-----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, RcoDZH5F3nGHmBNaa8LKtDypyirWJeEtA0/KVvukb9GQLzIczMYmJy8T3rgTbUu5 hhikiUSv0TNvb3tXJBFpnA== 0000912057-96-025790.txt : 19961113 0000912057-96-025790.hdr.sgml : 19961113 ACCESSION NUMBER: 0000912057-96-025790 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17781 FILM NUMBER: 96660152 BUSINESS ADDRESS: STREET 1: 10201 TORRE AVE CITY: CUPERTINO STATE: CA ZIP: 95014 BUSINESS PHONE: 4082539600 MAIL ADDRESS: STREET 2: 10201 TORRE AVENUE CITY: CUPERTINO STATE: CA ZIP: 95014 10-Q 1 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1996. 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 - -------------------------------------------------------------------------------- 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 the number of shares outstanding of each of the registrant's classes of common stock, including 4,033,732 shares of Delrina exchangeable stock, as of November 4, 1996: COMMON STOCK, PAR VALUE $0.01 PER SHARE 54,793,294 SHARES - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SYMANTEC CORPORATION FORM 10-Q QUARTERLY PERIOD ENDED SEPTEMBER 27, 1996 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1996 and March 31, 1996 . . . . . . . . . 3 Consolidated Statements of Operations for the three and six months ended September 30, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flow for the six months ended September 30, 1996 and 1995. . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 22 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 22 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 23 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SYMANTEC CORPORATION CONSOLIDATED BALANCE SHEETS September 30, March 31, (In thousands) 1996 1996 - -------------------------------------------------------------------------------- ASSETS (unaudited) Current assets: Cash and short-term investments $ 140,278 $ 129,199 Trade accounts receivable 65,378 72,256 Inventories 2,480 7,893 Deferred income taxes 12,693 12,875 Other 13,449 14,639 --------- --------- Total current assets 234,278 236,862 Equipment and leasehold improvements 53,527 51,698 Capitalized software 6,933 4,183 Other 2,892 5,186 --------- --------- $ 297,630 $ 297,929 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 23,375 $ 23,368 Accrued compensation and benefits 16,880 14,888 Other accrued expenses 50,337 60,566 Income taxes payable 2,699 3,329 Current portion of long-term obligations 19 68 --------- --------- Total current liabilities 93,310 102,219 Convertible subordinated debentures 15,000 15,000 Long-term obligations 298 393 Stockholders' equity: Preferred stock (authorized: 1,000 shares; issued and outstanding: none) -- -- Common stock (authorized: 100,000; issued and outstanding: 54,758 and 53,636 shares) 548 536 Capital in excess of par value 284,398 279,508 Notes receivable from stockholders (144) (144) Cumulative translation adjustment (7,257) (7,591) Accumulated deficit (88,523) (91,992) --------- --------- Total stockholders' equity 189,022 180,317 --------- --------- $ 297,630 $ 297,929 --------- --------- --------- --------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 3 SYMANTEC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended September 30, September 30, ---------------------- ---------------------- (In thousands, except per share data; unaudited) 1996 1995 1996 1995 - ------------------------------------------------ --------- --------- --------- --------- Net revenues $ 109,178 $ 108,510 $ 218,396 $ 218,375 Cost of revenues 20,730 35,090 42,214 57,308 --------- --------- --------- --------- Gross margin 88,448 73,420 176,182 161,067 Operating expenses: Research and development 20,835 23,795 43,841 43,868 Sales and marketing 52,967 60,448 106,746 112,659 General and administrative 7,826 11,811 15,093 20,888 Acquisition, restructuring and other expenses 7,290 -- 8,585 (71) --------- --------- --------- --------- Total operating expenses 88,918 96,054 174,265 177,344 --------- --------- --------- --------- Operating income (loss) (470) (22,634) 1,917 (16,277) Interest income 1,751 1,921 3,435 4,184 Interest expense (337) (344) (668) (783) Other income (expense), net 36 (1,188) (332) (2,653) --------- --------- --------- --------- Income (loss) before income taxes 980 (22,245) 4,352 (15,529) Provision (benefit) for income taxes 98 (4,459) 435 (4,609) --------- --------- --------- --------- Net income (loss) $ 882 $ (17,786) $ 3,917 $ (10,920) --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) per share $ 0.02 $ (0.34) $ 0.07 $ (0.21) --------- --------- --------- --------- --------- --------- --------- --------- Shares used to compute net income (loss) per share 54,951 52,498 55,042 52,033 --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4 SYMANTEC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW
Six Months Ended September 30, ----------------------- (In thousands; unaudited) 1996 1995 - ----------------------------------------------------------------- -------- --------- OPERATING ACTIVITIES: Net income (loss) $ 3,917 $ (10,920) Delrina net loss for the quarter ended June 30, 1995 -- 4,834 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of equipment and leasehold improvements 11,953 8,831 Amortization and write-off of capitalized software costs 2,684 7,412 Write-off of equipment and leasehold improvements 2,441 -- Deferred income taxes 181 2,854 Net change in assets and liabilities: Trade accounts receivable 7,197 (1,100) Inventories 5,446 (495) Other current assets 1,163 (8,874) Other assets 2,272 2,429 Accounts payable (27) 1,823 Accrued compensation and benefits 2,014 689 Accrued other expenses (10,391) 7,563 Income taxes payable (660) (66) -------- --------- Net cash provided by operating activities 28,190 14,980 -------- --------- INVESTING ACTIVITIES: Capital expenditures (16,274) (17,535) Capitalized software (5,442) (1,213) Purchases of short-term, available-for-sale investments (95,000) (51,000) Maturities of short-term, available-for-sale investments 66,751 55,476 -------- --------- Net cash used in investing activities (49,965) (14,272) -------- --------- FINANCING ACTIVITIES: Principal payments on long-term obligations (144) (124) Net proceeds from sales of common stock and other 4,458 15,168 -------- --------- Net cash provided by financing activities 4,314 15,044 Effect of exchange rate fluctuations on cash and cash equivalents 291 (98) -------- --------- Increase (decrease) in cash and cash equivalents (17,170) 15,654 Beginning cash and cash equivalents 41,777 30,192 -------- --------- Ending cash and cash equivalents $ 24,607 $ 45,846 -------- --------- -------- ---------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The consolidated financial statements of Symantec Corporation ("Symantec" or the "Company") as of September 30, 1996 and for the three and six months ended September 30, 1996 and 1995 are unaudited and, in the opinion of management, contain all adjustments, consisting of only normal recurring items necessary for the fair presentation of the financial position and results of operations for the interim periods. These consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Symantec's Annual Report on Form 10-K for the year ended March 31, 1996. The results of operations for the three and six months ended September 30, 1996 are not necessarily indicative of the results to be expected for the entire year. Certain previously reported amounts have been reclassified to conform to the current presentation format. Symantec has a 52/53-week fiscal accounting year. Accordingly, all references as of and for the periods ended September 30, 1996, March 31, 1996 and September 30, 1995 reflect amounts as of and for the periods ended September 27, 1996, March 29, 1996 and September 29, 1995, respectively. Research and development expenditures are charged to operations as incurred. During the September 1996 quarter, the Company capitalized approximately $2.5 million of costs principally associated with the development of certain networking software products in accordance with Statement of Financial Accounting Standard No. 86. To the extent the Company capitalizes its product development costs, the effect is to defer such costs to future periods and match those costs to the revenue generated by the developed products. Amounts capitalized may fluctuate depending in part on the number and status of internal software development projects. 6 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 2. BALANCE SHEET INFORMATION
September 30, March 31, (In thousands) 1996 1996 - -------------------------------------------------------------- ------------- --------- (unaudited) Cash and short-term investments: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,607 $ 20,176 Cash equivalents . . . . . . . . . . . . . . . . . . . . . 5,000 21,601 Short-term investments . . . . . . . . . . . . . . . . . . 115,671 87,422 --------- --------- $ 140,278 $ 129,199 --------- --------- --------- --------- Trade accounts receivable: Receivables. . . . . . . . . . . . . . . . . . . . . . . . $ 71,429 $ 77,272 Less: allowance for doubtful accounts. . . . . . . . . . . (6,051) (5,016) --------- --------- $ 65,378 $ 72,256 --------- --------- --------- --------- Inventories: Raw materials. . . . . . . . . . . . . . . . . . . . . . . $ 999 $ 1,969 Finished goods . . . . . . . . . . . . . . . . . . . . . . 1,481 5,924 --------- --------- $ 2,480 $ 7,893 --------- --------- --------- --------- Equipment and leasehold improvements: Computer equipment . . . . . . . . . . . . . . . . . . . . $ 87,096 $ 79,153 Office furniture and equipment . . . . . . . . . . . . . . 26,693 25,753 Leasehold improvements . . . . . . . . . . . . . . . . . . 16,299 12,603 --------- --------- 130,088 117,509 Less: accumulated depreciation and amortization. . . . . . (76,561) (65,811) --------- --------- $ 53,527 $ 51,698 --------- --------- --------- --------- Capitalized software: Purchased product rights . . . . . . . . . . . . . . . . . $ 7,490 $ 8,680 Capitalized software costs . . . . . . . . . . . . . . . . 10,509 5,623 Less: accumulated amortization of purchased product rights . . . . . . . . . . . . . . . . . . . . . (7,341) (8,162) Less: accumulated amortization of capitalized software costs . . . . . . . . . . . . . . . . . . . . . (3,725) (1,958) --------- --------- $ 6,933 $ 4,183 --------- --------- --------- --------- Other accrued expenses: Acquisition, restructuring and other expenses. . . . . . . $ 4,669 $ 7,833 Deferred revenue . . . . . . . . . . . . . . . . . . . . . 18,831 26,266 Marketing development funds. . . . . . . . . . . . . . . . 11,407 11,412 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 15,430 15,055 --------- --------- $ 50,337 $ 60,566 --------- --------- --------- ---------
NOTE 3. LINE OF CREDIT The Company has a $10.0 million bank line of credit that expires in March 1998. The line of credit is available for general corporate purposes and bears interest at the bank's reference (prime) interest rate (8.25% at September 30, 1996), the U.S. offshore rate plus 1.25%, a CD rate plus 1.25% or LIBOR plus 1.25%, at the Company's discretion. The line of credit requires bank approval for the payment of cash dividends. Borrowings under this line are unsecured and are subject to the Company maintaining certain financial ratios and profits. The Company was in compliance with the line of credit covenants as of September 30, 1996. At September 30, 1996, there was approximately $0.4 million of standby letters of credit outstanding under this line of credit. There were no borrowings outstanding under this line at September 30, 1996. 7 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 4. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES Acquisition, restructuring and other expenses consisted of the following:
Three Months Ended Six Months Ended September 30, September 30, -------------------- --------------------- (In thousands) 1996 1995 1996 1995 - --------------------------------------------- ------- ------- ------- -------- Write off of investment in joint venture $ 1,750 $ -- $ 1,750 $ -- Write off of in process research and development costs 3,050 -- 3,050 -- Centralization and restructuring and other 2,490 -- 3,185 -- Fast Track acquisition -- -- 600 -- Relocation of certain research and development activities -- -- -- 2,229 Central Point acquisition -- -- -- (2,300) ------- ------- ------- -------- Total acquisition, restructuring and other expenses $ 7,290 $ -- $ 8,585 $ (71) ------- ------- ------- -------- ------- ------- ------- --------
During the quarter ended September 30, 1996, Symantec recorded a $1.8 million charge in connection with the write off of an investment in a joint venture and a $3.1 million charge in connection with the acquisition of certain in process software development technology. During the quarter ended September 30, 1996, Symantec recorded $2.5 million for costs related to the restructuring of certain domestic and international sales and research and development operations. During the quarter ended June 30, 1996 the Company incurred a charge of $0.7 million for the centralization of certain research and development activities, settlement costs related to the Carmel lawsuit and other expenses. Symantec recorded total acquisition charges of $0.6 million in the quarter ended June 30, 1996 in connection with the acquisition of Fast Track. The charges included $0.4 million for legal, accounting and financial advisory services and $0.2 million for the consolidation and discontinuance of certain operational activities and other acquisition related expenses. During the quarter ended June 30, 1995, the Company incurred $2.2 million to consolidate certain research and development activities. This relocation has been completed. In the quarter ended June 30, 1995, the Company also recognized a reduction in accrued acquisition and restructuring expenses related to the acquisition of Central Point Software, Inc. ("Central Point") of $2.3 million, as actual costs incurred were less than costs previously accrued by Central Point. As of September 30, 1996, total remaining accrued acquisition, restructuring and other expenses were $4.7 million and included $0.7 million for legal, accounting and financial advisory services, $2.8 million for the elimination of duplicative and excess facilities, and $1.2 million for the consolidation and discontinuance of certain operational activities and other acquisition related expenses. NOTE 5. INCOME TAXES Income taxes are computed in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Symantec provides for income taxes during interim reporting periods based upon an estimate of its annual effective tax rate. This estimate reflects U.S. federal, state and foreign income taxes. 8 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 6. NET INCOME (LOSS) PER SHARE Net income (loss) per share is calculated using the treasury stock or the modified treasury stock method, as appropriate, if dilutive. Common stock equivalents are attributable to outstanding stock options. Fully diluted earnings per share includes the assumed conversion of all of the outstanding convertible subordinated debentures, if dilutive. NOTE 7. 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. Symantec believes the complaint has no merit and will vigorously defend itself. The Company has accrued certain estimated legal fees and expenses related to this matter; however, actual amounts may differ materially from those estimated amounts. On September 3, 1992, Borland International, Inc. ("Borland") filed a lawsuit in the Superior Court for Santa Cruz County, California against Symantec, Gordon E. Eubanks, Jr. (Symantec's President and Chief Executive Officer) and Eugene Wang (a former Executive Vice President of Symantec who is a former employee of Borland). The complaint, as amended, alleges misappropriation of trade secrets, unfair competition, including breach of contract, interference with prospective economic advantage and unjust enrichment. Borland alleged that prior to joining Symantec, Mr. Wang transmitted to Mr. Eubanks confidential information concerning Borland's product and marketing plans. Borland claims damages in an unspecified amount. Symantec has denied the allegations of Borland's complaint and contends that Borland has suffered no damages from the alleged actions. Borland obtained a temporary restraining order and a preliminary injunction prohibiting the defendants from using, disseminating or destroying any Borland proprietary information or trade secrets. Symantec filed a cross complaint against Borland alleging that Borland had committed abuse of process and defamation in publishing statements that Symantec had acted in contempt of a temporary restraining order. The case is not being actively prosecuted at this time pending the outcome of the criminal proceedings, discussed below. Symantec believes that Borland's claims have no merit. On September 2, 1992, the Scotts Valley, California police department, operating with search warrants for Borland proprietary and trade secret information, searched Symantec's offices and the homes of Messrs. Eubanks and Wang and removed documents and other materials. On February 26, 1993, criminal indictments were filed against Messrs. Eubanks and Wang for allegedly violating various California Penal Code Sections relating to the misappropriation of trade secrets and unauthorized access to a computer system. On August 23, 1993, the Court recused the District Attorney's Office from prosecution of the action. On October 5, 1993, the State Attorney General and the District Attorney's Office filed a Notice of Appeal of the Order, and that appeal was argued on July 11, 1995. On September 8, 1995, the Court of Appeals reversed the recusal order. A petition for review of this decision by the California Supreme Court was granted on December 14, 1995 and a hearing before the full court was held on November 5, 1996. No ruling has been made. Symantec believes the criminal charges against Messrs. Eubanks and Wang have no merit. On June 11, 1992, Dynamic Microprocessor Associates, Inc. ("DMA"), a former wholly-owned subsidiary of Symantec which has since been merged into Symantec, commenced an action against EKD Computer Sales & Supplies Corporation ("EKD"), a former licensee of DMA and Thomas Green, a principal of EKD, for copyright infringement, violations of the Lanham Act, trademark infringement, misappropriation, deceptive acts and practices, unfair competition and breach of contract. On July 14, 1992, the Suffolk County, New York sheriff's department conducted a search of EKD's premises and seized and impounded thousands of infringing articles. On July 21, 1992, the Court issued a preliminary injunction against EKD and Mr. Green, enjoining them from manufacturing, marketing, distributing, copying or purporting to license DMA's pcANYWHERE III or using DMA's marks. 9 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED On July 20, 1992 and in a subsequent amendment, EKD and Mr. Green answered Symantec's complaint denying all liability and asserting counterclaims against Symantec and Lee Rautenberg, a former principal of DMA. In May 1993, EKD and Mr. Green were granted permission to file a Second Amended Answer and Counterclaims that dropped every previously raised claim and instead alleged that DMA obtained the temporary restraining order and preliminary injunction in bad faith and that DMA, Symantec and Mr. Rautenberg breached certain license agreements and violated certain federal and New York State antitrust laws. In February 1995, DMA was granted leave to file an Amended Complaint, which EKD subsequently responded to by a Third Amended Answer and Counterclaims virtually identical to EKD's Second Amended pleading. Symantec believes the charges made by EKD and Mr. Green have no merit. 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 effect on the financial position of the Company. However, depending 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. NOTE 8. SALE OF PRODUCT RIGHTS During September 1996, Symantec sold its electronic forms software products and related tangible assets to JetForm Corporation ("JetForm") for approximately $100 million, payable over four years in quarterly installments. JetForm has the option to tender payment in either cash or in unregistered JetForm common stock. Due to the uncertainty regarding the collectibility of these amounts, Symantec is recognizing the payment amounts as received from JetForm. During the September 30, 1996 quarter, Symantec received the first quarterly payment in the form of JetForm unregistered common stock. The installment payment is included in net revenues. The minimum value of the unregistered common stock has been guaranteed by JetForm to be $7.2 million. NOTE 9. SUBSEQUENT EVENT In October 1996, Symantec entered into lease agreements for two office buildings in Cupertino, California. The lease agreements are for seven years and the lease payments total approximately $2.6 million per year. Lease payments are based on the three month London Interbank Offering Rate (LIBOR) rate 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 or may renew the lease. The guaranteed residual payment on the lease agreements totals approximately $38.5 million. Symantec is required to maintain a corresponding restricted cash balance, which will be invested in U.S. treasury notes with maturities not to exceed three years. The investments will be classified as long-term restricted investments within the financial statements. The Company currently occupies a portion of these office buildings and will assume the right to sub-lease income provided by the other tenants, which is estimated to be approximately $2.1 million per fiscal year based on current occupancy and rental rates. The sub-lease agreements have terms expiring in January 1997 through September 2000. 10 ITEM 2. 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 are subject to significant risks and uncertainties. The forward-looking statements within this Form 10-Q are identified by words such as "believes," "anticipates," "expects," "intends," "may" and similar expressions, but these words are not the exclusive means of identifying such statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. There are several important factors that could cause actual results to differ materially from historical results and percentages and results anticipated by the forward-looking statements contained in the following discussion. Such factors and risks include, but are not limited to, competition in the application, enterprise and network computer software industry, including price and product feature competition; the introduction of new or upgraded products by existing or new competitors; the economic environment, including corporate spending patterns; dependence on distributors and the emergence of new or changes to the current distribution channels, including the Internet; consumer acceptance of new operating systems and the successful development of the Company's products for these operating systems; the timing and consumer acceptance of the Company's new or upgraded products; the ability to successfully develop, market, support and acquire new products in an environment of rapidly changing technology and operating systems and the cost of such activities; acquisition risks, including increased costs and uncertain benefits and the ability to effectively integrate operations of acquired companies and manage growth, seasonality in the retail software markets in Europe; and risks associated with international operations, including foreign currency conversion, taxes and other legal restrictions. The customer acceptance of upgraded operating systems are particularly important events that increase the uncertainty and have increased the volatility of Symantec's results. In addition, the Company operates in a complex legal environment where, for example, an increasing number of patents are being issued that are potentially applicable to software, and allegations of patent infringement are becoming increasingly common in the software industry. Symantec is currently evaluating claims of patent infringement asserted by IBM with respect to certain of the Company's products. While the Company believes that it has valid defenses to these claims, there can be no assurance that the outcome of any related litigation or negotiation would not have a material adverse impact on the Company. Additional information on these and other risk factors which could adversely affect the Company's financial results is included in the Annual Report on Form 10-K and the quarterly report on Form 10-Q as filed by the Company with the Securities and Exchange Commission on June 26, 1996 and August 9, 1996, respectively. OVERVIEW Symantec develops, markets and supports a diversified line of application and system software products designed to enhance individual and workgroup productivity as well as manage networked computing environments. Founded in 1982, the Company has offices in the United States, Canada, Japan, Australia, Europe, the Pacific Rim and Latin America. The Company's earnings and stock price have been and may continue to be subject to significant volatility, particularly on a quarterly basis. Symantec has previously experienced shortfalls in revenue and earnings from levels expected by securities analysts, which has had an immediate and significantly adverse effect on the trading price of the Company's common stock. This may occur again in the future. Additionally, as a growing percentage of the Company's revenues is generated through site licenses that often occur late in the quarter, the Company may not learn of revenue shortfalls until late in the fiscal quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock. Furthermore, the Company participates in a highly dynamic industry, which often results in significant volatility of the Company's common stock price. In particular, the impact of, and investors' assessment of the impact of the 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED market's acceptance and adoption rate of new operating systems on Symantec's business will likely continue to result in significant volatility of Symantec's stock price. Also, the Internet has allowed the emergence of new competitors in network utilities who have subsequently extended there offerings to desktop based products. In addition, customer buying patterns and their allocation between investments in hardware verses software could change and cause a significant adverse effect on the Company's performance and the Company's common stock price. The trend towards server-based applications, the Internet and intranet environments could have a material adverse effect on sales of the Company's desktop-based products which may not be offset by sales of the Company's network-based products. During September 1996, Symantec sold its electronic forms software programs and related tangible assets to JetForm for approximately $100 million, payable over four years in quarterly installments. JetForm has the option to tender payment in either cash or in unregistered JetForm common stock. Due to the uncertainty regarding the receipt of these amounts, Symantec is only recognizing the amounts as received from JetForm. During the September 30, 1996 quarter, Symantec received the first quarterly payment in the form of JetForm unregistered stock. The installment was included in net revenues. The minimum value of the unregistered common stock has been guaranteed by JetForm to be $7.2 million. Symantec has completed a number of acquisitions and expects to acquire other companies in the future. While the Company believes that previous acquisitions were in the best interests of the Company and its stockholders, acquisitions involve a number of special risks, including the diversion of management's attention to assimilation of the operations and personnel of the acquired companies in an efficient and timely manner, the retention of key employees, the difficulty of presenting a unified corporate image, the coordination of sales and research and development efforts and the successful integration of the acquired products. The Company has lost certain employees of acquired companies whom it desired to retain, and in some cases, the assimilation of the operations of acquired companies took longer than initially had been anticipated by the Company. In addition, because the employees of acquired companies have frequently remained in their existing, geographically diverse locations and facilities, the Company has not realized certain economies of scale or cost reductions that might otherwise have been achieved. Symantec typically incurs significant acquisition expenses for legal, accounting and financial advisory services, the write-off of duplicative technology, the consolidation and discontinuance of certain operational activities and other expenses related to the combination of the companies. These expenses may have a significant adverse impact on the Company's future profitability and financial resources. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED RESULTS OF OPERATIONS The following table sets forth each item from the 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.
Three Months Percent Six Months Percent Ended Change Ended Change September 30, in Dollar September 30, in Dollar 1996 1995 Amounts 1996 1995 Amounts ---- ---- --------- ---- ---- --------- Net revenues . . . . . . . . . . . . . . 100% 100% 1% 100% 100% 0% Cost of revenues . . . . . . . . . . . . 19 32 (41) 19 26 (26) ---- ---- ---- ---- Gross margin . . . . . . . . . . . 81 68 20 81 74 9 Operating expenses: Research and development. . . . . . . 19 22 (12) 20 20 -- Sales and marketing . . . . . . . . . 49 56 (12) 49 52 (5) General and administrative. . . . . . 7 11 (34) 7 9 (28) Acquisition, restructuring and other expenses. . . . . . . . . . . . 6 -- 100 4 -- * ---- ---- ---- ---- Total operating expenses . . . . . 81 89 (7) 80 81 (2) ---- ---- ---- ---- Operating income (loss). . . . . . . . . -- (21) 98 1 (7) * Interest income. . . . . . . . . . . . . 1 1 (9) 1 2 (18) Interest expense . . . . . . . . . . . . -- -- (2) -- -- (15) Other income (expense), net. . . . . . . -- (1) * -- (2) (87) ---- ---- ---- ---- Income (loss) before income taxes. . . . 1 (21) * 2 (7) * Provision (benefit) for income taxes . . -- (5) * -- (2) * ---- ---- ---- ---- Net income (loss). . . . . . . . . . . . 1% (16)% * 2% (5)% * ---- ---- ---- ---- ---- ---- ---- ----
* percentage change is not meaningful. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED NET REVENUES. Net revenues were $109.2 million and $108.5 million in the quarters ended September 30, 1996 and 1995, respectively. Net revenues were $218.4 million in the six months ended September 30, 1996 and 1995. Net revenues for the three and six months ended September 30, 1996 included a decrease in distribution and international net revenues which was offset by a $7.2 million royalty payment received from JetForm and an increase in site licenses and consulting net revenues. During September 1996, Symantec sold its electronic forms software products and related tangible assets to JetForm for approximately $100 million, payable over four years in quarterly installments. Due to the uncertainty regarding the collectibility of these amounts, Symantec is recognizing the payments amounts as received from JetForm. Net revenues from international sales were $29.7 million and $33.6 million and represented 27% and 31% of net revenues in the quarters ended September 30, 1996 and 1995, respectively. The decrease in international net revenues during the September 1996 quarter was primarily due to reduced products sales in Germany and Holland which was partially offset by an increase in Japan and United Kingdom as compared to the same period last year. Net revenues from international sales were $64.7 million and $76.4 million and represented 30% and 35% of total net revenues for the six months ended September 30, 1996 and 1995, respectively. International revenues for the six months ended September 30, 1995 included the one time recognition of approximately $7.2 million of international net revenues previously deferred by Central Point prior to its acquisition by Symantec. During the September 1996 quarter, Symantec released various new products including Norton Anti-virus for Windows 95 v. 2.0, Norton Utilities for Windows 95 v. 2.0, Internet Fast Find v. 1.0, SAM v. 4.5 and Norton Administrator Suite - - Premier Edition v. 1.0. The release of product upgrades typically result in an increase in net revenues during the first three to six months following their introduction due to purchases by existing users, usually at discounted prices, and initial inventory purchases by Symantec's distributors. In addition, between the date Symantec announces a new version or new product and the ultimate release date, distributors, dealers and end users often delay purchases, cancel orders or return existing versions of the Company's products in anticipation of the availability of the new version or new product. The Company's pattern of revenues and earnings may also be affected by a phenomenon known as "channel fill." Channel fill occurs following the introduction of a new product or a new version of a product as distributors buy significant quantities of the new product or new version in anticipation of sales of such product or version. Following such purchases, the rate of distributors' purchases often declines in a material amount, depending on the rates of purchases by end users or "sell-through." The phenomenon of channel fill also may occur in response to sales promotions or incentives, or the discontinuance of sales promotions or incentives, some of which may be designed to encourage customers to accelerate purchases that might otherwise occur in later periods. Channels also may become filled simply because the distributors are unable to, or do not, sell their inventories to retail distribution or end users as originally anticipated. If sell-through does 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. Such order delays or cancellations can cause material fluctuations in revenues from one quarter to the next. The impact is somewhat mitigated by the Company's deferral of revenue associated with inventories estimated to be in excess of levels deemed appropriate in the distribution channel; however, net revenues may still be materially affected favorably or adversely by the effects of channel fill. Channel fill did not have a material impact on the Company's revenues in the three and six months ended September 30, 1996 and 1995 but may have a material impact in future periods, especially in periods where a large number of new products are introduced. Symantec believes that many of its customers are moving toward an enterprise-wide computing environment where more desktop personal computers will be interconnected into large local-area and wide-area networks administered by corporate MIS departments as well as through the public Internet and corporate intranets. Symantec's entry into 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED the enterprise software market is still relatively new and, as a result, Symantec is beginning to compete with companies with which it has not previously competed. As a result, there is uncertainty regarding customer acceptance of the Company's products as Symantec has not been a major supplier in the enterprise market. These factors increase the uncertainty of forecasting financial results. While the Company expects the market's shift toward enterprise, Internet/intranet products to continue, there can be no assurance that the Company's enterprise products will be successful or will gain customer acceptance. With the expansion to enterprise-wide computing systems markets, Symantec believes that it must continue to develop relationships with systems integrators and other third-party vendors that provide customer specific consulting and integration services and deliver products developed for this market segment. Furthermore, the sales cycle with respect to enterprise products is lengthy and may be subject to integration and acceptance by the customer. In addition, a very high proportion of enterprise product sales may be completed in the last few days of each quarter, in part because customers are able, or believe that they are able, to negotiate lower prices and more favorable terms. Each of these factors increase the risk that forecasts of quarterly financial results will not be achieved. Enterprise products are frequently sold through site licenses where a license for multiple workstations is sold to a customer at a negotiated price. Desktop software products are generally sold through the distribution channel or directly to end-users. Enterprise product revenues are typically comprised of lower volume, high dollar site license transactions compared to desktop product revenues which are typically comprised of higher volume, low dollar pre-packaged product transactions. The prices of site licenses tend to vary based upon the individual products purchased, the number of units licensed and the number of workstations at the customer's site. Price competition is significant in the microcomputer business software market and may continue to increase and become even more significant in the future, resulting in reduced profit margins. Should competitive pressures in the industry continue to increase, Symantec may be required to reduce software prices and/or increase its spending on sales, marketing and research and development as a percentage of net revenues, resulting in lower profit margins. This could have a material adverse effect on the Company's results of operations. In addition, aggressive pricing strategies of competitors in other software markets, some of whom have significant financial resources, may cause the Company to further reduce software prices and/or increase sales and marketing expenses on a number of the Company's products. Symantec has recently reduced pricing on several of the Company's key products. These decreases were more than offset by an increase in total number of units sold. Many of the Company's major customers, including two large distributors, tend to make the majority of their purchases at the end of the fiscal quarter, in part because they are able, or believe that they are able, to negotiate lower prices and more favorable terms. This end-of-period buying pattern means that forecasts of quarterly and annual financial results are particularly vulnerable to the risk that they will not be achieved, either because expected sales do not occur or because they occur at lower prices or on less favorable terms to the Company. The Company's distribution customers also carry the products of Symantec's competitors, some of which have significant financial resources. The distributors have limited capital to invest in inventory, and their decisions to purchase the Company's products is partly a function of pricing, terms and special promotions offered by Symantec as well as by its competitors over which the Company has no control and which it cannot predict. While Symantec's diverse product line has tended to lessen fluctuations in quarterly net revenues, these fluctuations have occurred recently and are likely to occur in the future. These fluctuations may be caused by a number of factors, including the timing of announcements and releases of new or enhanced versions of its products and product upgrades, the introduction of competitive products by existing or new competitors, reduced demand for any given product, seasonality in the retail software market in Europe, the market's transition between operating systems and the transition from a desktop PC environment to an enterprise-wide environment. These factors may cause significant fluctuations in net revenues and, accordingly, operating results. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED The Company has in the past and is continuing to devote substantial efforts to the development of software products that operate on Microsoft's Windows 95 and/or Windows NT operating systems. Microsoft has incorporated advanced utilities including telecommunications, facsimile and data recovery utilities in Windows 95 and may include additional product features in future releases of its operating systems that may decrease the demand for certain of the Company's products. Should the Company be unable to successfully or timely develop products that operate under these operating systems, the Company's future net revenues and operating results would be immediately and significantly adversely affected. In addition, as the timing of delivery and adoption of many of Symantec's products is dependent on the adoption rate of these operating systems, which the Company and securities analysts are unable to predict, the ability of Symantec and securities analysts to forecast the Company's net revenues has been and will continue to be adversely impacted. As a result, there is a heightened risk that net revenues and profits will not be in line with analysts' expectations in the periods following the introduction of new or upgraded operating systems. The length of Symantec's product development cycle has generally been greater than Symantec originally expected. Although such delays have undoubtedly had a material adverse effect on Symantec's business, Symantec is not able to quantify the magnitude of net revenues that were deferred or lost as a result of any particular delay because Symantec is not able to predict the amount of net revenues that would have been obtained had the original development expectations been met. Delays in product development, including products being developed for currently available operating systems and operating systems under development are likely to occur in the future and could have a material adverse effect on the amount and timing of future revenues. Due to the inherent uncertainties of software development projects, Symantec does not generally disclose or announce the specific expected shipment date of the Company's product introductions. In addition, there can be no assurance that any products currently being developed by Symantec will be technologically successful, that any resulting products will achieve market acceptance or that the Company's products will be effective in competing with products either currently in the market or introduced in the future. During fiscal 1993, Symantec believes net revenues were adversely affected by an unexpected substantial price reduction in 486-based personal computers that caused a shift in customer spending from software to personal computer hardware. Symantec also believes that the shift was caused by the introduction of Windows 3.1, which required more computing capability. The next class of personal computers, including those based on Intel's P6/Pentium Pro microprocessor or Motorola, Inc.'s Power-PC, have started to reduce in price, and there may be another shift in customer buying away from software and Symantec's products, which could result in significantly reduced revenues and a material adverse effect on operating results. In addition, Windows 95 and Windows NT require significantly more computer memory and hard disk space than Windows 3.1, and if there is a shift from software to hardware spending, there could be an adverse effect on the sales of computer hardware and software. Either of these events could result in significantly reduced net revenues and have a material adverse effect on Symantec's operating results. Symantec has noted that P6/Pentium Pro microprocessors are being marketed aggressively by Intel. The Company estimates and maintains reserves for product returns. Symantec's return policy allows its distributors, subject to certain 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 within a reasonable period from the date of purchase for a full refund, and retailers may return older versions of the Company's products. Various distributors and resellers may have different return policies that may negatively impact the level of products which are returned to Symantec. Product returns occur when the Company introduces upgrades and new versions of products or when distributors order excessive product. In addition, competitive factors often require the Company to offer rights of return for products that distributors or retail stores are unable to sell. Symantec has experienced, and may experience in the future, significant increases in product returns above historical levels from customers of acquired companies after an acquisition is completed. Symantec prepares detailed analyses of historical return rates when estimating anticipated returns and maintains reserves for product returns. In addition to detailed historical 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED return rates, the Company's estimation of return reserves takes into consideration upcoming product upgrades, current market conditions, customer inventory balances and any other known factors that could impact anticipated returns. Based upon returns experienced, the Company's estimates have been materially accurate. The impact of actual returns on net revenues, net of such provisions, has not had a material effect on the Company's liquidity as the returns typically result in the issuance of credit towards future purchases as opposed to cash payments to the distributors. However, there can be no assurance that future returns will not exceed the reserves established by the Company or that future returns will not have a material adverse effect on the operating results of the Company. The Company's product return reserve balances typically fluctuate from period to period based upon the level and timing of product upgrade releases. Product return reserve balances at September 30, 1996 were substantially lower than reserve balances at September 30, 1995. The decrease in the product return reserve balance is primarily related to the introduction of Symantec's Windows 95 products during the quarters ending September 30, 1995 which had high sell-in volumes. The level of actual product returns and related product return reserves is largely a factor of the level of product sell-in (gross revenue) from normal sales activity and the replacement of obsolete quantities with the current version of the Company's product. As a result, gross revenues generally move in the same direction as product returns. Changes in the levels of product returns and related product return reserves are generally offset by changing levels of gross revenue and, therefore, do not typically have a material impact on reported net revenues. The Company operates with relatively little backlog; therefore, if near-term demand for the Company's products weakens in a given quarter, there could be an immediate, material adverse effect on net revenues and on the Company's operating results. Symantec maintains a research and development facility in Santa Monica, California that was damaged during the January 1994 earthquake in Southern California. Much of the Company's administration, sales and marketing, manufacturing and research and development facilities are located on the west coast of the United States. Future earthquakes or other natural disasters could cause a significant disruption to the Company's operations and may cause delays in product development that could adversely impact future revenues of the Company. Symantec's domestic order entry department is located in Oregon, with shipments being made from a warehouse in California. Order entry and shipping is similarly separated in Europe. A disruption in communications between these facilities, particularly at the end of a fiscal quarter, would likely result in an unexpected shortfall in net revenues and could result in an adverse impact on operating results. Symantec provides a wide variety of free and fee-based technical support services to its customers. Symantec provides its customers with free support via electronic and automated services as well as 90 days complimentary free telephone support for certain of the Company's products. In addition, Symantec offers both individual users and corporate customers a variety of fee-based support options for certain of the Company's products, designed to meet their individual technical support requirements. Fee-based technical support services did not generate significant net revenues in the three and six months ended September 30, 1996 and 1995 and are not expected to generate material net revenues in the near future. GROSS MARGIN. Gross margin represents net revenues less cost of revenues. Cost of revenues consists primarily of manufacturing expenses, manuals, packaging, royalties paid to third parties under publishing contracts and amortization and write-off of capitalized software. Amortization of capitalized software, including amortization and the write-off of both purchased product rights and capitalized software development expenses, totaled $1.9 million and $6.5 million for the quarters ended September 30, 1996 and 1995, respectively, and $2.7 million and $7.4 million for the six months ended September 30, 1996 and 1995, respectively. During the September 1995 quarter, Delrina incurred expenses of approximately $4.5 million for the write-off of previously capitalized software development costs for software designed to operate on Windows 3.1. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Gross margins were 81% and 68% for the quarters ended September 30, 1996 and 1995, respectively. The increase in the gross margin percentage is primarily due to a $7.2 million installment payment included in net revenues and $1.2 million of non-recurring costs included in cost of goods sold associated with the JetForm royalty payment received during the September 1996 quarter and $2.0 million of high margin consulting fees recorded during the September 1996 quarter. The September 30, 1995 quarter included significant expenses incurred by Delrina related to the write-off of certain products designed to operate on Windows 3.1. Symantec believes that the gross margin percentage should remain at approximately 80% to 83% for the remainder of Fiscal 1997 unless there is a significant change in Symantec's net revenues. The Company has capitalized significant development costs in accordance with Statement of Financial Accounting Standard No. 86 during the September 1996 quarter and expects to capitalize significant development costs during the next several quarters related to the development of certain networking software products. Should the Company be unable to successfully or timely develop these products or should these products not achieve timely market acceptance, the Company may incur significant expenses associated with the write-off of these previously capitalized costs. The microcomputer business software market has been subject to rapid changes that can be expected to continue. The introduction of new or upgraded operating systems and future technology or market changes may cause certain products to become obsolete more quickly than expected and thus may result in capitalized software write-offs and an increase in required inventory reserves and, therefore, reduced gross margins and net income. In addition, the modifications to computer software, including the correction of software bugs, may result in significant inventory rework costs, including the cost of replacing inventory in the distribution channel. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased 13% to $20.8 million or 19% of net revenues in the quarter ended September 30, 1996 from $23.8 million or 22% of net revenues in the quarter ended September 30, 1995. The decrease in research and development expense is principally due to an increase in capitalized software development costs and decreased product development efforts associated with the Company's development of certain software products. Research and development expenses were 20% of net revenues in the six months ended September 30, 1996 and 1995. While Symantec believes its research and development expenditures will result in successful product introductions, including products being developed for currently available operating systems and operating systems under development, the uncertain outcome of software development projects means that increased research and development efforts will not necessarily result in successful product introductions due to technical difficulties, market conditions, competitive products and other factors, such as customer acceptance of products and new operating systems. Research and development expenditures are charged to operations as incurred. During the three and six month periods ending September 30, 1996, the Company capitalized approximately $2.5 million and $5.4 million, respectively, of costs principally associated with the development of certain networking software products in accordance with Statement of Financial Accounting Standard No. 86. To the extent the Company capitalizes its product development costs, the effect is to defer such costs to future periods and match them to the revenue generated by the developed products. Amounts capitalized may fluctuate depending in part on the number and status of internally developed software projects. Capitalized software development costs were not material as of September 30, 1995. SALES AND MARKETING EXPENSES. Sales and marketing expenses decreased 12% to $53.0 million or 49% of net revenues in the quarter ended September 30, 1996 from $60.4 million or 56% of net revenues in the prior year's comparable quarter. Sales and 18 marketing expenses were $106.7 million and $112.7 million and represented 49% and 52% of net revenues for the six months ended September 30, 1996 and 1995, respectively. The decrease in sales and marketing expenses was principally due to the elimination of duplicative sales and marketing expenses as a result of the acquisition of Delrina by Symantec. Symantec believes substantial sales and marketing efforts are essential to achieve revenue growth and to maintain and enhance Symantec's competitive position. Accordingly, with the introduction of new and upgraded products, Symantec expects the expenses associated with these efforts to continue to constitute its most significant operating expense. There can be no assurance that these increased sales and marketing efforts will be successful. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased 34% from $11.8 million or 11% of net revenues in the quarter ended September 30, 1995 to $7.8 million or 7% of net revenues in the quarter ended September 30, 1996. General and administrative expenses decreased 28% from $20.9 million or 10% of net revenues for the six months ended September 30, 1995 to $15.1 million or 7% of net revenues for the six months ended September 30, 1996. The decrease in general administrative expenses is primarily due to the elimination of duplicative general and administrative expenses as a result of the acquisition of Delrina by Symantec. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES. ACQUISITION EXPENSES. During the quarter ended September 30, 1996, Symantec recorded a $1.8 million charge in connection with the write off of its investment in a joint venture and a $3.1 million charge in connection with the acquisition of certain in process software development technology. Symantec recorded total acquisition charges of $0.6 million in the quarter ended June 30, 1996 in connection with the acquisition of Fast Track. The charges included $0.4 million for legal, accounting and financial advisory services and $0.2 million for the consolidation and discontinuance of certain operational activities and other acquisition related expenses. In the quarter ended June 30, 1995, the Company recognized a reduction in accrued acquisition and restructuring expenses related to CPS of $2.3 million as actual costs incurred were less than costs previously accrued by the companies. Symantec has acquired a number of companies in the past and may make additional acquisitions in the future. While the Company believes that previous acquisitions were in the best interest of the Company and its stockholders, acquisitions involve a number of special risks, including the diversion of management's attention to assimilation of the operations and personnel of the acquired companies in an efficient and timely manner, the retention of key employees, the difficulty of presenting a unified corporate image, the coordination of research and development and sales efforts and the integration of the acquired products. Symantec has lost certain employees of acquired companies whom it desired to retain, and, in some cases, the assimilation of the operations of acquired companies took longer than initially anticipated by the Company. In addition, because the employees of acquired companies have frequently remained in their existing, geographically diverse locations and facilities, Symantec has not realized certain economies of scale or cost reductions that might otherwise have been achieved. Symantec typically incurs significant acquisition expenses for legal, accounting and financial advisory services, the write-off of duplicative technology and other expenses related to the combination of Symantec and an acquired company. These expenses may have a significant adverse impact on Symantec's future profitability and financial resources. RESTRUCTURING EXPENSES. In February 1995, Symantec announced a plan to consolidate certain research and development activities. This plan was designed to gain greater synergy between the Company's Third Generation 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Language and Fourth Generation Language development groups. During the quarter ended June 30, 1995, the Company incurred $2.2 million for the relocation costs of moving equipment and personnel. This relocation has subsequently been completed. During the quarter ended September 30, 1996, Symantec recorded $2.5 million for costs related to the restructuring of certain domestic and international sales and research and development operations. This restructuring plan should be substantially completed during fiscal 1997. INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE). Interest income was $1.8 million and $1.9 in the quarters ended September 30, 1996 and 1995, respectively, and $3.4 million and $4.2 million for the six months ended September 30, 1996 and 1995, respectively. The decrease in interest income for the three and six month periods is due to lower average interest rates on invested cash balances. Interest expense was $0.3 million for the three months ended September 30, 1996 and 1995, and $0.7 million and $0.8 million for the six months ended September 30, 1996 and 1995, respectively. Other income (expense) is primarily comprised of foreign currency exchange gains and losses from fluctuations in foreign currency exchange rates. Symantec conducts business in various foreign currencies and is therefore subject to the transaction exposures that arise from foreign exchange rate movements between the dates that foreign currency transactions are recorded and the dates that they are settled. Symantec utilizes some natural hedging to mitigate Symantec's transaction exposures and, effective December 31, 1993, Symantec commenced hedging some residual transaction exposures through the use of one-month forward contracts. At September 30, 1996, there was a total of approximately $84.0 million of outstanding forward exchange contracts. The net liability of forward contracts was approximately $35.5 million at September 30, 1996. There have been no significant gains or losses to date with respect to these activities. Gains or losses would occur on forward contracts held by Symantec when changes in foreign currency exchange rates occur. These gains and losses should be largely offset by the transaction gains and losses resulting from foreign currency denominated cash, accounts receivable, trade payables, intercompany balances, and short-term notes. There can be no assurance that these strategies will continue to be effective or that transaction gains or losses can be minimized or forecasted accurately. Symantec does not hedge its translation risk. INCOME TAX PROVISION. The effective tax provision for the six months ended September 30, 1996 was 10%, which compared to an effective income tax benefit of 30% in the prior year's comparable period. The lower tax benefit for the six months ended September 30, 1996 was primarily attributable to unbenefitted pre-acquisition losses from Delrina. Symantec believes that the effective tax rate may increase in future fiscal years. LIQUIDITY AND CAPITAL RESOURCES Cash and short-term investments increased $11.1 million from $129.2 million at March 31, 1996 to $140.3 million at September 30, 1996, largely due to cash provided by operating activities, which was partially offset by cash expenditures for capital equipment. Net cash provided by operating activities was $28.2 million and was comprised of the Company's net income of $3.9 million and non-cash related expenses of $17.3 and an increase in net assets and liabilities of $7.0 million. Trade accounts receivable decreased $6.9 million from $72.3 million at March 31, 1996 to $65.4 million at September 30, 1996 primarily due to improved cash collections. Net inventories decreased $5.4 million from $7.9 million at March 31, 1996 to $2.5 million at September 30, 1996. The decrease in inventory balances was due to the recognition of revenue previously deferred and higher Delrina product inventories at March 31, 1996. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED Symantec has a $10.0 million bank line of credit that expires in March 1998. The line of credit is available for general corporate purposes and bears interest at the bank's reference (prime) interest rate. Borrowings under this line are unsecured and are subject to Symantec maintaining certain financial ratios and profits. The Company was in compliance with the line of credit covenants at September 30, 1996. During the quarter ended September 30, 1996, there was approximately $0.4 million of standby letters of credit outstanding under this line of credit. There were no borrowings outstanding under this line at September 30, 1996. Future acquisitions by the Company may cause the Company to be in violation of the line of credit covenants; however, the Company believes that if the line of credit were canceled or amounts were not available under the line of credit, there would not be a material adverse impact on the financial results, liquidity or capital resources of the Company. Symantec may utilize significant amounts of cash in connection with the potential acquisition of additional companies, capital equipment and software product rights in the future. However, if the Company were to sustain significant losses, there can be no assurances that the bank line of credit, which is available through March 1998, would remain available. Additionally, Symantec could be required to reduce operating expenses, which could result in further product delays; reassess acquisition opportunities, which could negatively impact Symantec's growth objectives; and/or pursue further financing options. Symantec believes existing cash and short-term investments will be sufficient to fund operations for the next year. 21 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Information with respect to this item is incorporated by reference to Note 7 of Notes to Consolidated Financial Statements included herein on page 9 of this Form 10-Q. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) An annual meeting of stockholders of Symantec was held on September 25, 1996. (b) Matters voted on at the meeting and votes cast on each were as follows:
Total Vote Authority Total Vote Withheld Withheld For Each From Each From All Director Director Nominees ---------- ---------- --------- 1. To elect six directors to Symantec's Board of Directors, each to hold office until his successor is elected and qualified or until his earlier resignation or removal. Charles M. Boesenberg. . . . . . . . . . . . 42,605,234 1,954,958 -- Walter W. Bregman. . . . . . . . . . . . . . 42,607,422 1,952,770 -- Carl D. Carman . . . . . . . . . . . . . . . 42,599,179 1,961,013 -- Gordon E. Eubanks, Jr. . . . . . . . . . . . 42,469,582 2,090,610 -- Robert S. Miller . . . . . . . . . . . . . . 42,594,089 1,966,103 -- Leslie L. Vadasz . . . . . . . . . . . . . . 42,605,275 1,954,917 -- Broker For Against Abstain "Non-Votes" ---------- ---------- --------- ----------- 2. To consider and act upon a proposal 18,042,317 14,859,144 244,250 11,414,481 to amend the 1996 Equity Incentive Plan to increase the number of shares authorized for issuance by the number of options previously granted pursuant to Symantec's terminated 1988 Option Plan that expire, are canceled or become unexercisable for any reason without having been exercised in full, provided that such additional number does not exceed 1,336,373 (to total authorized of 4,077,946). 3. To consider and act upon a proposal 24,140,448 8,822,807 182,456 11,414,481 to (a) amend the 1989 Employee Stock Purchase Plan to increase the number of shares authorized for issuance by 1,400,000 to 3,400,000; and (b) amend employee eligibility requirements so that persons who are employed by Symantec as of the third business day before the beginning of an offering period and meet the other eligibility requirements are eligible to participate in the Stock Purchase Plan. 4. To consider and act upon a proposal to 42,926,234 140,867 1,493,091 -- ratify the Board of Director's selection of Ernst & Young as Symantec's independent auditors.
22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Form 10-Q: 10.01 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 Sumitomo Bank, Limited, San Francisco Branch 10.02 Appendix A to Participation Agreement, Master Lease, Lease Supplements Loan Agreement, Pledge Agreement, Lessor Mortgages, and Guaranty 10.03 Master Lease and Deed of Trust dated as of October 18, 1996 between Symantec Corporation and Sumitomo Bank Leasing and Finance, Inc. 10.04 Lease Supplement No. 2 and Memorandum of Lease and Deed of Trust dated as of October 22, 1996 among Symantec Corporation, Sumitomo Bank Leasing and Finance, Inc. and First American Title Insurance Company 10.05 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 10.06 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 Corporation, as collateral agent 11.01 Computation of Net Income (Loss) Per Share. 27.01 Financial Data Schedule. (b) Reports on Form 8-K A report on Form 8-K was filed by the Company on September 25, 1996, reporting the asset sale of the FormFlow family of electronic forms software programs and related tangible assets of Delrina to JetForm, pursuant to an Asset Purchase Agreement dated as of September 10, 1996 executed between Delrina and JetForm. ITEMS 2, 3, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 11, 1996 SYMANTEC CORPORATION By /s/ Robert R. B. Dykes ------------------------------------------- Robert R. B. Dykes Executive Vice President/Worldwide Operations and Chief Financial Officer (duly authorized officer) /s/ Howard A. Bain III ------------------------------------------- Howard A. Bain III Vice President Finance and Chief Accounting Officer 24 EX-10.01 2 EXHIBIT 10.01 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PARTICIPATION AGREEMENT dated as of October 18, 1996 among SYMANTEC CORPORATION, as Lessee, Pledgor and Guarantor, SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor, THE SUMITOMO BANK, LIMITED, SAN FRANCISCO BRANCH, and the other VARIOUS FINANCIAL INSTITUTIONS IDENTIFIED HEREIN, as Lenders, and THE SUMITOMO BANK, LIMITED, SAN FRANCISCO BRANCH as Agent ------------------------------------ Lease Financing of Three Properties Located in Cupertino, California for Symantec Corporation - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT (this "PARTICIPATION AGREEMENT"), dated as of October 18, 1996, 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 SUMITOMO BANK, LIMITED, SAN FRANCISCO BRANCH, a Japanese banking organization acting through its San Francisco Branch, and the other various financial institutions as are or may from time to time become lenders (the "LENDERS") under the Loan Agreement; and THE SUMITOMO BANK, LIMITED, SAN FRANCISCO 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; 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 SECTION II.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 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 -2- 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 -3- have received, with a copy for each Lender, an opinion of 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. SECTION II.2. ACQUISITION DATES. Each closing date with respect to an acquisition of Land (and the Improvements existing thereon, if any) (each an "ACQUISITION DATE") shall occur on the date on which all the conditions precedent thereto set forth in this SECTION 2.2 with respect to such acquisition of Land shall have been satisfied or waived by the applicable parties as set -4- 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 (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 in accordance with SECTION 3.4. Each of the delivery of a Funding Request and the acceptance of the proceeds of such Advance 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 -5- 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. (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 -6- (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. (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. (i) PROPERTY SURVEY AND TITLE INSURANCE. On or prior to the Acquisition 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, -7- 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 have delivered a copy of each such sublease to the Lessor and the Agent, and (ii) with respect to each such sublease, 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 -8- 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 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. 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. -9- ARTICLE III FUNDING OF ADVANCES SECTION III.1. ADVANCES. Subject to the conditions and terms hereof, the Lessor and the Agent shall take the following actions at the written request of the Lessee on the Acquisition Date for each Property: (a) the Lessor and the Agent shall make an Advance (out of the funds provided by the Lessor and the Lenders) to the Lessee, for the purpose of financing 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; (b) the Lessor shall acquire the Land and Improvements, if any (using the funds provided by the Lessor and the Lenders); and (c) the Lessor shall lease the Land and Improvements to the Lessee under the Master Lease and the respective Lease Supplements. 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 III.2. LESSOR COMMITMENT. Subject to the conditions and terms hereof, the Lessor shall make available to the Lessee on the Acquisition Date for each Property an amount (each such amount, a "LESSOR AMOUNT") in immediately available funds equal to the Commitment Percentage of the Lessor of the -10- amount of the Advance being funded on such Acquisition 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 III.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 the Acquisition 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 Acquisition 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. -11- SECTION III.4. PROCEDURES FOR ADVANCES. (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 Acquisition Date, specifying: (i) the proposed Acquisition Date, (ii) the amount of Advance requested, and (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. 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. ARTICLE IV -12- YIELD; INTEREST; FEES SECTION IV.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. (d) During the Base Lease Term, Yield shall accrue on outstanding Lessor Amounts and shall be paid on each Scheduled Payment Date. (e) 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. (f) The outstanding aggregate Lessor Amounts shall be repaid in full on the Maturity Date. SECTION IV.2. INTEREST ON LOANS. -13- (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. SECTION IV.3. FEES. The Lessee shall pay the Fees to the Lessor and the Agent. ARTICLE V CERTAIN INTENTIONS OF THE PARTIES SECTION V.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 -14- 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 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 V.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 -15- Documents. ARTICLE VI ADDITIONAL COLLATERAL SECTION VI.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 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 VI.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 -16- 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 VII.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). SECTION VII.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 -17- 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 VII.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 VII.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 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 VII.5. SUPPLEMENTAL RENT. All payments of Supplemental Rent received by the Agent (excluding any amounts -18- 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 VII.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; FOURTH, to the Lenders for application to pay in full the Participant Balance of each Lender and, in the -19- 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 VII.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; -20- 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; 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 -21- 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 VII.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. (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 VII.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 -22- 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 VII.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. ARTICLE VIII REPRESENTATIONS SECTION VIII.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 -23- 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 VIII.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 -24- terms, except as the same may be 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 action entitled STEVE COOPERMAN ET AL v. GORDON EWBANKS, JR. ET AL, case no. CV756665, which has been disclosed to the Lessor) or, to the -25- 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 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 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 Acquisition Date, are true and accurate in all Material respects on the date as of which such information and -26- 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. (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 -27- 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 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, the financial position of the Lessee as of such date and its results of operations and cash flows for such fiscal year. -28- (ii) The unaudited consolidated statement of financial position of the Lessee as of June 30, 1996 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 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 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 -29- 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 -30- identified on the applicable survey delivered pursuant to SECTION 2.1(q), no portion of any Property is located in 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 -31- 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). (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 IX.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 Acquisition 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 -32- 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 IX.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 IX.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 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 X.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 -33- 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 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 -34- 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 agency that might, in the reasonable judgment of the Lessee, result in a Material adverse effect on the business, -35- 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; and (ix) 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 -36- delivery of any Operative Document to which it is a party. (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" at least equal to 1.15:1.00 where: "A" means the sum of cash, short-term investments, marketable securities not classified as long-term investments and accounts receivable less 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 permitted under subsection 9.03 of the Credit Agreement hereof) on such assets; and "B" means current liabilities including all funded obligations, outstanding Letter of Credit Obligations (as defined in the Credit Agreement), and Bank -37- guaranties outstanding under the Credit Agreement and all similar unfunded instruments under the Credit Agreement and, in each case, any instrument and agreement required under the Credit Agreement. (ii) TANGIBLE NET WORTH. The Lessee shall maintain as of the last day of any fiscal quarter (on a consolidated basis) Tangible Net Worth of at least $133,500,000 plus the sum of (i) 75% of net income after income taxes (without subtracting losses) earned in each quarterly accounting period commencing after December 29, 1995 and (ii) 100% of Equity Proceeds (as defined in the Credit Agreement); PROVIDED, however, that for the purposes of computing compliance with this paragraph, the amount of (a) any goodwill recognized and (b) any charges to income taken during the fiscal quarter (without giving effect to any retroactive adjustments) which are associated with any acquisitions consummated during any quarter commencing after December 29, 1995, and reflected in the financial statements for the quarter in which they are consummated, shall not be taken into account. (iii) LEVERAGE RATIO. The Lessee shall not permit at any time (on a consolidated basis) total liabilities to exceed, for the period from the Documentation Date, 1.25 times Tangible Net Worth. ARTICLE XI LESSEE DIRECTIONS SECTION XI.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. -38- ARTICLE XII TRANSFERS OF PARTICIPANTS' INTERESTS SECTION XII.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 -39- 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. SECTION XII.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; -40- (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 XII.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 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 -41- 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. -42- ARTICLE XIII INDEMNIFICATION SECTION XIII.1. GENERAL INDEMNIFICATION. 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: (a) any of the Operative Documents or any of the transactions contemplated thereby, and any amendment, modification or waiver in respect thereof; (b) the Properties or any part thereof or interest therein; (c) 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 -43- 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; (d) 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; (e) 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; (f) 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 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 (g) subject to the accuracy of any Participant's representation set forth in SECTION 8.1(a), as to such -44- 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; PROVIDED, HOWEVER, 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 or the Lenders is 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. -45- SECTION XIII.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 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. (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 -46- (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 (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 XIII.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 -47- 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 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 -48- 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 XIII.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 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 -49- 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. -50- 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 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 XIII.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 -51- 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 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 -52- 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 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 -53- 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 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 -54- 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 -55- 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 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(e) 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 -56- 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, 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 -57- 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 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 -58- 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 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 XIII.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. -59- SECTION XIII.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 XIII.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 may -60- 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 XIII.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 -61- 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 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 -62- 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 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 -63- 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 XIII.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 additional information concerning the determination of such loss as the Lessee may reasonably request. -64- ARTICLE XIV MISCELLANEOUS SECTION XIV.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 XIV.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. -65- SECTION XIV.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 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 XIV.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 XIV.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 -66- 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 XIV.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 XIV.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 XIV.8. GOVERNING LAW. THIS PARTICIPATION 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. SECTION XIV.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. -67- SECTION XIV.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. SECTION XIV.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 -68- 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 XIV.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. -69- SECTION XIV.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 XIV.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 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 XIV.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 -70- 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. -71- 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, Pledgor and Guarantor By -------------------------------------- Name: Title: -72- SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By -------------------------------------- Name: Title: -73- THE SUMITOMO BANK, LIMITED, SAN FRANCISCO BRANCH, as Lender and as Agent By -------------------------------------- Name: Title: -74- SCHEDULE I TO PARTICIPATION AGREEMENT COMMITMENTS ------------------------------------------------------------ ------------------------------------------------------------ PARTICIPANT COMMITMENT ------------------------------------------------------------ ------------------------------------------------------------ LENDER ------------------------------------------------------------ ------------------------------------------------------------ The Sumitomo Bank, $45,800,000.00 Limited, San Francisco Branch ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ LESSOR ------------------------------------------------------------ ------------------------------------------------------------ Sumitomo Bank Leasing $7,200,000.00 and Finance, Inc. ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ -------------- -------------- ------------------------------------------------------------ TOTAL: $53,000,000.00 ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ SCHEDULE II TO PARTICIPATION AGREEMENT NOTICE INFORMATION, WIRE INSTRUCTIONS AND FUNDING OFFICES LESSEE 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 New York, New York 10172 Attention: Chief Credit Officer Facsimile No.: (212) 224-5222 Wire Transfer Instructions: Bank: Morgan Guaranty Trust Company of New york ABA Number: 021000238 Account Name: The Sumitomo Bank, Ltd., San Francisco Branch Account Number: 631-28-256 Ref: Symantec Lease Further Credit to: Sumitomo Bank Leasing and Finance A/C#283572 AGENT AND LENDER: THE SUMITOMO BANK, LIMITED, SAN FRANCISCO BRANCH 555 California Street Suite 3350 San Francisco, CA 94104 Attention: Chief Credit Officer Facsimile No.: (415) 398-3580 Wire Transfer Instructions: Bank: The Sumitomo Bank of California ABA Number: 121002042 Ref: Symantec Corporation Lease II-2 TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS; INTERPRETATION.................................. 2 ARTICLE II CONDITIONS PRECEDENT TO DOCUMENTATION AND ACQUISITION DATES SECTION 2.1................................................Documentation Date 2 SECTION 2.2.................................................Acquisition Dates 4 ARTICLE III FUNDING OF ADVANCES SECTION 3.1..........................................................Advances 8 SECTION 3.3..............................................Lenders' Commitments 8 SECTION 3.4...........................................Procedures for Advances 9 ARTICLE IV YIELD; INTEREST; FEES SECTION 4.1.............................................................Yield 10 SECTION 4.2.................................................Interest on Loans 10 SECTION 4.3..............................................................Fees 11 ARTICLE V CERTAIN INTENTIONS OF THE PARTIES SECTION 5.1.............................................Nature of Transaction 11 SECTION 5.2...........................................Amounts Due Under Lease 11 ARTICLE VI TABLE OF CONTENTS (continued) Page ---- ADDITIONAL COLLATERAL SECTION 6.1........................................................Deficiency 12 SECTION 6.2..........................................................Surplus. 12 ARTICLE VII DISTRIBUTIONS SECTION 7.1........................................................Basic Rent 13 SECTION 7.2...................................Purchase Payments by the Lessee 13 SECTION 7.3...........................................Payment of Loan Balance 14 SECTION 7.4.......................Sales Proceeds of Remarketing of Properties 14 SECTION 7.5.................................................Supplemental Rent 14 SECTION 7.6................................Additional Collateral Realizations 14 SECTION 7.7.............Distribution of Payments after Lease Event of Default 15 SECTION 7.8....................................................Other Payments 17 SECTION 7.9.................................Casualty and Condemnation Amounts 17 SECTION 7.10.............................................Order of Application 18 ARTICLE VIII REPRESENTATIONS SECTION 8.1...............................Representations of the Participants 18 SECTION 8.2.....................................Representations of the Lessee 18 ARTICLE IX PAYMENT OF CERTAIN EXPENSES SECTION 9.1..............................................Transaction Expenses 25 SECTION 9.2.....................................Brokers' Fees and Stamp Taxes 26 SECTION 9.3............................Loan Agreement and Related Obligations 26 ARTICLE X - 2 - TABLE OF CONTENTS (continued) Page ---- OTHER COVENANTS AND AGREEMENTS SECTION 10.1..................................Affirmative Covenants of Lessee 26 ARTICLE XI LESSEE DIRECTIONS SECTION 11.1................................................Lessee Directions 30 ARTICLE XII TRANSFERS OF PARTICIPANTS' INTERESTS SECTION 12.1......................................................Assignments 30 SECTION 12.2...................................................Participations 31 SECTION 12.3..........Withholding Taxes; Disclosure of Information; Pledge Under Regulation A 32 ARTICLE XIII INDEMNIFICATION SECTION 13.1..........................................General Indemnification 33 SECTION 13.2............................................End of Term Indemnity 36 SECTION 13.3..........................................Environmental Indemnity 37 SECTION 13.4.................................Proceedings in Respect of Claims 39 SECTION 13.5............................................General Tax Indemnity 40 SECTION 13.6..............Indemnity Payments in Addition to Lease Obligations 47 SECTION 13.7.......................................LIBO Rate Lending Unlawful 47 SECTION 13.8.............................................Deposits Unavailable 48 SECTION 13.9............................................Increased Costs, etc. 48 SECTION 13.10..................................................Funding Losses 51 ARTICLE XIV - 3 - TABLE OF CONTENTS (continued) Page ---- MISCELLANEOUS SECTION 14.1...........................................Survival of Agreements 51 SECTION 14.2..................................................No Broker, etc. 52 SECTION 14.3..........................................................Notices 52 SECTION 14.4.....................................................Counterparts 52 SECTION 14.5.......................................................Amendments 52 SECTION 14.6...................................................Headings, etc. 53 SECTION 14.7..............................................Parties in Interest 53 SECTION 14.8....................................................GOVERNING LAW 53 SECTION 14.9.....................................................Severability 53 SECTION 14.10...............................................Liability Limited 53 SECTION 14.11..............................................Further Assurances 54 SECTION 14.12......................................Submission to Jurisdiction 55 SECTION 14.13..........................................................Setoff 55 SECTION 14.14...........................................Replacement of Lender 55 SECTION 14.15............................................WAIVER OF JURY TRIAL 55 - 4 - 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 - 5 - EX-10.02 3 EXHIBIT 10.02 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; (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. -2- 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. "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 -3- 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 (e) above with dealers approved by the Lessor. "ADVANCE" means an advance of funds by the Lessor and the Agent to the Lessee pursuant to ARTICLE III of the Participation Agreement. -4- "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, -5- orders and licenses of and interpretations by, any Governmental 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 and as of the Expiration Date for the Base 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. "ASSIGNMENT OF LEASE AND RENT" means the Assignment of Lease and Rent dated as of October 18, 1996, and all supplements thereto, from the Lessor, as assignor, to the Lenders, as assignees. -6- "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. "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 -7- the Lessee absent demonstrable error. "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. "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. "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 -8- 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 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. "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 -9- 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. -10- "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 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. -11- "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. "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. "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 -12- 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 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 letter agreement dated October 18, 1996 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. "F.R.S. BOARD" means the Board of Governors of the Federal Reserve System or any successor thereto. "FUNDING OFFICE" means the office of each Participant -13- 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 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 -14- 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 Guaranty dated as of October 18, 1996, 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 (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 -15- 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 transfer taxes, conveyance taxes, mortgage taxes, intangible -16- 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 -17- 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 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 -18- 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 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 -19- 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 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 -20- 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. -21- "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 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. "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. -22- "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. "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 -23- 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. "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 and covering the Land and/or Improvements identified on SCHEDULE I thereto. -24- "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 2.6 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. "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 -25- 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 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 -26- 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. "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 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 -27- (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. -28- "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 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 Loan Agreement, dated as of October 18, 1996, 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. -29- "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 LEASE" means the Master Lease and Open End Mortgage, dated as of October 18, 1996, 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. "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 with respect to the Loans and the -30- Lessor Amounts, the seventh (7th) anniversary of the Documentation Date. "MAXIMUM COMMITMENT AMOUNT" means an amount equal to $53,000,000.00. "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 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 -31- 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; and (l) the Custody Agreement. "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. "PARTICIPATION AGREEMENT" means the Participation Agreement dated as of October 18, 1996 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. -32- "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 being prosecuted in good faith and for the payment of which -33- 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. "PLEDGE AGREEMENT" means the Pledge Agreement, dated as of October 18, 1996, by and among the Lessee, as pledgor, the Agent, as pledgee, and the Collateral Agent. -34- "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 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 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 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 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. -35- "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 -36- 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. "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 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. "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 -37- 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 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 -38- 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 March 31, 1996, 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, -39- 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. "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). "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 -40- 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 and the closings contemplated by the Operative Documents; (e) all expenses relating to all Environmental Audits; and -41- (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. "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. -42- EX-10.03 4 EXHIBIT 10.03 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MASTER LEASE AND DEED OF TRUST THIS DOCUMENT SECURES FUTURE ADVANCES Dated as of October 18, 1996 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, SAN FRANCISCO BRANCH as the Agent for the Lenders, on or following the signature page hereof. MASTER LEASE AND DEED OF TRUST THIS DOCUMENT SECURES FUTURE ADVANCES THIS MASTER LEASE AND DEED OF TRUST (this "MASTER LEASE"), dated as of October 18, 1996, 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, and The Sumitomo Bank, Limited, San Francisco 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 I.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. ARTICLE II MASTER LEASE II.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. II.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 -2- 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. II.3. LEASE TERM. The Base Lease Term (the "BASE LEASE TERM") of this Master Lease with respect to any Property shall (i) begin on the Acquisition Date, and (ii) shall end on the seventh (7th) anniversary of the Documentation Date, unless earlier terminated in accordance with the provisions of this Master Lease and the other Operative Documents. II.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 III.1. RENT. (a) During the Lease Term, 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 -3- 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. III.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. III.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. III.4. METHOD OF PAYMENT. Each payment of Rent shall be -4- 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. ARTICLE IV QUIET ENJOYMENT; RIGHT TO INSPECT IV.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. IV.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 -5- inspections shall not unreasonably interfere with the Lessee's business operations at such Property. -6- ARTICLE V NET LEASE, ETC. V.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, 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 -7- 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. V.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, 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 -8- 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 VI.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 VII.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, -9- 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 PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW OR PROPERTY LEGAL REQUIREMENT. VII.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. VIII.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. VIII.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. -10- VIII.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. 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. VIII.4. ASSIGNMENT BY LESSEE. The Lessee may not assign this Master Lease or any of its rights or obligations hereunder in whole or in part to any Person, except that the Lessee may sublease any Property or portion thereof as permitted under SECTION 6.1. -11- ARTICLE IX MAINTENANCE AND REPAIR; RETURN IX.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. (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 -12- obligations under SECTIONS 8.3, 9.1(a), 10.1, 11.1, 14.1(e), 14.2 and 20.1. ARTICLE X MODIFICATIONS, ETC. X.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 -13- (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 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. X.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. -14- ARTICLE XI WARRANT OF TITLE; EASEMENTS XI.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 Operative Documents, other than Permitted Property 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. XI.2. GRANTS AND RELEASES OF EASEMENTS; LESSOR'S WAIVERS. Provided that no Lease Event of Default shall have occurred and -15- 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, 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 -16- 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. -17- ARTICLE XII PERMITTED CONTESTS XII.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 (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. -18- ARTICLE XIII INSURANCE XIII.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. XIII.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 -19- 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. XIII.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 -20- against the Lessor to the extent of payments made under such policies. (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. -21- ARTICLE XIV CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS XIV.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 (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 -22- 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 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 -23- 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. XIV.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 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 -24- 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. XIV.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. -25- ARTICLE XV TERMINATION OF LEASE XV.1. PARTIAL TERMINATION UPON CERTAIN EVENTS. If any of the following occurs with respect to any Property: (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. XV.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 -26- 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 the Lessor or at the request of the Lessee, such amounts shall be applied against sums due hereunder. ARTICLE XVI EVENTS OF DEFAULT XVI.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 -27- 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 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 -28- 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 Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any -29- 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 -30- 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. XVI.2. REMEDIES. Upon the occurrence of any Lease Event of Default and at any time thereafter, the Lessor may, so long as 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 -31- 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; (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 -32- 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 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 -33- 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 Property, and the Lessee hereby irrevocably consents to any -34- 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 -35- 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. 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 -36- 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 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 -37- 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 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 -38- 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. XVI.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 (d) any other rights which might otherwise limit or modify any of the Lessor's rights or remedies under this ARTICLE XVI. -39- ARTICLE XVII LESSOR'S RIGHT TO CURE XVII.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 XVIII.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, which date shall be a Basic Rent Payment Date; -40- (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, 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. XVIII.2. EXPIRATION DATE PURCHASE OBLIGATION. Unless (a) the Lessee shall have properly exercised its option pursuant to SECTION 18.1 and purchased the Properties pursuant thereto, or (b) 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. 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 -41- 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. ARTICLE XIX RENEWAL TERMS XIX.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 XX.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. -42- 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. (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 -43- 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 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 -44- 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, 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 -45- 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 -46- (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. XX.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, -47- 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. ARTICLE XXI PROCEDURES RELATING TO PURCHASE OR REMARKETING XXI.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 -48- 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 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 -49- 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 XXII.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). -50- ARTICLE XXIII ACCEPTANCE OF SURRENDER XXIII.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 XXIV.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. -51- ARTICLE XXV INTENT OF THE PARTIES XXV.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. 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. -52- ARTICLE XXVI MISCELLANEOUS XXVI.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, acknowledgement and delivery of this Master Lease. XXVI.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 except by an instrument in writing in recordable form signed by the Lessor and the Lessee. XXVI.3. NO WAIVER. No failure by the Lessor or the Lessee -53- 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. XXVI.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. XXVI.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. XXVI.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. XXVI.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. XXVI.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. XXVI.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 -54- 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 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. XXVI.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. -55- 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 ------------------------------- Name: Title: S-1 SUMITOMO BANK LEASING AND FINANCE, INC., as Lessor By ------------------------------- Name: Title: S-2 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, SAN FRANCISCO, as Agent for the Lenders By ------------------------------- Name: Title: S-3 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 2 ARTICLE III PAYMENT OF RENT 3.1.................................................................Rent 3 3.2......................................................Payment of Rent 3 3.3....................................................Supplemental Rent 3 3.4....................................................Method of Payment 4 ARTICLE IV QUIET ENJOYMENT; RIGHT TO INSPECT 4.1......................................................Quiet Enjoyment 4 4.2.....................................................Right to Inspect 4 ARTICLE V NET LEASE, ETC. 5.1............................................................Net Lease 5 5.2..........................................No Termination or Abatement 6 ARTICLE VI 1 TABLE OF CONTENTS (continued) Section Page ------- ---- SUBLEASES 6.1...........................................................Subletting 6 ARTICLE VII LESSEE ACKNOWLEDGMENTS 7.1..........................................Condition of the Properties 7 7.2.........................................................Risk of Loss 7 ARTICLE VIII POSSESSION AND USE OF THE PROPERTIES, ETC. 8.1......................................................Utility Charges 7 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 8 ARTICLE IX MAINTENANCE AND REPAIR; RETURN 9.1.......................................Maintenance and Repair; Return 8 ARTICLE X MODIFICATIONS, ETC. 10.1.......................Modifications, Substitutions and Replacements 9 10.2................................................Notice to the Lessor 11 ARTICLE XI WARRANT OF TITLE; EASEMENTS 11.1....................................................Warrant of Title 11 11.2..................Grants and Releases of Easements; Lessor's Waivers 11 2 TABLE OF CONTENTS (continued) Section Page ------- ---- 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 13 13.2..........................................Hazard and Other Insurance 14 13.3..................................................Insurance Coverage 14 ARTICLE XIV CASUALTY AND CONDEMNATION; ENVIRONMENTAL MATTERS 14.1...........................................Casualty and Condemnation 16 14.2...............................................Environmental Matters 18 14.3.....................................Notice of Environmental Matters 18 ARTICLE XV TERMINATION OF LEASE 15.1.............................Partial Termination upon Certain Events 19 15.2..............................................Termination Procedures 19 ARTICLE XVI EVENTS OF DEFAULT 16.1.............................................Lease Events of Default 20 16.2............................................................Remedies 23 16.3............................................Waiver of Certain Rights 30 17.1..............The Lessor's Right to Cure the Lessee's Lease Defaults 30 ARTICLE XVIII 3 TABLE OF CONTENTS (continued) Section Page ------- ---- PURCHASE PROVISIONS 18.1...........................Purchase of All or Some of the Properties 31 18.2.................................Expiration Date Purchase Obligation 31 ARTICLE XIX RENEWAL TERMS 19.1.............................................................Renewal 32 ARTICLE XX REMARKETING OPTION 20.1..................................................Option to Remarket 32 20.2........................................Certain Obligations Continue 36 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 ARTICLE XXII ESTOPPEL CERTIFICATES 22.1...............................................Estoppel Certificates 38 ARTICLE XXIII ACCEPTANCE OF SURRENDER 23.1.............................................Acceptance of Surrender 39 ARTICLE XXIV NO MERGER OF TITLE 4 TABLE OF CONTENTS (continued) Section Page ------- ---- 24.1..................................................No Merger of Title 39 ARTICLE XXV INTENT OF THE PARTIES 25.1.........................................Ownership of the Properties 39 ARTICLE XXVI MISCELLANEOUS 26.1........................................Survival; Severability; Etc. 40 26.2........................................Amendments and Modifications 41 26.3...........................................................No Waiver 41 26.4.............................................................Notices 41 26.5..............................................Successors and Assigns 41 26.6......................................Headings and Table of Contents 41 26.7........................................................Counterparts 41 26.8.......................................................GOVERNING LAW 41 26.9.............................................Limitations on Recourse 41 26.10.....................................................Original Lease 42 EXHIBIT A Form of Lease Supplement 5 EX-10.04 5 EXHIBIT 10.04 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. LEASE SUPPLEMENT NO. 2 AND MEMORANDUM OF LEASE AND DEED OF TRUST dated as of October 22, 1996 among SYMANTEC CORPORATION, as the Lessee, SUMITOMO BANK LEASING AND FINANCE, INC., as the Lessor, and FIRST AMERICAN TITLE INSURANCE COMPANY, as Trustee Location of Premises: County of Santa Clara State of California This Lease Supplement is a supplement to that certain Lease (as hereinafter defined) recorded on October 21, 1996, in the Official Records of Santa Clara County, California, as Instrument No. ______________ THIS LEASE SUPPLEMENT NO. 2 AND MEMORANDUM OF LEASE AND DEED OF TRUST (this "MEMORANDUM") dated as of October 22, 1996, among SYMANTEC CORPORATION, a Delaware corporation, having a principal office at 10101 Torre Avenue, Cupertino, California 95014, as the Lessee and as Mortgagor (the "LESSEE"), SUMITOMO BANK LEASING AND FINANCE, INC., as the Lessor (the "LESSOR"), having an address at 277 Park Avenue, New York, New York 10172, and FIRST AMERICAN TITLE INSURANCE COMPANY (the "TRUSTEE"). W I T N E S S E T H: WHEREAS, the Lessor is the owner in fee simple of the land described on EXHIBIT A attached hereto and all Improvements thereon (together, the "PROPERTY"); WHEREAS, the Lessor wishes to lease the Property to the Lessee and the Lessee wishes to lease the Property from the Lessor; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree to enter into this Memorandum, as follows: I. CERTAIN TERMS. Capitalized terms used but not otherwise defined in this Memorandum have the meanings specified in APPENDIX A to the Master Lease and Security Agreement dated as of October 18, 1996 (as amended, restated, supplemented or otherwise modified from time to time, the "LEASE"), between the Lessee and the Lessor; and the rules of interpretation specified in APPENDIX A to the Lease shall apply to this Memorandum. 2. PROPERTY. Attached hereto as EXHIBIT A is the description of the Property. Effective upon the execution and delivery of this Memorandum by the Lessor and the Lessee, the Property shall be subject to the terms and provisions of the Lease. Subject to the terms and conditions of the Lease, the Lessor hereby leases the Property to the Lessee for the Term (as defined below) of this Memorandum, and the Lessee hereby agrees, expressly for the direct benefit of the Lessor, to lease the Property from the Lessor for the Term. 3. LEASE TERM. The term of this Memorandum (the "TERM") shall begin on the date hereof and shall end on October 18, 2003 unless the Term with respect to the Property is renewed or earlier terminated in accordance with the provisions of the Lease or the other Operative Documents. For and in consideration of good and valuable consideration paid by the Lessee to the Lessor as described in the Lease, the Lessor hereby grants to the Lessee the right to purchase the Property or to market and sell the Property during the Term of this Memorandum on the terms set forth in the Lease. 4. OWNERSHIP OF THE PROPERTY. (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 Amount 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) It is the intent of the parties hereto that the Lease grants a security interest and deed of trust or lien, as the case may be, on the Property for the benefit of the Lessor to secure the Lessee's performance under and payment of all amounts advanced by the Lessor for the acquisition of the Property (corresponding to the value of the Property as indicated on the Appraisal) under the Lease and the other Operative Documents, -2- together with interest thereon, and all other amounts payable under the Operative Documents in connection therewith. (c) Specifically, without limiting the generality of SUBSECTION (b), the Lessor and the Lessee intend and agree that with respect to the nature of the transactions evidenced by the Lease in the context of the exercise of remedies under the Operative Documents, including, without limitation, in the case 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 and the Lessor, or any enforcement or collection actions, the transactions evidenced by the Lease are loans made by the Lessor as unrelated third party lender to the Lessee secured by the Property (it being understood that the Lessee hereby mortgages, grants, bargains, sells, releases, confirms, conveys, assigns, transfers and sets over to the Trustee for the benefit of the Lessor, and grants a security interest in, the Property (consisting of a fee deed of trust with respect to all right, title and interest of the Lessee in and to the fee title to, and reversionary interest in, the Land and Improvements, if any, and a leasehold deed of trust on the Lessee's leasehold estate under the Lease), all to secure such loans, effective on the date hereof, to have and to hold such interests in the Property unto the Trustee for the benefit of the Lessor and its successors and assigns, forever, provided always that these presents are upon the express condition that, if all amounts due under the Lease shall have been paid and satisfied in full, then this instrument and the estate hereby granted shall cease and become void. As additional security for the Rent, the Lease Balance and all other sums owed to the Lessor by the Lessee under the Lease, the Lessee does hereby grant, bargain, sell, transfer and convey unto the Trustee, its successors in trust and assigns, IN TRUST, WITH POWER OF SALE, for the benefit of the Lessor, all of the Lessee's right, title and interest in and to the Property, including, without limitation, all buildings, structures and other improvements, and all fixtures and other property now or hereafter attached to or affixed to any such buildings, structures or other improvements, and any additions and -3- alterations thereto or replacements thereof, now or hereafter built, constructed or located upon the Property, all rents, additional rents, issues, income, revenues, distributions, royalties and profits now or in the future payable in respect of the Property, together with all of the right, power and authority of the Lessee to alter, modify or change the terms, conditions and provisions of the Lease and any other lease pertaining to the Property, to consent to any request made by a tenant or landlord pursuant thereto, or to surrender, cancel or terminate the same or to accept any surrender, cancellation or termination of the same, together with all of the options, rights, powers and privileges of the Lessee under any lease pertaining to the Property, whether heretofore or hereafter existing, including, without limitation, the rights and options to purchase the Property contained in Articles XVIII and XX of the Lease, and all present and future right, title and interest of the Lessee in and to (i) all refunds, tax abatement agreements, rebates, reserves, deferred payments, deposits, cost savings, awards and payments of any kind due from or payable by (a) any Governmental Authority, or (b) any insurance or utility company, in each case under clause (a) or (b) above in respect of the Property, and (ii) all refunds, rebates and payments of any kind due from or payable by any Governmental Authority for any taxes, assessments, or governmental or quasi- governmental charges or levies imposed upon the Lessee in respect of the Property, and all plans and specifications, designs, drawings and other information, materials and matters heretofore or hereafter prepared relating to the Property or any construction on the Property, all proceeds (including claims and demands therefor) of the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims, including without limitation the proceeds of insurance and condemnation awards in respect of the Property or any portion thereof, all additional estates, rights and interests hereafter acquired by the Lessee in the Property, or any portion thereof, together with all proceeds of the conversion, whether voluntary or involuntary, of any of the Property into cash or other liquid claims, including without limitation, all awards, payments or proceeds, including interest thereon, and the right to receive the same, which may be made as a result of any casualty, any exercise of the right of eminent domain or deed in lieu thereof, any injury to the Property and any defect in title -4- in the Property or other matter insured under any policy of title insurance, together with attorney's fees, costs and disbursements incurred by the Lessor in connection with the collection of such awards, payments and proceeds, and the Lessee further grants to the Lessor, pursuant to the California Uniform Commercial Code (the "UCC"), a security interest in all present and future right, title and interest of the Lessee in and to any portion of the foregoing property for which a security interest may be created under the UCC. To have and to hold the same whether now owned or held or hereafter acquired unto the Trustee, its successors-in-trust forever, IN TRUST, WITH POWER OF SALE, to secure to the Lessor the payment of the Rent, the Lease Balance and all other sums owing to the Lessor under the Lease and the performance and observance of the terms, covenants, warranties, conditions, agreements and obligations under the Lease. If the Lessee shall pay all sums due under the Lease when due according to the terms thereof and shall otherwise fully and properly perform and comply with all of the obligations, agreements, terms and conditions of the Lease, then this conveyance shall become null and void. In the event of the occurrence of an Event of Default, then the entire unpaid balance of all sums due under the Lease and the interest accrued thereon shall, at the option of the owner thereof and without notice, immediately become due and payable for all purposes, whether or not due according to the maturity date or dates thereof; and all other indebtedness, the payment of which is secured hereby, shall likewise become due and payable. The Trustee and the Lessor and each of them are authorized prior or subsequent to the institution of any foreclosure proceedings to enter upon the Property or any part thereof and to take possession of the Property and exercise without interference from the Lessee, any and all rights which the Lessee has with respect to the management, possession, operation, protection or preservation of the Property. Upon the occurrence of an 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 the Property by notifying Trustee of that election and depositing with Trustee -5- 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 the Property in accordance with the above-referenced statutes. The 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 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 the Lease had been terminated with respect to all of the Properties then subject to the Lease under SECTION 18.1, and all other amounts then payable by Lessee under the 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 -6- sale of all or any portion of the Property 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 the Property 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 the entire Property has 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 the Property, including all personal property used upon or in connection with the real property herein conveyed, to let the Property, to receive all the rents, issues and profits, if any, which may be due or become due in respect to the leasing of the Property 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 the Property by 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 the Property 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 the Property at the trustee's sale. Trustee or any successor acting hereunder may resign and thereupon be discharged of the trusts -7- 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 the 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 PROPERTY AND SELL THEM WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY LESSEE UNDER THIS INSTRUMENT. If (a) the Property shall consist of one or more parcels, whether or not contiguous and whether or not located in the same county, or (b) in addition to this Memorandum, the Lessor shall now or hereafter hold one or more additional mortgages, liens, deeds of trust or other security (directly or indirectly) for the Obligations upon other property in the State in which the Property is located (whether or not such property is owned by Lessor or by others) or (c) both the circumstances described in clauses (a) and (b) shall be true, then to the fullest extent permitted by law, the Lessor may, in its sole discretion, commence or consolidate in a single foreclosure action all foreclosure proceedings against all such collateral securing the Obligations (including the Property), which action may be brought or consolidated in the courts of any county in which any of such collateral is located. The Lessee acknowledges that the right to maintain a consolidated foreclosure action is a specific inducement to the Lessor to extend the Advances, and the Lessor expressly and irrevocably waives any objections to the commencement or consolidation of the foreclosure proceedings in a single action and any objections to the laying of venue or based -8- on the grounds of FORUM NON CONVENIENS which it may now or hereafter have. The Lessee further agrees that if the Lessor shall be prosecuting one or more foreclosure or other proceedings against a portion of the Property or against any collateral other than the Property, which collateral directly or indirectly secures the Obligations, or if the Lessor shall have obtained a judgment of foreclosure and sale or similar judgment against such collateral, then, whether or not such proceedings are being maintained or judgments were obtained in or outside the State in which the Property is located, the Lessor may commence or continue foreclosure proceedings and exercise its other remedies granted in this Memorandum against all or any part of the Property and the Lessor waives any objections to the commencement or continuation of a foreclosure of this Memorandum or exercise of any other remedies hereunder based on such other proceedings or judgments, and waives any right to seek to dismiss, stay, remove, transfer or consolidate either any action under this Memorandum or such other proceedings on such basis. Neither the commencement nor continuation of proceedings to foreclose this Memorandum nor the exercise of any other rights hereunder nor the recovery of any judgment by the Lessor in any such proceedings shall prejudice, limit or preclude the Lessor's right to commence or continue one or more foreclosure or other proceedings or obtain a judgment against any other collateral (either in or outside the State in which the Property is located) which directly or indirectly secures the Obligations, and the Lessor expressly waives any objections to the commencement of, continuation of, or entry of a judgment in such other proceedings or exercise of any remedies in such proceedings based upon any action or judgment connected to this Memorandum, and the Lessor also waives any right to seek to dismiss, stay, remove, transfer or consolidate either such other proceedings or any action under this Memorandum on such basis. If the Lessor so elects, the Trustee may sell any personal property covered by this instrument at one or more separate sales in any manner permitted by the UCC. One or more exercises of the powers herein granted shall not extinguish nor exhaust such powers until the entire Property is sold or until the entire amounts evidenced and/or secured by the Lease and the Operative Documents is paid in full. -9- (d) Specifically, but without limiting the generality of SUBSECTION (b), the Lessor and the Lessee further intend and agree that, with respect to that portion of the Property constituting personal property, for the purpose of securing the Lessee's obligations for the repayment of the above-described obligations from the Lessor to the Lessee, (i) the Lease shall also be deemed to be a security agreement and financing statement within the meaning of Article 9 of the UCC; (ii) the conveyance provided for hereby shall be deemed to be a grant by the Lessee to the Lessor of a lien and security interest in all of the Lessee's present and future right, title and interest in and to such portion of the Property, including but not limited to the Lessee's leasehold estate therein and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, investments, securities or other property, whether in the form of cash, investments, securities or other property to secure such obligations, effective on the date hereof, to have and to hold such interests in the Property unto the Lessor and its successors and assigns, forever, provided always that these presents are upon the express condition that, if all amounts due under the Lease shall have been paid and satisfied in full, then this instrument and the estate hereby granted shall cease and become void; (iii) the possession by the Lessor of notes and such other items of property as constitute instruments, money, negotiable documents or chattel paper shall be deemed to be "possession by the secured party" for purposes of perfecting the security interest pursuant to Section 9-305 of the UCC; and (iv) notifications to Persons holding such property, and acknowledgements, receipts or confirmations from financial intermediaries, bankers or agents (as applicable) of the Lessee shall be deemed to have been given for the purpose of perfecting such security interest under Applicable Law. The Lessor and the Lessee shall, to the extent consistent with this Memorandum, take such actions and execute, deliver, file and record such other documents, financing statements, mortgages and deeds of trust as may be necessary to ensure that, if the Lease were deemed to create a security interest in the Property in accordance with this Section, such security interest would be deemed to be a perfected security interest with priority over all Liens other than Permitted Liens, under Applicable Law and will be maintained as such throughout the Term. -10- SECTION 5. RATIFICATION. The terms and provisions of the Lease are hereby ratified and confirmed and remain in full force and effect. In the event of any conflict between the terms of the Lease and the terms of this Memorandum, the terms of the Lease shall control. SECTION 6. SUPPLEMENTAL LEASE TERM. (a) The Lenders' Percentage for the Lease Supplement is 84.8469%. (b) The Lessor Margin for this Lease Supplement is 0.695% (c) The Loan Margin for the Lease Supplement is 0.20%. SECTION 7. COUNTERPART EXECUTION. This Memorandum may be executed in any number of counterparts and by each of the parties hereto in separate counterparts, all such counterparts together constituting but one and the same instrument. SECTION 8. FUTURE ADVANCES; REVOLVING CREDIT. In the event a court of competent jurisdiction rules that this instrument constitutes a mortgage, deed of trust or other secured financing as is the intent of the parties pursuant to Section 4 hereof, then this instrument will be deemed given to secure not only existing financing, but also future advances made pursuant to or as provided in the Lease, whether such advances are obligatory or to be made at the option of the Lessor, or otherwise, to the same extent as if such future advances were made on the date of execution of this instrument, although there may be no advance made at the time of execution hereof, and although there may be no financing outstanding at the time any advance is made. To the fullest extent permitted by law, the lien of this instrument shall be valid as to all such amounts, including all future advances, from the time this instrument is recorded. Notwithstanding anything in this instrument to the contrary, although the amount of the financing secured by this instrument may increase or decrease from time to time, the maximum principal amount of the financing secured by this instrument at any one time shall not exceed Fifty Three Million Dollars ($53,000,000), -11- which amount shall be payable as set forth in the Lease, and in any event the final payment shall be payable no later than October 18, 2003, plus all costs of enforcement and collection of this instrument, the Lease and the other Operative Documents, plus the total amount of any advances made pursuant thereto to protect the collateral and the security interest and lien created hereby, together with interest on all of the foregoing as provided in the Operative Documents. SECTION 9. GOVERNING LAW. THE LEASE AND THIS MEMORANDUM 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. -12- IN WITNESS WHEREOF, each of the parties hereto has caused this Memorandum of Lease and Deed of Trust to be duly executed by an officer thereunto duly authorized as of the date and year first above written. SYMANTEC CORPORATION, as the Lessee By: ----------------------------- Name: Title: SUMITOMO BANK LEASING AND FINANCE, INC., as the Lessor By: ----------------------------- Name: Title: ALL-PURPOSE ACKNOWLEDGEMENT State of ___________________ ) ) County of __________________ ) On _______________________ before me, _______________________________________, Date Name, Title of Officer, e.g., "Jane Doe, Notary Public personally appeared _________________________________________________________, / / 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. ___________________________________ 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 _______________________ ______________________________ ______________________________ ______________________________ - -------------------------------------------------------------------------------- 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: ALL-PURPOSE ACKNOWLEDGEMENT State of ___________________ ) ) County of __________________ ) On _______________________ before me, _______________________________________, Date Name, Title of Officer, e.g., "Jane Doe, Notary Public personally appeared _________________________________________________________, / / 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. ___________________________________ 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 _______________________ ______________________________ ______________________________ - -------------------------------------------------------------------------------- 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: EXHIBIT A-1 TO MEMORANDUM OF LEASE LEGAL DESCRIPTION OF LAND EX-10.05 6 EXHIBIT 10.05 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GUARANTY dated as of October 18, 1996 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GUARANTY THIS GUARANTY (this "GUARANTY") dated as of October 18, 1996 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 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 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: ARTICLE I DEFINITIONS SECTION I.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 II.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"). SECTION II.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 -2- 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 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 II.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, -3- 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 II.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. SECTION II.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 -4- 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; (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 -5- 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 II.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. -6- (d) Guarantor acknowledges that it has, in this Guaranty, waived any and all rights of subrogation and 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 II.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 III.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. -7- ARTICLE IV COVENANTS SECTION IV.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. ARTICLE V MISCELLANEOUS PROVISIONS SECTION V.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 V.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 V.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 V.4. ADDRESSES FOR NOTICES TO THE GUARANTOR. All notices, demands, requests, consents, approvals and other -8- 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 V.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 V.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 V.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 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 V.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 V.9. TERMINATION OF GUARANTY. The Guarantor's -9- obligations under this Guaranty shall terminate on the date upon which all Lessor Obligations have been paid in full. SECTION V.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 V.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. -10- 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 -------------------------------- Name: Title: -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 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 -2- EX-10.06 7 EXHIBIT 10.06 EXECUTION COPY PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (together with all amendments, supplements and other modifications made from time to time, this "PLEDGE AGREEMENT"), dated as of October 18, 1996, made by SYMANTEC CORPORATION, a Delaware corporation (the "PLEDGOR"), in favor of SUMITOMO BANK, LIMITED, SAN FRANCISCO BRANCH, as 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, as a condition to the occurrence of the Documentation 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 Pledgor, the Lessor, the Lenders and the Agent, the Pledgor is required to execute and deliver this Pledge Agreement; WHEREAS, the Pledgor has duly authorized the execution, delivery and performance of this Pledge Agreement; and WHEREAS, it is in the best interests of the Pledgor to execute this Pledge Agreement inasmuch as the Pledgor 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: 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. The Pledgor hereby pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers 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 proceeds of any of the foregoing. SECTION II.2 SECURITY FOR OBLIGATIONS. The security interest granted by the Pledgor under this Pledge Agreement secures the payment in full of all the Pledgor'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 -2- 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. 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 2.4(a) and Section 6.1 of the Participation Agreement, the Pledgor shall take such actions required pursuant to Section 6.1 of the Participation Agreement. 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 6.1 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 all Lessor Obligations, (b) be binding upon the Pledgor and its successors, -3- 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 all Lessor Obligations, the security interest granted herein shall terminate and all rights to the Collateral shall revert to the Pledgor. Upon any such termination, the Collateral Agent will, at the sole expense of the Pledgor, and upon written instruction of the Agent, deliver to the Pledgor, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Additional Collateral owned by the Pledgor, together with all other Collateral held by the Collateral Agent hereunder and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. 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 Pledgor 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 Lessee, the Lessor or any other Person under the provisions of any Operative Document or otherwise, or (c) any change in the time, manner or place of payment of, or in any other term of, all or any of obligations the Lessor Obligations or any other extension, compromise or renewal of any Lessor Obligation, (d) any reduction, limitation, impairment or termination of any Lessor Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and -4- the Pledgor hereby waives 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 Lessor or otherwise, (e) any amendment to, rescission, waiver, or other modification of, or any consent to 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 Lessor Obligations, 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. The Pledgor 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 Pledgor's obligations under this Pledge Agreement or any other Operative Document, including any right of 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 the Pledgor in violation of the preceding sentence and the Lessor Obligations shall not have been paid in cash in full, such amount shall be deemed to have been paid to the Pledgor for the benefit of, and held in -5- trust for, the Lenders, and shall forthwith be paid to the Lenders to be credited and applied upon the Lessor Obligations, whether matured or unmatured. The Pledgor 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. The Pledgor represents and warrants for itself unto the Agent and each Lender, as at the date of each pledge and delivery hereunder by the Pledgor to the Collateral Agent of any Collateral pledged by the Pledgor pursuant to this Pledge Agreement as follows: (a) OWNERSHIP, NO LIENS, ETC. The Pledgor 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, 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 Lessor Obligations. 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 Person is required either (i) for the pledge by the Pledgor of any -6- Collateral pursuant to this Pledge Agreement or for the execution, delivery, and performance of this Pledge Agreement by the 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. The Pledgor covenants and agrees that, so long as any portion of the Lessor Obligations 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) the 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 the Pledgor, the 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 -7- any Collateral. ARTICLE V THE AGENT SECTION V.1 AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby irrevocably appoints the Agent the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the 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. The Pledgor 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 the 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 Pledgor pursuant to SECTION 6.5. -8- 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, 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 -9- 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 U.C.C. (whether or not the U.C.C. 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 the Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the 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. -10- (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 the Pledgor's 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 Pledgor) 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, the Pledgor agrees that, upon request of the Agent, the 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. SECTION VI.3 COMPLIANCE WITH RESTRICTIONS. The Pledgor agrees that in any sale of any of the Collateral owned by the -11- 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 the 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 the 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 Lessor Obligations 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 all the Lessor Obligations, shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. SECTION VI.5 INDEMNITY AND EXPENSES. The 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 -12- misconduct, as the case may be. Upon demand, the Pledgor 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 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 Pledgor 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 the Pledgor and its successors, transferees and assigns and shall inure to the benefit of and be enforceable by each the Agent, each Lender and -13- each holder of a Note and their respective successors and assigns); PROVIDED, HOWEVER, that the Pledgor may not 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 Pledgor 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 Pledgor agrees hereunder to perform and which the Pledgor shall fail to perform after being requested in writing so to perform (it being 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 PLEDGOR. 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 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. -14- 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. THE PLEDGOR 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. THE PLEDGOR 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. 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. -15- 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 ------------------------- Name: Title: SUMITOMO BANK, LIMITED, SAN FRANCISCO BRANCH, as Agent By ------------------------- Name: Title: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, as Collateral Agent By ------------------------- Name: Title: -16- SCHEDULE I TO PLEDGE AGREEMENT LIST OF ADDITIONAL COLLATERAL EX-11.01 8 EXHIBIT 11.01 EXHIBIT 11.01 SYMANTEC CORPORATION COMPUTATION OF NET INCOME (LOSS) PER SHARE
Three Months Ended Six Months Ended September 30, September 30, ---------------------- ---------------------- (In thousands, except per share data) 1996 1995 1996 1995 - ------------------------------------- -------- --------- -------- --------- PRIMARY NET INCOME (LOSS) PER SHARE Net income (loss) $ 882 $ (17,786) $ 3,917 $ (10,920) -------- --------- -------- --------- -------- --------- -------- --------- Weighted average number of common shares outstanding during the period 54,729 52,498 54,346 52,033 Shares issuable from assumed exercise of options 222 -- 696 -- Shares assumed repurchased with proceeds, not to exceed 20% of total shares outstanding -- -- -- -- -------- --------- -------- --------- Common and common stock equivalent shares outstanding for purpose of calculating primary net income (loss) per share 54,951 52,498 55,042 52,033 -------- --------- -------- --------- -------- --------- -------- --------- Primary net income (loss) per share $ .02 $ (0.34) $ .07 $ (0.21) -------- --------- -------- --------- -------- --------- -------- --------- FULLY DILUTED NET INCOME (LOSS) PER SHARE Net income (loss) $ 882 $ (17,786) $ 3,917 $ (10,920) Interest on short-term and long-term borrowings and U.S. government securities, net of income tax effect -- -- -- -- -------- --------- -------- --------- Net income (loss), as adjusted $ 882 $ (17,786) $ 3,917 $ (10,920) -------- --------- -------- --------- -------- --------- -------- --------- Weighted average number of common shares outstanding during the period 54,729 52,498 54,346 52,033 Shares issuable from assumed exercise of options 222 -- 696 -- Shares issuable from assumed conversion of convertible subordinated debentures -- -- -- -- Shares assumed repurchased with proceeds, not to exceed 20% of total shares outstanding -- -- -- -- -------- --------- -------- --------- Total shares for purpose of calculating fully diluted net income (loss) per share 54,951 52,498 55,042 52,033 -------- --------- -------- --------- -------- --------- -------- --------- Fully diluted net income (loss) per share $ .02 $ (0.34) $ .07 $ (0.21) -------- --------- -------- --------- -------- --------- -------- ---------
26 EX-27.01 9 EXHIBIT 27.01
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYMANTEC CORPORATION'S QUARTERLY REPORT ON THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000849399 SYMANTEC CORPORATION 1,000 6-MOS MAR-31-1997 APR-01-1996 SEP-30-1996 24,607 115,671 71,429 (6,051) 2,480 234,278 130,088 (76,561) 297,630 93,310 15,298 0 0 548 188,474 297,630 218,396 218,396 42,214 42,214 174,265 1,426 668 4,352 435 3,917 0 0 0 3,917 0.07 0.07
-----END PRIVACY-ENHANCED MESSAGE-----