AND FINANCE, INC. 277 Park Avenue - 5th Floor New York, New York 10172 Attention: Chief Credit Officer Facsimile No.: (212) 224-5222 Wire Transfer Instructions: Bank: Citibank, N.A. New York ABA Number: 021000089 F/B/O: The Sumitomo Bank, Ltd., N.Y. Account Number: 36023837 Further Credit to: Sumitomo Bank Leasing and Finance, Inc. A/C Number 283572 Ref: Symantec Lease Lenders: THE BANK OF NOVA SCOTIA RABOBANK NEDERLAND, NEW YORK BRANCH II - 2 73 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS; INTERPRETATION ARTICLE II CONDITIONS PRECEDENT TO DOCUMENTATION AND ACQUISITION DATES; CONDITIONS PRECEDENT TO EACH CONSTRUCTION ADVANCE; CONDITIONS TO SUBSTANTIAL COMPLETION SECTION 2.1. Documentation Date.....................................................................2 SECTION 2.2. Acquisition Dates/Restructuring Date...................................................4 SECTION 2.3. Conditions Precedent to each Construction Advance..............................................................................9 SECTION 2.4. Conditions to Substantial Completion of the Property........................................................................11 ARTICLE III FUNDING OF ADVANCES SECTION 3.1. Advances..............................................................................12 SECTION 3.2. Lessor Commitment.....................................................................13 SECTION 3.3. Lenders' Commitments..................................................................13 SECTION 3.4. Procedures for Advances...............................................................13 ARTICLE IV YIELD; INTEREST; FEES SECTION 4.1. Yield.................................................................................14 SECTION 4.2. Interest on Loans.....................................................................15 SECTION 4.3. Fees; Break Costs.....................................................................15 ARTICLE V CERTAIN INTENTIONS OF THE PARTIES SECTION 5.1. Nature of Transaction.................................................................16 SECTION 5.2. Amounts Due Under Lease...............................................................17 ARTICLE VI ADDITIONAL COLLATERAL SECTION 6.1. Deficiency............................................................................18 SECTION 6.2. Surplus...............................................................................18 ARTICLE VII DISTRIBUTIONS SECTION 7.1. Basic Rent............................................................................19 SECTION 7.2. Purchase Payments by the Lessee.......................................................19 SECTION 7.3. Payment of Loan Balance...............................................................20 SECTION 7.4. Sales Proceeds of Remarketing of Properties..........................................................................20 SECTION 7.5. Supplemental Rent.....................................................................20 SECTION 7.6. Additional Collateral Realizations....................................................20 SECTION 7.7. Distribution of Payments after Lease Event of Default....................................................................21 SECTION 7.8. Other Payments........................................................................23 SECTION 7.9. Casualty and Condemnation Amounts.....................................................23 SECTION 7.10. Order of Application..................................................................24
74 ARTICLE VIII REPRESENTATIONS SECTION 8.1. Representations of the Participants...................................................24 SECTION 8.2. Representations of the Lessee.........................................................24 ARTICLE IX PAYMENT OF CERTAIN EXPENSES SECTION 9.1. Transaction Expenses..................................................................31 SECTION 9.2. Brokers' Fees and Stamp Taxes.........................................................32 SECTION 9.3. Loan Agreement and Related Obligations................................................32 ARTICLE X OTHER COVENANTS AND AGREEMENTS SECTION 10.1. Affirmative Covenants of Lessee.......................................................32 ARTICLE XI LESSEE DIRECTIONS SECTION 11.1. Lessee Directions.....................................................................36 ARTICLE XII TRANSFERS OF PARTICIPANTS' INTERESTS SECTION 12.1. Assignments...........................................................................37 SECTION 12.2. Participations........................................................................38 SECTION 12.3. Withholding Taxes; Disclosure of Information; Pledge Under Regulation A..............................................39 ARTICLE XIII INDEMNIFICATION SECTION 13.1. General Indemnification...............................................................40 SECTION 13.2. End of Term Indemnity.................................................................43 SECTION 13.3. Environmental Indemnity...............................................................44 SECTION 13.4. Proceedings in Respect of Claims......................................................45 SECTION 13.5. General Tax Indemnity.................................................................47 SECTION 13.6. Indemnity Payments in Addition to Lease Obligations.........................................................................54 SECTION 13.7. LIBO Rate Lending Unlawful............................................................54 SECTION 13.8. Deposits Unavailable..................................................................55 SECTION 13.9. Increased Costs, etc..................................................................55 SECTION 13.10. Funding Losses........................................................................57 ARTICLE XIV MISCELLANEOUS SECTION 14.1. Survival of Agreements................................................................58 SECTION 14.2. No Broker, etc........................................................................58 SECTION 14.3. Notices...............................................................................59 SECTION 14.4. Counterparts..........................................................................59 SECTION 14.5. Amendments............................................................................59 SECTION 14.6. Headings, etc.........................................................................60 SECTION 14.7. Parties in Interest...................................................................60 SECTION 14.8. GOVERNING LAW.........................................................................60 SECTION 14.9. Severability..........................................................................60 SECTION 14.10. Liability Limited.....................................................................60 SECTION 14.11. Further Assurances....................................................................61
- ii - 75 SECTION 14.12. Submission to Jurisdiction............................................................61 SECTION 14.13. Setoff................................................................................62 SECTION 14.14. Replacement of Lender.................................................................62 SECTION 14.15. WAIVER OF JURY TRIAL..................................................................62
- iii - 76 SCHEDULES SCHEDULE I Participants' Commitments SCHEDULE II Notice Information, Wire Instructions, and Funding Offices EXHIBITS EXHIBIT A Form of Funding Request EXHIBIT B Form of Responsible Officer's Certificate EXHIBIT C Form of Legal Opinion EXHIBIT D Form of Nondisturbance, Subordination and Attornment Agreement EXHIBIT E Form of Assignment Agreement EXHIBIT F Excepted Subleases - iv - EX-10.17 3 RESTATED AND AMENDED APPENDIX A TO PARTICIPATION 1 Exhibit 10.17 Appendix A EXECUTION COPY APPENDIX A to Participation Agreement, Master Lease, Lease Supplements Loan Agreement, Pledge Agreement, Lessor Mortgages, and Guaranty DEFINITIONS AND INTERPRETATION A. Interpretation. In each Operative Document, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by the Operative Documents, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; (iii) reference to any gender includes each other gender; (iv) reference to any agreement (including any Operative Document), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms of the other Operative Documents and reference to any promissory note includes any promissory note which is an extension or renewal thereof or a substitute or replacement therefor; (v) reference to any Applicable Law means such Applicable Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any Applicable Law means that provision of such Applicable Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; 2 Appendix A (vi) reference in any Operative Document to any Article, Section, Appendix, Schedule or Exhibit means such Article or Section thereof or Appendix, Schedule or Exhibit thereto; (vii) "hereunder", "hereof", "hereto" and words of similar import shall be deemed references to an Operative Document as a whole and not to any particular Article, Section or other provision thereof; (viii) "including" (and with correlative meaning "include") means including without limiting the generality of any description preceding such term; and (ix) relative to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding". B. Computation of Time Periods. For purposes of computation of periods of time under the Operative Documents, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." C. Accounting Terms and Determinations. In each Operative Document, unless expressly otherwise provided, accounting terms shall be construed and interpreted, and accounting determinations and computations shall be made, in accordance with GAAP. D. Conflict in Operative Documents. If there is any conflict between any Operative Documents, such Operative Document shall be interpreted and construed, if possible, so as to avoid or minimize such conflict but, to the extent (and only to the extent) of such conflict, the Participation Agreement shall prevail and control. E. Legal Representation of the Parties. The Operative Documents were negotiated by the parties with the benefit of legal representation and any rule of construction or interpretation otherwise requiring the Operative Document to be construed or interpreted against any party shall not apply to any construction or interpretation hereof or thereof. F. Defined Terms. Unless a clear contrary intention appears, terms defined herein have the respective indicated meanings when used in each Operative Document. "Acquisition Date" is defined in Section 2.2 of the Participation Agreement. -2- 3 Appendix A "Additional Collateral" means any of the following obligations which have been issued or guaranteed by the United States of America or an agency thereof and having a remaining maturity of three years or less: (i) all allotments, accretions, offers, rights, benefits and advantages whatsoever at any time accruing, offered or arising in respect of or incidental to the same or in respect of or incidental to any securities, rights, moneys or other property previously accruing, offered or arising as mentioned in this sub-clause (i); and (ii) all proceeds of sale, dividends, interest and other distributions or income hereafter paid or payable or made in respect of the same or the securities, rights, moneys or other property falling within sub-clause (i) above or deriving from any investment of any such dividends, interest and other distributions or income; also includes (without limitation): (a) obligations of the United States of America having a maturity of not more than one (1) year from the date of issue and commonly known as "treasury bills"; (b) obligations of the United States of America having a maturity greater than one year, but no more than ten (10) years, from the date of issue and commonly known as "treasury notes"; (c) obligations of the United States of America having a maturity date in excess of ten (10) years, from the date of issue and commonly known as "treasury bonds"; (d) U.S. Treasury Securities converted by the Department of the Treasury into Separate Trading of Registered Interest and Principal of Securities; (e) obligations of Federal agencies of the government of the United States of America which are backed as to payment of interest and principal by the full faith and credit of the United States of America; and (f) repurchase agreements of government securities described in sections (a) through -3- 4 Appendix A (e) above with dealers approved by the Lessor. "Adjusted EBITDA" is defined in Section 10.1(f)(iii) of the Participation Agreement "Advance" means an advance of funds by the Lessor and the Agent to the Lessee pursuant to Article III of the Participation Agreement. "Affiliate" means, when used with respect to any Person, any other Person directly or indirectly Controlling or Controlled by or under direct or indirect common control with such Person. "After Tax Basis" means, with respect to any payment to be received, the amount of such payment increased so that, after deduction of the amount of all taxes required to be paid by the recipient (less any tax savings realized and the present value of any tax savings projected to be realized by the recipient as a result of the payment of the indemnified amount) with respect to the receipt by the recipient of such amounts, such increased payment (as so reduced) is equal to the payment otherwise required to be made. "Agent" means The Sumitomo Bank, Limited, San Francisco Branch, in its capacity as Agent, and any successors or assigns in such capacity. "Alternate Base Rate" shall mean, for any day, the Federal Funds Rate for such day plus 1/2 of 1%. In the event that on any day the Agent determines that the Federal Funds Rate is not available, then for each such day the Alternate Base Rate shall mean the rate of interest from time to time established by the Agent as its prime commercial lending rate (which rate is not intended to be the lowest rate of interest charged by the Agent in connection with extensions of credit to debtors) (the "Prime Rate"). Each change in any interest rate provided for herein based upon the Alternate Base Rate resulting from a change in the Alternate Base Rate shall take effect at the time of such change in the Alternate Base Rate. "Alternate Base Rate Loan(s)/Lessor Amount(s)" means a Loan or Lessor Amount, as the case may be, bearing interest at the Alternate Base Rate. "Applicable Law" means all existing and future applicable laws, rules, regulations (including Hazardous Materials Laws) statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by, any Governmental -4- 5 Appendix A Authority, and applicable judgments, decrees, injunctions, writs, orders or like action of any court, arbitrator or other administrative, judicial or quasi-judicial tribunal or agency of competent jurisdiction (including those pertaining to health, safety or the environment (including, without limitation, wetlands) and those pertaining to the construction, use or occupancy of any Property) or in each case affecting the Lessee, any Property or any material interests in any other kind of property or asset, whether real, personal or mixed, or tangible or intangible, of the Lessee. "Appraisal" means, with respect to each Property, an appraisal, prepared by a reputable appraiser selected by the Agent and the Lessor, which Appraisal complies in all material respects with all of the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the rules and regulations adopted pursuant thereto, and all other applicable Requirements of Law addressed to the Lessor and Lessee, and will appraise the Fair Market Sales Value of such Property as of the Acquisition Date (or, in the case of the Appraisal delivered with respect to certain Improvements on City Center II, as of the Completion Date) and as of the Expiration Date for the applicable Base Lease Term. "Appurtenant Rights" means, with respect to any Land, (i) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits at any time belonging or pertaining to such Land or the Improvements thereon, including, without limitation, the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to such Land and (ii) all permits, licenses and rights, whether or not of record, appurtenant to such Land. "Architect" means (a) with respect to City Center II, Erlich Rominger or (b) Hellmuth, Obata + Kassabaum, or such other Person who shall, with the prior consent of the Lessor, have been designated by the Construction Agent to act as the architect for purposes of the Construction. "Assignment of Lease and Rent" means the Amended and Restated Assignment of Lease and Rent dated as of February 9, 1999, and all supplements thereto, from the Lessor, as assignor, to the Lenders, as assignees. "Available Construction Commitment" means with respect to City Center II, as the case may be, at any time, an amount equal to the excess, if any, of (a) the amount of the Construction Commitment Amount over (b) the aggregate original principal -5- 6 Appendix A amount of all Construction Advances for such Property (including all Construction Advances made for the purpose of financing Capitalized Interest, Commitment Fees and the Arrangement Fee). "Bank" is defined in the Credit Agreement. "Bankruptcy Code" is defined in Section 6.1(e) of the Loan Agreement. "Basic Rent" means, for each Property, the sum of (i) the Lender Basic Rent and (ii) the Lessor Basic Rent, calculated as of the applicable date on which Basic Rent is due. "Basic Rent Payment Date" means each Scheduled Payment Date during the Base Lease Term. "Base Lease Term" is defined in Section 2.3 of the Master Lease. "Bill of Sale" is defined in Section 2.1(j) of the Participation Agreement. "Borrower" is defined in the Credit Agreement. "Break Costs" means an amount equal to the amount, if any, required to compensate any Participant for any additional losses (including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or funds acquired by such Participant to fund its obligations under the Operative Documents) it may reasonably incur as a result of (v) the Lessee's payment of Rent other than on a Basic Rent Payment Date, (x) any Advance not being made on the date specified therefor in the applicable Funding Request as a result of any act or omission of Lessee (other than as a result of a breach by such Participant, as the case may be, of its or any other Participants obligation under Section 3.1, 3.2 or 3.3, as the case may be, of the Participation Agreement to make Advances to the Lessee or make Lessor Amounts or Loans available to the Lessor), (y) the Lessee's payment of the Lease Balance on any date other than a Basic Rent Payment Date which date is not also the end of the applicable Interest Period, or (z) as a result of any conversion of the LIBO Rate in accordance with Section 13.7 of the Participation Agreement. A statement as to the amount of such loss, cost or expense, prepared in good faith and in reasonable detail and submitted by such Participant, as the case may be, to the Lessee, shall be presumed correct and binding on the Lessee absent demonstrable error. -6- 7 Appendix A "Business Day" means (i) each day which is not a day on which banks in New York, New York and San Francisco, California, are generally authorized or obligated, by law or executive order, to close and (ii) any day which is a Business Day under clause (i) and is also a day on which dealings in Dollars are carried on in the London interbank eurodollar market. "Capitalized Interest" means, for each Construction Payment Date during the Construction Commitment Period, an amount equal to (a) the aggregate outstanding Property Improvement Costs on such date multiplied by (b) the LIBO Rate (Reserve Adjusted) plus, a margin of 0.275% or, with respect to City Center II, (i) .20% on any unused portion of the Loan Commitment or ((ii) .80% on any unused portion of the Lessor Commitment, multiplied by (c) the number of days elapsed since the immediately preceding Construction Payment Date (or, in the case of the first Construction Payment Date, the number of days elapsed since the first Construction Advance), divided by (d) 360. "Capital Lease" means any lease of property, real or personal, the obligations with respect to which are required to be capitalized on a balance sheet of the lessee in accordance with GAAP. "Capital Lease Obligations" means the capitalized lease obligations relating to a Capital Lease determined in accordance with GAAP. "Casualty" means any damage or destruction of all or any portion of a Property as a result of a fire or other casualty. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Sections 9601 et. seq., as amended by the Superfund Amendments and Reauthorization Act of 1986. "Certifying Party" is defined in Section 22.1 of the Master Lease. "Change of Control" means with respect to the Lessee that any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 49% or more of the outstanding shares of Voting stock of the Lessee. -7- 8 Appendix A "City Center I" means the Property consisting of the Land and Improvements covered by Lease Supplement No. 2 dated as of October 22, 1996. "City Center II" means the Property consisting of the Land and Improvements covered by Lease Supplement No. 4 together with all Improvements thereto constructed pursuant to the Construction Agency Agreement. "City Center V" means the Property consisting of (a) the Land and Improvements covered by Lease Supplement No. 3 dated as of February 5, 1997, together with (b) all Improvements thereon constructed pursuant to the Construction Agency Agreement. "Claims" means any and all obligations, liabilities, losses, actions, suits, judgments, penalties, fines, claims, demands, settlements, costs and expenses (including, without limitation, reasonable legal fees and expenses) of any nature whatsoever. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. "Collateral Agent" means Donaldson, Lufkin & Jenrette Securities Corporation, as Collateral Agent under the Pledge Agreement, and its permitted successors and assigns. "Commitment" means (i) as to any Lender, the Loan Commitment, and (ii) as to the Lessor, the Lessor Commitment. "Commitment Percentage" means, with respect to any Property, as to (i) each Lender, its pro rata share of the Lenders' Percentage with respect to such Property, and (ii) the Lessor, an amount, expressed as a percentage, equal to 100% minus such applicable Lenders' Percentage. "Commonly Controlled Entity" means an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. "Condemnation" means, with respect to any Property, any condemnation, requisition, confiscation, seizure or other taking or sale of the use, access, occupancy, easement rights or title to such Property or any part thereof, wholly or partially (temporarily or permanently), by or on account of any actual or threatened eminent domain proceeding or other taking of action by any Person having the power of eminent domain, including an action by a Governmental Authority to change the grade of, or -8- 9 Appendix A widen the streets adjacent to, such Property or alter the pedestrian or vehicular traffic flow to such Property so as to result in change in access to such Property, or by or on account of an eviction by paramount title or any transfer made in lieu of any such proceeding or action. A "Condemnation" shall be deemed to have occurred on the earliest of the dates that use, occupancy or title vests in the condemning authority. "Construction" means the construction and installation of all Improvements contemplated by the Plans and Specifications. "Construction Advance" means each Advance made by the Lessor and the Agent to the Construction Agent for the purpose of paying Property Improvement Costs with respect to City Center II, as the case may be. "Construction Agency Agreement" means, with respect to City Center II, the Construction Agency Agreement between the Lessor and the Construction Agent in the form of Exhibit G to the Participation Agreement. "Construction Agency Agreement Event of Default" means a "Construction Agency Agreement Event of Default" as defined in Section 5.1 of the Construction Agency Agreement. "Construction Agent" means Symantec Corporation, as construction agent under the Construction Agency Agreement. "Construction Commitment Amount" means $17,282,002 with respect to City Center II. "Construction Commitment Period" with respect to City Center II, means the period commencing on the Restructuring Date and ending on (but excluding) the earliest of (w) the date of Substantial Completion of City Center II, (x) the date of termination of the City Center II Construction Agency Agreement (y) the date when the City Center II Construction Commitment Amount has been fully funded and (z) the date which is twelve (12) months after the Restructuring Date. "Construction Documents" is defined in Section 2.4 of the Construction Agency Agreement. "Construction Payment Date" means (a) the 15th day of each calendar month, commencing with the 15th day of March, 1997, and (b) the last day of the Interim Lease Term (provided, that if such day is not a Business Day, such Construction Payment Date shall be extended to the next succeeding Business Day). -9- 10 Appendix A "Construction Period Guarantee Amount" means with respect to City Center II, as of any date of determination, 89.9% of Project Cost. "Control" means (including the correlative meanings of the terms "controlled by" and "under common control with"), as used with respect to any Person, the possession directly or indirectly, of the power to direct or cause the direction of the management policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Credit Agreement" means the Second Amended and Restated Credit Agreement between the Lessee and Bank of America National Trust and Savings Association dated as of March 28, 1996, and any successor agreement thereto or replacement agreement thereof, as each may be from time to time amended, modified or supplemented. "Custody Agreement" means the letter agreement between the Lessor and the Collateral Agent with respect to the Additional Collateral. "Deed" means a grant deed with respect to the real property comprising the applicable Property, in conformity with Applicable Law and appropriate for recording with the applicable Governmental Authorities, conveying fee simple title to such real property to the Lessor, subject only to Permitted Liens. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Deficiency Date" is defined in Section 6.1 of the Participation Agreement. "Deficiency Collateral" is defined in Section 6.1 of the Participation Agreement. "Documentation Date" is defined in Section 2.1 of the Participation Agreement. "Dollars" and "$" mean dollars in lawful currency of the United States of America. "End of the Term Report" is defined in Section 13.2(a) of the Participation Agreement. "Environmental Audit" means, with respect to each Property, a Phase One environmental site assessment (the scope and performance of which meets or exceeds the then most current ASTM -10- 11 Appendix A Standard Practice E1527 for Environmental Site Assessments: Phase One Environmental Site Assessment Process) of such Property. "Environmental Violation" means any activity, occurrence or condition that violates or results in non-compliance with any Hazardous Materials Law. "Equipment" means equipment, apparatus, furnishings, fittings and personal property of every kind and nature whatsoever purchased, leased or otherwise acquired by the Lessor using the proceeds of the Loans or the Lessor Amounts and now or subsequently attached to, contained in or used or usable in any way in connection with any operation or letting of a Property, including but without limiting the generality of the foregoing, all screens, awnings, shades, blinds, curtains, draperies, artwork, carpets, rugs, storm doors and windows, shelving, display cases, counters, furniture and furnishings, heating, electrical, switch gear, uninterrupted power supply, and mechanical equipment, lighting, switchboards, plumbing, ventilation, air conditioning and air-cooling apparatus, refrigerating, and incinerating equipment, escalators, generators, elevators, loading and unloading equipment and systems, stoves, ranges, laundry equipment, cleaning systems (including window cleaning apparatus), telephones, communication systems (including satellite dishes and antennae), televisions, computers, sprinkler systems and other fire prevention and extinguishing apparatus and materials, security systems, motors, engines, machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of every kind and description. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "ERISA Affiliate" means each entity required to be aggregated with the Lessee pursuant to the requirements of Section 414(b) or (c) of the Code. "ERISA Group" means the Lessee and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Lessee, are treated as a single employer under Section 414 of the Code. "Event of Default" means a Lease Event of Default or a Loan Agreement Event of Default. -11- 12 Appendix A "Excess Casualty/Condemnation Proceeds" means the excess, if any, of (x) the aggregate of all awards, compensation or insurance proceeds payable in connection with a Casualty or Condemnation minus (y) the Property Balance paid by the Lessee pursuant to Article XV of the Master Lease with respect to such Casualty or Condemnation. "Excess Sales Proceeds" means the excess, if any, of (x) the aggregate of all proceeds received by the Lessor in connection with any sale of the Property pursuant to the Lessor's exercise of remedies under Section 16.2 of the Master Lease or the Lessee's exercise of the Remarketing Option under Article XX of the Master Lease, less all fees, costs and expenses of the Lessor in connection with the exercise of its rights and remedies thereunder, minus (y) the Lease Balance. "Exchange Request" means an exchange request substantially in the form of Exhibit A-1 of the Participation Agreement. "Expiration Date" means, with respect to the Master Lease, unless the Master Lease shall have been earlier terminated in accordance with the provisions of the Master Lease or other Operative Documents, the seventh (7th) anniversary of the Documentation Date. "Expiration Date Purchase Obligation" means the Lessee's obligation, pursuant to Section 18.2 of the Master Lease, to purchase all (but not less than all) of the Properties on the Expiration Date. "Fair Market Sales Value" means, with respect to any Property, the amount, which in any event shall not be less than zero, that would be paid in cash in an arm's-length transaction between an informed and willing purchaser and an informed and willing seller, neither of whom is under any compulsion to purchase or sell, respectively, for the ownership of such Property. The Fair Market Sales Value of any Property shall be determined based on the assumption that, except for purposes of Article XVI of the Master Lease and Section 13.2 of the Participation Agreement, such Property is in the condition and state of repair required under Section 9.1 of the Master Lease and the Lessee is in compliance with the other requirements of the Operative Documents relating to the condition of the Property. "Federal Funds Rate" means, for any day or period, as applicable, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) at which Federal funds in the amount equal to the principal amount as to which such rate is offered in -12- 13 Appendix A the interbank market to The Sumitomo Bank, Limited, acting through its New York branch, for such period as of 11:00 A.M. New York time on such day for such day or such period, as applicable. "Fees" means the fees payable pursuant to the Fee Letter. "Fee Letter" means the fee agreement dated February 9, 1999 between the Lessee and the Lessor. "Fixed Charge Coverage Ratio" means the ratio of Consolidated Net Income Available for Fixed Charges to Consolidated Fixed Charges. "Force Majeure Event" means any event (the existence of which was not known and could not have been discovered through the exercise of due diligence by the Lessee or the Construction Agent prior to the Restructuring Date) beyond the control of the Lessee and the Construction Agent, including, but not limited to, strikes, lockouts, adverse soil conditions, acts of God, adverse weather conditions, inability to obtain labor or materials, government activities, civil commotion and enemy action; but excluding any event, cause or condition that results from the Construction Agent's financial condition or failure to pay or any event, cause or condition which could have been avoided or which could be remedied through the exercise of commercially reasonable efforts or the commercially reasonable expenditure of funds. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "Funding Date" means (a) each Acquisition Date and (b) each date on which a Construction Advance is made. "Funding Office" means the office of each Participant identified on Schedule II to the Participation Agreement as its Funding Office. "Funding Request" is defined in Section 3.4(a) of the Participation Agreement. "GAAP" means United States generally accepted accounting principles (including principles of consolidation), in effect from time to time. "Governmental Action" means all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, written interpretations, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, any Governmental -13- 14 Appendix A Authority, or required by any Applicable Law, and shall include, without limitation, all environmental and operating permits and licenses that are required for the full use, occupancy, zoning and operation of any Property. "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Gross Remarketing Proceeds" is defined in Section 20.1(k) of the Master Lease. "Guarantee Obligation" means as to any Person (the "guaranteeing person"), any obligation of (i) the guaranteeing person or (ii) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments or documents for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Lessee in good faith. "Guaranty" means the Amended and Restated Guaranty dated as of February 9, 1999, made by the Lessee in favor of the Agent, for the benefit of the Lenders. "Hazardous Activity" means any activity, process, procedure or undertaking that directly or indirectly (i) produces, generates or creates any Hazardous Material; (ii) causes or results in (or threatens to cause or result in) the Release of any Hazardous Material into the environment (including air, water vapor, surface water, groundwater, drinking water, land -14- 15 Appendix A (including surface or subsurface), plant, aquatic and animal life); (iii) involves the containment or storage of any Hazardous Material; or (iv) would be regulated as hazardous waste treatment, storage or disposal within the meaning of any Hazardous Materials Law. "Hazardous Materials" means any hazardous, toxic or dangerous materials, substances, chemicals, wastes or pollutants that from time to time are defined by or pursuant to or are regulated under any Hazardous Materials Laws, including asbestos, polychlorinated biphenyls, petroleum, petroleum derivatives or by-products, other hydrocarbons, urea formaldehyde and any material, substance, pollutant or waste that is defined as a hazardous waste under RCRA or defined as a hazardous substance under CERCLA. "Hazardous Materials Laws" means all federal, state, regional, county or local laws, statutes, rules, regulations or ordinances, now or hereafter in effect, relating to the generation, recycling, use, reuse, sale, storage, handling, transport, treatment or disposal of Hazardous Materials, including CERCLA, RCRA, the Clean Air Act, 42 U.S.C. Section 7401, et seq. ("CAA"), the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. ("TSCA") and any rules, regulations and guidance documents promulgated or published thereunder, and any state, regional, county or local statute, law, rule, regulation or ordinance now or hereafter in effect that relates to public health, safety or the discharge, emission or disposal of Hazardous Materials in or to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use, handling or disposal of asbestos, polychlorinated biphenyls, petroleum, petroleum derivatives or by-products, other hydrocarbons or urea formaldehyde, to the treatment, storage, disposal or management of Hazardous Materials, to exposure to Hazardous Materials or to the transportation, storage, disposal, management or release of gaseous or liquid substances, and any regulation, order, injunction, judgment, declaration, notice or demand issued thereunder. "Impositions" means any and all liabilities, losses, expenses and costs of any kind whatsoever for fees, taxes, levies, imposts, duties, charges, assessments or withholdings of any nature whatsoever ("Taxes") (including, without limitation, (i) real and personal property taxes, including personal property taxes on any property covered by any Lease that is classified by Governmental Authorities as personal property, and real estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate -15- 16 Appendix A transfer taxes, conveyance taxes, mortgage taxes, intangible taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, gross receipts, privilege and doing business taxes, license and registration fees; and (vi) assessments on any Property, including all assessments for public improvements or benefits, whether or not such improvements are commenced or completed within the Lease Term), and in each case all interest, additions to tax and penalties thereon, which at any time may be levied, assessed or imposed by any Federal, state or local authority upon or with respect to (a) any Tax Indemnitee, any Property or any part thereof or interest therein, or the Lessee or any sublessee or user of any Property; (b) the financing, refinancing, demolition, construction, substitution, subleasing, assignment, control, condition, occupancy, servicing, maintenance, repair, ownership, possession, purchase, rental, lease, activity conducted on, delivery, insuring, use, operation, improvement, transfer, return or other disposition of such Property or any part thereof or interest therein; (c) the Notes or other Indebtedness with respect to any Property or any part thereof or interest therein or transfer thereof; (d) the rentals, receipts or earnings arising from any Property or any part thereof or interest therein; (e) the Operative Documents or any payment made or accrued pursuant thereto; (f) the income or other proceeds received with respect to any Property or any part thereof or interest therein upon the sale or disposition thereof; (g) any contract relating to the construction, acquisition or delivery of the Improvements or any part thereof or interest therein; (h) the issuance of the Notes; or (i) otherwise in connection with the transactions contemplated by the Operative Documents. Notwithstanding anything in the first paragraph of this definition (except as provided in the final paragraph of this definition) the term "Imposition" shall not mean or include: (i) Taxes and impositions (other than Taxes that are, or are in the nature of, sales, use, rental, transfer or property taxes) that are imposed by any Governmental Authority and that are based upon or measured by or with respect to the gross or net income or gross or net receipts (including, without limitation, any minimum taxes, income or capital gains taxes, withholding taxes or taxes on, measured by or with respect to or in the nature of capital, net worth, excess profits, items of tax preference, capital stock, franchise, business privilege or doing business taxes) and any interest, additions to tax, penalties or other charges in respect thereof; provided that this clause (i) shall not be -16- 17 Appendix A interpreted to prevent a payment from being made on an After Tax Basis if such payment is otherwise required to be so made; (ii) any Tax or imposition to the extent, but only to such extent, it relates to any act, event or omission that occurs, or relates to a period, after the termination of the Master Lease (but not any Tax or imposition that relates to any period prior to the termination of the Master Lease with respect to the Property to which such Imposition relates); (iii) any Tax or imposition for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 13.5(b) of the Participation Agreement, provided that the foregoing shall not limit any Lessee's obligation under Section 13.5(b) of the Participation Agreement to advance to such Tax Indemnitee amounts with respect to Taxes that are being contested in accordance with Section 13.5(b) of the Participation Agreement or any expenses incurred by such Tax Indemnitee in connection with such contest; (iv) any interest, additions to tax or penalties imposed on a Tax Indemnitee as a result of a breach by such Tax Indemnitee of its obligations under Section 13.5(e) of the Participation Agreement as a result of a Tax Indemnitee's failure to file any return or other documents timely and as prescribed by applicable law; provided that this clause (iv) shall not apply (x) if such interest or penalties arise as a result of a position taken (or requested to be taken) by the Lessee in a contest controlled by the Lessee under Section 13.5(b) of the Participation Agreement or (y) if such failure is attributable to a failure by the Lessee to fulfill its obligations under the Master Lease with respect to any such return; (v) any Taxes or impositions imposed on a Tax Indemnitee, to the extent such Tax Indemnitee actually receives a credit (or otherwise has a reduction in a liability for Taxes) in respect thereof against Taxes that are not indemnified under the Participation Agreement (but only to the extent such credit is not taken into account in calculating the indemnity payment on an After Tax Basis); (vi) Taxes imposed on or with respect to or payable by any Tax Indemnitee based on, measured by or imposed with respect to any fees received by such Tax Indemnitee; (vii) any Taxes imposed against or payable by a Tax Indemnitee resulting from, or that would not have been -17- 18 Appendix A imposed but for, the gross negligence or willful misconduct of such Tax Indemnitee; (viii) Taxes imposed on or payable by a Tax Indemnitee to the extent such Taxes result from or would not have been imposed but for, a breach by the Tax Indemnitee or any Affiliate thereof of any representations, warranties or covenants set forth in the Operative Documents (unless such breach is caused by any Lessee's breach of its representations, warranties or covenants set forth in the Operative Documents); (ix) Taxes to the extent resulting from such Tax Indemnitee's failure to comply with the provisions of Section 13.5(b) of the Participation Agreement, which failure precludes or materially adversely affects the ability to conduct a contest pursuant to Section 13.5(b) of the Participation Agreement (unless such failure is caused by the Lessee's breach of its obligations); (x) with respect to each Property, Taxes which are included in applicable Property Acquisition Costs if and to the extent actually paid; (xi) Taxes that would have been imposed in the absence of the transactions contemplated by the Operative Documents and Taxes imposed on or with respect to or payable as a result of activities of a Tax Indemnitee or Affiliate thereof unrelated to the transactions contemplated by the Operative Documents; (xii) Taxes imposed on or with respect to or payable by a Tax Indemnitee resulting from, or that would not have been imposed but for the existence of, any Lessor Lien created by or through such Tax Indemnitee or an Affiliate thereof and not caused by acts or omissions of any Lessee, unless required to be removed by any Lessee; (xiii) Any Tax imposed against or payable by a Tax Indemnitee to the extent that the amount of such Tax exceeds the amount of such Tax that would have been imposed against or payable by such Tax Indemnitee (or, if less, that would have been subject to indemnification under Section 13.5 of the Participation Agreement) if such Tax Indemnitee were not a direct or indirect successor, transferee or assign of one of the original Tax Indemnitees; provided, however, that this exclusion (xiii) shall not apply if such direct or indirect successor, transferee or assign acquired its -18- 19 Appendix A interest as a result of a transfer while an Event of Default shall have occurred and is continuing; (xiv) Taxes imposed on or with respect to or payable by a Tax Indemnitee that would not have been imposed but for an amendment, supplement, modification, consent or waiver to any Operative Document not initiated, requested or consented to by any Lessee unless such amendment, supplement, modification, consent or waiver (A) arises due to, or in connection with there having occurred, an Event of Default or (B) is required by the terms of the Operative Documents or is executed in connection with any amendment to the Operative Documents required by law; (xv) Taxes in the nature of intangibles, stamp, documentary or similar Taxes; (xvi) Taxes imposed on or with respect to or payable by a Tax Indemnitee or any Affiliate because such Tax Indemnitee or any Affiliate thereof is not a United States person within the meaning of Section 7701(a)(30) of the Code; and (xvii) Any tax imposed by its express terms in lieu of or in substitution for a Tax not subject to indemnity pursuant to the provisions of Section 13.5 of the Participation Agreement. Notwithstanding the foregoing, the exclusions from the definition of Impositions set forth in clauses (i), (ii), (v), (vii), (xii) and (xvi) (to the extent that any such tax is imposed by its express terms in lieu of or in substitution for a Tax set forth in clauses (i), (ii), (v), (vii), (xii) and (xvi)) above shall not apply (but the other exclusions shall apply) to any Taxes or any increase in Taxes imposed on a Tax Indemnitee net of any decrease in taxes realized by such Tax Indemnitee, to the extent that such tax increase or decrease would not have occurred if on the Acquisition Date the Lessor had advanced funds to the Lessee in the form of a loan secured by the applicable Property in an amount equal to the applicable Property Balance, with debt service for such loan equal to the Basic Rent payable on each Scheduled Payment Date and a principal balance at the maturity of such loan in an amount equal to the then outstanding amount of the Advances at the end of the term of the Master Lease. "Improvements" means all buildings, structures, Fixtures, Equipment, and other improvements of every kind existing at any time and from time to time on or under any Land, or any parcel of Land to be acquired pursuant to the terms of the Operative -19- 20 Appendix A Documents, together with any and all appurtenances to such buildings, structures or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways, and including all Modifications and other additions to or changes in the Improvements at any time. "Improvements Closing Date" is defined in Section 3.1 of Master Amendment No. 1. "Indebtedness" means, of any Person at any date, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (ii) any other indebtedness of such Person which is evidenced by a note, bond, debenture or similar instrument, (iii) all obligations of such Person as lessee under Capital Leases, (iv) all obligations of such Person in respect of acceptances issued or created for the account of such Person, (v) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, (vi) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person (other than customary reservations or retentions of title under agreements with suppliers entered into in the ordinary course of business), (vii) all obligations of such Person under take-or-pay or similar arrangements or under commodities agreements, (viii) all Guarantee Obligations of such Person, (ix) all obligations of such Person in respect of interest rate protection agreements, foreign currency exchange agreements, commodity purchase or option agreements or other interest or exchange rate or commodity price hedging agreements, and (x) all contingent or non-contingent obligations of such Person in respect of letters of credit issued or bankers' acceptances created for the account of such Person. "Indemnitee" means each Lender, the Lessor, the Collateral Agent, their respective Affiliates and their respective successors, assigns, directors, shareholders, partners, officers, employees and agents. "Insolvency" means, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent" means pertaining to a condition of Insolvency. -20- 21 Appendix A "Insurance Requirements" means all terms and conditions of any insurance policy either required by the Master Lease to be maintained by the Lessee and all requirements of the issuer of any such policy. "Interest Period" means, (a) initially, the period commencing on each Acquisition Date and ending on the fifteenth (15th) day of January, 1997; and (b) and thereafter, each period commencing on the last day of the preceding Interest Period applicable to such Loan or Lessor Amount and the date falling three (3) six (6), nine (9) or twelve (12) months from the first day of such Interest Period, pursuant to a written notice to the Lessor and the Agent (the "Interest Period Selection Notice") delivered no later than 10:00 a.m. three Business Days prior to the commencement of the Interest Period to be selected. In the event the Lessee has not delivered an Interest Period Selection Notice to the Lessor and the Agent within the required period of time, it shall be deemed to have selected an Interest Period of three (3) months. The foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; and (iii) any Interest Period that would otherwise extend beyond the Maturity Date shall end on the Maturity Date. "Interim Lease Term" is defined in Section 2.3 of the Master Lease. "Interim Term" means the period commencing on and including the Restructuring Date to the earlier of the date of (x) Substantial Completion of City Center II or (y) termination of the Construction Agency Agreement with respect to City Center II. -21- 22 Appendix A "Land" means each parcel of real property described on Schedule I to any Lease Supplement, and includes all Appurtenant Rights attached thereto. "Lease" means, collectively, the Master Lease and each Lease Supplement. "Lease Balance" means, as of any date of determination, an amount equal to the sum of the Loan Balance and the Lessor Balance and all other amounts owing by the Lessee under the Operative Documents (including without limitation, accrued and unpaid Rent and Supplemental Rent, if any). "Lease Default" means any event or condition which, with the lapse of time or the giving of notice, or both, would constitute a Lease Event of Default. "Lease Event of Default" means a "Lease Event of Default" as defined in Section 16.1 of the Master Lease. "Lease Supplement" means each Lease Supplement substantially in the form of Exhibit A to the Master Lease, executed by the Lessee and Lessor, dated as of the Acquisition Date or Improvements Closing Date, as applicable and covering the Land and/or Improvements identified on Schedule I thereto. "Lease Term" means the period commencing on the first day of the Base Lease Term and ending on the Expiration Date. "Lender Basic Rent" means the sum of Lender Basic Rent (Interest) plus Lender Basic Rent (Principal). "Lender Basic Rent (Interest)" means, as determined as of any Basic Rent Payment Date, the interest due on the Loans, determined in accordance with Section 2.4 of the Loan Agreement and excluding any interest at the applicable Overdue Rate on any installment of Basic Rent not paid when due and any fine, penalty, interest or cost assessed or added under any agreement with a third party for nonpayment or late payment of Basic Rent. "Lender Basic Rent (Principal)" means, with respect to any Basic Rent Payment Date, the amount indicated on the Master Rent Schedule under the Lease, as adjusted from time to time in accordance with the Lease. "Lenders' Percentage" is set forth with respect to each Property in the Lease Supplement relating thereto. -22- 23 Appendix A "Lenders" means, collectively, the various financial institutions as are or may from time to time become parties to the Loan Agreement. "Lessee" means Symantec Corporation, a Delaware corporation, as lessee under the Lease, and its successors and assigns expressly permitted under the Operative Documents. "Lessor" means Sumitomo Bank Leasing and Finance, Inc., a Delaware corporation. "Lessor Amount" is defined at Section 3.2 of the Participation Agreement. "Lessor Balance" means as of any date of determination an amount equal to the sum of the outstanding Lessor Amounts together with all accrued and unpaid Yield thereon. "Lessor Basic Rent" means the sum of Lessor Basic Rent (Yield) plus Lessor Basic Rent (Amortization). "Lessor Basic Rent (Amortization)" means, with respect to any Basic Rent Payment Date, the amount indicated on the Master Rent Schedule under the Lease, as adjusted from time to time in accordance with the Lease. "Lessor Basic Rent (Yield)" means the amount of accrued Yield due on the Lessor Amounts, determined in accordance with Section 4.1 of the Participation Agreement as of any Basic Rent Payment Date and excluding any interest at the applicable Overdue Rate on any installment of Lessor Basic Rent not paid when due and any fine, penalty, interest or cost assessed or added under any agreement with a third party for nonpayment or late payment of Lessor Basic Rent. "Lessor Commitment" means the Commitment of the Lessor in the amount set forth on Schedule I of the Participation Agreement, as such Schedule may be amended from time to time. "Lessor Financing Statements" means UCC financing statements appropriately completed and executed for filing in the applicable jurisdiction in order to protect the Lessor's interest under the Master Lease and the Lease Supplements to the extent the Master Lease and Lease Supplements are security agreements with respect to personal property. "Lessor Lien" means any Lien, true lease or sublease or disposition of title arising as a result of (a) any claim against any Participant not resulting from the transactions contemplated -23- 24 Appendix A by the Operative Documents, (b) any act or omission of the any Participant which is not required or permitted by the Operative Documents or is in violation of any of the terms of the Operative Documents, (c) any claim against any Participant, with respect to Taxes or Transaction Expenses against which Lessee is not required to indemnify any Participant, in its individual capacity, pursuant to Article IX of the Participation Agreement or (d) any claim against the Lessor arising out of any transfer by the Lessor of all or any portion of the interest of the Lessor in the Properties or the Operative Documents other than the transfer of title to or possession of the Properties by the Lessor pursuant to and in accordance with the Master Lease, the Loan Agreement or the Participation Agreement or pursuant to the exercise of the remedies set forth in Section 16.2 of the Master Lease. "Lessor Margin" means, with respect to any Property, the amount set forth in the applicable Lease Supplement therefor. "Lessor Mortgage" means, with respect to any Property, the Lease Supplement for such Property and any and all other security instruments in appropriate recordable form in each relevant jurisdiction sufficient to grant to the Lessor a first priority Lien on such Property. "Letter of Credit" means a commercial or standby letter of credit issued under the Letter of Credit Facility. "Letter of Credit Facility" means the letter of credit facility described in section 2.03 of the Credit Agreement. "Letter of Credit Obligations" means the sum of (a) the undrawn amount of all outstanding Letters of Credit, (b) the amount of all unreimbursed drawings under Letters of Credit, (c) the amount of all outstanding drafts accepted under Letters of Credit, and (d) the amount of all unreimbursed payments of drafts accepted under Letters of Credit. "Leverage Ratio" means the ratio of Consolidated Funded Debt to Consolidated Net Worth. "LIBO Rate" means, relative to any Loan or Lessor Amount for any Interest Period, the rate determined by the Agent to be the average (rounded upward, if necessary to the nearest multiple of one sixteenth of one percent) of the offered rates per annum for deposits in Dollars for the particular Interest Period that appears on the Reuters Screen LIBO Page (or any successor page), or if such offered rate is not available, then the rate per annum at which deposits in Dollars for the particular Interest Period -24- 25 Appendix A are offered by The Sumitomo Bank, Limited's London Branch to prime banks in the London interbank market, in each case at 11:00 a.m. (London time) two Business Days prior to the beginning of such Interest Period. "LIBO Rate (Reserve Adjusted)" means, relative to any Loan or Lessor Amount for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate (Reserve Adjusted) ------------------------------- 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period will be determined by the Agent, on the basis of the LIBOR Reserve Percentage in effect on, and the applicable LIBO Rate obtained by the Agent, two Business Days before the first day of such Interest Period. In the event that the Lessor or any Lender requires payment of such additional amount calculated with respect to the LIBOR Reserve Percentage, such party (x) shall so notify the Lessee, and (y) shall furnish to the Lessee at least five Business Days prior to each date on which Rent is payable a certificate setting forth the amount to which it is then entitled to be paid (which shall be consistent with its good faith estimate of the level at which the related reserves are maintained by it). Each such certificate shall be accompanied by such information as the Lessee may reasonably request as to the computation set forth therein. "LIBO Rate (Reserve Adjusted) Loan(s)/Lessor Amount(s)" means a Loan or Lessor Amount, as the case may be, bearing interest at the LIBO Rate (Reserve Adjusted). "LIBOR Reserve Percentage" means, relative to any Interest Period, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "Lien" means any mortgage, deed of trust, pledge, security interest, encumbrance, lien, easement, servitude or charge of any kind, including, without limitation, any irrevocable license, conditional sale or other title retention agreement, any lease in -25- 26 Appendix A the nature thereof, or any other right of or arrangement with any creditor to have its claim satisfied out of any specified property or asset with the proceeds therefrom prior to the satisfaction of the claims of the general creditors of the owner thereof, whether or not filed or recorded, or the filing of, or agreement to execute as "debtor", any financing or continuation statement under the Uniform Commercial Code of any jurisdiction or any federal, state or local lien imposed pursuant to any Environmental Law. "Loan Agreement" means the Amended and Restated Loan Agreement, dated as of February 9, 1999, among the Lessor, as borrower thereunder, the Lenders, and the Agent. "Loan Agreement Event of Default" is defined in Section 5 of the Loan Agreement. "Loan Balance" means as of any date of determination an amount equal to the sum of the outstanding Loans together with all accrued and unpaid interest thereon. "Loan Commitment" means the Commitment of each Lender in the amount set forth on Schedule I to the Participation Agreement. "Loan Documents" means the Loan Agreement and the Notes. "Loan Margin" means, with respect to any Property, the amount set forth in the Lease Supplement therefor. "Loans" is defined in Section 2.1 of the Loan Agreement. "Marketing Period" means the period commencing on the date six months prior to the Expiration Date and ending on the Expiration Date. "Master Amendment No. 1" means the Master Amendment No. 1 dated as of March 3, 1997, among the Lessee, the Lessor, the Lenders and the Agent, amending the Participation Agreement, Appendix A to the Participation Agreement, the Master Lease, the Loan Agreement and the Assignment of Lease and Rent. "Master Lease" means the Amended and Restated Master Lease and Open End Mortgage, dated as of February 9, 1999, between the Lessor and the Lessee, as may be supplemented. "Master Rent Schedule" means the Master Rent Schedule attached to each Lease Supplement as adjusted in accordance with the terms of the Master Lease. -26- 27 Appendix A "Material" and "Materially" mean material to (i) the ability of the Lessee to perform its obligations under the Operative Documents to which it is a party, or (ii) the value or condition of any Property. "Material Adverse Effect" means a material adverse effect on (i) the business, financial position or results of operations of the Lessee and its Subsidiaries taken as a whole, (ii) the ability of the Lessee to perform any material obligation under the Operative Documents or (iii) the material rights and remedies of the Lenders and the Lessor under the Operative Documents. "Material Assets" means with respect to any Person all material interests in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "Material Plan" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $1,000,000. "Maturity Date" means (a) with respect to City Center I and City Center II, February 1, 2006 or (b) with respect to the Loans and the Lessor Amounts (other than those for City Center I and City Center II), the seventh (7th) anniversary of the Documentation Date. "Maximum Commitment Amount" means an amount equal to $94,000,000.00. "Minimum Working Capital" means, at any date, Consolidated Current Assets minus Consolidated Current Liabilities "Modifications" is defined in Section 10.1 of the Master Lease. "Multiemployer Plan" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA and subject to Title IV thereof, that (a) is maintained by the Lessee or an ERISA Affiliate and at least one Person other than the Lessee and its ERISA Affiliates or (b) was so maintained previously, but is not currently maintained by the Lessee or its ERISA Affiliates, and in respect of which the Lessee or an ERISA Affiliate would still -27- 28 Appendix A have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Net Proceeds" means all amounts received by the Lessor in connection with any Casualty or Condemnation or any sale of the Property pursuant to the Lessor's exercise of remedies under Section 16.2 of the Master Lease or the Lessee's exercise of the Remarketing Option under Article XX of the Master Lease, and all interest earned thereon, less the expense of claiming and collecting such amounts, including all costs and expenses in connection therewith for which the Lessor or any Participant is entitled to be reimbursed pursuant to the Lease. "Notes" is defined in Section 2.4 of the Loan Agreement. "Operative Documents" means the following: (a) the Participation Agreement; (b) the Master Lease; (c) each Lease Supplement; (d) the Loan Agreement; (e) the Guaranty; (f) the Pledge Agreement; (g) each Note; (h) the Assignment of Lease and Rent; (i) each Deed; (j) the Lessor Mortgages; (k) the Lessor Financing Statements; (l) the Custody Agreement; and (m) the Construction Agency Agreement. As any of the foregoing have been amended and restated. "Outside Completion Date" means with respect to City Center V, the date occurring twenty-four (24) months after the Improvements Closing Date and with respect to City Center II, the date occurring twelve (12) months after the Restructuring Date as such period may be extended by the occurrence of one or more Force Majeure Events. "Overdue Rate" means, with respect to any Loan or Lessor Amount, the Alternate Base Rate for such Loan or Lessor Amount plus two percent (2%). "Participants" means, collectively, each Lender and the Lessor, and their successor and assigns. -28- 29 Appendix A "Participation Agreement" means the Amended and Restated Participation Agreement dated as of February 9, 1999 among Lessee, as the Lessee and the Lessor, the Lenders and the Agent. "Participant Balance" means, with respect to any Participant as of any date of determination: (i) with respect to any Lender, an amount equal to the aggregate outstanding Loans of such Lender, together with all accrued and unpaid interest thereon or (ii) with respect to the Lessor, an amount equal to the aggregate outstanding Lessor Amounts of the Lessor, together with all amounts of accrued and unpaid Yield thereon. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Liens" means, with respect to any Property, any of the following: (i) the respective rights and interests of the parties to the Operative Documents as provided in the Operative Documents; (ii) the rights of any sublessee under a sublease permitted by the terms of the Master Lease; (iii) Liens for Taxes that either are not yet due or are being contested in accordance with the provisions of Section 12.1 of the Master Lease; (iv) Liens arising by operation of law, materialmen's, mechanics', workers', repairmen's, employees', carriers', warehousemen's and other like Liens relating any Modifications or arising in the ordinary course of business for amounts that either are not more than 60 days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for the continuation of proceedings to contest Taxes set forth in Section 12.1 of the Master Lease; (v) Liens of any of the types referred to in clause (iv) above that have been bonded for not less than the full amount in dispute (or as to which other security arrangements reasonably satisfactory to the Lessor have been made), which bonding (or arrangements) shall comply with applicable Requirements of Law, and has effectively stayed any execution or enforcement of such Liens; (vi) Liens arising out of judgments or awards with respect to which appeals or other proceedings for review are -29- 30 Appendix A being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such proceedings have the effect of staying the execution of such judgments or awards and satisfy the conditions for the continuation of proceedings to contest set forth in Section 12.1 of the Master Lease; (vii) easements, rights of way and other encumbrances on title to real property pursuant to Section 11.2 of the Master Lease; (viii) Liens created by the Lessee with the consent of the Lessor; and (ix) Liens described on the title insurance policy delivered with respect to such Property pursuant to Section 2.1(q) of the Participation Agreement other than Liens described in clause (iv) or (vi) above that are not removed within forty (40) days of their origination. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or any other entity. "Plan" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "Plans and Specifications" means the plans and specifications for the construction and installation of Improvements for City Center II, as more particularly described in Schedule 2 to the Construction Agency Agreement. "Pledge Agreement" means the Amended and Restated Pledge Agreement, dated as of February 9, 1999, by and among the Lessee, as pledgor, the Agent, as pledgee, and the Collateral Agent. "Prime Construction Contract" means the contracts between the Construction Agent and the Prime Contractor for the Construction of City Center II, as amended from time to time in accordance with the Construction Agency Agreement. -30- 31 Appendix A "Prime Contractor" means the contractor designated as such in the Prime Construction Contract(s) or such other Person who shall, with the prior consent of the Lessor, have been designated by the Construction Agent to act as the general contractor for purposes of the Construction. "Project Cost" means the Property Balance with respect to City Center II minus the sum of (x) the Arrangement Fees paid with respect to City Center II, (y) capitalized Yield with respect to City Center II and (z) premiums for casualty insurance covering the Interim Term paid with respect to City Center II. "Property" means (i) the Lessor's interest in any Land, either as owner in fee simple, and (ii) all of the Improvements at any time located on or under such Land. "Property Acquisition Costs" means, with respect to any Property, the amount of the Advance funded to the Lessee or its designees for the purpose of acquiring such Property, paying the amount of the pro rata portion of the Fees attributable thereto, and paying the Transaction Expenses relating to such funding and acquisition, as such amount is set forth in the Funding Request relating to the acquisition of such Property. "Property Balance" means, with respect to any Property, an amount equal to the outstanding principal amount of the Loans and Lessor Amounts related to such Property, and all accrued and unpaid interest and Yield thereon, and any Supplemental Rent related thereto. "Property Improvement Costs" means out-of-pocket costs of the Construction Agent incurred and properly payable under the Construction Documents in accordance with the Operative Documents. "Property Legal Requirements" means all Federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions affecting any Property, the Improvements or the demolition, use or alteration thereof, whether now or hereafter enacted and in force, including any that require repairs, modifications or alterations in or to any Property or in any way limit the use and enjoyment thereof (including all building, zoning and fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. Section 1201 et. seq. and any other similar Federal, state or local laws or ordinances and the regulations promulgated thereunder) and any that may relate to environmental requirements (including all Hazardous Materials Laws), and all permits, certificates of occupancy, licenses, authorizations and -31- 32 Appendix A regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments which are either of record or known to the Lessee affecting any Property, the Appurtenant Rights and any easements, licenses or other agreements entered into pursuant to Section 11.2 of the Master Lease. "Purchase Notice" means an irrevocable written notice by the Lessee delivered to the Lessor pursuant to Section 18.1 of the Master Lease, notifying the Lessor of the Lessee's intention to exercise its option pursuant to such Section, and identifying the Property or Properties to be purchased in accordance therewith and the proposed purchase date therefor. "Purchase Option" means the Lessee's option to purchase a Property in accordance with the provisions of Section 18.1 of the Master Lease. "Purchase Option Price" is defined in Section 18.1 of the Master Lease. "RCRA" means the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq. "Release" means any release, pumping, pouring, emptying, injecting, escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or emission of a Hazardous Material. "Remarketing Option" is defined in Section 20.1 of the Master Lease. "Rent" means, collectively, the Basic Rent and the Supplemental Rent, in each case payable under the Master Lease. "Requesting Party" is defined in Section 27.1 of the Master Lease. "Required Modification" is defined in clause (i) of Section 10.1 of the Master Lease. "Required Lenders" is defined in Section 5.2 of the Loan Agreement. "Required Participants" means, at any time, (i) Lenders holding at least 51% of the aggregate outstanding principal amount of Loans, or if no Loans are then outstanding, 51% of the aggregate amount of the Lenders' Commitments, together with (ii) the Lessor. -32- 33 Appendix A "Requirement of Law" means, as to any Person, (a) the partnership agreement, certificate of incorporation, bylaws or other organizational or governing documents of such Person, (b) any federal, state or local law, treaty, ordinance, rule or regulation and (c) any order, decree or determination of a court, arbitrator or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" means the President and Chief Executive Officer, Executive Vice President, the Treasurer, any Vice President or any Assistant Treasurer, Secretary or any Assistant Secretary of the of the Lessee. "Responsible Officer's Certificate" means a certificate signed by any Responsible Officer, which certificate shall certify as true and correct the subject matter being certified to in such certificate. "Restricted Investments" is defined in Section 10.1(f) of the Participation Agreement. "Restructuring Date" means the date on which the Lessor's interests in City Center V are exchanged for City Center II. "Scheduled Payment Date" means the fifteenth (15th) day of each January, April, July, and October; provided, however, (i) if any Scheduled Payment Date would otherwise end on a day that is not a Business Day, such Scheduled Payment Date shall be extended to the next succeeding Business Day unless the result of such extension would be to cause such Scheduled Payment Date into occur in another calendar month in which event such Scheduled Payment Date shall end on the immediately preceding Business Day; and (iii) any Scheduled Payment Date that would otherwise occur after the Maturity Date shall occur on the Maturity Date. "Securities Act" means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder. "Shortfall Amount" means, as of the Expiration Date, an amount equal to (i) the Lease Balance, minus (ii) the Loan Balance received by the Lessor from the Lessee pursuant to Section 20.1(k) of the Lease, minus (iii) the aggregate amount of -33- 34 Appendix A the highest, binding, written, unconditional, irrevocable offer to purchase each Property obtained by each Lessee pursuant to Section 20.1(f) of the Lease; provided, however, that if the sale of the Properties to the Person submitting such offer is not consummated on or prior to the Expiration Date, then the term "Shortfall Amount" shall mean an amount equal to (i) the Lease Balance, minus (ii) the Loan Balance received by the Lessor pursuant to Section 20.1(k) of the Lease. "Significant Condemnation" means (a) a Condemnation that involves a taking of the Lessor's entire title to the related Land, or (b) a Condemnation that in the reasonable, good faith judgment of the Agent and the Lessor (i) renders the related Property unsuitable for continued use as property of the type of such Property immediately prior to such Condemnation, or (ii) is so substantial in nature that restoration of the related property to substantially its condition as it existed immediately prior to such Condemnation (y) would be impracticable or impossible, or (z) cost in excess of 10% of the outstanding Lease Balance for such Property. "Solvent" means with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability taking into account any subrogation and contribution rights. "Submitted Financial Statements" means the financial statements of the Lessee for the fiscal year ended April 1, 1998, -34- 35 Appendix A which were audited by Ernst & Young, copies of which have been delivered to the Lessor, the Agent and each Lender. "Subsidiary" of any Person means any corporation, partnership, joint venture, trust or estate of which (or in which) more than 50% of: (a) the outstanding capital stock having Voting Power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might having Voting Power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership or joint venture, or (c) the beneficial interest of such trust or estate, is at the time directly or indirectly owned by such Person, by such Person and one or more of its Subsidiaries or by one or more of such Person's Subsidiaries. "Substantial Completion" means such time as the conditions set forth in Section 2.4 of the Participation Agreement shall have been satisfied with respect to City Center II. "Supplemental Rent" means all amounts, liabilities and obligations (other than Basic Rent) which Lessee assumes or agrees to pay to Lessor or any other Person under the Master Lease, or under any of the other Operative Documents, including, without limitation, Fees, Break Costs, the Loan Balance, the Shortfall Amount, amounts due pursuant to Section 13.2 of the Participation Agreement, payments pursuant to Sections 15.2 of the Master Lease and Articles XVIII and XX of the Master Lease and all amounts payable to the Collateral Agent under Section 7 of the Custody Agreement. "Surplus Collateral" is defined in Section 6.2 of the Participation Agreement. "Tangible Net Worth" means the gross book value of the assets of the Lessee (exclusive of goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred income taxes, deferred charges and other like intangibles) less (a) reserves applicable thereto and (b) all liabilities (including accrued and deferred income taxes and subordinated liabilities). -35- 36 Appendix A "Tax Indemnitee" means each Lender and the Lessor. "Taxes" is defined in the definition of Impositions. "Termination Date" is defined in Section 15.3 and Section 16.2(e) of the Master Lease. "Termination Notice" is defined in Section 15.1 of the Master Lease. "Transaction Expenses" means all costs and expenses incurred in connection with the preparation, execution and delivery of the Operative Documents and the transactions contemplated by the Operative Documents including without limitation: (a) the reasonable fees, out-of-pocket expenses and disbursements of Mayer, Brown & Platt, special counsel for the Lessor, the Lenders and the Lessor, and such other fees, expenses and disbursements of counsel for the Lessee in negotiating the terms of the Operative Documents and the other transaction documents, preparing for the closing under, and rendering opinions in connection with, such transactions and in rendering other services customary for counsel representing parties to transactions of the types involved in the transactions contemplated by the Operative Documents; (b) the reasonable fees, out-of-pocket expenses and disbursements of any law firm or other external counsel of each of the Lessor and each Lender in connection with (1) any amendment, supplement, waiver or consent with respect to any Operative Documents requested or approved by the Lessee and (2) any enforcement of any rights or remedies against the Lessee in respect of the Operative Documents; (c) any and all Taxes and fees incurred in recording, registering or filing any Operative Document or any other transaction document, any deed, declaration, mortgage, security agreement, notice or financing statement with any public office, registry or governmental agency in connection with the transactions contemplated by the Operative Documents; (d) any title fees, premiums and escrow costs and other expenses relating to title insurance or other insurance and the closings contemplated by the Operative Documents; -36- 37 Appendix A (e) all expenses relating to all Environmental Audits; and (f) fees and other expenses relating to Appraisals. "Unfunded Liabilities" means, with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefits under such Plan exceeds (ii) the fair market value of all Plan assets allocable to such benefits (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "Uniform Commercial Code" and "UCC" means the Uniform Commercial Code as in effect in any applicable jurisdiction. "Voting Power" means, with respect to securities issued by any Person, the combined voting power of all securities of such person which are issued and outstanding at the time of determination and which are entitled to vote in the election of directors of such Person, other than securities having such power only by reason of the happening of a contingency. "World Headquarters" means the Property consisting of the Land and Improvements covered by Lease Supplement No. 1. "Yield" is defined in Section 4.1(a) of the Participation Agreement. "Yield Rate" means, at the option of the Lessee, the sum of (i) the Alternate Base Rate, or (ii) the LIBO Rate (Reserve Adjusted), plus the Lessor Margin, as the case may be. -37- EX-10.19 4 AMENDED & RESTATED MASTER LEASE AND DEED OF TRUST 1 EXHIBIT 10.19 EXECUTION COPY ================================================================================ AMENDED AND RESTATED MASTER LEASE AND DEED OF TRUST THIS DOCUMENT SECURES FUTURE ADVANCES Dated as of February 9, 1999 between SYMANTEC CORPORATION, as the Lessee and SUMITOMO BANK LEASING AND FINANCE, INC., as the Lessor. ================================================================================ This Master Lease and Deed of Trust is subject to a lien in favor of the Lenders under the Loan Agreement. This Master Lease and Deed of Trust has been executed in several counterparts. To the extent, if any, that this Master Lease and Deed of Trust constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction), no lien on this Master Lease and Deed of Trust may be created through the transfer or possession of any counterpart other than the original counterpart containing the receipt therefor executed by THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH as the Agent for the Lenders, on or following the signature page hereof. This counterpart is the original executed chattel paper counterpart. 2 Master Lease MASTER LEASE AND DEED OF TRUST THIS DOCUMENT SECURES FUTURE ADVANCES THIS MASTER LEASE AND DEED OF TRUST (this "Master Lease"), dated as of February 9, 1999, between SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation, as the Lessor (in such capacity, the "Lessor"), and SYMANTEC CORPORATION, a Delaware corporation, as Lessee (in such capacity, the "Lessee"). W I T N E S S E T H: WHEREAS, pursuant to a Participation Agreement dated as of the date hereof (as amended, modified, restated or supplemented from time to time, the "Participation Agreement"), among the Lessee, the Lessor, the various financial institutions (the "Lenders") as are or may from time to time become Lenders under the Loan Agreement, The Bank of Nova Scotia, as Documentation Agent, and The Sumitomo Bank, Limited, Los Angeles Branch, as Administrative Agent (in such capacity, the "Agent") for the Lenders, the Lenders and the Lessor have agreed to finance the Lessor's acquisition of each Property; WHEREAS, on each Acquisition Date, the Lessor will purchase from one or more third parties designated by the Lessee certain parcels of Land, together with the Improvements thereon, if any; WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires to lease from the Lessor, each Property; and WHEREAS, each Property will be subject to the terms of this Master Lease; NOW, THEREFORE, in consideration of the foregoing, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1. Definitions; Interpretation. Capitalized terms used but not otherwise defined in this Master Lease have the respective meanings specified in Appendix A to this Master Lease; and the rules of interpretation set forth in Appendix A to this Master Lease shall apply to this Master Lease. 3 Master Lease ARTICLE II MASTER LEASE 2.1. Acceptance and Lease of Property. Subject to the conditions set forth in the Participation Agreement, including without limitation the satisfaction or waiver of the conditions set forth in Article II thereof, the Lessor hereby agrees to accept pursuant to the terms of the Participation Agreement delivery on the Closing the Land together with Improvements thereon, if any, to be delivered by the seller thereof and simultaneously to demise and lease to the Lessee hereunder and under the Lease Supplement for the Lease Term, the Lessor's interest in such Land and in such Improvements together with any Improvements which thereafter may be constructed on such Land pursuant this Master Lease, and the Lessee hereby agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor for the Lease Term, the Lessor's interest in such Land and in such Improvements together with any Improvements which thereafter may be constructed on such Land pursuant and this Master Lease. 2.2. Acceptance Procedure. The Lessee hereby agrees that the execution and delivery by the Lessee on each Acquisition Date of an appropriately completed Lease Supplement in the form of Exhibit A hereto covering the Land and all Improvements thereon, if any, to be acquired by the Lessor on such Acquisition Date and all other Improvements which thereafter may be constructed thereon this Master Lease, shall, without further act, constitute the irrevocable acceptance by the Lessee of all of the Property which is the subject of such Lease Supplement for all purposes of this Master Lease and the other Operative Documents on the terms set forth therein and herein, and that such Property, together with any Improvements constructed on such Property pursuant to the this Master Lease, shall be deemed to be included in the leasehold estate of this Master Lease and shall be subject to the terms and conditions of this Master Lease as of the Acquisition Date. 2.3. Lease Term. The Base Lease Term (the "Base Lease Term") of this Master Lease with respect to (i) City Center I commenced on the Acquisition Date thereof and shall end on February 1, 2006, (ii) City Center II shall begin on the Restructuring Date and shall end on February 1, 2006, and (iii) with respect to any other Property shall begin on the Acquisition Date thereof, and shall end on the date specified in the applicable Lease Supplement therefor, unless earlier terminated in accordance with the provisions of this Master Lease and the other Operative Documents. -2- 4 Master Lease The Lease Term of this Master Lease with respect to City Center II shall consist of an Interim Term and a Base Lease Term. The Interim Term for such Improvements shall begin on (and include) the Restructuring Date and end on (but exclude) the first day of the Base Lease Term for such Improvements. The Base Lease Term for City Center II shall (i) begin on (and include) the earliest of (x)Substantial Completion, (y) the first Business Day following the day on which the Construction Commitment Amount has been fully funded and (z) the first Business Day of the twelfth (12th) month following the Restructuring Date (provided, that no Construction Agency Agreement Event of Default shall have occurred and be continuing on such date) and (ii) end on the February 1, 2006, unless earlier terminated in accordance with the provisions of this Master Lease and the other Operative Documents. 2.4. Title. Each Property is leased to the Lessee without any representation or warranty, express or implied, by the Lessor and subject to the rights of parties in possession, the existing state of title (including, without limitation, all Liens other than Lessor Liens) and all applicable Requirements of Law and Property Legal Requirements. The Lessee shall in no event have any recourse against the Lessor for any defect in or exception to title to any Property other than resulting from Lessor Liens. ARTICLE III PAYMENT OF RENT 3.1. Rent. (a) During the Base Lease Term for each Property, the Lessee shall pay Basic Rent on each Basic Rent Payment Date, on the date required under Section 20.1(k) in connection with the Lessee's exercise of the Remarketing Option and on any date on which this Master Lease shall terminate with respect to any or all Properties. (b) The Lessee's inability or failure to take possession of all or any portion of any Property when delivered by the Lessor, nor the Lessor's inability or failure to deliver all or any portions of this Property to the Lessee where attributable to any act or omission of the Lessee or any act or omission of the Lessor, or for any other reason whatsoever, shall delay or otherwise affect the Lessee's obligation to pay Rent for such Property in accordance with the terms of this Master Lease. -3- 5 Master Lease 3.2. Payment of Rent. Rent shall be paid absolutely net to the Lessor, so that this Master Lease shall yield to the Lessor the full amount thereof, without setoff, deduction or reduction. 3.3. Supplemental Rent. The Lessee shall pay to the Lessor or the Person entitled thereto any and all Supplemental Rent promptly as the same shall become due and payable, and if the Lessee fails to pay any Supplemental Rent, the Lessor shall have all rights, powers and remedies provided for herein or by law or equity or otherwise in the case of nonpayment of Basic Rent. The Lessee shall pay to the Lessor, as Supplemental Rent, among other things, on demand, to the extent permitted by applicable Requirements of Law, interest at the applicable Overdue Rate on any installment of Basic Rent not paid when due for the period for which the same shall be overdue and on any payment of Supplemental Rent not paid when due or demanded by the Lessor for the period from the due date or the date of any such demand, as the case may be, until the same shall be paid. The expiration or other termination of the Lessee's obligations to pay Basic Rent hereunder shall not limit or modify the obligations of the Lessee with respect to Supplemental Rent. Unless expressly provided otherwise in this Master Lease, in the event of any failure on the part of the Lessee to pay and discharge any Supplemental Rent as and when due, the Lessee shall also promptly pay and discharge any fine, penalty, interest or cost which may be assessed or added under any agreement with a third party for nonpayment or late payment of such Supplemental Rent, all of which shall also constitute Supplemental Rent. 3.4. Method of Payment. Each payment of Rent shall be made by the Lessee to the Agent prior to 11:00 a.m., San Francisco, California time to the Agent's account specified on Schedule II to the Participation Agreement in funds consisting of lawful currency of the United States of America which shall be immediately available on the scheduled date when such payment shall be due, unless such scheduled date shall not be a Business Day, in which case such payment shall be made on the next succeeding Business Day. Payments received after 12:00 p.m., San Francisco time on the date due shall for the purpose of Section 16.1 hereof be deemed received on such day; provided, however, that for the purposes of the second sentence of Section 3.3 hereof, such payments shall be deemed received on the next succeeding Business Day and, unless the Agent is otherwise able to invest or employ such funds on the date received, subject to interest at the Overdue Rate as provided in such Section 3.3. -4- 6 Master Lease ARTICLE IV QUIET ENJOYMENT; RIGHT TO INSPECT 4.1. Quiet Enjoyment. Subject to Sections 2.4 and 4.2, and subject to the rights of the Lessor contained in Article XV and the other terms of the Operative Documents to which the Lessee is a party, the Lessee shall peaceably and quietly have, hold and enjoy each Property for the Lease Term, free of any claim or other action by the Lessor or anyone claiming by, through or under the Lessor (other than the Lessee) with respect to any matters arising from and after the applicable Acquisition Date. Such right of quiet enjoyment is independent of, and shall not affect the Lessor's rights otherwise to initiate legal action to enforce, the obligations of the Lessee under this Master Lease. 4.2. Right to Inspect. During the Lease Term, the Lessee shall upon reasonable notice from the Lessor (except that no notice shall be required if a Lease Event of Default has occurred and is continuing), permit the Lessor and its authorized representatives to inspect any Property subject to this Master Lease during normal business hours, provided that such inspections shall not unreasonably interfere with the Lessee's business operations at such Property. ARTICLE V NET LEASE, ETC. 5.1. Net Lease. This Master Lease shall constitute a net lease. Any present or future law to the contrary notwithstanding, this Master Lease shall not terminate, nor shall the Lessee be entitled to any abatement, suspension, deferment, reduction, setoff, counterclaim, or defense with respect to the Rent, nor shall the obligations of the Lessee hereunder be affected (except as expressly herein permitted and by performance of the obligations in connection therewith) by reason of: (i) any defect in the condition, merchantability, design, construction, quality or fitness for use of any Property or any part thereof, or the failure of any Property to comply with all Requirements of Law and Property Legal Requirements, including any inability to occupy or use any such Property by reason of such non-compliance; (ii) any damage to, removal, abandonment, salvage, loss, contamination of or Release from, scrapping or destruction of or any requisition or taking of any Property or any part thereof; (iii) any restriction, prevention or curtailment of or interference with any use of any Property or any part thereof including eviction; (iv) any defect in title to or rights to any Property or any Lien on such title or rights or on any Property (other than Lessor Liens); (v) any change, -5- 7 Master Lease waiver, extension, indulgence or other action or omission or breach in respect of any obligation or liability of or by the Lessor or any Participant; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceedings relating to the Lessee, the Lessor, any Participant or any other Person, or any action taken with respect to this Master Lease by any trustee or receiver of the Lessee, the Lessor, any Participant or any other Person, or by any court, in any such proceeding; (vii) any claim that the Lessee has or might have against any Person, including without limitation the Lessor, any Participant, or any vendor, manufacturer, contractor of or for any Property; (viii) any failure on the part of the Lessor to perform or comply with any of the terms of this Master Lease (other than performance by Lessor of its obligations set forth in Section 2.1 hereof), of any other Operative Document or of any other agreement; (ix) any invalidity or unenforceability or illegality or disaffirmance of this Master Lease against or by the Lessee or any provision hereof or any of the other Operative Documents or any provision of any thereof; (x) the impossibility or illegality of performance by the Lessee, the Lessor or both; (xi) any action by any court, administrative agency or other Governmental Authority; (xii) any restriction, prevention or curtailment of or interference with the construction on or any use of any Property or any part thereof; or (xiii) any other cause or circumstances whether similar or dissimilar to the foregoing and whether or not the Lessee shall have notice or knowledge of any of the foregoing. The Lessee's agreement in the preceding sentence shall not affect any claim, action or right the Lessee may have against the Lessor or any Participant. The parties intend that the obligations of the Lessee hereunder shall be covenants and agreements that are separate and independent from any obligations of the Lessor hereunder or under any other Operative Documents and the obligations of the Lessee shall continue unaffected unless such obligations shall have been modified or terminated in accordance with an express provision of this Master Lease. 5.2. No Termination or Abatement. The Lessee shall remain obligated under this Master Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Master Lease (except as provided herein), notwithstanding any action for bankruptcy, insolvency, reorganization, liquidation, dissolution, or other proceeding affecting the Lessor or any Participant, or any action with respect to this Master Lease which may be taken by any trustee, receiver or liquidator of the Lessor or any Participant or by any court with respect to the Lessor or any Participant. The Lessee hereby waives all right (i) to terminate or surrender this Master Lease (except as provided herein) or (ii) to avail itself of any abatement, -6- 8 Master Lease suspension, deferment, reduction, setoff, counterclaim or defense with respect to any Rent. The Lessee shall remain obligated under this Master Lease in accordance with its terms and the Lessee hereby waives any and all rights now or hereafter conferred by statute or otherwise to modify or to avoid strict compliance with its obligations under this Master Lease. Notwithstanding any such statute or otherwise, the Lessee shall be bound by all of the terms and conditions contained in this Master Lease. ARTICLE VI SUBLEASES 6.1. Subletting. Subject to Section 2.1(r) of the Participation Agreement, the Lessee may sublease any Property or any portion thereof to any Person; provided, however, that no sublease or other relinquishment of possession of any Property shall in any way discharge or diminish any of the Lessee's obligations to the Lessor hereunder and the Lessee shall remain directly and primarily liable under this Master Lease as to the Properties, or portion thereof, so sublet. Each sublease of any Property shall expressly be made subject to and subordinated to this Master Lease and to the rights of the Lessor hereunder. ARTICLE VII LESSEE ACKNOWLEDGMENTS 7.1. Condition of the Properties. THE LESSEE ACKNOWLEDGES AND AGREES THAT IT IS LEASING EACH PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE LESSOR OR THE LENDERS AND IN EACH CASE SUBJECT TO (A) THE EXISTING STATE OF TITLE (EXCLUDING LESSOR LIENS), (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW, AND (D) VIOLATIONS OF REQUIREMENTS OF LAW AND PROPERTY LEGAL REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF OR ON THE ACQUISITION DATE FOR SUCH PROPERTY. NONE OF THE LESSOR OR THE LENDERS HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE (OTHER THAN FOR LESSOR LIENS), VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF ANY PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY PART THEREOF) AND NONE OF THE LESSOR OR THE LENDERS SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN (OTHER THAN FOR LESSOR LIENS) OR THE FAILURE OF ANY -7- 9 Master Lease PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW OR PROPERTY LEGAL REQUIREMENT. 7.2. Risk of Loss. During the Lease Term the risk of loss of or decrease in the enjoyment and beneficial use of the Properties as a result of the damage or destruction thereof by fire, the elements, casualties, thefts, riots, wars or otherwise is assumed by the Lessee, and the Lessor shall in no event be answerable or accountable therefor. ARTICLE VIII POSSESSION AND USE OF THE PROPERTIES, ETC. 8.1. Utility Charges. The Lessee shall pay or cause to be paid all charges for electricity, power, gas, oil, water, telephone, sanitary sewer service and all other rents and utilities used in or on the Properties during the Lease Term. The Lessee shall be entitled to receive any credit or refund with respect to any utility charge paid by the Lessee and the amount of any credit or refund received by the Lessor on account of any utility charges paid by the Lessee, net of the costs and expenses reasonably incurred by the Lessor in obtaining such credit or refund, shall be promptly paid over to the Lessee. 8.2. Possession and Use of the Property. Each Property may be used in all lawful manners consistent with the business of the Lessee and otherwise as set forth in the applicable Appraisal. The Lessee shall pay, or cause to be paid, all charges and costs required in connection with the use of the Properties as contemplated by this Master Lease. The Lessee shall not commit or permit any waste of the Properties or any part thereof. 8.3. Compliance with Requirements of Law, Property Legal Requirements and Insurance Requirements. Subject to the terms of Article XII relating to permitted contests, the Lessee, at its sole cost and expense, shall (a) comply in all material respects with all Requirements of Law (including all Hazardous Materials Laws), Property Legal Requirements and Insurance Requirements relating to the Properties, including the use, construction, operation, maintenance, repair and restoration thereof and the remarketing thereof pursuant to Article XX, whether or not compliance therewith shall require structural or extraordinary changes in the Improvements or interfere with the use and enjoyment of the Properties, and (b) procure, maintain and comply with all licenses, permits, orders, approvals, consents and other authorizations required for the construction, use, maintenance and operation of the Properties and for the use, operation, maintenance, repair and restoration of the Improvements. -8- 10 Master Lease Notwithstanding the preceding sentence, the Lessee shall be deemed to be in compliance with all Hazardous Materials Laws for purposes of this Master Lease notwithstanding any Environmental Violation if the severity of such Environmental Violation is less than Federal, state or local standards requiring remediation or removal or, if such standards are exceeded, remediation or removal is proceeding in accordance with all applicable Hazardous Materials Laws. 8.4. Assignment by Lessee. The Lessee may assign its rights under this Master Lease in whole or in part to any Person but no such assignment shall relieve the Lessee from any of its obligations hereunder. ARTICLE IX MAINTENANCE AND REPAIR; RETURN 9.1. Maintenance and Repair; Return. (a) The Lessee, at its sole cost and expense, shall maintain each Property in good condition (ordinary wear and tear excepted) and make all necessary repairs thereto, of every kind and nature whatsoever, whether interior or exterior, ordinary or extraordinary, structural or nonstructural or foreseen or unforeseen, in each case as required by all Requirements of Law, Property Legal Requirements and Insurance Requirements and in no event less than the standards applied by the Lessee in the operation and maintenance of other comparable properties owned or leased by the Lessee or its Affiliates. (b) The Lessor shall under no circumstances be required to build any improvements on any Property, make any repairs, replacements, alterations or renewals of any nature or description to any Property, make any expenditure whatsoever in connection with this Master Lease (other than for Advances made in accordance with and pursuant to the terms of the Participation Agreement) or maintain any Property in any way. The Lessee waives any right to (i) require the Lessor to maintain, repair, or rebuild all or any part of any Property or (ii) make repairs at the expense of the Lessor pursuant to any Requirement of Law, Property Legal Requirement, Insurance Requirement, contract, agreement, or covenant, condition or restriction in effect at any time during the Lease Term. -9- 11 Master Lease (c) The Lessee shall, upon the expiration or earlier termination of this Master Lease with respect to any Property (other than as a result of the Lessee's purchase of such Property from the Lessor as provided herein), vacate and surrender such Property to the Lessor in its then-current, "AS IS" condition, subject to the Lessee's obligations under Sections 8.3, 9.1(a), 10.1, 11.1, 14.1(e), 14.2 and 20.1. ARTICLE X MODIFICATIONS, ETC. 10.1. Modifications, Substitutions and Replacements. During the Lease Term, the Lessee, at its sole cost and expense, may at any time and from time to time make alterations, renovations, improvements and additions to any Property or any part thereof and substitutions and replacements therefor (collectively, "Modifications"); provided, however, that: (i) except for any Modification required to be made pursuant to a Requirement of Law or Property Legal Requirement (a "Required Modification"), no Modification shall adversely affect the value or useful life of such Property or any part thereof from that which existed immediately prior to such Modification; (ii) the Modification shall be done in a good and workmanlike manner; (iii) the Lessee shall comply in all material respects with all Requirements of Law (including all Hazardous Materials Laws), Property Legal Requirements and Insurance Requirements applicable to the Modification, including the obtaining of all permits and certificates of occupancy; (iv) subject to the terms of Article XII relating to permitted contests, the Lessee shall pay all costs and expenses and shall discharge (or cause to be insured or bonded over) within sixty (60) days after the same shall be filed (or otherwise become effective) any Liens arising with respect to the Modification; (v) such Modifications shall comply with Sections 8.3 and 9.1(a); and (vi) the Lessee shall be required to obtain the prior written approval of the Lessor, which approval shall not be unreasonably withheld, and which shall be deemed to have -10- 12 Master Lease been given if no response from the Lessor to the request for consent is received by the Lessee within ten (10) days of the date of such request, with respect to any alterations that shall Materially affect any structural element of any Improvements. All Modifications shall remain part of the realty and shall be subject to this Master Lease and title thereto shall immediately vest in the Lessor; provided, however, that Modifications that (x) are not Required Modifications, (y) were not financed by the Lessor and (z) are readily removable without impairing the value, utility or remaining useful life of the applicable Property, shall be the property of the Lessee and shall not be subject to this Master Lease. So long as no Lease Event of Default has occurred and is continuing, the Lessee may place upon the Properties any trade fixtures, machinery, equipment, inventory or other property belonging to the Lessee or third parties and may remove the same at any time during the Lease Term, subject, however, to the terms of Section 9.1(a); provided, however, that such trade fixtures, machinery, equipment, inventory or other property do not impair the value or useful life of the applicable Property; provided, further, however, that the Lessee shall keep and maintain at the Properties and shall not remove from the Properties any Equipment financed or otherwise paid for (directly or indirectly) by the Lessor or any Participant pursuant to the Participation Agreement. 10.2. Notice to the Lessor. If the Lessee reasonably expects the cost of any Modification to any Property to exceed $250,000.00, the Lessee shall deliver to the Lessor a brief written narrative of the work to be performed in connection with such Modification prior to making such Modification. ARTICLE XI WARRANT OF TITLE; EASEMENTS 11.1. Warrant of Title. (a) The Lessee agrees that except as otherwise provided herein and subject to the terms of Article XII relating to permitted contests, the Lessee shall not directly or indirectly create or allow to remain, and shall promptly discharge at its sole cost and expense, any Lien (other than any Lessor Lien), defect, attachment, levy, title retention agreement or claim upon any Property or any Lien, attachment, levy or claim with respect to the Rent or with respect to any amounts held by the Lessor or the Participants pursuant to the Loan Agreement or the other -11- 13 Master Lease Operative Documents, other than Permitted Liens and Liens on machinery, equipment, general intangibles and other personal property not financed by the proceeds of the Loans or Lessor Amounts. (b) Nothing contained in this Master Lease shall be construed as constituting the consent or request of the Lessor, expressed or implied, to or for the performance by any contractor, mechanic, laborer, materialman, supplier or vendor of any labor or services or for the furnishing of any materials for any construction, alteration, addition, repair or demolition of or to any Property or any part thereof. NOTICE IS HEREBY GIVEN THAT NONE OF THE LESSOR OR THE LENDERS IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING A PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF THE LESSOR OR ANY LENDER IN AND TO ANY PROPERTY. 11.2. Grants and Releases of Easements; Lessor's Waivers. Provided that no Lease Event of Default shall have occurred and be continuing and subject to the provisions of Articles VII, IX and X and Section 8.3 the Lessor hereby consents in each instance to the following actions by the Lessee, in the name and stead of the Lessor, but at the Lessee's sole cost and expense: (a) the granting of easements, licenses, rights-of-way and other rights and privileges in the nature of easements reasonably necessary or desirable for the use, repair, or maintenance of any Property as herein provided; (b) the release of existing easements or other rights in the nature of easements which are for the benefit of any Property; and (c) the execution of amendments to any covenants and restrictions affecting any Property; provided, however, that in each case (i) such grant, release, dedication, transfer or amendment does not materially impair the value or remaining useful life of the applicable Property, (ii) such grant, release, dedication, transfer or amendment that in the Lessee's judgment is reasonably necessary in connection with the use, maintenance, alteration or improvement of the applicable Property, (iii) such grant, release, dedication, transfer or amendment will not cause the applicable Property or any portion thereof to fail to comply with the provisions of this Master Lease or any other Operative Documents and all Property Legal Requirements (including, without limitation, all applicable zoning, planning, building and subdivision ordinances, all applicable restrictive covenants and all applicable architectural approval requirements); (iv) all governmental consents or approvals required prior to such grant, release, dedication, -12- 14 Master Lease transfer, annexation or amendment have been obtained, and all filings required prior to such action have been made; (v) the Lessee shall remain obligated under this Master Lease and under any instrument executed by the Lessee consenting to the assignment of the Lessor's interest in this Master Lease as security for indebtedness, in each such case in accordance with their terms, as though such grant, release, dedication, transfer or amendment had not been effected and (vi) the Lessee shall pay and perform any obligations of the Lessor under such grant, release, dedication, transfer or amendment. The Lessor acknowledges the Lessee's right to finance and to secure under the Uniform Commercial Code, inventory, furnishings, furniture, equipment, machinery, leasehold improvements and other personal property located at the Properties other than Equipment, and Lessor agrees to execute Lessor waiver forms and release of Lessor's Liens in favor of any purchase money seller, lessor or lender which has financed or may finance in the future such items. Without limiting the effectiveness of the foregoing, provided that no Lease Event of Default shall have occurred and be continuing, the Lessor shall, upon the request of the Lessee, and at the Lessee's sole cost and expense, execute and deliver any instruments necessary or appropriate to confirm any such grant, release, dedication, transfer, annexation or amendment to any Person permitted under this Section 11.2 including landlord waivers with respect to any of the foregoing. So long as no Event of Default shall have occurred and be continuing, Lessee is hereby granted an irrevocable power of attorney (coupled with an interest) to execute the types of documents, instruments and agreement referred to in this Section 11.2. In addition, Lessor covenants to cooperate and to execute promptly any documents requested by Lessee under this Section 11.2. ARTICLE XII PERMITTED CONTESTS 12.1. Permitted Contests in Respect of Applicable Law. If, to the extent and for so long as (a) a test, challenge, appeal or proceeding for review of any Applicable Law relating to any Property shall be prosecuted diligently and in good faith in appropriate proceedings by the Lessee or (b) compliance with such Applicable Law shall have been excused or exempted by a valid nonconforming use, variance permit, waiver, extension or forbearance, the Lessee shall not be required to comply with such Applicable Law but only if and so long as any such test, challenge, appeal, proceeding, waiver, extension, forbearance or noncompliance shall not, in the reasonable opinion of the Lessor and the Agent, involve (A) any risk of criminal liability being imposed on the Lessor or any Lender or (B) any risk of -13- 15 Master Lease (1) foreclosure, forfeiture or loss of such Property, or sale of any Property or any material part thereof, or nonpayment of Rent (2) civil liability being imposed on the Lessor, any Lender, or such Property, or (3) enjoinment of, or interference with, the use, possession or disposition of such Property in any material respect. The Lessor will not be required to join in any proceedings pursuant to this Section 12.1 unless a provision of any Applicable Law requires that such proceedings be brought by or in the name of the Lessor; and in that event the Lessor will join in the proceedings or permit them or any part thereof to be brought in its name if and so long as (i) the Lessee has not elected the Remarketing Option and (ii) the Lessee pays all related expenses and indemnifies the Lessor and the Participants with respect to such proceedings. ARTICLE XIII INSURANCE 13.1. Public Liability and Workers' Compensation Insurance. (a) During the Lease Term, the Lessee shall procure and carry, at the Lessee's sole cost and expense, commercial general liability insurance for claims for injuries or death sustained by persons or damage to property while on the Properties and such other public liability coverages as are ordinarily procured by the Lessee or its Affiliates who own or operate similar properties, but in any case shall provide liability coverage of at least combined single limit for bodily injury or property damage, $5,000,000 per occurrence and aggregate. Such insurance shall be on terms and in amounts that are no less favorable than insurance maintained by the Lessee or such Affiliates with respect to similar properties that they own and that are in accordance with normal industry practice. The policy shall be endorsed to name the Lessor as additional insured. The policy shall also specifically provide that the policy shall be considered primary insurance which shall apply to any loss or claim before any contribution by any insurance which the Lessor may have in force. (b) The Lessee shall in the construction of any Modifications and the operation of the Properties, comply with the applicable workers' compensation laws. -14- 16 Master Lease 13.2. Hazard and Other Insurance. During the Lease Term, the Lessee shall keep, or cause to be kept, such Property insured against loss or damage by fire, and other risks on terms and in amounts that are no less favorable than insurance covering other similar properties owned by the Lessee or its Affiliates and that are in accordance with normal industry practices, but at least an amount sufficient to cover the replacement cost of the Improvements. During the construction of any Improvements the Lessee shall also maintain or cause to be maintained builders' risk insurance. All insurance proceeds in respect of any loss or occurrence for which the proceeds related thereto are (i) less than or equal to $500,000.00, in the absence of the occurrence and continuance of an Event of Default, shall be adjusted by and paid to the Lessee for application toward the reconstruction, repair or refurbishment of the applicable Property and (ii) greater than $500,000.00, shall be adjusted by and held by the Lessor for application in accordance with Article XIV. 13.3. Insurance Coverage. (a) The Lessee shall furnish the Lessor and the Agent with certificates showing the insurance required under Sections 13.1 and 13.2 to be in effect and naming the Lessor as additional insured with respect to liability coverage (excluding worker's compensation insurance), naming the Lessor and the Lessee as their interests may appear with respect to property coverage and naming the Lessor as loss payee with respect to property coverage and showing the mortgagee endorsement required by Section 13.3(c) with respect to such coverage. All such insurance shall be at the cost and expense of the Lessee. Such certificates shall include a provision for no less than thirty (30) days' advance written notice by the insurer to the Lessor in the event of cancellation or reduction of such insurance. (b) The Lessee agrees that the insurance policy or policies required by Sections 13.2 shall include an appropriate clause pursuant to which such policy shall provide that it will not be invalidated should the Lessee waive, in writing, prior to a loss, any or all rights of recovery against any party for losses covered by such policy, and that the insurance in favor of the Lessor and its rights under and interests in said policies shall not be invalidated or reduced by any act or omission (including breach of warranty) or negligence of the Lessee or any other Person having any interest in any Property other than the Lessor. The Lessee hereby waives any and all such rights against the Lessor to the extent of payments made under such policies. -15- 17 Master Lease (c) All such insurance shall be written by reputable insurance companies that are financially sound and solvent and otherwise reasonably appropriate considering the amount and type of insurance being provided by such companies. Any insurance company selected by the Lessee which is rated in Best's Insurance Guide or any successor thereto (or if there be none, an organization having a similar national reputation) shall have a general policyholder rating of "A" and a financial rating of at least "VIII" or be otherwise acceptable to the Lessor. All insurance policies required by Section 13.2 shall include a standard form mortgagee endorsement in favor of the Lessor. (d) The Lessor shall not carry separate insurance concurrent in kind or form or contributing in the event of loss with any insurance required under this Article XIII except that the Lessor may, at the Lessor's expense, carry separate liability insurance so long as (i) the Lessee's insurance is designated as primary and in no event excess or contributory to any insurance the Lessor may have in force which would apply to a loss covered under the Lessee's policy and (ii) each such insurance policy will not cause the Lessee's insurance required under this Article XIII to be subject to a coinsurance exception of any kind. (e) The Lessee shall pay as they become due all premiums for the insurance required by Section 13.1 and Section 13.2, and shall renew or replace each policy prior to the expiration date thereof. Throughout the Lease Term, at the time each of the Lessee's insurance policies is renewed (but in no event less frequently than once each year), the Lessee shall deliver to the Lessor and the Agent certificates of insurance evidencing that all insurance required by this Article XIII is being maintained by the Lessee and is in effect. ARTICLE XIV CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS 14.1. Casualty and Condemnation. (a) Subject to the provisions of this Article XIV, if all or a portion of any Property is damaged or destroyed in whole or in part by a Casualty or if the use, access, occupancy, easement rights or title to any Property or any part thereof, is the subject of a Condemnation, then -16- 18 Master Lease (i) in the case of a Casualty, (x) any insurance proceeds less than $500,000 payable with respect to such Casualty shall be paid directly to the Lessee, or if received by the Lessor, shall be paid over to such Lessee for the reconstruction, refurbishment and repair of such Property, and (y) any insurance proceeds in excess of $500,000 payable with respect to such Casualty shall be paid to the Lessor to be applied by disbursement to the Lessee to the restoration of such Property, and (ii) in the case of a Condemnation (that is not a Significant Condemnation) of any part of any Land (not including the applicable Improvements), any award or compensation relating thereto shall be paid to the Lessee and in the case of a Significant Condemnation such award or compensation shall be paid to the Lessor to be applied in the Lessee's reasonable discretion to the restoration of such Property or toward the payment of the applicable Lease Balance; provided, however, that, in each case, if a Lease Event of Default shall have occurred and be continuing, such award, compensation or insurance proceeds shall be paid directly to the Lessor or, if received by the Lessee, shall be held in trust for the Lessor and the Lenders, and shall be paid over by the Lessee to the Lessor to be distributed in accordance with the Article VII of the Participation Agreement. All amounts held by the Lessor, or the Lenders when a Lease Event of Default exists hereunder on account of any award, compensation or insurance proceeds either paid directly to the Lessor or the Lenders or turned over to the Lessor or the Lenders shall at the option of the Lessor either be (i) paid to the Lessee for the repair of damage caused by such Casualty or Condemnation in accordance with clause (d) of this Section 14.1, or (ii) applied to the purchase price of the related Property on the Termination Date with respect to such Property in accordance with Article XV, with any Excess Casualty/Condemnation Proceeds being payable to the Lessee. (b) The Lessee may appear in any proceeding or action to negotiate, prosecute, adjust or appeal any claim for any award, compensation or insurance payment on account of any such Casualty or Condemnation and shall pay all expenses thereof. At the Lessee's reasonable request, and at the Lessee's sole cost and expense, the Lessor and the Lenders shall participate in any such proceeding, action, negotiation, prosecution or adjustment. The Lessor and the Lessee agree that this Master Lease shall control the rights -17- 19 Master Lease of the Lessor and the Lessee in and to any such award, compensation or insurance payment. (c) If the Lessor or the Lessee shall receive notice of a Casualty or of an actual, pending or threatened Condemnation of any Property or any interest therein, the Lessor or the Lessee, as the case may be, shall give notice thereof to the other and to the Lenders promptly after the receipt of such notice. (d) If pursuant to this Section 14.1 and Section 15.1 this Master Lease shall continue in full force and effect following a Casualty or Condemnation with respect to any Property, the Lessee shall, at its sole cost and expense (and, without limitation, if any award, compensation or insurance payment is not sufficient to restore such Property in accordance with this clause (d), or is not covered by insurance as in the case of Casualty caused by earthquake, the Lessee shall pay the shortfall), promptly and diligently repair any damage to such Property caused by such Casualty or Condemnation in conformity with the requirements of Sections 9.1 and 10.1 (as modified to give effect to any subsequent Modifications, any Condemnation affecting such Property and all applicable Property Legal Requirements) so as to restore such Property to at least the same condition, operation, function and value as existed immediately prior to such Casualty or Condemnation with such Modification as the Lessee may elect in accordance with Section 10.1. In such event, title to such Property shall remain with the Lessor subject to the terms of this Master Lease. Upon completion of such restoration, the Lessee shall furnish the Lessor an architect's certificate of substantial completion and a Responsible Employee's Certificate confirming that such restoration has been completed pursuant to this Master Lease. (e) In no event shall a Casualty or Condemnation affect the Lessee's obligations to pay Rent pursuant to Section 3.1 or to perform its obligations and pay any amounts due on the Expiration Date or pursuant to Articles XVIII and XXI. (f) Any Excess Casualty/Condemnation Proceeds received by the Lessor or the Lenders in respect of a Casualty or Condemnation shall be turned over to the Lessee. 14.2. Environmental Matters. Promptly upon the Lessee's knowledge of the existence of an Environmental Violation with respect to any Property, the Lessee shall notify the Lessor in -18- 20 Master Lease writing of such Environmental Violation. If the Lessor elects not to terminate this Master Lease with respect to such Property pursuant to Section 15.1, at the Lessee's sole cost and expense, the Lessee shall promptly and diligently commence any response, clean up, remedial or other action necessary to remove, clean up or remediate the Environmental Violation in accordance with the terms of Section 8.3 (including the last sentence thereof). The Lessee shall, upon completion of remedial action by the Lessee, cause to be prepared by an environmental consultant reasonably acceptable to the Lessor a report describing the Environmental Violation and the actions taken by the Lessee (or its agents) in response to such Environmental Violation, and a statement by the consultant that the Environmental Violation has been remedied in compliance in all material respects with applicable Hazardous Materials Laws. Each such Environmental Violation shall be remedied prior to the Expiration Date unless each Property with respect to which an Environmental Violation has occurred but has not been remedied has been purchased by the Lessee in accordance with Section 18.1 or 18.2. Nothing in this Article XIV shall reduce or limit the Lessee's obligations under Sections 13.1, 13.2 or 13.3 of the Participation Agreement. 14.3. Notice of Environmental Matters. Promptly, but in any event within sixty (60) Business Days from the date the Lessee has actual knowledge thereof, the Lessee shall provide to the Lessor written notice of any pending or threatened claim, action or proceeding involving any Hazardous Materials Laws or any Release on or in connection with any Property. All such notices shall describe in reasonable detail the nature of the claim, action or proceeding and the Lessee's proposed response thereto. In addition, the Lessee shall provide to the Lessor, within sixty (60) Business Days of receipt, copies of all written communications with any Governmental Authority relating to any Environmental Violation in connection with any Property. The Lessee shall also promptly provide such detailed reports of any such material environmental claims as may reasonably be requested by the Lessor or the Lenders. In the event that the Lessor receives written notice of any pending or threatened claim, action or proceeding involving any Hazardous Materials Laws or any Release on or in connection with any Property, the Lessor shall promptly give notice thereof to the Lessee. ARTICLE XV TERMINATION OF LEASE 15.1. Partial Termination upon Certain Events. If any of the following occurs with respect to any Property: -19- 21 Master Lease (i) a Significant Condemnation occurs; or (ii) an Environmental Violation occurs or is discovered the cost of remediation of which would exceed $5,000,000; and the Lessor shall have given written notice (a "Termination Notice") to the Lessee that, as a consequence of such event, (x) the Lease Supplement relating to such Property is to be terminated and (y) this Master Lease is to be terminated with respect to such Property, then the Lessee shall be obligated to purchase the Lessor's interest in such affected Property on or prior to the next occurring Basic Rent Payment Date by paying the Lessor an amount equal to the Property Balance for such affected Property. 15.2. Termination Procedures. On the date of the payment by the Lessee of the Property Balance, or the Lease Balance, as the case may be, with respect to any Property or all Properties, as the case may be, in accordance with Section 15.1 (such date, the "Termination Date"), the Lease Supplement relating to each such affected Property shall terminate and this Master Lease shall terminate with respect to each such Property and, concurrent with the Lessor's receipt of such payment, (a) the Lessor shall execute and deliver to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense a special warranty deed with respect to each such Property, a bill of sale with respect to the Equipment located on each such Property and an assignment of the Lessor's entire interest in each such Property (which shall include an assignment of all of the Lessor's right, title and interest in and to any Net Proceeds with respect to each such Property not previously received by the Lessor), in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of the Lessor Mortgage and any Lessor Liens attributable to the Lessor; (b) each such Property shall be conveyed to the Lessee (or to the Lessee's designee) "AS IS" and in its then present physical condition; and (c) in the case of a termination pursuant to clause (i) or (ii) of Section 15.1(a), the Lessor shall convey to the Lessee any Net Proceeds with respect to the Casualty or Condemnation giving rise to the termination of this Master Lease with respect to such Property theretofore received by -20- 22 Master Lease the Lessor or at the request of the Lessee, such amounts shall be applied against sums due hereunder. ARTICLE XVI EVENTS OF DEFAULT 16.1. Lease Events of Default. The occurrence of any one or more of the following events (whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute a "Lease Event of Default": (a) the Lessee shall fail to make payment of (i) any Basic Rent within five (5) days after the same has become due and payable, or (ii) any Property Balance, Purchase Option Price, Loan Balance or Lease Balance, including, without limitation, amounts due pursuant to Sections 15.1, 15.2, 18.1, 18.2, or 20.1; (b) the Lessee shall fail to make payment of any Supplemental Rent due and payable within five (5) days after receipt of notice thereof; (c) the Lessee shall fail to maintain insurance as required by Article XIII of this Master Lease; (d) the Lessee shall fail to deposit with the Collateral Agent, within the time set forth in Section 6.1 of the Participation Agreement, the Deficiency Collateral; (e) the Lessee shall not be in compliance with Section 10.1(f)(i), (ii) or (iii) of the Participation Agreement; (f) the Lessee shall fail to observe or perform any term, covenant or condition of the Lessee under this Lease or the Operative Documents to which it is party other than those described in Section 20.1(a), (b), (c), (d) or (e) hereof, and such failure shall have continued for thirty (30) days after the earlier of (i) delivery to the Lessee of written notice thereof from the Lessor or (ii) a Responsible Employee of the Lessee shall have knowledge of such failure; provided further, that failure by the Lessee to fully comply with the requirements of Section 20.1 hereof shall not be subject to any cure period; provided, however, that no Event of Default shall be deemed to have occurred under this subsection until one hundred twenty (120) days has elapsed so long as throughout such time, the Lessee is diligently -21- 23 Master Lease pursuing a cure for such breach (to the extent such breach may be cured); (g) any representation or warranty made by the Lessee in any of the Operative Documents to which it is a party shall prove to have been Materially inaccurate at the time made, and if such inaccuracy can be cured, it shall not have been cured within thirty (30) days after the earlier of (i) delivery to the Lessee of written notice thereof from the Lessor or (ii) a Responsible Employee of the Lessee shall have knowledge of such inaccuracy; provided, however, that no Event of Default shall be deemed to have occurred under this subsection until one hundred twenty (120) days has elapsed so long as throughout such time, the Lessee is diligently pursuing a cure for such breach (to the extent such breach may be cured); (h) the Lessee shall (i) admit in writing its inability to pay its debts generally as they become due, (ii) file a petition under the United States bankruptcy laws or any other applicable insolvency law or statute of the United States of America or any State or Commonwealth thereof, (iii) make a general assignment for the benefit of its creditors, (iv) consent to the appointment of a receiver of itself or the whole or any substantial part of its property, (v) fail to cause the discharge of any custodian, trustee or receiver appointed for the Lessee or the whole or a substantial part of its property within sixty (60) days after such appointment, or (vi) file a petition or answer seeking or consenting to reorganization under the United States bankruptcy laws or any other applicable insolvency law or statute of the United States of America or any State or Commonwealth thereof; (i) insolvency proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency law or statute of the United States of America or any State or Commonwealth thereof shall be filed against the Lessee and not dismissed within ninety (90) days from the date of its filing, or a court of competent jurisdiction shall enter an order or decree appointing, without the consent of the Lessee a receiver of the Lessee or the whole or a substantial part of any of its property and such order or decree shall not be vacated or set aside within ninety (90) days from the date of the entry thereof; (j) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under -22- 24 Master Lease Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $5,000,000; (k) any judgments or orders for the payment of money, in any case not covered by insurance, individually or in the aggregate in excess of $5,000,000 shall be rendered against the Lessee, and such judgment or order shall continue unsatisfied and unstayed (pursuant to laws, rules or court orders) for a period of thirty (30) days; (l) an event of default, as defined in any agreement, mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness of the Lessee with respect to any Property, whether such indebtedness now exists or shall hereafter be created, shall happen and such indebtedness individually or in the aggregate shall exceed $5,000,000 and shall be due and payable prior to its stated maturity; (m) any Lien granted under any Operative Document shall, in whole or in part, terminate, cease to be effective against, or cease to be the legal, valid, binding and enforceable obligation of, the Lessee; (n) the Lessee shall directly or indirectly contest the validity of any Operative Document in any manner in any court of competent jurisdiction or any lien granted by any Operative Document; or (o) a Loan Agreement Event of Default, a Guaranty Event of Default or a Construction Agency Agreement Event of Default shall have occurred and be continuing. 16.2. Remedies. Upon the occurrence of any Lease Event of Default and at any time thereafter, the Lessor may, so long as -23- 25 Master Lease such Lease Event of Default is continuing, do one or more of the following as the Lessor in its sole discretion shall determine, without limiting any other right or remedy the Lessor may have on account of such Lease Event of Default (including, without limitation, the obligation of the Lessee to purchase the Properties as set forth in Section 18.2: (a) The Lessor may, by notice to the Lessee, rescind or terminate this Master Lease as to any Property or all of the Properties as of the date specified in such notice; however, (i) no reletting, reentry or taking of possession of any Property (or any portion thereof) by the Lessor will be construed as an election on the Lessor's part to terminate this Master Lease unless a written notice of such intention is given to the Lessee, (ii) notwithstanding any reletting, reentry or taking of possession, the Lessor may at any time thereafter elect to terminate this Master Lease for a continuing Lease Event of Default and (iii) no act or thing done by the Lessor or any of its agents, representatives or employees and no agreement accepting a surrender of the Properties shall be valid unless the same be made in writing and executed by the Lessor; (b) The Lessor may (i) demand that the Lessee, and the Lessee shall upon the written demand of the Lessor, return any Property promptly to the Lessor in the manner and condition required by, and otherwise in accordance with all of the provisions of, Articles VII and IX and Section 8.3 hereof as if such Property were being returned at the end of the Lease Term, and the Lessor shall not be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith and (ii) without prejudice to any other remedy which the Lessor may have for possession of any Property, and to the extent and in the manner permitted by Applicable Law, enter upon such Property and take immediate possession of (to the exclusion of the Lessee) such Property or any part thereof and expel or remove the Lessee and any other Person who may be occupying such Property, by summary proceedings or otherwise, all without liability to the Lessee for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise and, in addition to the Lessor's other damages, the Lessee shall be responsible for all costs and expenses incurred by the Lessor and/or the Lenders in connection with any reletting, including, without limitation, reasonable brokers' fees and all costs of any alterations or repairs made by the Lessor; -24- 26 Master Lease (c) The Lessor may (i) sell all or any part of any Property at public sale free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or any proceeds (except that Excess Proceeds are payable to and shall be paid to the Lessee) with respect thereto (except to the extent required by clause (ii) below if the Lessor shall elect to exercise its rights thereunder) in which event the Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale shall be terminated or proportionately reduced, as the case may be; and (ii) if the Lessor shall so elect, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing that the Lessor's actual damages would be difficult to predict, but the aforementioned liquidated damages represent a reasonable approximation of such amount) or (in lieu of Basic Rent due for periods commencing on or after the Payment Date coinciding with such date of sale (or, if the sale date is not a Basic Rent Payment Date, the Basic Rent Payment Date next preceding the date of such sale)), an amount equal to (A) the excess, if any, of (1) the Lease Balance calculated as of such Basic Rent Payment Date (including all Rent due and unpaid to and including such Basic Rent Payment Date and), over (2) the net proceeds of such sale (that is, after deducting all costs and expenses incurred by the Lessor incident to such conveyance, including, without limitation, repossession costs, brokerage commissions, prorations, transfer taxes, fees and expenses for counsel, title insurance fees, survey costs, recording fees, and any repair costs); plus (B) interest at the Overdue Rate on the foregoing amount from such Basic Rent Payment Date until the date of payment; (d) The Lessor may, at its option, elect not to terminate this Master Lease with respect to any Property or all of the Properties and continue to collect all Basic Rent, Supplemental Rent, and all other amounts due the Lessor (together with all costs of collection) and enforce the Lessee's obligations under this Master Lease as and when the same become due, or are to be performed, and at the option of the Lessor, upon any abandonment of any Property by the Lessee or re-entry of same by the Lessor, the Lessor may, in its sole and absolute discretion, elect not to terminate this Master Lease and may make the necessary repairs in order to relet such Property, and relet such Property or any part thereof for such term or terms (which may be for a long term extending beyond the Lease Term of -25- 27 Master Lease this Master Lease) and at such rental or rentals and upon such other terms and conditions as the Lessor in its reasonable discretion may deem advisable; and upon each such reletting all rentals actually received by the Lessor from such reletting shall be applied to the Lessee's obligations hereunder and the other Operative Documents in such order, proportion and priority as the Lessor may elect in the Lessor's sole and absolute discretion. If such rentals received from such reletting during any period are less than the Rent with respect to such Property to be paid during that period by the Lessee hereunder, the Lessee shall pay any deficiency, as calculated by the Lessor, to the Lessor on the next Basic Rent Payment Date; (e) Unless all of the Properties have been sold in their entirety, the Lessor may, whether or not the Lessor shall have exercised or shall thereafter at any time exercise any of its rights under clause (b), (c) or (d) of this Section 16.2 with respect to any Properties or any portions thereof, demand, by written notice to the Lessee specifying a date (a "Termination Date") not earlier than twenty (20) days after the date of such notice, that the Lessee purchase, on such Termination Date, all unsold Properties and all unsold portions of Properties in accordance with the provisions of Article XXI and Section 18.2; (f) The Lessor may exercise any other right or remedy that may be available to it under Applicable Law, or proceed by appropriate court action (legal or equitable) to enforce the terms hereof or to recover damages for the breach hereof. Separate suits may be brought to collect any such damages for any period(s), and such suits shall not in any manner prejudice the Lessor's right to collect any such damages for any subsequent period(s), or the Lessor may defer any such suit until after the expiration of the Lease Term, in which event such suit shall be deemed not to have accrued until the expiration of the Lease Term; (g) The Lessor may retain and apply against the Lease Balance all sums which the Lessor would, absent such Lease Event of Default, be required to pay to, or turn over to, the Lessee pursuant to the terms of this Master Lease; (h) If a Lease Event of Default shall have occurred and be continuing, the Lessor, to the extent permitted by Applicable Law, as a matter of right and with notice to the Lessee, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of any -26- 28 Master Lease Property, and the Lessee hereby irrevocably consents to any such appointment. Any such receiver(s) shall have all of the usual powers and duties of receivers in like or similar cases and all of the powers and duties of the Lessor in case of entry, and shall continue as such and exercise such powers until the date of confirmation of the sale of such Property unless such receivership is sooner terminated; (i) To the maximum extent permitted by law, the Lessee hereby waives the benefit of any appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale of any Property or any interest therein; (j) The Lessor shall be entitled to enforce payment of the indebtedness and performance of the obligations secured hereby and to exercise all rights and powers under this instrument or under any of the other Operative Documents or other agreement or any laws now or hereafter in force, notwithstanding some or all of the obligations secured hereby may now or hereafter be otherwise secured, whether by mortgage, security agreement, pledge, lien, assignment or otherwise. Neither the acceptance of this instrument nor its enforcement, shall prejudice or in any manner affect the Lessor's right to realize upon or enforce any other security now or hereafter held by the Lessor, it being agreed that the Lessor shall be entitled to enforce this instrument and any other security now or hereafter held by the Lessor in such order and manner as the Lessor may determine in its absolute discretion. No remedy herein conferred upon or reserved to the Lessor is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by any of the Operative Documents to the Lessor or to which it may otherwise be entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by the Lessor. In no event shall the Lessor, in the exercise of the remedies provided in this instrument (including, without limitation, in connection with the assignment of rents to Lessor, or the appointment of a receiver and the entry of such receiver onto all or any part of the Properties), be deemed a "mortgagee in possession," and the Lessor shall not in any way be made liable for any act, either of commission or omission, in connection with the exercise of such remedies. -27- 29 Master Lease If, pursuant to the exercise by the Lessor of its remedies pursuant to this Section 16.2, the Lease Balance and all other amounts due and owing from the Lessee under this Master Lease and the other Operative Documents have been paid in full, then the Lessor shall remit to the Lessee any excess amounts received by the Lessor. (k) Foreclosure; Power of Sale. Lessee hereby grants to First American Title Guaranty Company, as trustee (together with all successor trustees, the "Trustee"), IN TRUST, WITH POWER OF SALE, all of Lessee's right, title and interest in and to the Properties and, upon the occurrence of a Lease Event of Default, Lessor shall have the power and authority, after proper notice and lapse of such time as may be required by law, to cause Trustee to sell any Property or the Properties by notifying Trustee of that election and depositing with Trustee this instrument and receipts and evidence of expenditures made and secured hereby as Trustee may reasonably require. Upon receipt of any such notice from Lessor, Trustee shall cause to be recorded, published and delivered to Lessee such Notice of Default and Election to Sell as is then required by applicable statutory authority and by this instrument, which notice shall set forth, among other things, the nature of the breach(es) or default(s), the action(s) required to effect a cure thereof and the time period within which that cure may be effected. If no cure is effected within the statutory time limits following recordation of the Notice of Default and Election to Sell and after Notice of Sale has been given as required by the above-referenced statutes, Trustee may without further notice or demand sell and convey any Property or the Properties in accordance with the above-referenced statutes. Each Property may be sold as a whole or in separate lots, parcels or items and in such order as Lessor may direct, at public auction to the highest bidder for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser(s) a good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty express or implied. The recitals in such deed of any matter or fact shall be conclusive proof of the truthfulness thereof. Any Person, including Lessee, Trustee or Lessor, may purchase at any sale. After deducting all costs, fees and expenses of Lessor and Trustee, including costs of evidence of title in connection with any sale, Lessor shall apply the proceeds of sale, in the following order of priority, to payment of the following (collectively, the "Obligations"): (i) first, all amounts expended by or for the account of Lessor under the -28- 30 Master Lease terms hereof and not then repaid, with accrued interest at the Overdue Rate; and (ii) second, all other amounts then due and owing hereunder including, without limitation, all Basic Rent, Supplemental Rent, the full amount of the Lease Balance as of the date of sale as if this Lease had been terminated with respect to all of the Properties then subject to this Lease under Section 18.1, and all other amounts then payable by Lessee under this Lease and the other Operative Documents, with Lessor having the right to apply the proceeds of sale to the amounts described above in this clause (ii) in such order, proportion and priority as Lessor may elect in its sole and absolute discretion. To the extent permitted by applicable statutes, Trustee may postpone the sale of all or any portion of any Property or the Properties by public announcement at the time and place of sale, and from time to time thereafter may again postpone that sale by public announcement or subsequently noticed sale, and without further notice may make such sale at the time fixed at the last postponement or may, in its discretion, give a new notice of sale. A sale of less than all of any Property or the Properties or any defective or irregular sale made hereunder shall not exhaust the power of sale provided for herein, and subsequent sales may be made hereunder until all of the Obligations have been satisfied or all the Properties have been sold, without defect or irregularity. No action of Lessor or Trustee based upon the provisions contained herein or contained in the applicable statutes, including, without limitation, the giving of the Notice of Default and Election to Sell or the Notice of Sale, shall constitute an election of remedies which would preclude Lessor from pursuing judicial foreclosure before a completed sale pursuant to the power of sale contained herein. Lessor shall have the right, with the irrevocable consent of Lessee hereby given and evidenced by the execution of this instrument, to obtain appointment of a receiver by any court of competent jurisdiction without further notice to Lessee, which receiver shall be authorized and empowered to enter upon and take possession of any Property or the Properties, including all personal property used upon or in connection with the real property herein conveyed, to let any Property or the Properties, to receive all the rents, issues and profits, if any, which may be due or become due in respect to the leasing of any Property or the Properties to another party ("Property Rents"), and apply the Property Rents after payment of all necessary charges and expenses to reduction of the Obligations in such order, proportion and priority as Lessor may elect. At the option of Lessor, the receiver shall accomplish entry and taking possession of any Property or the Properties by -29- 31 Master Lease actual entry and possession or by notice to Lessee. The receiver so appointed by a court of competent jurisdiction shall be empowered to issue receiver's certificates for funds advanced by Lessor for the purpose of protecting the value of any Property or the Properties as security for the Obligations. The amounts evidenced by receiver's certificates shall bear interest at the Overdue Rate and may be added to the Obligations if the Lessee or a junior lienholder purchases any Property or the Properties at the trustee's sale. Trustee or any successor acting hereunder may resign and thereupon be discharged of the trusts hereunder upon thirty (30) days' prior written notice to Lessor. Regardless of whether Trustee resigns, Lessor may, from time to time, substitute a successor or successors to any Trustee named herein or acting hereunder in accordance with any statutory procedure for such substitution; or if Lessor, in its sole and absolute discretion, so elects, and if permitted by law, Lessor may substitute such successors or successors by recording, in the office of the recorder of the county or counties where such Property is located, a document executed by Lessor and containing the name of the original Lessee and Lessor hereunder, the book and page where this instrument (or a memorandum hereof) is recorded (and/or instrument number, as applicable) and the name of the new Trustee, which instrument shall be conclusive proof of proper substitution of such successor Trustee or Trustees, who shall, without conveyance from the predecessor Trustee, succeed to the rights, powers and duties hereunder. It is acknowledged that A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT; A POWER OF SALE MAY ALLOW LESSOR TO TAKE THE PROPERTIES AND SELL THEM WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY LESSEE UNDER THIS INSTRUMENT. Notwithstanding any of the foregoing, the Lessor acknowledges that upon the occurrence and continuance of a Lease Event of Default solely under clause (e) of Section 16.1, the Lessor's remedies for such default shall be limited to recovery of the Loan Balance by liquidation of the Additional Collateral or through other appropriate means. 16.3. Waiver of Certain Rights. If this Master Lease shall be terminated pursuant to Section 16.2, the Lessee waives, to the fullest extent permitted by law, (a) any notice of re-entry or the institution of legal proceedings to obtain re-entry or possession; (b) any right of redemption, re-entry or repossession; (c) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt or limiting the Lessor with respect to the election of remedies; and -30- 32 Master Lease (d) any other rights which might otherwise limit or modify any of the Lessor's rights or remedies under this Article XVI. ARTICLE XVII LESSOR'S RIGHT TO CURE 17.1. The Lessor's Right to Cure the Lessee's Lease Defaults. The Lessor, without waiving or releasing any obligation or Lease Event of Default, may (but shall be under no obligation to) remedy any Lease Event of Default for the account and at the sole cost and expense of the Lessee, including the failure by the Lessee to maintain the insurance required by Article XIII, and may, to the fullest extent permitted by law, and notwithstanding any right of quiet enjoyment in favor of the Lessee, enter upon any Property for such purpose and take all such action thereon as may be necessary or appropriate therefor. No such entry shall be deemed an eviction of the Lessee. All reasonable out-of-pocket costs and expenses so incurred (including fees and expenses of counsel), together with interest thereon at the Overdue Rate from the date on which such sums or expenses are paid by the Lessor, shall be paid by the Lessee to the Lessor as Supplemental Rent. ARTICLE XVIII PURCHASE PROVISIONS 18.1. Purchase of All or Some of the Properties. Subject to the conditions contained herein, and without limitation of the Lessee's purchase obligation pursuant to Section 18.2, the Lessee shall have the irrevocable option on any Business Day to purchase all or some of the Properties subject to this Master Lease at a price equal to the Lease Balance for such Properties on the date of such purchase relating to such Property. The Lessee's exercise of its option pursuant to this Section 18.1 shall be subject to the following conditions: (i) the Lessee shall have delivered a Purchase Notice to the Lessor not less than thirty (30) days prior to such purchase, specifying the date of such purchase; (ii) the Lessee shall not have given notice of its intention to exercise the Remarketing Option. If the Lessee exercises its option pursuant to this Section 18.1 then, upon the Lessor's receipt of all amounts due in connection therewith, including Break Costs, if any, the Lessor shall transfer to the Lessee or its designee all of the Lessor's right, -31- 33 Master Lease title and interest in and to the applicable Properties in accordance with the procedures set forth in Section 21.1(a), such transfer to be effective as of the date specified in the Purchase Notice. The Lessee may designate, in a notice given to the Lessor not less than ten (10) Business Days prior to the closing of such purchase (time being of the essence), the transferee or transferees to whom the conveyance shall be made (if other than to the Lessee), in which case such conveyance shall (subject to the terms and conditions set forth herein) be made to such designee; provided, however, that such designation of a transferee or transferees shall not cause the Lessee to be released, fully or partially, from any of its obligations under this Master Lease, including, without limitation, the obligation to pay the Lessor the Lease Balance on such Expiration Date. 18.2. Expiration Date Purchase Obligation; Change of Control Purchase Obligation. (a) Unless (i) the Lessee shall have properly exercised its option pursuant to Section 18.1 and purchased the Properties pursuant thereto, or (ii) the Lessee shall have properly exercised the Remarketing Option and shall have fulfilled all of the conditions of clauses (a) through (l) of Section 20.1 hereof and the Lessor shall have sold its interest in all of the Properties pursuant thereto, then, subject to the terms, conditions and provisions set forth in this Article, and in accordance with the terms of Section 21.1(a), the Lessee shall purchase from the Lessor, and the Lessor shall convey to the Lessee, on the Expiration Date all of the Lessor's interest in all of the Properties for an amount equal to the Lease Balance. (b) In the event that a Change of Control shall have occurred the Lessor may, within two Business Days of receipt of written notice from the Lessee of such occurrence, demand that the Lessee purchase from the Lessor all of the Properties for an amount equal to the Lease Balance and the Lessee shall purchase the Properties as provided herein. Such purchase shall occur no later than the earlier of (x) the Expiration Date or (y) the next scheduled Basic Rent Payment Date, provided such date is no earlier than 30 days after the Lessor issues its purchase demand, and be effected as provided in Section 21.1(a). (c) The Lessee may designate, in a notice given to the Lessor not less than ten (10) Business Days prior to the closing of such purchase (time being of the essence), the transferee or transferees to whom the conveyance shall be made (if other than to the Lessee), in which case such conveyance shall (subject to the terms and conditions set forth herein) be made to such designee; provided, however, that such designation of a transferee or transferees shall not cause the Lessee to be -32- 34 Master Lease released, fully or partially, from any of its obligations under this Master Lease, including, without limitation, the obligation to pay the Lessor the Lease Balance on such Expiration Date or designated purchase date, as the case may be. 18.3. Exchange of Properties. So long as no Lease Default or Lease Event of Default shall have occurred and be continuing, the Lessor shall, subject to receipt of an Exchange Request and satisfaction of all the conditions set forth in Article II of the Participation Agreement, release the Property subject to Lease Supplement No. 3 from the Lease and convey such Property to the party designated by the Lessee in accordance with Section 21.1(a) hereof, accept conveyance of City Center II from such party and enter into Lease Supplement No. 4 with the Lessee pursuant to the Participation Agreement and from and after such conveyances City Center II shall be subject to this Lease. ARTICLE XIX RENEWAL TERMS 19.1. Renewal. Prior to the final Expiration Date, the parties hereto may agree to renew this Master Lease for one or more additional terms upon terms and conditions to be mutually agreed upon; provided, however, that nothing herein shall be construed as a commitment by either party to renew this Master Lease beyond the Expiration Date. ARTICLE XX REMARKETING OPTION 20.1. Option to Remarket. Subject to the fulfillment of each of the conditions set forth in this Section 20.1, the Lessee shall have the option (the "Remarketing Option") to market and complete the sale of all of the Properties for the Lessor. The Lessee's effective exercise and consummation of the Remarketing Option shall be subject to the due and timely fulfillment of each of the following provisions as to each of the Properties as of the dates set forth below. (a) Not later than one hundred and eighty (180) days prior to the Expiration Date, the Lessee shall give to the Lessor written notice of the Lessee's exercise of the Remarketing Option, which exercise shall be irrevocable. Failure by the Lessee to give timely notice shall be deemed to be an election by the Lessee, without further act thereby, of its Purchase Option for all of the Properties. -33- 35 Master Lease (b) Not later than one hundred and twenty (120) days prior to the Expiration Date, the Lessee shall deliver to the Lessor an Environmental Audit for each of the Properties. Such Environmental Audit shall be prepared by an environmental consultant selected by the Lessor in the Lessor's reasonable discretion and shall contain conclusions reasonably satisfactory to the Lessor as to the environmental status of the Properties. If any such Environmental Audit indicates any exceptions, the Lessee shall have also delivered prior to the Expiration Date a Phase Two environmental assessment by such environmental consultant and a written statement by such environmental consultant indicating that all such exceptions have been remedied in compliance with Applicable Law. (c) The Lessee shall have completed all Modifications, restoration and rebuilding of the affected Properties pursuant to Sections 10.1 and 14.1 (as the case may be) and shall have fulfilled all of the conditions and requirements in connection therewith pursuant to said Sections, in each case prior to the date on which the Lessor receives the Lessee's notice of the Lessee's intention to exercise the Remarketing Option (time being of the essence), regardless of whether the same shall be within the Lessee's control. The Lessee shall have also paid the cost of all Modifications commenced prior to the Expiration Date. The Lessee shall not have been excused pursuant to Section 12.1 from complying with any Applicable Law that involved the extension of the ultimate imposition of such Applicable Law beyond the Expiration of the Term. Any Permitted Property Liens (other than Lessor Liens) on any Property that were contested by the Lessee shall have been removed. (d) During the Marketing Period, the Lessee shall, as nonexclusive agent for the Lessor, use its best efforts to sell the Lessor's interest in the Properties and will attempt to obtain the highest purchase price therefor and for not less than the Fair Market Sales Value. The Lessee will be responsible for hiring brokers and making the Properties available for inspection by prospective purchasers. The Lessee shall promptly upon request permit inspection of any Property and any maintenance records relating to any Property by the Lessor, any Participant and any potential purchasers, and shall otherwise do all things necessary to sell and deliver possession of the Properties to any purchaser. All such marketing of the Properties shall be at the Lessee's sole expense. The Lessee shall allow the Lessor and any potential qualified purchaser -34- 36 Master Lease reasonable access to the Properties for the purpose of inspecting the same. (e) The Lessee shall procure bids from one or more bona fide prospective purchasers and shall deliver to the Lessor and the Participants not less than ninety (90) days prior to the Expiration Date a binding written unconditional (except as set forth below), irrevocable offer by such purchaser or purchasers offering the highest bid to purchase the Properties. No such purchaser shall be the Lessee or any Subsidiary or Affiliate of the Lessee. The written offer must specify the Expiration Date as the closing date unless the Lessor and the Participants shall otherwise agree in their sole discretion. (f) The Lessee shall submit all bids to the Lessor and the Participants, and the Lessor will have the right to submit any one or more bids. Any sale by the Lessee shall be for the highest cash bid submitted to the Lessor. The determination of the highest bid shall be made by the Lessor prior to the end of the Marketing Period, but in any event, the Lessor shall have no obligation to approve any bid for any Property unless each highest bid plus an amount that may be paid by the Lessee in its sole and absolute discretion (in addition to its obligations under Section 20.1(i)), together with such bid, equals or exceeds the Property Balance. All bids shall be on an all-cash basis unless the Lessor and the Participants shall otherwise agree in their sole discretion. (g) The Lessee shall have obtained, at its cost and expense, all required governmental and regulatory consents and approvals and shall have made all filings as required by Applicable Law in order to carry out and complete the transfer of each of the Properties. As to the Lessor, any such sale shall be made on an "as is, with all faults" basis without representation or warranty by the Lessor other than the absence of Lessor Liens. Any agreement as to such sale shall be made subject to the Lessor's rights hereunder. (h) As between the Lessor and the Lessee the Lessee shall pay directly, and not from the sale proceeds, all prorations, credits, costs and expenses of the sale of the Properties, whether incurred by the Lessor or the Lessee, including without limitation, the cost of all title insurance, surveys, environmental reports, appraisals, transfer taxes, the Lessor's reasonable attorneys' fees, -35- 37 Master Lease the Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all applicable documentary and other transfer taxes. (i) The Lessee shall pay to the Lessor on or prior to the Expiration Date (or in the case of Supplemental Rent, to the Person entitled thereto) an amount equal to the Loan Balance plus all accrued and unpaid Rent (including Supplemental Rent, if any) and all other amounts hereunder which have accrued or will accrue prior to or as of the Expiration Date, in the type of funds specified in Section 3.4 hereof. (j) The Lessee shall pay to the Lessor on or prior to the Expiration Date the amounts, if any, required to be paid pursuant to Section 13.2 of the Participation Agreement. (k) The purchase of all of the Properties shall be consummated on the Expiration Date and the gross proceeds (the "Gross Remarketing Proceeds") of the sale of the Properties (less any marketing, closing or other costs, prorations or commissions) shall be paid directly to the Lessor; provided, however, that if the sum of (x) the Gross Remarketing Proceeds from such sale plus (y) the Loan Balance received by the Lessor exceeds the Lease Balance as of such date, then the excess shall be paid to the Lessee on the Expiration Date. If the Lessee effectively elects the Remarketing Option and no sale of any Property is consummated prior to the end of the Marketing Period, Lessee may exercise its purchase option pursuant to Section 18.2 or Lessee shall, in addition to making the payment required pursuant to Section 20.1(i) above, at its own cost and expense, do each of the following: (i) execute and deliver to Lessor and the Lessor's title insurance company an affidavit as to the absence of any Liens (other than Permitted Liens of the type described in clause (i), (viii) or (x)), and shall execute and deliver to the Lessor a statement of termination of this Master Lease to the extent relating to such Property; (ii) on the Expiration Date, transfer possession of such Property to the Lessor or any Person designated by the Lessor, by surrendering the same into the possession of the Lessor or such Person, as the case may be, in the condition required by this Section 20.1 and in compliance with Applicable Law; and -36- 38 Master Lease (iii) for a period of up to one year after the Expiration Date, cooperate reasonably with the Lessor and/or any Person designated by the Lessor to receive such Property, which cooperation shall include reasonable efforts with respect to the following, all of which the Lessee shall do on or before the Expiration Date for such Property or as soon thereafter as is reasonably practicable: providing copies of all books and records regarding the maintenance and ownership of such Property and all know-how, data and technical information relating thereto, providing a current copy of the applicable Plans and Specifications, granting or assigning all assignable licenses necessary for the operation and maintenance of such Property and cooperating reasonably in seeking and obtaining all necessary Governmental Action. The obligations of the Lessee under this paragraph shall survive the expiration or termination of this Master Lease. Except as expressly set forth herein, the Lessee shall have no right, power or authority to bind the Lessor in connection with any proposed sale of any Property. If one or more of the foregoing provisions shall not be fulfilled as of the date set forth above with respect to any Property, then the Lessor shall declare by written notice to the Lessee the Remarketing Option to be null and void (whether or not it has been theretofore exercised by the Lessee) as to all of the Properties, in which event all of the Lessee's rights under this Section 20.1 shall immediately terminate and the Lessee shall be obligated to purchase all of the Properties pursuant to Section 18.2 on the Expiration Date. 20.2. Certain Obligations Continue. During the Marketing Period, the obligation of the Lessee to pay Rent with respect to each Property (including the installment of Rent due on the Expiration Date) shall continue undiminished until payment in full of the Loan Balance and all other amounts due to the Lessor with respect to the Properties under the Operative Documents to which the Lessee is a party. The Lessor shall have the right, but shall be under no duty, to solicit bids, to inquire into the efforts of the Lessee to obtain bids or otherwise to take action in connection with any such sale, other than as expressly provided in this Article XX. -37- 39 Master Lease ARTICLE XXI PROCEDURES RELATING TO PURCHASE OR REMARKETING 21.1. Provisions Relating to the Exercise of Purchase Option or Obligation and Conveyance Upon Remarketing and Conveyance Upon Certain Other Events. (a) In connection with any termination of this Master Lease with respect to any Property pursuant to the terms of Article XV, in connection with any purchase or in connection with the Lessee's purchase of any Property in accordance with Section 18.1 or in connection with the Lessee's Expiration Date Purchase Obligation or obligations under Section 16.2(e), then, upon the date on which this Master Lease is to terminate with respect to the applicable Property and upon the payment of all amounts due under Section 5.1 of the Construction Agency Agreement, as applicable, and upon tender by the Lessee of the amounts set forth in Article XV, Sections 16.2(e), 18.1 or 18.2, as applicable: (i) the Lessor shall execute and deliver to the Lessee (or to the Lessee's designee) at the Lessee's cost and expense a grant deed with respect to such Property or Properties containing representations and warranties of grantor to the Lessee regarding Lessor Liens, a bill of sale with respect to the Equipment located on such Property or Properties and an assignment of the Lessor's entire interest in such Property or Properties (which shall include an assignment of all of the Lessor's right, title and interest in and to any Net Proceeds with respect to such Property or Properties not previously received by the Lessor and an assignment of leases of the Properties), in each case in recordable form and otherwise in conformity with local custom and free and clear of the Lien of the Lessor Deed of Trust and any Lessor Liens; (ii) such Property or Properties shall be conveyed to the Lessee "AS IS" and in its then present physical condition; and (iii) the Lessor shall execute and deliver to Lessee and the Lessee's title insurance company an affidavit as to the Lessor's title and Lessor Liens and shall execute and deliver to Lessee a statement of termination of this Master Lease. (b) If the Lessee properly exercises the Remarketing Option, then the Lessee shall, on the Expiration Date, and at its own cost, transfer possession of all of the -38- 40 Master Lease Properties to the independent purchaser(s) thereof, in each case by surrendering the same into the possession of the Lessor or such purchaser(s), as the case may be, free and clear of all Liens other than Lessor Liens and the lien of the Lessor Mortgage, in good condition (as modified by Modifications permitted by this Master Lease), ordinary wear and tear excepted, and in compliance with Applicable Law. The Lessee shall, on and within a reasonable time before and up to one year after the Expiration Date, cooperate reasonably with the Lessor and the independent purchaser(s) of the Properties in order to facilitate the purchase by such purchaser(s) of the Properties, which cooperation shall include the following, all of which the Lessee shall do on or before the Expiration Date or as soon thereafter as is reasonably practicable: providing copies of all books and records regarding the maintenance and ownership of the Properties and all know-how, data and technical information relating thereto, providing a current copy of the Plans and Specifications for each Property, granting or assigning all licenses necessary for the operation and maintenance of each Property and cooperating reasonably in seeking and obtaining all necessary Governmental Action. The obligations of the Lessee under this paragraph shall survive the expiration or termination of this Master Lease. ARTICLE XXII ESTOPPEL CERTIFICATES 22.1. Estoppel Certificates. At any time and from time to time upon not less than ten (10) Business Days' prior request by the Lessor or the Lessee (the "Requesting Party"), the other party (whichever party shall have received such request, the "Certifying Party") shall furnish to the Requesting Party a certificate signed by an individual having the office of vice president or higher in the Certifying Party certifying that this Master Lease is in full force and effect (or that this Master Lease is in full force and effect as modified and setting forth the modifications); the dates to which the Basic Rent and Supplemental Rent have been paid; to the best knowledge of the signer of such certificate, whether or not the Requesting Party is in default under any of its obligations hereunder (and, if so, the nature of such alleged default); and such other matters under this Master Lease as the Requesting Party may reasonably request. Any such certificate furnished pursuant to this Article XXII may be relied upon by the Requesting Party, and any existing or prospective mortgagee, purchaser or lender, and any accountant or auditor, of, from or to the Requesting Party (or any Affiliate thereof). -39- 41 Master Lease ARTICLE XXIII ACCEPTANCE OF SURRENDER 23.1. Acceptance of Surrender. No surrender to the Lessor of this Master Lease or of all or any of the Properties or of any part of any thereof or of any interest therein shall be valid or effective unless agreed to and accepted in writing by the Lessor and, prior to the payment or performance of all obligations under the Loan Agreement and termination of the Commitments, the Lenders, and no act by the Lessor or the Lenders or any representative or agent of the Lessor or the Lenders, other than a written acceptance, shall constitute an acceptance of any such surrender. ARTICLE XXIV NO MERGER OF TITLE 24.1. No Merger of Title. There shall be no merger of this Master Lease or of the leasehold estate created hereby by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, in whole or in part, (a) this Master Lease or the leasehold estate created hereby or any interest in this Master Lease or such leasehold estate, (b) the fee or groundleasehold estate in any Property, except as may expressly be stated in a written instrument duly executed and delivered by the appropriate Person or (c) a beneficial interest in the Lessor. ARTICLE XXV INTENT OF THE PARTIES 25.1. Ownership of the Properties. (a) The parties hereto intend that (i) for financial accounting purposes with respect to the Lessee, the Lessor will be treated as the owner and the lessor of the Properties and the Lessee will be treated as the lessee of the Properties and (ii) for all other purposes, including federal and all state and local income tax purposes, state real estate and commercial law and bankruptcy purposes, (A) this Lease will be treated as a financing arrangement, (B) the Lessor and the Lenders will be deemed lenders making loans to the Lessee in an amount equal to the sum of the Lessor Amount and the outstanding principal amount of the Loans and (C) the Lessee will be treated as the owner of the Properties and will be entitled to all tax benefits ordinarily available to an owner of properties like the Properties for such tax purposes. -40- 42 Master Lease Nevertheless, the Lessee acknowledges and agrees that neither the Lessor nor any of the Lenders has made any representations or warranties to the Lessee concerning the tax, accounting or legal characteristics of the Operative Documents and that the Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents as it deems appropriate. (b) It is the intent of the parties hereto that this Lease grants a security interest and mortgage, as the case may be, on the Properties to the Lessor to secure Lessee's performance under and payment of all amounts under this Lease and the other Operative Documents. ARTICLE XXVI MISCELLANEOUS 26.1. Survival; Severability; Etc. Anything contained in this Master Lease to the contrary notwithstanding, all claims against and liabilities of the Lessee or the Lessor arising from events commencing prior to the expiration or earlier termination of this Master Lease shall survive such expiration or earlier termination for a period of one year except as to indemnification which shall continue to survive; provided that any such right shall be exercised within 54 years from the date hereof. If any term or provision of this Master Lease or any application thereof shall be declared invalid or unenforceable, the remainder of this Master Lease and any other application of such term or provision shall not be affected thereby. If any right or option of the Lessee provided in this Master Lease, including any right or option described in Article XIV, XV, XVIII or XX, would, in the absence of the limitation imposed by this sentence, be invalid or unenforceable as being in violation of the rule against perpetuities or any other rule of law relating to the vesting of an interest in or the suspension of the power of alienation of property, then such right or option shall be exercisable only during the period which shall end twenty-one (21) years after the date of death of the last survivor of the descendants of Franklin D. Roosevelt, the former President of the United States, Henry Ford, the deceased automobile manufacturer, and John D. Rockefeller, the founder of the Standard Oil Company, known to be alive on the date of the execution, acknowledgment and delivery of this Master Lease. 26.2. Amendments and Modifications. Subject to the requirements, restrictions and conditions set forth in the Participation Agreement, neither this Master Lease nor any provision hereof may be amended, waived, discharged or terminated -41- 43 Master Lease except by an instrument in writing in recordable form signed by the Lessor and the Lessee. 26.3. No Waiver. No failure by the Lessor or the Lessee to insist upon the strict performance of any term hereof or to exercise any right, power or remedy upon a default hereunder, and no acceptance of full or partial payment of Rent during the continuance of any such default, shall constitute a waiver of any such default or of any such term. To the fullest extent permitted by law, no waiver of any default shall affect or alter this Master Lease, and this Master Lease shall continue in full force and effect with respect to any other then existing or subsequent default. 26.4. Notices. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing and directed to the address described in, and deemed received in accordance with the provisions of, Section 14.3 of the Participation Agreement. 26.5. Successors and Assigns. All the terms and provisions of this Master Lease shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 26.6. Headings and Table of Contents. The headings and table of contents in this Master Lease are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 26.7. Counterparts. This Master Lease may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one and the same instrument. 26.8. GOVERNING LAW. THIS MASTER LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THEREOF. 26.9. Limitations on Recourse. The parties hereto agree that except as specifically set forth in this Lease or in any other Operative Document, Lessor shall have no personal liability whatsoever to the Lessee or its respective successors and assigns for any claim based on or in respect of this Master Lease or any of the other Operative Documents or arising in any way from the transactions contemplated hereby or thereby and the recourse shall be solely had against the Lessor's interest in the Property; provided, however, that Lessor shall be liable in its -42- 44 Master Lease individual capacity (a) for its own willful misconduct or gross negligence (or negligence in the handling of funds), (b) breach of any of its representations, warranties or covenants under the Operative Documents, or (c) for any Tax based on or measured by any fees, commission or compensation received by it for acting as the Lessor as contemplated by the Operative Documents. It is understood and agreed that, except as provided in the preceding sentence: (i) Lessor shall have no personal liability under any of the Operative Documents as a result of acting pursuant to and consistent with any of the Operative Documents; (ii) all obligations of Lessor to the Lessee are solely nonrecourse obligations except to the extent that it has received payment from others; and (iii) all such personal liability of Lessor is expressly waived and released as a condition of, and as consideration for, the execution and delivery of the Operative Documents by Lessor. 26.10. Original Lease. The single executed original of this Master Lease marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature page thereof and containing the receipt thereof of The Sumitomo Bank, Limited, San Francisco Branch, as Agent for the Lenders therefor on or following the signature page thereof shall be the Original Executed Counterpart of this Master Lease (the "Original Executed Counterpart"). To the extent that this Master Lease constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest in this Master Lease may be created through the transfer or possession of any counterpart other than the Original Executed Counterpart. -43- 45 Master Lease IN WITNESS WHEREOF, the parties have caused this Master Lease be duly executed and delivered as of the date first above written. SYMANTEC CORPORATION, as Lessee By /s/ GREG MYERS ------------------------------------- Name: Greg Myers Title: VP, Finance S-1 46 Master Lease SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By /s/ WILLIAM M. GINN ------------------------------------- Name: William M. Ginn Title: President S-2 47 Master Lease THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART. Receipt of this original counterpart of the foregoing Lease is hereby acknowledged as of the date hereof. THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH as Agent for the Lenders By /s/ AZUR SHAKERI --------------------------------- Name: Azur Shakeri Title: Vice President S-3 48 Master Lease TABLE OF CONTENTS
Section Page - ------- ---- ARTICLE I DEFINITIONS 1.1. Definitions; Interpretation.......................................................1 ARTICLE II MASTER LEASE 2.1. Acceptance and Lease of Property..................................................2 2.2. Acceptance Procedure..............................................................2 2.3. Lease Term........................................................................2 2.4. Title.............................................................................3 ARTICLE III PAYMENT OF RENT 3.1. Rent..............................................................................3 3.2. Payment of Rent...................................................................4 3.3. Supplemental Rent.................................................................4 3.4. Method of Payment.................................................................4 ARTICLE IV QUIET ENJOYMENT; RIGHT TO INSPECT 4.1. Quiet Enjoyment...................................................................5 4.2. Right to Inspect..................................................................5 ARTICLE V NET LEASE, ETC. 5.1. Net Lease.........................................................................5 5.2. No Termination or Abatement.......................................................6 ARTICLE VI SUBLEASES 6.1. Subletting........................................................................7 ARTICLE VII LESSEE ACKNOWLEDGMENTS 7.1. Condition of the Properties.......................................................7 7.2. Risk of Loss......................................................................8 ARTICLE VIII POSSESSION AND USE OF THE PROPERTIES, ETC. 8.1. Utility Charges...................................................................8 8.2. Possession and Use of the Property................................................8 8.3. Compliance with Requirements of Law, Property Legal Requirements and Insurance Requirements.......................................8 8.4. Assignment by Lessee..............................................................9 ARTICLE IX MAINTENANCE AND REPAIR; RETURN 9.1. Maintenance and Repair; Return....................................................9 ARTICLE X MODIFICATIONS, ETC. 10.1. Modifications, Substitutions and Replacements....................................10 10.2. Notice to the Lessor.............................................................11
i 49 Master Lease ARTICLE XI WARRANT OF TITLE; EASEMENTS 11.1. Warrant of Title.................................................................11 11.2. Grants and Releases of Easements; Lessor's Waivers...............................12 ARTICLE XII PERMITTED CONTESTS 12.1. Permitted Contests in Respect of Applicable Law..................................13 ARTICLE XIII INSURANCE 13.1. Public Liability and Workers' Compensation Insurance.............................14 13.2. Hazard and Other Insurance.......................................................14 13.3. Insurance Coverage...............................................................15 ARTICLE XIV CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS 14.1. Casualty and Condemnation........................................................16 14.2. Environmental Matters............................................................18 14.3. Notice of Environmental Matters..................................................19 ARTICLE XV TERMINATION OF LEASE 15.1. Partial Termination upon Certain Events..........................................19 15.2. Termination Procedures...........................................................20 ARTICLE XVI EVENTS OF DEFAULT 16.1. Lease Events of Default..........................................................21 16.2. Remedies.........................................................................23 16.3. Waiver of Certain Rights.........................................................30 ARTICLE XVII LESSOR'S RIGHT TO CURE 17.1. The Lessor's Right to Cure the Lessee's Lease Defaults...............................................................31 ARTICLE XVIII PURCHASE PROVISIONS 18.1. Purchase of All or Some of the Properties........................................31 18.2. Expiration Date Purchase Obligation; Change of Control Purchase Obligation..........................................................32 18.3. Exchange of Properties...........................................................33 ARTICLE XIX RENEWAL TERMS 19.1. Renewal..........................................................................33 ARTICLE XX REMARKETING OPTION 20.1. Option to Remarket...............................................................33 20.2. Certain Obligations Continue.....................................................37 ARTICLE XXI PROCEDURES RELATING TO PURCHASE OR REMARKETING 21.1. Provisions Relating to the Exercise of Purchase Option or Obligation and Conveyance Upon Remarketing and Conveyance Upon Certain Other Events.........................................37
ii 50 Master Lease ARTICLE XXII ESTOPPEL CERTIFICATES 22.1. Estoppel Certificates............................................................39 ARTICLE XXIII ACCEPTANCE OF SURRENDER 23.1. Acceptance of Surrender..........................................................39 ARTICLE XXIV NO MERGER OF TITLE 24.1. No Merger of Title...............................................................40 ARTICLE XXV INTENT OF THE PARTIES 25.1. Ownership of the Properties......................................................40 ARTICLE XXVI MISCELLANEOUS 26.1. Survival; Severability; Etc......................................................41 26.2. Amendments and Modifications.....................................................41 26.3. No Waiver........................................................................41 26.4. Notices..........................................................................42 26.5. Successors and Assigns...........................................................42 26.6. Headings and Table of Contents...................................................42 26.7. Counterparts.....................................................................42 26.8. GOVERNING LAW....................................................................42 26.9. Limitations on Recourse..........................................................42 26.10. Original Lease...................................................................43 EXHIBIT A Form of Lease Supplement
iii EX-10.21 5 AMENDED AND RESTATED GUARANTY 1 EXHIBIT 10.21 EXECUTION COPY ================================================================================ AMENDED AND RESTATED GUARANTY dated as of February 9, 1999 made by SYMANTEC CORPORATION in favor of VARIOUS FINANCIAL INSTITUTIONS, as the Lenders and THE SUMITOMO BANK, LIMITED, SAN FRANCISCO BRANCH as Agent for the Lenders. ================================================================================ 2 AMENDED AND RESTATED GUARANTY THIS GUARANTY (this "Guaranty") dated as of February 9, 1999 is made by SYMANTEC CORPORATION, a Delaware corporation (the "Guarantor"), in favor of the various financial institutions as are or may from time to time become Lenders under the Loan Agreement (together with their respective successors and assigns, the "Lenders") and THE SUMITOMO BANK, LIMITED, SAN FRANCISCO BRANCH as agent (in such capacity, the "Agent") for the Lenders (the Lenders, the Agent and their respective successors and assigns, collectively, the "Lender Parties"). W I T N E S S E T H: WHEREAS, pursuant to a Amended and Restated Loan Agreement, dated as of the date hereof (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Loan Agreement"), among Sumitomo Bank Leasing and Finance, Inc., (the "Lessor") the Lenders and the Agent, the Lenders have agreed, subject to the terms and conditions thereof, to extend Loans to the Lessor; WHEREAS, as a condition to the occurrence of the Documentation Date under the Amended and Restated Participation Agreement dated as of the date hereof (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Participation Agreement"), among the Guarantor, the Lessor, the Lenders and the Agent, the Guarantor is required to execute and deliver this Guaranty in favor of the Lenders; WHEREAS, the Guarantor has duly authorized the execution, delivery and performance of this Guaranty; and WHEREAS, it is in the best interests of the Guarantor to execute this Guaranty inasmuch as the Guarantor will derive substantial benefits from the transactions contemplated by the Loan Agreement; NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lenders to enter into the Loan Agreement, the Guarantor agrees, for the benefit of Lenders, as follows: 3 Guaranty ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Capitalized terms used but not otherwise defined in this Guaranty have the respective meanings specified in Appendix A hereto; and the rules of interpretation set forth in Appendix A hereto shall apply to this Guaranty. ARTICLE II GUARANTY PROVISIONS SECTION 2.1. Guaranty of Lessor Obligations. The Guarantor acknowledges that it is in Guarantor's best interests to execute this Guaranty as Guarantor will derive substantial direct and indirect benefits from the loans provided by the Lenders to the Lessor. Guarantor absolutely, irrevocably and unconditionally guarantees and promises to pay to Agent, or order, on demand in lawful money of the United States of America, any obligations of the Lessor to make payments under the Loan Agreement as a result of a Lease Event of Default ("Lessor Obligations"). The Guarantor hereby acknowledges that the Lessor Obligations have been increased pursuant to Master Amendment No. 1 and Master Amendment No. 2 and that the guaranty hereunder extends to such Lessor Obligations. SECTION 2.2. Independent Obligations. Guarantor's obligations hereunder are independent of the obligations of Lessor, any other guarantor or any other person, and Agent may enforce any of its rights hereunder independently of any other right or remedy that Agent may at any time hold with respect to the Lessor Obligations or any security or other guaranty therefor. This Guaranty is a guaranty of payment when due and not of collection. Without limiting the generality of the foregoing, Agent may bring a separate action against Guarantor without first proceeding against Lessor, any other guarantor, any other person or any security held by Agent, and regardless of whether Lessor, any other guarantor or any other person is joined in any such action. Guarantor's liability hereunder shall at all times remain effective with respect to the full amount of the Lessor Obligations, notwithstanding any limitations on the liability of Lessor to Agent contained in the Loan Agreement or elsewhere. Agent's rights hereunder shall not be exhausted by any action taken by Agent until all Lessor Obligations have been fully paid and performed. The liability of Guarantor hereunder shall be reinstated and revived, and the rights of Agent shall -2- 4 Guaranty continue, with respect to any amount at any time paid on account of the Lessor Obligations which shall thereafter be required to be restored or returned by Agent upon the bankruptcy, insolvency or reorganization of Lessor, any other guarantor or any other person, or otherwise, all as though such amount had not been paid. SECTION 2.3. Authority to Modify Lessor Obligations. Guarantor authorizes Agent, at any time and from time to time without notice and without affecting the liability of Guarantor hereunder, to: (a) alter the terms of all or any part of the Lessor Obligations and any security and guaranties therefor including without limitation modification of times for payment and rates of interest; (b) accept new or additional instruments, documents, agreements, security or guaranties in connection with all or any part of the Lessor Obligations; (c) accept partial payments on the Lessor Obligations; (d) waive, release, reconvey, terminate, abandon, subordinate, exchange, substitute, transfer, compound, compromise, liquidate and enforce all or any part of the Lessor Obligations and any security or guaranties therefor, and apply any such security and direct the order or manner of sale thereof (and bid and purchase at any such sale), as Agent in its discretion may determine; (e) release Lessor, Guarantor or any other person from any personal liability with respect to all or any part of the Lessor Obligations; and (f) assign this Guaranty in whole or in part to any person. SECTION 2.4. Continuing Guaranty; Confirmation of No Revocation. This Guaranty is not revocable prior to October 18, 2003 and is not revocable thereafter without 30 days' prior written notice to Agent. Termination of this Guaranty for any reason shall not affect any obligations of Guarantor hereunder which have accrued as of the date of termination, and such accrued obligations shall survive this Guaranty's termination. At Agent's written request from time to time, Guarantor agrees to confirm in writing within 10 days of receiving such request that no revocation of this Guaranty has occurred. -3- 5 Guaranty SECTION 2.5. Waivers. In addition to any other waivers provided in this Guaranty, Guarantor hereby waives each of the following, to the fullest extent allowed by law: (a) all statutes of limitations as a defense to any action brought by Agent against Guarantor; (b) any defense based upon: (i) the unenforceability or invalidity of all or any part of the Loan Agreement or the Lessor Obligations, or any security or other guaranty for the Lessor Obligations or the lack of perfection or failure of priority of any security for the Lessor Obligations; or (ii) any act or omission of Lessor or any other person that directly or indirectly results in the discharge or release of Lessor or any other person or any of the Lessor Obligations or any security therefor; or (iii) any disability or any other defense of Lessor or any other person with respect to the Lessor Obligations, whether consensual or arising by operation of law or any bankruptcy, insolvency or debtor-relief proceeding, or from any other cause; (c) any right (whether now or hereafter existing) to require Agent, as a condition to the enforcement of this Guaranty, to: (i) accelerate the Lessor Obligations; or (ii) give notice to Guarantor of the terms, time and place of any public or private sale of any security for the Lessor Obligations; or (iii) proceed against Lessor, Guarantor or any other person, or proceed against or exhaust any security for the Lessor Obligations; (d) all rights of subrogation and reimbursement, all rights to enforce any remedy that Agent now or hereafter has against Lessor or any other person, and any benefit of, and right to participate in, any security now or hereafter held by Lessor with respect to the Lessor Obligations; (e) presentment, demand, protest and notice of any kind, including without limitation notices of default and notice of acceptance of this Guaranty; -4- 6 Guaranty (f) all suretyship defenses and rights of every nature otherwise available under California law and the laws of any other jurisdiction, including without limitation all defenses arising under Sections 2787 through 2855, inclusive, and Sections 2899 and 3433 of the California Civil Code and any successor provisions of those Sections; and (g) all other rights and defenses the assertion or exercise of which would in any way diminish the liability of Guarantor hereunder. SECTION 2.6. Deed of Trust on Real Property; Additional Waivers. (a) Guarantor authorizes Agent, at its sole option, without notice or demand and without affecting the liability of Guarantor hereunder, to release and reconvey (with or without the receipt of any consideration) any lien against any or all real or personal property security for the Loan Agreement, to foreclose any or all deeds of trust, mortgages, security agreements or other instruments or agreements by judicial or nonjudicial sale, and to exercise any other remedy against Lessor, any security or any other guarantor, all without affecting the liability of Guarantor hereunder. (b) Guarantor waives any defenses or benefits that may be derived from California Code of Civil Procedure Sections 580a, 580b, 580d or 726, or comparable provisions of the laws of the State of California or any other jurisdiction, and all other suretyship defenses it would otherwise have under California law or the laws of any other jurisdiction. Guarantor waives any right to receive notice of any judicial or nonjudicial sale or foreclosure of any real property, and the failure of Guarantor to receive such notice shall not impair or affect Guarantor's liability hereunder. (c) Guarantor waives all rights and defenses arising out of an election of remedies by Agent, even though that election of remedies, such as nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and reimbursement against Lessor or any other principal by operation of Section 580d of the Code of Civil Procedure or otherwise. (d) Guarantor acknowledges that it has, in this Guaranty, waived any and all rights of subrogation and -5- 7 Guaranty reimbursement and any other rights and defenses available to Guarantor by reason of Sections 2787 to 2855, inclusive, of the California Civil Code, including, without limitation: (i) any defenses Guarantor may have to its guaranty obligations by reason of an election of remedies by Agent; and (ii) any rights or defenses Guarantor may have by reason of protection afforded to Lessor or any other principal with respect to the obligation so guaranteed pursuant to the antideficiency or other laws of the State of California limiting or discharging Lessor's indebtedness, including, without limitation, Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure. SECTION 2.7. Reasonableness and Effect of Waivers. Guarantor warrants and agrees that each of the waivers set forth in this Guaranty is made with full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any of such waivers are determined to be contrary to any applicable law or public policy, such waivers shall be effective only to the maximum extent permitted by law. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. The Guarantor hereby represents and warrants unto each Lender as set forth in Section 8.2 of the Participation Agreement, which representations and warranties are hereby incorporated by reference. ARTICLE IV COVENANTS SECTION 4.1. Covenants. The Guarantor covenants and agrees that, so long as any portion of the Lessor Obligations shall remain unpaid under the Loan Agreement or the other Operative Documents, the Guarantor will perform the covenants set forth in Section 10.1 of the Participation Agreement, which covenants are hereby incorporated by reference. -6- 8 Guaranty ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1. Operative Document. This Guaranty is an Operative Document executed pursuant to the Participation Agreement and shall (unless expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Participation Agreement, including, without limitation, Article XIV thereof. SECTION 5.2. Binding on Successors, Transferees and Assigns; Assignment of Guaranty. This Guaranty shall be binding upon the Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each Lender and each holder of a Note and their respective successors and assigns; provided, however, that the Guarantor may not assign any of its obligations hereunder without the prior written consent of the Required Lenders. SECTION 5.3. Amendments, etc. No amendment to or waiver of any provision of this Guaranty, nor consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 5.4. Addresses for Notices to the Guarantor. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing (including by facsimile) and directed to the address or facsimile number described in, and deemed received in accordance with the provisions of, Section 14.3 of the Participation Agreement. SECTION 5.5. No Waiver; Remedies. In addition to, and not in limitation of, Section 2.2 and Section 2.4, no failure on the part of any Lender or any holder of a Note to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder 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 5.6. Section Captions. Section captions used in this Guaranty are for convenience of reference only, and shall not affect the construction of this Guaranty. SECTION 5.7. Setoff. In addition to, and not in limitation of, any rights of any Lender or any holder of a Note under applicable law, each Lender and each such holder shall, upon the occurrence of any Event of Default, have the right to -7- 9 Guaranty appropriate and apply to the payment of the obligations of the Guarantor owing to it hereunder, whether or not then due, and the Guarantor hereby grants to each Lender and each such holder a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Guarantor then or thereafter maintained with such Lender or such holder; provided, however, that any such appropriation and application shall be subject to the provisions of Section 8.6 of the Loan Agreement. SECTION 5.8. Severability. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. SECTION 5.9. Termination of Guaranty. The Guarantor's obligations under this Guaranty shall terminate on the date upon which all Lessor Obligations have been paid in full. SECTION 5.10. Governing Law. THIS GUARANTY SHALL BE ENFORCED AND INTERPRETED ACCORDING TO THE LAWS OF THE STATE OF CALIFORNIA, IRRESPECTIVE OF ITS CONFLICTS OF LAWS RULES. FOR PURPOSES OF ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTY, THE GUARANTOR HEREBY EXPRESSLY SUBMITS TO THE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE OF CALIFORNIA AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF CALIFORNIA. SECTION 5.11. Waiver of Jury Trial. THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY. THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE LOAN AGREEMENT AND THE PARTICIPATION AGREEMENT. -8- 10 Guaranty IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. SYMANTEC CORPORATION By /s/ GREG MYERS ---------------------------- Name: Greg Myers Title: VP, Finance S-1 11 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS SECTION 1.1. Definitions.......................................................... 2 ARTICLE II GUARANTY PROVISIONS SECTION 2.1. Guaranty of Lessor Obligations....................................... 2 SECTION 2.2. Independent Obligations.............................................. 2 SECTION 2.3. Authority to Modify Lessor Obligations............................... 3 SECTION 2.4. Continuing Guaranty; Confirmation of No Revocation.............................................. 3 SECTION 2.5. Waivers.............................................................. 3 SECTION 2.6. Deed of Trust on Real Property; Additional Waivers............................................ 5 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties....................................... 6 ARTICLE IV COVENANTS SECTION 4.1. Covenants............................................................ 6 ARTICLE V MISCELLANEOUS PROVISIONS SECTION 5.1. Operative Document................................................... 6 SECTION 5.2. Binding on Successors, Transferees and Assigns; Assignment of Guaranty...................................................... 7 SECTION 5.3. Amendments, etc...................................................... 7 SECTION 5.4. Addresses for Notices to the Guarantor..................................................... 7 SECTION 5.5. No Waiver; Remedies.................................................. 7
12 SECTION 5.6. Section Captions..................................................... 7 SECTION 5.7. Setoff .............................................................. 7 SECTION 5.8. Severability......................................................... 8 SECTION 5.9. Termination of Guaranty.............................................. 8 SECTION 5.10. Governing Law........................................................ 8 SECTION 5.11. Waiver of Jury Trial................................................. 8
EX-10.24 6 AMENDED AND RESTATED PLEDGE AGREEMENT 1 EXHIBIT 10.24 2/2/99 AMENDED AND RESTATED PLEDGE AGREEMENT THIS AMENDED AND RESTATED PLEDGE AGREEMENT (together with all amendments, supplements and other modifications made from time to time, this "Pledge Agreement"), dated as of February___, 1999, made by SYMANTEC CORPORATION, a Delaware corporation ("Symantec") and DELRINA CORPORATION, a [ ] corporation ("Delrina"), collectively (the "Pledgors"), in favor of THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH, as successor Agent for the benefit of the Lenders (the "Agent"), and Donaldson, Lufkin & Jenrette Securities Corporation, as collateral agent (the "Collateral Agent"). W I T N E S S E T H: WHEREAS, the parties hereto wish to amend and restate that certain Pledge Agreement, dated as of October 18, 1996, among Symantec Corporation, The Sumitomo Bank Limited, San Francisco Branch and the Collateral Agent; WHEREAS, Delrina is a wholly-owned subsidiary of Symantec and is entering into this Pledge Agreement for its benefit and the benefit of Symantec; WHEREAS, as a condition to the occurrence of the Restructuring Date under the Participation Agreement dated as of the date hereof (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Participation Agreement"), among the Pledgors, the Lessor, the Lenders and the Agent, the Pledgors are required to execute and deliver this Pledge Agreement; WHEREAS, the Pledgors have duly authorized the execution, delivery and performance of this Pledge Agreement; and WHEREAS, it is in the best interests of the Pledgors to execute this Pledge Agreement inasmuch as the Pledgors will derive substantial benefits from the transactions contemplated by the Participation Agreement; NOW, THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows: 2 Pledge Agreement ARTICLE I DEFINITIONS SECTION I.1 Certain Terms. Capitalized terms used but not otherwise defined in this Pledge Agreement have the respective meanings specified in Appendix A hereto; and the rules of interpretation set forth in Appendix A hereto shall apply to this Pledge Agreement. ARTICLE II PLEDGE SECTION II.1 Grant of Security Interest. Each of the Pledgors hereby pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers, jointly and severally, to the Agent, for the ratable benefit of each of the Lenders, and hereby grants to the Agent, for the ratable benefit of the Lenders, a continuing security interest in, all of its right, title and interest in, to and under the following property (the "Collateral"): (a) all Additional Collateral identified in Schedule I; (b) all other pledged property, whether now or hereafter delivered to the Collateral Agent in connection with this Pledge Agreement or any other Operative Document; (c) all interest and other payments and rights with respect to any pledged property; and (d) all cash and any other proceeds of any of the foregoing (collectively, the "Pledged Property"). SECTION II.2 Security for Obligations. The security interest granted by the Pledgors under this Pledge Agreement secures the payment in full of all of Symantec's obligations under the Master Lease and other Operative Documents to which it is a party now or hereafter existing. SECTION II.3 Delivery of Pledged Property. All certificates or instruments representing or evidencing any Collateral, shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank, all in form and substance satisfactory to the Agent. -2- 3 Pledge Agreement SECTION II.4 Valuation; Deficiency or Surplus. (a) The Collateral Agent shall determine the fair market value of the Additional Collateral held as Collateral daily during the Term in accordance with its customary practices and procedures with respect to similar property. Each such valuation by the Collateral Agent shall be binding on the Participants, the Agent and the Lessee, absent manifest error. In the event that any such valuation shall indicate that such fair market value of the Collateral shall be less than 102.0% of the then outstanding Loan Balance, the Collateral Agent shall give written notice to each of the Agent, the Lessee and the Lessor of such deficiency. (b) In the event that any deficiency in the fair market value of the Additional Collateral shall occur as set forth in Section 6.1 of the Participation Agreement, Symantec shall take such actions required pursuant to such Section. In the event that any surplus in the fair market value of the Collateral shall occur as set forth in Section 6.1 of the Participation Agreement, the Agent shall direct in writing the Collateral Agent to take such actions contemplated by Section 6.2 of the Participation Agreement. SECTION II.5 Continuing Security Interest. This Pledge Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until payment in full of the Loan Balance, (b) be binding upon the Pledgors and their successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Agent hereunder, to the benefit of each Lender. Upon the payment in full of the Loan Balance, the security interest granted herein shall terminate and all rights to the Collateral shall revert to the Pledgors. Upon any such termination, the Collateral Agent will, at the sole expense of Symantec, and upon written instruction of the Agent, deliver to the respective Pledgors, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Additional Collateral owned by the respective Pledgors, together with all other Collateral held by the Collateral Agent hereunder and execute and deliver to the Pledgors such documents as the Pledgors shall reasonably request to evidence such termination. -3- 4 Pledge Agreement SECTION II.6 Security Interest Absolute. All rights of the Agent and the security interests granted to the Agent hereunder, and all obligations of the Pledgors hereunder, shall be absolute and unconditional, irrespective of (a) any lack of validity or enforceability of the Pledge Agreement or any other Operative Document, (b) the failure of any Lender to assert any claim or demand or to enforce any right or remedy against the Lessee, the Lessor or any other Person under the provisions of any Operative Document or otherwise, (c) any change in the time, manner or place of payment of, or in any other term of, all or any of obligations under the Operative Documents or any other extension, compromise or renewal of any such obligation, (d) any reduction, limitation, impairment or termination of any such obligations under the Operative Documents for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Pledgors hereby waive any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, the Lessee, the Lessor or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to or departure from, any of the terms of the any Operative Document, (f) any addition, exchange, release, surrender or non-perfection of any collateral (including the Collateral), or any amendment to or waiver or release of or addition to or consent to departure from any guaranty, for any of the obligations under the Operative Documents, or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Lessee, the Lessor or any other Person. SECTION II.7 Waiver of Subrogation. Each of the Pledgors hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Lessee, the Lessor or any other Person that arise from the existence, payment, performance or enforcement of the Pledgors' obligations under this Pledge Agreement or any other Operative Document, including any right of -4- 5 Pledge Agreement subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim or remedy of the Lenders against the Lessee, the Lessor or any other Person or any collateral which the Agent now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Lessee, the Lessor or any other Person, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security on account of such claim or other rights. If any amount shall be paid to either Pledgor in violation of the preceding sentence and the Loan Balance shall not have been paid in cash in full, such amount shall be deemed to have been paid to such Pledgor for the benefit of, and held in trust for, the Lenders, and shall forthwith be paid to the Lenders to be credited and applied to satisfy the Loan Balance, whether then matured or unmatured. Each of the Pledgors acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Pledge Agreement and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION III.1 Warranties, etc. Each of the Pledgors represents and warrants for itself unto the Agent and each Lender, at the date of each pledge and delivery hereunder by such Pledgors to the Collateral Agent of any Collateral pledged by the Pledgor pursuant to this Pledge Agreement as follows: (a) Ownership, No Liens, etc. It is the legal and beneficial owner of, and has good and valid title to (and has full right and authority to pledge and assign) the Collateral pledged of such pledgor, free and clear of all Liens, security interests, options, or other charges or encumbrances, except any Lien or security interest granted pursuant hereto in favor of the Agent. (b) Valid Security Interest. The delivery of the Collateral to the Collateral Agent is effective to create a valid, perfected, first priority security interest in such Collateral and all proceeds thereof, securing the Loan Balance. No filing or other action will be necessary to perfect or protect such security interest. (c) Authorization, Approval, etc. No authorization, approval, or other action by, and no notice to or filing with, any governmental authority, regulatory body or any other -5- 6 Pledge Agreement Person is required either (i) for the pledge by such Pledgor of any Collateral pursuant to this Pledge Agreement or for the execution, delivery, and performance of this Pledge Agreement by such Pledgor, or (ii) for the exercise by the Agent of any of the rights provided for in this Pledge Agreement, or, except as may be required in connection with a disposition of Additional Collateral by laws affecting the offering and sale of securities generally, the remedies in respect of the Collateral pursuant to this Pledge Agreement. ARTICLE IV COVENANTS SECTION IV.1 Certain Covenants. Each Pledgor covenants and agrees that, so long as any portion of the Loan Balance shall remain unpaid: (a) except as permitted by the Operative Documents, it will not sell, assign, transfer, pledge, or encumber in any other manner the Collateral owned by it (except in favor of the Agent hereunder); (b) Such Pledgor will warrant and defend the right and title herein granted unto the Agent in and to the Collateral (and all right, title, and interest represented by the Collateral) against the claims and demands of all Persons whomsoever; (c) at any time, and from time to time, at the expense of Symantec, such Pledgor will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. -6- 7 Pledge Agreement ARTICLE V THE AGENT SECTION V.1 Agent Appointed Attorney-in-Fact. Each of the Pledgors hereby irrevocably appoints the Agent as such Pledgor's attorney-in-fact, with full authority in the place and stead of such Pledgor and in the name of such Pledgor or otherwise, from time to time upon the occurrence and during the continuance of any Event of Default, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation: (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and (c) to file any claims or take any action or institute any proceedings which the Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Agent with respect to any of the Collateral. Each of the Pledgors hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. SECTION V.2 Agent May Perform. If either Pledgor fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by the Pledgors pursuant to Section 6.5. SECTION V.3 No Duty. (a) The powers conferred on the Agent and Collateral Agent hereunder are solely to protect the interests of the Lenders in the Collateral and shall not impose any duty on them to exercise any such powers. Except (i) as set forth in Section 2.4, and (ii) for reasonable care of any Collateral in its possession by the Collateral Agent and the accounting by the Collateral Agent or the Agent for moneys actually received by it hereunder, neither the Agent nor the Collateral Agent shall have any duty as to any Collateral or responsibility for (i) ascertaining or taking action with respect to calls, -7- 8 Pledge Agreement conversions, exchanges, maturities, tenders or other matters relative to any Pledged Property, whether or not the Agent or the Collateral Agent has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. (b) Notwithstanding anything to the contrary, the Collateral Agent shall have no duties, obligations or responsibilities except as expressly set forth in this Agreement or as may be directed in writing by the Agent. The Collateral Agent shall have no liability whatsoever for any action taken or omitted by it or in connection herewith (including by direction, whether oral or written, of the Agent) unless caused by its gross negligence or willful misconduct. The Collateral Agent shall have no fiduciary duty, obligation or responsibility in respect of any party hereto or any indirect beneficiary of this Agreement or the Collateral. SECTION V.4 Reasonable Care. The Collateral Agent is required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, the Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as the Pledgor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Collateral Agent to comply with any such request at any time shall not in itself be used as a factor in determining whether the Collateral Agent has exercised reasonable care. ARTICLE VI REMEDIES SECTION VI.1 Certain Remedies. If any Event of Default shall have occurred and be continuing: (a) The Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral) and also may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as -8- 9 Pledge Agreement the Agent may deem commercially reasonable. Each Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to such Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Agent may (i) transfer all or any part of the Collateral into the name of the Agent or its nominee, with or without disclosing that such Collateral is subject to the lien and security interest hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Agent of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts, or other writings in either of the Pledgors' name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral, and (vi) execute (in the name, place and stead of the Pledgors) endorsements, assignments, stock powers and other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION VI.2 Securities Laws. If the Agent shall exercise its right to sell all or any of the Collateral on behalf of the Lenders pursuant to Section 6.1, each Pledgor agrees that, upon request of the Agent, such Pledgor will, at its own expense do or cause to be done all such acts and things as may be necessary to make such sale of the Collateral owned by the Pledgor or any part thereof valid and binding and in compliance with applicable law. -9- 10 Pledge Agreement SECTION VI.3 Compliance with Restrictions. Each Pledgor agrees that in any sale of any of the Collateral owned by such Pledgor whenever an Event of Default shall have occurred and be continuing, the Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and each Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Agent be liable nor accountable to such Pledgor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION VI.4 Application of Proceeds. All cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral may, in the discretion of the Agent and the Lessor, be held by the Agent as additional collateral security for, or then or at any time thereafter be applied in whole or in part by the Agent against, all or any part of the Loan Balance pro rata in such order as determined pursuant to Section 7.6 of the Participation Agreement. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of the Loan Balance, shall be paid over to the respective Pledgors or to whomsoever may be lawfully entitled to receive such surplus. SECTION VI.5 Indemnity and Expenses. Each Pledgor hereby jointly and severally indemnifies and holds harmless each of the Agent and the Collateral Agent from and against any and all claims, losses, and liabilities arising out of or resulting from this Pledge Agreement (including enforcement of this Pledge Agreement), except the claims, losses, or liabilities of the Agent resulting from the Agent's gross negligence or wilful misconduct, and except the claims, losses or liabilities of the Collateral Agent, resulting from the Collateral Agent's gross negligence or willful misconduct, as the case may be. Upon demand, the Pledgors will pay to the Agent or the Collateral Agent, as the case may be, the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and -10- 11 Pledge Agreement agents, which the Agent or the Collateral Agent, as the case may be, may incur in connection with: (a) the administration of this Pledge Agreement, including the valuations of Additional Collateral pursuant to Section 2.4; (b) the custody, preservation, use, or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, including pursuant to Section 7.3; (c) the exercise or enforcement of any of the rights of the Agent or Collateral Agent hereunder; or (d) the failure by the Pledgors to perform or observe any of the provisions hereof. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION VII.1 Operative Document. This Pledge Agreement is an Operative Document executed pursuant to the Participation Agreement and shall (unless expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions of the Participation Agreement, including, without limitation, Article XIV thereof. SECTION VII.2 Successors, Transferees and Assigns. This Pledge Agreement shall be binding upon each of the Pledgors and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each the Agent, each Lender and each holder of a Note and their respective successors and assigns); provided, however, that neither of the Pledgors may assign any of its obligations hereunder without the prior written consent of the Required Lenders. SECTION VII.3 Amendments, etc. No amendment to or waiver of any provision of this Pledge Agreement, nor consent to any departure by the Pledgors herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION VII.4 Protection of Collateral. The Agent may from time to time, at its option, perform any act which the Pledgors agree hereunder to perform and which the Pledgors shall fail to perform after being requested in writing so to perform (it being -11- 12 Pledge Agreement understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Agent may from time to time take any other action which the Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION VII.5 Addresses for Notices to the Pledgors. All notices, demands, requests, consents, approvals and other communications hereunder shall be in writing (including by facsimile) and directed to the address or facsimile number described in, and deemed received in accordance with the provisions of, Section 14.3 of the Participation Agreement or as otherwise agreed among the parties. SECTION VII.6 No Waiver; Remedies. In addition to, and not in limitation of, Section 2.2 and Section 2.4, no failure on the part of the Agent, any Lender or any holder of a Note to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder 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 VII.7 Section Captions. Section captions used in this Pledge Agreement are for convenience of reference only, and shall not affect the construction of this Pledge Agreement. SECTION VII.8 Severability. Wherever possible each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. SECTION VII.9 Governing Law. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. SECTION VII.10 Waiver of Jury Trial. EACH OF THE PLEDGORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT. EACH OF THE PLEDGORS ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE LOAN AGREEMENT AND THE PARTICIPATION -12- 13 Pledge Agreement AGREEMENT. SECTION VII.11 Execution in Counterparts. This Pledge Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. -13- 14 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. SYMANTEC CORPORATION, as Pledgor By /s/ GREG MYERS ----------------------------------- Name: Greg Myers Title: V.P. Finance DELRINA CORPORATION, as Pledgor By /s/ ART COURVILLE ----------------------------------- Name: Art Courville Title: Assistant Secretary THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH, as Agent By /s/ AZAR SHAKERI ----------------------------------- Name: Azar Shakeri Title: Vice President DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, as Collateral Agent By /s/ ----------------------------------- Name: Title: S-1 15 SCHEDULE I TO PLEDGE AGREEMENT List of Additional Collateral EX-10.26 7 AMENDED AND RESTATED ASSIGNMENT OF LEASE AND RENT 1 Exhibit 10.26 EXECUTION COPY This instrument prepared by, recording requested by, and when recorded return to: MAYER, BROWN & PLATT 1675 Broadway New York, New York 10019 Attention: Michael Sloyer, Esq. - -------------------------------------------------------------------------------- AMENDED AND RESTATED ASSIGNMENT OF LEASE AND RENT dated as of February 9, 1999 from SUMITOMO BANK LEASING AND FINANCE, INC., as ASSIGNOR to THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH, as Agent, as ASSIGNEE - -------------------------------------------------------------------------------- 2 AMENDED AND RESTATED ASSIGNMENT OF LEASE AND RENT THIS AMENDED AND RESTATED ASSIGNMENT OF LEASE AND RENT, dated as of February 9, 1999 (this "Assignment"), made by SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation (the "Lessor"), to THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH, as agent (the "Agent") for the Lenders under the Loan Agreement referred to below (together with their respective successors and assigns, the "Lenders"), W I T N E S S E T H: WHEREAS, pursuant to the Loan Agreement dated as of the date hereof (as amended by Master Amendment No. 1 dated as of March 3, 1997, and as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"), among the Lessor, the Lenders and the Agent, the Lenders have severally agreed to make Loans to the Lessor in an aggregate amount not to exceed the aggregate Commitments of the Lenders, as set forth on Schedule I to the Participation Agreement (as defined in Appendix A to the Loan Agreement), upon the terms and subject to the conditions set forth in the Loan Agreement and the Participation Agreement, to be evidenced by the notes (such notes, as the same may hereafter be amended, modified, renewed, extended or otherwise changed from time to time, together with any note or notes or other obligations executed and delivered in renewal, extension or replacement thereof or in substitution or exchange therefor, are hereinafter collectively referred to as the "Notes") issued by the Lessor under the Loan Agreement; WHEREAS, it is a condition, among others, to the obligation of the Lenders to make their respective Loans to the Lessor under the Loan Agreement that the Lessor shall have executed and delivered, and the Lessee shall have consented to, this Assignment to the Agent for the benefit of the Lenders; and WHEREAS, in order further to secure payment of all the amounts owing to the Lenders under the Loan Agreement, the Notes and the other Operative Documents, the Lessor has agreed to enter into, execute, and deliver this Assignment; NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: 1. Defined Terms. Capitalized terms used but not otherwise defined in this Assignment shall have the respective meanings specified in Appendix A to the Loan Agreement; and the -1- 3 Assignment of Lease and Rent rules of interpretation set forth in such Appendix A shall apply to this Assignment. 2. Assignment. To secure its obligations under the Loan Agreement, the Notes and the other Operative Documents, the Lessor hereby assigns, transfers, sets over and conveys to the Agent for the ratable benefit of the Lenders, all the following described property relating to or arising in connection with the Properties (including, without limitation, each Property described in a Supplement to this Assignment, as delivered from time to time in the form attached hereto as Exhibit A), whether now owned or held or hereafter acquired: (a) Except as hereinafter provided, all of the estate, right, title, interest, benefits, powers and privileges of the Lessor, as lessor, under the Master Lease (including all Lease Supplements) (hereinafter referred to collectively as the "Assigned Leases") including (i) the immediate and continuing right, on a non-exclusive basis, to make claim for, receive, collect and receipt for all rents, income, revenues, issues, profits, insurance proceeds, condemnation awards, sales proceeds and other sums payable to or receivable by the Lessor under the Assigned Leases, or pursuant to any provisions thereof, whether as rent or as the purchase price or termination payment for any interest in any Property or otherwise (including, without limitation, the Loan Balance, the Purchase Option Price and any sales proceeds payable to the Lessor pursuant to the Assigned Leases) (collectively, the "Lease Rents"), including all cash, securities or letters of credit delivered or deposited pursuant thereto to secure performance by the Lessee of its obligations thereunder, (ii) the right and power (which right and power are coupled with an interest) upon the purchase by the Lessee of the interest of the Lessor in any Property in accordance with any Assigned Lease to execute and deliver as irrevocable agent and attorney-in-fact of the Lessor an appropriate instrument necessary to convey the interest of the Lessor therein, or to pay over or assign to the Lessee those sums to which it is entitled if the Lessee becomes obligated to purchase the interest of the Lessor in any Property and to perform all other necessary or appropriate acts as said agent and attorney-in-fact with respect to any such purchase and conveyance, (iii) the right, on a non-exclusive basis, to perform all other necessary or appropriate acts as said agent and attorney-in-fact with respect to any purchase or conveyance referred to in clause (ii) above, (iv) the right (subject to the consent of Required Participants), on a non-exclusive basis, to declare the Master Lease or any Lease Supplement to be in -2- 4 Assignment of Lease and Rent default, (v) subject to the terms of the Operative Documents (and subject to the consent of Required Participants), the right to exercise remedies under or with respect to the Assigned Leases, (vi) the right (subject to the consent of Required Lenders) to make all waivers and agreements on behalf of the Lessor under the Assigned Leases provided for or permitted under the Assigned Leases; provided, however, that none of the foregoing will be made or given with respect to Article VII, IX, X, XIII, XIV, XVIII, XX or XXI of the Master Lease without the written consent of the Required Participants, (vii) the right to give all notices, consents, releases and other instruments provided under the Assigned Leases; provided, however, that none of the foregoing will be made or given with respect to Article VII, IX, X, XIII, XIV, XVIII, XX or XXI of the Master Lease without the written consent of the Required Participants, (viii) the right (subject to the consent of Required Participants), on a non-exclusive basis, to give all notices of default and to take all action upon the happening of a Default or an Event of Default under any Assigned Lease, including the commencement, conduct and consummation of proceedings as shall be permitted under any provision of any Assigned Lease, or by law or in equity, (ix) the right, on a non-exclusive basis, to receive all notices sent to the Lessor under any Assigned Lease, (x) the Lessor's interest under any Assigned Lease in the Lessee's tangible and intangible property used or arising in connection with any Property, including, but not limited to, permits, licenses, contract rights and prepaid expenses, and (xi) the right (subject to the consent of Required Participants), on a non-exclusive basis, to do any and all other things whatsoever which the Lessor is or any lessor is, or may be entitled to do under any Assigned Lease. The Lessor hereby agrees that any action taken by the Lenders (or their designee) pursuant to this Assignment shall be exclusive, and no party relying on such action of the Lenders (or such designee) pursuant hereto shall be required to obtain the concurrence or consent of the Lessor to such action or to a request for such action. (b) All of the estate, right, title, interest, benefits, powers and privileges of the Lessor, to and under all agreements or contracts for the sale or other disposition of all or any part of any Property, now or hereafter entered into by the Lessor (collectively, the "Contracts"), together with all estate, right, title, interest, benefits, powers and privileges of the Lessor under the Contracts including, without limitation, the immediate and continuing right, on a non-exclusive basis, to -3- 5 Assignment of Lease and Rent make claim for, receive, collect and receipt for all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable under any of the Contracts (collectively, the "Contract Rents" and, together with the Lease Rents, the "Rents") and all right, title and interest of the Lessor thereunder, including all cash, securities or letters of credit deposited thereunder to secure performance by the obligors of their obligations thereunder. (c) On a non-exclusive basis, all of the right, title and interest of the Lessor in and to all claims and rights to the payment of money at any time arising in connection with any repudiation, rejection or breach of any Assigned Lease by the Lessee or a trustee or receiver of the Lessee under any insolvency statute, law or regulation, including, without limitation, all rights to recover damages arising out of such breach or rejection, all rights to charges payable by the Lessee or such trustee or receiver in respect of any Property or any portions thereof following rejection, repudiation or disaffirmance of the Lease or following the entry of an order for relief under any insolvency statute, law or regulation in respect of the Lessee and all rentals and other charges outstanding under the Lease as of the date of entry of such order for relief. Notwithstanding the foregoing provisions of this Section 2, the assignment contained herein shall in no event include any amounts received by Agent or Lessor or otherwise paid or payable to Lessor with respect to Yield, Lessor Amount, indemnity payments to or for the benefit of the Lessor, insurance proceeds under policies maintained by the Lessor and fees or Transaction Expenses paid or payable to or for the benefit of the Lessor. 3. Receipt of Rents. The Lenders hereby acknowledge and agree that the Agent will hold the Rents for the benefit of each of the Lenders and the Lessor, and the Agent will distribute the Rents to the Lenders and the Lessor in accordance with Article VII of the Participation Agreement. 4. Irrevocability; Supplemental Instruments. The Lessor agrees that this Assignment and the designation and direction to the Lessee set forth in Sections 2 and 3 of this Assignment are irrevocable and that it will not take any action as lessor under the Leases or otherwise which is inconsistent with this Assignment and that any action, assignment, designation or direction inconsistent herewith shall be void. The Lessor will from time to time execute and deliver all instruments of further assurance and do such further acts as may be necessary or proper to carry out more effectively the purpose of this Assignment. -4- 6 Assignment of Lease and Rent 5. Validity. The Lessor represents and warrants (on a continuing basis) and covenants to the Lenders that (a) the Lessor has not assigned or executed any assignment of, and will not assign or execute any assignment of, the Lessor's interest in any of the Assigned Leases, in any Contract, in any Rents or in any other subject matter of this Assignment to anyone other than the Lenders and any assignment, designation or direction by the Lessor inconsistent herewith shall be void, and (b) the Lessor has not done any act or executed any document that impairs the rights of the Lenders to the Leases or the Rents under this Assignment. 6. The Lessor Remains Liable. While the assignment made hereby is present, direct and continuing, it has been made for the purpose of providing the Lenders with security for the performance of the Lessor's obligations under the Loan Agreement and the Notes and the execution and delivery hereof shall not impair or diminish in any way the obligations of the Lessor under the Assigned Leases, or impose any of such obligations on the Lenders. This Assignment shall not operate to cause the Lenders (or their designee) to be regarded as a mortgagee in possession. Neither the Lenders nor their designee shall be responsible or liable for performing any of the obligations of the Lessor under any of the Assigned Leases or any Contract, for any waste by the Lessee or others, for any dangerous or defective conditions of any Property, for negligence in the management, upkeep, repair or control of any Property or any other act or omission by any other Person. Nothing contained herein shall operate or be construed to (a) obligate the Lenders (or their designee) to assume the obligations of the Lessor under any of the Assigned Leases or any Contract, to perform any of the terms and conditions contained in any of the Assigned Leases or any Contract or otherwise to impose any obligation upon the Lenders with respect to any of the Assigned Leases or any Contract or (b) place upon the Lenders (or their designee) any responsibility for the operation, control, care, management or repair of any Property or any part thereof. Subject at all times to the terms and conditions of this Assignment, the Lessor will at all times promptly and faithfully perform in all respects, or cause to be performed in all respects, all of its covenants, conditions and agreements contained in the Assigned Leases or any Contract now or hereafter existing on the part of the Lessor to be kept and performed. 7. Amendments; Lessee's Consent. The Lessor will not enter into any agreement subordinating, amending, extending or terminating any of the Assigned Leases except as provided in Section 14.5 of the Participation Agreement, and any such attempted subordination, amendment, modification, extension or termination without compliance with such Section 14.5 shall be -5- 7 Assignment of Lease and Rent void. If any of the Assigned Leases or any Contract shall be amended, it shall continue to be subject to the provisions hereof without the necessity of any further act by any of the parties hereto. The Lessor and the Lenders hereby consent to the provisions of Lessee's Consent attached to this Assignment and agree to be bound thereby. 8. Termination of this Assignment. This Assignment shall continue in full force and effect until all obligations, liabilities and indebtedness of any kind now or hereafter due to the Lenders from the Lessor or the Lessee under or with respect to the Loan Agreement or any of the other Operative Documents, or which are otherwise secured hereby, whether now existing or hereafter arising or incurred, have been fully paid, performed and satisfied, at which time this Assignment will terminate. 9. Ongoing Right to Collect Rents; Receivers. If notwithstanding the terms of this Assignment, a petition or order for sequestration of rents, or the appointment of a receiver or some similar judicial action or order is deemed required under applicable state law to allow the Lenders to continue to collect the moneys described in paragraphs 2(a), (b) and (c) of this Assignment, then it is agreed by the Lessor that any proof of claim or similar document filed by the Lenders in connection with the breach or rejection of any Lease by the lessee thereunder or the trustee of any lessee under any federal or state insolvency statute shall for the purpose of perfecting the Lenders' rights conferred in said paragraphs be deemed to constitute action required under such state law. Upon the occurrence and during the continuance of a Loan Agreement Event of Default (not existing solely by virtue of a Lease Event of Default), the Lessor hereby consents to the appointment of a receiver for any or all of the Properties as a matter of right and without any requirement for notice to the Lessor and without regard to the solvency of the Lessor or to the collateral that may be available for the satisfaction of the Notes and all other obligations under the Loan Agreement and the other Operative Documents. 10. Amendment. This Assignment may not be amended or otherwise modified except by a writing signed by the Lessor, the Agent and, if required by Section 14.5 of the Participation Agreement, the Lessee, in accordance with the terms of the Participation Agreement. 11. Notices. All notices, demands, requests, consents, approvals and other instruments under this Assignment shall be made in accordance with the notice provisions of the Participation Agreement. -6- 8 Assignment of Lease and Rent 12. Successors and Assigns. All covenants, agreements, representations and warranties in this Assignment by the Lessor and the Lenders shall bind, and shall inure to the benefit of and be enforceable by, their respective successors and assigns, whether or not so expressed. 13. Severability. If any provision or provisions, or if any portion of any provision or provisions, in this Assignment is found by a court of law of competent jurisdiction to be in violation of any local, state or Federal ordinance, statute, law, administrative or judicial decision, or public policy, and if such court should declare such portion, provision or provisions to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of the parties hereto that such portion, provision or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, that the remainder of this Assignment shall be construed as if such illegal, invalid, unlawful, void or unenforceable portion, provision or provisions were not contained therein, and that the rights, obligations and interests of the Lessor, the Lenders and the Lessee under the remainder of this Assignment shall continue in full force and effect. 14. Governing Law. THIS ASSIGNMENT AND THE RIGHTS AND OBLIGATIONS OF THE LESSOR UNDER THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. 15. Counterparts. This Assignment may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. 16. Conflicts. In the event of any conflicts between the terms and provisions hereof and the terms and provisions of the other Operative Documents, the terms and provisions of the other Operative Documents shall be controlling. 17. Non-Disturbance. So long as no Lease Event of Default has occurred and is continuing, the Lenders will take no action to disturb the Lessee's rights to quiet enjoyment of each Property as set forth in Section 4.1 of the Master Lease. -7- 9 Assignment of Lease and Rent IN WITNESS WHEREOF, the Lessor has caused this Assignment to be duly executed as of the day and year first above written. SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By /s/ WILLIAM M. GINN --------------------------------- Name: William M. Ginn Title: President -8- 10 ALL-PURPOSE ACKNOWLEDGEMENT State of New York ) ) County of Queens ) On February 8, 1999 before me, Jeannette Carmona , ----------------------- ------------------------------------------ Date Name, Title of Officer, e.g., "Jane Doe, Notary Public personally appeared William M. Ginn , ------------------------------------------------------------ [X] personally known to me - OR - [ ] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. /s/ JEANNETTE CARMONA ----------------------------------- Signature of Notary CAPACITY CLAIMED BY SIGNER: SIGNER IS REPRESENTING: NAME OF PERSON(S) OR ENTITY(IES) [ ] INDIVIDUAL(S) ______________________________ ______________________________ [X] CORPORATE OFFICER(S) ______________________________ President ------------------------------ TITLE ------------------------------ TITLE [ ] PARTNER(S) [ ] ATTORNEY-IN-FACT [ ] TRUSTEE(S) [ ] SUBSCRIBING WITNESS [ ] GUARDIAN/CONSERVATOR [ ] OTHER _______________________ -9- 11 ----------------------------- ----------------------------- - -------------------------------------------------------------------------------- ATTENTION NOTARY: ALTHOUGH THE INFORMATION REQUESTED BELOW IS OPTIONAL, IT COULD PREVENT FRAUDULENT ATTACHMENT OF THIS CERTIFICATE TO UNAUTHORIZED DOCUMENT. THIS CERTIFICATE Title or Type of Document_____________________________ MUST BE ATTACHED Number of Pages _____ Date of Document________________ TO THE DOCUMENT Signer(s) Other Than Named Above _____________________ DESCRIBED AT RIGHT: -10- 12 Consent of Lessee to Assignment of Lease and Rent CONSENT AND ACKNOWLEDGMENT BY SYMANTEC CORPORATION The undersigned hereby acknowledges receipt of a counterpart original of, and consents to, the foregoing Assignment of Lease and Rent. The foregoing is furnished for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the undersigned, and the undersigned understands and intends that the Lenders will rely on the foregoing and that the undersigned will be legally bound by the foregoing. This Consent and Acknowledgment shall inure to the benefit of the Lenders and their respective successors and assigns. IN WITNESS WHEREOF, the undersigned has executed and delivered this Consent and Acknowledgment as of February __, 1999, pursuant to proper authority duly granted. SYMANTEC CORPORATION By /s/ DEREK WITTE ------------------------------- Name: Derek Witte Title: VP WW OPS 13 EXHIBIT A TO ASSIGNMENT OF LEASE AND RENT SUPPLEMENT NO. __ TO ASSIGNMENT OF LEASE AND RENT THIS SUPPLEMENT NO. __ (this "Supplement"), dated as of ____________, to the ASSIGNMENT OF LEASE AND RENT, dated as of February ___, 1999 (the "Assignment"), made by SUMITOMO BANK LEASING AND FINANCE, INC., (the "Lessor"), in favor of THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH, as Agent (in such capacity, the "Agent") for the Lenders. Capitalized terms used herein but not otherwise defined have the meanings specified in the Assignment. The parties hereto agree as follows: 1. The Property. In accordance with the Assignment, the Lessor has executed this Supplement to subject the Master Lease, as supplemented by the Lease Supplement attached as Schedule 1 hereto, to the Assignment. The description of the Property is attached hereto as Schedule 2. 2. Integrated Assignment. Following the execution and delivery of this Supplement, this Supplement, and all supplements previously delivered under the Assignment, shall constitute a part of the Assignment. 3. Confirmation. Except as expressly supplemented hereby, the provisions of the Assignment are and shall remain in full force and effect. Further, the Lessor hereby reaffirms its obligations under the Assignment. IN WITNESS WHEREOF, the Lessor has caused this Supplement to be duly executed as of the day and year first above written. SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By_______________________________ Name: Title: 14 Schedule 1 [Lease Supplement] 15 Schedule 2 [Description of Property] 16 ALL-PURPOSE ACKNOWLEDGEMENT State of California ) ) County of Santa Clara ) On February 8, 1999 before me, Vibeke Cariato, Date Name, Title of Officer, e.g., "Jane Doe, Notary Public personally appeared Derek Witte, [X] personally known to me - OR - [ ] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. /s/ VIBEKE CARIATO ----------------------------------- Signature of Notary CAPACITY CLAIMED BY SIGNER: SIGNER IS REPRESENTING: NAME OF PERSON(S) OR ENTITY(IES) [ ] INDIVIDUAL(S) ______________________________ ______________________________ [ ] CORPORATE OFFICER(S) ______________________________ ------------------------------ TITLE ------------------------------ TITLE [ ] PARTNER(S) [ ] ATTORNEY-IN-FACT [ ] TRUSTEE(S) [ ] SUBSCRIBING WITNESS [ ] GUARDIAN/CONSERVATOR [ ] OTHER _______________________ 17 ---------------------------- ---------------------------- - -------------------------------------------------------------------------------- ATTENTION NOTARY: ALTHOUGH THE INFORMATION REQUESTED BELOW IS OPTIONAL, IT COULD PREVENT FRAUDULENT ATTACHMENT OF THIS CERTIFICATE TO UNAUTHORIZED DOCUMENT. THIS CERTIFICATE Title or Type of Document_____________________________ MUST BE ATTACHED Number of Pages _____ Date of Document________________ TO THE DOCUMENT Signer(s) Other Than Named Above _____________________ DESCRIBED AT RIGHT: 18 Consent of Lessee to Supplement to Assignment of Lease and Rent CONSENT AND ACKNOWLEDGMENT BY SYMANTEC CORPORATION The undersigned hereby acknowledges receipt of a counterpart original of, and consents to, the foregoing Supplement No. __ to the Assignment of Lease and Rent. The foregoing is furnished for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the undersigned, and the undersigned understands and intends that the Agent and the Lenders will rely on the foregoing and that the undersigned will be legally bound by the foregoing. This Consent and Acknowledgment shall inure to the benefit of the Agent, the Lenders and their respective successors and assigns. IN WITNESS WHEREOF, the undersigned has executed and delivered this Consent and Acknowledgment as of February 8, 1999, pursuant to proper authority duly granted. SYMANTEC CORPORATION By /s/ DEREK WITTE ---------------------------------- Name: Derek Witte Title: VP WW OPS EX-10.37 8 AMENDED AND RESTATED LOAN AGREEMENT 1 EXHIBIT 10.37 EXECUTION COPY ================================================================================ AMENDED AND RESTATED LOAN AGREEMENT dated as of February 9, 1999 among SUMITOMO BANK LEASING AND FINANCE, INC. as Lessor, VARIOUS FINANCIAL INSTITUTIONS IDENTIFIED HEREIN, as Lenders, THE BANK OF NOVA SCOTIA, as Documentation Agent and THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH as Agent for the Lenders ================================================================================ 2 AMENDED AND RESTATED LOAN AGREEMENT THIS AMENDED AND RESTATED LOAN AGREEMENT dated as of February 9,1999 (this "Loan Agreement"), among SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware Corporation (the "Lessor"), the various financial institutions as are or may from time to time become parties hereto as lenders hereunder (collectively, the "Lenders"), THE BANK OF NOVA SCOTIA, as Documentation Agent, and THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH, as Agent (the "Agent") for the Lenders, W I T N E S S E T H: WHEREAS, pursuant to the Amended and Restated Participation Agreement dated as of the date hereof (the "Participation Agreement"), among Symantec Corporation, a Delaware Corporation (the "Lessee"), the Lessor, the Lenders, the Documentation Agent and the Agent, the Lessor and the Lenders have agreed, subject to the terms thereof, to make Lessor Amounts and Loans available to the Lessor on each Acquisition Date, and the Lessor has agreed, subject to the terms thereof, to make Advances for the benefit of the Lessee on each Acquisition Date; WHEREAS, the Lessor desires to obtain Commitments from the Lenders pursuant to which Loans, in a maximum aggregate principal amount at any one time outstanding not to exceed $83,848,466.00 will be made to the Lessor in accordance with this Loan Agreement and the Participation Agreement; WHEREAS, each Lender is willing, on the terms and subject to the conditions hereinafter set forth (including Article III), to make Loans to the Lessor in an aggregate amount not to exceed its Commitment as set forth on Schedule II to the Participation Agreement, as such Schedule may be amended from time to time; and WHEREAS, the Lessor will use the proceeds of such Loans to fund Advances to the Lessee pursuant to the Participation Agreement; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS; INTERPRETATION Capitalized terms used but not otherwise defined in this Loan Agreement have the respective meanings specified in 3 Loan Agreement Appendix A to this Loan Agreement; and the rules of interpretation set forth in Appendix A to this Loan Agreement shall apply to this Loan Agreement. ARTICLE II AMOUNT AND TERMS OF LENDERS' COMMITMENTS SECTION 2.1. Loan Commitments. Subject to the terms and conditions hereof and of the Participation Agreement, each Lender severally agrees to make loans (the "Loans") to the Lessor on each Acquisition Date for the purpose of enabling the Lessor to acquire the Properties and to pay Property Acquisition Costs and Property Improvement Costs, in an aggregate principal amount at any one time outstanding not to exceed the amount of such Lender's Commitment. No amounts paid or prepaid with respect to any Loans may be reborrowed. SECTION 2.2. Notes. The Loans made by each Lender shall be evidenced by a promissory note of the Lessor, substantially in the form of Exhibit A (each, a "Note"), with appropriate insertions as to payee, date and principal amount, payable to the order of such Lender and in a principal amount equal to the initial Commitment of such Lender. Each Lender is hereby authorized to record the date and amount of each Loan made by such Lender, each continuation thereof, the date and amount of each payment or prepayment of principal thereof and the length of each Interest Period with respect thereto, on the schedule annexed to and constituting a part of its Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded, provided that the failure to make any such recordation or any error in such recordation shall not affect the Lessor's obligations hereunder or under such Note. Each Note shall (i) be dated the date of the initial Acquisition Date, (ii) be stated to mature on the Maturity Date and (iii) provide for the payment of interest in accordance with this Loan Agreement. SECTION 2.3. Prepayments. (a) Voluntary. The Lessor may in connection with a Casualty, Condemnation or purchase by the Lessee of a Property at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty (subject to Section 13.10 of the Participation Agreement), upon at least three (3) Business Days' written notice to the Agent, specifying the date and amount of prepayment and the Land Acquisition Costs and/or Property Improvement Costs to which such Loans are allocable. Upon receipt of any such notice -2- 4 Loan Agreement the Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to Article XIII (including without limitation Section 13.6) of the Participation Agreement. (b) Mandatory. Notwithstanding the foregoing, all amounts payable by the Lessee pursuant to Article XV, XVIII or XX of the Master Lease shall be used to prepay the Loans and shall be applied to the Loans and the Lessor Amounts in the manner set forth in Article VII of the Participation. SECTION 2.4. Interest Rates and Payment Dates. (a) Each Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the LIBO Rate (Reserve Adjusted) determined for such day plus the Loan Margin or, at the option of the Lessee, the Alternate Base Rate plus the Loan Margin. (b) If all or a portion of (i) the principal amount of any Loan, (ii) any interest payable thereon or (iii) any other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum which is equal to the Overdue Rate. Interest accruing pursuant to this clause (b) shall be payable from time to time on demand. (c) During the Base Lease Term, Interest shall accrue on outstanding Loans and shall be paid on the Scheduled Payment Date. (d) Each prepayment of the Loans shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. SECTION 2.5. Repayment of Loans. (a) During the Base Lease Term the Lessor shall repay the Loans with respect to each Property on the dates and in the amount set forth in the Master Rent Schedule under the Lease. (b) The Loans shall be repaid in full on the Maturity Date. -3- 5 Loan Agreement SECTION 2.6. Computation of Interest. (a) If interest on the Loans shall be based on the LIBO Rate (Reserve Adjusted), then it shall be calculated on the basis of a 360-day year and, if based on the Alternate Base Rate, then on a 360-day year basis if the Alternate Base Rate is calculated at the Federal Funds Rate, and a 365- or, if applicable, 366-, day year basis if the Alternate Base Rate is calculated at the Prime Rate, in each case for the actual days elapsed. The Agent shall as soon as practicable notify the Lessor and the Lenders of each determination of a LIBO Rate. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate or the LIBOR Reserve Percentage shall become effective as of the opening of business on the day on which such change becomes effective. The Agent shall as soon as practicable notify the Lessor and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Agent pursuant to any provision of this Loan Agreement shall be correct and binding on the Lessor and each Lender in the absence of demonstrable error. The Agent shall, at the request of the Lessor, deliver to the Lessor a statement prepared in good faith and in reasonable detail showing the quotations used by the Agent in determining any interest rate pursuant to Section 2.5(a). SECTION 2.7. Pro Rata Treatment and Payments. Each borrowing by the Lessor from the Lenders hereunder shall be made pro rata among the Lenders according to the respective Commitment Percentage of each such Lender. Except as otherwise provided in Article VII of the Participation Agreement, each payment (including each prepayment) by the Lessor on account of principal of and interest on the Loans shall be made pro rata among the Lenders according to the respective outstanding principal amounts of the Loans then held by each such Lender. Subject to Article V, all payments (including prepayments) to be made by the Lessor hereunder and under the Notes, whether on account of principal, interest or otherwise, shall be made without setoff or counterclaim and shall be made by the Lessor to the applicable Lender prior to 12:00 p.m.,Los Angeles, California time, to such Lender's Funding Office specified in Schedule II to the Participation Agreement (or to such other office as may be designated by such Lender from time to time in a written notice to the Owner Lessor) in funds consisting of lawful currency of the United States of America which shall be immediately available on the scheduled date when such payment is due. Payments -4- 6 Loan Agreement received after 1:00 p.m., San Francisco, California time, on the date due shall for the purpose of Section 5.1 be deemed received on such day; provided, however, that for the purposes of Section 2.5(b), such payments shall be deemed received on the next succeeding Business Day and, unless the Lenders are otherwise able to invest or employ such funds on the date received, subject to interest at the Overdue Rate as provided in Section 2.5(b). ARTICLE III CONDITIONS PRECEDENT SECTION 3.1. Conditions to Effectiveness. This Loan Agreement shall be effective on the Documentation Date upon satisfaction of the conditions precedent set forth in Section 2.1 of the Participation Agreement. ARTICLE IV PAYMENTS AND DISTRIBUTIONS SECTION 4.1. Payments and Distributions. All payments to be made by the Lessor hereunder, and all payments due and payable to the Lenders pursuant to any other Operative Document, shall be distributed by the Lessor to the Participants in accordance with Article VII of the Participation Agreement. ARTICLE V LOAN AGREEMENT EVENTS OF DEFAULT SECTION 5.1. Loan Agreement Events of Default. The occurrence of any one or more of the following events (whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute a "Loan Agreement Event of Default": (a) The Lessor shall (i) default, and such default shall continue for five (5) or more days, in the payment when due (including, without limitation, pursuant to Section 2.5(b)) of any principal of the Loans or (ii) default, and such default shall continue for five (5) or more days, in the payment when due of any interest on the Loans or (iii) default, and such default shall continue for ten or more -5- 7 Loan Agreement days after the Lessor's receipt of notice of such default, in the payment of any other amounts owing hereunder or under any other Loan Document to which it is a party; or (b) The Lessor shall default in the due performance or observance by it of any term, covenant or agreement contained in this Loan Agreement or the Notes (other than those referred to in clause (a) above), and such default shall have continued unremedied for a period of at least thirty (30) days after the Lessor's receipt of notice thereof from the Agent or Lenders holding a majority of the outstanding Loans; (c) Any representation, warranty or statement made or deemed made by the Lessor herein or in any other Loan Document or the Participation Agreement, or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto, shall prove to be untrue in any material respect on the date as of which made or deemed made, and such misrepresentation or breach of warranty shall remain unremedied for a period of at least thirty (30) days after notice to the Lessor from the Agent or Lenders holding a majority of the outstanding Loans; or (d) Any Lease Event of Default shall have occurred and be continuing; or (e) The Lessor shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Lessor and the petition is not dismissed within ninety (90) days after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Lessor and is not removed within ninety (90) days; or the Lessor commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Lessor; or there is commenced against the Lessor any such proceeding which remains undismissed for a period of ninety (90) days; or the Lessor is adjudicated insolvent or bankrupt which adjudication is not withdrawn or reversed within ninety (90) days; or any order of relief or other order approving any such case or proceeding is entered which order is not withdrawn or reversed within ninety (90) days; or the Lessor suffers any appointment of any custodian or the like for it -6- 8 Loan Agreement or any substantial part of its property to continue undischarged or unstayed for a period of ninety (90) days; or the Lessor makes a general assignment for the benefit of creditors; or any corporate action is taken by the Lessor for the purpose of effecting any of the foregoing and in the case of any of the foregoing, there is a delay or disruption whether prior to or following the expiration of any of the foregoing time periods of any amounts payable to the Lenders and Agent under this Loan Agreement or any of the other Operative Documents. SECTION 5.2. Remedies. (a) Upon the occurrence of any Loan Agreement Event of Default, (i) if such event is a Loan Agreement Event of Default specified in clause (e) above or a Lease Event of Default specified in Section 16.1(h) or (i) of the Master Lease, the Commitments of all Lenders shall automatically and immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Loan Agreement and the Notes shall immediately become due and payable, and (ii) if such event is any other Loan Agreement Event of Default, any or all of the following actions may be taken: (x) Lenders holding a majority in principal amount of the outstanding Loans ("Required Lenders") may, by notice to the Lessor, declare the Loan Commitments to be terminated forthwith, whereupon the Loan Commitments shall immediately terminate and (y) with the consent of Lenders holding a majority of the outstanding Loans, the Agent may, or upon the request of Lenders holding a majority of the outstanding Loans, the Agent shall, by notice to the Lessor, declare all Loans hereunder (with accrued interest thereon) and all other amounts owing with respect to the Loans under this Loan Agreement and the Notes to be due and payable forthwith, whereupon all Loans shall immediately become due and payable (any of the foregoing occurrences or actions referred to in clause (i) or (ii) above, an "Acceleration"). Except as expressly provided above in this Article V, presentment, demand, protest and all other notices of any kind are hereby expressly waived. (b) Upon the occurrence of any Loan Agreement Event of Default and at any time thereafter so long as any Loan Agreement Event of Default shall be continuing, the Agent shall, upon the written instructions of Lenders holding a majority in principal amount of the outstanding Loans, exercise any or all of the rights and powers and pursue any and all of the remedies available to it hereunder and (subject to the terms thereof) under the Lease and the other -7- 9 Loan Agreement Loan Documents and shall have any and all rights and remedies available under the Uniform Commercial Code or any provision of law. (c) Upon the occurrence of any Loan Agreement Event of Default and at any time thereafter so long as any Loan Agreement Event of Default shall be continuing, the Agent shall, upon the written instructions of Lenders holding a majority in principal amount of the outstanding Loans, proceed to protect and enforce this Loan Agreement, the Notes, the Lease and the other Operative Documents by suit or suits or proceedings in equity, at law or in bankruptcy, and whether for the specific performance of any covenant or agreement herein contained or in execution or aid of any power herein granted, or for foreclosure hereunder, or for the appointment of a receiver or receivers for the Properties or any Property or for the recovery of judgment for the indebtedness secured thereby or for the enforcement of any other proper, legal or equitable remedy available under Applicable Law. (d) Subject to Section 8.11, the Lessor shall be liable for any and all accrued and unpaid amounts due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other reasonable costs and expenses incurred by the Agent or any Lender by reason of the occurrence of any Loan Agreement Event of Default or the exercise of remedies with respect thereto. (e) With respect to the occurrence and continuance of any Lease Default under Section 16.1(a), (b) or (c) of the Master Lease, the Lessor agrees that the Agent or any Participant may give notice of such Lease Default on behalf of the Lessor to the Lessee. With respect to any other Lease Default, the Lessor agrees that the Agent may give notice of such Lease Default on behalf of the Lessor to the Lessee. When a Lease Event of Default has occurred and is continuing, the Agent, at the direction of Lenders holding a majority of the outstanding Loans, may exercise any or all of the remedies of the Lessor under Article XVI of the Master Lease, and the Lessor shall exercise such remedies at the direction of the Agent. The Lessor shall demand the purchase of properties by the Lessee pursuant to Section 16.2(e) of the Master Lease at the direction of Lenders holding a majority of the outstanding Loans. In addition, the Lenders may request that the Agent, and upon direction of the Required Lenders the Agent shall, exercise its rights -8- 10 Loan Agreement against the Additional Collateral under the Pledge Agreement. ARTICLE VI CERTAIN REMEDIAL MATTERS; RELEASE SECTION 6.1. Certain Remedial Matters. Notwithstanding any other provision of this Loan Agreement or any other Loan Document the Lessor shall at all times retain the right, but not to the exclusion of the Agent, (A) to receive from the Lessee all notices, certificates and other documents and all information that the Lessee is permitted or required to give or furnish to the "Lessor" or the "Lessor" pursuant to the Lease, the Participation Agreement or any other Operative Document, (B) to provide such insurance as the Lessee shall have failed to maintain and (C) subject to the other applicable provisions of this Loan Agreement, to perform for the Lessee under Article XVII of the Master Lease. SECTION 6.2. Release of Properties, etc. (a) If the Lessee shall at any time purchase any Property pursuant to Article XV of the Master Lease, or exercise its Purchase Option with respect to any Property under Article XVIII of the Master Lease, or if all of the Properties shall be sold in accordance with and the Lessee otherwise satisfies each of the obligations and conditions set forth at Article XX of the Master Lease, then, upon application of such amounts to prepay the Loans pursuant to Article IV and the Agent's and the Lenders' receipt of all accrued interest and any other payments due and owing from Lessee and/or the Lessor to the Agent and the Lenders on such date, including without limitation pursuant to Article XIII of the Participation Agreement, such Property shall be released from the Lien in favor of the Lenders created by the Assignment of Lease and Rent, to the extent relating to such Property, all without delivery of any instrument or performance of any act by any party. (b) Upon the termination of the Lenders' Commitments and the payment in full of the Loans and all other amounts owing by the Lessor hereunder or under any other Loan Document, the Properties shall be released from the Lien in favor of the Lenders created by the Assignment of Lease and Rent, to the extent relating to such Property, without delivery of any instrument or performance of any act by any party. -9- 11 Loan Agreement (c) Upon request of the Lessor following a release of any Property described in clause (a) or (b) above, the Agent shall, at the sole cost and expense of the Lessor, execute and deliver to the Lessor or the Lessee such documents as the Lessor shall reasonably request to evidence such release, including, if requested, a release of Assignment of Lease and Rent to the extent relating to such Property. ARTICLE VII THE AGENT SECTION 7.1. Appointment. Each Lender hereby irrevocably designates and appoints the Agent as the agent of such Lender under this Loan Agreement and the other Operative Documents, and each such Lender irrevocably authorizes the Agent, in such capacity, to take such action on its behalf under the provisions of this Loan Agreement and the other Operative Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Loan Agreement and the other Operative Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Loan Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender or any other party to the Operative Documents, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Loan Agreement or any other Operative Document or otherwise exist against the Agent. SECTION 7.2. Delegation of Duties. The Agent may execute any of its duties under this Loan Agreement and the other Operative Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. SECTION 7.3. Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Loan Agreement or any other Operative Document (except for its or such Person's own gross negligence or willful misconduct or breach of any of its representations, warranties or covenants under the Operative Documents) or (b) responsible in any manner to any of the Lenders or any other party to the Operative Documents for any recitals, statements, -10- 12 Loan Agreement representations or warranties made by the Lessor or the Lessee or any officer thereof contained in this Loan Agreement or any other Operative Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Loan Agreement or any other Operative Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Loan Agreement or any other Operative Document or for any failure of the Lessor or the Lessee to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Lender or any other party to the Operative Documents to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Loan Agreement or any other Operative Document, or to inspect the properties, books or records of the Lessor or the Lessee. SECTION 7.4. Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, facsimile, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Lessor or the Lessee), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Loan Agreement or any other Operative Document unless it shall first receive the advice or concurrence of Lenders holding a majority of the outstanding Loans or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Loan Agreement and the other Operative Documents in accordance with a request of Lenders holding a majority of the outstanding Loans, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. SECTION 7.5. Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Loan Agreement Default or Loan Agreement Event of Default hereunder unless the Agent has received notice from a Lender or the Lessor referring to this Loan Agreement, describing such Loan Agreement Default or Loan Agreement Event of Default and stating that such -11- 13 Loan Agreement notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall promptly give notice thereof to the Lenders and the Lessee. The Agent shall take such action with respect to such Loan Agreement Default or Loan Agreement Event of Default as shall be directed by Lenders holding a majority of the outstanding Loans; provided, however, 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 Loan Agreement Default or Loan Agreement Event of Default as it shall deem advisable in the best interests of the Lenders. SECTION 7.6. Non-Reliance on Agent and Other Lenders. Each Lender expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Lessor or the Lessee, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Lessor and the Lessee and made its own decision to make its Loans hereunder and enter into this Loan Agreement. Each Lender also represents 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 analysis, appraisals and decisions in taking or not taking action under this Loan Agreement and the other Operative Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Lessor and the Lessee. Except for notices, reports and other documents 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 business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Lessor or the Lessee which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. SECTION 7.7. Indemnification. The Lenders agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Lessee and without limiting the obligation of the Lessee to do so), ratably according to the percentage each -12- 14 Loan Agreement Lender's Commitment bears to the total Commitments of all of the Lenders on the date on which indemnification is sought under this Section 7.7 (or, if indemnification is sought after the date upon which the Lenders' Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with the percentage that each Lender's Commitment bears to the Commitments of all of the Lenders immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever (including without limitation all reasonable fees and disbursements of any law firm or other external counsel of the Agent, the allocated cost of internal legal services and all disbursements of internal counsel of the Agent) which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of, the Commitments, this Loan Agreement, any of the other Operative Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this Section 7.7 shall survive the payment of the Notes and all other amounts payable hereunder. SECTION 7.8. Agent in Its Individual Capacity. The Agent and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Lessor, the Lessee and their Affiliates as though The Sumitomo Bank, Limited, San Francisco Branch, were not the Agent hereunder and under the other Operative Documents and without notice to or consent of the Banks. Each Lender acknowledges that, pursuant to such activities, The Sumitomo Bank, Limited, San Francisco Branch, or its Affiliates may receive information regarding the Lessee, the Lessor or their Affiliates (including information that may be subject to confidentiality obligations in favor of the Lessee, the Lessor or their Affiliates) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to any Loans made or renewed by it and any Note issued to it, The Sumitomo Bank, Limited, San Francisco Branch, shall have the same rights and powers under this Loan Agreement and the other Operative Documents as any Lender and may exercise the same as though it were not the Agent, and, in the event The -13- 15 Loan Agreement Sumitomo Bank, Limited, San Francisco Branch, becomes a Lender, the terms "Lender" and "Lenders" shall include The Sumitomo Bank, Limited, San Francisco Branch, in its individual capacity. SECTION 7.9. Successor Agent. The Agent may resign as Agent upon 20 days' notice to the Lenders. If the Agent shall resign as Agent under this Loan Agreement and the other Operative Documents, then Lenders holding a majority of the outstanding Loans shall appoint a successor agent for Lenders, which successor agent shall be a commercial bank organized under the laws of the United States of America or any State thereof or under the laws of another country which is doing business in the United States of America and having a combined capital, surplus and undivided profits of at least $100,000,000 (and if no Lease Default or Lease Event of Default exists, shall be approved by the Lessee (which consent shall not be unreasonably withheld)), whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such successor agent effective upon such appointment and approval, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Loan Agreement or any holders of the Notes. If no successor Agent has accepted appointment as Agent by the date which is 20 days following a resigning Agent's notice of resignation, the resigning Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Agent hereunder until such time, if any, as Lenders holding a majority of the outstanding Loans appoint a successor Agent as provided above. After any retiring Agent's resignation as Agent, all of the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Loan Agreement and the other Operative Documents. ARTICLE VIII MISCELLANEOUS SECTION 8.1. Amendments and Waivers. Neither this Loan Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of Section 14.5 of the Participation Agreement. SECTION 8.2. Notices. All notices, requests and demands to or upon the respective parties hereto shall be given in accordance with Section 14.3 of the Participation Agreement. -14- 16 Loan Agreement SECTION 8.3. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. SECTION 8.4. Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Loan Agreement and the Notes and the making of the Loans hereunder. SECTION 8.5. Successors and Assigns; Assignment by Lessor. This Loan Agreement shall be binding upon and inure to the benefit of the Lessor, each Lender, the Agent, each future holder of a Note and their respective successors and assigns. SECTION 8.6. Adjustments. If any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by setoff, pursuant to events or proceedings of the nature referred to in Section 5.1(e), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. SECTION 8.7. Counterparts. This Loan Agreement may be executed by one or more of the parties to this Loan Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of -15- 17 Loan Agreement this Loan Agreement signed by all the parties shall be lodged with the Lessor and the Agent. SECTION 8.8. Severability. Any provision of this Loan Agreement 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 8.9. Intention. This Loan Agreement and the other Operative Documents represent the agreement of the Lessor, the Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Operative Documents. SECTION 8.10. GOVERNING LAW. THIS LOAN AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS LOAN AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. SECTION 8.11. Limitation of Liability. The parties hereto agree that except as specifically set forth in the Lease or in any other Operative Document, Lessor shall have no personal liability whatsoever to the Lessee, Agent, any Lender or their respective successors and assigns for any liability or obligation hereunder or under any other Operative Document (including without limitation, the payment of the principal of, or interest on, the Loans) or for any claim based on or in respect of this Loan Agreement or any of the other Operative Documents or arising in any way from the transactions contemplated hereby or thereby and the recourse shall be solely had against the Lessor's interest in the Property; provided, however, that Lessor shall be liable in its individual capacity (a) for its own willful misconduct or gross negligence (or negligence in the handling of funds), (b) breach of any of its representations, warranties or covenants under the Operative Documents, or (c) for any Tax based on or measured by any fees, commission or compensation received by it for acting as the Lessor as contemplated by the Operative Documents. It is understood and agreed that, except as provided in the preceding sentence: (i) Lessor shall have no personal liability under any of the Operative Documents as a result of acting pursuant to and consistent with any of the Operative Documents; (ii) all obligations of Lessor to the Lessee or the -16- 18 Loan Agreement Lenders are solely nonrecourse obligations except to the extent that it has received payment from others; and (iii) all such personal liability of Lessor is expressly waived and released as a condition of, and as consideration for, the execution and delivery of the Operative Documents by Lessor. -17- 19 Loan Agreement IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. SUMITOMO BANK LEASING AND FINANCE, INC. as Lessor By /s/ WILLIAM M. GINN ----------------------------------- Name: William M. Ginn Title: President S-1 20 Loan Agreement THE SUMITOMO BANK, LIMITED, LOS ANGELES BRANCH as Agent By /s/ AZAR SHAKERI ----------------------------------- Name: Azar Shakeri Title: Vice President S-2 21 Loan Agreement THE BANK OF NOVA SCOTIA By /s/ EDWARD KOFMAN ------------------------------------ Name: Edward Kofman Title: Relationship Manager S-3 22 Loan Agreement COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "Rabobank Nederland," New York Branch By /s/ IAN REECE ----------------------------------- Name: Ian Reece Title: Senior Credit Manager By /s/ M. CHRISTINA DEBLER ----------------------------------- Name: M. Christina Debler Title: Vice President S-4 23 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS; INTERPRETATION ARTICLE II AMOUNT AND TERMS OF LENDERS' COMMITMENTS SECTION 2.1. Loan Commitments.......................................................2 SECTION 2.2. Notes..................................................................2 SECTION 2.3. Prepayments............................................................2 SECTION 2.4. Interest Rates and Payment Dates.......................................3 SECTION 2.5. Repayment of Loans.....................................................3 SECTION 2.6. Computation of Interest................................................4 SECTION 2.7. Pro Rata Treatment and Payments........................................4 ARTICLE III CONDITIONS PRECEDENT SECTION 3.1. Conditions to Effectiveness............................................5 ARTICLE IV PAYMENTS AND DISTRIBUTIONS SECTION 4.1. Payments and Distributions.............................................5 ARTICLE V LOAN AGREEMENT EVENTS OF DEFAULT SECTION 5.1. Loan Agreement Events of Default.......................................5 SECTION 5.2. Remedies...............................................................7 ARTICLE VI CERTAIN REMEDIAL MATTERS; RELEASE SECTION 6.1. Certain Remedial Matters...............................................9 SECTION 6.2. Release of Properties, etc.............................................9 ARTICLE VII THE AGENT SECTION 7.1. Appointment...........................................................10 SECTION 7.2. Delegation of Duties..................................................10 SECTION 7.3. Exculpatory Provisions................................................10 SECTION 7.4. Reliance by Agent.....................................................11 SECTION 7.5. Notice of Default.....................................................11 SECTION 7.6. Non-Reliance on Agent and Other Lenders...............................12
-i- 24 SECTION 7.7. Indemnification.......................................................12 SECTION 7.8. Agent in Its Individual Capacity......................................13 SECTION 7.9. Successor Agent.......................................................14 ARTICLE VIII MISCELLANEOUS SECTION 8.1. Amendments and Waivers................................................14 SECTION 8.2. Notices...............................................................14 SECTION 8.3. No Waiver; Cumulative Remedies........................................15 SECTION 8.4. Survival of Representations and Warranties............................15 SECTION 8.5. Successors and Assigns; Assignment by Lessor..........................15 SECTION 8.6. Adjustments...........................................................15 SECTION 8.7. Counterparts..........................................................15 SECTION 8.8. Severability..........................................................16 SECTION 8.9. Intention.............................................................16 SECTION 8.10. GOVERNING LAW.........................................................16 SECTION 8.11. Limitation of Liability...............................................16 EXHIBIT Exhibit A Form of Note
-ii- 25 EXHIBIT A TO LOAN AGREEMENT NOTE $__________________ [Acquisition Date] FOR VALUE RECEIVED, the undersigned, SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation (the "Lessor"), promises to pay to the order of ____________________ (the "Lender") on the Maturity Date the principal sum of _________________ DOLLARS ($ ________) or, if less, the aggregate unpaid principal amount of all Loans made by the Lender pursuant to that certain Loan Agreement, dated as of October 18, 1996 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Loan Agreement"), among the Lessor and the various financial institutions (including the Lender) as are, or may from time to time become, parties thereto. The Lessor also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rates per annum and on the dates specified in the Loan Agreement. Payments of both principal and interest are to be made without setoff or counterclaim in lawful money of the United States of America in same day or immediately available funds to the account of the Lender specified in Schedule II to the Participation Agreement (or to such other account as the Lender may from time to time designate in a written notice to the Lessor). This Note is one of the Notes referred to in, and evidences indebtedness incurred under, the Loan Agreement, to which reference is made for a description of the security for this Note, the limitations on recourse for this Note and for a statement of the terms and conditions on which the Lessor is permitted and required to make prepayments and repayments of principal of the indebtedness evidenced by this Note and on which such indebtedness may be declared to be or automatically become immediately due and payable. The Lender is authorized to endorse the schedule attached hereto (and any continuation thereof) in accordance with the provisions of the Loan Agreement. 26 Capitalized terms used but not otherwise defined herein have the respective meanings specified in Appendix A to the Loan Agreement. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. THIS NOTE HAS BEEN DELIVERED IN CALIFORNIA, AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By____________________________________ Name: Title: -2- 27 LOANS AND PRINCIPAL PAYMENTS
================================================================================================= Amount of Unpaid Amount of Principal Principal Notation Date Loans Made Repaid Balance Total Made By - ------------------------------------------------------------------------------------------------- _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________
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================================================================================================= Amount of Unpaid Amount of Principal Principal Notation Date Loans Made Repaid Balance Total Made By - ------------------------------------------------------------------------------------------------- _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________ _________________________________________________________________________________________________
EX-10.39 9 CONSTRUCTION AGENCY AGREEMENT 1 Exhibit 10.39 EXECUTION COPY ================================================================================ CONSTRUCTION AGENCY AGREEMENT dated as of February 9, 1999 between SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor and SYMANTEC CORPORATION, as Construction Agent. -------------------------- Lease Financing of City Center II and Construction of Certain Improvements for Symantec Corporation ================================================================================ 2 CONSTRUCTION AGENCY AGREEMENT THIS CONSTRUCTION AGENCY AGREEMENT, dated as of February 9, 1999 (this "Agreement"), between SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation, as Lessor (the "Lessor"), and SYMANTEC CORPORATION, a Delaware corporation, as Construction Agent (in its capacity as Construction Agent, the "Construction Agent"). W I T N E S S E T H: WHEREAS, the Lessor and the Construction Agent are parties to that certain Master Lease and Deed of Trust dated as of October 18, 1996 (as amended by Master Amendment No. 1 and as otherwise amended, supplemented or otherwise modified from time to time, the "Master Lease"), pursuant to which the Lessee has agreed to lease from Lessor, and the Lessor has agreed to lease to Lessee, Lessor's interest in certain Properties; and WHEREAS, pursuant to the amended and restated Operative Documents, each dated as of February 9, 1999 (the "Master Amendment"), the Lessor, Symantec Corporation (in its capacity as Lessee, Pledgor, Guarantor and Construction Agent), the Lenders and the Agent have agreed to amend certain provisions of the Operative Documents for the purpose of providing financing for the construction of certain Improvements (the "Subject Improvements") located on the Land subject to Lease Supplement No. 4 (which Land is described on Schedule 1 attached hereto); WHEREAS, subject to the terms and conditions hereof, (i) the Lessor desires to appoint the Construction Agent as its sole and exclusive agent for the construction of the Subject Improvements in accordance with the Plans and Specifications described on Schedule 2 attached hereto (the "Plans and Specifications") and pursuant to the Master Lease and this Agreement, and (ii) the Construction Agent desires, for the benefit of the Lessor, to cause the Subject Improvements to be constructed in accordance with the Plans and Specifications and pursuant to the Master Lease and this Agreement, in each case in accordance with the terms set forth herein and in the Master Lease; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 3 ARTICLE I DEFINITIONS; INTERPRETATION 1.1. Definitions; Interpretation. Unless the context shall otherwise require, capitalized terms used and not defined in this Agreement (including the recitals hereto) shall have the meanings assigned thereto in Appendix A to the Participation Agreement (as amended, supplemented, amended and restated or otherwise modified from time to time, "Appendix A") for all purposes hereof (except that for the purposes hereof the term "Property" refers solely to City Center II); and the rules of interpretation set forth in Appendix A shall apply to this Agreement. ARTICLE II APPOINTMENT OF CONSTRUCTION AGENT; ACCEPTANCE 2.1. Appointment and Acceptance. Pursuant to and subject to the terms and conditions set forth herein and in the Lease and the other Operative Documents, the Lessor hereby irrevocably designates and appoints the Construction Agent as its exclusive agent for the construction of the Subject Improvements in accordance with the Plans and Specifications, and the Construction Agent hereby unconditionally accepts the designation and appointment as Construction Agent. 2.2. Plans and Specifications; Estimated Improvement Costs. The Construction Agent hereby represents and warrants to the Lessor with respect to the Construction for City Center II that: (a) the Construction Agent in good faith expects that it will expend an amount not in excess of the Construction Commitment Amount in order for the Construction of the Subject Improvements to achieve Substantial Completion. 2.3. Term. This Agreement shall commence on the date hereof and shall terminate upon the first to occur of: (a) payment by the Lessee of the Lease Balance for City Center II and termination of the Lease in accordance with the terms and conditions of the Lease or the payment and performance of the obligations set forth in Section 5.5 hereof; (b) the Expiration Date or other expiration or early termination of the Lease; (c) termination of this Agreement pursuant to Article V hereof; and -2- 4 (d) the completion of the Construction, including completion of punch list items referred to in Section 2.5(e) and the full performance of all other obligations of the Construction Agent hereunder. 2.4. Construction Documents. (a) Subject to Section 3.1, the Construction Agent shall enter into the Prime Construction Contract and such other agreements with architects and contractors as the Construction Agent deems necessary or desirable for the completion of the Construction pursuant hereto (collectively, the "Construction Documents"); provided, however, that the Prime Construction Contract shall be substantially in the form of the Construction Contract previously used in connection with City Center V with such changes as may be approved by the Lessor and Construction Agent in their reasonable discretion; provided, further, that no such delegation shall limit or reduce in any way the Construction Agent's duties and obligations under this Agreement; provided, further, that contemporaneously with the execution and delivery of this Agreement, the Construction Agent will execute and deliver to the Lessor the Construction Documents Assignment in the form of Annex I attached hereto, pursuant to which the Construction Agent assigns to the Lessor, among other things, all of the construction Agent's rights under and interest in such Construction Documents. 2.5. Scope of Authority. (a) Subject to the terms, conditions, restrictions and limitations set forth in the Operative Documents, the Lessor hereby expressly authorizes the Construction Agent, or any agent or contractor of the Construction Agent, and the Construction Agent unconditionally agrees, for the benefit of the Lessor, to take all action necessary or desirable for the performance and satisfaction of all of the Construction Agent's obligations hereunder, including, without limitation: (i) performing all design and supervisory functions and all engineering work related to the Construction; (ii) negotiating and entering into all contracts or arrangements to procure the equipment necessary to construct the Subject Improvements on such terms and conditions as are customary and reasonable in light of local standards and practices; (iii) obtaining all necessary Material permits, licenses, consents, approvals and other authorizations, including those required under Applicable Law (including Environmental Laws), from all Governmental Authorities in connection with the Construction and granting on behalf of the Lessor such easements as are necessary or appropriate to -3- 5 effect the Construction or that otherwise would not have an adverse effect on the value of the Subject Improvements or the Land on which the Subject Improvements are located; (iv) maintaining all books and records with respect to the Construction; and (v) performing any other acts necessary in connection with the construction and development of the Subject Improvements in accordance with the Plans and Specifications. (b) Subject to the terms hereof, the Construction Agent may execute any of its duties under this Agreement by or through agents, contractors, employees or attorneys-in-fact. (c) Subject to the terms and conditions of this Agreement and the other Operative Documents, the Construction Agent shall have sole management and control over the construction means, methods, sequences and procedures with respect to the Construction. (d) Neither the Construction Agent nor any of its Affiliates or agents shall enter into any contract which would, directly or indirectly, impose any material liability or obligation on the Lessor without the express written consent of the Lessor. 2.6. Covenants of the Construction Agent. The Construction Agent hereby covenants and agrees that it will: (a) promptly, after receiving control of the Property, commence the Construction following the Restructuring Date and prosecute the Construction diligently and without interruption (subject only to delays caused by Force Majeure Events) in accordance in all Material respects with the Plans and Specifications, all Requirements of Law and all Insurance Requirements; (b) promptly, upon its receipt thereof, deliver to the Lessor a true and complete copy of the Plans and Specifications for City Center II; (c) notify the Lessor in writing as soon as practical after the occurrence of each Force Majeure Event; (d) take all reasonable and practical steps to minimize the disruption of the construction process arising from Force Majeure Events; (e) cause the Substantial Completion of the Construction to occur on or prior to the Outside Completion -4- 6 Date, and cause all Liens (including, without limitation, Liens or claims for materials supplied or labor or services performed in connection with the construction of the Subject Improvements), other than Permitted Liens, to be discharged; (f) following the Substantial Completion of the Construction, cause all outstanding punch list items with respect to the Construction to be promptly and expeditiously completed; (g) cause the Subject Improvements to be constructed (x) substantially in accordance with the applicable Plans and Specifications, (y) in compliance in all material respects with all Applicable Law and (z) in compliance with all Insurance Requirements; (h) ensure that the Land subject to Lease Supplement No. 4 acquired pursuant to the Operative Documents and the Subject Improvements shall be (x) in compliance in all material respects with all Applicable Law (including without limitation zoning and land use laws and Hazardous Materials Laws), and (y) fit for use as a property of the type specified in the Appraisal of such Property delivered in connection with the Acquisition Date thereto and other purposes attendant thereto; (i) as between the parties to the Operative Documents, maintain the Land subject to Lease Supplement No. 4 in safe condition free from injury or mishaps to third Persons; (j) ensure that on or prior to the Outside Completion Date for the Land and Improvements subject to Lease Supplement No. 4, all water, sewer, electric, gas, telephone and drainage facilities, all other utilities required to adequately service the Improvements for the intended use and means of access between such Improvements and public highways for pedestrians and motor vehicles will be available pursuant to adequate permits (including any that may be required under applicable Hazardous Materials Laws), and all utilities serving such Property, or proposed to serve such Property in accordance with the Plans and Specifications, are or will be located in, and vehicular access to the Improvements on such Property will be provided by, either public rights-of-way abutting such Property or appurtenant rights; (k) ensure that all licenses, approvals, authorizations, consents, permits (including, without limitation, building, demolition and environmental permits, licenses, approvals, authorizations and consents), easements and rights-of-way, including dedication, required for (x) the use, treatment, storage, transport, disposal or disposition of any Hazardous Materials on, at, under or from -5- 7 such Property during the construction of the Subject Improvements, and (y) construction of the Subject Improvements on such Property in accordance with the Plans and Specifications therefor and this Agreement will be obtained from the appropriate Governmental Authorities having jurisdiction or from private parties, as the case may be, prior to the time required by such Governmental Authority or private party, except where the failure to obtain such licenses, approvals, authorizations, consents, permits, easements, rights-of-way or dedications could not reasonably be expected to (x) have a Material Adverse Effect, (y) or materially adversely affect the Construction Agent's ability to comply with its covenants and agreements under this Agreement, including Section 2.7(b) or (z) have a material adverse effect on the use, value or remaining useful life of Land and Improvements subject to Lease Supplement No. 4; and (l) promptly notify the Lessor in writing if in the Construction Agent's reasonable judgment the amount that needs to be expended in order to achieve Substantial Completion of the City Center II Improvements is in excess of the Construction Commitment Amount. 2.7. Insurance. (a) Public Liability and Workers' Compensation Insurance. During the Interim Term with respect to the Property, the Construction Agent shall procure and carry insurance for the risks insured arising from the acts or omissions of the Construction Agent while located on, in possession of, or controlling or acting or failing to act with respect to Land and Improvements subject to Lease Supplement No. 4. In addition, during the Interim Term with respect to Land and Improvements subject to Lease Supplement No. 4, the Construction Agent shall, in the construction of Improvements on Land and Improvements subject to Lease Supplement No. 4 and the operation of Land and Improvements subject to Lease Supplement No. 4, comply with all applicable workers' compensation laws. The Construction Agent acknowledges and agrees in this connection that the Property is in its control and possession during the Interim Term therefor, it is responsible as Construction Agent for the acts and omissions of its subcontractors and agents and that it has agreed to maintain Land and Improvements subject to Lease Supplement No. 4 free from injury and mishap to third Persons. (b) Hazard and Other Insurance. During the Interim Term with respect to the Property, the Construction Agent shall also maintain and keep in force a policy or policies of builder's "all risk" insurance with respect to such Property, insuring the Lessor's interest in Land and Improvements subject to Lease Supplement No. 4, including collapse coverage and fire insurance -6- 8 with extended coverage, written on a Standard Builder's Risk Completed Value Form (100% non-reporting), in an amount equal to 100% of the replacement cost thereof. The premium for such coverage shall be a cost paid with the proceeds of a Construction Advance. In addition, the reduction in any recovery pursuant to any deductible applicable to such policy shall be a construction cost paid with the proceeds of an Advance; provided, however, that the Construction Agent shall pay to the Lessor an amount equal to the deductible if the conditions precedent for an Advance cannot be met at the time such deductible amount shall be payable and, provided, further, that, unless each Participant otherwise agrees, each insurance policy required pursuant to this clause (b) shall have no deductible. Amounts otherwise payable by the Lessee to the Lessor with respect to the Property under the Operative Documents during the Interim Term in respect of an event covered by such policy shall be reduced by any recovery by the Lessor under such policy and for the deductible (if any) paid by the Construction Agent, in each case to the extent relating to the Land and Improvements subject to Lease Supplement No. 4. (c) Deductibles. The insurance required to be obtained by the Construction Agent under Section 2.7(a) may be subject to deductible amounts and self-insured retentions as is consistent with the Construction Agent's or its Affiliates practice for other properties similar to the Land and Improvements subject to Lease Supplement No. 4 owned or leased by the Construction Agent or the Affiliates of the Construction Agent, and may be carried under blanket policies maintained by or on behalf of the Construction Agent so long as such policies otherwise comply with the provisions of this Section 2.7. The insurance required to be obtained by the Lessee pursuant to Section 2.7(b) may contain a deductible amount, but not in excess of $1,000.00, unless each Participant otherwise agrees and the cost of obtaining all such insurance shall be advanced to the Construction Agent and constitute part of Property Balance. (d) Coverage. All insurance required to be carried by the Construction Agent pursuant to the requirements of Section 2.7(a) or 2.7(b) shall provide in the policy or by special endorsement that: (i) in the case of insurance required by Section 2.7(a), the Lessor and each Lender, are included as additional insureds; (ii) the insurer thereunder waives all rights of subrogation against the Lessor, and each Lender and waives any right of set-off and counterclaim and any other right to deduction whether by attachment or otherwise; (iii) such insurance shall be primary without right of contribution of any other insurance carried by or on behalf -7- 9 of the Lessor or any Lender, and shall provide that no such Person shall have any obligation or liability for payment of premiums; (iv) the respective interests of the Lessor or any Lender, under all insurance policies required hereunder shall not be invalidated by any action or inaction of the Lessee or the Construction Agent or any other Person (other than, with respect to any such insured, such insured) and such insurance shall insure the Lessor or any Lender as their interests may appear, regardless of any breach or violation of any warranty, declaration or condition contained in such policies by the Lessee, the Construction Agent or any other Person (other than, with respect to any such insured, such insured); (v) if the insurers cancel such insurance for any reason whatsoever or any materially adverse change is made in policy terms or conditions, or if such insurance is allowed to lapse for nonpayment of premium, such cancellation, change or lapse shall not be effective as to the Lessor and the Lenders for thirty (30) days after receipt by the Lessor and the Lenders, respectively, of written notice from such insurers of such cancellation, change or lapse; and (vi) with respect to all liability insurance, in as much as the policies are written to cover more than one insured, all terms, conditions, insuring agreements and endorsements, with the exception of the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. (e) Adjustment of Losses. Losses, if any, with respect to the Property under any property damage policies required to be carried under Section 2.7(b) shall be adjusted with the insurance companies, including the filing of appropriate proceedings, as follows: (x) so long as no Lease Event of Default or Construction Agency Agreement Event of Default shall have occurred and be continuing, and provided that the Lessee is required by the Operative Documents, or has agreed, to repair the damage to the Property, such losses shall be adjusted by the Lessee, and (y) if any Lease Event of Default or Construction Agency Agreement Event of Default shall have occurred and be continuing, or if the Lessee is not required to, and has not agreed, to repair the damage to the Property, such losses shall be adjusted by the Lessor. The party which shall be entitled to adjust losses may appear in any proceeding or action to negotiate, prosecute, adjust or appeal any claim for any award, compensation or insurance payment on account of any Casualty and shall pay all expenses thereof. At such party's reasonable request, and at the Construction Agent's sole cost and expense, the Lessee, the -8- 10 Lessor and each Lender, as the case may be, shall participate in any such proceeding, action, negotiation, prosecution or adjustment. The parties hereto agree that this Construction Agency Agreement shall control the rights of the parties hereto in and to any such award, compensation or insurance payment relating to any Casualty affecting the Property during the Interim Term. (f) Application of Insurance Proceeds. All proceeds of insurance maintained pursuant to Section 2.7(b) on account of any damage to or destruction of any Property or any part thereof shall be paid over to the Lessor or as it may direct; provided that if no Lease Event of Default or Construction Agency Event of Default shall have occurred such funds shall be held by the Lessor in a segregated account and, so long as the Construction Agent is diligently repairing the damage to the applicable Property caused by the applicable Casualty, disbursed to the Construction Agent to effect the repair of the applicable Property. (g) Additional Insurance. Any additional insurance obtained by the Construction Agent, the Lessor or any Lender shall provide that it shall not interfere with or in any way limit insurance required to be maintained under Sections 2.7(a) and 2.7(b) or increase the amount of any premium payable with respect to any such required insurance. The proceeds of any such additional insurance will be for the account of the party maintaining such additional insurance. (h) Annual Insurance Report. Prior to the commencement of Construction and each January 1 thereafter, the Construction Agent shall provide the Lessor and the Lender an insurance certificate certifying compliance with the insurance then required to be maintained by the Construction Agent pursuant to this Section 2.7. ARTICLE III THE IMPROVEMENTS; CASUALTY AND CONDEMNATION 3.1. Construction. The Construction Agent shall cause the Subject Improvements to be constructed, equipped, maintained and used in compliance with all Insurance Requirements and in compliance in all material respects with all Applicable Law (including all Hazardous Materials Laws). 3.2. Modifications to Plans and Specifications. The Construction Agent may, subject to the conditions, restrictions and limitations set forth herein and in the other Operative Documents, at any time during the Interim Term for the Property, amend or modify the Plans and Specifications for such Property -9- 11 without the consent of the Lessor; provided, however, that the prior written consent of the Lessor will be required if such revision, amendment or modification, when taken together with any previous or contemporaneous revision, amendment or modification to such Plans and Specifications, could reasonably be expected to: (w) cause the Completion Date for such Property to occur after the Outside Completion Date for such Property, (x) result in the Improvement Costs for such Property exceeding the estimated improvement costs, (y) reduce the Fair Market Sales Value of such Property when completed from the Fair Market Sales Value of such Property as set forth in the Appraisal of such Property delivered in connection with the Acquisition Date therefor or (z) cause the Improvements to vary in any material respect from the assumptions with respect to use, operation and construction set forth in the Appraisal of such Property delivered in connection with the Acquisition Date therefor. 3.3. Casualty, Condemnation and Force Majeure Events. If at any time prior to the Completion Date for the Property there occurs a Casualty, Condemnation or a Force Majeure Event with respect to the Property, then, except as otherwise provided in Article XIV or XVI of the Lease, in each case the Construction Agent shall use commercially reasonable efforts to complete the Construction of the Improvements on such Property in accordance with the Plans and Specifications therefor and in compliance with the terms hereof, and cause the Completion Date for such Property to occur on or prior to the Outside Completion Date for such Property. If the Outside Completion Date is extended by six or more months as a result of the occurrence of a Force Majeure Event, the Lessor may terminate the Construction Agent hereunder and engage one or more new construction agents to complete the Property. 3.4. Condemnation Proceedings. The Construction Agent hereby agrees that it shall, within five (5) Business Days after the date on which the Construction Agent shall have notice thereof, give notice to the Lessor and the Lenders of each action or proceeding by any Governmental Authority with respect to any actual, pending or threatened Condemnation affecting the Property during the Interim Term. During the Interim Term, the Lessor and the Lenders shall be entitled, to the exclusion of the Construction Agent, to negotiate, prosecute, adjust or appeal any claim for any award, compensation or insurance payment on account of any Condemnation affecting such Property. The Participants shall consult with the Lessee in connection with the foregoing, but the Construction Agent shall have no right to participate in any such negotiation, prosecution, adjustment or appeal unless the Lessor and the Lenders consent thereto in their sole discretion. 3.5. Condemnation Awards. During the Interim Term with respect to the Property, all awards, compensation and insurance -10- 12 payments on account of any Condemnation affecting such Property shall be paid directly to the Lessor or, if received by the Construction Agent, shall be held in trust for the Participants and shall promptly be paid over by the Lessee to Lessor. All amounts held by the Lessor on account of any award, compensation or insurance payment described in this Section 3.5 shall be distributed by the Lessor as follows: (i) if the Property can be restored to its pre-Condemnation or pre-Casualty condition prior to the Expiration Date by application of such proceeds to the restoration of the Property, such proceeds will be released to the Construction Agent so long as it offers its obligation to complete Construction otherwise such proceeds shall be distributed to the Participants as provided in Section 7.9(b) of the Participation Agreement. ARTICLE IV PAYMENT OF FUNDS 4.1. Funding of Property Improvements Costs. (a) In connection with and during the course of the construction of the Subject Improvements, the Construction Agent may request that the Lessor advance funds for the payment of Property Improvements Costs, and the Lessor will comply with such request to the extent provided for under, and subject to the conditions, restrictions and limitations contained in, the Lease. The Construction Agent and the Lessor acknowledge and agree that the Lessee's right to request funds and the Lessor's obligation to advance funds for the payment of Property Improvements Costs is subject in all respects to the terms and conditions of the Lease and each of the other Operative Documents. (b) The proceeds of any funds made available to the Lessor to pay Property Improvements Costs shall be made available to the Construction Agent or its designee(s) in accordance with the Funding Request relating thereto and the terms of the Lease. The Construction Agent will use such proceeds only to pay the Property Improvements Costs set forth in the Funding Request relating to such funds. (c) In no event shall the Lessor be required to advance funds for the payment of Property Improvement Costs in excess of the Construction Commitment Amount. (d) The Construction Agent shall, upon the passing of possession and control to the Construction Agent, at all times cause to be and remain vested in the Lessor's ownership of any and all construction materials and equipment not yet incorporated into the Property for which funds shall have been requested pursuant to this Article IV, and cause such title to be and remain free of all Liens other than Permitted Liens. -11- 13 ARTICLE V CONSTRUCTION AGENCY AGREEMENT EVENTS OF DEFAULT 5.1. Construction Agency Agreement Events of Default. If any one or more of the following events (each a "Construction Agency Agreement Event of Default") shall occur: (a) the Construction Agent fails to apply any funds paid by the Lessor to the Construction Agent or its designee(s) to the payment of the appropriate Property Improvements Costs; or (b)(i) the Construction Agent shall cause or permit any Improvements to be constructed and equipped in a manner which (x) violates in any material respect any Applicable Law or Insurance Requirements or (y) deviates in any material respect from the Plans and Specifications; or (ii) the Construction Agent shall fail to maintain the insurance required under Section 2.7; or (c)(i) the Construction Agent shall (A) admit in writing its inability to pay its debts generally as they become due, (B) file a petition under the United States bankruptcy laws or any other applicable insolvency law or statute of the United States of America or any State or Commonwealth thereof, (C) make a general assignment for the benefit of its creditors, (D) consent to the appointment of a receiver of itself or the whole or any substantial part of its property, (E) fail to cause the discharge of any custodian, trustee or receiver appointed for the Construction Agent or the whole or a substantial part of its property within sixty (60) days after such appointment, or (F) file a petition or answer seeking or consenting to reorganization under the United States bankruptcy laws or any other applicable insolvency law or statute of the United States of America or any State or Commonwealth thereof; or (ii) insolvency proceedings or a petition under the United States bankruptcy laws or any other applicable insolvency law or statute of the United States of America or any State or Commonwealth thereof shall be filed against the Construction Agent and not dismissed within ninety (90) days from the date of its filing (provided, that the Construction Agent hereby expressly authorizes the Lessor to appear in any court conducting any such proceeding during such ninety (90) day period to preserve, protect and defend the respective rights of the Participants under the Operative Documents), or a court of competent jurisdiction shall enter an order or decree appointing, without the consent of the Construction Agent, a receiver of the Construction Agent or -12- 14 the whole or a substantial part of its property, and such order or decree shall not be vacated or set aside within ninety (90) days from the date of the entry thereof; (d) the Construction Agent shall fail to perform or observe any covenant or agreement (other than any covenant or agreement described in clause (a) or (b) above) to be performed or observed by it under this Agreement and such failure shall continue for a period of thirty (30) days after the earlier of (i) the date on which the Construction Agent shall have knowledge of such failure and (ii) receipt by the Construction Agent of a written notice from the Lessor with respect thereto; or (e) any representation or warranty made by the Construction Agent shall prove to have been Materially inaccurate at the time made, and if such inaccuracy can be cured, it shall not have been cured within thirty (30) days after written notice thereof from the Lessor or any Lender. 5.2. Survival. The termination of this Agreement pursuant to Section 5.1 shall in no event relieve the Construction Agent of its liability and obligations hereunder which accrued prior to such termination, all of which shall survive any such termination. 5.3. Remedies. (a) Termination of Commitments; Acceleration of Lease Balance, etc. Upon the occurrence and continuance of any Construction Agency Agreement Event of Default of the type described in Section 5.1(c), all Commitments shall automatically terminate and the Construction Agent shall, subject to Section 5.4, immediately become obligated to pay the then outstanding amount of the Lease Balance together with all accrued and unpaid Basic Rent and Supplemental Rent, without presentment, demand, protest, notice of acceleration or other notice of any kind, all of which are hereby expressly waived, anything in this Agreement or any other Operative Document to the contrary notwithstanding. After the occurrence and continuance of any other Construction Agency Agreement Event of Default, the Lessor may by written notice to the Lessee or the Construction Agent, immediately (x) terminate all Commitments, (y) terminate this Agreement (and upon the giving of such notice, this Agreement shall terminate and all rights of the Construction Agent and all obligations of the Lessor under this Agreement (as the case may be) shall cease) and/or (z) subject to the limitations imposed under Section 5.4, accelerate the Lease Balance and all other amounts due and owing by the Lessee under the Operative Documents and, upon any such notice of acceleration, the Lessee shall -13- 15 immediately become obligated to pay the then outstanding amount of the Lease Balance together with all accrued and unpaid Basic Rent and Supplemental Rent. (b) Remedies. (i) If (x) a Construction Agency Agreement Event of Default shall have occurred and be continuing under Section 5.1(a) or 5.1(c), (y) as a result of the Construction Agent's fraudulent or illegal acts or omissions or willful misconduct, any other Construction Agency Agreement Event of Default shall have occurred and be continuing, or (z) any Construction Agency Agreement Event of Default not described in clause (x) or (y) shall have occurred and be continuing and the Construction Agent shall have failed to relinquish all of its interest the Property and convey possession thereof to the Lessor or its designee in then, in each case, the Lessor shall have all rights and remedies available under the Operative Documents (including under Article XVI of the Lease) or available at law, equity or otherwise. (ii) If a Construction Agency Agreement Event of Default shall have occurred and be continuing under Section 5.1(b), (d) or (e), other than as a result of Construction Agent's fraudulent or illegal acts or omissions or willful misconduct, the Lessor shall have the right to require the Construction Agent to relinquish all of its right, title and interest in, to and under the applicable Property to the Lessor and to pay to the Lessor the Construction Period Guarantee Amount for the Property. Under such circumstances, the Lessee shall, in accordance with the procedures set forth in Section 21.1 of the Lease, convey to the Lessor all of the Lessee's right, title and interest in, to and under the Property free and clear of all Liens (other than Lessor Liens and Permitted Liens of the type described in clause (a) of the definition thereof) and in compliance with all Hazardous Materials Laws, and deliver to the Lessor an affidavit of the Lessee to such effect and appropriate statements of termination. (c) Remedies Cumulative. No failure to exercise and no delay in exercising, on the part of the Lessor, any right, remedy, power or privilege under this Agreement or under the other Operative Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges provided in this Agreement and in the other Operative Documents are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. -14- 16 (d) Payment of Costs and Expenses. The Construction Agent shall pay upon demand all reasonable costs, expenses, losses, expenditures and damages (including, without limitation, attorneys' fees) incurred by or on behalf of any Participant or the Collateral Agent in connection with any Construction Agency Agreement Event of Default. 5.4. Limitation on Construction Agent's Recourse Liability. Notwithstanding anything contained herein or in any other Operative Document to the contrary, upon the occurrence and during the continuance of a Construction Agency Agreement Event of Default with respect to the Property described in clause (b), clause (d) or clause (e) of Section 5.1 (other than as a result of the Construction Agent's fraudulent or illegal acts or omissions or willful misconduct), so long as the Construction Agent and Lessee relinquishes all of its interest in the applicable Property and conveys possession thereof to the Lessor or its designee free and clear of all Liens (other than Lessor Liens and Permitted Liens of the type described in clause (a) of the definition thereof in Appendix A) and in compliance with all Hazardous Materials Laws, accompanied by an affidavit to each Participant to such effect and appropriate statements of termination, the aggregate maximum recourse liability of the Construction Agent with respect to such Property to the Lessor or any Person claiming by, through or under the Lessor under the Operative Documents, including specifically, the Lenders, shall be limited to the Construction Period Guarantee Amount. The Construction Agent nonetheless acknowledges that the Lessor (and Persons claiming by, through or under the Lessor) shall be entitled to recover from the Property (including through any reletting and/or sale of such Property or any portion thereof) the entire outstanding Property Cost of such Property, all accrued and unpaid interest, Yield and other amounts then due and owing to the Lessor or any other Person under the Operative Documents and all other costs and expenses of the Lessor and the Collateral Agent incurred in connection with such Property (including without limitation, any costs incurred in connection with the construction of the Improvements and/or any reletting or sale of such Property or any portion thereof) from and after the date of such return. 5.5. Construction Agent's Right to Purchase. In the event that a Construction Agency Agreement Event of Default (other than a Construction Agency Agreement Event of Default under Section 5.1(c)) or a delay in the construction of the Property (which delay is in excess of 60 days) with respect to the Property shall have occurred and be continuing, the Construction Agent may purchase the applicable Property for a price equal to the Property Balance of such Property, then outstanding on the date of such purchase plus all accrued and unpaid Basic Rent plus any Supplemental Rent due and owing by exercising its Purchase Option -15- 17 in accordance with Section 18.1 of the Lease; provided that the Construction Agent shall have given written notice of its intention to do so within five (5) days after the occurrence of such Construction Agency Agreement Event of Default and provided, further, that the Construction Agent shall purchase the applicable Property and pay all amounts due in connection therewith within fifteen (15) days after the occurrence of such Construction Agency Agreement Event of Default. If the Construction Agent elects to halt Construction for more than sixty (60) days and the Construction Agent does not elect to purchase such Property the Lessor may: (i) offer to extend the Construction Period, (ii) terminate the Construction Agency Agreement and complete such Property (upon completion of such Property the Basic Term shall commence), (iii) require the Construction Agent to pay to the Lessor the Construction Period Guarantee Amount, and (iv) sell such Property. With regard to the Lessor's right to sell an applicable Property hereunder, the Lessor and the Construction Agent acknowledge and agree that the Lessor shall be entitled to recover up to 100% of any outstanding Lease Balance with respect to such Property plus all expenses and cost incurred by the Lessor with regard to such sale, all amounts recovered in excess of such amount shall be for the account of the Lessee. The Lessee's purchase of any Property in accordance with this Section 5.5 and in accordance with Section 18.1 of the Lease shall be deemed to cure the applicable Construction Agency Agreement Event of Default to the extent relating to such Property. ARTICLE VI NO CONSTRUCTION AGENCY FEE 6.1. Lease as Fulfillment of Lessor's Obligations. All obligations, duties and requirements imposed upon or allocated to the Construction Agent shall be performed by the Construction Agent at the Construction's Agent's sole cost and expense, and the Construction Agent will not be entitled to, and the Lessor shall have no obligation to pay, any agency fee or other fee or compensation, and the Construction Agent shall not be entitled to, and the Lessor shall have no obligation to make or pay, any reimbursement therefor, it being understood that this Agreement is being entered into as consideration for and as an inducement to the Lessor and the Construction Agent entering into the Lease and the other Operative Documents. -16- 18 ARTICLE VII MISCELLANEOUS 7.1. Notices. All notices, consents, directions, approvals, instructions, requests, demands and other communications required or permitted by the terms hereof to be given to any Person shall be given in writing in the manner provided in, shall be sent to the respective addresses set forth in, and the effectiveness thereof shall be governed by the provisions of, Section 14.3 of the Participation Agreement. 7.2. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Lessor, the Construction Agent and their respective successors and assigns. 7.3. GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING ANY CONFLICT-OF-LAW OR CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 7.4. Amendments, etc. The Lessor and the Construction Agent may from time to time, enter into written amendments, supplements or modifications hereto. 7.5. Counterparts. This Agreement may be executed in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 7.6. Severability. Any provision of this Agreement that 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. 7.7. Headings and Table of Contents. The headings and table of contents contained in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. SYMANTEC CORPORATION as Construction Agent By /s/ GREG MYERS ------------------------------------- Name: Greg Myers Title: Vice President Finance CONSTRUCTION AGENCY AGREEMENT S-1 19 SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By /s/ WILLIAM M. GINN --------------------------------------- Name: William M. Ginn Title: President CONSTRUCTION AGENCY AGREEMENT S-2 20 Schedule 2 Plans and Specifications 21 ANNEX I TO CONSTRUCTION AGENCY AGREEMENT CONSTRUCTION DOCUMENTS ASSIGNMENT FOR VALUE RECEIVED, and to secure the performance by SYMANTEC CORPORATION, a Delaware corporation (hereinafter referred to as either the "Lessee" or "Assignor"), of all of its obligations under that certain Construction Agency Agreement dated as of __________, 199_ (as the same may be amended, modified or restated from time to time, and together with all supplements thereto, the "Construction Agency Agreement"), between the Lessee and Sumitomo Bank Leasing and Finance, Inc. (the "Lessor" or "Secured Party"), the Lessee does hereby quitclaim, sell, assign, transfer and set over unto the Secured Party and its successors and assigns, all of the Lessee's right, title and interest in and to the following (referred to collectively herein as the "Collateral"): (i) all construction contracts relating to the Construction of the Subject Improvements (including, without limitation, the Prime Construction Contract), as each such agreement may hereafter be supplemented, modified or amended from time to time (collectively, the "Construction Contracts"); (ii) all architectural services agreements pertaining to the Construction, as each such agreement may hereafter be supplemented, modified or amended from time to time (collectively, the "Architect's Agreements"); (iii) all plans, specifications and drawings of any and every kind heretofore or hereafter prepared for use in connection with the Construction of the Property (including, without limitation, the Plans and Specifications), and any supplements, amendments or modifications thereto (collectively, the "Plans"); and (iv) all building and other permits, licenses and governmental approvals which are necessary or useful to the commencement and completion of the Construction, or otherwise relate to the Construction, heretofore or hereafter obtained or applied for by or on behalf of the Assignor or any architects, engineers or contractors working on any aspect of the Construction, and any deposits made in connection therewith (collectively, the "Permits"); provided, however, that the Secured Party shall have no obligation or liability of any kind under or with respect to the 22 Construction Contracts, the Architect's Agreements, the Permits or the Plans, either before or after the Secured Party's exercise of any rights hereby granted to it, and the Assignor agrees to save and hold the Secured Party harmless of and from, and to indemnify the Secured Party against, any and all such obligations and liabilities, contingent or otherwise, including without limitation attorneys' fees and expenses incurred in connection therewith. This Construction Documents Assignment shall inure to the benefit of the Secured Party and its successors and assigns, and shall be binding upon the Assignor and its successors and assigns, and shall continue in full force and effect until all obligations, liabilities and indebtedness of any kind now or hereafter due the Secured Party from the Assignor under or with respect to the Lease or any of the other Operative Documents, or which are otherwise secured hereby, whether now existing or hereafter arising or incurred (collectively, the "Liabilities"), have been fully paid, performed and satisfied, and all Commitments have terminated, at which time this Construction Documents Assignment will terminate. The Secured Party will not exercise any of its rights hereunder until there shall have occurred and be continuing a Lease Event of Default. For purposes of completing the Construction after any Lease Event of Default shall have occurred and be continuing, the Secured Party may, at its option, further assign its right, title and interest in the Collateral without the consent of the Assignor, or any contractor or architect. This Construction Documents Assignment is a present, perfected and absolute assignment; provided, however, that the Secured Party shall not have the right to undertake completion of the Construction or directly to enforce the provisions of any Construction Contract or any Architect's Agreement until a Lease Event of Default shall have occurred and be continuing. During the continuance of any such Event of Default, the Secured Party may, without affecting any other right or remedy available to it, exercise its rights under this Construction Documents Assignment as provided herein in any manner permitted by law. If any notice to the Assignor is required by law, such notice shall be deemed commercially reasonable if given at least ten (10) days prior to the date of intended action. This Construction Documents Assignment may be effectively waived, modified, amended or terminated only by a written instrument executed by the Secured Party and the Lessee. Any waiver by the Secured Party shall be effective only with respect to the specific instance described therein. Delay or course of conduct shall not constitute a waiver of any right or remedy of the Secured Party. -2- 23 Unless the context shall otherwise require, capitalized terms used and not defined in this Construction Documents Assignment shall have the meanings assigned thereto in Appendix A (as defined in the Construction Agency Agreement) for all purposes hereof; and the rules of interpretation set forth in Appendix A shall apply to this Construction Documents Assignment. THIS CONSTRUCTION DOCUMENTS ASSIGNMENT SHALL IN ALL RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING ANY CONFLICT-OF-LAW OR CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. -3- 24 IN WITNESS WHEREOF, the undersigned has executed and delivered this Construction Documents Assignment as of this ______ day of ________ pursuant to proper authority duly granted. SYMANTEC CORPORATION, as Construction Agent By____________________________________ Name: Title: 25 TABLE OF CONTENTS
SECTION Page - ------- ---- ARTICLE I DEFINITIONS; INTERPRETATION 1.1. Definitions; Interpretation....................................................2 ARTICLE II APPOINTMENT OF CONSTRUCTION AGENT; ACCEPTANCE 2.1. Appointment and Acceptance.....................................................2 2.2. Plans and Specifications; Estimated Improvement Costs..........................................................2 2.3. Term...........................................................................2 2.4. Construction Documents.........................................................3 2.5. Scope of Authority.............................................................3 2.6. Covenants of the Construction Agent............................................4 2.7. Insurance......................................................................6 ARTICLE III THE IMPROVEMENTS; CASUALTY AND CONDEMNATION 3.1. Construction...................................................................9 3.2. Modifications to Plans and Specifications......................................9 3.3. Casualty, Condemnation and Force Majeure Events...............................10 3.4. Condemnation Proceedings......................................................10 3.5. Condemnation Awards...........................................................10 ARTICLE IV PAYMENT OF FUNDS 4.1. Funding of Property Improvements Costs........................................11 ARTICLE V CONSTRUCTION AGENCY AGREEMENT EVENTS OF DEFAULT 5.1. Construction Agency Agreement Events of Default...............................12 5.2. Survival......................................................................13 5.3. Remedies......................................................................13 5.4. Limitation on Construction Agent's Recourse Liability........................................................15 5.5. Construction Agent's Right to Purchase........................................15 ARTICLE VI NO CONSTRUCTION AGENCY FEE 6.1. Lease as Fulfillment of Lessor's Obligations..................................16 ARTICLE VII MISCELLANEOUS 7.1. Notices.......................................................................17 7.2. Successors and Assigns........................................................17 7.3. GOVERNING LAW.................................................................17 7.4. Amendments, etc...............................................................17 7.5. Counterparts..................................................................17 7.6. Severability..................................................................17 7.7. Headings and Table of Contents................................................17
-i- 26 Schedules and Annex Schedule 1 Description of Land Schedule 2 Plans and Specifications for Subject Improvements Annex I Form of Construction Documents Assignment -ii- EX-10.52 10 PROMISSORY NOTE BETWEEN COMPANY AND MANSOUR SAFAI 1 EXHIBIT 10.52 PROMISSORY NOTE Loan Amount: $850,000 Cupertino, California Interest Rate: 5.3% April __, 1999 FOR VALUE RECEIVED, the undersigned, MANSOUR SAFAI ("BORROWER"), residing at 21789 Villa Oaks Lane, Saratoga, California, hereby promises to pay to the order of SYMANTEC CORPORATION, a Delaware corporation ("LENDER"), at its offices at 10201 Torre Ave., Cupertino California, or at such other place or to such other party as LENDER or the holder of this Note may designate by written notice to BORROWER, in lawful money of the United States of America, the principal sum of eight hundred and fifty thousand dollars ($850,000) with interest thereon to be paid as set forth below. 1. Purpose of Loan. The purpose of the loan evidenced by this Note is to provide purchase money for the acquisition by BORROWER of the Property. 2. Interest. Interest at a rate of 5.3% per annum will accrue on any unpaid principal until the principal is paid in full. Interest shall be payable as follows: all interest accrued prior to April 15, 2001 shall be due and payable on April 15, 2001; interest due thereafter shall be payable on an annual basis, the first such payment being due on April 15, 2002 and then on each April 15 thereafter, provided, however, that if such day is not a Business Day, then on the next succeeding Business Day. Notwithstanding the foregoing, if BORROWER is a full-time employee of LENDER (or any wholly owned subsidiary of LENDER) on April 15, 2001, or if BORROWER has ceased to be an employee of LENDER under the circumstances described in 6(d)(i) or 6(d)(ii) below prior to April 15, 2001, then the payment of interest hereunder shall be forgiven and waived by LENDER. 3. Principal. The entire principal balance and any accrued interest shall be due and payable on April 15, 2009; provided, however, that if such day is not a Business Day then on the next succeeding Business Day, and provided further that the entire principal balance and any accrued interest shall be due and payable on April 15, 2004 if BORROWER has ceased to be an employee of LENDER under the circumstances described in 6(d)(i) or 6(d)(ii) below. 4. Prepayment. BORROWER may prepay all or any portion of the loan evidenced by this Note at any time without penalty, fee or acceleration of the due date of this Note. 5. Security. Payment of this Note shall be secured by a deed of trust (the "Deed of Trust"), given by BORROWER, as trustor, for the benefit of LENDER, as beneficiary, encumbering the principal residence of BORROWER located at 21789 Villa Oaks Lane, Saratoga, California (the "Property"). As a condition precedent to LENDER'S obligation to make the loan evidenced by this Note, BORROWER shall provide to LENDER such information as LENDER may reasonably require to ensure that the Deed of Trust will provide adequate security for the loan. Such information shall include, but shall not be limited to, a recent appraisal of the Property, an updated preliminary title report on the Property, and information regarding the amounts and terms of any other liens encumbering the Property. In the event that LENDER determines in its reasonable discretion that the Deed of Trust will not provide adequate security for the loan, BORROWER shall provide such additional security as LENDER may reasonably require, or LENDER shall not be obligated to make the loan. 6. Acceleration of Due Date. The entire unpaid principal balance of this Note and accrued interest thereon, shall, at the election of LENDER, become immediately due and payable upon the occurrence of any of the following (an "Event of Default"), irrespective of the payment schedules set forth above: -1- 2 (a) Any failure on the part of BORROWER to make any payment under this Note when the same is due; (b) Any failure on the part of BORROWER to perform or observe any of his obligations under this Note or the Deed of Trust or any other deed of trust, mortgage or security instrument which secures this Note or encumbers the Property as and when performance is due; (c) On such date thirty days after BORROWER'S employment relationship with LENDER or any wholly owned subsidiary of LENDER is terminated for Cause by LENDER; (d) On such date ninety days after BORROWER'S employment relationship with LENDER or any wholly owned subsidiary of LENDER is terminated for any reason by BORROWER; provided, however, that a termination by BORROWER under the following circumstances shall not be deemed an Event of Default; (i) Within one year after the acquisition by any one party of a majority ownership interest in LENDER, or (ii) Within one year after the sale by LENDER of all or substantial all of the assets associated with LENDER'S Internet Tools business unit (the "Sale of I-Tools"), (e) If BORROWER shall sell, transfer, convey or further encumber the Property or any part thereof, or any interest therein, or shall be divested of their title or any interest therein, either by any transfer, conveyance, contract of sale or in any manner or way, whether voluntarily or involuntarily, without the written consent of LENDER which shall not be unreasonably withheld being first had and obtained; consent to one transaction under this Paragraph 6(e) shall not constitute a waiver of the right to require consent to future or successive transactions; (f) If at any time BORROWER shall admit in writing his inability to pay his debts as they become due, or shall make any assignment for the benefit of any creditors, or shall file a petition seeking any reorganization, arrangement, composition, readjustment or similar release under any present or future statute, law or regulation, or on the filing or commencement of any petition, action, case or proceeding, voluntary or involuntary, under any state or federal law regarding bankruptcy or insolvency. 7. Offset to Compensation. To the fullest extent permitted by law, upon any termination for Cause or BORROWER'S employment with LENDER, BORROWER hereby authorizes LENDER to offset any unpaid principal balance or interest due under this Note against any amounts owed by LENDER to BORROWER, including, but not limited to, any wages, salary, bonuses, accrued vacation or sick pay, and any other employment or consulting compensation or stock repurchase payments. LENDER shall promptly notify BORROWER in writing of any such offset, including an itemization of the amounts offset and the balance, if any, due and payable pursuant to this Note. 8. Collection Costs Borne by BORROWER. BORROWER agrees to pay the reasonable costs and expenses, including without limitation reasonable attorney's fees, incurred by LENDER in any action brought to enforce the terms of this Note and/or to collect this Note, and any appeal thereof. 9. Miscellaneous. (a) No delay or omission on the part of LENDER in exercising any right under this Note or under the Deed of Trust or any other security agreement given to secure this Note shall operate as a waiver of such right or of any other right under this Note. (b) BORROWER expressly waives presentment, protest and demand, notice to protest, demand and dishonor and nonpayment of this Note and all other notices of any kind, and expressly -2- 3 agrees that this Note, or any payment thereunder, may be extended from time to time without in any way affecting the liability of BORROWER and endorsers hereof. 10. Late Charge. If payment of principal or interest under this Note shall not be made within 10 days after the date due, BORROWER agrees to pay, in addition to the unpaid principal and interest, interest on any such unpaid amount at a rate of one and one-half percent (1.5%) per month, or at the maximum rate allowed by law, whichever is less. BORROWER agrees that the above-noted calculation represents a fair and reasonable estimate, considering all of the circumstances existing on the date of this Note, of the costs and expenses incident to handling and collecting such delinquent payment that will be sustained by LENDER due to the failure of BORROWER to make timely payment. The parties further agree that proof of actual damages would be costly and impracticable. Such charge shall be paid without prejudice to the right of LENDER to collect any other amounts provided to be paid or to declare a default under this Note or under the Deed of Trust referred to in this Note or from exercising any of the other rights and remedies of LENDER. 11. Notices Under Other Obligations. BORROWER shall promptly send to LENDER copies of any notices received by BORROWER from the holder of any other deed of trust or mortgage encumbering the Property. 12. Tax Related Payments by LENDER. During such time that BORROWER is a full-time employee of LENDER (or any wholly owned subsidiary of LENDER), LENDER agrees to pay to BORROWER as regular income an amount (in excess of BORROWER'S salary) to offset any federal, state or local income and employment taxes due from BORROWER in connection with any interest payment forgiven or waived by LENDER under Paragraph 2 of this Note. In calculating any such payment, it shall be assumed that BORROWER is required to pay the maximum federal, state and local tax rate then in effect. 13. Governing Law. The Note shall be governed by the laws of the State of California and shall be construed in accordance therewith. 14. Definitions. (a) Business Day. As used in this Note the term "Business Day" shall mean any day other than a Saturday, Sunday or a legal holiday observed by employees of the State of California. (b) Cause. As used in this Note the term "Cause" shall mean (i) an intentional tort committed by BORROWER which causes loss, damage or injury to the property or reputation of LENDER or its subsidiaries, (ii) any crime or act of fraud or dishonesty committed by BORROWER against LENDER or its subsidiaries, (iii) the commission of a felony by BORROWER, (iv)the habitual neglect of the employment-related duties of BORROWER which is not cured within ten (10) days after written notice thereof by the President of LENDER, (v) the disregard by BORROWER of the written employment-related polices of LENDER or its subsidiaries which causes loss, damage or injury to the property or reputation of LENDER or its subsidiaries which is not cured with ten(10) days after written notice of such neglect by the President of LENDER. (c) Principal Residence. As used in this Note the term "principal residence" shall mean the home in which BORROWER resides on a continuous basis, or which BORROWER hold himself out as occupying as a principal residence. -3- 4 15. Successors. This Note shall be binding upon BORROWER and the personal representatives, heirs, successors and assigns of BORROWER. 16. Severability. If any part of this Note is determined to be illegal or unenforceable, all other parts shall remain in full force and effect. BORROWER has set his hand to this Note effective as of the date set forth above. Dated: April __, 1999. ---------------------------------------- MANSOUR SAFAI I, Susanne Gahnstedt, the spouse of BORROWER, do hereby consent to the borrowing by BORROWER of the loan evidenced by this Note on the terms and conditions set forth herein and to the granting of the Deed of Trust referred to in Paragraph 5 of this Note to secure the obligations of BORROWER under this Note. I acknowledge and agree that the loan evidenced by this Note is being made solely for the benefit of BORROWER; I shall not be entitled to the benefit of such loan nor shall I bear any liability for such loan. ---------------------------------------- SUSANNE GAHNSTEDT -4- EX-10.53 11 PROMISSORY NOTE BETWEEN THE CO. & KEITH ROBINSON 1 EXHIBIT 10.53 PROMISSORY NOTE LOAN AMOUNT: $300,000 CUPERTINO, CALIFORNIA INTEREST RATE: 4.9% MAY 15, 1999 FOR VALUE RECEIVED, the undersigned, KEITH ROBINSON ("BORROWER"), residing at 156 Oak Hill Way, Los Gatos, California (the "Property"), hereby promises to pay to the order of SYMANTEC CORPORATION, a Delaware corporation ("LENDER"), at its offices at 10201 Torre Ave., Cupertino, California, or at such other place or to such other party as LENDER or the holder of this Note may designate by written notice to BORROWER, in lawful money of the United States of America, the principal sum of three hundred thousand dollars ($300,000) with interest thereon to be paid as set forth below. 1. Purpose of Loan. The purpose of the loan evidenced by this Note is to provide money for the improvement by BORROWER of the Property. 2. Interest. Interest at a rate of 4.9% per annum will accrue on any unpaid principal until the principal is paid in full. Interest shall be payable in month installments of $1,225, the first such payment being due on June 15, 1999, and then on the fifteenth of each month thereafter, provided, however, that if any such day is not a Business Day then on the next succeeding Business Day. As used in this Note the term "Business Day" shall mean any day other than a Saturday, Sunday or a legal holiday observed by employees of the State of California. 3. Principal. The entire principal balance and any accrued interest shall be due and payable on June 15, 2000. 4. Prepayment. BORROWER may prepay all or any portion of the loan evidenced by this Note at any time without penalty, fee or acceleration of the due date of this Note. 5. Security. Payment of this Note shall be secured by a deed of trust (the "Deed of Trust"), given by BORROWER and JANICE D. ROBINSON, as trustor (collectively), for the benefit of LENDER, as beneficiary, encumbering the Property. As a condition precedent to LENDER'S obligation to make the loan evidenced by this Note, BORROWER shall provide to LENDER such information as LENDER may reasonably require to ensure that the Deed of Trust will provide adequate security for the loan. Such information shall include, but shall not be limited to, a recent appraisal of the Property, an updated preliminary title report on the Property, and information regarding the amounts and terms of any other liens encumbering the Property. In the event that LENDER determines in its reasonable discretion that the Deed of Trust will not provide adequate security for the loan, BORROWER shall provide such additional security as LENDER may reasonably require, or LENDER shall not be obligated to make the loan. 6. Acceleration of Due Date. The entire unpaid principal balance of this Note and any accrued interest thereon shall, at the election of LENDER, become immediately due and payable upon the occurrence of any of the following (an "Event of Default"), irrespective of the payment schedules set forth above: (a) Any failure on the part of BORROWER to make any payment under this Note when the same is due; (b) Any failure on the part of BORROWER to perform or observe any of his obligations under this Note or the Deed of Trust or any other deed of trust, mortgage or security instrument which secures this Note or encumbers the Property as and when performance is due; -1- 2 (c) On such date thirty days after BORROWER'S employment relationship with LENDER or any wholly owned subsidiary of LENDER is terminated for any reason; (d) If BORROWER shall sell, transfer, convey or further encumber the Property or any part thereof, or any interest therein, or shall be divested of the title or any interest therein, either by any transfer, conveyance, contract of sale or in any manner or way, whether voluntarily or involuntarily, without the written consent of LENDER which shall not be unreasonably withheld being first had and obtained; consent to one transaction under this Paragraph 6(d) shall not constitute a waiver of the right to require consent to future or successive transactions; or (e) If at any time BORROWER shall admit in writing his inability to pay his debts as they become due, or shall make any assignment for the benefit of any creditors, or shall file a petition seeking any reorganization, arrangement, composition, readjustment or similar release under any present or future statute, law or regulation, or on the filing or commencement of any petition, action, case or proceeding, voluntary or involuntary, under any state or federal law regarding bankruptcy or insolvency. 7. Offset to Compensation. To the fullest extent permitted by law, upon any termination for cause of BORROWER'S employment with LENDER, BORROWER hereby authorizes LENDER to offset any unpaid principal balance or interest due under this Note against any amounts owed by LENDER to BORROWER, including, but not limited to, any wages, salary, bonuses, accrued vacation or sick pay, and any other employment or consulting compensation or stock repurchase payments. LENDER shall promptly notify BORROWER in writing of any such offset, including an itemization of the amounts offset and the balance, if any, due and payable pursuant to this Note. 8. Collection Costs Borne by BORROWER. BORROWER agrees to pay the reasonable costs and expenses, including without limitation reasonable attorneys' fees, incurred by LENDER in any action brought to enforce the terms of this Note and/or to collect this Note, and any appeal thereof. 9. Miscellaneous. (a) No delay or omission on the part of LENDER in exercising any right under this Note or under the Deed of Trust or any other security agreement given to secure this Note shall operate as a waiver of such right or of any other right under this Note. (b) BORROWER expressly waives presentment, protest and demand, notice to protest, demand and dishonor and nonpayment of this Note and all other notices of any kind, and expressly agrees that this Note, or any payment thereunder, may be extended from time to time without in any way affecting the liability of BORROWER and endorsers hereof. 10. Late Charge. If payment of principal or interest under this Note shall not be made within 10 days after the date due, BORROWER agrees to pay, in addition to the unpaid principal and interest, interest on any such unpaid amount at a rate of one and one-half percent (1.5%) per month, or at the maximum rate allowed by law, whichever is less. BORROWER agrees that the above-noted calculation represents a fair and reasonable estimate, considering all of the circumstances existing on the date of this Note, of the costs and expenses incident to handling and collecting such delinquent payment that will be sustained by LENDER due to the failure of BORROWER to make timely payment. The parties further agree that proof of actual damages would be costly and impracticable. Such charge shall be paid without prejudice to the right of LENDER to collect any other amounts provided to be paid or to declare a default under this Note or under the Deed of Trust referred to in this Note or from exercising any of the other rights and remedies of LENDER. 11. Notices Under Other Obligations. BORROWER shall promptly send to LENDER copies of any notices received by BORROWER from the holder of any other deed of trust or mortgage encumbering the Property. -2- 3 12. Governing Law. The Note shall be governed by the laws of the State of California and shall be construed in accordance therewith. 13. Successors. This Note shall be binding upon BORROWER and the personal representatives, heirs, successors and assigns of BORROWER. 14. Severability. If any part of this Note is determined to be illegal or unenforceable, all other parts shall remain in full force and effect. BORROWER has set his hand to this Note effective as of the date set forth above. Dated: May 15, 1999. /s/ KEITH ROBINSON ------------------------------------- KEITH ROBINSON I, JANICE D. ROBINSON, the spouse of BORROWER, do hereby consent to the borrowing by BORROWER of the loan evidenced by this Note on the terms and conditions set forth herein and to the granting of the Deed of Trust referred to in Paragraph 5 of this Note to secure the obligations of BORROWER under this Note. /s/ JANICE D. ROBINSON ------------------------------------ JANICE D. ROBINSON -3- EX-10.54 12 PROMISSORY NOTE BETWEEN THE CO. & JOHN W. THOMPSON 1 EXHIBIT 10.54 PROMISSORY NOTE LOAN AMOUNT: $1,400,000 CUPERTINO, CALIFORNIA INTEREST RATE: 4.9% MAY 21, 1999 FOR VALUE RECEIVED, the undersigned, JOHN W. THOMPSON ("BORROWER"), residing at 82 Old Hill Road, Westport, Connecticut, hereby promises to pay to the order of SYMANTEC CORPORATION, a Delaware corporation ("LENDER"), at its offices at 10201 Torre Ave., Cupertino, California, or at such other place or to such other party as LENDER or the holder of this Note may designate by written notice to BORROWER, in lawful money of the United States of America, the principal sum of one million four hundred thousand dollars ($1,400,000) with interest thereon to be paid as set forth below. 1. Purpose of Loan. The purpose of the loan evidenced by this Note is to provide purchase money for the acquisition by BORROWER of the property located at 308 Olive Hill Lane, Woodside, California 94062 (the "Property"). 2. Interest. Interest at a rate of 4.9% per annum will accrue on any unpaid principal until the principal is paid in full. Interest shall be due and payable as follows: the first payment of all then-accrued interest shall be due and payable on May 21, 2000; interest owing thereafter (if any) shall be due and payable on May 21, 2001. Notwithstanding the foregoing, the first interest payment shall be forgiven and waived by LENDER as of May 21, 2000, and the second interest payment shall be forgiven and waived by LENDER as of May 21, 2001. 3. Principal. The entire principal balance shall be due and payable on May 21, 2000. Notwithstanding the foregoing, the entire principal balance shall be due and payable on May 21, 2001 if, prior to May 21, 2000, BORROWER'S employment with LENDER ceases other than for reason of: (i) BORROWER'S voluntary termination without Good Reason; or (ii) termination by LENDER following a determination by two-thirds (2/3) vote of the entire Board of Directors of LENDER that there is Cause for such termination. 4. Prepayment. BORROWER may prepay all or any portion of the loan evidenced by this Note at any time without penalty, fee or acceleration of the due date of this Note. 5. Security. Payment of this Note shall be secured by a deed of trust (the "Deed of Trust"), given by BORROWER, as trustor, for the benefit of LENDER, as beneficiary, encumbering the Property. 6. Acceleration of Due Date. The entire unpaid principal balance of this Note and any accrued interest thereon shall, at the election of LENDER, become immediately due and payable upon the occurrence of any of the following (an "Event of Default"), irrespective of the payment schedules set forth above: (a) Any failure on the part of BORROWER to make any payment under this Note when the same is due; (b) Any failure on the part of BORROWER to perform or observe any of his obligations under this Note or the Deed of Trust or any other deed of trust, mortgage or security instrument which secures this Note or encumbers the Property as and when performance is due; (c) If BORROWER shall sell, transfer or convey the Property or any part thereof, or any interest therein, or shall be divested of title or any interest therein, either by any transfer, conveyance, -1- 2 contract of sale or in any manner or way, whether voluntarily or involuntarily, without the written consent of LENDER, which consent shall not be unreasonably withheld being first had and obtained; consent to one transaction under this Paragraph 6(c) shall not constitute a waiver of the right to require consent to future or successive transactions; (d) If at any time BORROWER shall admit in writing his inability to pay his debts as they become due, or shall make any assignment for the benefit of any creditors, or shall file a petition seeking any reorganization, arrangement, composition, readjustment or similar release under any present or future statute, law or regulation, or on the filing or commencement of any petition, action, case or proceeding, voluntary or involuntary, under any state or federal law regarding bankruptcy or insolvency. 7. Offset to Compensation. To the fullest extent permitted by law, upon any termination for Cause of BORROWER'S employment with LENDER, BORROWER hereby authorizes LENDER to offset any unpaid principal balance or interest due under this Note against any amounts owed by LENDER to BORROWER, including, but not limited to, any wages, salary, bonuses, accrued vacation or sick pay, and any other employment or consulting compensation or stock repurchase payments. LENDER shall promptly notify BORROWER in writing of any such offset, including an itemization of the amounts offset and the balance, if any, due and payable pursuant to this Note. 8. Collection Costs Borne by BORROWER. BORROWER agrees to pay the reasonable costs and expenses, including without limitation reasonable attorneys' fees, incurred by LENDER in any action brought to enforce the terms of this Note and/or to collect this Note, and any appeal thereof. 9. Miscellaneous. (a) No delay or omission on the part of LENDER in exercising any right under this Note or under the Deed of Trust or any other security agreement given to secure this Note shall operate as a waiver of such right or of any other right under this Note. (b) BORROWER expressly waives presentment, protest and demand, notice to protest, demand and dishonor and nonpayment of this Note and all other notices of any kind, and expressly agrees that this Note, or any payment thereunder, may be extended from time to time without in any way affecting the liability of BORROWER and endorsers hereof. 10. Late Charge. If payment of principal or interest under this Note shall not be made within 10 days after the date due, BORROWER agrees to pay, in addition to the unpaid principal and interest, interest on any such unpaid amount at a rate of one and one-half percent (1.5%) per month, or at the maximum rate allowed by law, whichever is less. BORROWER agrees that the above-noted calculation represents a fair and reasonable estimate, considering all of the circumstances existing on the date of this Note, of the costs and expenses incident to handling and collecting such delinquent payment that will be sustained by LENDER due to the failure of BORROWER to make timely payment. The parties further agree that proof of actual damages would be costly and impracticable. Such charge shall be paid without prejudice to the right of LENDER to collect any other amounts provided to be paid or to declare a default under this Note or under the Deed of Trust referred to in this Note or from exercising any of the other rights and remedies of LENDER. 11. Notices Under Other Obligations. BORROWER shall promptly send to LENDER copies of any notices received by BORROWER from the holder of any other deed of trust or mortgage encumbering the Property. 12. Governing Law. The Note shall be governed by the laws of the State of California and shall be construed in accordance therewith. 13. Definitions. -2- 3 (a) "Business Day" means any day other than a Saturday, Sunday or a legal holiday observed by employees of the State of California. (b) "Good Reason" means (i) a material reduction in BORROWER'S duties that is inconsistent with BORROWER'S position as President and Chief Executive Officer of LENDER or a change in BORROWER'S reporting relationship such that BORROWER no longer report directly to the Board of Directors of LENDER; (ii) BORROWER no longer being President and Chief Executive Officer of LENDER or, in the case of a Change in Control, of the surviving entity or acquiror that results from any Change in Control; (iii) any reduction in BORROWER'S base annual salary or target quarterly or annual bonus (other than in connection with a general decrease in the salary or target bonuses for all officers of LENDER without BORROWER'S consent or material breach by LENDER of any of its obligations under the Employment Agreement dated as of April 11, 1999 between BORROWER and LENDER (the "Employment Agreement") after providing LENDER with written notice and an opportunity to cure within seven (7) business days; (iv) a requirement by LENDER that BORROWER relocate BORROWER'S principal office to a facility more than 50 miles from LENDER'S current headquarters; or (v) failure of any successor of LENDER to assume the Employment Agreement pursuant its terms. (c) "Cause" means (i) gross negligence or willful misconduct in the performance of BORROWER'S duties to LENDER (other than as a result of a disability) that has resulted or is likely to result in substantial and material damage to LENDER, after a demand for substantial performance is delivered to BORROWER by the Board of Directors of LENDER which specifically identifies the manner in which the Board believes BORROWER have not substantially performed BORROWER'S duties and BORROWER has been provided with a reasonable opportunity to cure any alleged gross negligence or willful misconduct; (ii) commission by BORROWER of any act of fraud with respect to LENDER; or (iii) conviction by BORROWER of a felony or a crime involving moral turpitude causing material harm to the business and affairs of LENDER. No act or failure to act by BORROWER shall be considered "willful" if done or omitted by BORROWER in good faith with reasonable belief that BORROWER'S action or omission was in the best interests of LENDER. (d) "Change in Control" means (i) any person or entity becoming the beneficial owner, directly or indirectly, of securities of LENDER representing forty percent (40%) of the total voting power of all its then outstanding voting securities, (ii) a merger or consolidation of LENDER in which its voting securities immediately prior to the merger or consolidation do not represent, or are not converted into securities that represent, a majority of the voting power of all voting securities of the surviving entity immediately after the merger or consolidation, (iii) a sale of substantially all of the assets of LENDER or a liquidation or dissolution of LENDER, or (iv) individuals who, as of the Commencement Date (as such term is defined in the Employment Agreement), constitute the Board of Directors of LENDER (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of LENDER subsequent to the Commencement Date, whose election, or nomination for election by LENDER'S stockholders, was approved by the vote of at least a majority of the directors then in office shall be deemed a member of the Incumbent Board. -3- 4 14. Successors. This Note shall be binding upon BORROWER and the personal representatives, heirs, successors and assigns of BORROWER. 15. Severability. If any part of this Note is determined to be illegal or unenforceable, all other parts shall remain in full force and effect. BORROWER has set his hand to this Note effective as of the date set forth above. Dated: May 21, 1999. /s/ JOHN W. THOMPSON ---------------------------------- JOHN W. THOMPSON -4- EX-10.62 13 RETIREMENT AND CONSULTING AGREEMENT 1 EXHIBIT 10.62 AGREEMENT This AGREEMENT (the "Agreement") is entered into this 21st day of January 1999 between Gordon E. Eubanks, Jr. ("Mr. Eubanks") and Symantec Corporation, a Delaware corporation ("Symantec"). RECITALS A. Mr. Eubanks is currently employed by Symantec as its President and Chief Executive Officer and serves as a member of Symantec's Board of Directors. B. Mr. Eubanks desires to retire as President and Chief Executive Officer. The Board of Directors desires Mr. Eubanks' assistance in the recruitment of a successor, and in the transition of management of Symantec to the new President and Chief Executive Officer. The terms of this Agreement provide for Mr. Eubanks' retirement from his positions as President and Chief Executive Officer, for the recruitment of a successor President and Chief Executive Officer, and for the transition of management of Symantec to the new President and Chief Executive Officer. NOW, THEREFORE, in consideration of the premises and mutual promises herein, the parties agree as follows: 1. Resignation. Mr. Eubanks hereby tenders his resignation as President, Chief Executive Officer and an employee of Symantec, to become effective upon the earlier of June 30, 1999 or the date a new President and Chief Executive Officer commences employment with Symantec (the "Retirement Date"). 2. Employment Period. Mr. Eubanks' employment as President and Chief Executive Officer of Symantec will continue until the Retirement Date (the "Employment Period"), subject to the provisions of this Agreement. During the Employment Period, Mr. Eubanks will continue to receive (i) his base salary in effect on the date of this Agreement (the "Effective Date"), (ii) a pro rata portion of any bonus that would otherwise be payable for any period ending within the Employment Period and (iii) any other compensation and benefits that would be payable during his employment through the Retirement Date (less applicable withholding). During the Employment Period, Mr. Eubanks will continue to perform his obligations as President and Chief Executive Officer of Symantec consistent with his past service in those positions, and Mr. Eubanks will actively assist Symantec in the recruitment of a new President and Chief Executive Officer. 3. Consulting Period. Mr. Eubanks and Symantec enter into a consulting agreement on the following terms and conditions: (a) Symantec will engage Mr. Eubanks as a consultant for a period of two years following the Retirement Date (the "Consulting Period"). During the Consulting Period, 2 Symantec will continue to pay Mr. Eubanks a consulting fee equal to Mr. Eubank's current base salary (at the rate of $475,000 per year), payable in 24 monthly installments on the first day of each month, plus a quarterly bonus of 6.25% of Mr. Eubank's current base salary in accordance with Symantec's bonus plan (equal to $30,000 per quarter at 100% of bonus achievement). During the Consulting Period, Mr. Eubanks will make himself available as requested by Symantec's Board of Directors for up to five days per month to assist Symantec and its new President and Chief Executive Officer with any transitional matters on which Symantec reasonably requests Mr. Eubanks' assistance. (b) During the Consulting Period, Mr. Eubanks' existing stock options, which are listed on Exhibit A to this Agreement, will continue to vest and remain exercisable in accordance with their original terms during the Consulting Period as though Mr. Eubanks were still employed by Symantec so long as Mr. Eubanks continues to comply with the terms of this Agreement during the Consulting Period. Those stock options, to the extent vested, will remain exercisable by Mr. Eubanks until the end of the Consulting Period and thereafter for a period of 30 days, at which time they will expire if not exercised. 4. Board Membership. Mr. Eubanks will continue to serve as a member of the Board of Directors of Symantec during the Employment Period and will become Chairman of the Board of Directors on the Retirement Date. If, at any time following the Retirement Date, a majority of the members of the Board of Directors other than Mr. Eubanks requests that Mr. Eubanks resign from the Board of Directors, Mr. Eubanks will immediately resign from the Board of Directors. Following the Retirement Date, so long as Mr. Eubanks continues to serve on the Board of Directors, he will receive stock option grants, director's fees and any other remuneration paid to members of the Board of Directors who are not employees of Symantec. 5. Benefits. During the Employment Period, Mr. Eubanks will continue to be eligible for health and other employee benefits in accordance with Symantec's employee benefit programs. Following the Retirement Date, Symantec will pay the premiums for Mr. Eubanks' health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), to the extent that Mr. Eubanks is eligible for COBRA benefits, until the earlier of (i) 18 months after the Retirement Date or (ii) the date that Mr. Eubanks becomes covered under another employer's group health insurance plan. In addition, during the Consulting Period, Symantec will continue to provide Mr. Eubanks with the use of a leased automobile at Symantec's expense in accordance with its current policies. Mr. Eubanks understands that Mr. Eubanks will not be entitled to any employment or other benefits from Symantec other than those expressly set forth in this Agreement. 6. Indemnification. To the extent permitted by law, Symantec will continue to provide Mr. Eubanks indemnity, in accordance with the applicable provisions of Symantec's Articles of Incorporation and Bylaws, and any separate indemnification agreement entered into between Mr. Eubanks and Symantec, and cover Mr. Eubanks under any directors and officers liability insurance policy maintained by Symantec for directors and officers, against all expense, liability and loss (including attorney's fees and settlement payments) that Mr. Eubanks may incur by reason of any action, suit or proceeding arising from or relating to his position as an 2 3 employee, officer or director of Symantec. Mr. Eubanks will cooperate with Symantec in the defense of any such matters. 7. Release. In exchange for the benefits described in this Agreement, Mr. Eubanks agrees to execute the release attached to this Agreement as Exhibit B (the "Release") on the Retirement Date, so long as Symantec has complied with its obligations under this Agreement. 8. Press Release. Upon execution of this Agreement, Symantec and Mr. Eubanks will issue a press release announcing Mr. Eubank's intent to resign as President and Chief Executive Officer of Symantec in a form mutually approved by Mr. Eubanks and Symantec. Symantec will not make any public statement or any statement to any third party that is inconsistent with the statements in the press release. In the event of a breach of this covenant, all of Mr. Eubanks' stock options listed on Exhibit A to this Agreement will immediately vest, and Symantec will immediately pay to Mr. Eubanks in a lump sum all monies which would otherwise have been payable to him in 24 monthly installments under Paragraph 3(a) of this Agreement. 9. Non-disparagement. Symantec agrees to refrain from any disparagement or defamation of Mr. Eubanks in any public statements or any communications with third parties. Mr. Eubanks agrees to refrain from any disparagement or defamation of Symantec or any of its employees, officers, directors or agents in any public statement or statement to third parties. 10. Employee Confidentiality Agreement. Mr. Eubanks will continue to be bound by the terms and provisions of his Agreement Regarding Proprietary Information and Inventions dated April 13, 1984 between Symantec's predecessor C&E Software, Inc. and Mr. Eubanks (the "Employee Agreement"). 11. Non-competition. During the Employment Period and the Consulting Period, Mr. Eubanks will not serve as an employee of or otherwise provide services to Network Associates, Trend Micro or any other principal competitor of Symantec. 12. Non-solicitation. During the Employment Period and the Consulting Period, Mr. Eubanks will not solicit or induce any employee of Symantec to terminate employment with Symantec. 13. No Admission of Liability. Symantec and Mr. Eubanks understand and agree that this Agreement will not be deemed or construed to be an admission by either party of any fault or liability whatsoever to the other party or to any third party. 14. No Representations. Each party has had the opportunity to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement and the Release. Neither party has relied upon any representations or statements made by the other party which are not specifically set forth in this Agreement. 15. Severability. In the event that any one or more of the provisions contained in this Agreement is, for any reason, held to be unenforceable in any respect under any statute or rule of 3 4 law, such enforceability will not affect any other provision of this Agreement but, with respect only to the jurisdiction holding the provision to be unenforceable, this Agreement will be construed as if such unenforceable provision or provisions had never been contained herein. 16. Arbitration. Any claim, dispute or controversy arising out of or in any relating to this Agreement or the asserted breach of this Agreement will be submitted by the parties to binding arbitration in Santa Clara County, California, before the Honorable Edward Panelli. If Justice Panelli is unable or unwilling to serve as arbitrator, the arbitrator shall be appointed by the Presiding Judge of the Santa Clara County Superior Court. 17. Attorneys' Fees. The prevailing party will be entitled to recover from the losing party attorneys' fees and costs incurred in any arbitration or other proceeding brought to enforce any right arising out of this Agreement. 18. Successors. The provisions of this Agreement will extend and inure to the benefit of, and be binding upon, the respective successors and assigns of Mr. Eubanks and Symantec. 19. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior negotiations and agreements, whether written or oral, with the exception of Mr. Eubanks' obligations under the Employee Agreement and the parties' respective obligations under any surviving stock option agreements and any surviving indemnification agreements. 20. No Oral Modification. This Agreement may not be altered or amended except by a written document executed by Symantec and Mr. Eubanks. 21. Governing Law. This Agreement will, in all respects, be governed by the laws of the State of California as applied to agreements entered into and to be performed entirely within California between California residents. 22. Binding Effect. This Agreement is binding on Mr. Eubanks and Symantec as of the effective date of this Agreement and may be terminated by either party if the other party commits a material breach of this Agreement that is not cured within 15 days of any written notice from the other party of the breach. Upon termination of this Agreement, this Agreement will have no further force or effect and the parties will have all remedies available at law or in equity with respect to the breach of this Agreement and any other claims that either party may have against the other; provided, however, that termination of this Agreement after the Retirement Date will not affect the Release, which will remain in full force and effect with respect to the matters released therein. SYMANTEC CORPORATION By: /s/ CARL D. CARMAN /s/ GORDON E. EUBANKS, JR. --------------------------- ----------------------------- Gordon E. Eubanks, Jr. Its: ------------------------- 4 5 EXHIBIT A LIST OF STOCK OPTIONS 6 Personnel Option Status SYMANTEC CORPORATION ID: 77-0181864 10201 Terre Avenue Cupertino, California 95014 AS OF 1/12/99 Gordon Eubanks ID: 00124 1221 Padre Lane P.O. Box 278 Pebble Beach, CA 93953
Option Number Date Plan Type Granted Price Exercised 000098 3/17/87 88 ISO 30,000 $ 0.5000 30,000 000542 11/17/88 88 ISO 75,000 $ 1.0000 75,000 000711 3/23/89 DI NQ 105,000 $ 1.3333 105,000 001020 4/26/90 88 ISO 44,344 $ 9.6250 0 001021 4/26/90 88 NQ 35,656 $ 9.6250 0 001617 1/23/91 88 NQ 66,440 $16.9375 0 001618 1/23/91 88 ISO 3,560 $16,9375 0 006138 4/30/93 88 NQ 127,427 $12.7500 0 006139 4/30/93 88 ISO 13,749 $12.7500 0 006140 4/30/93 88 NQ 50,981 $12.7500 0 006141 4/30/93 88 ISO 7,843 $12.7500 0 010975 1/17/96 88 NQ 150,720 $10.3125 0 010976 1/17/96 88 ISO 9,696 $10.3125 0 010977 1/17/96 88 ISO 14,280 $10,3125 0 012392 1/17/96 88 NQ 45,304 $10,3125 0 017167 3/10/98 96 ISO 10,695 $23.6250 0 017168 3/10/98 96 NQ 139,305 $23.6250 0 ------- ------- 930,000 210,000 1/07/99 100,000 $21.00 Number Vested Cancelled Unvested Outstanding Exercisable 000098 30,000 0 0 0 0 000542 75,000 0 0 0 0 000711 105,000 0 0 0 0 001020 44,344 0 0 44,344 44,344 001021 35,656 0 0 35,656 35,656 001617 68,440 0 0 66,440 66,440 001618 3,560 0 0 3,560 3,560 006138 127,427 0 0 127,427 127,427 006139 13,749 0 0 13,749 13,749 006140 50,981 0 0 50,981 50,981 006141 7,843 0 0 7,843 7,843 010975 150,720 0 0 150,720 150,720 010976 9,696 0 0 9,696 9,696 010977 0 0 14,280 14,280 0 012392 0 0 45,304 45,304 0 017167 0 0 10,695 10,695 0 017168 0 0 139,305 139,305 0 ------- -- ------- ------- ------- 720,416 0 209,584 720,000 510,416
Information Currently on File
Tax Rate% Broker Registration Alternate Address Federal 28.000 Robertson Stephens & Company CA-State 6.000 Attn: Anne Hattrup Social Security 6.200 555 California Street, Ste. 2600 Medicare 1.450 San Francisco, CA 94104 CA SDI 0.500 - -- 0.000 - -- 0.000
7 EXHIBIT B GENERAL RELEASE OF CLAIMS THIS GENERAL RELEASE OF CLAIMS ("Release") is between Gordon E. Eubanks, Jr. ("Mr. Eubanks") and Symantec Corporation ("Symantec"), a Delaware corporation, in accordance with Section 7 of the Separation Agreement entered into by the parties as of January 21, 1999, (the "Agreement"). Unless otherwise defined herein, the terms defined in the Agreement shall have the same meanings in this Release. 1. Payment of Salary. The parties acknowledge and agree that, as of the Retirement Date, all salary, and accrued vacation, and any and all other benefits, bonuses or other such sums due Mr. Eubanks have been paid to Mr. Eubanks. 2. Release. (a) Mr. Eubanks and Symantec, on behalf of themselves and their respective heirs, executors, successors and assigns, hereby fully and forever release each other and their respective heirs, executors, successors, agents, officers and directors, from and agree not to sue concerning, any and all claims, actions, obligations, duties, causes of action, whether now known or unknown, suspected or unsuspected, that either of them may possess based upon or arising out of any matter, cause, fact, thing, act, or omission whatsoever occurring or existing at any time prior to and including the Retirement Date (collectively, the "Released Matters"), including without limitation, (1) any and all claims relating to or arising from Mr. Eubanks' employment relationship with Symantec and the termination of that relationship; (2) any and all claims relating to, or arising from, Mr. Eubanks' right to purchase, or actual purchase of, shares of stock of Symantec, including, without limitation, any claims of fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law; (3) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander, negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; and conversion. (4) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the Employee Retirement Income 8 Security Act of 1974, the Worker Adjustment and Retraining Notification Act, Older Workers Benefit Protection Act, and the California Fair Employment and Housing Act, and Labor Code section 201, et, seq.; (5) any and all claims for violation of the federal, or any state, constitution; (6) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; (7) any and all claims for attorney's fees and costs; and (8) any and all claims either Symantec or Mr. Eubanks may have against the other for any acts by either occurring at any time prior to the execution of this Release. Each of the parties agrees that the foregoing enumeration of claims released is illustrative, and the claims hereby released are in no way limited by the above recitation of specific claims, it being the intent of the parties to fully and completely release all claims whatsoever in any way relating to the Mr. Eubanks' employment with Symantec and the termination of such employment. This release does not extent to any obligations incurred under the Agreement or the other agreements specified therein as surviving the Retirement Date. (b) Mr. Eubanks represents that Mr. Eubanks has no lawsuits, claims or actions pending in Mr. Eubanks' name, or on behalf of any other person or entity, against Symantec or any other person or entity referred to herein. Mr. Eubanks also represents that Mr. Eubanks does not intend to bring any claims on Mr. Eubanks' own behalf against Symantec or any other person or entity referred to herein. (c) Mr. Eubanks and Symantec acknowledge that they have been advised by legal counsel and are familiar with Section 1542 of the Civil Code of the State of California, which states: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Symantec and Mr. Eubanks each expressly waives any right or benefit which they have or may have under Section 1542 of the California Civil Code or any similar provision of the statutory or non-statutory law of any other jurisdiction, including Delaware. The parties acknowledge that in the future they may discover claims or facts in addition to or different from those that they now know or believe to exist with respect to the subject matter of this Release, and that each of Mr. Eubanks and Symantec intends to fully, finally, and forever settle all of the Released matters in 2 9 exchange for the benefits set forth in this Release and in the Agreement. This release will remain in effect as a full and complete release notwithstanding the discovery or existence of any additional claims or facts. 3. Acknowledgment of Waiver of Claims under ADEA. Mr. Eubanks acknowledges that Mr. Eubanks is waiving and releasing any rights Mr. Eubanks may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. Mr. Eubanks and Symantec agree that this waiver and release does not apply to any rights or claims that may arise under ADEA after the Effective Date of this Release, Mr. Eubanks acknowledges that the consideration given for this waiver and release agreement in addition to anything of value to which Mr. Eubanks was already entitled. Mr. Eubanks further acknowledges that Mr. Eubanks has been advised by this writing that: (a) Mr. Eubanks should consult with an attorney prior to executing this Release; (b) Mr. Eubanks has had at least twenty-one (21) days within which to consider this Release, although Mr. Eubanks may accept the terms of this Release at any time within those 21 days; (c) Mr. Eubanks has seven (7) days following the execution of this Release by the parties to revoke this Release; and (d) This Release will not be effective until the revocation period has expired. 4. Voluntary Execution of Agreement. This Release is executed voluntarily and without any duress or undue influence on the part or behalf of the parties hereto, with the full intent of releasing all claims. The parties acknowledge that: (a) they have read this Release; (b) they have been represented in the preparation, negotiation, and execution of this Release by legal counsel of their own choice or that they have voluntarily declined to seek such counsel; (c) they understand the terms and consequences of this Release and of the releases it contains; (d) they are fully aware of the legal and binding effect of this Release. MR. EUBANKS HAS CONSULTED WITH AN ATTORNEY BEFORE SIGNING THIS RELEASE AND UNDERSTANDS THAT, BY SIGNING THIS RELEASE, MR. EUBANKS IS GIVING UP ANY LEGAL CLAIMS MR. EUBANKS HAS AGAINST SYMANTEC EXCEPT AS SET FORTH IN THE SEPARATION AGREEMENT. MR. EUBANKS FURTHER ACKNOWLEDGES THAT MR. EUBANKS DOES SO KNOWINGLY, 3 10 WILLINGLY, AND VOLUNTARILY IN EXCHANGE FOR THE BENEFITS DESCRIBED IN THE SEPARATION AGREEMENT. GORDON E. EUBANKS, JR. SYMANTEC CORPORATION By: - ----------------------------- -------------------------------- Signature Date: Title: ---------------------- ------------------------------ Date: ---------------------- 4 11 SYMANTEC CORPORATION CY 1999 PRESIDENT AND CEO VARIABLE COMPENSATION PLAN This document defines the Variable Compensation Plan for Symantec's President and Chief Executive Officer. The objective for CY 1999 is to achieve planned earnings per share of $1.85 and planned revenue of $768 million. The purpose of this plan is to provide critical focus on these goals and to provide incentive compensation upon their attainment. PLAN SUMMARY The Target Bonus for this executive position is 100% of annual base salary. - - Quarterly: The plan includes bonus targets of 12.5% of base salary each quarter (50% of base salary for the full year). There is no additional pay out possible for achieving more than 100% of the quarterly metrics. - - Annual: The annual bonus target is 50% of base salary contingent upon achievement of overall calendar year revenue growth and EPS results. Achieving results greater than "planned performance" can yield an additional 50% upside of base salary. - - Maximum: The maximum bonus potential of the combined plans is 150% of annual base salary. PLAN GUIDELINES FOR CY 1999 1. The Board of Directors reserves the right to alter or cancel any or all such plan for any reason at any time. Any payments made under this plan are at the sole discretion of the Board of Directors. 2. Participation in the plan for CY 1999 does not guarantee participation in future incentive plans. Plan structures and participation will be determined on a year to year basis and are guidelines only. 3. This plan supersedes any previous incentive or bonus plan that may have been in existence. Those plans are null and void with the issuance of this Plan for CY 1999. 4. Annual base salary reviewed and established at beginning of each calendar year. 5. For participant with less that a full quarter of participation in the plan, the quarterly bonus will be prorated based on the number of weeks of participation. 6. The annual bonus calculation will be based on all eligible base salary earnings for the year. 7. For participant with less that a full year of participation in the plan, the annual bonus will be prorated based on the number of weeks of participation. 8. Plan participant must be regular full-time employee at the end of each quarter in order to participate. A participant who leaves before the end of the calendar year will not receive payment under the annual calculation of the plan. 9. In the event of an acquisition or purchases of products or technology, the Planned Revenue, Revenue Growth, and Earnings per Share numbers will be adjusted to reflect the change and are to be approved by the Compensation Committee of the Board of Directors. One-time charges will be documented clearly and components of the one time charge will be spelled out prior to approval. 10. Payment will be made within two weeks of the financial close of each quarter. QUARTERLY PLAN COMPONENTS 12 SYMANTEC CORPORATION CY 1999 PRESIDENT AND CEO VARIABLE COMPENSATION PLAN Two metrics determine the bonus payment: 1) quarterly PLANNED TOTAL REVENUE (PTR) and 2) quarterly EARNINGS PER SHARE (EPS). The performance targets for these metrics are stated below. The weighting of each metric is 50%. A minimum threshold of 80% of EACH target must be exceeded before the quarterly bonus will be paid for that metric. There is no additional payment for achieving more than 100% of the quarterly target in the Quarterly Plan. o At 80% of the metric target, 0% of the bonus associated with that metric will be paid. o Between 80% and 100% of the metric targets, the bonus will be calculated on a LINEAR basis in relation to the percent of the metric achieved.
- ------------------------------------------------------------------------------------------------------ PERFORMANCE BETWEEN 80-100% OF PLAN - ------------------------------------------------------------------------------------------------------ % of Metrics % of Bonus % of Metrics % of Bonus Attained earned Revenue EPS Attained earned Revenue EPS - ------------- ---------- -------- ------ ------------- ---------- -------- ------ Weighting Weighting ----------------- ----------------- 50% 50% 50% 50% - ------------------------------------------------------------------------------------------------------ 80 - ------------------------------------------------------------------------------------------------------ 81 5% 2.5% 2.5% 91 55% 27.5% 27.5% - ------------------------------------------------------------------------------------------------------ 82 10% 5.0% 5.0% 92 60% 30.0% 30.0% - ------------------------------------------------------------------------------------------------------ 83 15% 7.5% 7.5% 93 65% 32.5% 32.5% - ------------------------------------------------------------------------------------------------------ 84 20% 10.0% 10.0% 94 70% 35.0% 35.0% - ------------------------------------------------------------------------------------------------------ 85 25% 12.5% 12.5% 95 75% 37.5% 37.5% - ------------------------------------------------------------------------------------------------------ 86 30% 15.0% 15.5% 96 80% 40.0% 40.0% - ------------------------------------------------------------------------------------------------------ 87 35% 17.5% 17.5% 97 85% 42.5% 42.5% - ------------------------------------------------------------------------------------------------------ 88 40% 20.0% 20.0% 98 90% 45.0% 45.0% - ------------------------------------------------------------------------------------------------------ 89 45% 22.5% 22.5% 99 95% 47.5% 47.5% - ------------------------------------------------------------------------------------------------------ 90 50% 25.0% 25.0% 100 100% 50.0% 50.0% - ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------ QUARTER BONUS TARGETS - ------------------------------------------------------------------------------------------------------ ($000's) MARCH QUARTER JUNE QUARTER SEPTEMBER QUARTER DECEMBER QUARTER - ---------------- ------------- ------------ ----------------- ---------------- PLANNED QTRLY REVENUE TARGET - ------------------------------------------------------------------------------------------------------ 80% Of Threshold ====================================================================================================== EPS TARGET - ------------------------------------------------------------------------------------------------------ 80% Of Threshold - ------------------------------------------------------------------------------------------------------
ANNUAL PLAN COMPONENTS 13 SYMANTEC CORPORATION CY 1999 PRESIDENT AND CEO VARIABLE COMPENSATION PLAN Two metrics will determine the annual bonus: 1) REVENUE GROWTH and 2) EARNINGS PER SHARE for CY 1999. Attainment of each metric will determine 50% of the annual bonus respectively. In addition, a 50% of base salary upside bonus potential exists for performance greater than 100% of plan in the Annual Plan. o A threshold of 80% must be exceeded for each respective metric before that metric's portion of the annual bonus will be paid. There is an additional incentive for achieving more than 100% of each metric. o Between 80% and 100%, 1% performance equals 5% incentive. Between 100% and 130%, the bonus will be calculated on a linear basis in relation to the percent of the metric achieved (1% performance equals 2.5% incentive).
Performance between 80-100% of Plan Performance > 100% of Plan ----------------------------------- -------------------------- % of Metric % of Bonus Revenue EPS % of Metric % of Bonus Revenue EPS - --------------------------------------------------------------------------------------------- Weighting Weighting 50% 50% 50% 50% ---------------- --------------- 80 81 5% 2.5% 2.5% 101 102.50% 51.25% 51.25% 82 10% 5.0% 5.0% 102 105.00% 52.50% 52.50% 83 15% 7.5% 7.5% 103 107.50% 53.75% 53.75% 84 20% 10.0% 10.0% 104 110.00% 55.00% 55.00% 85 25% 12.5% 12.5% 105 112.50% 56.25% 56.25% 86 30% 15.0% 15.0% 106 115.00% 57.50% 57.50% 87 35% 17.5% 17.5% 107 117.50% 58.75% 58.75% 88 40% 20.0% 20.0% 108 120.00% 60.00% 60.00% 89 45% 22.5% 22.5% 109 122.50% 61.25% 61.25% 90 50% 25.0% 25.0% 110 125.00% 62.50% 62.50% 91 55% 27.5% 27.5% 111 127.50% 63.75% 63.75% 92 60% 30.0% 30.0% 112 130.00% 65.00% 65.00% 93 65% 32.5% 32.5% 113 132.50% 66.25% 66.25% 94 70% 35.0% 35.0% 114 135.00% 67.50% 67.50% 95 75% 37.5% 37.5% 115 137.50% 68.75% 68.75% 96 80% 40.0% 40.0% 116 140.00% 70.00% 70.00% 97 85% 42.5% 42.5% 117 142.50% 71.25% 71.25% 98 90% 45.0% 45.0% 118 145.00% 72.50% 72.50% 99 95% 47.5% 47.5% 119 147.50% 73.75% 73.75% 100 100% 50.0% 50.0% 120 150.00% 75.00% 75.00%
There is no additional payment for achieving performance greater than 120% in the Annual Plan. EX-10.63 14 SUPPLEMENTAL OPTION VESTING AND SEVERANCE 1 Exhibit 10.63 Mr. Greg Myers February 26, 1999 Re: Compensation This letter confirms the terms and conditions of your supplemental option vesting and severance arrangement with Symantec Corporation ("Symantec"). RECITALS You are currently serving as Symantec's Chief Financial Officer. In the interest of retaining your services, Symantec is offering the following option vesting and severance arrangement in addition to the other elements of your compensation arrangement. 1.) Employment Termination after Sale of the Company. In the event that your employment is terminated without cause within twelve months after the consummation of a transaction in which over 50% of the outstanding common stock of Symantec is acquired by a person or entity not then under he control of Symantec or its shareholders, then (a) all of your unvested options will thereupon become immediately exercisable and (b) you will be paid severance in an amount equal to twenty four months of your base salary at that time, net of tax withholding. For the purposes of this agreement, "cause" shall mean (i) any intentional tort (excluding any tort relating to a motor vehicle) which causes loss, damage or injury to the property or reputation of Symantec or its subsidiaries; (ii) any crime or act of fraud or dishonesty against Symantec or its subsidiaries; (iii) the commission of a felony; (iv) habitual neglect of duties which is not cured within ten (10) days after written notice thereof by the President of Symantec to you, (v) the disregard of the written policies of Symantec or its subsidiaries which causes loss, damage or injury to the property or reputation of Symantec or its subsidiaries which is not cured within ten (10) days after written notice of such neglect by the President of Symantec to you; (vi) or any material breach of your ongoing obligation not to disclose confidential information, and not to assign intellectual property developed during employment. 2.) New Option Grant. You will be given a new grant of 41,973 options (the "New Grant") as your promotional grant such that your total number of unvested options at the time of this letter is 80,000. The New Grant will vest in twenty-four equal monthly installments of 1,748 options starting on March 1, 1999. You agree that the New Grant is the only option grant that has been given to you during calendar 1999 to the date of this letter. 3.) Employment Termination without cause. In the event that your employment is terminated without cause (a) if such termination takes place on or prior to February 26, 2000, then you will be paid severance in an amount equal to twenty four months of your base salary at that time, net of tax withholding or (b) if such termination takes place after February 26, 2000, 1 2 then you will be paid severance in an amount equal to eighteen months of your base salary at that time, net of tax withholding. 4.) No Other Changes. Except as set forth herein, all other aspects of your compensation and employment, including the terms of your stock option agreements, remain unchanged. 5.) Miscellaneous. This Agreement will bind and inure to the benefit of each of the parties hereto and their respective successors and assigns. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. Any waiver, modification or amendment of any provision of this Agreement shall be effective only if made in writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement effective as of the date first above written. SYMANTEC CORPORATION GREG MYERS By: /s/ GORDON EUBANKS /s/ GREG MYERS ------------------------------ ---------------------------------- Gordon Eubanks Greg Myers President and CEO 2 EX-10.67 15 EMPLOYMENT AGREEMENT BETWEEN CO. & JOHN THOMPSON 1 EXHIBIT 10.67 SYMANTEC CORPORATION 10201 Torre Avenue Cupertino, California 95014-1232 April 11, 1999 Mr. John W. Thompson 82 Old Hill Road Westport, CT 06880 Via Fax: 203-227-4446 Employment Agreement Dear John: On behalf of the Board of Directors of Symantec Corporation, I am pleased to offer you the position of President and Chief Executive Officer of Symantec on the terms set forth below. 1. Position. You will be employed by Symantec as its President and Chief Executive Officer effective commencing upon the date of your resignation from your current employer (the "Commencement Date"). As such you will have overall responsibility for the management of Symantec and will report directly to its Board of Directors. During your term, you will also be appointed to the Board of Directors and serve as Chairman of the Board. During the term of your employment, you will be expected to devote your full working time and attention to the business of Symantec, and you will not render services to any other business without the prior approval of the Board of Directors or, directly or indirectly, engage or participate in any business that is competitive in any manner with the business of Symantec. Notwithstanding the foregoing, you may remain a director of businesses with respect to which you are a director on the Commencement Date and you may serve on boards of charitable organizations or own up to 1% of the outstanding equity securities of any corporation whose stock is listed on a national stock exchange. You will also be expected to comply with and be bound by the Company's operating policies, procedures and practices that are from time to time in effect during the term of your employment. 2. Base Salary. Your initial base annual salary will be $600,000, payable in accordance with Symantec's normal payroll practices with such payroll deductions and withholdings as are required by law. Your base salary will be reviewed on an annual basis by the Compensation Committee of the Board of Directors and increased from time to time, in the discretion of the Board of Directors, but in any event such compensation shall not be reduced below $600,000, during your term of employment. 2 3. Bonus. (a) For the balance of the calendar year 1999, you will be eligible to receive a prorated portion of a target bonus equal to 100% of your base annual salary in accordance with Symantec's CY 1999 President and CEO Variable Compensation Plan ("VCP"), a copy of which is attached to this letter as Exhibit A. The plan includes (i) quarterly bonus targets of 12.5% of base annual salary each quarter based on achievement of quarterly metrics for total revenue and earnings per share and (ii) an annual bonus target of 50% of base annual salary based on achievement of overall calendar year revenue growth and EPS results. Achieving results greater than planned performance can yield up to an additional 50% of base annual salary. Your maximum bonus potential for the combined quarterly and annual bonus is 150% of base annual salary, prorated for the portion of the year that you are employed by Symantec. Because you will be starting during the second quarter of the year, your target bonus of $75,000 for the quarter ending June 30, 1999 will be guaranteed and paid regardless of whether the quarterly metrics are achieved, and you will receive a guaranteed annual bonus for calendar year 1999 equal to $75,000 plus one half of the amount that would have been payable if you had been employed by Symantec for the full year based on the annual revenue growth and EPS results; it being understood that if the actual calendar 1999 results for Symantec result in a higher bonus entitlement for you under the terms of the VCP, you shall be entitled to the maximum bonus potential otherwise payable to you under the VCP. (b) Notwithstanding any other provision of this agreement to the contrary, you will, during the term of your employment, be provided with the maximum bonus and incentive opportunity offered to any senior executive of Symantec and to the extent that any other individual is offered a more favorable bonus or incentive opportunity (whether in connection with recruitment or ongoing employment) your incentive and bonus opportunity for the year in question shall be adjusted retroactively to give effect to such changes. 4. Stock Options and Restricted Stock. (a) On the Commencement Date, the Compensation Committee of the Board of Directors shall grant you options to purchase 1,000,000 shares of Symantec common stock at an exercise price equal to its closing price on the last trading day prior to the Commencement Date. These options will vest and become exercisable over a five year period, with 200,000 shares vesting and becoming exercisable on the first anniversary of your employment and the remaining 800,000 shares vesting and becoming exercisable ratably on a monthly basis as of the first day of each month over the following four years. Except as otherwise indicated in this agreement, the vested portion of the options may be exercised at any time until the earlier of one year after the termination of your employment or ten years after the grant of such options. A portion of these stock options will be designated as "incentive stock options" under Symantec's stock options plan to the extent permitted by the Internal Revenue Code (up to $100,000 in aggregate amount exercisable per year), and the balance of the options will be nonqualified stock options. You should consult a tax advisor concerning your income tax consequences before exercising any of the options. Notwithstanding any other provision of this Section 4(a) to the contrary, upon "Involuntary Termination," "Termination without Cause," or "Termination for Death or Disability," unvested options and shares of restricted stock shall immediately vest as provided below. Symantec shall register the shares issuable under the options and the shares of 2 3 restricted stock on a Form S-8 registration statement prior to the initial vesting date for such options and shares and shall keep such registration statement in effect for the entire period the options and shares remain outstanding. (b) You will be granted 100,000 shares of restricted common stock on your first date of employment for a purchase price equal to the par value of the common stock of $0.01 per share. These shares of restricted stock will vest over a two-year period, with 50,000 shares vesting on the first anniversary of your employment and the remaining 50,000 shares vesting on the second anniversary of your employment. These shares of restricted stock will not be transferable by you until they are vested. Unvested shares will be subject to repurchase by Symantec at $0.01 per share upon termination or your employment, except as otherwise provided below. Unless you elect to be taxed upon receipt of the restricted stock (by filing a special Section 83(b) election with the IRS within 30 days), you will be taxed (and subject to income tax withholding) on the value of the restricted stock as the shares vest. Again, you should consult a tax advisor concerning the tax consequences. 5. Other Benefits. You will be entitled to the following additional benefits: (a) You will be eligible for the normal vacation, health insurance, 401(k), Employee Stock Purchase Plan and other benefits offered to all Symantec senior executives of similar rank and status. (b) As President and Chief Executive Officer, you will be eligible for the following executive benefits: participation in Symantec's Nonqualified Deferred Compensation Plan, which permits you to defer receipt of up to 50% of your annual base salary and bonus on a tax deferred basis; a company car or car allowance in accordance with Symantec's company car policy; reimbursement for up to $3,000 per year for tax preparation services; reimbursement for up to $2,000 per year for membership in professional organizations related to Symantec's business; and reimbursement for up to $1,000 per year for an annual physical examination. (c) You will be eligible for reimbursement for certain expenses incurred in connection with your relocation to California as set forth in the Relocation Agreement attached to this letter as Exhibit B; provided that no repayment will be required upon an Involuntary Termination, a Termination without Cause, or a Termination for Death or Disability. (d) Symantec will provide you with a recourse loan in an amount equal to your existing equity in your Connecticut home on an interest-free basis for a period of one year in order to assist you in financing your residence in the Bay Area. This loan shall be secured by a second mortgage on such new residence. This loan shall be due and payable one year from the date of such loan (two years from the date of such loan in the case of your termination of employment, other than a Voluntary Termination or Termination for Cause, within such one-year period). 6. At-Will Employment and Termination. Your employment with Symantec will be at-will and may be terminated by you or by Symantec at any time for any reason as follows: 3 4 (a) You may terminate your employment upon written notice to the Board of Directors at any time for "Good Reason," as defined below (an "Involuntary Termination"); (b) You may terminate your employment upon written notice to the Board of Directors at any time in your discretion without Good Reason ("Voluntary Termination"); (c) Symantec may terminate your employment upon written notice to you at any time following a determination by two-thirds (2/3) vote of the entire Board of Directors that there is "Cause," as defined below, for such termination ("Termination for Cause"); (d) Symantec may terminate your employment upon written notice to you at any time in the sole discretion of two-thirds (2/3) of the entire Board of Directors without a determination that there is Cause for such termination ("Termination without Cause"); (e) Your employment will automatically terminate upon your death or upon your disability as determined by the Board of Directors ("Termination for Death or Disability"); provided that "disability" shall mean your complete inability to perform your job responsibilities for a period of 180 consecutive days or 180 days in the aggregate in any 12-month period. 7. DEFINITIONS. As used in this agreement, the following terms have the following meanings: (a) "Good Reason" means (i) a material reduction in your duties that is inconsistent with your position as President and Chief Executive Officer of Symantec or a change in your reporting relationship such that you no longer report directly to the Board of Directors; (ii) your no longer being President and Chief Executive Officer of Symantec or, in the case of a Change in Control, of the surviving entity or acquiror that results from any Change in Control; (iii) any reduction in your base annual salary or target quarterly or annual bonus (other than in connection with a general decrease in the salary or target bonuses for all officers of Symantec without your consent or material breach by Symantec of any of its obligations hereunder after providing Symantec with written notice and an opportunity to cure within seven (7) business days; (iv) a requirement by Symantec that you relocate your principal office to a facility more than 50 miles from Symantec's current headquarters; or (v) failure of any successor to assume this agreement pursuant to Section 13(d) below. (b) "Cause" means (i) gross negligence or willful misconduct in the performance of your duties to Symantec (other than as a result of a disability) that has resulted or is likely to result in substantial and material damage to Symantec, after a demand for substantial performance is delivered to you by the Board of Directors which specifically identifies the manner in which the Board believes you have not substantially performed your duties and you have been provided with a reasonable opportunity to cure any alleged gross negligence or willful misconduct; (ii) commission of any act of fraud with respect to Symantec; or (iii) conviction of a felony or a crime involving moral turpitude causing material harm to the business and affairs of Symantec. No act or failure to act by you shall be considered "willful" if done or omitted by you 4 5 in good faith with reasonable belief that your action or omission was in the best interest of Symantec. (c) "Change in Control" means (i) any person or entity becoming the beneficial owner, directly or indirectly, of securities of Symantec representing forty (40%) percent of the total voting power of all its then outstanding voting securities, (ii) a merger or consolidation of Symantec in which its voting securities immediately prior to the merger or consolidation do not represent, or are not converted into securities that represent, a majority of the voting power of all voting securities of the surviving entity immediately after the merger or consolidation, (iii) a sale of substantially all of the assets of Symantec or a liquidation or dissolution of Symantec, or (iv) individuals who, as of the Commencement Date, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of Symantec subsequent to the Commencement Date, whose election, or nomination for election by Symantec stockholders, was approved by the vote of at least a majority of the directors then in office shall be deemed a member of the Incumbent Board. 8. Separation Benefits. Upon termination of your employment with Symantec for any reason, you will receive payment for all salary, prorated quarterly bonus and annual bonus and unpaid vacation accrued to the date of your termination of employment; your benefits will be continued under Symantec's then existing benefit plans and policies for so long as provided under the terms of such plans and policies and as required by applicable law; except as otherwise provided below, you will have until one year (three months in the case of Termination for Cause or a Voluntary Termination) after the effective date of your termination to exercise any stock options that were vested as of the effective date of your termination; and, except as otherwise provided below, all unvested shares of restricted stock will be repurchased by Symantec at $0.01 per share. Under certain circumstances, you will also be entitled to receive severance benefits as set forth below, but you will not be entitled to any other compensation, award or damages with respect to your employment or termination. (a) In the event of your Voluntary Termination or Termination for Cause, you will not be entitled to any cash severance benefits or additional vesting of shares of restricted stock or options. (b) In the event of your Involuntary Termination or Termination without Cause, you will be entitled to a single lump sum severance payment equal to twice your then current annual base salary (less applicable deductions and withholdings) payable within 30 days after the effective date of your termination; the vesting of your unvested shares of restricted stock shall be accelerated in full; the vesting and exercisability of your outstanding options to purchase Symantec common stock shall be immediately accelerated by two years, and you will have until one year after the effective date of your termination to exercise any options that were vested, including those that were accelerated as of the effective date of your termination. Symantec shall reimburse you for all COBRA premiums paid by you for the full extension period permitted by law. Notwithstanding the foregoing, if your Involuntary Termination or Termination without Cause occurs within twelve months after a Change in Control, the vesting and exercisability of 5 6 all your outstanding options to purchase Symantec common stock (or securities of the surviving entity that are issuable upon exercise of such options following the Change in Control) will be immediately accelerated in full and you will have until one year after the effective date of your termination to exercise such options. (c) In the event of your Termination for Death or Disability, the vesting of your unvested shares of restricted stock and the vesting and exercisability of your outstanding options to purchase Symantec common stock shall be immediately accelerated by two years and your designated beneficiary or, in the absence of such designation, your estate will be entitled to a single lump sum death benefit equal to $5,000,000 in accordance with Symantec's life insurance plan in the case of your death, or you will be entitled to disability payments of up to $20,000 per month after 180 days of continuous disability in accordance with Symantec's long term disability plan, and you or your estate will have until one year after the effective date of your death or disability to exercise any options that were vested as of the effective date of your termination, including those that were accelerated as of the effective date of your death or disability. Symantec agrees to maintain during the course of your employment insurance and disability coverage on your life in the amounts set forth above. (d) If your severance and other benefits provided for in this Section 8 constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code and, but for this subsection, would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then your severance and other benefits under this Section 8 will be payable, at your election, either in full or in such lesser amount as would result, after taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, in your receipt on an after-tax basis of the greatest amount of severance and other benefits. (e) No payments due you hereunder shall be subject to mitigation or offset. 9. Indemnification Agreement. Upon your commencement of employment with Symantec, Symantec will enter into its standard form of indemnification agreement for officers and directors, a copy of which is attached to this letter as Exhibit C, to indemnify you against certain liabilities you may incur as an officer or director of Symantec. 10. Confidential Information and Invention Assignment Agreement. Upon your commencement of employment with Symantec, you will be required to sign its standard form of Employee Agreement, a copy of which is attached to this letter as Exhibit D, to protect Symantec's confidential information and intellectual property. 11. Nonsolicitation. During the term of your employment with Symantec and for one year thereafter, you will not, on behalf of yourself or any third party, solicit or attempt to induce any employee of Symantec to terminate his or her employment with Symantec. 12. Arbitration. The parties agree that any dispute regarding the interpretation or enforcement of this agreement shall be decided by confidential, final and binding arbitration 6 7 conducted by Judicial Arbitration and Mediation Services ("JAMS") under the then existing JAMS rules rather than by litigation in court, trial by jury, administrative proceeding or in any other forum. 13. Miscellaneous. (a) Authority to Enter into Agreement. Symantec represents that its Chairman of the Board has due authority to execute and deliver this agreement on behalf of Symantec. (b) Absence of Conflicts. You represent that upon the Commencement Date your performance of your duties under this agreement will not breach any other agreement as to which you are a party. (c) Attorneys Fees. If a legal action or other proceeding is brought for enforcement of this agreement because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and costs incurred, both before and after judgment, in addition to any other relief to which they may be entitled. (d) Successors. This agreement is binding on and may be enforced by Symantec and its successors and assigns and is binding on and may be enforced by you and your heirs and legal representatives. Any successor to Symantec or substantially all of its business (whether by purchase, merger, consolidation or otherwise) will in advance assume in writing and be bound by all of Symantec's obligations under this agreement. (e) Notices. Notices under this agreement must be in writing and will be deemed to have been given when personally delivered or two days after mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. Mailed notices to you will be addressed to you at the home address which you have most recently communicated to Symantec in writing. Notices to Symantec will be addressed to its General Counsel at Symantec's corporate headquarters. (f) Waiver. No provision of this agreement will be modified or waived except in writing signed by you and an officer of Symantec duly authorized by its Board of Directors. No waiver by either party of any breach of this agreement by the other party will be considered a waiver of any other breach of this agreement. (g) Entire Agreement. This agreement, including the attached exhibits, represents the entire agreement between us concerning the subject matter of your employment by Symantec and supersedes any agreements prior to April 11, 1999. (h) Governing Law. This agreement will be governed by the laws of the State of California without reference to conflict of laws provisions. 7 8 (i) Legal Expenses. Symantec shall reimburse your reasonable and documented legal expenses in connection with this agreement in an amount not to exceed $15,000. John, we are very pleased to extend this offer of employment to you and look forward to your joining Symantec as its President and Chief Executive Officer. Please indicate your acceptance of the terms of this agreement by signing in the place indicated below. Very truly yours, Accepted April 11, 1999 /s/ CARL D. CARMAN /s/ JOHN W. THOMPSON - ----------------------------------- ----------------------------------------- Carl D. Carman John W. Thompson Chairman of the Board of Directors Symantec Corporation 8 EX-21.01 16 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.01 SYMANTEC CORPORATION SUBSIDIARIES OF SYMANTEC
Name of Subsidiary State or Country of Incorporation - ------------------------------------------------ ----------------------------------- 1087013 Ontario Limited Canada Datastorm Technologies, Inc. Missouri, USA Delrina (Canada) Corporation Canada Delrina (Delaware) Corporation Delaware, USA Delrina (Germany) GmbH Germany Delrina (UK) Corporation Limited United Kingdom Delrina (US) Corporation California, USA Delrina (Wyoming) Limited Liability Company Wyoming, USA Delrina Corporation (Canada) Canada Delrina International Corporation (Barbados) Barbados DESQaway, USA New York, USA Future Labs, Inc. California, USA Inset Systems, Inc. Connecticut, USA Internetware, Inc. California, USA Limbex Corporation California, USA Mango Systems, Inc. California, USA Quarterdeck Corporation Delaware, USA Quarterdeck France S.A.R.L. France Quarterdeck FSC Ltd. U.S. Virgin Islands Quarterdeck International Limited. Ireland Quarterdeck Office Systems (Middle East) Ltd. Cyprus Quarterdeck Office Systems Canada, Inc. Canada Quarterdeck Office Systems Espana SL Spain Quarterdeck Office Systems GmbH Germany Quarterdeck Office Systems Pty. Ltd. Australia Quarterdeck Office Systems UK Ltd. United Kingdom Quarterdeck Select Corporation Florida, USA Starnine Technologies, Inc. California, USA Symantec (Deutschland) GmbH Germany Symantec (Japan) KK Japan Symantec (Singapore) PTE Ltd. Singapore Symantec (UK) Holding, Ltd. United Kingdom Symantec (UK) Ltd. ("Symantec UK") United Kingdom Symantec Argentina S.R.L. Argentina Symantec Australia Pty. Ltd. Australia Symantec Corporation (Malaysia) Sdn. Bhd. Malaysia Symantec do Brasil Ltda. Brazil Symantec EURL (France) France Symantec Financing B.V. (Netherlands) Netherlands Symantec Foreign Holding, Inc. Delaware, USA Symantec Foreign Sales Corporation (Barbados) Barbados Symantec Hong Kong Ltd. Hong Kong Symantec Korea Ltd. Korea Symantec Limited (Ireland) Ireland Symantec New Zealand Limited New Zealand Symantec Nordic A.B. Sweden Symantec S.A. (Pty) Ltd. South Africa Symantec SRL (Italy) Italy Symantec Switzerland AG Switzerland
2 Vertisoft Systems, Inc. California, USA Zortech (UK) Ltd. United Kingdom Zortech Limited ("Zortech") United Kingdom
EX-23.01 17 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 1 EXHIBIT 23.01 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-31444, 33-32065, 33-33654, 33-37066, 33-42440, 33-44203, 33-46927, 33-51612, 33-54396, 33-55300, 33-64290, 33-70558, 33-80360, 33-88694, 33-60141, 33-64507, 333-07223, 333-18353, 333-18355, 333-39175, 333-71021, 333-71023 and Form S-3 Nos. 33-82012 and 33-63513) of our report dated April 30, 1999, with respect to the consolidated financial statements and schedule of Symantec Corporation included in this Annual Report (Form 10-K) for the year ended March 31, 1999. /S/ ERNST & YOUNG LLP San Jose, California June 30, 1999 EX-27.01 18 FINANCIAL DATA SCHEDULE FOR THE YEAR ENDED 3/31/97
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYMANTEC CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS APR-01-1996 MAR-31-1997 MAR-31-1997 95,758 64,324 49,675 (4,300) 4,476 235,922 136,936 (85,326) 339,398 106,353 15,066 0 0 554 217,425 339,398 452,933 452,933 83,033 83,033 352,350 1,599 1,402 30,278 4,340 26,038 0 0 0 26,038 .48 .47
EX-27.02 19 FINANCIAL DATA SCHEDULE FOR THE YEAR ENDED 3/31/98
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYMANTEC CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS APR-01-1997 MAR-31-1998 MAR-31-1998 139,013 86,870 69,574 (4,416) 3,175 328,539 158,169 (108,139) 475,460 153,002 14,284 0 0 571 316,936 476,460 532,940 532,940 87,431 87,431 390,585 1,036 1,218 112,097 27,008 85,089 0 0 0 85,089 1.52 1.42
EX-27.03 20 FINANCIAL DATA SCHEDULE FOR THE YEAR ENDED 3/31/99
5 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYMANTEC CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS APR-01-1998 MAR-31-1999 MAR-31-1999 153,873 38,882 81,332 (4,946) 6,377 316,463 190,966 (138,079) 563,476 216,908 0 0 0 569 344,544 563,476 592,628 592,628 96,558 96,558 468,229 609 1,839 83,173 32,972 50,201 0 0 0 50,201 .89 .86
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