10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2002

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ______ to______

Commission File No. 0-17948

ELECTRONIC ARTS INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 94-2838567
(I.R.S. Employer
Identification No.)

209 Redwood Shores Parkway
Redwood City, California
(Address of principal executive offices)  
94065
(Zip Code)

(650) 628-1500
(Registrant’s telephone number, including area code)

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 issuer’s classes of common stock, as of the latest practicable date.

			Outstanding at
Class of Common Stock	Par Value		February 5, 2003
Class A common stock		$0.01		143,112,344

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1. Unaudited Condensed Consolidated Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis Of Financial Condition and Results Of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
EXHIBIT 10.58
EXHIBIT 10.59
EXHIBIT 3.05

ELECTRONIC ARTS INC. AND SUBSIDIARIES

INDEX

		Page
Part I — Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets at December 31, 2002 and March 31, 2002		3
	Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2002 and 2001 and the Nine Months Ended December 31, 2002 and 2001		4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2002 and 2001		5
	Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			62
Item 4. Controls and Procedures			64
Part II — Other Information
Item 1. Legal Proceedings			65
Item 4. Submission of Matters to a Vote of Security Holders			65
Item 6. Exhibits and Reports on Form 8-K			65
Signatures			66
Certifications			67
Exhibit Index			69

2

PART I — FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)

			December 31,			March 31,
			2002			2002
ASSETS
Current assets:
	Cash, cash equivalents and short-term investments		$	1,165,326		$	796,936
	Marketable securities			1,341			6,869
	Receivables, less allowances of $206,651 and $115,870, respectively			609,029			190,495
	Inventories, net			33,216			23,780
	Deferred income taxes			37,732			38,597
	Other current assets			82,639			95,866
		Total current assets		1,929,283			1,152,543
Property and equipment, net				302,231			308,827
Investments in affiliates				10,231			19,077
Goodwill and other intangibles, net				119,406			110,512
Long-term deferred income taxes				55,628			64,065
Other assets				44,246			44,350
			$	2,461,025		$	1,699,374
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	146,816		$	88,563
	Accrued and other liabilities			599,784			364,419
		Total current liabilities		746,600			452,982
Minority interest in consolidated joint venture				2,876			3,098
Stockholders’ equity:
	Preferred stock, $0.01 par value. Authorized 10,000,000 shares			—			—
	Common stock
		Class A common stock, $0.01 par value. Authorized 400,000,000 shares; issued and outstanding 142,944,370 and 138,429,269 shares, respectively		1,429			1,384
		Class B common stock, $0.01 par value. Authorized 100,000,000 shares; issued and outstanding 4,233,463 and 6,233,413 shares, respectively		42			62
	Paid-in capital			796,950			649,777
	Retained earnings			914,652			606,795
	Accumulated other comprehensive loss			(1,524	)		(14,724	)
		Total stockholders’ equity		1,711,549			1,243,294
			$	2,461,025		$	1,699,374

See accompanying Notes to Condensed Consolidated Financial Statements.

3

ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)

					Three Months Ended						Nine Months Ended
					December 31,						December 31,
					2002			2001			2002			2001
Net revenues					$	1,233,726		$	832,878		$	2,019,114		$	1,254,984
Cost of goods sold						558,680			400,853			898,936			607,642
			Gross profit			675,046			432,025			1,120,178			647,342
Operating expenses:
	Marketing and sales					139,492			93,875			260,380			179,699
	General and administrative					42,250			31,833			95,366			80,451
	Research and development					112,558			97,406			301,667			285,766
	Amortization of intangibles					2,245			6,359			6,736			19,309
	Restructuring and asset impairment charges					9,378			14,051			9,378			14,051
				Total operating expenses		305,923			243,524			673,527			579,276
			Operating income			369,123			188,501			446,651			68,066
Interest and other income (expense), net						(4,439	)		3,515			(115	)		10,292
			Income before provision for income taxes and minority interest			364,684			192,016			446,536			78,358
Provision for income taxes						113,052			59,525			138,426			24,291
			Income before minority interest			251,632			132,491			308,110			54,067
Minority interest in consolidated joint venture						(1,413	)		(199	)		(253	)		147
		Net income			$	250,219		$	132,292		$	307,857		$	54,214
Class A common stock:
Net income:
	Basic				$	253,694		$	138,998		$	317,495		$	72,387
	Diluted				$	250,219		$	132,292		$	307,857		$	54,214
Net income per share:
	Basic				$	1.79		$	1.01		$	2.26		$	0.53
	Diluted				$	1.69		$	0.92		$	2.10		$	0.38
Number of shares used in computation:
	Basic					141,889			137,103			140,193			136,457
	Diluted					148,025			143,399			146,860			142,847
Class B common stock:
Net loss, net of retained interest in EA.com					$	(3,475	)	$	(6,706	)	$	(9,638	)	$	(18,173	)
Net loss per share:
	Basic				$	(0.86	)	$	(1.11	)	$	(1.84	)	$	(3.02	)
	Diluted				$	(0.86	)	$	(1.11	)	$	(1.84	)	$	(3.02	)
Number of shares used in computation:
	Basic					4,051			6,028			5,247			6,023
	Diluted					4,051			6,028			5,247			6,023

See accompanying Notes to Condensed Consolidated Financial Statements.

4

ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)

					Nine Months
					Ended December 31,
					2002			2001
Operating activities:
	Net income				$	307,857		$	54,214
		Adjustments to reconcile net income to net cash
			provided by (used in) operating activities:
				Minority interest in consolidated joint venture		253			(147	)
				Equity in net income of affiliates		(4,213	)		(2,134	)
				Gain on sale of affiliate		—			(200	)
				Depreciation and amortization		74,329			83,551
				Non-cash restructuring and asset impairment charges		1,352			6,503
				Permanent impairment of investments in affiliates		10,590			—
				Loss on sale of fixed assets		106			372
				Loss on marketable securities		273			—
				Bad debt expense		7,804			7,142
				Stock-based compensation		864			2,263
				Tax benefit from exercise of stock options		36,765			16,789
				Change in assets and liabilities:
				Receivables		(424,567	)		(296,077	)
				Inventories		(9,436	)		(9,232	)
				Other assets		(13,999	)		(46,892	)
				Accounts payable		58,222			80,638
				Accrued and other liabilities		229,392			95,364
				Deferred income taxes		7,918			(497	)
				Net cash provided by (used in) operating activities		283,510			(8,343	)
Investing activities:
	Proceeds from sale of property and equipment					679			258
	Proceeds from sale of affiliate					—			570
	Proceeds from sale of marketable securities					4,794			—
	Capital expenditures					(34,470	)		(40,056	)
	Investment in affiliates, net					(531	)		2,918
	Sales/purchases of short-term investments, net					(151,630	)		(64,624	)
	Distribution from investment in affiliate					3,000			—
	Proceeds from minority interest investment					(751	)		—
	Acquisition, net of cash acquired					(12,868	)		—
				Net cash used in investing activities		(191,777	)		(100,934	)
Financing activities:
	Proceeds from sales of Class A shares through employee stock plans and other plans					109,876			73,556
	Proceeds from sales of Class B shares through employee stock plans and other plans					1			—
	Purchase of treasury shares					—			(11,922	)
				Net cash provided by financing activities		109,877			61,634
Translation adjustment						11,632			2,369
Increase (decrease) in cash and cash equivalents						213,242			(45,274	)
Beginning cash and cash equivalents						552,826			419,812
Ending cash and cash equivalents						766,068			374,538
Short-term investments						399,258			112,304
Ending cash, cash equivalents and short-term investments					$	1,165,326		$	486,842

5

ELECTRONIC ARTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)
(unaudited)

		Nine Months
		Ended December 31,
		2002		2001
Supplemental cash flow information:
	Cash paid during the period for income taxes	$	5,358	$	7,582
Non-cash investing activities:
	Change in unrealized appreciation (loss) on investments and marketable securities	$	3,075	$	(1,443	)
Non-cash financing activities:
	Conversion of 2,000,000 shares of Class B common stock for 206,454 shares of Class A common stock	$	9,353	$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

6

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial statements are unaudited and reflect all adjustments (consisting only of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the current interim period are not necessarily indicative of results to be expected for the current year or any other period. Certain amounts have been reclassified to conform to the fiscal 2003 presentation.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Electronic Arts Inc. (the “Company”) Annual Report on Form 10-K for the fiscal year ended March 31, 2002 as filed with the Securities and Exchange Commission on June 28, 2002.

Note 2. Fiscal Year and Fiscal Quarter

The Company’s fiscal year is reported on a 52/53-week period that ends on the Saturday nearest to March 31 in each year. The results of operations for fiscal 2003 and fiscal 2002 contain 52 weeks. The results of operations for the fiscal quarters ended December 31, 2002 and 2001 contain 13 weeks. For simplicity of presentation, all fiscal periods are treated as ending on a calendar month end.

Note 3. Common Stock

At the Company’s Annual Meeting of Stockholders, held on August 1, 2002, the stockholders elected to amend the 2000 Class A Equity Incentive Plan to increase by 5,500,000 the number of shares of the Company’s Class A common stock reserved for issuance under the Plan.

Note 4. Goodwill and Other Intangible Assets

Effective April 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”, which requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and acquired intangible assets meeting certain criteria to be recorded apart from goodwill. The Company evaluated its goodwill and intangibles acquired prior to June 30, 2001 using the criteria of SFAS No. 141, which resulted in $41,462,000 of other intangibles to be recorded separately from goodwill and $4,000,000 of acquired workforce intangibles being subsumed into goodwill at April 1, 2002. In addition, effective April 1, 2002, the Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 requires that purchased goodwill and certain indefinite-lived intangibles no longer be amortized; rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. SFAS No. 142 also requires, among other things, reassessment

7

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

of the useful lives of existing recognized intangibles and the testing for impairment of existing goodwill and other indefinite-lived intangibles. The Company evaluated the estimated useful lives of existing recognized intangibles and determined that the estimated useful lives of all such assets were appropriate.

In accordance with SFAS No. 142, the Company has ceased to amortize goodwill (see goodwill information in table below). In lieu of amortization, SFAS No. 142 requires a two-step approach to testing goodwill for impairment for each reporting unit. The first step, required to be completed by September 30, 2002, tests for impairment by applying fair value-based tests at the Company’s reporting unit level. The second step (if necessary), required to be completed by March 31, 2003, measures the amount of impairment by applying fair value-based tests to individual assets and liabilities within each reporting unit. The Company completed the first step of transitional goodwill impairment testing during the quarter ended June 30, 2002 and found no indicators of impairment of its recorded goodwill. As a result, the Company has recognized no transitional impairment loss in fiscal 2003 in connection with the adoption of SFAS No. 142. The Company will complete its annual impairment test in the fourth quarter of fiscal 2003 with a measurement date of January 1 and any impairment that arises from that analysis will be accounted for in the fourth quarter of fiscal 2003. There can be no assurance that future impairment tests will not result in a charge to earnings and there is a potential for a write down of goodwill in connection with the annual impairment test.

The following table presents comparative information showing the effects that non-amortization of goodwill would have had on the Condensed Consolidated Statements of Operations for the prior three and nine months ended December 31, 2001 (in thousands, except per share amounts):

		Three Months Ended				Nine Months Ended
		December 31,				December 31,
		2002		2001		2002		2001
Reported net income		$	250,219	$	132,292	$	307,857	$	54,214
Goodwill amortization, net of tax			—		1,995		—		6,039
	Adjusted net income	$	250,219	$	134,287	$	307,857	$	60,253
Reported diluted net earnings per share		$	1.69	$	0.92	$	2.10	$	0.38
Goodwill amortization, net of tax			—		0.02		—		0.04
	Adjusted diluted net earnings per share	$	1.69	$	0.94	$	2.10	$	0.42

During the prior quarter ended September 30, 2002, the Company recorded an additional $16,139,000 of goodwill as a result of an acquisition of a software development company. The Company operates in two business segments, EA Core and EA.com (see Note 8 of the Notes to Condensed Consolidated Financial Statements). Goodwill information for each business segment is as follows (in thousands):

8

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

	As of						Effects of Foreign			As of
	March 31, 2002		Goodwill Acquired		Adjustments		Currency			December 31, 2002
EA Core	$	39,335	$	16,139	$	—	$	(200	)	$	55,274
EA.com		29,715		—		—		—			29,715
	$	69,050	$	16,139	$	—	$	(200	)	$	84,989

Other intangibles consisted of the following (in thousands):

	December 31, 2002										March 31, 2002
	Gross								Other		Gross								Other
	Carrying		Accumulated						Intangibles,		Carrying		Accumulated						Intangibles,
	Amount		Amortization			Other			Net		Amount		Amortization			Other			Net
Developed/Core Technology	$	28,263	$	(18,795	)	$	—		$	9,468	$	28,263	$	(15,455	)	$	—		$	12,808
Tradename		35,169		(12,107	)		—			23,062		35,169		(9,854	)		—			25,315
Subscribers and Other Intangibles		8,694		(6,299	)		(508	)		1,887		8,694		(5,156	)		(199	)		3,339
Other Intangibles	$	72,126	$	(37,201	)	$	(508	)	$	34,417	$	72,126	$	(30,465	)	$	(199	)	$	41,462

As of December 31, 2002, future intangible asset amortization expense is estimated as follows (in thousands):

Fiscal Year Ended March 31,
2003	$	1,997
2004		7,364
2005		5,946
2006		5,517
2007		2,489
Thereafter		11,104
	$	34,417

Note 5. Prepaid Royalties

Prepaid royalties consist primarily of prepayments for manufacturing royalties, co-publishing and/or distribution affiliates and license fees paid to celebrities, professional sports organizations and other organizations for use of their trade name and content. Also included in prepaid royalties are prepayments made to independent software developers under development arrangements that have alternative future uses. Prepaid royalties are expensed at the contractual or effective royalty rate as cost of goods sold based on actual net product sales. Management evaluates the future realization of prepaid royalties quarterly and charges to research and development expense any amounts that management deems unlikely to be realized through future product sales. Royalty advances are classified as current and non-current assets based upon estimated net product sales for the following year. The current portion of prepaid royalties, included in other current assets, was $41,487,000 and $65,484,000 at December 31, 2002 and March 31, 2002, respectively. The long-term portion of prepaid royalties, included in other assets, was $2,885,000 and $1,164,000 at December 31, 2002 and March 31, 2002, respectively.

9

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

Note 6. Inventories

Inventories are stated at the lower of cost or market. Inventories, net, at December 31, 2002 and March 31, 2002 consisted of (in thousands):

	December 31, 2002		March 31, 2002
Raw materials and work in process	$	2,612	$	1,025
Finished goods		30,604		22,755
	$	33,216	$	23,780

Note 7. Accrued and Other Liabilities

Accrued and other liabilities at December 31, 2002 and March 31, 2002 consisted of (in thousands):

	December 31, 2002		March 31, 2002
Accrued income taxes	$	181,298	$	94,444
Accrued royalties		158,423		77,590
Accrued expenses		132,034		87,104
Accrued compensation and benefits		97,933		87,985
Deferred revenue		24,667		13,286
Warranty reserve		5,429		4,010
	$	599,784	$	364,419

Note 8. Segment Information

SFAS No. 131, “Disclosures About Segments of An Enterprise And Related Information”, establishes standards for the reporting by public business enterprises of information about operating segments, product lines, geographic areas and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance.

The Company’s chief operating decision maker is considered to be the Company’s Chief Executive Officer (“CEO”). The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product lines for purposes of making operating decisions and assessing financial performance.

The Company operates and reviews its business in two business segments:

• EA Core business segment: creation, marketing and distribution of entertainment software.

• EA.com business segment: creation, marketing and distribution of entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

10

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

Our view and reporting of business segments may change due to changes in the underlying business facts and circumstances and the evolution of our reporting to our Chief Operating Decision Maker. Please see the discussion regarding segment reporting in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

Information about the Company’s business segments is presented below for the three and nine months ended December 31, 2002 and 2001 (in thousands):

		Three Months Ended December 31, 2002
		EA Core
		(excl. EA.com)			EA.com			Electronic Arts
Net revenues		$	1,211,484		$	22,242		$	1,233,726
Cost of goods sold			553,579			5,101			558,680
Gross profit			657,905			17,141			675,046
Operating expenses:
	Marketing and sales (a)		124,744			14,748			139,492
	General and administrative		40,502			1,748			42,250
	Research and development (b)		84,351			28,207			112,558
	Amortization of intangibles (c)		927			1,318			2,245
	Restructuring and asset impairment charges		9,378			—			9,378
Total operating expenses			259,902			46,021			305,923
Operating income (loss)			398,003			(28,880	)		369,123
Interest and other income (expense), net			(4,359	)		(80	)		(4,439	)
Income (loss) before provision for income taxes and minority interest			393,644			(28,960	)		364,684
Provision for income taxes			113,052			—			113,052
Income (loss) before minority interest			280,592			(28,960	)		251,632
Minority interest in consolidated joint venture			(1,413	)		—			(1,413	)
Net income (loss) before retained interest in EA.com		$	279,179		$	(28,960	)	$	250,219
Interest income		$	5,010		$	3		$	5,013
Depreciation and amortization			12,365			12,591			24,956
Identifiable assets			2,314,494			146,531			2,461,025
Capital expenditures			10,965			119			11,084

11

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

		Three Months Ended December 31, 2001
		EA Core
		(excl. EA.com)			EA.com			Electronic Arts
Net revenues		$	810,930		$	21,948		$	832,878
Cost of goods sold			395,261			5,592			400,853
Gross profit			415,669			16,356			432,025
Operating expenses:
	Marketing and sales (a)		84,192			9,683			93,875
	General and administrative		29,116			2,717			31,833
	Research and development (b)		66,030			31,376			97,406
	Amortization of intangibles (c)		3,205			3,154			6,359
	Restructuring and asset impairment charges		—			14,051			14,051
Total operating expenses			182,543			60,981			243,524
Operating income (loss)			233,126			(44,625	)		188,501
Interest and other income (expense), net			3,597			(82	)		3,515
Income (loss) before provision for income taxes and minority interest			236,723			(44,707	)		192,016
Provision for income taxes			59,525			—			59,525
Income (loss) before minority interest			177,198			(44,707	)		132,491
Minority interest in consolidated joint venture			(199	)		—			(199	)
Net income (loss) before retained interest in EA.com		$	176,999		$	(44,707	)	$	132,292
Interest income		$	3,025		$	8		$	3,033
Depreciation and amortization			13,438			14,819			28,257
Identifiable assets			1,502,949			192,424			1,695,373
Capital expenditures			8,660			1,685			10,345

12

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

		Nine Months Ended December 31, 2002
		EA Core
		(excl. EA.com)			EA.com			Electronic Arts
Net revenues		$	1,958,297		$	60,817		$	2,019,114
Cost of goods sold			887,814			11,122			898,936
Gross profit			1,070,483			49,695			1,120,178
Operating expenses:
	Marketing and sales (a)		228,473			31,907			260,380
	General and administrative		89,448			5,918			95,366
	Research and development (b)		221,716			79,951			301,667
	Amortization of intangibles (c)		2,780			3,956			6,736
	Restructuring and asset impairment charges		9,378			—			9,378
Total operating expenses			551,795			121,732			673,527
Operating income (loss)			518,688			(72,037	)		446,651
Interest and other income (expense), net			67			(182	)		(115	)
Income (loss) before provision for income taxes and minority interest			518,755			(72,219	)		446,536
Provision for income taxes			138,426			—			138,426
Income (loss) before minority interest			380,329			(72,219	)		308,110
Minority interest in consolidated joint venture			(253	)		—			(253	)
Net income (loss) before retained interest in EA.com		$	380,076		$	(72,219	)	$	307,857
Interest income		$	14,109		$	76		$	14,185
Depreciation and amortization			36,974			37,355			74,329
Capital expenditures			33,774			696			34,470

13

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

		Nine Months Ended December 31, 2001
		EA Core
		(excl. EA.com)		EA.com			Electronic Arts
Net revenues		$	1,201,407	$	53,577		$	1,254,984
Cost of goods sold			595,468		12,174			607,642
Gross profit			605,939		41,403			647,342
Operating expenses:
	Marketing and sales (a)		150,002		29,697			179,699
	General and administrative		72,535		7,916			80,451
	Research and development (b)		185,138		100,628			285,766
	Amortization of intangibles (c)		9,615		9,694			19,309
	Restructuring and asset impairment charges		—		14,051			14,051
Total operating expenses			417,290		161,986			579,276
Operating income (loss)			188,649		(120,583	)		68,066
Interest and other income (expense), net			10,865		(573	)		10,292
Income (loss) before provision for income taxes and minority interest			199,514		(121,156	)		78,358
Provision for income taxes			24,291		—			24,291
Income (loss) before minority interest			175,223		(121,156	)		54,067
Minority interest in consolidated joint venture			147		—			147
Net income (loss) before retained interest in EA.com		$	175,370	$	(121,156	)	$	54,214
Interest income		$	12,493	$	43		$	12,536
Depreciation and amortization			38,267		45,284			83,551
Capital expenditures			27,609		12,447			40,056

(a)	EA.com Marketing and Sales includes $4,467,000 and $4,466,000 of Carriage Fee for the three months ended December 31, 2002 and 2001, respectively. EA.com Marketing and Sales includes $13,399,000 and $13,398,000 of Carriage Fee for the nine months ended December 31, 2002 and 2001, respectively.
(b)	EA.com Research and Development includes $12,422,000 of Network Development and Support and $2,708,000 of Customer Relationship Management (CRM) for the three months ended December 31, 2002; and includes $14,858,000 of Network Development and Support and $2,583,000 of CRM for the three months ended December 31, 2001. EA.com Research and Development includes $36,533,000 of Network Development and Support and $7,052,000 of CRM for the nine months ended December 31, 2002; and includes $46,903,000 of Network Development and Support and $8,493,000 of CRM for the nine months ended December 31, 2001.
(c)	Results for fiscal 2003 do not include amortization of goodwill as a result of adopting SFAS No. 142. Amortization of intangibles for the three months ended December 30, 2001 includes goodwill amortization of $1,485,000 for EA Core and $1,406,000 for EA.com. Amortization of intangibles for the nine months ended December 31, 2001 includes goodwill amortization of $4,456,000 for EA Core and $4,296,000 for EA.com.

14

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

The Company’s operations, presented geographically, for the three and nine months ended December 31, 2002 and 2001 are presented below (in thousands):

							Asia
		North					Pacific
		America			Europe		(excluding Japan)			Japan			Eliminations			Total
Three months ended December 31, 2002
Net revenues from unaffiliated customers		$	695,630		$	470,742	$	38,208		$	29,146		$	—		$	1,233,726
Intercompany revenues			(5,082	)		36,726		3,126			—			(34,770	)		—
	Total net revenues		690,548			507,468		41,334			29,146			(34,770	)		1,233,726
Operating income			203,408			158,749		4,293			4,773			(2,100	)		369,123
Interest income			4,404			575		34			—			—			5,013
Depreciation and amortization			21,111			3,453		227			165			—			24,956
Identifiable assets			1,750,576			626,301		50,398			33,750			—			2,461,025
Capital expenditures			8,550			1,894		470			170			—			11,084
Long-lived assets			366,503			183,852		5,239			5,151			—			560,745
Three months ended December 31, 2001
Net revenues from unaffiliated customers		$	510,752		$	279,601	$	21,801		$	20,724		$	—		$	832,878
Intercompany revenues			1,222			17,262		2,753			55			(21,292	)		—
	Total net revenues		511,974			296,863		24,554			20,779			(21,292	)		832,878
Operating income			71,022			116,770		167			700			(158	)		188,501
Interest income			2,742			254		37			—			—			3,033
Depreciation and amortization			24,204			3,632		250			171			—			28,257
Identifiable assets			1,202,728			440,991		29,368			22,286			—			1,695,373
Capital expenditures			7,331			2,340		437			237			—			10,345
Long-lived assets			351,891			164,079		4,522			4,406			—			524,898
Nine months ended December 31, 2002
Net revenues from unaffiliated customers		$	1,182,768		$	713,926	$	67,200		$	55,220		$	—		$	2,019,114
Intercompany revenues			(7,998	)		57,561		5,036			57			(54,656	)		—
	Total net revenues		1,174,770			771,487		72,236			55,277			(54,656	)		2,019,114
Operating income			230,976			211,903		5,002			693			(1,923	)		446,651
Interest income			12,688			1,368		128			1			—			14,185
Depreciation and amortization			62,410			10,771		689			459			—			74,329
Capital expenditures			26,383			7,021		732			334			—			34,470
Nine months ended December 31, 2001
Net revenues from unaffiliated customers		$	783,369		$	392,615	$	39,859		$	39,141		$	—		$	1,254,984
Intercompany revenues			3,553			26,708		6,860			55			(37,176	)		—
	Total net revenues		786,922			419,323		46,719			39,196			(37,176	)		1,254,984
Operating income (loss)			(24,683	)		92,648		(129	)		(302	)		532			68,066
Interest income			10,974			1,392		170			—			—			12,536
Depreciation and amortization			72,408			10,044		616			483			—			83,551
Capital expenditures			29,941			8,604		710			801			—			40,056

15

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

Information about the Company’s net revenues by product line for the three and nine months ended December 31, 2002 and 2001 is presented below (in thousands):

	Three Months Ended										Nine Months Ended
	December 31,										December 31,
	2002		% of total			2001		% of total			2002		% of total			2001		% of total
PlayStation 2	$	459,407		37	%	$	227,554		27	%	$	752,717		37	%	$	369,836		30	%
PC		219,083		18	%		194,856		23	%		377,835		19	%		318,818		25	%
Xbox		116,836		9	%		44,629		5	%		174,466		9	%		44,629		4	%
Nintendo GameCube		111,103		9	%		30,026		4	%		153,897		8	%		30,026		2	%
PlayStation		53,066		4	%		122,940		15	%		90,495		4	%		162,129		13	%
Game Boy Advance		68,102		6	%		30,543		4	%		73,919		4	%		30,543		2	%
Advertising		9,461		1	%		10,556		1	%		28,579		1	%		25,317		2	%
Game Boy Color		22,610		2	%		24,176		3	%		25,131		1	%		28,455		2	%
Online Subscriptions		9,193		1	%		7,002		1	%		24,969		1	%		22,146		2	%
License, OEM and Other		7,396		—			19,813		2	%		16,349		1	%		37,464		3	%
Affiliated Label		157,469		13	%		120,783		15	%		300,757		15	%		185,621		15	%
	$	1,233,726		100	%	$	832,878		100	%	$	2,019,114		100	%	$	1,254,984		100	%

Note 9. Comprehensive Income

The components of comprehensive income, net of tax, for the three and nine months ended December 31, 2002 and 2001 were as follows (in thousands):

		Three Months Ended						Nine Months Ended
		December 31,						December 31,
		2002			2001			2002		2001
Net income		$	250,219		$	132,292		$	307,857	$	54,214
Other comprehensive income:
	Change in unrealized appreciation (loss) on investments, net of tax expense of $165, $356, $1,636 and $434		153			1,982			1,317		(1,877	)
	Reclassification of (gain) loss realized in net income for marketable securities, net of a tax expense of ($693) and ($252)		(1,544	)		—			374		—
	Foreign currency translation adjustments		3,737			(839	)		11,509		3,175
Total other comprehensive income			2,346			1,143			13,200		1,298
Total comprehensive income		$	252,565		$	133,435		$	321,057	$	55,512

The foreign currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.

16

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

Note 10. Net Earnings (Loss) Per Share

The following summarizes the computations of Basic Earnings Per Share (“EPS”) and Diluted EPS. Basic EPS is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation plans including stock options, restricted stock awards, warrants and other convertible securities using the treasury stock method.

Net income (loss) per share is computed individually for Class A common stock and Class B common stock. Please see the discussion regarding segment reporting in the MD&A.

(in thousands, except per share amounts):
	Three months ended December 31, 2002
	Class A common			Class A common		Class B
	stock-Basic			stock-Diluted		common stock
Net income (loss) before retained interest in EA.com	$	279,179		$	250,219	$	(28,960	)
Net loss related to retained interest in EA.com		(25,485	)		—		25,485
Net income (loss)	$	253,694		$	250,219	$	(3,475	)
Shares used to compute net income (loss) per share:
Weighted-average common shares		141,889			141,889		4,051
Dilutive stock equivalents		—			6,136		—
Dilutive potential common shares		141,889			148,025		4,051
Net income (loss) per share:
Basic	$	1.79			N/A	$	(0.86	)
Diluted		N/A		$	1.69	$	(0.86	)

17

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

(in thousands, except pershare amounts):
	Nine months ended December 31, 2002
	Class A common			Class A common		Class B
	stock-Basic			stock-Diluted		common stock
Net income (loss) before retained interest in EA.com	$	380,076		$	307,857	$	(72,219	)
Net loss related to retained interest in EA.com		(62,581	)		—		62,581
Net income (loss)	$	317,495		$	307,857	$	(9,638	)
Shares used to compute net income (loss) per share:
Weighted-average common shares		140,193			140,193		5,247
Dilutive stock equivalents		—			6,667		—
Dilutive potential common shares		140,193			146,860		5,247
Net income (loss) per share:
Basic	$	2.26			N/A	$	(1.84	)
Diluted		N/A		$	2.10	$	(1.84	)

(in thousands, except per share amounts):
	Three months ended December 31, 2001
	Class A common			Class A common		Class B
	stock-Basic			stock-Diluted		common stock
Net income (loss) before retained interest in EA.com	$	176,999		$	132,292	$	(44,707	)
Net loss related to retained interest in EA.com		(38,001	)		—		38,001
Net income (loss)	$	138,998		$	132,292	$	(6,706	)
Shares used to compute net income (loss) per share:
Weighted-average common shares		137,103			137,103		6,028
Dilutive stock equivalents		—			6,296		—
Dilutive potential common shares		137,103			143,399		6,028
Net income (loss) per share:
Basic	$	1.01			N/A	$	(1.11	)
Diluted		N/A		$	0.92	$	(1.11	)

18

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

(in thousands, except per share amounts):
	Nine months ended December 31, 2001
	Class A common			Class A common		Class B
	stock-Basic			stock-Diluted		common stock
Net income (loss) before retained interest in EA.com	$	175,370		$	54,214	$	(121,156	)
Net loss related to retained interest in EA.com		(102,983	)		—		102,983
Net income (loss)	$	72,387		$	54,214	$	(18,173	)
Shares used to compute net income (loss) per share:
Weighted-average common shares		136,457			136,457		6,023
Dilutive stock equivalents		—			6,390		—
Dilutive potential common shares		136,457			142,847		6,023
Net income (loss) per share:
Basic	$	0.53			N/A	$	(3.02	)
Diluted		N/A		$	0.38	$	(3.02	)

The Diluted EPS calculation for Class A common stock includes the potential dilution from the conversion of Class B common stock to Class A common stock in the event that an initial public offering for Class B common stock does not occur. Net income used for the calculation of Diluted EPS for Class A common stock was $250,219,000 and $132,292,000 for the three months ended December 31, 2002 and 2001, respectively. Net income used for the calculation of Diluted EPS for Class A common stock was $307,857,000 and $54,214,000 for the nine months ended December 31, 2002 and 2001, respectively. This net income includes the remaining interest in EA.com (100% of EA.com losses), which is directly attributable to outstanding Class B shares owned by third parties, which would be included in the Class A common stock EPS calculation in the event that an initial public offering for Class B common stock does not occur.

Excluded from the above computation of weighted-average shares for Diluted EPS for Class A common stock were options to purchase 276,000 and 1,333,000 shares of common stock for the three and nine months ended December 31, 2002, respectively, as the options’ exercise price was greater than the average market price of the common shares. For the three and nine months ended December 31, 2002, the weighted-average exercise price of these respective options was $66.18 and $63.54 per share, respectively. Similarly, options to purchase 1,729,000 and 1,425,000 shares of common stock were excluded for the three and nine months ended December 31, 2001, respectively, as the options’ exercise price was greater than the average market price of the common shares. For the three and nine months ended December 31, 2001, the weighted-average exercise price of these respective options was $57.69 and $57.59 per share, respectively.

Due to the net loss attributable for the three and nine months ended December 31, 2002 on a diluted basis to Class B Stockholders, stock options have been excluded from the Diluted EPS

19

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

calculation as their inclusion would have been antidilutive. Had net income been reported for the nine months ended December 31, 2002, an additional 297,000 shares would have been added to diluted potential common shares for Class B common stock. Similarly, an additional 828,000 and 884,000 shares would have been added to diluted potential common shares for Class B common stock for the three and nine months ended December 31, 2001, respectively.

Note 11. Restructuring and Asset Impairment Charges

EA Core

During the quarter ended December 31, 2002, the Company closed its office located in San Francisco, California and its studio located in Seattle, Washington. The office and studio closures were a result of the Company’s strategic decision to consolidate local development efforts in Redwood City, California and Vancouver, Canada. The Company recorded total pre-tax charges of $9,378,000, consisting of $7,310,000 for consolidation of facilities, $1,452,000 for the write-off of non-current assets and $616,000 for workforce reductions. The facilities charge was net of a reduction in deferred rent of $533,000.

The exit plans resulted in a workforce reduction of approximately 33 personnel in development and administrative departments. The estimated costs for consolidation of facilities included contractual rental commitments under the real estate lease for unutilized office space, offset by estimated future sub-lease income. In addition, the exit plans resulted in the write-off of certain non-current fixed assets, primarily leasehold improvements.

The following table summarizes the activity in the accrued restructuring account for the period ended December 31, 2002 (in thousands):

	Facilities		Workforce			Total
Recorded in the quarter ended December 31, 2002	$	7,843	$	616		$	8,459
Charges utilized in cash for the three months ended December 31, 2002		—		(385	)		(385	)
Balance as of December 31, 2002	$	7,843	$	231		$	8,074

The Company expects the remaining accrued restructuring balance of $8,074,000 to be fully utilized by December 31, 2006.

EA.com

In October 2001, the Company announced a restructuring plan for EA.com. The restructuring initiatives involved strategic decisions to discontinue certain product offerings and focus only on key online priorities that align with its fiscal 2003 operational objectives. The workforce reduction resulted in the termination of approximately 270 positions.

20

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

The following table summarizes the activity in the accrued restructuring account for the nine months ended December 31, 2002 (in thousands):

	Workforce			Facilities			Total
Balance as of March 31, 2002	$	674		$	2,214		$	2,888
Charges utilized in cash for the three months ended June 30, 2002		(494	)		(243	)		(737	)
Charges utilized in non-cash for the three months ended June 30, 2002		—			(36	)		(36	)
Balance as of June 30, 2002		180			1,935			2,115
Charges utilized in cash for the three months ended September 30, 2002		(82	)		(100	)		(182	)
Balance as of September 30, 2002		98			1,835			1,933
Charges utilized in cash for the three months ended December 31, 2002		(93	)		(283	)		(376	)
Charges utilized in non-cash for the three months ended December 31, 2002		—			(652	)		(652	)
Balance as of December 31, 2002	$	5		$	900		$	905

The Company expects the remaining EA.com accrued restructuring balance of $905,000 to be fully utilized by December 31, 2006.

The accrued restructuring balances are included in accrued expenses in Note 7 of the Notes to Condensed Consolidated Financial Statements.

Note 12. Contingent Liabilities

Residual Value Guarantees

In February 1995, the Company entered into a build-to-suit lease with a financial institution on the Company’s headquarters facility in Redwood City, California, which was extended in July 2001 and expires in July 2006. The Company accounted for this arrangement as an operating lease in accordance with SFAS No. 13, “Accounting for Leases”, as amended. Existing campus facilities developed in phase one comprise a total of 350,000 square feet and provide space for sales, marketing, administration and research and development functions. The Company has an option to purchase the property (land and facilities) for $145,000,000 or, at the end of the lease, to arrange for (1) an additional extension of the lease or (2) sale of the property to a third party with the Company retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $128,900,000 if the sales price is less than this amount, subject to certain provisions of the lease.

21

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

In December 2000, the Company entered into a second build-to-suit lease with a financial institution for a five year term from December 2000 to expand the Company’s headquarters facilities and develop adjacent property adding approximately 310,000 square feet to its campus. Construction was completed in June 2002. The Company accounted for this arrangement as an operating lease in accordance with SFAS No. 13, as amended. The facilities provide space for marketing, sales and research and development. The Company has an option to purchase the property for $127,000,000 or, at the end of the lease, to arrange for (1) an extension of the lease or (2) sale of the property to a third party with the Company retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $118,800,000 if the sales price is less than this amount, subject to certain provisions of the lease.

Director Indemnity Agreements

The Company has entered into an indemnification agreement with the members of its Board of Directors to indemnify its Directors to the extent permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by the Directors as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which the Directors are sued as a result of their service as members of the Board of Directors of the Company.

Please see the Liquidity and Capital Resources section of the MD&A for a schedule of the Company’s contractual obligations and commitments.

Note 13. Investments in Affiliates

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, management evaluates purchased intangible assets and long-lived assets to determine if events or changes in circumstances indicate an other-than-temporary impairment in value. The Company has cost investments in affiliates. Based on several factors, such as the financial performance of the affiliate, the Company's decision to no longer acquire or continue investing in these affiliates, the limited cash flow from future business arrangements and other information available during the quarter ended December 31, 2002, the Company determined that some of its investments in affiliates were permanently impaired and recorded a permanent impairment in the amount of $10,119,000. This permanent impairment was recorded in interest and other income (expense) on the Condensed Consolidated Statements of Operations.

Note 14. Subsequent Events

Studio Restructuring

In the fourth quarter of fiscal 2003, the Company will begin the consolidation of its Los Angeles, Irvine and Las Vegas studios into a major centralized studio in Los Angeles. These measures are being taken to maximize efficiencies and streamline the creative development process and operations of our studios.

22

ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

Shelf Registration

On January 29, 2003, the Company filed a “shelf” registration statement on Form S-3 with the U.S. Securities and Exchange Commission which will allow the Company to sell up to $2 billion in equity or debt securities.

Note 15. Impact of Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We do not expect the adoption of SFAS No.143 to have a material impact on the Company’s consolidated financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, as amended by SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”. The adoption of SFAS No. 145 did not have a material impact on the Company’s consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)”. The Company currently accounts for and reports exit and disposal activities under the provisions of EITF No. 94-3. The Company will adopt the provisions of SFAS No. 146 for all exit and disposal activities that are initiated after December 31, 2002. The Company does not expect the adoption of SFAS No. 146 to have a material impact on its consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a guarantor to (i) include disclosure of certain obligations, and (ii) if applicable, at the inception of the guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The disclosure provisions of the Interpretation are effective for financial statements of interim or annual reports that end after December 15, 2002 and the Company has adopted those requirements in its condensed consolidated financial statements included in Note 12 of the Notes to Condensed Consolidated Financial Statements and in the Liquidity and Capital Resources section of the MD&A of this Form 10-Q. However, the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective

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ELECTRONIC ARTS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)

of the guarantor’s year-end. The Company is currently assessing the impact of adopting the initial recognition and initial measurement requirements of FIN 45 on its consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of FASB Statement No. 123”. SFAS No. 148 amends FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for an entity that voluntarily changes to the fair-value-based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that statement to require prominent disclosure about the effects on reported net income and earnings per share and the entity’s accounting policy decisions with respect to stock-based employee compensation. Certain of the disclosure requirements are required for all companies, regardless of whether the fair value method or intrinsic value method is used to account for stock-based employee compensation arrangements. The Company continues to account for its employee incentive stock option plans using the intrinsic value method in accordance with the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” The amendments to SFAS 123 will be effective for financial statements for fiscal years ended after December 15, 2002 and for interim periods beginning after December 15, 2002. The Company will adopt the disclosure provisions of this statement in its fourth quarter of fiscal year 2003.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities. Under current practice, two enterprises generally have been included in consolidated financial statements because one enterprise controls the other through voting interests. FIN 46 defines the concept of “variable interests” and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among the parties involved. This interpretation applies immediately to variable interest entities created after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. If it is reasonably possible that an enterprise will consolidate or disclose information about a variable interest entity when FIN 46 becomes effective, the enterprise shall disclose information about those entities in all financial statements issued after January 31, 2003. The interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. Based on the recent release of FIN 46, the Company has not completed its assessment as to whether or not the adoption of FIN 46 will have a material impact on its consolidated financial statements.

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Item 2. Management’s Discussion and Analysis Of Financial Condition and Results Of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward looking. We use words such as anticipates, believes, expects, intends, future and similar expressions to help identify forward-looking statements. These forward-looking statements are subject to business and economic risk and management’s expectations, and are inherently uncertain and difficult to predict. Our actual results could differ materially from management’s expectations due to such risks. We will not necessarily update information if any forward-looking statement later turns out to be inaccurate. Risks and uncertainties that may affect our future results include, but are not limited to, those discussed under the heading “Risk Factors” at pages 55 to 61, as well as in our Annual Report on Form 10-K for the fiscal year ended March 31, 2002 as filed with the Securities and Exchange Commission (SEC) on June 28, 2002 and other documents filed with the SEC.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements. Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, and revenues and expenses during the reporting period. The policies discussed below are considered by management to be critical because they are not only important to the portrayal of our financial condition and results of operations but also because application and interpretation of these policies requires both judgment and estimates of matters that are inherently uncertain and unknown. As a result, actual results may differ materially from our estimates.

Sales allowances and bad debt reserves

We derive revenues from sales of our packaged goods product, subscriptions of online service, sales of packaged goods through our online store and website advertising. Product revenue is recognized net of sales allowances. We also have stock-balancing programs for our personal computer products, which allow for the exchange of personal computer products by resellers under certain circumstances. We may decide to provide price protection under certain circumstances for both our personal computer and video game system products after we analyze: inventory remaining in the channel, the rate of inventory sell-through in the channel, and our remaining inventory on hand. It is our policy to exchange products or give credits, rather than give cash refunds.

We estimate potential future product returns, price protection and stock-balancing programs related to current period product revenue. We analyze historical returns, current sell-through of distributor and retailer inventory of our products, current trends in the video game market and the overall economy, changes in customer demand and acceptance of our products and other related factors when evaluating the adequacy of the sales returns and price protection allowances. In addition, management monitors and manages the volume of our sales to retailers and distributors

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and their inventories, as substantial overstocking in the distribution channel can result in high returns or the requirement for substantial price protection in subsequent periods. In the past, actual returns have not generally exceeded our reserves. However, actual returns may materially exceed our estimates as unsold products in the distribution channels are exposed to rapid changes in consumer preferences, market conditions or technological obsolescence due to new platforms, product updates or competing products. For example, the risk of product returns for our products on mature platforms may increase as new hardware platforms, such as Xbox, Nintendo GameCube and PlayStation 2, become more popular. While management believes it can make reliable estimates for these matters, if we changed our assumptions and estimates, our returns reserves would change, which would impact the net revenue we report. For example, if actual returns were significantly greater than the reserves we have established, the actual results would decrease our reported revenue. Conversely, if actual returns were significantly less than our reserves, this would increase our reported revenue.

Similarly, significant judgment is required to estimate our allowance for doubtful accounts in any accounting period. Our allowance for doubtful accounts is determined by evaluating customer credit-worthiness in the context of current economic trends. Depending upon the overall economic climate and the financial condition of our customers, the amount and timing of our bad debt expense could change significantly.

We also have no way of accurately forecasting customer bankruptcies or an inability of any of our customers to meet their financial obligations to us. Therefore, our estimates could differ materially from actual results.

Our gross accounts receivable balance was $815,680,000 and our allowance for product returns, pricing allowances and doubtful accounts was $206,651,000 as of December 31, 2002. As of March 31, 2002, our gross accounts receivable balance was $306,365,000 and our allowance for product returns, pricing allowances and doubtful accounts was $115,870,000.

Prepaid royalties

Prepaid royalties consist primarily of prepayments for manufacturing royalties, advances paid to co-publishing and/or distribution affiliates and license fees paid to celebrities, professional sports organizations and other organizations for use of their trade name and content. Also included in prepaid royalties are prepayments made to independent software developers under development arrangements that have alternative future uses. Prepaid royalties are expensed at the contractual or effective royalty rate as cost of goods sold based on actual net product sales. We evaluate the future realization of prepaid royalties quarterly and charge to research and development expense any amounts that we deem unlikely to be realized through product sales. We rely on forecasted revenue to evaluate the future realization of prepaid royalties. If actual revenues, or revised sales forecasts, fall below the initial forecasted sales, the charge to research and development expense may be larger than anticipated in any given quarter. Once the charge has been taken to research and development expense, that amount will not be expensed in future quarters when the product has shipped. The current portion of prepaid royalties, included in other current assets, was $41,487,000 at December 31, 2002 and $65,484,000 at March 31, 2002. The long-term portion of prepaid royalties, included in other assets, was $2,885,000 at December 31, 2002 and $1,164,000 at March 31, 2002.

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Valuation of long-lived assets, including goodwill and other intangible assets

We evaluate both purchased intangible assets and long-lived assets in order to determine if events or changes in circumstances indicate an other-than-temporary impairment in value. This evaluation requires us to estimate, among other things, the remaining useful lives along with future estimates of cash flows of the business. All require the use of judgment and estimates. Our actual results could differ materially from our current estimates. Please see our Risk Factors section for a discussion of risks and uncertainties that may affect our future results.

Under current accounting standards, we make judgments about the remaining useful lives of purchased intangible assets and other long-lived assets whenever events or changes in circumstances indicate an other-than-temporary impairment in the remaining value of the assets recorded on our balance sheet. In order to determine if an other-than-temporary impairment has occurred, management makes various assumptions about the future value of the asset, by evaluating future business prospects and estimated cash flows. Please refer to the Operations by Segment discussion of the Management’s Discussion and Analysis of Financial Condition and Results of Operations for discussions of EA Core and EA.com. For our EA Core division, our future net cash flows are primarily dependent on the sale of products for play on proprietary video game platforms. The success of our products is affected by the ability to accurately predict which platforms and which products we develop will be successful. Also, our revenues and earnings are dependent on our ability to meet our product release schedules. For our EA.com division, the future net cash flows are dependent on the success of online games. Offering games solely for online play is a substantial departure from our traditional business of selling packaged software games. The EA.com business is not yet mature or profitable, therefore evaluating its business and prospects is more difficult than would be the case for a more mature business. For example, on December 17, 2002 we launched The Sims Online^TM. While we cannot yet accurately predict the ultimate success of this product, sales of this game have not met our expectations and may negatively impact our ability to generate positive cash flows at EA.com. Due to product sales shortfalls and other factors described in our Risk Factors, we may not realize the future net cash flows necessary to recover our long-lived assets, which may result in an impairment charge recorded in the future.

On April 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. As a result of adopting this standard, we will continue to amortize finite-lived intangibles, but will no longer amortize certain other intangible assets, most notably goodwill and acquired workforce. In lieu of amortization, SFAS No. 142 requires a two-step approach to testing goodwill for impairment for each reporting unit. The first step, required to be completed by September 30, 2002, tests for impairment by applying fair value-based tests at the Company’s reporting unit level. The second step (if necessary), required to be completed by March 31, 2003, measures the amount of impairment by applying fair value-based tests to individual assets and liabilities within each reporting unit. We completed the first step of transitional goodwill impairment testing during the first quarter of fiscal 2003 and found no indicators of impairment of our recorded goodwill. As a result, we have recognized no transitional impairment loss in fiscal 2003 in connection with the adoption of SFAS No. 142. We will complete the annual impairment test in the fourth quarter of fiscal 2003 with a measurement date of January 1 and any impairment that arises from that analysis will be accounted for in the fourth quarter of 2003. There can be no assurance that future impairment tests will not result in a charge to earnings and there is a potential for a write down of goodwill in connection with the annual impairment test. Following adoption of SFAS No. 142, we continue to evaluate whether any event has occurred which might indicate that the carrying value of an intangible asset is not recoverable.

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Income taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposures in each jurisdiction including the impact, if any, of additional taxes resulting from tax examinations as well as making judgments regarding the recoverability of deferred tax assets. To the extent recovery of deferred tax assets is not likely based on our estimation of future taxable income in each jurisdiction, a valuation allowance is established. Tax exposures can involve complex issues and may require an extended period to resolve. To determine the quarterly tax rate, we are required to estimate full-year income and the related income tax expense in each jurisdiction. The estimated effective tax rate is adjusted for the tax related to significant unusual items. Changes in the geographic mix or estimated level of annual pre-tax income can affect the overall effective tax rate.

RESULTS OF OPERATIONS

Revenues

We derive revenues primarily from shipments of entertainment software, which includes EA Studio products for dedicated entertainment systems (that we call “video game systems” or “consoles” such as PlayStation®, PlayStation® 2, Xbox^TM and Nintendo GameCube^TM, and handheld systems such as Game Boy® Advance), EA Studio personal computer products (PC), Co-Publishing products that are co-published and distributed by us, and Affiliated Label (AL) products that are published by third parties and distributed by us. We also derive revenues from licensing of EA Studio products and AL products through hardware companies (or OEM), selling subscriptions on our online game service, selling advertisements on our online web pages and selling our packaged goods through our online store.

Geographically our net revenues for the three and nine months ended December 31, 2002 and 2001 break down as follows (in thousands):

	December 31,		December 31,
	2002		2001		Increase		% change
Net Revenues for the Three Months Ended:
North America	$	695,630	$	510,752	$	184,878		36.2	%
Europe		470,742		279,601		191,141		68.4	%
Asia Pacific		38,208		21,801		16,407		75.3	%
Japan		29,146		20,724		8,422		40.6	%
International		538,096		322,126		215,970		67.0	%
Consolidated Net Revenues	$	1,233,726	$	832,878	$	400,848		48.1	%

	December 31,		December 31,
	2002		2001		Increase		% change
Net Revenues for the Nine Months Ended:
North America	$	1,182,768	$	783,369	$	399,399		51.0	%
Europe		713,926		392,615		321,311		81.8	%
Asia Pacific		67,200		39,859		27,341		68.6	%
Japan		55,220		39,141		16,079		41.1	%
International		836,346		471,615		364,731		77.3	%
Consolidated Net Revenues	$	2,019,114	$	1,254,984	$	764,130		60.9	%

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Net Revenues

Net Revenues for the three months ended December 31, 2002 increased by 48 percent as compared to the three months ended December 31, 2001. The increase in net revenues was driven by the following:

• Strong performance of The Lord of the Rings^TM, The Two Towers^TM released during the current quarter on the PlayStation 2, and of Harry Potter and the Chamber of Secrets^TM and James Bond 007: Nightfire^TM released during the current quarter on multiple platforms and across multiple territories.

• Higher installed base of game consoles, most notably the PlayStation 2. Net revenues from sales associated with the PlayStation 2 platform increased by 102 percent to $459,407,000 versus $227,554,000 in the same quarter of the prior fiscal year.

• Higher installed base of the Xbox console, which is now available in every major market in which we operate. In the prior period, Xbox was only available in North America. In the quarter ended December 31, 2002, we generated $116,836,000 in net revenues from Xbox titles versus $44,629,000 a year ago.

• Higher installed base of the Nintendo GameCube console, which is now available in every major market in which we operate. In the prior period, Nintendo GameCube was only available in North America and Japan. In the quarter ended December 31, 2002, we generated approximately $111,103,000 in net revenues from Nintendo GameCube titles versus approximately $30,026,000 a year ago.

• Net revenues from Affiliated Label products increased by 30 percent to $157,469,000 versus $120,783,000 in the third quarter of the prior fiscal year. The increase was driven by sales of Kingdom Hearts in North America and Anno 1503 in Europe.

• Net revenues from PC products increased by 12 percent to $219,083,000 versus $194,856,000 in the same period of the prior fiscal year.

• Net revenues from titles associated with the PlayStation declined year over year as customers migrated to newer consoles.

Net Revenues for the nine months ended December 31, 2002 increased by 61 percent as compared to the nine months ended December 31, 2001. The increase in net revenues was driven by the following:

• Strong performance of Medal of Honor: Frontline^TM, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets, Madden NFL^TM 2003 and Need for Speed^TM Hot Pursuit 2 released in the current fiscal year on multiple platforms and across multiple territories.

• Higher installed base of game consoles, most notably the PlayStation 2. Net revenues from sales associated with the PlayStation 2 platform increased by 104 percent to $752,717,000 versus $369,836,000 in the same period of the prior fiscal year.

• Higher installed base of the Xbox console, which is now available in every major market in which we operate. In the same period of the prior fiscal year, Xbox was only available in North America after its launch in November 2001. We generated net revenues from Xbox titles for all three quarters of the current fiscal year versus only a portion of the third quarter in the prior fiscal year. In the nine months ended December 31, 2002, we generated $174,466,000 in net revenues from Xbox titles versus $44,629,000 in the same period of the prior fiscal year.

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• Higher installed based of the Nintendo GameCube console, which is now available in every major market in which we operate. In the prior period, Nintendo GameCube was only available in North America and Japan. We generated net revenues from Nintendo GameCube titles for all three quarters of the current fiscal year versus only a portion of the prior fiscal year. In the nine months ended December 31, 2002, we generated $153,897,000 in net revenues from Nintendo GameCube titles versus $30,026,000 in net revenues in same period of the prior fiscal year.

• Net revenues from Affiliated Label products increased by 62 percent to $300,757,000 versus $185,621,000 in the same period of the prior fiscal year. The increase was driven by sales of Kingdom Hearts in North America and Battlefield 1942^TM primarily in North America and Europe.

• PC-based revenues increased 19 percent to $377,835,000 versus $318,818,000 a year ago driven by strong sales in the current period of The Sims^TM products. Titles released in the current fiscal year include The Sims Unleashed Expansion Pack and The Sims Deluxe. Prior releases continued to generate strong sales including The Sims Vacation, The Sims and The Sims Hot Date.

• Revenues from titles associated with the PlayStation declined year over year as customers migrated to newer consoles.

North America

For the three months ended December 31, 2002, revenues in North America increased by 36 percent to $695,630,000 versus $510,752,000 in the same period of the prior fiscal year. Growth in North American revenue was driven by:

• Higher installed base of the PlayStation 2, due in part to Sony’s price cut of the hardware in North America in May 2002. This was reflected in strong sales of titles for the PlayStation 2, most notably The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and Need For Speed Hot Pursuit 2.

• Higher installed base of the Xbox and Nintendo GameCube consoles, which both launched in North America in November 2001. We also shipped more titles on each of these platforms in the current quarter versus the same period of the prior fiscal year.

• Net revenues from titles associated with PlayStation declined year over year as customers migrated to newer consoles.

For the nine months ended December 31, 2002, revenues in North America increased by 51 percent to $1,182,768,000 versus $783,369,000 in the same period of the prior fiscal year. Growth in North American revenue was driven by:

• Higher installed base of the PlayStation 2, due in part to Sony’s price cut of the hardware in North America in May 2002. This was reflected in strong sales of titles for the PlayStation 2, most notably Medal of Honor: Frontline, The Lord of the Rings, The Two Towers and Harry Potter and the Chamber of Secrets.

• Higher installed base of the Xbox and Nintendo GameCube consoles, which both launched in North America in November 2001. Net revenues were generated on titles for these consoles for all three quarters of the current fiscal year versus only one quarter of the prior fiscal year.

• Higher AL revenues primarily from key title Kingdom Hearts in the current period.

• Net revenues from titles associated with PlayStation declined year over year as customers migrated to newer platform consoles.

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International

Europe

For the three months ended December 31, 2002, net revenues in Europe increased by 68 percent to $470,742,000 versus $279,601,000 a year ago. Net revenue growth in Europe was driven by:

• Strong sales of titles for the PlayStation 2, most notably The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and FIFA 2003.

• Higher installed base of the PlayStation 2 hardware, due in part to Sony’s hardware price cut in Europe in August, 2002.

• New net revenues from titles associated with the Nintendo GameCube and Xbox platforms, which both launched in Europe in the Spring of 2002.

For the nine months ended December 31, 2002, net revenues in Europe increased by 82 percent to $713,926,000 versus $392,615,000 a year ago. Net revenue growth in Europe was driven by:

• Strong sales of titles associated with the PlayStation 2, most notably Medal of Honor: Frontline, The Lord of the Rings, The Two Towers and Harry Potter and the Chamber of Secrets.

• Higher installed base of the PlayStation 2 hardware, due in part to Sony’s hardware price cut in Europe in August, 2002.

• New revenues from titles associated with the Nintendo GameCube and Xbox platforms, The Sims franchise titles on the PC and higher AL net revenues.

Asia Pacific

For the three months ended December 31, 2002, net revenues in Asia Pacific increased by 75 percent to $38,208,000 versus $21,801,000 a year ago. Growth in net revenues in Asia Pacific was driven by strong sales of PlayStation 2 and Xbox titles.

For the nine months ended December 31, 2002, net revenues in Asia Pacific increased by 69 percent to $67,200,000 versus $39,859,000 a year ago. Growth in net revenues in Asia Pacific was driven by strong sales of PlayStation 2 titles, most notablyThe Lord of the Rings, The Two Towers and Medal of Honor: Frontline and Affiliated Label titles.

Japan

For the three months ended December 31, 2002, net revenues in Japan increased by 41 percent to $29,146,000 versus $20,724,000 a year ago. Growth in net revenues in Japan was driven by strong sales of Affiliated Label and PlayStation 2 titles.

For the nine months ended December 31, 2002, net revenues in Japan increased by 41 percent to $55,220,000 versus $39,141,000 a year ago. Growth in net revenues in Japan was driven by strong sales of titles associated with the PlayStation 2, most notably2002 FIFA World Cup and Project FIFA World Cup, and Affiliated Label titles.

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Information about our worldwide net revenues by product line for the three and nine months ended December 31, 2002 and 2001 is presented below (in thousands):

	December 31,		December 31,		Increase/
	2002		2001		(Decrease)			% change
Net Revenues for the Three Months Ended:
PlayStation 2	$	459,407	$	227,554	$	231,853			101.9	%
PC		219,083		194,856		24,227			12.4	%
Xbox		116,836		44,629		72,207			161.8	%
Nintendo GameCube		111,103		30,026		81,077			270.0	%
PlayStation		53,066		122,940		(69,874	)		(56.8	%)
Game Boy Advance		68,102		30,543		37,559			123.0	%
Advertising		9,461		10,556		(1,095	)		(10.4	%)
Game Boy Color		22,610		24,176		(1,566	)		(6.5	%)
Online Subscriptions		9,193		7,002		2,191			31.3	%
License, OEM and Other		7,396		19,813		(12,417	)		(62.7	%)
		1,076,257		712,095		364,162			51.1	%
Affiliated Label		157,469		120,783		36,686			30.4	%
Consolidated Net Revenues	$	1,233,726	$	832,878	$	400,848			48.1	%

	December 31,		December 31,		Increase/
	2002		2001		(Decrease)			% change
Net Revenues for the Nine Months Ended:
PlayStation 2	$	752,717	$	369,836	$	382,881			103.5	%
PC		377,835		318,818		59,017			18.5	%
Xbox		174,466		44,629		129,837			290.9	%
Nintendo GameCube		153,897		30,026		123,871			412.5	%
PlayStation		90,495		162,129		(71,634	)		(44.2	%)
Game Boy Advance		73,919		30,543		43,376			142.0	%
Advertising		28,579		25,317		3,262			12.9	%
Game Boy Color		25,131		28,455		(3,324	)		(11.7	%)
Online Subscriptions		24,969		22,146		2,823			12.7	%
License, OEM and Other		16,349		37,464		(21,115	)		(56.4	%)
		1,718,357		1,069,363		648,994			60.7	%
Affiliated Label		300,757		185,621		115,136			62.0	%
Consolidated Net Revenues	$	2,019,114	$	1,254,984	$	764,130			60.9	%

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PlayStation 2 Product Net Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	459,407		37.2	%	$	227,554		27.3	%		101.9	%
Nine Months Ended	$	752,717		37.3	%	$	369,836		29.5	%		103.5	%

Net revenues increased for the three months ended December 31, 2002 by 102 percent to $459,407,000 versus $227,554,000 a year ago. The increase was primarily due to the following:

• Strong consumer acceptance of the PlayStation 2 game console in every major market in which we operate.

• Higher installed base of the PlayStation 2 console due in part to Sony’s hardware price cut in North America in May, 2002 and in Europe in August, 2002.

• Sales of The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and Need For Speed Hot Pursuit 2 in multiple territories.

• Strength of other PlayStation 2 franchise titles with higher net revenues on current year releases versus prior year release versions including: FIFA 2003, James Bond 007:Nightfire and Tiger Woods PGA Tour 2003.

• In total, we released nine PlayStation 2 titles during the quarter versus six PlayStation 2 titles a year ago.

Net revenues increased for the nine months ended December 31, 2002 by 104 percent to $752,717,000 versus $369,836,000 for the comparable period in 2001. The increase was primarily due to the following:

• Strong consumer acceptance of the PlayStation 2 game console in every major market in which we operate.

• Higher installed base of the PlayStation 2 console due in part to Sony’s hardware price cut in North America in May, 2002 and in Europe in August, 2002.

• Sales of Medal of Honor: Frontline, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and Need For Speed Hot Pursuit 2 in multiple territories.

• Strength of other PlayStation 2 franchise titles with higher net revenues on current year releases versus prior year releases including: James Bond 007:Nightfire, Madden NFL 2003, FIFA 2003 and NCAA Football 2003.

• In total, we released 17 PlayStation 2 titles during the current nine-month period versus 12 PlayStation 2 titles a year ago.

We expect net revenues from PlayStation 2 products to continue to grow in fiscal 2003, but as net revenues for these products increase, we expect our growth rates to decrease. We expect that premium titles will continue to hold their current price points, however we expect lower price points for non-premium titles.

Under the terms of a licensing agreement entered into with Sony Computer Entertainment of America as of April 2000, as amended, we are authorized to develop and distribute DVD-based software products compatible with the PlayStation 2. Pursuant to this agreement, we engage Sony to supply PlayStation 2 CD’s and DVDs for distribution by us. Accordingly, we have limited ability to control our supply of PlayStation 2 CD and DVD products or the timing of their delivery.

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Personal Computer Product Net Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	219,083		17.8	%	$	194,856		23.4	%		12.4	%
Nine Months Ended	$	377,835		18.7	%	$	318,818		25.4	%		18.5	%

Net revenues increased for the three months ended December 31, 2002 by 12 percent to $219,083,000 versus $194,856,000 a year ago. The increase was primarily due to the following:

• Sales of James Bond 007:Nightfire and Need For Speed Hot Pursuit 2 in North America, Europe and Asia Pacific.

• Partially offset by lower net revenues on the current year release of franchise title Harry Potter and the Chamber of Secrets versus the prior year release Harry Potter and the Sorceror’s Stone, particularly in Europe.

• In total, we released nine PC titles during the quarter versus five PC titles a year ago.

Net revenues increased for the nine months ended December 31, 2002 by 19 percent to $377,835,000 versus $318,818,000 for the comparable period in 2001. The increase was primarily due to the following:

• Sales of The Sims Unleashed Expansion Pack and The Sims Deluxe in the current fiscal year. Prior years releases, including The Sims, The Sims Vacation Expansion Pack, The Sims Hot Date, The Sims: Livin’ Large and The Sims House Party, continued to generate strong sales in the current fiscal year. The Sims and The Sims Expansion Packs have now sold over 21 million units.

• Catalogue sales from Medal of Honor Allied Assault, which was released in the prior year, and sales from current release title Medal of Honor Allied Assault^TM Spearhead.

• In total, we released 14 PC titles during the current nine-month period versus ten PC titles a year ago.

Due to the strong sales of The Sims products in fiscal 2002, we expect revenues from PC products to be up only slightly in fiscal 2003.

Xbox Product Net Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	116,836		9.5	%	$	44,629		5.4	%		161.8	%
Nine Months Ended	$	174,466		8.6	%	$	44,629		3.6	%		290.9	%

Net revenues increased for the three months ended December 31, 2002 by 162 percent to $116,836,000 versus $44,629,000 a year ago. The increase was primarily due to the following:

• Higher installed base of the Xbox console which is now available in every major market in which we operate. In the prior period, the Xbox console was only available in North America.

• Sales of Medal of Honor: Frontline, James Bond 007:Nightfire and Harry Potter and the Chamber of Secrets in North America, Europe and Asia Pacific.

• In total, we released eight Xbox titles during the quarter versus six Xbox titles a year ago.

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Net revenues increased for the nine months ended December 31, 2002 by 291 percent to $174,466,000 versus $44,629,000 for the comparable period in 2001. The increase was primarily due to the following:

• Higher installed base of the Xbox console which is now available in every major market in which we operate. In the prior period, the Xbox console was only available in North America. Net revenues were generated on titles associated with the Xbox for all three quarters of the current fiscal year versus only one quarter of the prior fiscal year.

• Sales of Medal of Honor: Frontline, James Bond 007: Nightfire and NCAA Football 2003 in North America.

• Sales of FIFA 2003, James Bond 007: Nightfire and Harry Potter and the Chamber of Secrets in Europe.

• In total, we released 13 Xbox titles during the current nine-month period versus six Xbox titles a year ago.

We expect net revenues from Xbox products to continue to grow in fiscal 2003, but as net revenues for these products increase, we expect our growth rates to decrease. We expect that premium titles will continue to hold their current price points, however we expect lower price points for non-premium titles.

Nintendo GameCube Product Net Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	111,103		9.0	%	$	30,026		3.6	%		270.0	%
Nine Months Ended	$	153,897		7.6	%	$	30,026		2.4	%		412.5	%

Net revenues increased for the three months ended December 31, 2002 by 270 percent to $111,103,000 versus $30,026,000 a year ago. The increase was primarily due to the following:

• Higher installed base of the Nintendo GameCube console, which is now available in every major market in which we operate. In the prior period, the Nintendo Gamecube console was only available in North America and Japan.

• Sales of Harry Potter and the Chamber of Secrets in all territories.

• Sales of James Bond 007: Nightfire, Medal of Honor: Frontline and Need For Speed Hot Pursuit 2 in North America, Europe and Asia Pacific.

• In total, we released nine Nintendo GameCube titles during the quarter versus three Nintendo GameCube titles a year ago.

Net revenues increased for the nine months ended December 31, 2002 by 413 percent to $153,897,000 versus $30,026,000 for the comparable period in 2001. The increase was primarily due to the following:

• Higher installed base of the Nintendo GameCube platform, which is now available in every major market in which we operate. In the prior period, the Nintendo GameCube platform was only available in North America and Japan. Net revenues were generated on Nintendo GameCube titles for all three quarters of the current fiscal year versus only a portion of the prior fiscal year.

• Sales of Harry Potter and the Chamber of Secrets in all territories.

• Sales of James Bond 007: Nightfire, Medal of Honor: Frontline and Need for Speed Hot Pursuit 2 in North America.

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• Sales of FIFA 2003 and James Bond 007: Nightfire in Europe.

• In total, we released 15 Nintendo GameCube titles during the current nine-month period versus three Nintendo GameCube titles a year ago.

We expect net revenues from Nintendo GameCube products to continue to grow in fiscal 2003, but as net revenues for these products increase, we expect our growth rates to decrease. We expect that premium titles will continue to hold their current price points, however we expect lower price points for non-premium titles.

Under the terms of a licensing agreement entered into with Nintendo of America (effective as of November 1, 2001), we are authorized to develop and distribute proprietary optical format disk products compatible with the Nintendo GameCube. Pursuant to this agreement, we engage Nintendo to supply Nintendo GameCube proprietary optical format disk products for distribution by us. Accordingly, we have limited ability to control our supply of Nintendo GameCube proprietary optical format disk products or the timing of their delivery.

PlayStation Product Net Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	53,066		4.3	%	$	122,940		14.8	%		(56.8	%)
Nine Months Ended	$	90,495		4.5	%	$	162,129		12.9	%		(44.2	%)

The decrease in PlayStation net revenues for the three and nine months ended December 31, 2002 compared to the same periods last year was attributable to the market transition to next generation console systems. Although our PlayStation products are playable on the PlayStation 2 console, we expect sales of current PlayStation products to continue to decline in fiscal 2003.

Under the terms of a licensing agreement entered into with Sony Computer Entertainment of America in July 1994, as amended, we are authorized to develop and distribute CD-based software products compatible with the PlayStation. Pursuant to this agreement, we engage Sony to supply its PlayStation CDs for distribution by us. Accordingly, we have limited ability to control our supply of PlayStation CD products or the timing of their delivery.

Game Boy Advance Product Net Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	68,102		5.5	%	$	30,543		3.7	%		123.0	%
Nine Months Ended	$	73,919		3.7	%	$	30,543		2.4	%		142.0	%

Net revenues increased for the three months ended December 31, 2002 by 123 percent to $68,102,000 versus $30,543,000 a year ago. The increase was primarily due to the following:

• Sales of The Lord of the Rings, The Two Towers in North America, Europe and Asia Pacific.

• Higher net revenues on the current year release of franchise title Harry Potter and the Chamber of Secrets versus the prior year release Harry Potter and the Sorceror’s Stone in all territories.

• In total, we released four Game Boy Advance titles during the quarter versus two Game Boy Advance titles a year ago.

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Net revenues increased for the nine months ended December 31, 2002 by 142 percent to $73,919,000 versus $30,543,000 a year ago. The increase was primarily due to the following:

• Sales of The Lord of the Rings, The Two Towers in North America, Europe and Asia Pacific.

• Higher net revenues on the current year release of franchise title Harry Potter and the Chamber of Secrets versus the prior year release Harry Potter and the Sorceror’s Stone in all territories.

• In total, we released six Game Boy Advance titles during the current nine-month period versus two Game Boy Advance titles a year ago.

Game Boy Color Product Net Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	22,610		1.8	%	$	24,176		2.9	%		(6.5	%)
Nine Months Ended	$	25,131		1.2	%	$	28,455		2.3	%		(11.7	%)

Net revenues for Game Boy Color decreased six percent for the three months ended December 31, 2002 compared to the same period last year. Net revenues for Game Boy Color decreased 12 percent during the nine months ended December 31, 2002 compared to the same period last year primarily due to the release of the hit title last year, Harry Potter and the Sorceror’s Stone, as well as The World is Not Enough and Madden NFL 2002, versus only one new title released in the current period, Harry Potter and the Chamber of Secrets.

Advertising Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	9,461		0.8	%	$	10,556		1.3	%		(10.4	%)
Nine Months Ended	$	28,579		1.4	%	$	25,317		2.0	%		12.9	%

Advertising revenues decreased for the three months ended December 31, 2002 compared to the same period last year primarily due to lower advertising revenues generated from AOL and co-branded AOL properties along with a decrease in anchor tenancy banners.

Advertising revenues increased for the nine months ended December 31, 2002 compared to the same period last year primarily due to higher advertising revenues generated from AOL and co-branded AOL properties. This increase was partially offset by lower advertising revenues generated from EA.com and Pogo websites and a decrease in anchor tenancy banners. AOL is our exclusive advertising representative for advertising sold through AOL related links. We have been advised by AOL to expect significant declines in future advertising-related revenue. We expect advertising revenues to decline in future quarters.

License, OEM and Other Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	7,396		0.6	%	$	19,813		2.4	%		(62.7	%)
Nine Months Ended	$	16,349		0.8	%	$	37,464		3.0	%		(56.4	%)

The decrease in license, OEM and other net revenues for the three and nine months ended December 31, 2002 was primarily attributable to lower Nintendo 64 net revenues due to the platform transition to next-generation consoles. Nintendo 64 net revenues decreased 100 percent

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for the three months ended December 31, 2002 and 97 percent for the nine months ended December 31, 2002. We do not intend to release any new Nintendo 64 products in fiscal 2003.

Online Subscription Net Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	9,193		0.7	%	$	7,002		0.8	%		31.3	%
Nine Months Ended	$	24,969		1.2	%	$	22,146		1.8	%		12.7	%

Net revenues for online subscriptions increased 31 percent for the three months ended December 31, 2002 and 13 percent for the nine months ended December 31, 2002 compared to the same periods last year primarily due to higher subscription revenues from Motor City Online and Earth & Beyond, as well as the launch of The Sims Online in December 2002. These increases were partially offset by our Platinum and Sports subscription offerings which we discontinued in November 2001. The increase for the nine months ended December 31, 2002 was also partially offset by a decrease in subscription revenues from Ultima Online. Securing and maintaining subscriptions to such products will be critical to the success of EA.com both in the current fiscal year and for the long term.

The success of The Sims Online is important to the financial success of EA.com. While The Sims Online only shipped in December 2002 and it is premature to judge its commercial success, early results have been below our expectations.

We have also indicated that EA.com will not reach profitability, as originally expected, in the quarter ending March 31, 2003, and long-term profitability of this business segment cannot be assured. We may determine that further cost reductions are necessary.

Affiliated Label Product Net Revenues
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	157,469		12.8	%	$	120,783		14.5	%		30.4	%
Nine Months Ended	$	300,757		14.9	%	$	185,621		14.8	%		62.0	%

AL net revenues increased 30 percent to $157,469,000 for the three months ended December 31, 2002 compared to $120,783,000 in the same period last year primarily due to strong sales of Kingdom Hearts, under a distribution arrangement with Square EA, and Anno 1503. The growth in the current quarter was also due to sales from co-publishing deals with Krome Studios and LEGO Interactive.

AL net revenues increased 62 percent to $300,757,000 for the nine months ended December 31, 2002 compared to $185,621,000 in the same period last year primarily due to strong sales of hit titles Kingdom Hearts and Battlefield 1942, under a co-publishing arrangement with Digital Illusions. The increase was also due to products released under co-publishing deals with Krome Studios and LEGO Interactive during the current year.

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Operations by Segment

We operate in two business segments:

• EA Core business segment: creation, marketing and distribution of entertainment software.

• EA.com business segment: creation, marketing and distribution of entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

EA.com represents Electronic Arts’ online and e-Commerce businesses. EA.com’s business includes subscription revenues collected for Internet game play on our websites, website advertising, sales of packaged goods for Internet-only based games and sales of Electronic Arts games sold through the EA.com web store. The Condensed Consolidated Statements of Operations includes all revenues and costs directly attributable to EA.com, including charges for shared facilities, functions and services. Certain costs and expenses are subjective and allocations are based on management’s estimates.

Our view and reporting of business segments may change due to changes in the underlying business facts and circumstances and the evolution of our reporting to our Chief Operating Decision Maker.

Information about our operations by segment for the three and nine months ended December 31, 2002 and 2001 is presented below (in thousands):

		Three Months Ended December 31, 2002
		EA Core
		(excl. EA.com)			EA.com			Electronic Arts
Net revenues		$	1,211,484		$	22,242		$	1,233,726
Cost of goods sold			553,579			5,101			558,680
Gross profit			657,905			17,141			675,046
Operating expenses:
	Marketing and sales (a)		124,744			14,748			139,492
	General and administrative		40,502			1,748			42,250
	Research and development (b)		84,351			28,207			112,558
	Amortization of intangibles (c)		927			1,318			2,245
	Restructuring and asset impairment charges		9,378			—			9,378
Total operating expenses			259,902			46,021			305,923
Operating income (loss)			398,003			(28,880	)		369,123
Interest and other income (expense), net			(4,359	)		(80	)		(4,439	)
Income (loss) before provision for income taxes and minority interest			393,644			(28,960	)		364,684
Provision for income taxes			113,052			—			113,052
Income (loss) before minority interest			280,592			(28,960	)		251,632
Minority interest in consolidated joint venture			(1,413	)		—			(1,413	)
Net income (loss) before retained interest in EA.com			279,179			(28,960	)		250,219
Net loss related to retained interest in EA.com			(25,485	)		25,485			—
Net income (loss)		$	253,694		$	(3,475	)	$	250,219

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		Three Months Ended December 31, 2001
		EA Core
		(excl. EA.com)			EA.com			Electronic Arts
Net revenues		$	810,930		$	21,948		$	832,878
Cost of goods sold			395,261			5,592			400,853
Gross profit			415,669			16,356			432,025
Operating expenses:
	Marketing and sales (a)		84,192			9,683			93,875
	General and administrative		29,116			2,717			31,833
	Research and development (b)		66,030			31,376			97,406
	Amortization of intangibles (c)		3,205			3,154			6,359
	Restructuring and asset impairment charges		—			14,051			14,051
Total operating expenses			182,543			60,981			243,524
Operating income (loss)			233,126			(44,625	)		188,501
Interest and other income (expense), net			3,597			(82	)		3,515
Income (loss) before provision for income taxes and minority interest			236,723			(44,707	)		192,016
Provision for income taxes			59,525			—			59,525
Income (loss) before minority interest			177,198			(44,707	)		132,491
Minority interest in consolidated joint venture			(199	)		—			(199	)
Net income (loss) before retained interest in EA.com			176,999			(44,707	)		132,292
Net loss related to retained interest in EA.com			(38,001	)		38,001			—
Net income (loss)		$	138,998		$	(6,706	)	$	132,292

		Nine Months Ended December 31, 2002
		EA Core
		(excl. EA.com)			EA.com			Electronic Arts
Net revenues		$	1,958,297		$	60,817		$	2,019,114
Cost of goods sold			887,814			11,122			898,936
Gross profit			1,070,483			49,695			1,120,178
Operating expenses:
	Marketing and sales (a)		228,473			31,907			260,380
	General and administrative		89,448			5,918			95,366
	Research and development (b)		221,716			79,951			301,667
	Amortization of intangibles (c)		2,780			3,956			6,736
	Restructuring and asset impairment charges		9,378			—			9,378
Total operating expenses			551,795			121,732			673,527
Operating income (loss)			518,688			(72,037	)		446,651
Interest and other income (expense), net			67			(182	)		(115	)
Income (loss) before provision for income taxes and minority interest			518,755			(72,219	)		446,536
Provision for income taxes			138,426			—			138,426
Income (loss) before minority interest			380,329			(72,219	)		308,110
Minority interest in consolidated joint venture			(253	)		—			(253	)
Net income (loss) before retained interest in EA.com			380,076			(72,219	)		307,857
Net loss related to retained interest in EA.com			(62,581	)		62,581			—
Net income (loss)		$	317,495		$	(9,638	)	$	307,857

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		Nine Months Ended December 31, 2001
		EA Core
		(excl. EA.com)			EA.com			Electronic Arts
Net revenues		$	1,201,407		$	53,577		$	1,254,984
Cost of goods sold			595,468			12,174			607,642
Gross profit			605,939			41,403			647,342
Operating expenses:
	Marketing and sales (a)		150,002			29,697			179,699
	General and administrative		72,535			7,916			80,451
	Research and development (b)		185,138			100,628			285,766
	Amortization of intangibles (c)		9,615			9,694			19,309
	Restructuring and asset impairment charges		—			14,051			14,051
Total operating expenses			417,290			161,986			579,276
Operating income (loss)			188,649			(120,583	)		68,066
Interest and other income (expense), net			10,865			(573	)		10,292
Income (loss) before provision for income taxes and minority interest			199,514			(121,156	)		78,358
Provision for income taxes			24,291			—			24,291
Income (loss) before minority interest			175,223			(121,156	)		54,067
Minority interest in consolidated joint venture			147			—			147
Net income (loss) before retained interest in EA.com			175,370			(121,156	)		54,214
Net loss related to retained interest in EA.com			(102,983	)		102,983			—
Net income (loss)		$	72,387		$	(18,173	)	$	54,214

(a)	EA.com Marketing and Sales includes $4,467,000 and $4,466,000 of Carriage Fee for the three months ended December 31, 2002 and 2001, respectively. EA.com Marketing and Sales includes $13,399,000 and $13,398,000 of Carriage Fee for the nine months ended December 31, 2002 and 2001, respectively.
(b)	EA.com Research and Development includes $12,422,000 of Network Development and Support and $2,708,000 of Customer Relationship Management (CRM) for the three months ended December 31, 2002; and includes $14,858,000 of Network Development and Support and $2,583,000 of CRM for the three months ended December 31, 2001. EA.com Research and Development includes $36,533,000 of Network Development and Support and $7,052,000 of CRM for the nine months ended December 31, 2002; and includes $46,903,000 of Network Development and Support and $8,493,000 of CRM for the nine months ended December 31, 2001.
(c)	Results for fiscal 2003 do not include amortization of goodwill as a result of adopting SFAS No. 142. Amortization of intangibles for the three months ended December 31, 2001 includes goodwill amortization of $1,485,000 for EA Core and $1,406,000 for EA.com. Amortization of intangibles for the nine months ended December 31, 2001 includes goodwill amortization of $4,456,000 for EA Core and $4,296,000 for EA.com.

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Costs and Expenses, Interest and Other Income, Net, Income Taxes and Net Income (Loss) for both EA Core and EA.com Segments

Cost of Goods Sold. Cost of goods sold for our packaged goods business consists of actual product costs, royalties expense for celebrities, professional sports and other organizations and independent software developers, manufacturing royalties, expense for defective products and operations expense. Cost of goods sold for our subscription business consists primarily of data center and bandwidth costs associated with hosting our websites, credit card fees and royalties for use of EA and third party properties. Cost of goods sold for our advertising business consists primarily of ad serving costs.

Marketing and Sales. Marketing and sales expenses consist of personnel-related costs, advertising and marketing and promotional expenses. In addition, marketing and sales includes the amortization of the AOL carriage fee (“Carriage Fee”), which began with the launch of EA.com in October 2000. The Carriage Fee is being amortized straight-line over the five-year term of the AOL agreement entered into in November 1999.

General and Administrative. General and administrative expenses consist of personnel and related expenses of executive and administrative staff, fees for professional services such as legal and accounting and allowances for bad debts.

Research and Development. Research and development expenses consist of personnel-related costs, consulting, equipment depreciation, customer relationship management expenses associated with Electronic Arts’ products and online games and write-offs of prepaid royalties. EA.com has research and development expenses incurred by Electronic Arts’ studios consisting of direct development costs and related overhead costs in connection with the development and production of EA.com online games. Research and development expenses also include network development and support costs directly incurred by EA.com. Network development and support costs consist of expenses associated with development of website content, depreciation on server equipment to support online games, network infrastructure direct expenses, software licenses and maintenance, and network and management overhead.

Cost of Goods Sold
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	558,680		45.3	%	$	400,853		48.1	%		39.4	%
Nine Months Ended	$	898,936		44.5	%	$	607,642		48.4	%		47.9	%

Cost of goods sold as a percentage of revenues decreased for the three months ended December 31, 2002 as compared to the same periods last year primarily due to:

• Product mix, due to a higher mix of next-generation console titles as well as a higher mix of co-published titles in our AL business.

• Higher PC margins due to:

• Higher weighted average sales prices on new release titles. Expansion packs, which have a lower average sales price, represented two of the five titles released in the prior year, while there was only one expansion pack released out of the nine new titles in the current quarter.

• Lower developer royalty rates on Harry Potter and the Chamber of Secrets, the biggest-selling title in the quarter, compared to Harry Potter and the Sorceror’s Stone, the biggest-selling PC title in the previous year.

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• Higher AL margins due to more products released under co-publishing deals in the current year, such as Ty the Tasmanian Tiger and Battlefield 1942.

• Lower royalty rates because of volume discounts received from console manufacturers.

• Partially offset by lower margins on Nintendo GameCube products due to:

• Higher reserves for inventory obsolescence.

• Higher royalty expense on new titles such as Harry Potter and the Chamber of Secrets and James Bond 007: Nightfire.

Cost of goods sold as a percentage of revenues decreased for the nine months ended December 31, 2002 as compared to the same period last year primarily due to:

• Higher PC margins due to:

• Higher sales of wholly owned intellectual properties such as The Sims and Medal of Honor franchise of titles, compared to Black and White and NHL 2002 in the prior year.

• Lower developer royalty rates on Harry Potter and the Chamber of Secrets, the biggest-selling PC title in the year, compared to Harry Potter and the Sorceror’s Stone, the biggest-selling PC title in the previous year.

• Higher average sales prices on new release titles. Expansion packs, which have a lower average sales price, represented three of the ten titles released in the prior year, while there was only two expansion packs released out of the 14 new titles in the current period.

• Higher PlayStation 2 margins due to:

• Lower royalties on PlayStation 2, primarily due to sales of Medal of Honor: Frontline, a wholly owned intellectual property, developed internally, on which we pay no royalties (other than console royalties).

• Volume discounts received from console manufacturers.

• Higher AL margins due to higher volume of products released under co-publishing deals in the current year, such as Battlefield 1942 and Buffy the Vampire Slayer.

• Product mix, due to a higher mix of next-generation console titles offset by a higher mix of AL titles.

• Partially offset by lower margins on Nintendo GameCube products due to:

• Higher reserves for inventory obsolescence.

• Higher royalty expense on new titles such as Harry Potter and the Chamber of Secrets and James Bond 007: Nightfire.

Marketing and Sales
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	139,492		11.2	%	$	93,875		11.3	%		48.6	%
Nine Months Ended	$	260,380		13.0	%	$	179,699		14.3	%		44.9	%

Marketing and sales expenses for the three months ended December 31, 2002 increased in absolute dollars by 49 percent primarily attributable to:

• The release of 44 products this year versus 29 products last year. A large portion of our marketing and sales expense in the current year related to advertising spending to support key releases on multiple platforms and across multiple territories including Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets, NBA Live 2003, Need For Speed: Hot Pursuit 2 as well as catalogue sales of Madden NFL 2003.

• Increase in headcount-related expenses to support the growth of the marketing and sales functions in North America and Europe.

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• Higher consumer promotions and advertising media placement costs incurred by EA.com to promote The Sims Online.

As a percentage of revenue, marketing and sales expenses were relatively consistent at 11.3 percent of revenue in the year ago quarter versus 11.2 percent of revenue in the current period.

Marketing and sales expenses increased in absolute dollars by 45 percent for the nine months ended December 31, 2002 primarily attributed to:

• The release of 74 products this year versus 45 products last year. A large portion of our marketing and sales expense in the current year related to advertising spending to support key releases on multiple platforms and across multiple territories including Madden NFL 2003, NBA Live 2003, Medal of Honor: Frontline, Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and Need for Speed: Hot Pursuit 2.

• Increase in headcount-related spending to support the growth of the marketing and sales functions in North America and Europe.

• Higher public relations and consumer promotion spending to support key titles in the current year.

As a percentage of revenue, marketing and sales expenses declined from 14.3 percent of revenue in the prior nine-month period ended December 31, 2001 to 13.0 percent of revenue in the current nine-month period ended December 31, 2002.

General and Administrative
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	42,250		3.5	%	$	31,833		3.8	%		32.7	%
Nine Months Ended	$	95,366		4.7	%	$	80,451		6.4	%		18.5	%

General and administrative expenses for the three months ended December 31, 2002 increased in absolute dollars by 33 percent primarily due to:

• An increase in payroll and occupancy costs to support the increased growth of these functions in North America and Europe.

• Partially offset by lower EA.com spending due to the headcount reductions and office closures for EA.com in October 2001 as part of the restructuring of that segment (see Restructuring and Asset Impairment Charges discussion below).

As a percentage of revenue, general and administrative expenses declined from 3.8 percent of revenue in the year ago quarter to 3.5 percent of revenue in the current period.

General and administrative expenses increased in absolute dollars by 19 percent for the nine months ended December 31, 2002 primarily due to:

• An increase in payroll and occupancy costs to support the increased growth of these functions in North America and Europe.

• Partially offset by lower EA.com spending due to the headcount reductions and office closures for EA.com in October 2001 as part of the restructuring of that segment (see Restructuring and Asset Impairment Charges discussion below).

As a percentage of revenue, general and administrative expenses declined from 6.4 percent of revenue in the prior nine-month period ended December 31, 2001 to 4.7 percent of revenue in the current nine-month period ended December 31, 2002.

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Research and Development
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	112,558		9.1	%	$	97,406		11.7	%		15.6	%
Nine Months Ended	$	301,667		14.9	%	$	285,766		22.8	%		5.6	%

Research and development expenses increased for the three months ended December 31, 2002 in absolute dollars by 16 percent primarily due to:

• Higher EA Core expenses, which increased by 28 percent in absolute dollars, due to additional headcount-related expenses attributable to increased in-house development capacity, net of co-development arrangements.

• Partially offset by lower EA.com spending, which decreased by 10 percent in absolute dollars, due to:

• Headcount reductions and office closures for EA.com in October 2001 as part of the restructuring of that segment (see Restructuring and Asset Impairment Charges discussion below).

• Prior year development spending on Majestic and Motor City Online.

• Partially offset by higher development spending on The Sims Online and Earth & Beyond in the current year.

     As a percentage of revenue, research and development expenses declined from 11.7 percent of revenue in the year ago quarter to 9.1 percent of revenue in the current period.

     Research and development expenses increased in absolute dollars by 6 percent for the nine months ended December 31, 2002 primarily due to:

• Higher EA Core expenses, which increased by 20 percent in absolute dollars, due to additional headcount-related expenses attributable to increased in-house development capacity, net of co-development arrangements.

• Partially offset by lower EA.com spending, which decreased by 21 percent in absolute dollars, due to:

• Headcount reductions and office closures for EA.com in October 2001 as part of the restructuring of that segment (see Restructuring and Asset Impairment Charges discussion below).

• Prior year development spending on Majestic and Motor City Online.

• Partially offset by higher development spending on The Sims Online and Earth & Beyond in the current year.

As a percentage of revenue, research and development expenses declined from 22.8 percent of revenue in the prior nine-month period ended December 31, 2001 to 14.9 percent of revenue in the current nine-month period ended December 31, 2002.

Amortization of Intangibles
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	2,245		0.2	%	$	6,359		0.8	%		(64.7	%)
Nine Months Ended	$	6,736		0.3	%	$	19,309		1.6	%		(65.1	%)

For the three and nine months ended December 31, 2002, amortization of intangibles relates to amortization of definite-lived identifiable intangible assets from acquisitions of Westwood, Pogo, Kesmai and DreamWorks.

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For the three and nine months ended December 31, 2001, amortization of intangibles relates primarily to amortization of purchased goodwill and intangibles from acquisitions of Westwood, Pogo, Kesmai, DreamWorks, ABC Software and other acquisitions.

The decrease in amortization for the three months ended December 31, 2002 was due to certain identifiable intangible assets related to Westwood and DreamWorks being fully amortized in fiscal 2002, as well as the result of adopting SFAS No. 142 which required, among other things, the discontinuance of goodwill amortization. As of April 1, 2002, we have ceased to amortize approximately $69,050,000 of goodwill. For the three months ended December 31, 2001, amortization of goodwill totaled $2,891,000. As a percentage of revenue, amortization of intangibles expense declined from 0.8 percent of revenue in the year ago quarter to 0.2 percent of revenue in the current period.

The decrease in amortization for the nine months ended December 31, 2002 was due to certain identifiable intangible assets related to Westwood and DreamWorks being fully amortized in fiscal 2002, as well as the result of adopting SFAS No. 142. For the nine months ended December 31, 2001, amortization of goodwill totaled $8,752,000. As a percentage of revenue, amortization of intangibles expense declined from 1.6 percent of revenue in the prior nine-month period ended December 31, 2001 to 0.3 percent of revenue in the current nine-month period ended December 31, 2002.

In addition, during the three months ended December 31, 2001, we recorded intangible impairment charges of $1,641,000 relating to EA.com’s restructuring.

Restructuring and Asset Impairment Charges
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	9,378		0.8	%	$	14,051		1.7	%		(33.3	%)
Nine Months Ended	$	9,378		0.5	%	$	14,051		1.1	%		(33.3	%)

During the quarter ended December 31, 2002, the Company closed its office located in San Francisco, California and its studio located in Seattle, Washington. The office and studio closures were a result of the Company’s strategic decision to consolidate local development efforts in Redwood City, California and Vancouver, Canada. The Company recorded total pre-tax charges of $9,378,000, consisting of $7,310,000 for consolidation of facilities, $1,452,000 for the write-off of non-current assets and $616,000 for workforce reductions. The facilities charge was net of a reduction in deferred rent of $533,000. At December 31, 2002, there was $8,074,000 remaining of the accrued restructuring balance. We expect this remaining balance to be fully utilized by December 31, 2006. (See Note 11 of the Notes to Condensed Consolidated Financial Statements).

The exit plans resulted in a workforce reduction of approximately 33 personnel in development and administrative departments. The estimated costs for consolidation of facilities included contractual rental commitments under the real estate lease for unutilized office space, offset by estimated future sub-lease income. In addition, the exit plans resulted in the write-off of certain non-current fixed assets, primarily leasehold improvements.

In October 2001, we announced a restructuring plan for EA.com to reduce EA.com’s workforce and consolidate facilities. The restructuring initiatives involved strategic decisions to discontinue certain product offerings and focus only on key online priorities that align with its fiscal 2003

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operational objectives. The restructuring and asset impairment charge of $14,051,000 incurred in the third quarter of fiscal 2002 is comprised of charges of approximately $3,763,000 for workforce reduction, $3,785,000 for consolidation of facilities and other administrative charges and $6,503,000 for the write-off of non-current assets. The workforce reduction resulted in the termination of approximately 240 positions in the third quarter of fiscal 2002. At December 31, 2002, there was $905,000 remaining of the EA.com accrued restructuring balance. We expect this remaining balance to be fully utilized by December 31, 2006. (See Note 11 of the Notes to Condensed Consolidated Financial Statements).

Interest and Other Income (Expense), Net
(in thousands)	December 31, 2002			% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	(4,439	)		(0.3	%)	$	3,515		0.5	%		(226.3	%)
Nine Months Ended	$	(115	)		(0.0	%)	$	10,292		0.8	%		(101.1	%)

Interest and other income (expense), net, for the three months ended December 31, 2002 decreased from the same period in the prior year primarily due to a permanent impairment of investments in affiliates of $10,119,000, partially offset by gains on sales of marketable securities of $2,086,000 in the third quarter of fiscal 2003. As a percentage of revenue, interest and other income (expense), net, declined from 0.5 percent of revenue in the year ago quarter to (0.3) percent of revenue in the current period.

Interest and other income (expense), net, for the nine months ended December 31, 2002 decreased from the same period in the prior year primarily due to a permanent impairment of investments in affiliates of $10,590,000 and losses on sales of marketable securities of $273,000 in fiscal 2003. As a percentage of revenue, interest and other income (expense), net, declined from 0.8 percent of revenue in the prior nine-month period ended December 31, 2001 to 0.0 percent of revenue in the current nine-month period ended December 31, 2002.

Income Taxes
(in thousands)	December 31, 2002		Effective tax rate			December 31, 2001		Effective tax rate			% change
Three Months Ended	$	113,052		31.0	%	$	59,525		31.0	%		89.9	%
Nine Months Ended	$	138,426		31.0	%	$	24,291		31.0	%		469.9	%

Our effective tax rate was 31% for the three and nine months ended December 31, 2002 and 2001.

Net Income
(in thousands)	December 31, 2002		% of net revenues			December 31, 2001		% of net revenues			% change
Three Months Ended	$	250,219		20.3	%	$	132,292		15.9	%		89.1	%
Nine Months Ended	$	307,857		15.2	%	$	54,214		4.3	%		467.9	%

In absolute dollars, reported net income increased for the three months ended December 31, 2002 primarily related to:

• Higher revenues and gross profits.

• Partially offset by an increase in expenses compared to the same period last year primarily due to:

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• Increases in marketing and advertising costs to support a higher number of key releases in multiple territories and spending on the Xbox and Nintendo GameCube consoles which, in fiscal 2003, have been available in all territories.

• Higher research and development spending in the current year attributable to increased in-house development capacity, net of co-development arrangements.

Although expenses rose on an absolute basis versus the comparable period, net income as a percentage of sales increased to 20.3 percent versus 15.9 percent as expenses grew at a slower rate than did our revenues.

In absolute dollars, reported net income increased for the nine months ended December 31, 2002 primarily related to:

• Higher revenues and gross profits.

• Partially offset by an increase in expenses compared to the same period last year. The increase in expenses was primarily due to increases in marketing and advertising costs to support a higher number of key releases in multiple territories and spending on the Xbox and Nintendo GameCube consoles which, in fiscal 2003, have been available in all territories.

Although expenses rose on an absolute basis versus the comparable period, net income as a percentage of sales increased to 15.2 percent versus 4.3 percent as expenses grew at a slower rate than did our revenues.

We have indicated that the EA.com segment will not reach profitability in the quarter ending March 31, 2003. For fiscal 2003, we expect full year losses for EA.com as a result of higher than anticipated marketing spend, delays in launching key products resulting in fewer subscribers and lower-than-expected advertising revenues. For fiscal 2004, we are committed to minimizing the losses for our online business and expect to see some improvement in net loss year over year.

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LIQUIDITY AND CAPITAL RESOURCES

EA Core and EA.com

     As of December 31, 2002, our working capital was $1,182,683,000 compared to $699,561,000 at March 31, 2002. Cash, cash equivalents and short-term investments increased by approximately $368,390,000 during the nine months ended December 31, 2002. We generated $283,510,000 of cash from operations, $109,877,000 of cash through the sale of equity securities under our stock plans, offset by $34,470,000 of cash used in capital expenditures during the nine months ended December 31, 2002.

     Reserves for bad debts and sales allowances increased from $115,870,000 at March 31, 2002 to $206,651,000 at December 31, 2002. Reserves have been charged for returns of product and price protection credits issued for products sold in prior periods. Management believes these reserves are adequate based on historical experience and its current estimate of potential returns and allowances.

     Our principal source of liquidity is $1,165,326,000 in cash, cash equivalents and short-term investments at December 31, 2002. Management believes the existing cash, cash equivalents, short-term investments and cash generated from operations will be sufficient to meet cash and investment requirements for at least the next 12 months. However, our ability to maintain sufficient liquidity could be affected by various risks and uncertainties, including but not limited to, those related to customer demand and acceptance of titles on new platforms and new title versions on existing platforms, our ability to collect our accounts receivable as they become due, successfully achieving our product release schedules and attaining our forecasted sales objectives, the impact of competition, the economic conditions in the domestic and international markets, seasonality in operating results, risks of product returns and the other risks listed in the “Risk Factors” section.

EA.com

     Included in the amounts above is the following for the EA.com business:

•      With the exception of the proceeds from the sale to AOL in fiscal 2000 of stock and a warrant to purchase stock in the amount of $20,000,000, to date, EA.com has been funded solely by Electronic Arts. This funding has been accounted for as capital contributions from Electronic Arts. Excess cash generated from operations is transferred to Electronic Arts, and has been accounted for as a return of capital. We anticipate these funding procedures will continue in the near-term. However, Electronic Arts may, at its discretion, provide funds to EA.com under a debt arrangement, instead of treating such funding as a capital contribution.

•      During the nine months ended December 31, 2002, EA.com used $38,602,000 of cash in operations, $696,000 in capital expenditures for computer equipment, internal use software and related third party software, offset by $35,708,000 in capital contributions from Electronic Arts. As a result of the net operating loss generated, we realized a tax benefit of approximately $22,388,000.

•      During the nine months ended December 31, 2001, EA.com used $88,700,000 of cash in operations, $12,447,000 in capital expenditures for computer equipment, network infrastructure, internal use software and related third party software, offset by $107,571,000

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in capital contributions from Electronic Arts. As a result of the net operating loss generated, we realized a tax benefit of approximately $37,558,000.

     Under the AOL agreement entered into in November 1999, EA.com is required to pay $81,000,000 to AOL over the life of the five-year agreement. Of this amount, $36,000,000 was paid upon signing the agreement with the remainder due in four equal annual installments beginning with the first anniversary of the initial payment. EA.com paid AOL $11,250,000 in each of the fiscal years 2001, 2002 and 2003.

     Future liquidity needs of EA.com will be met by Electronic Arts as Electronic Arts intends to continue to fund the cash requirements of EA.com for the foreseeable future.

Other Commitments

Advertising Commitments

     We made a commitment to spend $15,000,000 in offline media advertisements promoting our online games, including those on the AOL service, prior to March 31, 2005. As of December 31, 2002, we have spent approximately $4,322,000 against this commitment.

     In addition, under an agreement amended on August 30, 2002, we made a commitment to spend $17,000,000 in advertising with News America Corporation and its affiliates through the period ended December 31, 2006. As of December 31, 2002, we have fulfilled approximately $7,303,000 of this commitment. See “News America Corporation Exchange” below.

Lease Commitments

     We lease certain of our current facilities and certain equipment under non-cancelable capital and operating lease agreements. We are required to pay property taxes, insurance and normal maintenance costs for certain of our facilities and will be required to pay any increases over the base year of these expenses on the remainder of our facilities.

     In February 1995, we entered into a build-to-suit lease with a financial institution on our headquarters facility in Redwood City, California, which was extended in July 2001 and expires in July 2006. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13, “Accounting for Leases”, as amended. Existing campus facilities developed in phase one comprise a total of 350,000 square feet and provide space for sales, marketing, administration and research and development functions. We have an option to purchase the property (land and facilities) for $145,000,000 or, at the end of the lease, to arrange for (1) an additional extension of the lease or (2) sale of the property to a third party with us retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $128,900,000 if the sales price is less than this amount, subject to certain provisions of the lease.

     In December 2000, we entered into a second build-to-suit lease with a financial institution for a five year term from December 2000 to expand our headquarters facilities and develop adjacent property adding approximately 310,000 square feet to our campus. Construction was completed in June 2002. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13, as amended. The facilities will provide space for marketing, sales and research and development. We have an option to purchase the property for $127,000,000 or, at the end of the lease, to arrange for (1) an extension of the lease or (2) sale of the property to a third party with us retaining an obligation to the owner for the difference between the sale price and the

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guaranteed residual value of up to $118,800,000 if the sales price is less than this amount, subject to certain provisions of the lease.

     Lease rates are based upon the Commercial Paper Rate. The two lease agreements described above require us to maintain certain financial covenants, all of which we were in compliance with as of December 31, 2002.

Letters of Credit

     In connection with our purchases of Nintendo GameCube optical disks for distribution in North America, Nintendo requires us to provide irrevocable letters of credit prior to Nintendo’s acceptance of purchase orders from us for purchases of these optical disks. For purchases of Nintendo GameCube optical disks for distribution in Japan and Europe, Nintendo typically requires us to make cash deposits.

In July 2002, we provided an irrevocable standby letter of credit to Nintendo of Europe. The standby letter of credit guarantees performance of our obligations to pay Nintendo of Europe for trade payables of up to 8,000,000 Euros. The standby letter of credit expires in July 2005. At December 31, 2002, we had $319,000 of payables to Nintendo of Europe covered by this standby letter of credit.

Development, Celebrity, League and Content Licenses: Payments and Commitments

     The products published by EA Studios are designed and created by our in-house designers and artists and by independent software developers (“independent artists”). We typically pay the independent artists royalties based on the sales of the specific products, as defined in the related independent artist agreements. Advance payments on these royalties are paid to independent artists upon meeting deliverables as detailed in the contractual agreements. In addition, certain celebrity, league and content license contracts contain minimum guarantee payments and marketing commitments that are not dependent on any deliverables. Celebrities and organizations with whom we have contracts include: FIFA, NASCAR, John Madden, National Basketball Association, PGA TOUR, Tiger Woods, National Hockey League, Warner Bros. (Harry Potter), MGM/Danjaq (James Bond), The Saul Zaentz Company d/b/a Tolkien Enterprises (The Lord of The Rings), National Football League, Collegiate Licensing Company (March Madness and NCAA Football), ISC -Major track company, Major League Baseball Properties, MLB Players Association and Island Def Jam. These minimum guarantee payments and marketing commitments are included in the table below.

Summary of minimum contractual obligations and commercial commitments as of December 31, 2002 (in thousands):

	Contractual Obligations										Commercial Commitments
					Developer/
Fiscal Year Ended					Licensee						Bank and Other
March 31,	Leases		Advertising		Commitments		AOL		Marketing		Guarantees		Letters of Credit		Total
2003	$	4,083	$	2,678	$	8,862	$	—	$	2,554	$	1,667	$	319	$	20,163
2004		13,054		3,697		25,407		11,250		14,401		171		—		67,980
2005		9,397		8,000		21,408		—		6,582		171		—		45,558
2006		8,853		3,000		16,781		—		4,572		171		—		33,377
2007		8,149		3,000		3,141		—		3,571		170		—		18,031
Thereafter		11,609		—		—		—		3,571		170		—		15,350
	$	55,145	$	20,375	$	75,599	$	11,250	$	35,251	$	2,520	$	319	$	200,459

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Transactions with Related Parties

Square EA

In May 1998, we entered into a joint venture with Square Co., Ltd. (“Square”), a leading developer and publisher of entertainment software in Japan. In North America, the companies formed Square Electronic Arts, LLC (“Square EA”), which has exclusive publishing rights in North America for future interactive entertainment titles created by Square. Additionally, we have the exclusive right to distribute in North America products published by this joint venture. We own a 30% minority interest in this joint venture while Square owns 70%. This joint venture is accounted for under the equity method. Our joint venture and distribution agreements with Square will expire as of March 31, 2003. We are discussing with Square the possibility of continuing to distribute Square products in North America on a limited, title-by-title basis. Even if those discussions are successful, our revenue from distributing Square titles in North America may be reduced going forward. If these discussions are not successful, this revenue stream will be lost.

We generated $38,895,000 and $72,501,000 in net revenues from sales of Square EA products during the three and nine months ended December 31, 2002. We generated $39,583,000 and $54,685,000 in net revenues from sales of Square EA products during the three and nine months ended December 31, 2001.

Indebtedness of Management

As of December 31, 2002, we had loans outstanding to executive officers in the amount of $4,104,000. All loans were in effect prior to the enactment of the Sarbanes-Oxley Act of 2002. As of February 2, 2003, all loans to executive officers made in connection with their purchase of restricted Class B common stock, totaling $854,000, were repaid in full.

News America Corporation Exchange

On February 7, 2000, we acquired Kesmai from News America Corporation (“News Corp”) in exchange for $22,500,000 in cash and approximately 206,000 shares of our existing common stock valued at $8,650,000. Under the original agreements, we agreed to spend $12,500,000 through the period ended June 1, 2002 in advertising with News Corp or any of its affiliates. In addition, under these agreements if certain conditions were met, including that a qualified public offering of Class B common stock did not occur within twenty-four months of News Corp’s purchase of such shares and all of the Class B outstanding shares had been converted to Class A common stock, then (1) News Corp would have the right to (i) exchange Class B common stock for approximately 206,000 shares of Class A common stock, and (ii) receive cash from us in the amount of $9,650,000, and (2) we would agree to spend an additional $11,675,000 in advertising with News Corp and its affiliates.

On August 30, 2002, we entered into a new agreement with News Corp under which (i) News Corp exchanged its 2,000,000 shares of Class B common stock for 206,454 shares of Class A common stock and (ii) we paid News Corp $1,000,000 in cash and committed to spend an additional $17,000,000 in advertising with News Corp and its affiliates through the period ended December 31, 2006. All of our other obligations to News Corp under the original agreements were terminated.

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Impact of Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We do not expect the adoption of SFAS No. 143 to have a material impact on our consolidated financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, as amended by SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”. The adoption of SFAS No. 145 did not have a material impact on our consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)”. We currently account for and report exit and disposal activities under the provisions of EITF No. 94-3. We will adopt the provisions of SFAS No. 146 for all exit and disposal activities that are initiated after December 31, 2002. We do not expect the adoption of SFAS No. 146 to have a material impact on our consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a guarantor to (i) include disclosure of certain obligations, and (ii) if applicable, at the inception of the guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The disclosure provisions of the Interpretation are effective for financial statements of interim or annual reports that end after December 15, 2002 and we have adopted those requirements in our condensed consolidated financial statements included in Note 12 of the Notes to Condensed Consolidated Financial Statements and in the Liquidity and Capital Resources section of the MD&A of this Form 10-Q. However, the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of the guarantor’s year-end. We are currently assessing the impact of adopting the initial recognition and initial measurement requirements of FIN 45 on our consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of FASB Statement No. 123”. SFAS No. 148 amends FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for an entity that voluntarily changes to the fair-value-based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that statement to require prominent disclosure about the effects on reported net income and earnings per share and the entity’s accounting policy decisions with respect to stock-based employee compensation. Certain of the disclosure requirements are required for all companies, regardless of whether the fair value method or intrinsic value method is used to

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account for stock-based employee compensation arrangements. We continue to account for our employee incentive stock option plans using the intrinsic value method in accordance with the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” The amendments to SFAS 123 will be effective for financial statements for fiscal years ended after December 15, 2002 and for interim periods beginning after December 15, 2002. We will adopt the disclosure provisions of this statement in our fourth quarter of fiscal year 2003.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities. Under current practice, two enterprises generally have been included in consolidated financial statements because one enterprise controls the other through voting interests. FIN 46 defines the concept of “variable interests” and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among the parties involved. This interpretation applies immediately to variable interest entities created after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. If it is reasonably possible that an enterprise will consolidate or disclose information about a variable interest entity when FIN 46 becomes effective, the enterprise shall disclose information about those entities in all financial statements issued after January 31, 2003. The interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. Based on the recent release of FIN 46, we have not completed our assessment as to whether or not the adoption of FIN 46 will have a material impact on our consolidated financial statements.

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RISK FACTORS

Electronic Arts’ business is subject to many risks and uncertainties which may affect our future financial performance. Some of those important risks and uncertainties which may cause our operating results to vary or which may materially and adversely affect our operating results are as follows:

Risk Factors Relating to Our Core Business

New Video Game Platforms Create Additional Technical and Business Model Uncertainties

     A majority of our revenues are derived from the sale of products for play on proprietary video game platforms such as the PlayStation 2. The success of our products is significantly affected by acceptance of the new video game hardware systems and the life span of older hardware platforms and our ability to accurately predict which platforms will be most successful.

     Sometimes we will spend development and marketing resources on products designed for new video game systems that have not yet achieved large installed bases or will continue product development for older hardware platforms that may have shorter life cycles than we expected. Conversely, if we do not develop for a platform that achieves significant market acceptance, or discontinue development for a platform that has a longer life cycle than expected, our revenue growth may be adversely affected.

     For example, the Sega Dreamcast console launched in Japan in early 1999 and in the United States in September of 1999. We did not develop products for this platform. Had this platform achieved wide market acceptance, our revenue growth would have been adversely affected. Similarly, we are developing products for the Xbox and Nintendo GameCube. If these platforms do not achieve wide commercial acceptance, our revenue growth will be adversely impacted.

Our Business Is Both Seasonal and Cyclical

     Our business is highly seasonal with a significant percentage of our revenues occurring in the December quarter. In fiscal 2002, these seasonal trends were magnified by general industry factors, including the platform transition, the fall 2001 launches of the Xbox and Nintendo GameCube in North America and the economic slowdown in the United States and other territories. Our business is also cyclical; video game platforms have historically had a life cycle of four to six years, and decline as more advanced platforms are being introduced. As one group of platforms is reaching the end of its cycle and new platforms are emerging, buying patterns may change. Purchases of products for older platforms may slow at a faster rate than sales of new platforms. There can be no guarantee that the current platform cycle will mirror past cycles in length or in terms of consumer behavior.

Our Business is Intensely Competitive and Increasingly “Hit” Driven

     Competition in our industry is intense in all areas. We are regularly facing strong competition by our competitors on a product-by-product and brand-by-brand basis. If our competitors develop more successful products, or if we do not continue to develop consistently high-quality products, our revenues will be adversely affected.

Impact of e-Commerce and Online Games on Our Business Is Not Known

     While we do not currently derive significant revenues from online sales of our packaged products, online distribution may become a more significant channel for distribution of our products in the future. How online distribution ultimately affects the more traditional retail distribution, at which we have historically had success, and over what time period, is uncertain. We also expect the number and popularity of online games to increase and become a significant factor in the interactive games business

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generally. We do not know how that increase generally, or the emerging business of EA.com specifically, will affect the sales of packaged goods.

Our Business, Our Products, and Our Distribution Are Subject to Increasing Regulation of Content, Consumer Privacy and Online Delivery in Key Territories

     Legislation is continually being introduced which may affect the content of our products and their distribution. For example, privacy rules in the United States and Europe impose various restrictions on our web sites. Those rules vary by territory while of course the Internet recognizes no geographical boundaries. Other countries such as Germany have adopted laws regulating content transmitted over the Internet that are stricter than current United States laws. In the United States, the federal and several state governments are considering content restrictions on products such as those made by us as well as restrictions on distribution of such products. Any one or more of these factors could harm our business.

Risk Factors Relating to Our Online Business

EA.com Has a History of Losses and Expects To Continue To Incur Losses and May Never Achieve Profitability

     EA.com has incurred substantial losses to date, including the current fiscal year. We expect EA.com to continue to incur losses at least through the current fiscal year. EA.com will be required to maintain the significant support, service and product enhancement demands of online users, and we cannot be certain that EA.com will produce sufficient revenues from its operations to support these costs. Even if profitability is achieved, EA.com may not be able to sustain it over a period of time. We may determine that further cost reductions are necessary.

Our Agreements with America Online May Not Prove Successful to the Development of EA.com’s Business

     We have a series of agreements with America Online (“AOL”) for the offering of our games for online play. These agreements require that we make substantial guaranteed payments to AOL and that we commit our resources to the pursuit of the online game opportunity. We cannot be assured that the substantial costs associated with the AOL agreements will be justified by the revenues generated from that relationship. In addition, restrictions included in the AOL agreements limiting other channels we may develop for offering online games may limit our ability to diversify our online distribution strategies. The success for us of the AOL agreements will also be a result of AOL’s performance under the agreements, a factor over which we will have very little control.

We Have Limited Experience with Online Games and May Not Be Able To Operate This Business Effectively

     Offering games solely for online play is a substantial departure from our traditional business of selling packaged software games. We have employed various revenue models, including subscription fees, ''pay to play fees’’ and advertising. We have limited experience with developing optimal pricing strategies for online games. For example, our product Majestic and our Platinum offering, which contained certain browser-based entertainment games, were launched with a monthly subscription pricing model and obtained only limited commercial success. Accordingly, we did not realize our projected cash flows and discontinued these offerings. Similarly, we continue to evaluate the content, marketing programs and pricing strategy for The Sims Online which launched in December 2002.

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Development of EA.com’s Business Continues to Require Significant Capital, and We Cannot Be Assured That It Will Be Available

     EA.com will not be successful if it does not continue to receive substantial financing. Electronic Arts has agreed to provide a limited amount of funding to EA.com, but this financing alone may not be sufficient. Any additional funding that is obtained from Electronic Arts may either be treated as a debt arrangement or alternatively may increase Electronic Arts’ retained interest in EA.com and correspondingly decrease the interest of the holders of outstanding shares of Class B common stock. To date, nearly all funding (except warrants and cash from revenues) has been provided by Electronic Arts. We cannot provide assurance that Electronic Arts will be able to recover its investment in EA.com.

To Become and Remain Competitive, EA.com Must Continually Develop New Content. This Is Inherently Risky and Expensive.

     EA.com’s success depends on our ability to develop new products and services for the EA.com site. Our agreement with AOL requires us to develop new games for the EA.com site. We cannot assure you that products will be developed on time, in a cost-effective manner, or that they will be commercially successful. The release of The Sims Online, for which we currently generate subscription revenue, was delayed due to longer than anticipated development schedules. Similarly, the online product Majestic achieved only limited commercial success due in part to the length of time it took to download the online software component. Accordingly, we discontinued Majestic on May 1, 2002.

Increasing Governmental Regulation of the Internet Could Limit the Market for Our Products

     As Internet commerce continues to evolve, we expect that federal, state and foreign governments will adopt laws and regulations covering issues such as user privacy, taxation of goods and services provided over the Internet, pricing, content and quality of products and services. It is possible that legislation could expose companies involved in electronic commerce to liability, taxation or other increased costs, any of which could limit the growth of electronic commerce generally. Legislation could dampen the growth in Internet usage and decrease its acceptance as a communications and commercial medium. If enacted, these laws and regulations could limit the market for EA.com’s products.

Our Revenues Have Been Heavily Dependent on a Single Product and Would Be Adversely Affected if That Product’s Popularity Were To Decline; Our Future Success Depends on the Success of The Sims Online

     In the near term, EA.com’s subscription revenues to date have consisted primarily of revenues from sales of our online product Ultima Online, and we would be adversely affected if revenues from that product were to decline for any reason and not be replaced. We expect the online game market to become increasingly competitive, and it is possible that competing products could cause revenues from Ultima Online to decline. In addition, popularity of Ultima Online could decline over time simply because of consumer preference for new game experiences.

     Going forward, the success of The Sims Online is critical to the success of EA.com. While The Sims Online only shipped in December 2002 and it is premature to judge its commercial success, early results have been below our expectations.

We Continue to Invest in Research and Development and Network Technology and Operations for EA.com, and We Cannot Be Assured That We Will Achieve Revenues That Support This Level of Spending

     We have invested heavily, and expect to continue to invest, in research and development and network technology and operations for our website and online games. While we have reduced the overall level of spending for EA.com, we will continue to invest in the technologies, tools and network infrastructure that are necessary for us to support our key product, The Sims Online. Accordingly, there

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are no assurances that the revenues from this product will exceed the associated costs in order for EA.com to achieve profitability. If we cannot increase revenues to profitable levels, the value of EA.com will be impaired. In order to develop the game offerings that we envision for our online operations it will continue to be necessary to engage in significant developmental efforts both to adapt existing Electronic Arts games to the online format and to create new online games. Our agreements with AOL require us to maintain a substantial commitment to online game development and we cannot be assured that we will realize acceptable returns from this investment.

We Derive a Portion Of Our Revenue From Advertisements and Advertising Services, Which Revenues Tend to be Cyclical and Dependent on the Economic Prospects Of Advertisers and Direct Marketers and the Economy in General. A Continued Decrease in Expenditures By Advertisers and Direct Marketers Or a Continued Downturn in the Economy Could Cause Our Revenues to Decline Significantly in any Given Period

     We derive, and expect to continue to derive for the foreseeable future, a portion of our revenue from products and services we provide to advertisers, direct marketers and agencies, advertising sold through our agreement with AOL and from advertisements we deliver to Web sites. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. The overall market for advertising, including Internet advertising, has been characterized in recent quarters by increasing softness of demand, lower prices for advertisements, the reduction or cancellation of advertising contracts, an increased risk of uncollectible receivables from customers and the reduction of marketing and advertising budgets, especially for online advertising and by Internet-related companies. As a result of these reductions, advertising spending across traditional media, as well as the Internet, has decreased. We have seen a decline in our advertising revenues in the current quarter compared to the same period a year ago. We expect further declines to occur in the near term.

We Are Heavily Dependent on a Few Internet Infrastructure Service Providers to Host and Manage Our Servers at Co-Location Facilities and Our Operating Results May Be Adversely Affected if We Must Change Service Providers

     We are dependent on a few third-party Internet infrastructure service providers to host and manage the majority of our servers that support our online games. The performance of these service providers is outside of our control. Many Internet infrastructure service providers require substantial financial resources to build, maintain and manage co-location facilities. Many of these service providers have experienced significant financial difficulties during the recent economic downturn. To the extent that industry, economic, financial or competitive factors influence the level of performance that we receive from service providers we currently use for co-location space (bandwidth and rack), we may need to re-locate our servers to another co-location facility which would increase our expenses and may result in delays or reduced shipments of our online products, thereby adversely impacting our operating results.

General Risk Factors

Product Development Schedules Are Frequently Unreliable and Make Predicting Quarterly Results Difficult

     Product development schedules, particularly for new hardware platforms, high-end multimedia personal computers, or PCs, and the Internet, are difficult to predict because they involve creative processes, use of new development tools for new platforms and the learning process, research and experimentation associated with development for new technologies. For example, EMPEROR: Battle for Dune for the PC, which was expected to ship in fiscal 2001 was not released until the first quarter of fiscal 2002 due to development delays. Also, James Bond 007 in...Agent Under Fire for the PS2, which was expected to ship in fiscal 2001, released in October of fiscal 2002 due to development delays. Likewise, The Sims Online experienced development delays and was released later than planned. The

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Sims Online was launched in December 2002. Failure to meet anticipated production or “go live” schedules may adversely impact our revenues and profitability and cause our actual results to be materially different than any financial guidance given by the Company.

     Rapid technology changes in our industry require us to anticipate (sometimes years in advance) which technologies our products must take advantage of in order to make them competitive in the market at the time they are released. Therefore, we usually start our product development with a range of technical development goals that we hope to be able to achieve. We may not be able to achieve these goals, or our competition may be able to achieve them more quickly than we can. In either case, our products may be technologically inferior to competitive products, or less appealing to consumers, or both. If we cannot achieve our technology goals within the original development schedule of our products, then we may delay products until these technology goals can be achieved (which may adversely affect our revenues and increase our development expenses). Alternatively, we may increase the resources employed in research and development in an attempt to accelerate our development of new technologies (either to preserve our product launch schedule or to keep up with our competition), which will increase our development expenses.

We May Not Be Able To Attract and Retain the Personnel Necessary for our Businesses

     The market for technical, creative, marketing and other personnel essential to the development of our products and management of our businesses is extremely competitive. In the last fiscal year, notwithstanding the downturn of the economy generally, competitive recruiting efforts aimed at Electronic Arts’ employees and executives continued. Electronic Arts’ leading position within the interactive entertainment industry makes us a prime target for recruiting of executives and key creative talent. In addition, the cost of real estate in the San Francisco Bay area – the location of our headquarters and one of our largest studios – remains relatively high, and has made recruiting from other areas and relocating employees to our headquarters more difficult. If we cannot successfully recruit and retain the employees we need, our ability to develop and manage our businesses will be impaired.

Our Platform Licensors Are Our Chief Competitors and Frequently Control the Manufacturing of and/or Access To Our Video Game Products

     Our agreements with hardware licensors, which are also our chief competitors, typically give significant control to the licensor over the approval and manufacturing of our products. This fact could, in certain circumstances, leave us unable to get our products approved, manufactured and shipped to customers. In most events, control of the approval and manufacturing process by the platform licensors increases both our manufacturing lead times and costs as compared to those we can achieve independently. For example, in prior years, we experienced delays in obtaining approvals for and manufacturing of PlayStation products which caused delays in shipping those products. The potential for additional delay or refusal to approve or manufacture our products continues with our platform licensors. Such occurrences would harm our business and adversely affect our financial performance. Additionally, we have not negotiated a final publishing agreement with Nintendo for the Nintendo GameCube platform for territories outside of the Western Hemisphere, and although we are currently operating under an understanding with Nintendo, we cannot be assured that the final terms of the formal agreements for Europe and/or Asia will be favorable.

     In addition, as online capabilities for videogame platforms emerge, our platform licensors will control our ability to provide online game capabilities for our console platform products. Currently, both Microsoft and Sony provide, or have announced plans to provide, online capabilities for Xbox and PlayStation 2 products respectively. In each case, compatibility code and the consent of the licensor are required for us to include online capabilities in our products. In addition, the business model for Microsoft’s and Sony’s online businesses for their videogame products may compete with our EA.com business. As these capabilities become more significant, the failure or refusal of our licensors to approve

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our products, or the successful deployment by these licensors of services competitive to EA.com, may harm our business.

Proliferation and Assertion of Patents Poses Serious Risks to our Business

     Many patents have been issued that may apply to widely used game technologies. Additionally, many recently issued patents are now being asserted against Internet implementations of existing games. Several such patents have been asserted against us. Such claims can harm our business. For example, in June of 2002 we were sued for alleged infringement of a patent which the plaintiff claims generally describes the distribution of a software program on CD-ROMs to users containing a link capability (e.g., hyperlinks) to additional information stored on a remote server. We will incur substantial expenses in evaluating and defending against such claims, regardless of the merits of the claims. In the event that there is a determination that we have infringed a third-party patent, we could incur significant monetary liability and be prevented from using the rights in the future.

Foreign Sales and Currency Fluctuations

     For the nine months ended December 31, 2002, international net revenues comprised 41% of total consolidated net revenues. For the fiscal year ended March 31, 2002, international net revenues comprised 37% of total consolidated net revenues. We expect foreign sales to continue to account for a significant and growing portion of our revenues. Such sales are subject to unexpected regulatory requirements, tariffs and other barriers. Additionally, foreign sales are primarily made in local currencies which may fluctuate. While we hedge against foreign currency fluctuations, we cannot control translation issues.

Increased Difficulties in Forecasting Results

     During platform transition periods, where the success of our products is significantly impacted by the changing market for our products, forecasting our revenues and earnings is more difficult than in more stable or rising product markets. The demand for our products may decline during a transition faster than we anticipate, negatively impacting both revenues and earnings. At launch, Sony shipped only half of the number of PlayStation 2 units to retail in North America than it had originally planned, and it shipped significantly fewer units than planned at launch in Europe as well. Shortages were announced as being caused by shortages of components for manufacturing. Due to these shortages, our results of operations for fiscal 2001 were adversely affected. Consequently, if Sony, Microsoft or Nintendo do not ship the number of units planned for the PlayStation 2, the Xbox and Nintendo GameCube, our sales of products for these platforms may be adversely affected in fiscal 2004.

The Current Legislative and Regulatory Environment Affecting Accounting Principles Generally Accepted in the United States of America is Uncertain and Volatile, and Significant Changes in Current Principles Could Affect Our Financial Statements Going Forward

     Recent actions and public comments from the SEC have focused on the integrity of financial reporting generally. Similarly, Congress has considered a variety of bills that could affect certain accounting principles. In addition, the FASB and other regulatory accounting agencies have recently introduced several new or proposed accounting standards, such as accounting for stock options, some of which represent a significant change from current industry practices. While we believe that our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, we cannot predict the impact of the adoption of any such proposals on our financial statements going forward.

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Fluctuations in Stock Price

     Industry and financial analysts provide investors with estimates of our future production and financial performance. We also give guidance as to our expectations for future performance. We may not meet those expectations. This may create an immediate and significant adverse effect on the trading price of our common stock. As a result of the factors discussed in this report and other factors that may arise in the future, the market price of our common stock historically has been, and we expect will continue to be, subject to significant fluctuations. These fluctuations may be due to factors specific to us, to changes in analysts’ earnings estimates, or to factors affecting the computer, software, Internet, entertainment, media or electronics businesses. In addition, fluctuations may be due to uncertainties in the securities markets in general. For example, during the fiscal year ended March 31, 2002, the price per share of our Class A common stock ranged from $42.40 to $66.01 and $51.48 to $72.14 during the nine months ended December 31, 2002.

World Events

     The terrorist attacks of September 11, 2001 in the United States, the subsequent US military action, the continuing concerns over potential additional terrorist attacks against US interests and citizens and the current potential for war with Iraq pose serious uncertainties in our business. Consumer spending, consumer preferences in entertainment, and the securities markets and the economy generally may be affected on an ongoing and unpredictable basis by these events, all of which may make prediction of our results more difficult.

Because of these and other factors affecting our operating results and financial condition, past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

MARKET RISK

We are exposed to various market risks, including the changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from changes in market rates and prices. Foreign exchange contracts used to hedge foreign currency exposures and short-term investments are subject to market risk. We do not consider our cash and cash equivalents to be subject to interest rate risk due to their short maturities. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Foreign Currency Exchange Rate Risk

We utilize foreign exchange contracts to hedge foreign currency exposures of underlying assets and liabilities, primarily certain intercompany receivables that are denominated in foreign currencies, thereby, limiting our risk. Our foreign exchange contracts are accounted for as derivatives whereby the gains and losses on these contracts are reflected in the Consolidated Statement of Operations. Gains and losses on open contracts at the end of each accounting period resulting from changes in the forward rate are recognized in earnings and are designed to offset gains and losses on the underlying foreign currency denominated assets and liabilities. At December 31, 2002, we had foreign exchange contracts, all with maturities of less than one month to purchase and sell approximately $508,133,000 in foreign currencies, primarily British Pounds, European Currency Units (“Euros”), Australian Dollars and other currencies.

Fair value represents the difference in value of the contracts at the spot rate and the forward rate. The counterparties to these contracts are substantial and creditworthy multinational commercial banks. The risks of counterparty nonperformance associated with these contracts are not considered to be material. Notwithstanding our efforts to manage foreign exchange risks, there can be no assurances that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations.

The following table below provides information about our foreign currency forward exchange contracts at December 31, 2002. The information is provided in U.S. dollar equivalents and presents the notional amount (forward amount), the weighted average contractual foreign currency exchange rates and fair value.

				Weighted-Average		Fair Value
		Contract Amount		Contract Rate		Gain/(Loss)
		(In thousands)				(In thousands)
Foreign currency to be sold under contract:
	British Pound	$	193,734		1.5945	$	(411	)
	Euro		178,781		1.0263		(1,741	)
	Swedish Krona		20,269		0.1126		(184	)
	Australian Dollar		19,176		0.5640		61
	Japanese Yen		10,896		0.0083		(120	)
	Norwegian Krone		8,525		0.1398		(139	)
	Canadian Dollar		8,382		0.6448		56
	Danish Krone		6,909		0.1382		(76	)
	Swiss Franc		5,592		0.6990		(117	)
	South African Rand		4,260		0.1092		(93	)
	New Zealand Dollar		1,032		0.5160		(3	)
	Brazilian Real		422		0.2814		3
Total		$	457,978			$	(2,764	)

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Foreign currency to be purchased under contract:
	British Pound	$	50,155	1.6003	$	(601	)
Total		$	50,155		$	(601	)
Grand total		$	508,133		$	(3,365	)

While the contract amounts provide one measurement of the volume of these transactions, they do not represent the amount of our exposure to credit risk. The amounts (arising from the possible inabilities of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties’ obligations exceed our obligations as these contracts can be settled on a net basis at our option. We control credit risk through credit approvals, limits and monitoring procedures.

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We manage our interest rate risk by maintaining an investment portfolio primarily consisting of debt instruments of high credit quality and relatively short average maturities. We also manage our interest rate risk by maintaining sufficient cash and cash equivalent balances such that we are typically able to hold our investments to maturity. At December 31, 2002, our cash equivalents and short-term investments included debt securities of $986,616,000. Notwithstanding our efforts to manage interest rate risks, there can be no assurances that we will be adequately protected against the risks associated with interest rate fluctuations.

The table below presents the amounts and related weighted average interest rates of our investment portfolio at December 31, 2002:

		Average Interest Rate			Cost		Fair Value
		(Dollars in thousands)
Cash equivalents
	Variable rate		1.43	%	$	587,358	$	587,358
Short-term investments
	Fixed rate		3.28	%	$	387,029	$	390,858
	Variable rate		6.35	%	$	8,400	$	8,400

Maturity dates for short-term investments range from 5 months to 36 months with call dates ranging from 0 months to 11 months.

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Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this quarterly report, have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.

(b) Changes in internal controls. There were no significant changes in the Company’s internal controls or, to our knowledge in other factors, that could significantly affect the Company’s disclosure controls and procedures subsequent to the Evaluation Date. However, in the last several months, in response to the certification requirements of the Sarbanes-Oxley Act and new Securities and Exchange Commission Regulations, the Company has enhanced its internal controls and disclosure systems, through various measures including: detailing its internal accounting policies; establishing a formal disclosure committee for preparation of all periodic reports; and requiring certifications from various trial balance controllers and other financial personnel responsible for the Company’s financial statements.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to pending claims and litigation. Management, after review and consultation with counsel, considers that any liability from the disposition of such lawsuits in the aggregate would not have a material adverse effect upon the consolidated financial position or results of operations of the Company.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 6.	Exhibits and Reports on Form 8-K
(a)	Exhibits: The following exhibits are filed as part of this report:

Exhibit
Number	Title
10.58	Form of Indemnity Agreement with Directors
10.59	Participation Agreement among Electronic Arts Redwood, Inc., Electronic Arts, Inc., Selco Service Corporation, Victory Receivables Corporation, The Bank of Tokyo-Mitsubishi, Ltd., various Liquidity Banks and Keybank National Association, dated December 6, 2000
3.05	Amended and Restated Bylaws

(b)	Reports on Form 8-K:
	On November 8, 2002, the Company furnished a current report on Form 8-K, attaching under Item 9 certifications made by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 to accompany the Company’s Form 10-Q for the quarterly period ended September 30, 2002.

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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.

	ELECTRONIC ARTS INC. (Registrant)
	/s/ WARREN C. JENSON
DATED: February 7, 2003	WARREN C. JENSON Executive Vice President, Chief Financial and Administrative Officer

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CERTIFICATIONS

I, Lawrence F. Probst III, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Electronic Arts Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: February 7, 2003	By:	/s/ LAWRENCE F. PROBST III
		Lawrence F. Probst III Chairman and Chief Executive Officer

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I, Warren C. Jenson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Electronic Arts Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: February 7, 2003	By:	/s/ WARREN C. JENSON
		Warren C. Jenson Executive Vice President, Chief Financial and Administrative Officer

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ELECTRONIC ARTS INC. AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002

EXHIBIT INDEX

EXHIBIT
NUMBER	EXHIBIT TITLE
10.58	Form of Indemnity Agreement with Directors
10.59	Participation Agreement among Electronic Arts Redwood, Inc., Electronic Arts, Inc., Selco Service Corporation, Victory Receivables Corporation, The Bank of Tokyo-Mitsubishi, Ltd., various Liquidity Banks and Keybank National Association, dated December 6, 2000
3.05	Amended and Restated Bylaws

69 EX-10.58 3 f87407exv10w58.txt EXHIBIT 10.58 EXHIBIT 10.58 ELECTRONIC ARTS INC. INDEMNITY AGREEMENT This Indemnity Agreement is entered into between Electronic Arts Inc. a corporation incorporated under the laws of Delaware (the "Company") and the member of the Board of Directors of the Company named below ("Director"). RECITALS A. The Company has provided in its Articles of Incorporation that a director's liability as a director of the Company will be limited to the extent permitted by the Delaware Corporations Code. B. The Company has provided in its Bylaws that the Company will indemnify directors to the maximum extent permitted by the Delaware Corporations Code and will advance expenses of litigation to its directors subject to an undertaking to repay such expenses if it is determined that they may not be reimbursed by the Company. C. In order to induce Director to serve as a member of the Board of Directors of the Company, the Company desires to provide Director with the following additional contractual assurances. NOW, THEREFORE, the Company and Director agree as follows: 1. Reimbursement of Expenses. The Company will reimburse Director for all reasonable and necessary expenses incurred by Director in connection with Director's service as a member of the Board of Directors of the Company. 2. Advancement of Expenses. In the event that Director at any time is, or is threatened to be, sued or made a party to any judicial, administrative or investigative proceeding as a result of Director's service as a member of the Board of Directors of the Company (or Director's providing services at the request of the Company as a director, officer, employee or agent of another corporation or other entity), the Company will, upon the request of Director (and within ten (10) days of the presentment of invoices therefor), advance the costs and expenses, including attorneys' fees, incurred by Director in defending such suit or other proceeding, or investigating any such threat, subject to an undertaking by Director, if required by law, to repay the Company if it is determined by a final judicial decision (from which there is no right of appeal) that Director is not entitled, under applicable law, the Bylaws, or this Agreement to be indemnified by the Company for such expenses. The burden of proving that Director is not so entitled shall be on the Company. 3. Indemnification. The Company agrees to indemnify Director, to the maximum extent permitted by law, against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by Director as a result of any lawsuit, judicial, administrative or investigative proceeding (criminal or civil, including an action by or in the right of the Company) in which Director at any time is sued or made a party, or is threatened to be made a party, as a result of Director's service as a member of the Board of Directors of the Company (or Director's providing services at the request of the Company as a director, officer, agent or employee of another corporation or other entity). The termination of any lawsuit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendre or its equivalent, shall not, of itself, -1- create a presumption that (i) Director did not act in good faith, (ii) Director did not act in a manner which Director reasonably believed to be or not opposed to the best interests of the Company or (iii) with respect to any criminal action or proceeding, Director had no reasonable cause to believe that Director's conduct was unlawful. It is the parties' intention that if the Company contests Director's right to indemnification, the question of Director's right to indemnification shall be for the court or arbitration panel to decide, and neither the failure of the Company (including its Board of Directors, independent legal counsel or its shareholders) to have made a determination that indemnification of a director is proper in the circumstances because Director has met the applicable standard of conduct required by applicable law, nor any actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel or its shareholders) that Director has not met such applicable standard of conduct, shall create a presumption that Director has or has not met the applicable standard of conduct. 4. Directors' and Officers' Insurance. The Company will, to the extent that it is determined to be economically reasonable by the Company's Board of Directors, maintain a policy of directors' and officers' liability insurance, on such terms and conditions as may be approved by the Board of Directors. 5. Contribution. If the indemnification provided in Section 3 is unavailable and may not be paid to Director for any reason other than statutory limitations, then in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Director (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Director in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and Director on the other hand from the transaction from which such action, suit or proceeding arose, and (ii) the relative fault of Company on the one hand and of Director on the other in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of Director on the other shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations. 6. Miscellaneous. Each of the provisions of this agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be judicially determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any other provision. In the event any provision hereof is determined to be unenforceable, the provision's effect shall be deemed to be limited so as to be equal to the maximum effect which would be enforceable. This Agreement shall be interpreted and enforced in accordance with the laws within the state of California and shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Director, his heirs, personal representatives and assigns. No cancellation, amendment or modification of this Agreement shall be effective unless in writing signed by both parties. 7. Attorneys' Fees. In the event that any action is instituted or claim is submitted to arbitration by Director under this Agreement to enforce or interpret any of the terms hereof, Director shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Director with respect to such action or arbitration, unless as a part of such action, a court of competent jurisdiction or the arbitrator(s) determines that each of the material -2- assertions made by Director as a basis for such claim was not made in good faith or was frivolous. In the event of any action instituted or a claim submitted to arbitration by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Director shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Director in defense of such action or claim (including with respect to Director's counterclaims and cross-claims made in such action or arbitration), unless as a part of such action the court or the arbitrator(s) determines that each of Director's material defenses to such action or claim was made in bad faith or was frivolous. IN WITNESS WHEREOF, the parties have executed this Agreement as of the ______ day of ________________, 20__. ELECTRONIC ARTS INC. DIRECTOR By: ______________________ ______________________________ -3- EX-10.59 4 f87407exv10w59.txt EXHIBIT 10.59 EXHIBIT 10.59 ================================================================================ PARTICIPATION AGREEMENT Dated as of December 6, 2000 among ELECTRONIC ARTS REDWOOD, INC., as the Lessee and the Construction Agent, ELECTRONIC ARTS, INC., as the Guarantor, SELCO SERVICE CORPORATION, as the Lessor, VICTORY RECEIVABLES CORPORATION, as the Note Purchaser, THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH, as the Conduit Agent, THE VARIOUS LIQUIDITY BANKS, and KEYBANK NATIONAL ASSOCIATION as the Letter of Credit Issuer and the Agent ================================================================================ PARTICIPATION AGREEMENT THIS PARTICIPATION AGREEMENT (as amended, restated or otherwise modified and in effect from time to time, this "Participation Agreement"), dated as of December 6, 2000, is entered into by and among ELECTRONIC ARTS REDWOOD, INC., a Delaware corporation, as the lessee (in such capacity, together with its permitted successors and assigns, the "Lessee") and as the construction agent (in such capacity, together with its permitted successors and assigns, the "Construction Agent"); ELECTRONIC ARTS, INC., a Delaware corporation, as the guarantor (in such capacity, together with its permitted successors and assigns, the "Guarantor"); SELCO SERVICE CORPORATION, an Ohio corporation doing business in California as Ohio SELCO Service Corporation, as the lessor and as the sole equity investor (in such capacities, together with its permitted successors and assigns, the "Lessor"); VICTORY RECEIVABLES CORPORATION, a Delaware corporation, as the note purchaser (in such capacity, together with its permitted successors and assigns, the "Note Purchaser"); THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH, as the agent for the Note Purchaser and the administrative agent for the Liquidity Banks (in such capacities, together with its permitted successors and assigns, the "Conduit Agent"); the financial institutions (including, without limitation, those certain financial institutions appearing on the signature pages hereof) which are parties to this Participation Agreement and the Liquidity Documentation from time to time (such financial institutions to be referred to collectively as the "Liquidity Banks"); and KEYBANK NATIONAL ASSOCIATION, as issuer of the Letter of Credit (in such capacity, together with its permitted successors and assigns, the "Letter of Credit Issuer") and as the agent for the Lessor, the Note Purchaser, the Conduit Agent, the Liquidity Banks and the Letter of Credit Issuer (in such capacity, together with its permitted successors and assigns, the "Agent"). Capitalized terms used herein and not otherwise defined herein shall have the meanings specified in Appendix A. WITNESSETH: WHEREAS, the Lessee, the Construction Agent, the Guarantor, the Lessor, the Note Purchaser, the Conduit Agent, the Liquidity Banks, the Letter of Credit Issuer and the Agent have entered into this Participation Agreement for the purpose of setting forth the terms and conditions pursuant to which the Lessor would provide a lease facility to the Lessee; and WHEREAS, in order for the Lessor to provide such lease facility to the Lessee, the Lessor shall (a) acquire the land described in Exhibit A (as more fully defined in Appendix A, the "Land") from the Existing Land Owner with funds advanced by the Note Purchaser to the Lessor under one or more Notes issued by the Lessor to the Note Purchaser on the Initial Funding Date pursuant to the Note Purchase Agreement and through the funding by the Lessor of the Equity Investment from its own funds pursuant to the terms of this Participation Agreement; (b) construct the Improvements on the Land with funds to be advanced from time to time by the Note Purchaser under the Notes; (c) lease such Land and Improvements to the Lessee pursuant to the terms and conditions of the Master Lease, and (d) grant to the Lessee the right to purchase such property; and WHEREAS, the Lessor and certain of the other Lessor Parties will have certain rights and remedies under the Master Lease, including, without limitation, the right to receive payments of Rent thereunder; and WHEREAS, in order to finance the funds to be advanced under the Notes by the Note Purchaser pursuant to the Note Purchase Agreement, the Note Purchaser, pursuant to the Liquidity Documentation, may from time to time request Loans from the Liquidity Banks or sell Percentage Interests in the obligations evidenced by the Notes to the Liquidity Banks; and WHEREAS, to secure the obligations of the Lessee to the Lessor under the Operative Documents, the Lessee has, under each of the Master Lease, the Precautionary Deed of Trust, the Precautionary Financing Statements and the Memorandum of Lease, granted a security interest in and Lien on all of its right and interest in and to the Property covered by the Master Lease; and WHEREAS, to secure the obligations of the Lessor pursuant to the Operative Documents, the Lessor has, pursuant to the Deed of Trust, granted a security interest in and a Lien on all of its right and interest in and to the Property and the Master Lease and has assigned all of its right and interest in and to the Precautionary Deed of Trust and the Precautionary Financing Statements to the Agent; and WHEREAS, the Guarantor has agreed to guarantee the Obligations of the Lessee inasmuch as the Guarantor will derive substantial direct and indirect benefits from the leasing of the Property by the Lessor to the Lessee; and WHEREAS, to cover any shortfall that may occur upon the exercise by the Lessee of the Remarketing Option pursuant to Section 18.3 of the Master Lease, the Letter of Credit Issuer has agreed to issue the Letter of Credit for the benefit of the Liquidity Banks. NOW, THEREFORE, in consideration of the mutual agreements contained in this Participation Agreement and the other Operative Documents 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 Section 1.1 Definitions; Interpretation. Unless the context shall otherwise require, capitalized terms used and not defined herein and in the other Operative Documents 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 and the other Operative Documents. 2 ARTICLE II DOCUMENTATION DATE; FUNDING DATES Section 2.1 Documentation Date. The Documentation Date (the "Documentation Date") shall occur on the earliest date on which the following conditions precedent shall have been satisfied or waived: (a) Participation Agreement. This Participation Agreement shall have been duly authorized, executed and delivered by the parties hereto. (b) Note Purchase Agreement. The Note Purchase Agreement shall have been duly authorized, executed and delivered by the parties thereto. (c) Liquidity Documentation. All Liquidity Documentation shall have been duly authorized, executed and delivered by the parties thereto. (d) Letter of Credit The Letter of Credit, substantially in the form attached to the Reimbursement Agreement, shall have been duly issued and delivered by the Letter of Credit Issuer to the Agent for the benefit of the Liquidity Banks. (e) The Lessee's Resolutions and Incumbency Certificate, etc. The Lessee shall have delivered to the Lessor Parties (i) a certificate of its Secretary or an Assistant Secretary attaching and certifying as to (A) the resolutions of its Board of Directors duly authorizing the execution, delivery and performance by it of the Operative Documents to which it is 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 its incorporation and for the jurisdiction in which the Property is located, no earlier than ten (10) days prior to the Documentation Date. (f) The Guarantor's Resolutions and Incumbency Certificate, etc. The Guarantor shall have delivered to the Lessor Parties (i) a certificate of its Secretary or an Assistant Secretary attaching and certifying as to (A) the resolutions of its Board of Directors duly authorizing the execution, delivery and performance by it of the Operative Documents to which it is 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 its incorporation and for the jurisdiction in which the Property is located no earlier than ten (10) days prior to the Documentation Date. Section 2.2 Funding Dates. (a) The dates on which the funds are to be advanced under the Notes (and, with respect to the Initial Funding Date, the funding of the Equity Investment shall be made) shall be referred to herein and in other Operative Documents as the "Funding Dates" and each, a "Funding Date". 3 (b) The Funding Date with respect to the financing of the Land Acquisition Costs by the Lessor (the "Initial Funding Date") shall be December 7, 2000 (or such other Business Day selected by the Lessee which in no event shall be earlier than the first Business Day after the Documentation Date) subject to the satisfaction (or waiver by the appropriate Lessor Parties) of the conditions set forth in Section 6.1 herein. (c) Each interim Funding Date with respect to the financing of the Improvements Construction Costs (each, an "Interim Construction Period Funding Date") shall be on a Business Day selected by the Lessee and shall occur no more frequently than once a month during the Construction Period, subject in each instance to the satisfaction (or waiver by the appropriate Lessor Parties) of the conditions set forth in Section 6.2 herein. (d) The final Funding Date with respect to the financing of the final Improvements Construction Costs (the "Final Construction Period Funding Date") shall be on the Business Day selected by the Lessee occurring no later than ninety (90) days after the date on which Final Completion shall have occurred, subject to the satisfaction (or waiver by the appropriate Lessor Parties) of the conditions set forth in Section 6.3 herein. (e) Subject to Section 3.5(c) below, each Funding Date with respect to the funding of the Accreted Amounts (as defined in Section 3.1(a)(iii) below) during the Base Lease Term (each, a "Base Lease Term Funding Date") shall occur on each Basic Rent Payment Date during the Base Lease Term, subject to the satisfaction (or waiver by the appropriate Lessor Parties) of the conditions set forth in Section 6.4 herein. ARTICLE III ISSUANCE OF NOTES AND FUNDING OF THE EQUITY INVESTMENT; PURCHASES OF NOTES; APPLICATION OF PROCEEDS OF NOTES AND THE EQUITY INVESTMENT Section 3.1 Commitment of the Lessor to Issue Notes. (a) Subject to the terms and conditions hereof, including, without limitation, the delivery of a Funding Notice with respect to each Funding Date (other than a Base Lease Term Funding Date), and pursuant to the relevant provisions of the Note Purchase Agreement: (i) on the Initial Funding Date, the Lessor shall issue one or more Notes in an aggregate principal amount of $125,450,000. (ii) Subject to Section 3.1(b) hereof, on each Interim Construction Period Funding Date and on the Final Construction Period Funding Date, the Note Purchaser shall advance funds to the Lessor under the Notes in the aggregate principal amount equal to the amount specified in the relevant Funding Notice. (iii) Subject to Section 3.1(b) hereof, on each Base Lease Term Funding Date, and provided that the Lessee shall have paid to the Lessor the Security Deposit as provided in Section 3.4 of the Master Lease, the Note Purchaser shall advance funds to the 4 Lessor under the Notes in an aggregate principal amount equal to $380,952.38 (each such amount, the "Accreted Amount"). (b) The aggregate principal amount outstanding under the Notes at any time shall not exceed $125,450,000 (such amount, the "Aggregate Note Purchase Commitment"). For accounting purposes, all funds advanced to the Lessor under the Notes pursuant to the Note Purchase Agreement shall constitute debt. (c) Upon payment of the Security Deposit by the Lessee pursuant to Section 3.4 of the Master Lease, the Agent, on behalf of the Lessor shall apply the proceeds of the Security Deposit to repay funds advanced under the Notes in an aggregate principal amount equal to the amount of the Security Deposit so paid and, thereafter, such repaid funds shall no longer be outstanding for any purpose, including the calculation of the Interest Amount under Section 4.2(a) hereof. After such repayment, however, the aggregate principal amount outstanding under the Notes will be increased on each Base Lease Term Funding Date to reflect the funds advanced to the Lessor under the Notes on such Funding Date for the Accreted Amount. Section 3.2 Commitment of the Lessor to Fund the Equity Investment. Subject to the terms and conditions hereof, including, without limitation, the delivery of the initial Funding Notice, on the Initial Funding Date, the Lessor shall fund the entire Equity Investment in the amount of $4,550,000, representing three and one-half percent (3.5%) of the Aggregate Commitment Amount (such amount, the "Aggregate Equity Investment Commitment"). For accounting purposes, the Equity Investment made by the Lessor hereunder shall constitute equity. Section 3.3 Commitment to Make Note Purchases. Subject to the terms and conditions hereof and the terms and conditions of the Note Purchase Agreement, the Note Purchaser shall purchase the Note or Notes issued on the Initial Funding Date and on each subsequent Funding Date shall advance funds under the Notes as requested in the relevant Funding Notice. Notwithstanding the foregoing, the Note Purchaser shall not be required to purchase the Notes to be issued on the Initial Funding Date or to advance funds to be advanced to the Lessor under such Notes on the Initial Funding Date unless the Lessor simultaneously funds the Equity Investment to be made on the Initial Funding Date. Section 3.4 Commitment to Fund the Equity Investment. Subject to the terms and conditions hereof, the Lessor shall, on the Initial Funding Date, fund the Equity Investment as requested in the initial Funding Notice. Notwithstanding the foregoing, the Lessor shall not be required to fund the Equity Investment on the Initial Funding Date unless the Note Purchaser simultaneously purchases the Notes to be issued by the Lessor on the Initial Funding Date and advances the funds to be advanced to the Lessor under such Notes on the Initial Funding Date. Section 3.5 Notice Procedures with respect to the Funding of Advances under the Notes and the Equity Investment. (a) With respect to the purchase of the Notes, the funding of the advances to be made under such Notes, and the funding of the Equity Investment to be made on the Initial Funding Date, the Lessee shall give the Agent, for the benefit of the Lessor and the Note 5 Purchaser, prior written notice delivered not later than 10:00 a.m., New York time, one Business Day prior to the proposed Funding Date specifying: (i) the proposed Funding Date, (ii) the principal amount to be advanced on such Funding Date under the Notes, (iii) the amount of the Equity Investment to be funded and (iv) the application of the proceeds of such funds advanced under the Notes and the Equity Investment. The Funding Notice shall be in the form of Exhibit B-1. (b) With respect to the funds to be advanced under the Notes on each Funding Date (other than the Initial Funding Date and any Base Lease Term Funding Date), the Lessee shall give the Lessor and the Note Purchaser prior written notice delivered not later than 2:00 p.m., New York time, three (3) Business Days prior to the proposed Funding Date, specifying: (i) the proposed Funding Date, (ii) the principal amount to be advanced on such Funding Date under the Notes (which, unless otherwise agreed to by the Note Purchaser, shall be in an aggregate amount equal to or greater than $1,000,000) and (iii) the application of the proceeds of such funds advanced under the Notes. The Funding Notice shall be in the form of Exhibit B-2 with respect to all Interim Construction Period Funding Dates and Exhibit B-3 with respect to the Final Construction Period Funding Date. (c) With respect to the funds to be advanced under the Notes on each Base Lease Term Funding Date, provided that the Lessee shall have paid the Security Deposit pursuant to Section 3.4 of the Master Lease, such funds shall be in the amount set forth in Section 3.1(a)(iii) hereof and shall be used to increase the Outstanding Lease Balance such that the Outstanding Lease Balance at the Maturity Date shall be equal to the aggregate amount of the Land Acquisition Costs and the Improvements Construction Costs. Unless the Lessee provides the Lessor and the Note Purchaser with ten (10) Business Day's prior written notice to the contrary, the Lessee shall be deemed to have requested the funds to be advanced on each Base Lease Term Funding Date. (d) Upon satisfaction or waiver of the conditions precedent to each advance under the Notes, and with respect to the Initial Funding Date, the funding of the Equity Investment, set forth in Article VI hereof, the Note Purchaser shall advance such funds under the Notes and the Lessor shall fund the Equity Investment, in each case in accordance with the allocation provisions set forth above. (e) All remittances made by the Note Purchaser for funds advanced under the Notes or by the Lessor for the funding of the Equity Investment on each Funding Date other than a Base Lease Term Funding Date shall be made on the relevant Funding Dates in immediately available federal funds by wire transfer to the accounts specified in the Funding Notices. All remittances received by the Conduit Agent from funds advanced under the Notes in the principal amount of the Accreted Amount on each Base Lease Term Funding Date shall be applied to the account of the Note Purchaser for a partial or total offset (in the amount of such remittance) of the Interest Amount due on such date. (f) Each of the Funding Notices and each advance of funds made on each Base Lease Term Funding Date shall be irrevocable and binding on the Lessee and the Lessee shall indemnify the Note Purchaser (or the Liquidity Banks, if applicable) and, with respect to the Initial Funding Date, the Lessor, against any actual loss or expense incurred by the Note 6 Purchaser (or the Liquidity Banks, if applicable) and the Lessor, as a result of the Notes not being issued and/or funds not being advanced thereunder and the Equity Investment not being funded in accordance therewith (other than as a result of a breach of this Participation Agreement by the Note Purchaser, any Liquidity Bank or the Lessor, as applicable) including any actual loss or expense incurred by the Note Purchaser, the Liquidity Banks or the Lessor, as the case may be, by reason of the liquidation or reemployment of funds or the termination of any hedging arrangements acquired or requested by the Note Purchaser, the Liquidity Banks and the Lessor, to fund the purchase of such Notes and the funds to be advanced thereunder, and the Equity Investment. Section 3.6 Use of Proceeds of Notes and Equity Investment. The proceeds of the funds advanced under the Notes on the Initial Funding Date and the Equity Investment funded on the Initial Funding Date shall be applied to finance the Land Acquisition Costs. The proceeds of the funds advanced under the Notes on any Interim Construction Period Funding Date or the Final Construction Period Funding Date shall be applied to finance the Improvements Construction Costs. The proceeds of the funds advanced under the Notes on any Base Lease Term Funding Date shall, in the manner provided in Section 3.5(e) above, be used to repay the then-accreted portion of the Outstanding Lease Balance occurring as a result of the funding by the Lessee of the Security Deposit. Section 3.7 Commitment of the Liquidity Banks and Letter of Credit Issuer. Subject to the terms and conditions set forth herein and in the other Operative Documents, (a) the Liquidity Banks shall severally, but not jointly, make available Loans (as defined in the Liquidity Agreement) in an aggregate principal amount not to exceed at any one time, $125,450,000, plus all accrued discount on all related Commercial Paper (as such amount may be adjusted pursuant to the Liquidity Agreement) less the aggregate principal amount of outstanding Percentage Interest purchased by the Liquidity Banks pursuant to the Asset Purchase Agreement, (b) the Letter of Credit Issuer shall issue the Letter of Credit in the stated amount of not less than $6,656,037.11, and (c) each of the Liquidity Banks and the Letter of Credit Issuer shall, at the times set forth therein, duly perform their respective obligations set forth herein and under the applicable Operative Documents to which such Person is a party. ARTICLE IV CALCULATION OF BASIC RENT AND SUPPLEMENTAL RENT; DETERMINATION OF NOTE RATE; BREAKAGE EXPENSES, INCREASED COSTS, ETC.; TAXES; FEES Section 4.1 Rent. (a) Basic Rent shall be equal to the sum of the Interest Amount, the Yield Amount and the Support Amount. Basic Rent payable on each Basic Rent Payment Date shall be equal to the sum of the Interest Amount, the Yield Amount and the Support Amount payable on such date. (b) Any Supplemental Rent payable pursuant to this Participation Agreement and the other Operative Documents shall be paid forthwith upon the determination thereof. 7 (c) The Lessor Parties hereby acknowledge that the Notes and the Equity Investment may be prepaid with the proceeds of the Supplemental Rent payments due pursuant to the Master Lease, with the proceeds of such payments applied in accordance with the provisions of Article XI hereof, subject in any event to compliance with Section 4.3 hereof and to the timely application of such Supplemental Rent pursuant to the relevant provisions of Article XI hereof. Section 4.2 Calculation of Basic Rent. (a) The Interest Amount portion of Basic Rent with respect to the outstanding principal amount of the Notes shall be computed based upon one of the rates set forth below: (i) To the extent that the Note Purchaser is funding advances under the Notes by issuance of Commercial Paper, the Interest Amount portion of Basic Rent with respect to the amounts outstanding under the Notes shall be computed based upon the CP Rate as in effect from time to time plus fifteen one hundredths of one percent (.15%); and (ii) To the extent the Note Purchaser is not funding advances under the Notes by issuance of Commercial Paper or the Notes have been purchased by the Liquidity Banks pursuant to the Liquidity Documentation, the Interest Amount portion of Basic Rent with respect to the amounts outstanding under the Notes shall be computed as follows: (A) until such time as a Loan based upon a one (1) month LIBOR rate can be advanced by the Liquidity Banks pursuant to the Liquidity Documents, the Alternate Rate, and (B) thereafter, one of the following two rates as selected by the Note Purchaser (or if the Notes have been purchased by the Liquidity Banks pursuant to the Liquidity Documentation, the Agent) in its reasonable discretion: (x) the one (1) month LIBOR rate as in effect from time to time (adjusted for reserve requirements in effect on the first day of each period for which a payment is due) plus the Applicable Margin; or (y) if the one (1) month LIBOR rate is not available for any reason, the Alternate Rate. The aggregate amount payable in accordance with this Section 4.2(a) with respect to all Notes as of any Basic Rent Payment Date shall be the "Interest Amount" payable as of such date. (b) The Yield Amount portion of Basic Rent payable with respect to the Equity Investment shall be computed based upon either (A) the one (1) month LIBOR rate as in effect from time to time, adjusted for reserve requirements in effect on the first day of each period for which a payment is due, plus eight-tenths of one percent (.80%) or (B) if the one (1) month LIBOR rate is not available or cannot be determined for the reasons set forth in Section 4.5 herein, the Alternate Rate. Notwithstanding the foregoing, for the period beginning on the Initial Funding Date and ending on the first Basic Rent Payment Date, the Yield Amount portion of Basic Rent payable with respect to the outstanding Equity Investment shall be computed based upon the Alternate Rate or such other rate as agreed upon between the Lessee and the Lessor immediately prior to the Initial Funding Date. The aggregate amount payable in accordance with this Section 4.2(b) with respect to the Equity Investment as of any Basic Rent Payment Date shall be the "Yield Amount" payable as of such date. (c) The Support Amount portion of Basic Rent payable to the Letter of Credit Issuer to compensate it for the issuance of the Letter of Credit shall be equal to one-twentieth of 8 one percent of the outstanding principal amount of the Notes. The aggregate amount payable in accordance with this Section 4.2(c) as of any Basic Rent Payment Date shall be the "Support Amount" payable as of such date. (d) All calculations of Basic Rent shall be performed by the Agent based on the information provided to it pursuant to Section 5.3. Such information shall be provided to the Lessee and the Guarantor no later than 5:00 p.m., New York time, on the third (3rd) Business Day prior to the relevant Basic Rent Payment Date, together with reasonable detail supporting the calculations made. The Guarantor and Lessee shall promptly acknowledge receipt of such calculations in writing to the Agent. Such calculations shall be deemed final in the absence of manifest error. The Guarantor and the Lessee shall be entitled to rely on any calculation of Basic Rent performed by the Agent, and to deal directly with the Agent in connection with the verification of such calculations. (e) Except with respect to payments made pursuant to Sections 4.3, 4.4, 4.6, 13.1, 13.3 and 13.5, proceeds derived upon exercise of the Remarketing Option or Unwind Proceeds (which shall be remitted to the Agent to be distributed as provided in Article XI hereof), to the extent that a payment of Basic Rent or Supplemental Rent is made other than on a Basic Rent Payment Date, upon the request of the Lessee, the proceeds of any such payment (such receipts, "Prepayments") shall be deposited in a special, segregated account which shall be an Eligible Account held in the name of, and under the sole dominion and control of the Agent (the "Prepayment Account"). Funds in the Prepayment Account shall be invested by the Agent, at the direction and for the benefit of the Lessee, in Cash Equivalents maturing no later than the next succeeding Basic Rent Payment Date. The Agent is hereby authorized, in making or disposing of any investment permitted by this Section, to deal with itself (in its individual capacity) or with any one or more of its Affiliates, whether it or such Affiliate is acting as an agent of the Agent or for any third person or dealing as a principal for its own account; provided, however, that all such dealings between the Agent and any one or more of its Affiliates shall be conducted on an arm's-length, commercially reasonable basis. The Lessee may, at its discretion, provide written instructions to the Agent as to timing and application of moneys in the Prepayment Account, so long as any money so withdrawn shall be used for the payment of Rent. Absent any written instruction from the Lessee to the Agent or if a Lease Default or a Lease Event of Default shall have occurred and be continuing, the Agent shall withdraw money from the Prepayment Account and apply such amount to the payment of Basic Rent and Supplemental Rent as such Rent becomes due, but only to the extent that such Rent would otherwise, in the ordinary course under the Operative Documents, be paid by the Lessee to the Agent for application and allocation in accordance with the Operative Documents. The Agent acknowledges and agrees that the Lessee and the Guarantor shall be entitled to assume, and rely on such assumption, that the Agent will properly apply and allocate any amount withdrawn from the Prepayment Account pursuant to the Lessee's written instructions (if any, and absent any Lease Default or Lease Event of Default) and the procedures and allocations under the Operative Documents. Any amount remaining in the Prepayment Account upon the Lease Termination Date and the full satisfaction of the 9 Obligations under the Operative Documents shall be promptly withdrawn from the Prepayment Account and returned to the Lessee. Section 4.3 Breakage Expenses; Yield Maintenance Premium. (a) If, with respect to the amounts outstanding under the Notes or the outstanding portion of the Equity Investment, (i) interest or principal is repaid or prepaid (including as a result of acceleration) in each case (A) subject to Section 4.2(e) above, on a date other than a Basic Rent Payment Date applicable thereto (including, without limitation, the Maturity Date) or (B) in an amount other than the amount currently due, or (ii) Lessee shall cancel or otherwise fail to consummate any funding requested under a Funding Notice which has been delivered to the Agent (whether as a result of the failure to satisfy any applicable conditions or otherwise) or shall fail to make any prepayment after notice has been given to the Agent, then the Lessee shall hold such Lessor Parties harmless from, and pay as Supplemental Rent to the Agent for the benefit of such Lessor Parties, as their respective interests may appear, within five (5) Business Days following demand therefor (which demand shall be accompanied by one or more certificates contemplated by Section 4.3(c) below), all actual costs and losses incurred by such Lessor Parties as a result of such payment, cancellation or failure. (b) Without duplication of the foregoing, and subject to Section 4.2(e) above, in the event that any Lessor Party shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such party or the termination of any hedging arrangements) to make, continue or maintain any portion of the principal amount of its investment as the result of a breach by the Lessee or the Guarantor under the Operative Documents, such Lessor Party shall deliver a notice accompanied by a certificate as contemplated by Section 4.3(c) below, regarding such loss or expenses. The Lessee shall, within thirty (30) days of receipt of such notice, pay directly to the Agent for the benefit of such Lessor Party as Supplemental Rent, an amount, reasonably determined to be equal to the excess, if any, of (A) the amount such Lessor Party would have received if its investment had been made or continued based on the interest rate borne by the relevant instrument over (B) the amount realized by such party from reemploying the funds. (c) A certificate (describing in reasonable detail the calculation of the yield maintenance or other amount, as applicable, to be paid under this Section 4.3) submitted by the applicable Lessor Party to the Lessee (with a copy to the Agent) shall, absent demonstrable error, be final and conclusive. Section 4.4 Increased Costs, etc. If after the date hereof any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) (i) shall subject any Lessor Party to, or increase the net amount of, any tax, levy, impost, duty, charge, fee, deduction or withholding with respect to any Note, Loan or the Equity Investment (or any portion thereof), or the funding of (or agreement to provide funding for) such Notes, Loans or the Equity Investment, or shall change the basis of taxation of payments to the Lessor Parties or any other fees or amounts payable under the Operative Documents (other than (x) with respect to the Lessor, any Taxes or other items specifically excluded from the definition of Impositions, and (y) with respect to any Lessor Party other than the Lessor, any Taxes (A) 10 attributable to changes in the rate of general corporate, franchise, net income or other income tax imposed on such Lessor Party by the jurisdiction in which such Lessor Party either maintains its applicable lending office or is otherwise subject to tax other than as a result of the transactions contemplated by the Operative Documents or (B) that would not have been imposed but for the failure of such Lessor Party to comply with any certification, information, documentation or other reporting requirement), (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, such Lessor Party that would affect the amount of capital required or reasonably expected to be maintained by such Lessor Party or any Person directly or indirectly controlling such parties, and such Lessor Party reasonably and in good faith determines that the rate of return on its or such controlling Person's capital as a consequence of its obligations under or in respect of the Operative Documents is reduced to a level below that which such party would have achieved but for the occurrence of any such circumstance by an amount deemed by such party to be material, or (iii) shall impose on such Lessor Party any other condition (other than a condition involving administrative matters such as additional reporting requirements to any such Governmental Authority) affecting this Participation Agreement or any other Operative Document or the funding (or agreement to provide funding hereunder), and the result of any of the foregoing shall be to increase the cost to such Lessor Party of, or to reduce the amount of any sum received or receivable by such Lessor Party in respect of, making, continuing or maintaining (or its obligation to make, continue or maintain) its investments in the respective instruments (or providing funding therefor) by an amount reasonably determined in good faith by such Lessor Party to be material, then the Lessee shall pay to the Agent for the benefit of the Lessor Party, as Supplemental Rent, such additional amount or amounts, as will compensate such Lessor Party on an After Tax Basis for such increase or reduction upon demand by such party. Each such Lessor Party shall within thirty (30) days of such Lessor Party's discovery of such event, notify the Lessee in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the calculation of the additional amount required fully to compensate such party for such increased costs or reduced amount. Such additional amount shall be payable by the Lessee to the Agent for the benefit of such claiming party within fifteen (15) Business Days of its receipt of such notice and such notice shall, in the absence of manifest error, be conclusive and binding on the Lessee. Notwithstanding any other provision of this Participation Agreement, any amount of Taxes that would, but for this sentence, give rise to both Supplemental Rent payable to the Lessor pursuant to this Section 4.4 and an indemnity payment obligation in favor of the Lessor pursuant to Section 13.4 shall be governed solely by the provisions of Section 13.4; provided, however, that this sentence is intended to apply Section 13.4 to Taxes subject to an actual indemnity payment obligation pursuant to both Section 4.4 and Section 13.4, but not to diminish any claim for indemnification (or Supplemental Rent) pursuant to this Section 4.4 that would not give rise to an actual indemnity payment obligation pursuant to Section 13.4. Section 4.5 Change of Circumstances. (a) If, on or before the first day of any Rent Period, the Lessor or any Liquidity Bank shall advise the Agent that the one (1) month LIBOR rate cannot be adequately and reasonably determined due to the unavailability of funds in or other circumstances generally affecting the London interbank market, the Agent shall immediately give notice of such condition to the other Transaction Parties. After the giving of any such notice (and until the 11 Agent shall otherwise notify the Lessee that the circumstances giving rise to such condition no longer exist), the rates to be paid by the Lessee pursuant to Section 4.2(a)(ii) and 4.2(b) herein (as applicable) as of the first day of the next Basic Rent Payment Date shall be the Alternate Rate. (b) If, after the date of this Participation Agreement, as the result of the adoption of any Requirement of Law, any change in any Requirement of Law or the application or requirements thereof (whether such change occurs in accordance with the terms of such Requirement of Law as enacted, as a result of amendment or otherwise), any change in the interpretation or administration of any Requirement of Law by any Governmental Authority, or any request or directive (whether or not having the force of law) of any Governmental Authority (each a "Change of Law"), it shall become unlawful or impossible for the Lessor or any Liquidity Bank to fund or maintain its portion of the Outstanding Lease Balance at the one (1) month LIBOR rate, such Person shall immediately notify the Agent and the Agent shall immediately notify the other Transaction Parties of such Change of Law. After the giving of any such notice (and until the Agent shall otherwise notify the Lessee and the Lessor that such Change of Law is no longer in effect), the one (1) month LIBOR rate shall be unavailable and the rates to be paid by the Lessee pursuant to Section 4.2(a)(ii) and 4.2(b) herein (as applicable) as of the next Basic Rent Payment Date shall be the Alternate Rate. Section 4.6 Taxes. All payments of Basic Rent, Supplemental Rent, principal of, and interest or yield on, the Notes, the Loans and the Equity Investment and all other amounts payable hereunder and under the Master Lease shall be made free and clear of and without deduction for any present or future income, excise, stamp, transfer or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever (including interest and penalties) now or hereafter imposed by any Governmental Authority or taxing authority thereof ("Taxes"), but excluding (x) with respect to the Lessor, any Taxes or other items, in each case, specifically excluded from the definition of Impositions, and (y) with respect to any Lessor Party other than the Lessor, franchise taxes and other taxes imposed on or measured by the net income of, as the case may be, of such Lessor Party (or its applicable lending office) by its jurisdiction of incorporation or the jurisdiction in which it maintains its applicable lending office (in each case, such non-excluded items being called "Other Taxes"). In the event that any withholding or deduction from any payment to be made by the Lessee hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Lessee will: (a) pay as Supplemental Rent directly to the relevant Governmental Authority or taxing authority the full amount required to be so withheld or deducted; (b) forward to the Agent for the benefit of the relevant Lessor Party official receipts or other documentation reasonably satisfactory to such Lessor Party evidencing such payment to such authority; and (c) with respect to Other Taxes, pay to the Agent for the benefit of the relevant Lessor Party such additional amount or amounts as is necessary to ensure that the net amount actually received by such Lessor Party will equal the full amount such Lessor Party would have received had no such withholding or deduction been required. 12 Moreover, if any Other Taxes are directly asserted against any Lessor Party with respect to any payment received by such Lessor Party, such Lessor Party may pay such Other Taxes and the Lessee will pay to the Agent for the benefit of such Lessor Party, as Supplemental Rent, within fifteen (15) Business Days after receipt of a written demand therefor (accompanied by a written statement describing in reasonable detail the amount so payable) from such Lessor Party such additional amounts (including any interest, reasonable expenses and any penalties incurred in connection therewith) as are necessary in order that the net after-tax amount received by such Person after the payment of such Other Taxes (including any Taxes on such additional amount) shall equal the amount such Person would have received had such Other Taxes not been asserted plus interest on such additional amounts at the Alternate Rate calculated from the date of payment of such Other Taxes by such Lessor Party to the date of payment of such additional amounts by the Lessee. If the Lessee fails to pay any Other Taxes when due to the appropriate taxing authority or fails to remit to the Agent for the benefit of the relevant Lessor Party the required receipts or other required documentary evidence, then the Lessee shall indemnify such Lessor Party for any incremental Taxes, interest, penalties and reasonable expenses that may become payable by such Lessor Party as a result of any such failure. Notwithstanding any other provision of this Participation Agreement, any amount of Taxes that would, but for this sentence, give rise to both Supplemental Rent payable to the Lessor pursuant to this Section 4.6 and an indemnity payment obligation in favor of the Lessor pursuant to Section 13.4 shall be governed solely by the provisions of Section 13.4; provided, however, that this sentence is intended to apply Section 13.4 to Taxes subject to an actual indemnity payment obligation pursuant to both Section 4.6 and Section 13.4, but not to diminish any claim for indemnification (or Supplemental Rent) pursuant to this Section 4.6 that would not give rise to an actual indemnity payment obligation pursuant to Section 13.4. Section 4.7 Replacement of Affected Parties. (a) If any Liquidity Bank (an "Affected Party") makes demand upon the Lessee for amounts pursuant to Section 4.3, 4.4 or 4.6 hereof, then the Lessee may (x) request such Affected Party to, and such Affected Party shall upon such request, use reasonable efforts to designate another lending office acceptable to such Affected Party in its sole discretion for its investment (with the object of avoiding the consequences of such events) or (y) give notice (a "Replacement Notice") in writing to such Liquidity Bank, the Note Purchaser, the Conduit Agent and the Agent of its intention to replace such Affected Party with an Eligible Assignee designated in such Replacement Notice, if such replacement would result in the elimination or reduction of charges similar to those being claimed by the Affected Party. Any replacement of a Liquidity Bank pursuant to the foregoing provisions must be acceptable to the Note Purchaser and the Conduit Agent in their sole discretion (including, without limitation, for Rating Agency concerns). (b) The Note Purchaser and the Conduit Agent shall, in the exercise of their sole discretion and within thirty (30) days of its receipt of a Replacement Notice with respect to one of the Liquidity Banks, notify the Lessee and the Affected Party whether the designated Eligible 13 Assignee is satisfactory to the Note Purchaser and the Conduit Agent; and if either shall fail to give such notice, the Eligible Assignee shall be deemed rejected. (c) Upon approval of the designated Eligible Assignee as aforesaid, the Affected Party shall assign its rights and obligations under the Operative Documents to such Eligible Assignee and, as a condition of such assignment, the Affected Party shall receive payment in full of all outstanding Loans and all other amounts due it under the Operative Documents. (d) In the event the Note Purchaser and the Conduit Agent do not approve the replacement of the Affected Party with the designated Eligible Assignee, the Lessee shall have the option to designate another Eligible Assignee pursuant to Section 4.7(a) and Section 4.7(b) above. Section 4.8 Fees. (a) The Lessee shall pay to the Agent for the benefit of the Liquidity Banks a one-time upfront fee equal to (i) one basis point per $1,000,000 of the Aggregate Note Purchase Commitment provided by each Liquidity Bank other than KeyBank and (ii) for KeyBank, the amount as set forth in the Proposal (the "Upfront Fees"). The Lessee shall pay the Upfront Fees in advance on the Initial Funding Date as a Transaction Expense. (b) The Lessee shall pay to the Agent, for the ratable benefit of the Liquidity Banks to be paid pro rata based upon each Liquidity Bank's Percentage, commitment fees (the "Commitment Fees") equal to thirty-five one-hundredths of one percent (.35%) of the unused Aggregate Note Purchase Commitment. The Lessee shall pay the Commitment Fees in arrears on each Basic Rent Payment Date in each March, June, September and December (commencing on March 12, 2001) and on the Maturity Date (or if the Overall Transactions are terminated on a date prior to such date, on such prior date); provided, however, the payment of Commitment Fees due on March 12, 2001 shall be prorated to reflect the number of days from the Documentation Date to March 12, 2001. The Commitment Fees shall constitute Supplemental Rent for the purposes of the Operative Documents. (c) The Lessee shall pay to the Agent for the benefit of the Letter of Credit Issuer an annual issuance fee (the "Issuance Fee") equal to one quarter of one percent (.25%) of the face amount of the Letter of Credit. The Lessee shall pay the Issuance Fee in arrears in four installments on each Basic Rent Payment Date in each March, June, September and December (commencing on March 12, 2001) and on the Maturity Date (or if the Overall Transactions are terminated on a date prior to such date, on such prior date). The Issuance Fee shall constitute Supplemental Rent for the purposes of the Operative Documents. (d) The Lessee shall pay to the Agent for the benefit of the Structuring Agent a one-time structuring fee (the "Structuring Fee") as set forth in the Proposal. The Lessee shall pay the Structuring Fee in advance on the Initial Funding Date as a Transaction Expense. Section 4.9 Calculation of Interest and Fees. All calculations of the Interest Amount, the Yield Amount, any other forms of interest or fees under this Participation Agreement and the other Operative Documents for any period, unless otherwise specified herein or therein, shall (a) include the first day of such period and exclude the last day of such period and (b) be calculated 14 on the basis of a year of 360 days for actual days elapsed, except that during any period any of the foregoing amounts is calculated based upon the Alternate Rate, such amount shall be calculated on the basis of a year of 365 or 366 days, as appropriate, for actual days elapsed. ARTICLE V CERTAIN INTENTIONS OF THE PARTIES Section 5.1 Nature of Transaction. (a) The parties hereto intend that, with respect to the Property and the Master Lease, (i) for financial accounting purposes with respect to the Lessee, (x) the Master Lease will be treated as an "operating lease" pursuant to Statement of Financial Accounting Standards (SFAS) No. 13, as amended, (y) the Lessor will be treated as the owner and the lessor of the Property to which it holds title subject to the Master Lease and the Lessee will be treated as the lessee of the Property, (ii) for federal and all state and local income tax purposes and bankruptcy purposes, (A) the Master Lease will be treated as a financing arrangement, (B) the Note Purchaser with respect to the Notes and the Lessor with respect to the Equity Investment will be deemed to be lenders making loans to the Lessee in an aggregate amount equal to the Outstanding Lease Balance, which loans are secured, inter alia, by the Property subject to the Master Lease, and (C) the Lessee under the Master Lease will be treated as the owner of the Property and will be entitled to all tax benefits ordinarily available to an owner of property like such Property for such tax purposes, and (iii) all risks relating to environmental matters shall be borne by the Lessee in accordance with the provisions of this Participation Agreement, the Construction Agency Agreement and the Environmental Indemnity Agreement. (b) The parties hereto intend that, for federal, state, local and foreign tax and regulatory purposes, the Notes and the Equity Investment will be Indebtedness of the Lessee secured, inter alia, by the Property and the rights to payment of Rent under the Master Lease, and agree to treat the Notes and the Equity Investment accordingly for all such purposes. (c) Notwithstanding anything else to the contrary set forth herein, each Transaction Party acknowledges and agrees that none of the other Transaction Parties has made any representations or warranties concerning the tax, accounting or (except as otherwise expressly contained in this Participation Agreement or other Operative Documents) legal characteristics of the Operative Documents and that each Transaction Party, respectively, has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents as it deems appropriate. (d) Specifically, without limiting the generality of the foregoing, 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 statutes of the United States of America or any state or commonwealth thereof affecting the Lessee or any other Transaction Party or any collection actions, the transactions evidenced by the Operative Documents are loans made to the Lessee by the Lessor (using its own funds as well as funds provided by the Note Purchaser and/or the Liquidity Banks as unrelated third party lenders). 15 Section 5.2 Amounts Due Under the Master Lease. Anything else herein or elsewhere to the contrary notwithstanding, it is the intention of the Transaction Parties that: (i) the amount and timing of installments of Basic Rent due and payable from time to time from the Lessee under the Master Lease shall be equal to the aggregate payments due and payable in respect of the amounts outstanding under the Notes and the outstanding portion of the Equity Investment on each Basic Rent Payment Date then due and payable; (ii) if the Lessee elects to purchase all of the Property under the Master Lease or becomes obligated to purchase all of the Property pursuant thereto, the Outstanding Lease Balance, all accrued and unpaid Basic Rent, Supplemental Rent and all other obligations of the Lessee owing to the Lessor Parties or any other Person under the Operative Documents shall be paid in full by the Lessee; and (iii) if the Lessee properly elects the Remarketing Option under the Master Lease, the Lessee shall only be required to pay to the Lessor the Gross Remarketing Proceeds of the sale of the Property, the corresponding Maximum Recourse Amount and any amounts due pursuant to Articles XI and XIII hereof and Section 18.3 of the Master Lease (subject to Section 18.3(n) of the Master Lease) (which aggregate amount may be less than the Outstanding Lease Balance); and (iv) upon a Lease Event of Default resulting in the obligations of the Lessee becoming due and payable, the amounts then due and payable by the Lessee under the Master Lease shall include all amounts necessary to pay in full the Outstanding Lease Balance, plus all accrued and unpaid Rent (including, without duplication, Supplemental Rent) plus all other amounts then due from Lessee to the Lessor Parties, or any other Person under the Operative Documents. Amounts payable to the Lessor pursuant to Section 5.2(ii) or (iii) hereof shall be remitted to the Agent upon receipt by the Lessee and shall be applied upon receipt thereof in accordance with the provisions of Article XI hereof. Section 5.3 Allocation of Payment Obligations; Payment to Agent. (a) The Note Purchaser, the Lessor and the Letter of Credit Issuer shall submit to the Agent no later than 5:00 p.m., New York time, on the fourth (4th) Business Day prior to each Basic Rent Payment Date, a summary of the Basic Rent payments due in respect of the amounts outstanding under the Notes and the outstanding portion of the Equity Investment, together with reasonable detail supporting the calculations made. The Agent shall prepare and distribute to the Note Purchaser, the Lessor, the Letter of Credit Issuer, the Lessee and the Guarantor, no later than three (3) Business Days prior to each Basic Rent Payment Date, an invoice with respect to the Basic Rent payable as of such date, which invoice shall set forth, inter alia, the aggregate amount of Basic Rent payable by the Lessee as of the upcoming Basic Rent Payment Date together with a detailed description of the allocation of Basic Rent to each outstanding type of instrument, with such amounts further allocated to reflect the amounts payable by the Lessee and the interest rates payable on such instrument. Such invoice shall further specify the relevant payment instructions. Notwithstanding the foregoing, any delay or failure on the part of the Agent to deliver the invoice shall neither extinguish nor diminish Lessee's obligations to pay the Basic Rent due and payable on the applicable Basic Rent Payment Date. (b) Except as otherwise expressly set forth in this Participation Agreement or any other Operative Documents, all payments to be made by the Lessee or any other Lessee Party shall be paid to the Agent for the benefit of, and disbursement to, the Lessor Party for whose account such payment has been made, and payment to the Agent, shall, as between such Lessee Party and such Lessor Party, constitute payment to such Lessor Party. 16 ARTICLE VI CONDITIONS PRECEDENT TO FUNDING DATES Section 6.1 Conditions Precedent to the Initial Funding Date. The obligation of the Lessor to issue the Notes specified in Section 3.1 and the Note Purchaser to fund advances thereunder and the Lessor to fund the Equity Investment specified in Section 3.2, the Note Purchaser (or the Liquidity Banks if the Note Purchaser does not) to purchase such Notes and fund amounts thereunder or Percentage Interests, the obligation of the Lessor to acquire the Land, the obligation of the Letter of Credit Issuer to issue the Letter of Credit and the obligation of the Lessee to enter into the Master Lease are subject to the satisfaction (or waiver by the appropriate Lessor Parties) of each of the following conditions precedent (such satisfaction or waiver to be evidenced by the purchase of the Notes and the funding of the advances thereunder, and funding of the Equity Investment on the Initial Funding Date unless otherwise documented in writing by the appropriate parties): (a) Funding Notice. The Agent, for the benefit of the Lessor Parties, shall have received a fully executed counterpart of the Initial Funding Notice substantially in the form of Exhibit B-1 attached hereto with respect to the issuance of the Notes and the funding of the advances thereunder, and the funding of the Equity Investment to finance the Land Acquisition Costs. The delivery of such Funding Notice and the acceptance by the Lessee of the proceeds of the initial funds advanced under the Notes by the Note Purchaser and the Equity Investment described therein shall constitute a representation and warranty by the Lessee that on such Funding Date (both immediately before and after giving effect to such advances under the Notes and the Equity Investment and the application of the proceeds thereof), the statements made in Section 7.1 and 7.2 are true and correct in all material respects. (b) Operative Documents to be Delivered on the Initial Funding Date. (i) Master Lease. The Lessee and the Lessor shall have duly executed and delivered the Master Lease in the form of Exhibit C attached hereto, such Master Lease to be dated as of the Initial Funding Date. (ii) Construction Agency Agreement. The Construction Agent and the Lessor shall have duly executed and delivered the Construction Agency Agreement in the form of Exhibit D attached hereto, such Construction Agency Agreement to be dated as of the Initial Funding Date, and all conditions therein required to be satisfied prior to commencement of the construction of the Improvements shall have been satisfied. (iii) Guaranty. The Guarantor shall have duly authorized, executed and delivered by the Guaranty in the form of Exhibit E attached hereto, with respect to the guaranty by the Guarantor of obligations of the Lessee under the Operative Documents, such Guaranty to be dated as of the Initial Funding Date. (iv) Environmental Indemnity Agreement. The Lessee shall have duly authorized, executed and delivered the Environmental Indemnity Agreement in the form of 17 Exhibit F attached hereto, such Environmental Indemnity Agreement to be dated as of the Initial Funding Date. (c) Memorandum of Lease. The Memorandum of Lease substantially in the form of Exhibit G attached hereto, shall have been executed and delivered by the Lessee and Lessor, such Memorandum of Lease to be dated as of the Initial Funding Date. (d) Precautionary Deed of Trust. The Precautionary Deed of Trust substantially in the form of Exhibit H attached hereto shall have been executed and delivered by the Lessee, such document to be dated as of the Initial Funding Date. (e) Deed of Trust. The Lessor shall have executed and delivered the Deed of Trust to the Agent substantially in the form of Exhibit I attached hereto, such instrument to be dated as of the Initial Funding Date. (f) Opinion of Counsel to Lessee and Guarantor. The Agent on behalf of the Lessor Parties shall have received an opinion of Perkins Coie LLP, counsel to the Lessee and the Guarantor, to be dated as of the Initial Funding Date, as to the matters set forth in Exhibit J, which opinion shall be acceptable in form and substance to the Lessor Parties. By its execution hereof, each of the Lessee and the Guarantor expressly instruct such counsel to execute and deliver such opinion to the Persons designated in the preceding sentence and, if requested by the Note Purchaser or the Liquidity Banks, the Rating Agencies. (g) Initial Appraisal. The Agent on behalf of the Lessor Parties shall have received the Initial Appraisal of the Property dated as of a date that is satisfactory to the Lessor Parties and in form and substance satisfactory to the Lessor Parties in their sole discretion. (h) Environmental Audit. The Agent on behalf of the Lessor Parties shall have received the results of an Environmental Audit with respect to the Property which is dated no earlier than thirty (30) days prior to the Initial Funding Date, which Environmental Audit shall be satisfactory in form and substance to the Lessor Parties in their sole discretion. (i) Conveyance Instruments. On or prior to the Initial Funding Date, the Agent on behalf of the Lessor Parties shall have received evidence satisfactory to them that appropriate Conveyance Instruments have been executed and delivered and, if deemed necessary or desirable by any such Person or its counsel, recorded in such jurisdictions as such Person may request, in order to properly convey fee title to the Property to the Lessor and (y) perfect the interests of the Agent in the Master Lease and the Property. (j) Matters with Respect to the Construction of the Improvements (i) Construction Contract. The Construction Contract shall have been duly executed and delivered by the parties thereto, and all conditions therein required to be satisfied prior to commencement of the construction of the Improvements shall have been satisfied. 18 (ii) Budget. The Budget shall have been delivered to the Agent on behalf of the Lessor Parties and the Construction Agent shall have identified the funding sources with respect to all Budget items. (iii) Evidence of Access to Utilities. The Construction Agent shall have delivered to the Agent on behalf of the Lessor Parties evidence of the availability, capacity and suitability of electric, gas, telephone, water, sanitary sewer and storm water drainage services with respect to Property. (iv) No Flood Hazard Area. The Construction Agent shall have delivered to the Agent on behalf of the Lessor Parties evidence that the Improvements are not being built in a special flood hazard area. (v) Permits. The Construction Agent shall have delivered to the Agent on behalf of the Lessor Parties copies of all certificates, permits, licenses or other authorizations (including confirmation of zoning compliance) which are necessary to have been obtained in connection with the commencement of the construction of the Improvements. (vi) Absence of Condemnation or Similar Proceedings. The Construction Agent shall have delivered to the Agent on behalf of the Lessor Parties evidence to the effect that no part of the Property has been taken in condemnation or other similar proceedings (and that no such proceedings are pending or shall have been notified to any of the Construction Agent, the Lessee or the Guarantor). (vii) Assignment of Construction Agreements and Contractor's Consent to Assignment, The Lessee shall have duly executed and delivered the Assignment of Construction Agreements substantially in the form of Exhibit K attached hereto and shall also have delivered to the Agent on behalf of the Lessor Parties a Contractor's Consent to Assignment executed by the Contractor, substantially in the form attached to the Assignment of Construction Agreements. (viii) Evidence of Insurance Required by Construction Contract. The Agent on behalf of the Lessor Parties shall have received evidence that Required Builder's Risk Insurance required to be maintained with respect to the construction of the Improvements pursuant to the Construction Contract is in full force and effect. (ix) Evidence of Additional Insurance During Construction Period. The Agent on behalf of the Lessor Parties shall have received evidence that the Additional Construction Period Insurance is in full force and effect. (x) Evidence of Acceptable Construction Period Title Coverage. The Agent on behalf of the Lessor Parties shall have received evidence of the issuance and effectiveness of Title Policies which provide, inter alia, for title insurance covering amounts acceptable to the Lessor Parties in their reasonable discretion. (k) The Lessee's Responsible Officer's Certificate. The Agent on behalf of the Lessor Parties shall have received a Responsible Officer's Certificate of the Lessee, substantially in the form of Exhibit L attached hereto, dated as of the Initial Funding Date, stating that to such 19 Responsible Officer's knowledge (i) 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 the Initial Funding Date, except to the extent such representation or warranty relates solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date, (ii) no Lease Default or Lease Event of Default has occurred and is continuing, (iii) each Operative Document to which the Lessee is a party is in full force and effect with respect to it, and (iv) the Lessee has duly performed and complied with all conditions contained herein or in any other Operative Document required to be performed or complied with by it on or prior to such Initial Funding Date. (l) Guarantor's Responsible Officer's Certificate. The Agent on behalf of the Lessor Parties shall have received a Responsible Officer's Certificate of the Guarantor in substantially the form of Exhibit M attached hereto, dated as of the Initial Funding Date stating that to such Responsible Officer's knowledge (i) each and every representation and warranty of the Guarantor contained in each Operative Document to which it is a party is true and correct in all material respects on and as of the Initial Funding Date, except to the extent such representation or warranty relates solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date, (ii) no Lease Default or Lease Event of Default has occurred and is continuing, (iii) each Operative Document to which the Guarantor is a party is in full force and effect with respect to it, and (iv) the Guarantor 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 Initial Funding Date. (m) UCC Financing Statements. On or prior to the Initial Funding Date, the Lessee shall have delivered to the Agent on behalf of the Lessor Parties all UCC Financing Statements relating to the Property and other security interests granted under the Operative Documents, as the Lessor Parties may reasonably request in order to protect the interests of the Lessor Parties under the Operative Documents to the extent the Master Lease, Memorandum of Lease, Precautionary Deed of Trust, Deed of Trust, Conveyance Instruments or other Operative Documents constitute security agreements. (n) Recordation of Conveyance Instruments and Financing Statements. The Agent on behalf of the Lessor Parties shall have received evidence reasonably satisfactory to each of them that (i) the Memorandum of Lease, (ii) the Precautionary Deed of Trust, (iii) the Deed of Trust, and (iv) the UCC Financing Statements have been or are being recorded in a manner sufficient to properly perfect each of their respective interests therein. (o) Property Survey. On or prior to the Initial Funding Date, the Lessee shall have delivered to Agent on behalf of the Lessor Parties copies of the ALTA/1997 (Urban) Survey with respect to the unimproved Property (the "ALTA Land Survey"), which survey shall be reasonably satisfactory to the Lessor Parties. (p) Title Policies. On or prior to the Initial Funding Date, the Lessee shall have delivered to the Agent on behalf of the Lessor Parties a commitment from the Title Company to deliver (x) an ALTA extended owner's title insurance policy covering the Property in favor of the Lessor and (y) ALTA extended lender's title insurance policies covering the Property in 20 favor of the Lessor and the Agent. The owner's policy described in clause (x) shall (i) be subject only to Permitted Exceptions, (ii) be in an amount not less than the Aggregate Commitment Amount, (iii) be reasonably satisfactory to the Lessor Parties and (iv) contain comprehensive, mechanics liens, zoning, recharacterization endorsements, pending disbursements endorsements and such other endorsements reasonably requested by the Lessor Parties. The lender's policy described in clause (y) shall (i) be subject only to Permitted Exceptions, (ii) be in an amount not less than the Aggregate Commitment Amount, (iii) be reasonably satisfactory to the Lessor Parties and (iv) contain revolving credit, variable rate, comprehensive, fraudulent conveyances, doing business, mechanics liens, zoning, pending disbursement endorsements and such other endorsements reasonably requested by the Lessor Parties. (q) Evidence of Property Insurance. The Agent on behalf of the Lessor Parties shall have received evidence that the insurance maintained by the Lessee with respect to the Property as of the Initial Funding Date 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. (r) Governmental Approvals. All necessary Governmental Actions required by any Requirement of Law for the purpose of (i) authorizing the Lessor to enter into the transactions contemplated by the Operative Documents as of the Initial Funding Date, or (ii) authorizing the Lessee or the Guarantor to execute and deliver the Operative Documents to which it is a party and perform its obligations thereunder, shall have been obtained or made and be in full force and effect. (s) Requirements of Law. The transactions contemplated by the Operative Documents do not and will not violate any Requirement of Law and do not and will not subject the Transaction Parties to any adverse regulatory prohibitions or constraints. (t) No Lease Event of Default. There shall not have occurred and be continuing any Lease Default or Lease Event of Default, and no Lease Default or Lease Event of Default will have occurred after giving effect to the issuance of the Notes and the funding of the advances thereunder, the purchase thereof by the Note Purchaser or the Liquidity Banks as of the Initial Funding Date, or the funding of the Equity Investment as of the Initial Funding Date. (u) Administration Agreement. The Administration Agreement shall have been executed and delivered by all parties thereto substantially in the form of Exhibit N attached hereto. (v) Representation and Warranties. On the Initial Funding Date, the representations and warranties of the Lessee and the Guarantor contained herein and in each of the other Operative Documents shall be true and correct in all material respects as though made on and as of such date, except to the extent such representations or warranties relate solely to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date. (w) Litigation. On the Initial Funding Date, there shall not be any actions, suits or proceedings pending or, to the knowledge of the Lessee or the Guarantor, threatened with respect 21 to the Lessee, the Guarantor or the Property (i) that are reasonably likely to reduce the Fair Market Value of the Property or the ability of the Lessee or the Guarantor to fulfill their obligations under the Operative Documents or have a material adverse effect on the title to, or the use or operation of all or any portion of the Property or (ii) that question the validity of the Operative Documents or the rights or remedies of the Lessor Parties with respect to the Lessee, the Guarantor or the Property under the Operative Documents. (x) Available Commitments; Maximum Amount of Notes and Equity Investment. After giving effect to the purchase of the Notes and the funding of the advances thereunder, and the funding of the Equity Investment requested to be issued and made pursuant to the Funding Notice delivered as of the Initial Funding Date, and the application of the proceeds thereof to the acquisition of the Land and the commencement of construction of the Improvements, the Outstanding Lease Balance shall not exceed the Aggregate Commitment Amount. (y) Taxes. All taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of the Operative Documents to be delivered as of the Initial Funding Date shall have been paid or provisions for such payment shall have been made by the Lessee to the reasonable satisfaction of the Lessor Parties. (z) No Material Adverse Effect. After giving effect to the purchase of the Notes and the funding of the advances thereunder, and the funding of any portion of the Equity Investment, there shall be no change with respect the Property or the financial condition of the Lessee or the Guarantor that would have a Material Adverse Effect. (aa) Fees. The Agent on behalf of each Liquidity Bank, the Letter of Credit Issuer and the Structuring Agent shall have received from the Lessee fees in the amounts required pursuant to Section 4.8 hereof. (bb) Other Documents. The Lessee and the Guarantor shall have delivered or caused to be delivered such other documents as the Lessor Parties may reasonably request. Section 6.2 Conditions Precedent to all Interim Construction Period Funding Dates (Except the Final Construction Period Funding Date). The obligation of the Lessor to issue the Notes and to fund the advances thereunder with respect to the funding of the interim advances to finance the construction of the Improvements during the Construction Period and up to ninety (90) days after the Construction Period are subject to the satisfaction (or waiver by the appropriate Lessor Parties) of each of the following conditions precedent (such satisfaction or waiver to be evidenced by the funding of such advances under the Notes on such Funding Date unless otherwise documented in writing by the appropriate parties): (a) Interim Funding Notice. The Agent, on behalf of the Lessor Parties, shall have received a fully executed counterpart of an Interim Funding Notice substantially in the form of Exhibit B-2 hereto (including all attachments thereto), executed by the Lessee, in accordance with Section 3.5 hereof. The delivery of such Interim Funding Notice shall constitute a representation and warranty by the Lessee that on such Interim Construction Period Funding Date (both immediately before and after giving effect to the funding of such advances under the 22 Notes and the application of the proceeds thereof), the statements made in Section 7.2 hereof are true and correct in all material respects. (b) Title Policy Endorsement. On or prior to each Interim Construction Period Funding Date, there shall have been delivered a commitment from the Title Company to deliver an endorsement with respect to the ALTA extended lender's title insurance policy insuring the priority of advances made in the amount requested in the Interim Funding Notice as of such Funding Date in favor of the Lessor and the Agent. (c) Affidavits; Lien Waivers. To the extent required to obtain the commitment of the Title Company described in Section 6.2(b), executed interim affidavits and interim lien waivers, indicating the aggregate amount for which each contractor, subcontractor, architect, engineer, material supplier or other Person who has supplied labor, materials or services for the construction of the Improvements has delivered lien waivers (including the present and all prior lien waivers) and the incremental amount by which such amount has increased from the immediately preceding lien waiver delivered by such Person and otherwise in form and substance reasonably satisfactory to the Construction Agent and the Title Company from the Contractor and such other parties who have furnished materials or services or performed labor of any kind in connection with the construction of the Improvements as deemed reasonably necessary by the Construction Agent, together with a cumulative lien waiver log in form and substance reasonably satisfactory to the Construction Agent. (d) Updated Budget. An updated Budget, if any material changes shall have occurred with respect to the current and prospective expenditures. (e) Statement Regarding Costs. A statement reflecting (i) the aggregate costs of all labor, materials, equipment and fixtures incurred and to be incurred, trade by trade, which are necessary for completion of construction of the Improvements prepared by the Construction Agent and (ii) certain costs (other than as described in the immediately preceding clause) of completion of the Improvements, including apportioned amounts of architects', engineers', interest on and recording taxes and title charges in respect of project loan mortgages, real estate taxes, water and sewer rents, survey costs, loan commitment fees, insurance and bond premiums and other non-construction costs as are part of the "cost of improvement", prepared by the Construction Agent. (f) Proof of Payment. Upon request of any Lessor Party, proof of payment of all items for which disbursements have been made. Section 6.3 Conditions Precedent to Final Construction Period Funding Date. The obligation of the Lessor to fund the advance under the Notes constituting the final advance with respect to the completion of construction of the Improvements is subject to the satisfaction (or waiver by the appropriate Lessor Parties) of each of the following conditions precedent (such satisfaction or waiver to be evidenced by the funding of the advances under the Notes on such Funding Date unless otherwise documented in writing by the appropriate parties): (a) Final Funding Notice. The Lessor Parties shall each have received a fully executed counterpart of the Final Funding Notice substantially in the form of Exhibit B-3 hereto 23 (including all attachments thereto), in accordance with Section 3.5 hereof. The delivery of such Funding Notice and the acceptance by the Lessor of the proceeds thereof shall constitute a representation and warranty on such Funding Date (both immediately before and after giving effect to the funding of the advances under the Notes and the application of the proceeds thereof), the statements made in Section 7.2 hereof are true and correct in all material respects. (b) Completion. Final Completion shall be deemed to have occurred pursuant to the Construction Agency Agreement. (c) Lessee's Responsible Officer's Certificate. The Agent on behalf of the Lessor Parties shall each have received a Responsible Officer's Certificate of the Lessee, in substantially the form of Exhibit M attached hereto, dated as of such Funding Date, stating that to such Responsible Officer's knowledge (i) 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 Funding Date, except to the extent such representation or warranty relates solely to an earlier date, in which case such representation or warranty shall have been true and correct in all material respects on and as of such earlier date, (ii) no Lease Default or Lease Event of Default has occurred and is continuing, (iii) each Operative Document to which the Lessee is a party is in full force and effect with respect to it; and (iv) the Lessee has duly performed and complied in all material respects 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 Funding Date. (d) Guarantor's Responsible Officer's Certificate. The Agent on behalf of the Lessor Parties shall each have received a Responsible Officer's Certificate of the Guarantor in substantially the form of Exhibit N attached hereto, dated as of such Funding Date, stating that (i) to such Responsible Officer's knowledge each and every representation and warranty of the Guarantor, contained in each Operative Document to which it is a party is true and correct in all material respects on and as of such Funding Date, except to the extent such representation or warranty relates solely to an earlier date, in which case such representation or warranty shall have been true and correct in all material respects on and as of such earlier date, (ii) to such Responsible Officer's knowledge, no Lease Default or Lease Event of Default has occurred and is continuing, (iii) to such Responsible Officer's knowledge each Operative Document to which Guarantor is a party is in full force and effect with respect to it; and (iv) to the best of such Responsible Officer's knowledge, Guarantor has duly performed and complied in all material respects 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 Funding Date. (e) Property Survey and Plans. On or prior to such Funding Date, the Lessee shall have delivered to the Agent on behalf of the Lessor Parties an original copy of the "as-built" plat of survey and the final "as-built" Plans in satisfaction of clauses (1) and (2) of Section 5.3(f) of the Construction Agency Agreement. (f) Title Policy. On or prior to such Funding Date, the Lessee shall have delivered to the Agent on behalf of the Lessor Parties a commitment from the Title Company to reissue (x) the ALTA extended owner's title insurance policy insuring the Lessor covering the Land and the Improvements as built and (y) the ALTA extended lender's title insurance policies 24 insuring the Lessor and the Agent covering the Land and the Improvements as completed. The owner's policy described in clause (x) shall (i) be subject only to Permitted Exceptions, (ii) be in an amount not less than the Outstanding Lease Balance, (iii) be reasonably satisfactory to the Lessor Parties and (iv) contain comprehensive, mechanics liens, zoning endorsements and such other endorsements reasonably requested by any Lessor Party. The lender's policies described in clause (y) shall (i) be subject only to Permitted Exceptions, (ii) be in an amount not less than the Outstanding Lease Balance, (iii) be reasonably satisfactory to any of the Lessor Parties and (iv) contain revolving credit, variable rate, usury, comprehensive, fraudulent conveyances, recharacterization, doing business, mechanics liens, zoning endorsements and such other endorsements reasonably requested by any Lessor Party. (g) Evidence of Property Insurance. The Agent on behalf of the Lessor Parties shall have received evidence that the insurance maintained by the Lessee with respect to the Property as of such Funding Date 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) Governmental Approvals. All necessary Governmental Actions required by any Requirement of Law for the purpose of completing and commencing commercial operation of the Property shall have been obtained or made and be in full force and effect. (i) No Lease Event of Default. There shall not have occurred and be continuing any Lease Default or Lease Event of Default, and no Lease Default or Lease Event of Default will have occurred after giving effect to the funding of the advances under the Notes on such Funding Date. (j) Representation and Warranties. On such Funding Date, the representations and warranties of the Lessee contained herein and in each of the other Operative Documents with respect to the Property 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. (k) Litigation. On such Funding Date, there shall not be any actions, suits or proceedings pending or, to the knowledge of the Lessee, threatened with respect to the Lessee or the Property (i) that are reasonably likely to reduce the Fair Market Value of the Property to an amount less than the Outstanding Lease Balance or have a material adverse effect on the title to, or the use or operation of the Property or (ii) that question the validity of the Operative Documents or the rights or remedies of the Lessor or the Agent with respect to the Lessee or the Property under the Operative Documents. (l) Other Documents. The Lessee and the Guarantor shall have delivered or caused to be delivered such other documents as the Lessor Parties may reasonably request. Section 6.4 Conditions Precedent to all Base Lease Term Funding Dates. The obligation of the Lessor to fund the advances under the Notes with respect to the funding of the Accreted Amounts are subject to the satisfaction (or waiver by the appropriate Lessor Parties) of each of 25 the following conditions precedent (such satisfaction or waiver to be evidenced by the funding of the advances under the Notes on such Funding Date unless otherwise documented in writing by the appropriate parties): (a) Representations and Warranties. The representations and warranties of the Guarantor and the Lessee set forth in the Operative Documents (including the representations and warranties set forth in Sections 7.1 and 7.2) shall be true and correct in all material respects on and as of such Funding 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. The acceptance by the Lessor of the proceeds of such funding shall constitute a representation and warranty on such Funding Date (both immediately before and after giving effect to the funding of such advances under the Notes and the application of the proceeds thereof), the statements made in Section 7.2 hereof are true and correct in all material respects. (b) No Lease Event of Default. No Lease Event of Default has occurred and is continuing or will result from such funding. (c) Operative Documents. All of the Operative Documents are in full force and effect. Section 6.5 Closing. All documents, instruments and agreements required to be delivered on the Initial Funding Date shall be delivered to the offices of Orrick, Herrington & Sutcliffe LLP, 400 Sansome Street, San Francisco, California 94111, or at such other location as may be determined by the Transaction Parties. ARTICLE VII REPRESENTATIONS Section 7.1 Representations and Warranties of the Lessee and the Guarantor. Each of the Guarantor and the Lessee hereby represents and warrants, as of the Initial Funding Date, to the Lessor Parties as follows: (a) Corporate Authority. (i) Incorporation; Good Standing. Each of the Guarantor and the Lessee (A) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, (B) has all requisite corporate power and authority and legal right to own and operate its property, as to the Lessee, to lease the property it operates as lessee, and to conduct its business as now conducted and as presently contemplated, and (C) is in good standing as a foreign corporation and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a failure to be so qualified would not have a Material Adverse Effect. Except as provided in Subsection (c)(iv) hereof, the Lessee and the Guarantor each has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under the Operative Documents to which it is a party and, as to the Lessee, to own and hold under lease its rights in the Property and to conduct its business substantially as currently conducted by it. 26 (ii) Authorization. The execution, delivery and performance of this Participation Agreement and the other Operative Documents to which it is a party and the transactions contemplated hereby and thereby (A) are within its corporate authority and legal right, (B) have been duly authorized by all necessary corporate proceedings, (C) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which it is subject or any judgment, order, writ, injunction, license or permit applicable to it which could have a Material Adverse Effect, (D) do not conflict with any provision of its corporate charter or bylaws of, or any agreement or other instrument binding upon it, (E) do not require any consent, approval or authorization of any Governmental Authority or any other Person not a party hereto and (F) do not result in, or require the creation or imposition of, any Lien on any of its properties other than as contemplated by the Operative Documents. (iii) Enforceability. The execution and delivery of this Participation Agreement and the other Operative Documents to which it is a party will result in valid and legally binding obligations of it enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. The Guarantor further specifically represents that the Guaranty shall be enforceable against it in accordance with its terms, notwithstanding the occurrence of a bankruptcy or insolvency proceeding with respect to the Lessee. (iv) Subsidiaries. The Guarantor and each of its Subsidiaries have only those Subsidiaries listed on Item 7.1(a) of Schedule II hereto (as supplemented from time to time). The Lessee is a wholly-owned Subsidiary of the Guarantor. (v) Chief Executive Office. The chief executive office and principal place of business of the Lessee is specified below its name on Schedule I hereto. (b) Litigation, etc. Except as disclosed on Item 7.1(b) of Schedule II hereto, there is no litigation, at law or in equity, or any proceeding before any federal, state or municipal board or other governmental or administrative agency or any arbitration pending or to the knowledge of the Guarantor or the Lessee threatened which is likely to involve any risk of any judgment or liability not covered by insurance which may result in a Material Adverse Effect or which may otherwise result in a Material Adverse Effect, or which seeks to enjoin the consummation of, or which questions the validity of, any of the transactions contemplated by this Participation Agreement or any of the other Operative Documents, and no judgment, decree or order of any court, board or other governmental or administrative agency or arbitrator has been issued against or binds the Guarantor, the Lessee or any of their respective Subsidiaries which has, or could have, a Material Adverse Effect. (c) Burdensome Obligations; Compliance with Other Instruments, Laws; No Defaults; Permits. (i) Except as disclosed on Item 7.1(c) of Schedule II hereto, neither the Guarantor nor any of its Subsidiaries, is subject to any charter, corporate or other legal 27 restriction, or any judgment, decree, order, rule or regulation that has or, to the Guarantor's knowledge, is expected in the future to have a Material Adverse Effect. Except as disclosed on Item 7.1(c) of Schedule II hereto, neither the Guarantor nor any of its Subsidiaries, is a party to any contract or agreement that has or, to the best of the Guarantor's knowledge, in the judgment of the Guarantor's officers, could have, a Material Adverse Effect. (ii) Neither the Guarantor nor the Lessee, is in violation of any provision of its charter documents, bylaws, or any agreement or instrument to which it is subject or by which it or any of its properties are bound or any law, decree, order, judgment, statute, license, rule or regulation (including, without limitation, all Environmental Laws) in a manner that is reasonably likely to result in the imposition of substantial penalties that may result in a Material Adverse Effect or that may otherwise have a Material Adverse Effect. (iii) No Lease Default or Lease Event of Default has occurred and is continuing. (iv) Except as set forth on Item 7.1(c) of Schedule II hereto, the Guarantor and the Lessee have all necessary Permits from or by, have made all necessary filings with, and have given all necessary notices to, each Governmental Authority having jurisdiction over it, to the extent required to own and operate its properties, to lease the properties it operates under lease and to conduct its business as now conducted or presently proposed to be conducted by it, except for (x) Permits which can be obtained by the taking of ministerial action to secure the grant or transfer thereof and where the failure to have such Permits would not have a Material Adverse Effect and (y) where failure to have such Permits will not have a Material Adverse Effect. (v) No authorization or approval or other action by, and no notice to of filing with, any Governmental Authority or regulatory body or other Person (other than in connection with the repair, maintenance or renovation of the Property in accordance with applicable local law) is required for the due execution, delivery or performance by the Lessee or the Guarantor of any Operative Document to which it is a party, except as contemplated by the Operative Documents. (vi) The delivery and performance by each Lessee Party of its obligation under the Operative Documents to which such Lessee Party is a party do not contravene or result in a breach of, or constitute a default under any bond, indenture, deed of trust, mortgage, agreement or any other instrument to which the deed of trust, mortgage, agreement or any other instrument to which such Lessee Party is subject or by which the Lessee Party is bound. (d) Government Regulation. Neither the Guarantor nor the Lessee is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940, in each case as amended and in effect from time to time, or is subject to any Requirement of Law which regulates the incurring by the Guarantor or the Lessee of Indebtedness for borrowed money, including, without limitation, any Requirement of Law relating to common or contract carriers or to the sale of electricity, gas, steam, water or other public utility services. 28 (e) Margin Regulations. Neither the Guarantor nor any of its respective Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying "margin stock" or "margin securities" within the meaning of Regulation T, U or X issued by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and does not own any margin stock or margin securities. The proceeds of the funds advanced under the Notes will not be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause the funds advanced under the Notes to be considered an advance of "purpose credit" within the meaning of Regulation U or X of the Federal Reserve Board. The Guarantor will not take nor permit any of its Subsidiaries or any agent acting on its or their behalf to take, any action which might cause this Participation Agreement or any other Operative Document or any document or instrument delivered pursuant to this Participation Agreement to violate any regulation of the Federal Reserve Board. (f) Certain Tax Matters. (i) The Guarantor and its Subsidiaries have (a) made or filed all material federal, state, local and foreign income and all other material Tax returns, reports and declarations required by any jurisdiction to which any of them is subject or properly filed for and received extensions with respect thereto which are still in full force and effect and which have been fully complied with in all material respects, (b) paid all Taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith by appropriate proceedings and for which adequate reserves, to the extent required by GAAP, have been established and (c) to the extent required by GAAP, set aside on their books provisions reasonably adequate for the payment of all estimated taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid Taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Guarantor know of no basis for any such claim other than Taxes that the Guarantor and its Subsidiaries are contesting in good faith through appropriate proceedings and for which appropriate reserves, to the extent required by GAAP, have been established. (ii) Except as set forth in Schedule 7.1(f) of Schedule II hereto, no material sales, use, excise, transfer or other Tax, fee or imposition shall result from the sale, transfer or purchase of the Property, except such material Taxes, fees or impositions that have been paid in full or are insured as to payment in full by the Title Company. (g) Liens. Except as set forth on Item 7.1(g) of Schedule II hereto or as permitted by Section 8.2(b), there are no Liens on or rights of third parties in, nor has there occurred any event which would give any third party a claim to such a right in, any of the properties or assets of the Guarantor or the Lessee. The Permitted Exceptions do not and will not materially and adversely affect (1) the ability of the Lessee or the Guarantor to pay their respective obligations under the Operative Documents in a timely manner or (2) the use of the Property for the use currently being made thereof, the operation of the Property as currently being operated or the value of the Property. Upon execution by the Lessee and recording thereof of the Precautionary Deed of Trust, and upon execution and filing of the Precautionary Financing Statements, the 29 Agent will have a valid first lien on the Lessee's interest in the Property and a valid security interest in the personal property thereon subject to no Liens, charges or encumbrances other than the Permitted Exceptions. (h) Financial Matters. (i) There has been delivered to each of the Lessor Parties a complete and correct copy of the consolidated balance sheet of the Guarantor as at the end of the Fiscal Year ended December 31, 1999 and the related consolidated statements of income, common shareholders' equity and cash flows of the Guarantor for such Fiscal Year, prepared in each case in accordance with Section 8.1(d)(iii), together with the accountant's report with respect thereto as required by such Section. Such financial statements have been prepared in accordance with GAAP consistently applied and present fairly the consolidated financial condition of the Guarantor as at December 31, 1999, and the results of operations of the Guarantor for the Fiscal Year ended December 31, 1999. (ii) There has been delivered to each of the Lessor Parties a complete and correct copy of the consolidated balance sheet of the Guarantor as at the end of the Fiscal Quarter ended September 30, 2000 and the related consolidated statements of income and cash flows of the Guarantor for such Fiscal Quarter, prepared in each case in accordance with Section 8.1(d)(ii). Such financial statements have been prepared in accordance with GAAP consistently applied and present fairly the consolidated financial condition of the Guarantor as at September 30, 2000, and the results of operations of the Guarantor for the Fiscal Quarter ended September 30, 2000, subject only to normal year-end audit adjustments. (i) Changes, etc. Except as set forth on Item 7.1(i) of Schedule II hereto, or as disclosed in or reflected on the consolidated balance sheet of the Guarantor as at December 31, 1999 referred to in Section 7.1(h)(i) no event has occurred and is continuing which has had or could have a Material Adverse Effect. (j) Employee Benefit Plans. (i) In General. Each Employee Benefit Plan has been maintained and operated in compliance in all material respects with the provisions of ERISA and, to the extent applicable, the Revenue Code, including but not limited to the provisions thereunder respecting prohibited transactions. The Guarantor has heretofore delivered to the Lessor Parties the most recently completed annual report, Form 5500, with all required attachments, with respect to each Guaranteed Pension Plan. (ii) Terminability of Welfare Plans. Under each Employee Benefit Plan which is an employee welfare benefit plan within the meaning of Section 3(l) or Section 3(2)(B) of ERISA, no benefits are due unless the event giving rise to the benefit entitlement occurs prior to plan termination (except as required by Title 1, Part 6 of ERISA). The Guarantor or an ERISA Affiliate, as appropriate, may terminate each such plan at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of the Guarantor or such ERISA Affiliate without liability to any Person. 30 (iii) Guaranteed Pension Plans. Each contribution required to be made to a Guaranteed Pension Plan, without regard to any waiver or extension, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice of lien provisions of Section 302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan. No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by the Guarantor or any ERISA Affiliate with respect to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event, or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC, other than those ERISA Reportable Events or other events or conditions which have been disclosed in writing to the Lessor Parties and which have not been deemed by any of the foregoing to pose a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within twelve months of the date of this representation), and on the actuarial methods and assumptions employed for that valuation, the aggregate benefit liabilities of all such Guaranteed Pension Plans within the meaning of Section 4001 of ERISA did not exceed the aggregate value of the assets of all such Guaranteed Pension Plans by more than $500,000, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities. (iv) Multiemployer Plans. Neither the Guarantor nor any ERISA Affiliate has incurred any material liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under Section 4201 of ERISA or as a result of a sale of assets described in Section 4204 of ERISA. Neither the Guarantor nor any ERISA Affiliate has been notified that any Multiemployer Plan is in reorganization or insolvent under and within the meaning of Section 4241 or Section 4245 of ERISA or that any Multiemployer Plan intends to terminate or has been terminated under Section 4041A of ERISA. (v) No Prohibited Transactions. Compliance by the parties with the terms of the Operative Documents will not involve any non-exempt prohibited transactions under Section 406(a) of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended. (k) Insurance. All policies of insurance of any kind or nature owned by or issued to the Guarantor or any of its Subsidiaries, the lapse of which, individually or collectively, would have a Material Adverse Effect, are in full force and effect and are of a nature and provide such coverage as is sufficient and as is customarily carried by companies of the size and character of the Guarantor and the Subsidiaries. In addition, all insurance coverage meeting the requirements of Article XIII of the Master Lease is in full force and effect with respect to the Property. (l) Labor Matters. Except as set forth on Item 7.1(l) of Schedule II hereto, there are no strikes, grievances, unfair labor practices, written complaints, or other labor disputes pending or threatened against the Guarantor or its Subsidiaries except for those strikes, grievances, unfair labor practices, written complaints or other labor disputes which could not have a Material Adverse Effect. All payments due from any of the Guarantor or its Subsidiaries pursuant to the provisions of any collective bargaining agreement have been paid or accrued as a liability on the books of the Guarantor or such Subsidiaries unless, in the case of any Subsidiary 31 other than the Lessee, the failure to make such payment could not reasonably be expected to have a Material Adverse Effect. (m) Environmental Protection. Except as disclosed on Item 7.1(m) of Schedule II hereto (which items, individually or in the aggregate, do not constitute a Material Adverse Environmental Condition): (i) the operations of the Guarantor and each of its Material Subsidiaries comply in all material respects with all Environmental Laws, (ii) the Guarantor and each of its Material Subsidiaries have obtained all material environmental, health and safety Permits necessary for its operation, and all such Permits are in good standing, with all applicable applications or renewals being timely filed, and the Guarantor and each of its Material Subsidiaries are in material compliance with all terms and conditions of such Permits, (iii) none of the operations of the Guarantor or any of its Material Subsidiaries is subject to any material proceeding by or before any Governmental Authority alleging the violation of, or any liability under any, Environmental Laws, (iv) neither the Guarantor nor any of its Material Subsidiaries (including all of their present facilities and operations, as well as its past facilities and operations), is subject to any material outstanding written order or agreement with any Governmental Authority or Person respecting (A) any Remedial Action, or (B) any Environmental Claims, (v) to the best of the Guarantor's knowledge, none of the operations of the Guarantor or any of its Material Subsidiaries is the subject of any material federal or state investigation under Environmental Laws including any investigation evaluating whether any Remedial Action is needed to respond to a Release of any Hazardous Substance, (vi) none of the operations of the Guarantor or any of its Material Subsidiaries is subject to any other Environmental Law, which could result in a Material Adverse Environmental Condition upon such operations, taken as a whole and (vii) neither the Guarantor nor any of its Material Subsidiaries has received notice that any Hazardous Substance which any one of them has Released, generated, transported or disposed of has been found at any site at which any third party (including any Governmental Authority) has conducted or is conducting or is required to conduct any Remedial Action. (n) Copyrights, Patents and Trademarks. The Guarantor and its Subsidiaries own or possess all patents, trademarks, service marks, copyrights and licenses, and all rights with respect to the foregoing, necessary for the conduct of its business as now conducted. To the best of the Guarantor's and the Lessee's knowledge, such ownership or possession do not materially conflict with the rights of others, except for conflicts, which if become the subject of any action or proceedings brought by any third party, including any Governmental Authority, would not have a Material Adverse Effect. (o) Title. The Guarantor and the Lessee have title to its assets reflected in the balance sheet for the Fiscal Year ended December 31, 1999 referred to in Section 7.1(h)(i) (except as set forth on Item 7.1(o) of Schedule II hereto and except for assets disposed of since such date in the ordinary course of business), and none of the properties and assets of the Guarantor or the Lessee is subject to any Liens, except Liens permitted by this Participation Agreement. The Guarantor and the Lessee enjoy peaceful and undisturbed possession of the Property. Neither the Guarantor nor the Lessee nor, to the Guarantor's and the Lessee's knowledge, any other party to any lease of real property on which facilities operated by the Guarantor or the Lessor is situated is in default of its obligations thereunder or has delivered or received any notice of default under any such lease, nor has any event occurred which, with the 32 giving of notice, the passage of time or both, would constitute a default under any such lease, except for any default which would not have a Material Adverse Effect. (p) Full Disclosure; Pro Forma Effect of Overall Transaction. Neither this Participation Agreement (including the schedules and exhibits hereto), nor any of the other Operative Documents, nor any written statement prepared or furnished by or on behalf of the Guarantor or the Lessee to a Lessor Party in connection with the negotiation, preparation, execution or performance of this Participation Agreement and the other Operative Documents contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. There is no fact known to the Guarantor or the Lessee which the Guarantor or the Lessee has not disclosed to the Lessor Parties which had or would have a Material Adverse Effect or which would, immediately after giving effect to the Overall Transaction, cause any of the representations and warranties of the Guarantor and the Lessee set forth in this Section 7.1 to be untrue in any material respect or which would cause any of the statements made herein to be misleading in any material respect. (q) Seniority. Neither the Notes nor the Equity Investment is subordinate or junior in right of payment, in any manner, to any other Indebtedness of the Guarantor or any Indebtedness of the Lessee (except as anticipated under Article XI of this Participation Agreement and other provisions of the Operative Documents). (r) Compliance of Property with Requirements of Law. The contemplated use of the Property by the Lessee and its respective agents, assignees, employees, lessees, licensees and tenants complies in all material respects with all (i) Requirements of Law (including, all zoning and land use laws and Environmental Laws) and (ii) Insurance Requirements. (s) Plans and Specifications, Utilities, etc. All water, sewer, electric, gas, telephone and drainage facilities for the Property, all other utilities required to adequately service the Property for its intended use and means of access between the Property and public highways for pedestrians and motor vehicles are available pursuant to adequate permits (including any that may be required under applicable Environmental Laws). All utilities serving the Property are located in, and vehicular access to the Property is provided by, either public rights-of-way abutting the Property or Appurtenant Rights. The Property has adequate rights of access to public ways. (t) No Adverse Proceedings. There is no action, suit or proceeding (including any proceeding in condemnation or eminent domain under any Environmental Law or any proceeding proposing special or other assessments for public improvements or affecting the Property) pending or, to the best knowledge of the Lessee, threatened, with respect to the Lessee, its Affiliates or the Property or any part thereof which adversely affects the title to the Property, or adversely affects the use, operation or value of, the Property. (u) Master Lease. Upon the execution and delivery of the Master Lease, (i) the Lessee will have unconditionally accepted the Property covered thereby and (ii) no right of offset will exist with respect to any Rent or other sums payable under the Master Lease covering the Property. 33 (v) Conveyance Instruments. The Conveyance Instruments, when filed and recorded in the jurisdictions specified in the opinion delivered pursuant to Sections 6.1(f), will create, inter alia, in favor of the Agent, enforceable Liens of record and perfected first priority security interests in the Property, subject to Permitted Exceptions. (w) Private Offering. Neither the Lessee nor the Guarantor has offered any interest in this Participation Agreement, the Notes, the Equity Investment, the Master Lease, the Rent or any similar security for sale to, or solicited offers to buy any thereof from, or otherwise directly or indirectly approached or negotiated with respect thereto with, any prospective purchaser other than the Note Purchaser, the Lessor and the Liquidity Banks, each of which was offered such interest by the Lessee and the Guarantor in a manner that will not require registration of such interests under the Securities Acts or the qualification of any of the Operative Documents under the Trust Indenture Act of 1939, and each of which the Lessee had reasonable grounds to believe, and as to the Note Purchaser, the Lessor and the Liquidity Banks, after reasonable inquiry does believe, has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of such an investment; and, assuming the truthfulness of the representations by the other Lessor Parties herein, the issuance, sale and delivery of the Notes, the funding of the advances thereunder and the funding of the Equity Investment and the interests in this Participation Agreement represented thereby under the circumstances contemplated by this Participation Agreement do not require the registration of such Notes, Equity Investment or interests under the Securities Act or the qualification of any of the Operative Documents (or of any indenture in respect of any thereof) under the Trust Indenture Act of 1939, as amended. Section 7.2 Representations and Warranties of the Guarantor and the Lessee as of each Funding Date after the Initial Funding Date. Each of the Guarantor and the Lessee represents and warrants to each of the Lessor Parties as of each Funding Date after the Initial Funding Date as follows: (a) Representations and Warranties. The representations and warranties of the Guarantor and the Lessee set forth in the Operative Documents (including the representations and warranties set forth in Section 7.1) are true and correct in all material respects on and as of the Funding 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. (b) Liens. Neither the Guarantor nor the Lessee has permitted any Liens to be placed against the Property other than Permitted Liens. (c) Absence of Default, Etc. No Lease Default or Lease Event of Default has occurred and is continuing. No Lease Default or Lease Event of Default will occur as a result of, or after giving effect to, the funding of the advances under the Notes requested by the Funding Notice on such date. Section 7.3 Representations and Warranties of the Note Purchaser. The Note Purchaser represents and warrants to each of the Transaction Parties as follows: 34 (a) ERISA. It is not and will not be purchasing the Notes or funding the advances thereunder with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Revenue Code), nor will any such assets be used in connection with any other arrangement related to the transactions contemplated hereby, including the Note Purchase Agreement, the Liquidity Agreement or the sale of Commercial Paper. (b) Corporate Existence. It is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation. (c) Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by it of this Participation Agreement and each other Operative Document to which it is or will be a party (i) are within its corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of, or filing with, any governmental body, agency or official, and (iv) do not contravene, or constitute a default under, its certificate of incorporation or by-laws. (d) No Lessor Liens. The Property is free and clear of all Lessor Liens created by it. (e) Validity. This Participation Agreement constitutes the legal, valid and binding obligation of the Note Purchaser, enforceable against it in accordance with its terms, and each Operative Document executed by it pursuant hereto will, on the due execution and delivery thereof, be its legal, valid and binding obligation, enforceable in accordance with its terms, subject, in each case, as to enforceability, bankruptcy, insolvency, reorganization and other similar laws affecting enforcement of creditor rights generally (insofar as any such law relates to the bankruptcy, insolvency, reorganization or similar event with respect to it) and, as to the availability of specific performance or other injunctive relief, subject to the discretionary power of a court to deny such relief and to general equitable principles. (f) Private Offering. The Note Purchaser has not offered (or solicited offers for), and will not offer (or solicit offers for), any interest in this Participation Agreement, the Notes, the Equity Investment, the Master Lease or the Rent in a manner which would require the registration of such interest, Notes, Equity Investment under the Securities Act or the qualification of any of the Operative Documents (or of any indenture in respect of any thereof) under the Trust Indenture Act of 1939, as amended. Section 7.4 Representations and Warranties of the Lessor. Effective as of the date of execution hereof and as of the Initial Funding Date, the Lessor represents and warrants to each of the other parties hereto as follows: (a) ERISA. It is not and will not be funding the Equity Investment with the assets of an "employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Revenue Code), nor will any such assets be used in connection with any other arrangement related to the transactions contemplated hereby. 35 (b) Chief Executive Office. Its chief executive office and principal place of business, and the place where the documents, accounts and records relating to the Overall Transaction are kept, are located at the location specified below its name on Schedule I hereto. (c) Corporate Existence. It is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation. (d) Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by it of this Participation Agreement and each other Operative Document to which it is or will be a party (i) are within its corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of, or filing with, any governmental body, agency or official, and (iv) do not contravene, or constitute a default under, its certificate of incorporation or by-laws. (e) No Lessor Liens. The Property is free and clear of all Lessor Liens created by it. (f) Validity. This Participation Agreement constitutes the legal, valid and binding obligation of the Lessor, enforceable against it in accordance with its terms, and each Operative Document executed by it pursuant hereto will, on the due execution and delivery thereof, be its legal, valid and binding obligation, enforceable in accordance with its terms, subject, in each case, as to enforceability, bankruptcy, insolvency, reorganization and other similar laws affecting enforcement of creditor rights generally (insofar as any such law relates to the bankruptcy, insolvency, reorganization or similar event with respect to it) and, as to the availability of specific performance or other injunctive relief, subject to the discretionary power of a court to deny such relief and to general equitable principles. (g) Litigation. There is no litigation, at law or in equity, or any proceeding before any federal, state or municipal board or other governmental or administrative agency or any arbitration pending or, to the knowledge of the Lessor, threatened which is likely to involve any risk of any material judgment or liability not covered by insurance or which may otherwise result in a material adverse effect on the Lessor's ability to perform its obligations under the Operative Documents, or which seeks to enjoin the consummation of, or which questions the validity of, any of the transactions contemplated by this Participation Agreement or any of the other Operative Documents, and no judgment, decree or order of any court, board or other governmental or administrative agency or arbitrator has been issued against or binds the Lessor which has, or could have, a material adverse effect of the Lessor's ability to perform its obligations under the Operative Documents. (h) Private Offering. The Lessor has not offered (or solicited offers for), and will not offer (or solicit offers for), any interest in this Participation Agreement, the Notes, the Equity Investment, the Master Lease or the Rent in a manner which would require the registration of such interest, Notes, Equity Investment under the Securities Act or the qualification of any of the Operative Documents (or of any indenture in respect of any thereof) under the Trust Indenture Act of 1939, as amended. 36 (i) Certain Tax Matters. [Each of the Lessor and its Affiliates has (a) made or filed all material federal, state, local and foreign income and all other material Tax returns, reports and declarations required by any jurisdiction to which it is subject or properly filed for and received extensions with respect thereto which are still in full force and effect and which have been fully complied with in all material respects, (b) paid all Taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith by appropriate proceedings and for which adequate reserves, to the extent required by GAAP, have been established and (c) to the extent required by GAAP, set aside on their books provisions reasonably adequate for the payment of all estimated taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid Taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Lessor know of no basis for any such claim other than Taxes that the Lessor and/or its Affiliates are contesting in good faith through appropriate proceedings and for which appropriate reserves, to the extent required by GAAP, have been established. Notwithstanding the foregoing, the Lessor shall not be deemed to have breached any of the representations contained herein made as to its Affiliates unless such breach would have a material adverse effect on the Property or the Lessor Parties' security interest, Liens or other rights in the Property and the Collateral. Section 7.5 Representations and Warranties of each Liquidity Bank and the Letter of Credit Issuer. Effective as of the date of execution hereof and as of the Initial Funding Date, each of Liquidity Bank and the Letter of Credit Issuer represents and warrants to each of the other parties hereto as follows: (a) Existence. It is validly existing and is duly licensed and qualified to operate as a banking corporation (or as an agency or branch, if it is an agency or a branch of a foreign bank) and is in good standing under the laws of the United States or the State of New York or such other State where it is qualified to operate in the United States. (b) Authorization; Validity. The execution, delivery and performance by it of this Participation Agreement and each other Operative Document to which it is or will be a party have been duly authorized. This Participation Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, and each Operative Document executed by it pursuant hereto will, on the due execution and delivery thereof, be its legal, valid and binding obligation, enforceable in accordance with its terms, subject, in each case, as to enforceability, bankruptcy, insolvency, reorganization and other similar laws affecting enforcement of creditor rights generally (insofar as any such law relates to the bankruptcy, insolvency, reorganization or similar event with respect to it) and, as to the availability of specific performance or other injunctive relief, subject to the discretionary power of a court to deny such relief and to general equitable principles. (c) Private Offering. It has not offered (or solicited offers for), and will not offer (or solicit offers for), any interest in this Participation Agreement, the Notes, the Equity Investment, the Master Lease or the Rent in a manner which would require the registration of such interest, Notes, Equity Investment under the Securities Act or the qualification of any of the Operative Documents (or of any indenture in respect of any thereof) under the Trust Indenture Act of 1939, as amended. 37 ARTICLE VIII COVENANTS Section 8.1 Affirmative Covenants of Guarantor and Lessee. Each of the Guarantor and the Lessee hereby agrees for the benefit of the Lessor Parties that, until all Commitments have terminated and all Obligations have been paid and performed in full, it will, and, to the extent required, will cause each of its Subsidiaries to, perform the obligations set forth in this Section 8.1. (a) Conduct of Business. (i) Corporate Existence; Maintenance of Properties. The Guarantor will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, material rights, and those of its Subsidiaries except to the extent that the Guarantor's failure to do so will not have a Material Adverse Effect; provided, however, that the corporate existence and material rights of the Lessee shall always be preserved and kept in full force and effect. The Guarantor (a) will cause all of its material properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all reasonably necessary equipment, and (b) will cause to be made all reasonably necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Guarantor may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 8.1(a) shall prevent the Guarantor from discontinuing the operation and maintenance of any of its properties or those of its Subsidiaries if such discontinuance is, in the reasonable discretion of the Guarantor, desirable in the conduct of its or their business and would not have a Material Adverse Effect; provided, further, that the Property shall always be maintained and operated in accordance with the Master Lease. (ii) Compliance with Laws, Contracts, Licenses, and Permits. The Guarantor will, and will cause each of its Subsidiaries to, comply with (A) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws which may be in effect from time to time, (B) the provisions of its charter documents and by-laws, (C) all agreements and instruments by which it or any of its properties or business may be bound and (D) all applicable decrees, orders, and judgments; if in each such case failure to comply would have a Material Adverse Effect. If at any time any authorization, consent, approval, permit or license from any office, agency or instrumentality of any government shall become necessary or required in order that the Guarantor may fulfill any of the Obligations, the Guarantor will promptly take or cause to be taken all reasonable steps within the power of the Guarantor to obtain such authorization, consent, approval, permit or license and furnish the Lessor Parties with evidence thereof. (b) Insurance. The Guarantor and the Lessee shall keep their respective assets which are of an insurable character insured by financially sound and reputable insurers (or make adequate and prudent provisions for self insurance) against loss or damage (i) to the extent and in the manner customary for companies in similar businesses similarly situated and (ii) to the extent 38 such coverage is available on commercially reasonable terms. Without limiting the generality of the foregoing, the Lessee shall maintain insurance on and with respect to the Property in accordance with the relevant provisions of the Construction Agency Agreement and the Master Lease. (c) Records and Accounts. The Guarantor and the Lessee will each (i) keep true and accurate records and books of account in which full, true and correct entries will be made in accordance with GAAP, and (ii) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves. (d) Reports. The Guarantor shall deliver to the Lessor Parties: (i) Promptly (but in no event later than five (5) Business Days after obtaining knowledge thereof) upon any principal officer of the Guarantor or the Lessee obtaining knowledge of any Lease Default or Lease Event of Default, a certificate of a Responsible Officer of the Guarantor specifying the nature and period of existence thereof and what action has been taken, is being taken or is proposed to be taken with respect thereto. (ii) As soon as available, and in any event within sixty (60) days after the last day of each of the first three Fiscal Quarters of each Fiscal Year, commencing with the Fiscal Quarter ending immediately after the Initial Funding Date the consolidated and consolidating balance sheets of the Guarantor as at the end of such quarter and the consolidated and consolidating statements of income, retained earnings and cash flows of the Guarantor for such quarter and for the portion of the current Fiscal Year then ended, all in reasonable detail and accompanied by a certificate from the Chief Financial Officer of the Guarantor stating that such statements have been properly prepared in accordance with the books and records of the Guarantor and fairly present the financial condition and operations of the Guarantor subject only to normal year-end audit adjustments. (iii) As soon as available, and in any event within one hundred and five (105) days after the end of each Fiscal Year, the consolidated and consolidating balance sheets of the Guarantor as at the end of such year and the consolidated and consolidating statements of income, retained earnings and cash flows of the Guarantor for such Fiscal Year, setting forth in each case in comparative form the consolidated figures for the Guarantor for the previous Fiscal Year (all in reasonable detail), which consolidated statements of the Guarantor shall be audited by KPMG, or other independent public accountants of recognized national standing selected by the Guarantor, and accompanied by a letter of such accountants that such financial statements have been prepared in accordance with GAAP. (iv) Together with the financial statements delivered pursuant to clause (ii) and clause (iii), a certificate of the Chief Financial Officer of the Guarantor setting forth a computation showing compliance by the Guarantor with the financial tests set forth in Section 8.3 hereof, certifying as to the Lessee's compliance with the maintenance requirements for the Property set forth in the Master Lease, and stating that such officer has caused the provisions of this Participation Agreement to be reviewed and has no knowledge of any Lease Default or Lease Event of Default, or, if such signing officer has such knowledge, specifying 39 such Lease Default or Lease Event of Default and the nature thereof, and what action the Guarantor has taken, is taking, or proposes to take with respect thereto (the "Compliance Certificate"). (v) Promptly upon its receipt thereof, copies of all audit reports (including so-called "management letters") submitted by independent public accountants in connection with each annual, interim or special audit of the financial statements of the Guarantor or any of its Subsidiaries made by such accountants. (vi) Promptly and in any event within thirty (30) days after the Guarantor, any of its Subsidiaries or any ERISA Affiliate knows or has reason to know that any ERISA Reportable Event has occurred. (vii) Upon request of any Lessor Party, a copy of the most recent actuarial statement required to be submitted under Section 103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Guaranteed Pension Plan and promptly upon receipt or dispatch, any notice, report, demand or letter sent or received in respect of a Guaranteed Pension Plan under Sections 302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under Sections 4041A, 4202, 4219, 4242, or 4245 of ERISA. (viii) Promptly and in any event within thirty (30) days after notice or knowledge thereof, notice that the Guarantor or any of its Subsidiaries has become subject to the tax on prohibited transactions imposed by Section 4975 of the Revenue Code in an amount which has, individually or in the aggregate, a reasonable likelihood of resulting in a Material Adverse Effect, together with a copy of Form 530. (ix) As soon as available, copies of all notices, proxy statements, reports and financial statements which the Guarantor or any of its Subsidiaries shall send or make available to its shareholders and all registration statements and reports which the Guarantor or any of its Subsidiaries shall file with the Securities and Exchange Commission. (x) With reasonable promptness, such other information respecting the business, properties, assets, operations or condition, financial or otherwise, of the Guarantor or any of its Subsidiaries as from time to time any of the Lessor Parties may reasonably request. (e) Right to Inspect Premises and Records. Without limiting the Lessor Parties' inspection rights set forth in Section 4.2 of the Master Lease, the Guarantor and the Lessee will agree to all reasonable requests by the Lessor Parties (i) to make extracts from the books of account and financial records of the Guarantor or the Lessee solely for its own use in connection with the Obligations of the Lessee and the Guarantor under the Operative Documents, (ii) to provide the Lessor Parties or its authorized representatives, during normal business hours or such other time as agreed upon by the parties, at the offices of the Guarantor, all books and records for inspections or consultation in connection with the Guarantor's and Lessee's compliance and performance of the obligations under the Operative Documents, and (iii) to authorize the Lessor Parties or its authorized representatives right of access and entry on the Property for inspection of any or all components of the Property; provided, however, at any time no Lease Default or Lease Event of Default shall have occurred and be continuing, a Lessor Party shall give the 40 Guarantor and the Lessee written notice no later than five (5) Business Days prior to the day of inspection. Upon the occurrence and during the continuance of a Lease Default or a Lease Event of Default, the Guarantor shall reimburse the Lessor Parties for the costs incurred by such parties in connection with the exercise of their respective rights under this subsection. (f) Payment of Liabilities. The Guarantor shall pay and discharge, and shall cause each of its Subsidiaries to pay and discharge, at or before their maturity or in accordance with customary trade terms, all of their respective Indebtedness due and payable, except where such Indebtedness is contested in good faith and by appropriate proceedings diligently conducted and reserves or other appropriate provisions, if any, as shall be required by GAAP, shall have been made therefor, and except to the extent otherwise provided by any subordination provisions applicable to such Indebtedness, unless, in the case of the Guarantor or any such Subsidiary other than the Lessee, failure to pay or discharge such Indebtedness could not reasonably be expected to have a Material Adverse Effect. (g) Payment of Charges and Indebtedness. The Guarantor shall, and shall cause each of its Subsidiaries to, timely file or cause to be filed all tax returns, and shall timely pay and discharge all taxes and other governmental charges and assessments, due and payable, and shall pay all claims for labor, materials or supplies which if unpaid might by law become a Lien or charge upon any property of the Guarantor or any of its Subsidiaries; provided, however, that any such taxes and other governmental charges and assessments or claims, the nonpayment of which would not be reasonably likely to have a Material Adverse Effect, need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Guarantor or such Subsidiary shall, in accordance with GAAP, have set aside on its books adequate reserves with respect thereto; and provided further, however, that the Guarantor shall, and shall cause each Subsidiary to, pay all such taxes, governmental charges, assessments or claims forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor. The obligations of the Guarantor under this Section 8.1(g) with respect to the filing of tax returns and the payment of taxes, governmental charges, assessments and claims shall survive the payment, prepayment or redemption of the Notes and the Equity Investment and the termination of this Participation Agreement and the other Operative Documents. (h) Material Change in Business. The primary business of the Guarantor, the Lessee and the Guarantor's Subsidiaries shall continue to be developing and publishing products for interactive electronic media. (i) Compliance with Securities Laws. Except for non-compliance which, individually or collectively, does not have a Material Adverse Effect, (i) any and all purchases or redemptions by the Guarantor and/or any of its Subsidiaries of any securities issued by the Guarantor or any of its Subsidiaries or any other Person shall be effected in compliance with all applicable Requirements of Law, including, but not limited to, the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and (ii) any and all offers to sell and sales of securities or of obligations of the Guarantor or any of its Subsidiaries evidenced by notes, bonds, debentures or similar instruments, shall be effected in compliance with all applicable Requirements of Law, including, but not limited to, the Trust Indenture Act of 1939, as amended. 41 (j) Application of Proceeds. The Lessee shall cause proceeds of the Notes and funding of the Equity Investment to be used as contemplated by the Operative Documents. (k) Environmental Protection. (i) The Guarantor shall, and shall cause each of its Material Subsidiaries to, (i) comply in all material respects with the requirements of all Environmental Laws applicable to it, except where such non-compliance could not reasonably be expected to result in a material impairment in the value of, or a material liability with respect to the affected premises, (ii) notify the Lessor Parties promptly in the event of any Release, Environmental Claim or other Adverse Environmental Condition from, upon or affecting any premises owned or occupied by the Guarantor or any Material Subsidiary which Release, Environmental Claim or Adverse Environmental Condition could result in a Material Adverse Effect or a material impairment of the value of, or a material liability with respect to, such premises and (iii) promptly forward to the Lessor Parties copies of all orders, notices, permits, applications or other communications and reports in connection with any such Release, Environmental Claim or other Adverse Environmental Condition or any other matter relating to the Environmental Laws as they may affect such premises which could result in a Material Adverse Effect or result in a material impairment of the value of, or material liability with respect to, such premises. The covenants provided for herein shall survive the payment or redemption of the Notes and the Equity Investment and the termination of this Participation Agreement and the other Operative Documents. (ii) The Guarantor shall fully and promptly pay, perform, discharge, defend, indemnify and hold harmless the Lessor Parties, their respective Subsidiaries and Affiliates, and the respective managers, members, directors, officers, employees and agents of any of the foregoing as to any environmental matter as provided in Article XIII hereof. (iii) Without limiting the foregoing, the Guarantor and the Lessee will comply at all times with the environmental provisions of the Participation Agreement, the Construction Agency Agreement and the Environmental Indemnity Agreement and shall take all actions necessary or required to preserve all indemnities and other remedies available under the Participation Agreement, the Construction Agency Agreement and the Environmental Indemnity Agreement. (l) Ownership of the Lessee. The Guarantor shall at all times maintain direct or indirect ownership of 100% of the issued and outstanding Stock of the Lessee (including all rights to subscribe for, purchase (including by conversion of any other security) or otherwise acquire any such Stock), free and clear of all Liens. (m) Notice of Change in Name, Identity or Address. Each of the Guarantor and the Lessee shall provide the Lessor Parties thirty (30) days prior written notice of any change in its name or the address of its chief executive office and principal place of business or the office where it keeps its records concerning its accounts and the Property leased by the Lessee under the Master Lease. 42 (n) Further Assurances. The Guarantor and the Lessee shall take or cause to be taken from time to time all action reasonably necessary to assure that the intent of the parties pursuant to the Operative Documents is given effect as contemplated by Section 23.1 of the Master Lease, and that the Lessor and the Agent, for the benefit of the other Lessor Parties, as each such Lessor Party's respective interests may appear, holds a first priority perfected Lien on the Property and the Master Lease, securing the amounts due thereon or under the Operative Documents. The Guarantor and the Lessee shall execute and deliver, or cause to be executed and delivered, to the Lessor Parties from time to time, promptly upon request therefor, any and all other and further instruments (including correction instruments and supplemental mortgages and security agreements, as appropriate) that may be reasonably requested by the Lessor Parties to cure any deficiency in the execution and delivery of this Participation Agreement or any other Operative Document to which it is a party. (o) No Disposition of the Property. The Lessee shall not sell, contract to sell, assign, lease, transfer, convey or otherwise dispose of, or permit to be sold, assigned, leased, transferred, conveyed or otherwise disposed of, the Property or any part thereof except as expressly permitted by the Operative Documents. (p) Defense of Title. The Lessee will, at all times, at its own cost and expense, warrant and defend the title of the Lessor to the Property except with respect to Lessor Liens. Section 8.2 Negative Covenants. The Guarantor hereby covenants and agrees, subject to Section 15.5 hereof, for the benefit of the Lessor Parties from and after the Documentation Date and until all Commitments have terminated and all Obligations have been paid and performed in full: (a) Limitations on Indebtedness. Neither the Guarantor nor any of its Subsidiaries, including the Lessee, shall create, incur, assume or permit to exist any Indebtedness except for Indebtedness which, in aggregate, on a pro forma basis, would not result in a violation by the Guarantor of the financial covenants set forth in Section 8.3 ("Permitted Indebtedness"). (b) Limitation on Liens, Etc. Neither Guarantor nor any of its Subsidiaries shall create, incur, assume or permit to exist any Lien on or with respect to any of its assets or property of any character, whether now owned or hereafter acquired, except for Permitted Liens. (c) Asset Dispositions. Neither the Guarantor nor any of its Subsidiaries shall sell, lease, transfer or otherwise dispose of any of its assets or property, whether now owned or hereafter acquired, except for the following: (i) Sales of inventory and products by the Guarantor and its Subsidiaries in the ordinary course of their businesses; (ii) Sales of surplus, damaged, worn or obsolete equipment or inventory for not less than fair market value; (iii) Sales or other dispositions of Investments permitted by clauses (i) and (iii) of Section 8.2(e) below for not less than fair market value; 43 (iv) Sales or assignments of defaulted receivables to a collection agency in the ordinary course of business; (v) Licenses by the Guarantor or its Subsidiaries of its patents, copyrights, trademarks, trade names and service marks in the ordinary course of its business provided that, in each case, the terms of the transaction are terms which then would prevail in the market for similar transactions between unaffiliated parties dealing at arm's length; (vi) Sales or other dispositions of assets and property by the Guarantor to any of the Guarantor's Subsidiaries or by any of the Guarantor's Subsidiaries to the Guarantor or any of its other Subsidiaries, provided that, on the date of any such sale or disposition, the Guarantor and such Subsidiary each reasonably believes that such sale or disposition is made on terms which are no less favorable to the Guarantor then would prevail in the market for similar transactions between unaffiliated parties dealing at arm's length; and (vii) Other sales, leases, transfers and disposals of assets and property for not less than fair market value, provided that the net proceeds from any such sale, lease, transfer or disposal shall not exceed ten percent (10%) of the consolidated total assets of the Guarantor and its Subsidiaries immediately prior to such sale, lease, transfer or disposal. provided, however, that the foregoing exceptions shall not be construed to permit any sales, leases, transfers or disposals of any of the Property, except as expressly permitted by the Master Lease or any of the other Operative Documents. (d) Mergers, Acquisitions, Etc. Neither the Guarantor nor any of its Subsidiaries shall consolidate with or merge into any other Person or permit any other Person to merge into it, establish any new Subsidiary, acquire any Person as a new Subsidiary or acquire all or substantially all of the assets of any other Person, except for the following: (i) Any Subsidiary of the Guarantor (other than the Lessee) may merge or consolidate with any other Subsidiary of Guarantor; (ii) Any Subsidiary of the Guarantor (other than the Lessee) may merge or consolidate with the Guarantor, provided that the Guarantor is the surviving corporation; and (iii) The Guarantor may merge or consolidate with any other corporation, establish a new Subsidiary, acquire any Person as a new Subsidiary or acquire all or substantially all of the assets of any other Person, provided that (A) in the case of any merger or consolidation, either (1) the Guarantor is the surviving corporation or (2) the surviving corporation (y) is a Solvent United States corporation with a financial condition equal to or better than the financial condition of the Guarantor immediately prior to such merger or consolidation and (z) assumes all of the obligations of the Guarantor in a manner reasonably acceptable to the Consenting Parties; (B) no Lease Default has occurred and is continuing at the time of such merger, consolidation, establishment or acquisition or will occur after giving effect to such merger, consolidation or acquisition; and (C) based upon a pro forma Compliance Certificate provided to the Agent on behalf of the Lessor Parties immediately prior to the consummation of any such merger, consolidation or acquisition, the Guarantor shall continue to be in compliance 44 with each of the financial covenants set forth in Section 8.3 hereof immediately after giving effect to such merger, consolidation or acquisition. (e) Investments. Neither the Guarantor nor any of its Subsidiaries shall make any Investment except for the following: (i) Investments by the Guarantor and its Subsidiaries in Cash Equivalents; (ii) Any transaction permitted by Section 8.2(a); (iii) Money market mutual funds registered with the Securities and Exchange Commission, meeting the requirements of Rule 2a-7 promulgated under the Investment Company Act of 1940; (iv) Investments listed in Item 8.2(e) of Schedule II hereto existing on the date of this Participation Agreement; (v) Investments in Guarantor's Affiliates and Subsidiaries; and (vi) Other Investments, provided that the Guarantor shall continue to be in compliance with each of the financial covenants set forth in Section 8.3 hereof immediately after giving effect to each such Investment, and provided further that before making any such Investment in an amount greater than $25,000,000, the Guarantor shall provide the Agent on behalf of the Lessor Parties a pro forma Compliance Certificate to the effect that such Investment will not otherwise violate this clause (v). (f) Dividends, Redemptions, Etc. Neither the Guarantor nor any of its Subsidiaries shall (i) pay any dividends or make any distributions on its Stock; (ii) purchase, redeem, retire, defease or otherwise acquire for value any of its Stock; (iii) return any capital to any holder of its Stock as such; (iv) make any distribution of assets, Stock, obligations or securities to any holder of its Stock as such; or (v) set apart any sum for any such purpose (each act described in clauses (i), (ii), (iii), (iv) and (v) being a "Distribution"); except under the following conditions: (A) No Lease Event of Default shall have occurred and be continuing; (B) The Guarantor shall continue to be in compliance with each of the financial covenants set forth in Section 8.3 hereof immediately after giving effect to each such Distribution; and (C) If the Distribution (in cash or value) is in an amount greater than $25,000,000, the Guarantor shall have provided to the Agent on behalf of the Lessor Parties a pro forma Compliance Certificate to the effect that the Guarantor shall continue to be in violation of each of its financial covenants set forth in Section 8.3 hereof immediately after giving effect to such Distribution. 45 Notwithstanding the foregoing, a conversion of the Guarantor's Class B Common Stock into the Guarantor's Class A Common Stock shall not be deemed a Distribution for the purpose of this Section 8.2(f). (g) Employee Benefit Plans. Neither the Guarantor nor any ERISA Affiliate will: (i) engage in any "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Revenue Code which could result in a material liability for the Guarantor or any of its Subsidiaries; or (ii) permit any Guaranteed Pension Plan to incur an "accumulated funding deficiency", as such term is defined in Section 302 of ERISA, in excess of $1,000,000, whether or not such deficiency is or may be waived; or (iii) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could result in the imposition of a lien or encumbrance on the assets of the Guarantor or any of its Subsidiaries pursuant to Section 302(f) or Section 4068 of ERISA; or (iv) permit or take any action which would result in the aggregate benefit liabilities (with the meaning of Section 4001 of ERISA) of all Guaranteed Pension Plans exceeding the value of the aggregate assets of such plans by more than $1,000,000, disregarding for this purpose the benefit liabilities and assets of any such plan with assets in excess of benefit liabilities. (h) Prohibited Uses of Proceeds. The Guarantor and the Lessee shall not directly or indirectly, use the proceeds of any financial accommodations provided hereunder in any manner which would result in a violation of Regulation T, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. (i) Transactions with Affiliates. The Guarantor shall not and shall not permit any of its Subsidiaries to, enter into any transaction with any Affiliate on terms that are less favorable to the Guarantor or such Subsidiary, as the case may be, than terms which might be obtained at the time from Persons that are not Affiliates if a Lease Default or Lease Event of Default shall be continuing hereunder immediately prior to such transaction or would occur under Article XVII of the Master Lease on a pro forma basis after giving effect to such transaction. Section 8.3 Financial Covenants. The Guarantor hereby covenants and agrees, subject to Section 15.5 hereof, for the benefit of the Lessor Parties from and after the Documentation Date and until all Commitments have terminated and all Obligations have been paid and performed in full: (a) Consolidated Net Worth The Guarantor shall not permit the Consolidated Net Worth of the Guarantor at any time (such day on which the Consolidated Net Worth of the Guarantor is measured shall be referred to herein as a "determination date") which commences after the Documentation Date to be less than the sum on such determination date of the following: 46 (i) Ninety percent (90%) of the Consolidated Net Worth of the Guarantor as of September 30, 2000; plus (ii) Seventy-five percent (75%) of the sum of the positive net income of the Guarantor for each quarter after September 30, 2000; plus (iii) Seventy-five percent (75%) of net equity proceeds (excluding equity issued through the ESOP or employee stock purchase plans) and equity issued pursuant to the conversion of debt for each quarter after September 30, 2000. (b) Fixed Charge Coverage Ratio. The Guarantor shall not permit the ratio of its Consolidated EBITDAR to Consolidated Fixed Charges as of the end any measurement period to be less than 3.00:1.00. For purpose of this paragraph, "measurement period" shall mean, with respect to any four fiscal quarter period, the period of four fiscal quarters ending on the last day of such fiscal quarter. (c) Total Consolidated Debt to Total Consolidated Capital. The Guarantor shall not, at any time, permit its Total Consolidated Debt to exceed sixty percent (60%) of its Total Consolidated Capital. (d) Quick Ratio. The Guarantor shall not, at any time, permit the ratio of the sum its cash and Cash Equivalents and accounts receivables (net reserves) to Total Consolidated Debt to be less than 1.00:1.00 for those fiscal quarters ending on June 30 and September 30 and 1.75:1.00 for those fiscal quarters ending on December 31 and March 31. ARTICLE IX COVENANTS OF THE LESSOR, THE NOTE PURCHASER AND THE LIQUIDITY BANKS Section 9.1 General Covenants of the Lessor and the Note Purchaser. Each of the Lessor and the Note Purchaser hereby covenants and agrees, individually and not jointly, that so long as this Participation Agreement and the other Operative Documents are in effect: (a) it will not create, incur, assume or suffer to exist any Lessor Lien attributable to such Person upon the Master Lease or the Property (other than as contemplated by any of the Operative Documents); and (b) it will remove, at its sole expense, any Lessor Lien created or incurred by it and attributable to it upon the Master Lease or the Property (other than such Liens as are contemplated by any of the Operative Documents). 47 Section 9.2 Specific Covenants of the Lessor. The Lessor hereby covenants and agrees, for the benefit of the Lessee, that so long as this Participation Agreement and the other Operative Documents are in effect: (a) the representations and warranties of the Lessor contained in the Note Purchase Agreement shall be true and correct in all material respects on and as of the date of each Note Purchase, 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 on and as of such earlier date; (b) it will comply with each of its covenants set forth in the Note Purchase Agreement (including, without limitation, (i) to timely present all requests and information necessary to cause the Note Purchaser to purchase the Notes and fund the advances to be made thereunder as and when required under the Note Purchase Agreement and (ii) to not cause an Acceleration Event or an Unmatured Acceleration Event to occur and be continuing) except to the extent such failure to comply is a result of a breach by the Guarantor or the Lessee of its obligations under this Participation Agreement or any of the other Operative Documents; (c) when it receives funds from the Note Purchaser, it will transmit such funds to the Lessee without deduction or offset as and when required under this Participation Agreement and the other Operative Documents; (d) when it receives funds from the Lessee, it will transmit such finds to the Note Purchaser without deduction or offset as and when required under the Note Purchase Agreement and the other Operative Documents; (e) it will keep complete and accurate books and records of the transactions involving the Lessor arising under the Note Purchase Agreement and the other Operative Documents; and (f) so long as no Lease Default or Lease Event of Default shall have occurred and be continuing, it will (i) not assign its Equity Investment or its interest in the Operative Documents without the prior written consent of the Lessee (which consent shall not be unreasonably withheld) and (ii) not become a special purpose, bankruptcy-remote entity. Section 9.3 Specific Covenant of the Note Purchaser. The Note Purchaser hereby covenants and agrees, for the benefit of the Lessee, that so long as this Participation Agreement and the other Operative Documents are in effect and no Lease Event of Default or Lease Default shall have occurred and be continuing, it shall purchases the Notes and make advances under the Notes in accordance with the terms of this Participation Agreement and the Note Purchase Agreement. Section 9.4 Covenants of the Other Lessor Parties. To the extent not otherwise provided above, each of the Lessor Parties hereby covenants and agrees, for the benefit of the Lessee, that so long as this Participation Agreement and the other Operative Documents are in effect and no Lease Event of Default or Lease Default shall have occurred and be continuing, it will comply with each of its covenants set forth in the Operative Documents to which such Person is a party, except to the extent such failure to comply directly or indirectly arises out of, or relates to (or is 48 alleged to have arisen out of or be related to) a breach by the Guarantor or the Lessee of its obligations under this Participation Agreement or any of the other Operative Documents. Section 9.5 Notices Under the Note Purchase Agreement and the Liquidity Documentation. Each of the Lessor and the Note Purchaser hereby agrees that it shall promptly (but in any event no later than ten (10) Business Days after delivery thereof), deliver to the Guarantor a copy of each notice sent by it under the Note Purchase Agreement and the Liquidity Documentation to any other party thereto. ARTICLE X PAYMENT OF CERTAIN EXPENSES; OPTIONAL APPRAISALS The Lessee agrees, for the benefit of the Lessor, that: Section 10.1 Transaction Expenses. The Lessee shall pay, or cause to be paid, from time to time all Transaction Expenses. Transaction Expenses may, subject to the conditions hereof, be paid with the proceeds of the Notes and/or the funding of any portion of the Equity Investment. Section 10.2 Stamp Taxes. The Lessee shall pay or cause to be paid 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 10.3 Note Purchase Agreement and Related Obligations. The Lessee shall pay, before the delinquency date thereof, all costs, expenses and other amounts (other than amounts that, pursuant to the Operative Documents, are specifically required to be paid by any Lessor Party or that arise out of or in connection with a default by the Lessor under the Operative Documents that does not directly or indirectly arise out of or relate to a breach by the Guarantor or the Lessee of its obligations under any of the Operative Documents) required to be paid by the Lessor under the Note Purchase Agreement, any Note, the Asset Purchase Agreement or the Liquidity Agreement. Section 10.4 Optional Appraisals. If the Lessee elects the Remarketing Option pursuant to Section 18.3 of the Master Lease, then any Lessor Party may, at the sole option of each party, respectively, but at the expense and cost of the Lessee, require reports of one or more independent appraisers selected by the requesting parties, which reports shall state, in a manner reasonably satisfactory to the requesting parties, the following: (a) the appraiser's determination of the Fair Market Value of the Property as of (i) the day on which the Remarketing Option was elected and (ii) the Lease Termination Date; and (b) such other matters as the Lessor Parties may reasonably request. Upon any party's delivery of written notice to the Guarantor that any of the referenced parties is requiring delivery of appraisals pursuant to this Section 10.4, the Guarantor shall cause such reports to be delivered to the requesting party no later than thirty (30) days after such notice. 49 ARTICLE XI APPLICATION OF PAYMENTS Section 11.1 Consenting Parties; Voting Rights of Lessor Parties in Connection with Direction of the Agent. (a) In accordance with Article XIV hereof and subject to Section 15.5 hereof, all actions taken by the Agent prior to the occurrence and continuance of a Lease Event of Default, and all amendments, modifications, consents or approvals with respect to any Operative Documents, shall be taken solely at the direction of the Consenting Parties. The Lessee and the Guarantor shall be entitled to rely on all such actions by the Agent and amendments, modifications, consents and approvals entered into or provided by the Agent as authorized by the Consenting Parties without inquiry or investigation. (b) The "Consenting Parties" shall mean, with respect to amendments, modifications, consents or approvals with respect to any Operative Document, (i) at any time the Outstanding Lease Balance is greater than $0, the Note Purchaser and Lessor Parties whose aggregate percentage of the Outstanding Lease Balance equals or exceeds sixty-six and two-thirds percent (66-2/3%); and (ii) at any time the Outstanding Lease Balance is $0, the Note Purchaser and Lessor Parties whose portion of the Aggregate Commitment Amount equals or exceeds sixty-six and two-thirds percent (66-2/3%). For purposes of calculating each Lessor Party's percentage of the Outstanding Lease Balance or portion of the Aggregate Commitment Amount, so long as the Liquidity Banks have an obligation to fund the Aggregate Note Purchase Commitment pursuant to the Liquidity Agreement or have purchased the Notes from the Note Purchaser pursuant to the Asset Purchase Agreement, each Liquidity Bank shall be deemed to hold a percentage or portion (as applicable) calculated based upon its Percentage as provided pursuant to the Asset Purchase Agreement. (Thus, for example, if the Outstanding Lease Balance is $100,000,000, consisting of $3,500,000 (principal amount) of Equity Investment and $96,500,000 (principal amount) of outstanding Notes, and each of four Liquidity Banks' Percentage under the Asset Purchase Agreement is exactly 25%, then the Lessor's percentage of the Outstanding Lease Balance would be 3.500% and each Liquidity Bank's percentage of the Outstanding Lease Balance would be 24.125%). Section 11.2 Application of Payments made by the Lessee and Guarantor Pursuant to the Operative Documents prior to the Occurrence and Continuance of any Lease Event of Default. Prior to the occurrence and continuance of any Lease Event of Default, moneys received by the Lessor (or by the Agent on behalf of the Lessor), including, without limitation, funds deposited in the Prepayment Account, shall be applied as follows: (a) Basic Rent shall be applied pro rata to satisfy the obligations of the Lessor with respect to the Interest Amount, the Yield Amount, the Support Amount and any other costs related to the Notes and the Equity Investment. (b) Payments made pursuant to Sections 4.3, 4.4, 4.6, 4.8 and 11.4 hereof shall be applied as specified therein. 50 (c) All other payments made by the Lessee Parties and proceeds received under the Letter of Credit pursuant to this Participation Agreement and the other Operative Documents, unless otherwise specified, shall be applied first, to repay, in full, the Notes together with any other amounts payable to the Note Purchaser (or the Liquidity Banks, if applicable) pursuant to the Operative Documents, ratably in accordance with their respective interests, second, to redeem the Equity Investment together with any other amounts payable to the Lessor pursuant to the Operative Documents (provided however, that none of the proceeds received under the Letter of Credit shall be used for this purpose), and third, to any other Person as such Person's interest may appear. Section 11.3 Application of Funds Upon the Occurrence and Continuance of any Lease Event of Default. Upon the occurrence and continuance of any Lease Event of Default, moneys received by the Lessor (or by the Agent on behalf of the Lessor) shall be applied as follows: (a) Basic Rent shall be applied pro rata to satisfy the obligations of the Lessor with respect to the Interest Amount, the Yield Amount, the Support Amount and any other costs related to the Notes and the Equity Investment. (b) Payments made pursuant to Sections 4.3, 4.4, 4.6, 4.8 and 11.4 hereof shall be applied as specified therein. (c) All other payments made by the Lessee Parties and received as remarketing, casualty, sale, foreclosure or other proceeds pursuant to this Participation Agreement and the other Operative Documents, shall be applied first, to repay ratably in full the Notes together with any other amounts payable to the Note Purchaser (or the Liquidity Banks) pursuant to the Operative Documents and to redeem the Equity Investment together with any other amounts payable to the Lessor pursuant to the Operative Documents, and second, to any other Person as such Person's interest may appear. Section 11.4 Casualty, Condemnation or Unwind Proceeds. Except to the extent such amounts are returned to the Lessee pursuant to Sections 14.3(a) and 14.3(f) of the Master Lease, without regard to whether a Lease Default, Lease Event of Default, Acceleration Event or Unmatured Acceleration Event shall have occurred and be continuing, Casualty Proceeds, Condemnation Proceeds or Unwind Proceeds with respect to the Property shall be applied first, to the ratable repayment in full of the Notes together with any other amounts payable to the holders of such Notes and second, to the redemption of the Equity Investment, together with any other amounts payable to the Lessor pursuant to the Operative Documents. Section 11.5 Construction of Local Laws. It is acknowledged and agreed that the foreclosure on the Property may give rise to the application of local laws which require, inter alia, that the proceeds of such foreclosure(s) be applied in a manner which is not consistent with the application of proceeds specified in this Article XI. To the extent such inconsistent applications are made in accordance with applicable law, the parties hereto agree to reallocate the remaining proceeds in a manner which gives effect to the allocations specified in this Article XI. 51 ARTICLE XII ASSIGNMENTS AND TRANSFERS BY LESSOR, LIQUIDITY BANKS AND NOTE PURCHASER Section 12.1 Acknowledgment of Grant of Security Interest to the Agent; Assignments. (a) The Lessor, the Guarantor and the Lessee hereby acknowledge that the right of the Lessor to receive Rent and certain other rights under the Master Lease will be pledged to the Agent to secure payment of the Notes, the Loans and the Equity Investment in the manner specified in Article XI. In addition, in accordance with the terms and conditions of the Liquidity Documentation, the Notes may be transferred to the Liquidity Banks or otherwise transferred from time to time. Such transfers shall be governed by the relevant provisions of the Note Purchase Agreement, and this Participation Agreement, as the context requires. (b) Each Liquidity Bank may, at any time, sell and assign to any Eligible Assignee all or any portion of its rights and obligations under this Participation Agreement and the other Operative Documents in accordance with the Liquidity Documentation. Section 12.2 Assignments by Note Purchaser, etc. Provided the same does not require registration of the Notes under the Securities Act of 1933, as amended, the Note Purchaser may, without restriction or formality of any kind: (x) transfer all or part of its rights, obligations and interest in, to and under the Notes and the Operative Documents to any Lessor Party and grant a security interest therein to the Collateral Agent for its commercial paper program; and (y) the Collateral Agent may similarly transfer any interest it so receives. Section 12.3 Disclosure of Information. Each Lessor Party may, in connection with any assignment, sale of a participation, proposed assignment or proposed sale of a participation by it pursuant to this Article XII, disclose to the applicable transferee or proposed transferee any information relating to the Lessee, the Guarantor or the Property in its possession. Section 12.4 Limitation on Assignment. Except as otherwise provided above or as contemplated in the Asset Purchase Agreement or Section 15.17 hereof, no Lessor Party shall assign or transfer its rights, obligations or interest in, to and under the Operative Documents without the written consent of the Agent and, if no Lease Default or Lease Event of Default has occurred and is continuing, the Guarantor (which consent of the Agent and the Guarantor shall not be unreasonably withheld). ARTICLE XIII INDEMNIFICATION Section 13.1 General Indemnification. The Lessee and the Guarantor jointly and severally agree, 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 52 indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the Documentation Date or after the Lease Termination 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 Property 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 any sale pursuant to Article XVI, XVII or XVIII of the Master Lease), return or other disposition of all or any part or any interest in the Property 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 (1) Claims or penalties arising from any violation of law or in tort (strict liability or otherwise), (2) latent or other defects, whether or not discoverable, (3) any Claim based upon a violation or alleged violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to the Property, including, but not limited to, the terms set forth in the Redwood Shores Documents, (4) the making of any Modifications in violation of any standards imposed by any insurance policies required to be maintained by the Lessee pursuant to the Master Lease which policies are in effect at any time with respect to the Property 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 Property resulting in any change or special assessments being levied against the Property or any plans to widen, modify or realign any street or highway adjacent to the Property, or any Claim for utility "tap-in" fees; (d) the breach by the Lessee or the Guarantor 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 Property, any improvements, title thereto, any interest therein or any Basic Rent or Supplemental Rent, including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of the 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 personally or equipment purchased or leased by the Lessee or Modifications constructed by the Lessee, except Lessor Liens and Liens created under the Operative Documents in favor of one or more of the Lessor Parties; (g) the transactions contemplated by this Participation Agreement 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 Revenue Code; or 53 (h) any indemnification claim made against any Liquidity Bank under the Liquidity Documentation; provided, however, neither the Lessee nor the Guarantor shall 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 (it being understood that the Lessee and the Guarantor shall be required to indemnify an Indemnitee even if the ordinary (but not gross) negligence of such Indemnitee caused or contributed to such Claim), (2) any Claim resulting from Lessor Liens to the extent such Indemnitee is in breach of any obligation under the Operative Documents to discharge such Liens, (3) any Claim to the extent solely attributable to acts or events attributable to such Indemnitee and occurring after the return of the Property or the Lease Termination Date so long as no Lease Default or Lease Event of Default shall have occurred and be continuing as of the date of such return or the Lease Termination Date, (4) any Claim arising from a breach by such Indemnitee of any agreement entered into in connection with the assignment or participation of any interest of such Indemnitee under this Participation Agreement or the other Operative Documents, (5) Taxes (other than Taxes necessary for any claim under this Section 13.1 to be indemnified on an After-Tax Basis) or (6) any Claim arising solely from the failure of such Indemnitee to comply with laws applicable to banks or their affiliates generally or the failure of such Indemnitee to file any notice, report, filing or other document required by any Governmental Authority regulating banks or their affiliates in connection with such Indemnitee's execution of, and participation in the transactions contemplated by, 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 Master 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 Property or as a guaranty of the repayment of the Notes or the redemption of the Equity Investment. Section 13.2 Environmental Indemnity. Without limitation of the other provisions of this Article XIII or the Environmental Indemnity Agreement, the Lessee and the Guarantor hereby agree, jointly and severally, to indemnify, hold harmless and defend each Indemnitee from and against any and all claims (including third party claims for personal injury or real or personal property damage or diminution of value), losses (including, to the extent the Outstanding Lease Balance and all other Obligations have not been fully paid, any loss of value of any Property related thereto), damages, liabilities, fines, penalties, charges, administrative and judicial proceedings (including any informal proceedings) and all orders, judgments, remedial action, requirements, enforcement actions of any kind, and all reasonable and documented costs and expenses incurred in connection therewith (including reasonable and documented attorneys' and/or paralegals' fees, experts' fees and expenses), including all costs incurred in connection with any investigation or monitoring of site conditions or any Remedial Action, arising in whole or in part, out of: (a) the presence on or under the Property of any Hazardous Substances, or any Releases or threat of Release or discharges of any Hazardous Substances on, under, from or onto the Property; 54 (b) any Hazardous Activity or activity, including construction, carried on at the Property, 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 Substances that at any time are Released on, at, from or under or are located or present on or under the Property, (c) loss of or damage to any property or the environment (including Remediation Costs, investigation costs, clean-up costs, response costs, remediation and removal costs, cost of corrective action, costs of financial assurance, fines and penalties and natural resource damages and diminution of value), 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 Environmental Laws, in each case arising from activities on or conditions with respect to the Property; (d) any Governmental Claim, Adverse Environmental Condition or any other claim concerning lack of compliance with Environmental Laws, or any act or omission causing an environmental condition that requires remediation or would allow any Governmental Authority or Person to record a Lien on the land records, in each case arising from activities on or conditions with respect to the Property; or (e) any residual contamination on or under the Property, or affecting any natural resources, and any contamination of any property or natural resources arising in connection with the generation, use, handling, storage, transport or disposal of any such Hazardous Substances from the Property; and irrespective of whether any of such activities were or will be undertaken in accordance with applicable laws, regulations, codes and ordinances; provided, however, neither the Lessee nor the Guarantor shall be required to indemnify any Indemnitee under this Section 13.2 for (1) any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnitee (it being understood that the Lessee and the Guarantor 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 (2) any Claim to the extent solely attributable to acts or events attributable to such Indemnitee first occurring after the return of all of the Property on the Lease Termination Date so long as no Lease Default or Lease Event of Default shall have occurred and be continuing as of the date of such return or the Lease Termination Date. 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 Master Lease or any other Operative Document. Section 13.3 Proceedings in Respect of Claims. With respect to any amount that Lessee or the Guarantor is requested by an Indemnitee to pay by reason of Section 13.1 or 13.2, such Indemnitee shall, if so requested by Lessee or the Guarantor, as applicable, and prior to any payment, submit such additional information to the Lessee or the Guarantor as such Person may reasonably request and which is in the possession of or available to such Indemnitee to substantiate properly the requested payment. 55 In case any action, suit or proceeding shall be brought against any Indemnitee or any Indemnitee receives written notice of any threatened action, suit or proceeding, such Indemnitee shall with reasonable promptness notify the Guarantor of the commencement thereof, and the Guarantor shall be entitled, at its expense, to participate in, and, to the extent that the Guarantor desires to, assume and control the defense thereof (with counsel reasonably satisfactory to such Indemnitee) provided, however, that the Guarantor shall have acknowledged in writing its obligation to fully indemnify such Indemnitee in respect of such action, suit or proceeding, and the Guarantor shall keep such Indemnitee fully apprised of the status of such action, suit or proceeding and shall provide such Indemnitee with all information with respect to such action, suit or proceeding as such Indemnitee shall reasonably request; and provided, further, that the Guarantor 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 any material risk of the sale, forfeiture or loss of the Property or any part thereof not stayed during the pendency of the contest or (y) the control of such action, suit or proceeding by the Guarantor would involve an actual or potential conflict of interest, (B) such proceeding involves Claims not fully indemnified by the Lessee and the Guarantor which the Guarantor 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 and the Indemnitee notifies the Guarantor that it does not want the Guarantor to assume and control such defense. The Indemnitee will undertake all reasonable efforts to join in the Guarantor's efforts to sever any such action referred to in clause (B) above. The Indemnitee may participate in a reasonable manner at its own expense (provided that in the case of clauses (A), (B) or (C) above, the Guarantor shall pay the reasonable expenses of such Indemnitee) and with its own counsel in any proceeding conducted by the Guarantor in accordance with the foregoing. The Guarantor shall not enter into any settlement or other compromise with respect to any Claim which is entitled to be indemnified under Section 13.l or 13.2 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 Guarantor, with reasonable promptness supply the Guarantor with such information and documents reasonably requested by the Guarantor as are necessary or advisable for the Guarantor to participate in and, to the extent permitted hereunder, control any action, suit or proceeding to the extent permitted by Section 13.1 or 13.2. Unless a Lease Event of Default 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 13.2 without the prior written consent of the Guarantor, which consent shall not be unreasonably withheld, unless such Indemnitee waives its right to be indemnified under Section 13.1 or 13.2 with respect to such Claim. Upon payment in full, or provision for payment in full reasonably satisfactory to the Indemnitee, of any Claim by the Lessee or the Guarantor pursuant to Section 13.1 or 13.2 to or on behalf of an Indemnitee, the Guarantor, 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 56 claims and otherwise cooperate with the Guarantor and give such further assurances as are necessary or advisable to enable the Guarantor vigorously to pursue such claims. Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.2 shall be paid to such Indemnitee promptly upon receipt of a written demand therefor from such Indemnitee, accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable. Section 13.4 General Tax Indemnity. (a) Indemnification. The Lessee and the Guarantor, jointly and severally, shall pay and assume liability for, and do hereby agree to indemnify, protect and defend the 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 or the Guarantor may have an indemnity obligation pursuant to this Section 13.4, or if any Tax Indemnitee shall determine that any Imposition to which the Lessee or the Guarantor may have an indemnity obligation pursuant to this Section 13.4 may be payable, such Tax Indemnitee shall promptly (and in any event, within fifteen (15) Business Days) notify the Guarantor in writing (provided that failure to so notify the Guarantor within fifteen (15) Business Days shall not alter such Tax Indemnitee's rights under this Section 13.4 except to the extent such failure precludes or materially adversely affects the ability to conduct a contest of any indemnified Taxes) and shall not take any action with respect to such claim, proceeding or Imposition without the written consent of the Guarantor (such consent not to be unreasonably withheld or unreasonably delayed) for thirty (30) days after the receipt of such notice by the Guarantor; 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 thirty (30) day period, such Tax Indemnitee shall in such notice to the Guarantor, so inform the Guarantor, and such Tax Indemnitee shall not take any action with respect to such claim, proceeding or Imposition without the consent of the Guarantor (such consent not to be unreasonably withheld or unreasonably delayed) for ten (10) days after the receipt of such notice by the Guarantor unless such Tax Indemnitee shall be required by law or regulation to take action prior to the end of such ten (10) day period. The Guarantor shall be entitled for a period of thirty (30) days from receipt of such notice from such Tax Indemnitee (or such shorter period as such Tax Indemnitee has notified the Guarantor 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 Guarantor's expense. If (x) such contest can be pursued in the name of the Guarantor or the Lessee and independently from any other proceeding involving a Tax liability of such Tax Indemnitee for which the Lessee and the Guarantor have 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 and the Guarantor have not agreed to indemnify such Tax Indemnitee or (z) such Tax Indemnitee so requests, then the Guarantor or such Lessee shall be permitted to control the contest of such claim, provided that in the case of a contest described in 57 clause (y) if such Tax Indemnitee determines reasonably and in good faith that such contest by the Guarantor or the Lessee could have a material adverse impact on the business or operations of such Tax Indemnitee and provides a written explanation to the Guarantor of such determination, such Tax Indemnitee may elect to control or reassert control of the contest, and provided that the taking control by the Guarantor or the Lessee of any contest shall not alter the applicable Tax Indemnitee's rights to indemnification hereunder, 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 and the Guarantor indemnify hereunder from Taxes for which the Lessee and the Guarantor are not obligated to indemnify hereunder, so that the Guarantor can control the contest of the former. In all other claims requested to be contested by the Guarantor, such Tax Indemnitee shall control the contest of such claim, acting through counsel selected by such Tax Indemnitee and reasonably acceptable to the Guarantor. In no event shall the Guarantor be permitted to contest (or such Tax Indemnitee be required to contest) any claim, (A) if such Tax Indemnitee provides the Guarantor with a legal opinion of counsel reasonably acceptable to the Guarantor 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 the Property or any part thereof unless the Guarantor shall have posted and maintained a bond or other security reasonably satisfactory to the relevant Tax Indemnitee in respect to such risk, (B) if a Lease Event of Default has occurred and is continuing unless the Guarantor shall have posted and maintained a bond or other security reasonably satisfactory to the relevant Tax Indemnitee in respect of the Taxes subject to such claim and any and all expenses for which the Guarantor or the Lessee is responsible hereunder reasonably foreseeable in connection with the contest of such claim, (C) unless the Guarantor shall have agreed to pay and shall pay, to such Tax Indemnitee on written demand all reasonable, documented 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 and (if applicable) reasonable, allocable internal overhead costs determined in accordance with normal bank operating procedures, or (D) if such contest shall involve the payment of the Tax prior to the contest, unless the Guarantor shall provide to such Tax Indemnitee an interest-free advance in an amount equal to the Imposition that such Tax Indemnitee is required to pay (with no additional net after-tax costs to such Tax Indemnitee). In addition, for contests controlled by such Tax Indemnitee 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 any or all such Tax Indemnitees with respect to any period for which the Guarantor or the Lessee may be liable to pay an indemnity under this Section 13.4(b)) exceeds (1) with respect to the Lessor, $25,000 and (2) with respect to any Tax Indemnitee other than the Lessor, $75,000 and (B) unless, if requested by such Tax Indemnitee, the Guarantor shall have provided to such Tax Indemnitee an opinion of counsel selected by the Guarantor (which may be in-house counsel) (except, in the case of income taxes indemnified hereunder, in which case such opinion shall be an opinion of independent tax counsel selected by the Guarantor and reasonably acceptable to such Tax Indemnitee) 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. 58 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 judgment; provided, however, that if such Tax Indemnitee is the controlling party and the Guarantor 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 a Lessee and the Guarantor 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 provided that any Tax Indemnitee shall be entitled to reject any indemnity payment it would otherwise be entitled to hereunder if such Tax Indemnitee reasonably determines that accepting such offer would have an unindemnified impact on such Tax Indemnitee and provided further that no Tax Indemnitee may reject any such indemnity payment if the Guarantor agrees to pay to such Tax Indemnitee the amount of such unindemnified impact, as reasonably determined by such Tax Indemnitee. In addition, the controlling party shall keep the noncontrolling party reasonably informed as to the progress of the contest, and shall provide the noncontrolling party with a copy of (or appropriate excerpts from) any reports or claims issued by the relevant auditing agents or taxing authority to the controlling party thereof, in connection with such claim or the contest thereof, provided, however, that such obligation shall not obligate any Tax Indemnitee to disclose its tax returns or information or documentation unrelated to such claim or contest. Each Tax Indemnitee shall, at the expense of the Lessee and the Guarantor, supply the Lessee or the Guarantor with such information and documents reasonably requested by the Lessee or the Guarantor as are necessary or advisable for such Person to participate in any action, suit or proceeding to the extent permitted by this Section 13.4(b); provided, however, that such Tax Indemnitee shall not be required to provide to such Lessee or the Guarantor copies of its tax returns or any other information, documentation, or materials that it deems to be confidential or proprietary. Notwithstanding anything in this Section 13.4(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 13.4 (and with respect to which contest is required under this Section 13.4(b)) without the prior written consent of the Guarantor, unless such Tax Indemnitee waives its right to be indemnified under this Section 13.4 with respect to such claim. Notwithstanding anything contained herein to the contrary, a Tax Indemnitee shall not be required to contest (and neither the Lessee nor the Guarantor shall be permitted to contest in any judicial forum if such contest could, in a Tax Indemnitee's reasonable judgment, be materially adverse to it) a claim with respect to the imposition of any Tax if such Tax Indemnitee shall have waived its right to indemnification under this Section 13.4 with respect to such claim (and any claim with respect to such year or any other taxable year the contest of which is precluded or materially adversely affected as a result of such waiver). (c) Reimbursement. If (x) a Tax Indemnitee or any Affiliate thereof actually realizes a refund or reduction of any Taxes in respect of which the Lessee or the Guarantor has paid an indemnity pursuant to this Section 13.4 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 was indemnified hereunder or any payment made to or for the account of such Tax Indemnitee by the 59 Lessee or the Guarantor pursuant to this Section 13.4 or any payment made by a Tax Indemnitee to the Lessee or the Guarantor by reason of this Section 13.4(c), such Tax Indemnitee at any time actually realizes a reduction in any Taxes for which neither the Lessor nor the Guarantor are required to indemnify such Tax Indemnitee pursuant to this Section 13.4, which reduction in Taxes was not taken into account in computing such payment by the Lessee and the Guarantor to or for the account of such Tax Indemnitee or by such Tax Indemnitee to the Lessee and the Guarantor, any such refund or reduction to be determined without regard to Income Tax Savings, then such Tax Indemnitee shall promptly pay to the Guarantor (xx) the amount of the net tax savings refund, together with the amount of any interest received by such Tax Indemnitee on account of such refund 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 Lease Default or Lease Event of Default shall have occurred and be continuing, but shall be paid promptly after cure of such Lease Default or Lease Event of Default. Notwithstanding the foregoing, no Tax Indemnitee shall be required to make any payment to the Guarantor or the Lessee pursuant to this Section 13.4(c) to the extent such payment would exceed, in the aggregate at any time, the amount of all prior payments made by or on behalf of the Lessee and the Guarantor to such Tax Indemnitee and/or its Affiliates pursuant to this Section 13.4 that gave rise to such refund or reduction in Taxes. Each Tax Indemnitee agrees to take such actions as the Guarantor may reasonably request (provided, in the reasonable good faith judgment of such Tax Indemnitee, such actions would not result in an adverse effect on such Tax Indemnitee for which such Tax Indemnitee is not entitled to indemnification from such Lessee and the Guarantor) 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 and the Guarantor pursuant to this Section 13.4 and to maximize the amount of any Tax savings available to the Lessee and the Guarantor. The disallowance or reduction of any refund or other Tax savings with respect to which a Tax Indemnitee has made a payment to the Lessee under this Section 13.4(c) shall be treated as a Tax for which the Lessee is obligated to indemnify such Tax Indemnitee hereunder without regard to the exclusions set forth in the definition of "Impositions" except the exclusions set forth in clauses (iv), (v), (vii), (ix) and (xii) of such definition. (d) Payments. Any Imposition indemnifiable under this Section 13.4 shall be paid directly when due to the applicable taxing authority if direct payment is practicable and permitted. If direct payment to the applicable taxing authority is not permitted or is otherwise not made, any amount payable to a Tax Indemnitee pursuant to Section 13.4 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 (2) Business Days prior to the date that the relevant Taxes are due. Any payments made pursuant to this Section 13.4 shall be made directly to such Tax Indemnitee entitled thereto or the Guarantor, 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 I hereto. Upon the request of any Tax Indemnitee with respect to a Tax that the Guarantor or the Lessee is required to pay, the Guarantor or the Lessee, as the case may be, shall furnish to such Tax Indemnitee the original or a certified copy of a receipt for such Person's payment of such Tax or such other evidence of payment as is reasonably acceptable to such Tax Indemnitee. 60 (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 13.4 and of which the Guarantor or the Lessee has knowledge, the Guarantor or the Lessee, as the case may be, shall promptly notify such Tax Indemnitee of such requirement and, at the expense of the Guarantor and the Lessee (i) if the Guarantor or the Lessee, as the case may be, 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 such report, return or such 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 fifteen (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 Guarantor or the Lessee shall, upon written request of such Tax Indemnitee, provide such Tax Indemnitee with such information as is reasonably necessary to allow such Tax Indemnitee to file such report, return or statement. (f) Verification. At the request of the Guarantor or the Lessee, the amount of any indemnity payment by the Lessee or the Guarantor or any payment by a Tax Indemnitee to the Lessee or the Guarantor pursuant to this Section 13.4 shall be verified and certified by an independent public accounting firm mutually acceptable to the Lessee or the Guarantor and such Tax Indemnitee. The costs of such verification shall be borne by the Lessee or the Guarantor unless such verification shall result in an adjustment in favor of the Lessee or the Guarantor in an amount greater than the lesser of (i) $10,000, and (ii) ten percent (10%) 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 Guarantor or 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 thirty (30) days of the Guarantor's or the Lessee's request for verifications and the computations of the accounting firm shall be final, binding and conclusive upon the Guarantor, the Lessee and such Tax Indemnitee absent manifest error. The parties agree that the sole responsibility of the independent public accounting firm shall be to verify the amount of a payment pursuant to the Operative Documents and that matters of interpretation of the Operative Documents are not within the scope of the independent accounting firm's responsibilities. (g) Tax Ownership. Each Tax Indemnitee represents and warrants that except as actually required by law it will (i) not claim ownership of (or any tax benefits, including depreciation, with respect to) the Property for any income tax purposes, it being understood that the Lessee is and will remain the owner of the Property leased under the Master Lease for such income tax purposes and (ii) treat all Notes and all portions of the Equity Investment as Indebtedness of the Lessee for federal income tax purposes; provided that this sentence shall not preclude the Lessor from claiming ownership of, and any tax benefits with respect to, the Property for periods beginning after (x) the Property has been returned to the Lessor pursuant to the Lessee's exercise of the Remarketing Option or (y) the Lessor has exercised remedies under 61 Section 17.3 of the Master Lease and foreclosed or otherwise sold the Property pursuant to such exercise. 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 benefits (collectively, "Income Tax Savings") as a result of any claim for, or recharacterization requiring such party to take, any tax benefits attributable to ownership of the Property for income tax purposes, such Tax Indemnitee shall pay to the Guarantor, 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 is payable as a result of such claim or recharacterization), provided that the Guarantor and 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 Guarantor, up to the net amount paid to the Guarantor by each Tax Indemnitee and provided further, that no Lease Default or Lease Event of Default shall have occurred and be continuing. The parties agree that this Section 13.4(g) is intended to require a Tax Indemnitee to make a payment to the Guarantor if and only if such Tax Indemnitee shall have actually received any net unanticipated Income Tax Savings with respect to the Property that would not have been received if such Tax Indemnitee had advanced funds to the Lessee under an arrangement properly characterized for federal income tax purposes as a loan secured by the Property in an amount equal to such Tax Indemnitee's portion of the Outstanding Lease Balance. Nothing in this Section 13.4(g) shall be construed to require any Tax Indemnitee to take any affirmative action to realize any Income Tax Savings if in its sole discretion, exercised in good faith, such action may have a material adverse effect on such Tax Indemnitee (including as a result of such position being or being viewed as materially inconsistent with any other tax position claimed by such Tax Indemnitee for the relevant period or periods). Section 13.5 Indemnity Payments in Addition to Master Lease Obligations. Each of the Lessee and the Guarantor acknowledges and agrees that the obligations of the Lessee and the Guarantor to make indemnity payments under this Article XIII are separate from, in addition to, and do not reduce (i) the Lessee's obligations under the Master Lease and (ii) without duplication, the indemnities provided in Article IV hereof. Section 13.6 Indemnity Under Construction Agency Agreement. The Lessor hereby acknowledges and agrees for the benefit of the other Lessor Parties that to the extent the Lessor is indemnified by any Lessee Party pursuant to Section 8.1 of the Construction Agency Agreement, the rights and benefits of the Lessor derived pursuant to any such indemnification shall pass through to, and be for the benefit of, any Lessor Party otherwise entitled to such indemnification pursuant to this Article XIII. ARTICLE XIV AGENT; PLEDGED PROPERTY Section 14.1 Appointment and Duties of the Agent. (a) The Lessor Parties (excluding the Agent) hereby designate and appoint KeyBank to act as the Agent under the Operative Documents, and such parties hereby authorize 62 the Agent to take such actions on their behalf under the provisions of the Operative Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of the Operative Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in the Operative Documents, the Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Operative Documents, or any fiduciary relationship with the other Lessor Parties and no implied covenants, functions or responsibilities shall be read into the Operative Documents, or otherwise exist against the Agent. The Agent shall not be liable for any action taken or omitted to be taken by it hereunder or under any other Operative Document, or in connection herewith or therewith, unless caused by its gross negligence or willful misconduct. (b) The Agent shall not exercise any rights or remedies under any of the Operative Documents or give any consent or approve as satisfactory to it any matters requiring such approval under any of the Operative Documents or enter into any agreement amending, modifying, supplementing or waiving any provision of any Operative Document unless it shall have been directed to do so in writing by the requisite percentages required under the Operative Documents or, in the absence of an express provision, by the Consenting Parties. The Lessor and the Guarantor shall be entitled to assume, and rely on such assumption, that the Agent will be in compliance with the preceding sentence at all times during which this Participation Agreement and the other Operative Documents are in effect. (c) The Agent will prepare continuation statements for the Financing Statements and the Precautionary Financing Statements. The costs of such continuation statements shall be paid by the Guarantor. (d) The Agent shall promptly notify the other Lessor Parties of any communication it receives from a Lessee Party, and shall promptly provide the other Lessor Parties with copies of any documents it receives from a Lessee Party relating to the Overall Transactions. Section 14.2 Rights of the Agent. (a) The Agent may execute any of its duties pursuant to the Operative Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. (b) Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall (i) be liable for any action lawfully taken or omitted to be taken by it under or in connection with any Operative Document or this Participation Agreement except for its gross negligence or willful misconduct, or (ii) be responsible in any manner to any Transaction Party for any recitals, statements, representations or warranties made by the Lessee or the Guarantor or any representative thereof contained in any Operative Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent or in connection with, any Operative Document or this Participation Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Operative Documents or this Participation Agreement or for any failure of the Guarantor or the Lessee to 63 perform their obligations thereunder. The Agent shall not be under any obligation to any Transaction Party to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, any Operative Document or this Participation Agreement, or to inspect the properties, books or records of the Lessee or the Guarantor. (c) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. In connection with any request of a Transaction Party, the Agent shall be fully justified in failing or refusing to take action under any Operative Document or this Participation Agreement (i) if such action would, in the reasonable opinion of the Agent, be contrary to law or the terms of this Participation Agreement or the other Operative Documents, (ii) if such action is not specifically provided for in such Operative Document or this Participation Agreement and it shall not have received the consent or concurrence it deems appropriate or, (iii) if, in connection with taking of any such action that would constitute an exercise of remedies under such Operative Document or this Participation Agreement, it shall not first be indemnified to its satisfaction against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under any Operative Document or this Participation Agreement in accordance with any such request, and such request and any action taken or failure to act pursuant thereto shall be binding upon the other Transaction Parties. (d) The Agent shall not be deemed to have actual, constructive, direct or indirect knowledge or notice of the occurrence of any Lease Event of Default unless and until it has received a written notice or a certificate from a Transaction Party stating that a Lease Event of Default has occurred under the Operative Documents. The Agent shall have no obligation whatsoever either prior to or after receiving such notice or certificate to inquire whether a Lease Event of Default has in fact occurred and shall be entitled to rely conclusively, and shall be fully protected in so relying, on any such notice or certificates furnished to it. No provision of this Participation Agreement or any other Operative Document shall require the Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or under any Operative Document or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) To the extent that such expenses shall not be reimbursed by the Lessee or the Guarantor where so required by the terms of the Operative Documents, the Agent shall be entitled to reimbursement from the other Lessor Parties (other than the Note Purchaser, the Conduit Agent and the Program Administrator) for reasonable out-of-pocket expenses, including the reasonable fees and expenses of its counsel (and any local counsel) and of any experts and agents, which the Agent may reasonably incur in connection with (i) the administration of this Participation Agreement and the other Operative Documents, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, the Property or the Related Security, or (iii) the exercise or enforcement (whether through negotiations, legal proceedings or otherwise) 64 of any of the rights of the Agent or the other Transaction Parties hereunder or under the other Operative Documents. (f) Notwithstanding any provision herein or in any other Operative Document to the contrary, with the exception of Section 14.2(b), the Agent shall not be entitled to any payment or collection from any other Lessor Parties, but for all fees, expenses and indemnities irrevocably agrees to look solely and exclusively to the Lessee and the Guarantor. Section 14.3 Lack of Reliance on the Agent. Each of the Transaction Parties represents to the Agent that it has, independently and without reliance upon the Agent and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into the transactions contemplated by the Operative Documents. Each such party also represents that it will, independently and without reliance upon the Agent, and based on such documents and information as it shall deem appropriate at the time continue to make its own credit decisions with respect to this Participation Agreement or any of the other Operative Documents. Section 14.4 Resignation of the Agent. The Agent may resign as Agent upon thirty (30) days' notice to the Transaction Parties, with any such resignation to become effective only upon the appointment of a successor Agent hereunder. If the Agent shall resign as Agent, the Note Purchaser shall appoint a successor Agent, subject to the consent of the Guarantor if no Lease Event of Default exists (which consent shall not be unreasonably withheld) and the consent of the Liquidity Banks. If no successor Agent shall have been so appointed within thirty (30) days, the resigning Agent or any Lessor Party may petition any court of competent jurisdiction for the appointment of a new Agent. Upon the appointment of a successor agent pursuant to this Section 14.4, such successor agent shall succeed to the rights, powers and duties of the "Agent," and the term "Agent" shall mean such successor agent, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any other Lessor Parties. After any retiring Agent's resignation hereunder as Agent, the provisions of this Participation Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. Section 14.5 Successor Agent by Merger. If the Agent consolidates with, merges or converts into, or transfers substantially all of its assets to another corporation, the resulting, surviving or transferee corporation, without any further action, shall be the successor Agent. Section 14.6 Eligibility of the Agent The Agent shall at all times have a combined capital and surplus of at least $100,000,000 (or a combined capital and surplus in excess of $50,000,000 and the obligations of which, whether or not in existence or hereafter incurred, are fully and unconditionally guaranteed by a corporation organized and doing business under the laws of the United States, any state or territory thereof or the District of Columbia that has a combined capital and surplus of at least $100,000,000). If such corporation publishes reports of condition at least annually, pursuant to law or to requirements of Federal, State, Territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 14.6, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of conditions so published. The Agent shall not be an Affiliate of the Guarantor or the Lessee. 65 Section 14.7 Collection of Payments Notwithstanding anything in this Participation Agreement, the Master Lease or the other Operative Documents to the contrary, all payments under this Participation Agreement, the Master Lease or under the other Operative Documents, including but not limited to, payments of Basic Rent, Supplemental Rent, Purchase Option Price, Remarketing Proceeds or Maximum Recourse Amount by the Lessee or the Guarantor under this Participation Agreement, the Master Lease or the other Operative Documents shall be made directly to the Agent and not the Lessor. The Agent shall immediately remit such amounts in accordance with the terms of Article XI of this Participation Agreement or, to the extent such funds cannot be remitted immediately, shall deposit such funds into an Eligible Account for distribution as soon as possible in accordance with the terms of Article XI of this Participation Agreement. Unless specifically provided herein or in any other Operative Documents that such payment is to be made directly to a particular Lessor Party or any other Person, upon payment by the Lessee (or the Guarantor) to the Agent of an amount required to be paid under the Operative Documents, the Lessee (or the Guarantor) shall be deemed to have satisfied its obligation with respect to such payment and neither the Lessee nor the Guarantor shall have any liability or responsibility for the Agent's failure or delay in remitting such amount to the Person or Persons entitled thereto. Section 14.8 Pledged Property (a) Grant of Security Interest in Pledged Property. In furtherance and not in limitation of any provisions of the Conveyance Instruments, the Lessor does hereby grant, bargain, sell, convey, mortgage, assign, transfer and warrant to the Agent under the Operative Documents for the benefit of the Lessor Parties (other than the Lessor), as their respective interests may appear, a continuing first security interest in and to all right, title and interest of the Lessor not otherwise conveyed to the Agent pursuant to the Conveyance Instruments executed by the Lessor in favor of the Agent for the benefit of the Lessor Parties (other than the Lessor), whether now owned, or hereafter acquired, in and to the Collateral, including, without limitation, all right, title and interest in and to any accounts maintained from time to time by the Agent in which the proceeds of any payments made to or for the account of the Lessor may be deposited from time to time (such property, rights and interests being hereinafter collectively called the "Pledged Property") to secure the repayment of the Secured Obligations (b) Duty of Care. The Agent shall exercise reasonable care in the custody and preservation of Pledged Property in its actual possession. At any time and from time to time, the Agent may at its option file in any jurisdiction, at the expense of the Guarantor, one or more financing, continuation and similar statements, and any amendments thereto, with or (to the extent permitted by Applicable Law) without the signature of the Lessor or the Guarantor, as the case may be, covering any or all of the Pledged Property. Each of the Lessor and the Guarantor hereby agrees to join with the Agent at the Agent's request in executing any such statements and amendments. 66 ARTICLE XV MISCELLANEOUS Section 15.1 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 the Property to the Lessor, the construction of the Improvements and any disposition of any interest of the Lessor in the Property 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. The indemnities of the parties provided for in the Operative Documents shall survive the termination of any Operative Documents. Section 15.2 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 to act on its behalf in connection with this Participation Agreement or the transactions contemplated herein, nor has it authorized any broker, finder or financial adviser retained or employed by any other Person so to act. Any party who is in breach of this representation shall indemnify and hold the other parties harmless from and against any liability arising out of such breach of this representation. Section 15.3 Notices. Except as otherwise provided herein, all notices, requests, demands, consents, instructions or other communications to or upon any Transaction Party under this Participation Agreement or the other Operative Documents shall be in writing and faxed, mailed or delivered, if to such Person, at its respective facsimile number or address set forth on Schedule I hereto specified beneath the heading "Address for Notices" under the name of such Transaction Party (or to such other facsimile number or address for any party as indicated in any notice given by that party to the other parties). All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing, on the Business Day following the deposit with such service; (b) when mailed, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d) when faxed, upon confirmation of receipt; provided, however, that any Funding Notice, Early Termination Notice, Purchase Notice or Remarketing Notice shall not be effective until received by the Lessor or the Agent. Each Funding Notice, Early Termination Notice, Purchase Notice and Remarketing Notice shall be given by the Lessee to the Agent's office located at its address referred to above during its normal business hours; provided, however, that any such notice received by the Agent on any Business Day after the time specified in the applicable Operative Document for the giving of such notice (or, if no such time is specified, after 2:00 p.m.) shall be deemed received by the Agent on the next Business Day. In any case where this Participation Agreement authorizes notices, requests, demands or other communications by the Lessee or the Guarantor to any Lessor Party to be made by telephone or facsimile, any Lessor Party may conclusively presume that anyone purporting to be a person designated in any incumbency certificate or other similar document received by such Lessor Party is such a person. Section 15.4 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 67 original, but all such counterparts shall together constitute but one and the same instrument. Delivery of an executed signature page hereto by facsimile or other electronic means shall be equally effective as delivery of an original signature page. Section 15.5 Amendments. Except as otherwise provided pursuant to Section 11.1 hereof, any term, covenant, agreement or condition of this Participation Agreement or any other Operative Document may be amended or waived if such amendment or waiver is in writing and is signed by the Lessor, the Lessee, the Guarantor (if the Guarantor is a party to such Operative Document) and the Consenting Parties; provided, however that: (a) any amendment, waiver or consent which (i) increases the Aggregate Commitment Amount or the Aggregate Note Purchase Commitment, (ii) extends the Maturity Date, (iii) reduces the amount of Basic Rent or any other amounts to be paid by the Lessee under the Master Lease or any other Operative Documents or any fees or other amounts payable for the account of the Lessor Parties hereunder or thereunder, (iv) postpones any date scheduled for any payment of Basic Rent or any other amounts or any fees or other amounts payable for the account of the Lessor Parties hereunder or thereunder, (v) amends Article XI or this Section 15.5, (vi) amends the definition of "Consenting Parties", (vii) releases the Lessor's interest in any material part of the Property, (viii) releases the Lessee from its indemnity obligations under the Operative Documents, or (ix) releases the Guarantor from its obligations under the Guaranty, must be in writing and signed or approved in writing by all of the Lessor Parties; (b) any amendment, waiver or consent which increases or decreases the Commitment of any Lessor Party must be in writing and signed by such Lessor Party; (c) any amendment, waiver or consent which affects the rights or obligations of the Agent or any Liquidity Bank must be in writing and signed by the Agent or such Liquidity Bank, as applicable; (d) any amendment, waiver or consent which affects the rights or obligations of the Note Purchaser must be in writing and signed by the Note Purchaser; and (e) any amendment, waiver or consent which terminates this Participation Agreement or any other Operative Document (except upon payment in full of the Outstanding Lease Balance and all other Obligations or the effective exercise and consummation of the Remarketing Option with respect to the Property in accordance with Article XVIII of the Master Lease and payment in full of all amounts due in accordance therewith), must be in writing and signed by each Transaction Party. Section 15.6 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 15.7 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 Transaction Parties. Neither the Lessee nor the Guarantor shall assign or transfer any of its rights or obligations under the Operative Documents without the prior written consent of the Transaction Parties. Except as provided in Section 12.1, the Lessor shall not assign or transfer 68 any of its rights or obligations under the Operative Documents without the prior written consent of the Consenting Parties and, so long as no Lease Default or Lease Event of Default shall have occurred and be continuing, the Guarantor (which consent, in each case, shall not be unreasonably withheld). Section 15.8 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 15.9 Severability. Any provision of this Participation Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 15.10 Liability Limited. None of the Lessor Parties shall have any obligation to any other party hereto with respect to transactions contemplated by the Operative Documents, except those obligations of such Person expressly set forth in the Operative Documents or except as set forth in the instruments delivered in connection therewith, and none of the Lessor Parties 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 15.11 Further Assurances. The parties hereto shall promptly cause to be taken, executed, acknowledged or delivered, at the sole expense of the Lessee and the Guarantor, all such further acts, conveyances, documents and assurances as the other parties may from time to time reasonably request in order to carry out and preserve the security interests and liens (and the priority thereof) intended to be created pursuant to this Participation Agreement, the other Operative Documents, and the transactions thereunder (including 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). The Lessee and the Guarantor, upon the written request from any other party to this Participation Agreement, shall take such action as may be necessary (including any action specified in the preceding sentence), as so requested, in order to maintain and protect all security interests provided for hereunder or under any other Operative Document. Expenses relating to any action to be taken by the Guarantor or the Lessee pursuant to the preceding sentence shall be the responsibility of the Guarantor and the Lessee; provided, however, that expenses relating to any such action with respect to any Lessor Lien shall be paid (or be promptly reimbursed to the Guarantor or the Lessee, as applicable) by the party requesting such action. Section 15.12 Submission to Jurisdiction. The Lessee and the Guarantor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Northern District of California for purposes of all legal proceedings arising out of or relating to the Operative Documents or the transactions contemplated hereby. The Lessee and the Guarantor each irrevocably waives, to the fullest extent permitted by law, any objection which it may now or 69 hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Section 15.13 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 OPERATIVE 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 15.13 HAVE BEEN FULLY NEGOTIATED BY THE PARTIES HERETO AND SHALL BE SUBJECT TO NO EXCEPTIONS. EACH OF THE LESSEE AND THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER OPERATIVE DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LESSOR PARTIES ENTERING INTO THIS PARTICIPATION AGREEMENT AND EACH SUCH OTHER OPERATIVE DOCUMENT. Section 15.14 No Bankruptcy Petition Against the Note Purchaser. Each Transaction Party hereby covenants and agrees, on behalf of itself and each of its Affiliates, with the Note Purchaser that, prior to the date which is one year and one day after the payment in full of all commercial paper or other Indebtedness issued by the Note Purchaser, it will not institute against, or join any other Person in instituting against, the Note Purchaser any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings under the law of the United States or any state of the United States. Section 15.15 Limited Recourse to the Note Purchaser and the Lessor. (a) Notwithstanding anything to the contrary contained in this Participation Agreement or any other Operative Document, the obligations of the Note Purchaser under this Participation Agreement and the other Operative Documents are solely the corporate obligations of the Note Purchaser and, with respect to claims made by any other Lessor Party, shall be payable solely to the extent of funds or property received from the Lessee and/or the Guarantor in accordance with this Participation Agreement and the other Operative Documents; provided, however, that the foregoing obligations shall constitute a claim (as defined in Section 101 of the Bankruptcy Code) upon the Note Purchaser only to the extent of such funds or property actually received by the Note Purchaser and not required to repay Commercial Paper. No recourse shall be had for the payment of any amount owing hereunder or any other obligation or claim arising out of or based upon this Participation Agreement or any other Operative Document against any present or former stockholder, manager, member, employee or officer of the Note Purchaser or, unless such obligation or claim arises from the gross negligence or willful misconduct of the Note Purchaser, in such capacity or any employee, officer or director thereof; provided, however, 70 that the foregoing shall not relieve any such person or entity from any liability they might otherwise have as a result of fraudulent actions or omissions taken by them. (b) Notwithstanding anything to the contrary contained in this Participation Agreement or any other Operative Document, the obligations of the Lessor under this Participation Agreement and the other Operative Documents (including, without limitation, the Notes) are solely the corporate obligations of the Lessor and, with respect to claims made by any other Lessor Party, shall be payable solely to the extent of funds or property received from the Lessee and/or the Guarantor in accordance with this Participation Agreement and the other Operative Documents or advanced or to be advanced pursuant to the Equity Investment; provided, however, that the foregoing obligations shall constitute a claim (as defined in Section 101 of the Bankruptcy Code) upon the Lessor only to the extent of such funds or property actually received by the Lessor and not required to repay Notes. No recourse shall be had for the payment of any amount owing hereunder or any other obligation or claim arising out of or based upon this Participation Agreement or any other Operative Document against any present or former stockholder, manager, member, employee or officer of the Lessor or, unless such obligation or claim arises from the gross negligence or willful misconduct of the Lessor, in such capacity or any employee, officer or director thereof; provided, however, that the foregoing shall not relieve any such person or entity from any liability they might otherwise have as a result of fraudulent actions or omissions taken by them. (c) Each Transaction Party agrees that neither the Program Administrator nor the Conduit Agent shall have any liability hereunder as the Program Administrator or the Conduit Agent, as the case may be, for the Note Purchaser or otherwise following its ceasing to act as Program Administrator or the Conduit Agent for the Note Purchaser. Section 15.16 Confidentiality. No Lessor Party shall disclose to any Person any information with respect to the Guarantor or the Lessee which is furnished pursuant to this Participation Agreement or under any other Operative Document, except that any Lessor Party may disclose any such information (a) to its own directors, officers, employees, auditors, counsel and other advisors and to its Affiliates; (b) to any other Lessor Party; (c) which is otherwise available to the public; (d) if required or appropriate in any report, statement or testimony submitted to any Governmental Authority having or claiming to have jurisdiction over such Lessor Party; (e) if required in response to any summons or subpoena; (f) in connection with any litigation relating to the Operative Documents or the transactions contemplated thereby; (g) to comply with any Requirement of Law applicable to such Lessor Party; (h) to any assignee, participant or any prospective assignee or participant, provided that such Person agrees to be bound by this Section 15.16; or (i) otherwise with the prior consent of the Guarantor or the Lessee; provided, however, that any disclosure made in violation of this Participation Agreement shall not affect the obligations of the Guarantor or the Lessee under this Participation Agreement and the other Operative Documents. Section 15.17 Request for Extension of Expiration Date; Replacement of Non-Consenting Liquidity Banks. (a) If, eight (8) months prior to the Maturity Date, the Maturity Date is still scheduled to occur six (6) months after the then current Expiration Date as set forth in the 71 Liquidity Agreement, the Lessee shall, not later than the date occurring seven (7) months prior to the Maturity Date, request that the Liquidity Banks extend the then scheduled Expiration Date to the Maturity Date. In addition, if the Lessee has exercised the Renewal Option pursuant to Section 18.2 of the Master Lease, the Lessee shall also request (in a manner provided in Section 18.2 of the Master Lease) that the Liquidity Banks extend the then scheduled Expiration Date to the new Maturity Date. (For purposes of this Section 15.17, each such request shall constitute a "Expiration Date Extension Request".) Pursuant to Section 3.11 of the Liquidity Agreement, each Liquidity Bank may grant or deny its consent to such Expiration Date Extension Request in its sole discretion. Notwithstanding the foregoing, if the Lessee has exercised the Purchase Option and the purchase of the Property is scheduled to close on or before the Expiration Date, the Lessee shall not be required to make an Expiration Date Extension Request. (b) If one or more Liquidity Banks denies the Lessee's Expiration Date Extension Request, then the Lessee may give notice in writing to such Liquidity Bank(s), the Note Purchaser, the Conduit Agent and the Agent of its intention to replace such Liquidity Bank(s) on or prior to the then scheduled Expiration Date with an Eligible Assignee designated in such notice. Any replacement of a Liquidity Bank pursuant to the foregoing provisions must be acceptable to the Note Purchaser and the Conduit Agent in their sole discretion (including, without limitation, for rating agency concerns). (c) The Note Purchaser and the Conduit Agent shall, in the exercise of their sole discretion and within thirty (30) days of its receipt of any such notice with respect to one or more of the Liquidity Banks, notify the Lessee and such Liquidity Bank(s) whether the designated Eligible Assignee is satisfactory to the Note Purchaser and the Conduit Agent; and, if either shall fail to give such a notice, the request shall be deemed rejected. (d) Upon approval of the designated Eligible Assignee as aforesaid, the Affected Party shall assign its rights and obligations under the Operative Documents to such Eligible Assignee on or prior to the then scheduled Expiration Date. (e) In the event the Note Purchaser and the Conduit Agent does not approve the replacement of such Liquidity Bank(s) with the designated Eligible Assignee, the Lessee shall have the option to (i) designate another Eligible Assignee pursuant to Sections 4.7(a) and 4.7(b) above or (ii) if it is unable to find another Eligible Assignee, the Lessee shall purchase Notes from the Note Purchaser in a principal amount, which in relation to the then outstanding principal amount of the Notes, is equal to the amount in dollars of the Percentage provided by such Liquidity Bank(s) pursuant to the Asset Purchase Agreement, whereupon such Liquidity Bank(s) shall cease to be parties to the Liquidity Documentation and the Expiration Date approved by the remaining Liquidity Banks shall become effective. (f) In addition, if eight (8) months prior to the Maturity Date, the stated maturity date of the Notes is still scheduled to occur six (6) months prior to the Maturity Date, the Lessee on behalf of the Lessor shall, not later than the date occurring seven (7) months prior to the Maturity Date, request that the holder or holders of the Notes extend the then stated maturity date of the Notes to the Maturity Date. In the event the holder or holders of the Notes elect not to extend such stated maturity date in such holder's or holders' sole discretion, the Lessee (without prejudice to its ability to exercise the Remarketing Option) shall purchase the Notes from such 72 holder or holders on or prior to such stated maturity date for an amount equal to the outstanding balance of such Notes without recourse or representation or warranties of any kind. (g) As a condition precedent to any extension of the Expiration Date or any extension of the stated maturity date of the Notes, the Letter of Credit Issuer shall extend the expiry date of the Letter of Credit so that it is conterminous with such new Expiration Date or new maturity date of the Notes, as applicable. Section 15.18 Tax Representation; Tax Forms. (a) Each Lessor Party represents that, except for any withholding of U.S. federal income tax which results from the adoption of or a change in applicable law, regulation or, in each case, the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) (including any statute, treaty, ruling or regulation by a governmental, judicial or taxing authority), with respect to Indebtedness of the Lessee or any other party to the Operative Documents for federal income tax purposes (and assuming that the payments of (x) Basic Rent and (y) Purchase Option Price, Outstanding Lease Balance or Maximum Recourse Amount, as the case may be, are treated for federal income tax purposes as payments of interest and principal, respectively), such Lessor Party is entitled to receive any payments to be made to it by the Lessee or any other party to the Operative Documents without the withholding of any U.S. federal income tax and will furnish to the Agent upon the request of the Lessee such certifications, statements and other documents as are reasonably requested by the Lessee to evidence such Lessor Party's exemption from the withholding of any U.S. federal income tax or to enable the Lessee to comply with any applicable laws or regulations relating thereto. (b) Without limiting the effect of the foregoing Section 15.18(a), if any Lessor Party is not created or organized under the laws of the United States or any state or political subdivision thereof, such Lessor Party will furnish to the Agent upon the request of the Lessee, to the extent required for U.S. federal income tax purposes, Internal Revenue Service Form W-8 BEN or Form W-8 ECI or any subsequent versions of such forms or successors thereto as evidence of such Lessor Party's complete exemption from the withholding of U.S. federal income tax with respect to indebtedness of the Lessee for federal income tax purposes. Such forms shall be delivered by such Lessor Party (i) on or before the date such Lessor Party becomes a party to any of the Operative Documents and promptly before the expiration, obsolescence or invalidity of any form previously delivered by such Lessor Party and (ii) before or promptly after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Lessee pursuant to this Section 15.18, unless, in the case of either clause (i) or (ii), as a result of the adoption of or a change in applicable law, regulation or, in each case, the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) (including any statute, treaty, ruling or regulation by a governmental, judicial or taxing authority), such Lessor Party is not entitled to provide such a form. The Agent and the Lessee shall be entitled to rely on such forms in its possession until receipt of any revised or successor form pursuant to the preceding sentence. 73 (c) For any period with respect to which any Lessor Party is required under subsection (a) or (b) above to furnish the Agent with the appropriate forms described in such subsections but has failed to do so (other than if such failure is due to the adoption of or a change in applicable law as described in subsection (a) or (b) above), such Lessor Party shall not be entitled to any indemnification with respect to Impositions under Section 13.4 hereof, additional payments with respect to increased costs under Section 4.4 hereof, or additional payments with respect to Other Taxes under Section 4.6 hereof to the extent that such Impositions, increased costs or Other Taxes are imposed as a result of such failure. [Signature Page Follows] 74 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. ELECTRONIC ARTS REDWOOD, INC., as the Lessee By: ________________________________________ Name: Khuyen Dang Title: Chief Financial Officer ELECTRONIC ARTS REDWOOD, INC., as the Construction Agent By: ________________________________________ Name: Khuyen Dang Title: Chief Financial Officer ELECTRONIC ARTS, INC., as the Guarantor By: ________________________________________ Name: David L. Carbone Title: Vice President - Finance 75 SELCO SERVICE CORPORATION, doing business in California as Ohio SELCO Service Corporation, as the Lessor By: ________________________________________ Name: Donald Davis Title: Vice President 76 VICTORY RECEIVABLES CORPORATION, as the Note Purchaser By: ________________________________________ Name: Rosa Oliveri Title: Vice President 77 KEYBANK NATIONAL ASSOCIATION, as the Letter of Credit Issuer By: ________________________________________ Name: Mary K. Young Title: Vice President 78 KEYBANK NATIONAL ASSOCIATION, as the Agent By: ________________________________________ Name: Mary K. Young Title: Vice President 79 THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH, as the Conduit Agent By: ________________________________________ Name: Aditya Reddy Title: Vice President 80 KEYBANK NATIONAL ASSOCIATION, as a Liquidity Bank By: ________________________________________ Name: Mary K. Young Title: Vice President 81 THE BANK OF NOVA SCOTIA, as a Liquidity Bank By: ________________________________________ Name: Ed Kofman Title: Director 82 BARCLAYS BANK PLC, as a Liquidity Bank By: ________________________________________ Name: Marlene Wechselblatt Title: Vice President 83 BNP PARIBAS, as a Liquidity Bank By: ________________________________________ Name: Title: By: ________________________________________ Name: Title: 84 Appendix A Definitions and Interpretation Schedule I Contacts, Addresses and Wire Accounts Information Schedule II Disclosure Schedule of the Lessee and the Guarantor Exhibit A Legal Description of the Land Exhibit B-1 Form of Initial Funding Notice Exhibit B-2 Form of Interim Construction Period Funding Notice Exhibit B-3 Form of Final Construction Period Funding Notice Exhibit C Form of Master Lease Exhibit D Form of Construction Agency Agreement Exhibit E Form of Guaranty Exhibit F Form of Environmental Indemnity Agreement Exhibit G Form of Memorandum of Lease Exhibit H Form of Precautionary Deed of Trust Exhibit I Form of Deed of Trust Exhibit J Form of Opinion of Counsel to Lessee and Guarantor Exhibit K Form of Assignment of Construction Agreements Exhibit L Form of Certificate of Responsible Officer - Lessee Exhibit M Form of Certificate of Responsible Officer - Guarantor Exhibit N Form of Administration Agreement Exhibit O Form of Reimbursement Agreement TABLE OF CONTENTS

PAGE ARTICLE I DEFINITIONS; INTERPRETATION................................................. 2 Section 1.1 Definitions; Interpretation............................................... 2 ARTICLE II DOCUMENTATION DATE; FUNDING DATES........................................... 3 Section 2.1 Documentation Date........................................................ 3 Section 2.2 Funding Dates............................................................. 3 ARTICLE III ISSUANCE OF NOTES AND FUNDING OF THE EQUITY INVESTMENT; PURCHASES OF NOTES; APPLICATION OF PROCEEDS OF NOTES AND THE EQUITY INVESTMENT................................................... 4 Section 3.1 Commitment of the Lessor to Issue Notes................................... 4 Section 3.2 Commitment of the Lessor to Fund the Equity Investment.................... 5 Section 3.3 Commitment to Make Note Purchases......................................... 5 Section 3.4 Commitment to Fund the Equity Investment.................................. 5 Section 3.5 Notice Procedures with respect to the Funding of Advances under the Notes and the Equity Investment....................................... 5 Section 3.6 Use of Proceeds of Notes and Equity Investment............................ 7 Section 3.7 Commitment of the Liquidity Banks and Letter of Credit Issuer............. 7 ARTICLE IV CALCULATION OF BASIC RENT AND SUPPLEMENTAL RENT; DETERMINATION OF NOTE RATE; BREAKAGE EXPENSES, INCREASED COSTS, ETC.; TAXES; FEES.................................................... 7 Section 4.1 Rent...................................................................... 7 Section 4.2 Calculation of Basic Rent................................................. 8 Section 4.3 Breakage Expenses; Yield Maintenance Premium.............................. 10 Section 4.4 Increased Costs, etc...................................................... 10 Section 4.5 Change of Circumstances................................................... 11 Section 4.6 Taxes..................................................................... 12 Section 4.7 Replacement of Affected Parties........................................... 13 Section 4.8 Fees...................................................................... 14 Section 4.9 Calculation of Interest and Fees.......................................... 14 ARTICLE V CERTAIN INTENTIONS OF THE PARTIES........................................... 15 Section 5.1 Nature of Transaction..................................................... 15 Section 5.2 Amounts Due Under the Master Lease........................................ 16 Section 5.3 Allocation of Payment Obligations; Payment to Agent....................... 16 ARTICLE VI CONDITIONS PRECEDENT TO FUNDING DATES....................................... 17

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PAGE Section 6.1 Conditions Precedent to the Initial Funding Date.......................... 17 Section 6.2 Conditions Precedent to all Interim Construction Period Funding Dates (Except the Final Construction Period Funding Date)................. 22 Section 6.3 Conditions Precedent to Final Construction Period Funding Date............ 23 Section 6.4 Conditions Precedent to all Base Lease Term Funding Dates................. 25 Section 6.5 Closing................................................................... 26 ARTICLE VII REPRESENTATIONS............................................................. 26 Section 7.1 Representations and Warranties of the Lessee and the Guarantor................................................................. 26 Section 7.2 Representations and Warranties of the Guarantor and the Lessee as of each Funding Date after the Initial Funding Date.............................................................. 34 Section 7.3 Representations and Warranties of the Note Purchaser...................... 34 Section 7.4 Representations and Warranties of the Lessor.............................. 35 Section 7.5 Representations and Warranties of each Liquidity Bank and the Letter of Credit Issuer.................................... 37 ARTICLE VIII COVENANTS................................................................... 38 Section 8.1 Affirmative Covenants of Guarantor and Lessee............................. 38 Section 8.2 Negative Covenants........................................................ 43 Section 8.3 Financial Covenants....................................................... 46 ARTICLE IX COVENANTS OF THE LESSOR, THE NOTE PURCHASER AND THE LIQUIDITY BANKS............................................................. 47 Section 9.1 General Covenants of the Lessor and the Note Purchaser.................................................................. 47 Section 9.2 Specific Covenants of the Lessor........................................... 48 Section 9.3 Specific Covenant of the Note Purchaser.................................... 48 Section 9.4 Covenants of the Other Lessor Parties...................................... 48 Section 9.5 Notices Under the Note Purchase Agreement and the Liquidity Documentation......................................... 49 ARTICLE X PAYMENT OF CERTAIN EXPENSES; OPTIONAL APPRAISALS............................ 49 Section 10.1 Transaction Expenses...................................................... 49 Section 10.2 Stamp Taxes............................................................... 49 Section 10.3 Note Purchase Agreement and Related Obligations........................... 49 Section 10.4 Optional Appraisals....................................................... 49 ARTICLE XI APPLICATION OF PAYMENTS..................................................... 50

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PAGE Section 11.1 Consenting Parties; Voting Rights of Lessor Parties in Connection with Direction of the Agent................................. 50 Section 11.2 Application of Payments made by the Lessee and Guarantor Pursuant to the Operative Documents prior to the Occurrence and Continuance of any Lease Event of Default................................................................ 50 Section 11.3 Application of Funds Upon the Occurrence and Continuance of any Lease Event of Default................................. 51 Section 11.4 Casualty, Condemnation or Unwind Proceeds................................. 51 Section 11.5 Construction of Local Laws................................................ 51 ARTICLE XII ASSIGNMENTS AND TRANSFERS BY LESSOR, LIQUIDITY BANKS AND NOTE PURCHASER.............................................................. 52 Section 12.1 Acknowledgment of Grant of Security Interest to the Agent; Assignments........................................................ 52 Section 12.2 Assignments by Note Purchaser, etc........................................ 52 Section 12.3 Disclosure of Information................................................. 52 Section 12.4 Limitation on Assignment.................................................. 52 ARTICLE XIII INDEMNIFICATION............................................................. 52 Section 13.1 General Indemnification................................................... 52 Section 13.2 Environmental Indemnity.................................................. 54 Section 13.3 Proceedings in Respect of Claims.......................................... 55 Section 13.4 General Tax Indemnity..................................................... 57 Section 13.5 Indemnity Payments in Addition to Master Lease Obligations................ 62 Section 13.6 Indemnity Under Construction Agency Agreement............................. 62 ARTICLE XIV AGENT; PLEDGED PROPERTY..................................................... 62 Section 14.1 Appointment and Duties of the Agent....................................... 62 Section 14.2 Rights of the Agent....................................................... 63 Section 14.3 Lack of Reliance on the Agent............................................. 65 Section 14.4 Resignation of the Agent.................................................. 65 Section 14.5 Successor Agent by Merger................................................. 65 Section 14.6 Eligibility of the Agent.................................................. 65 Section 14.7 Collection of Payments.................................................... 66 Section 14.8 Pledged Property.......................................................... 66 ARTICLE XV MISCELLANEOUS............................................................... 67

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PAGE Section 15.1 Survival of Agreements.................................................... 67 Section 15.2 No Broker, etc............................................................ 67 Section 15.3 Notices................................................................... 67 Section 15.4 Counterparts.............................................................. 67 Section 15.5 Amendments................................................................ 68 Section 15.6 Headings, etc............................................................. 68 Section 15.7 Parties in Interest....................................................... 68 Section 15.8 Governing Law............................................................. 69 Section 15.9 Severability.............................................................. 69 Section 15.10 Liability Limited......................................................... 69 Section 15.11 Further Assurances........................................................ 69 Section 15.12 Submission to Jurisdiction................................................ 69 Section 15.13 Waiver of Jury Trial...................................................... 70 Section 15.14 No Bankruptcy Petition Against the Note Purchaser......................... 70 Section 15.15 Limited Recourse to the Note Purchaser and the Lessor..................... 70 Section 15.16 Confidentiality........................................................... 71 Section 15.17 Request for Extension of Expiration Date; Replacement of Non-Consenting Liquidity Banks......................................... 71 Section 15.18 Tax Representation; Tax Forms............................................. 73

-iv- An extra section break has been inserted above this paragraph. Do not delete this section break if you plan to add text after the Table of Contents/Authorities. Deleting this break will cause Table of Contents/ Authorities headers and footers to appear on any pages following the Table of Contents/Authorities. Appendix A APPENDIX A TO PARTICIPATION AGREEMENT 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, supplemented, restated 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, and reference in any Section or definition contained in any Operative Document to any clause means such clause of such Section or definition; (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; (ix) relative to the determination of any period of time, "from" means "from and including" and "to" means "to but excluding"; and APP-1 Appendix A (x) "now", "currently", "existing" and other words to that effect mean the date on which each respective Operative Document has been executed by all parties thereto. B. Accounting Terms and Determinations. Unless otherwise specified in any Operative Document, all accounting terms used therein shall be interpreted, all accounting determinations thereunder shall be made, and all financial statements required to be delivered thereunder shall be prepared in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Guarantor's independent public accountants) with the most recent audited consolidated financial statements of the Guarantor and its Subsidiaries delivered to the Lessor. C. 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. D. 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. E. Defined Terms. Unless a clear contrary intention appears, terms defined herein have the respective indicated meanings when used in each Operative Document. "Acceleration Event" is defined in the Note Purchase Agreement. "Acceptable Condition" is defined in Section 1.1 of the Construction Agency Agreement. "Accreted Amount" is defined in Section 3.1(a) of the Participation Agreement. "Additional Construction Period Insurance" means the insurance Lessee is required to maintain and/or cause to be maintained during the Construction Period pursuant to Section 2.10 of the Construction Agency Agreement. "Administration Agreement" means that certain Administration Agreement, substantially in the form of Exhibit N to the Participation Agreement, as the same may be amended, modified and in effect from time to time. "Adverse Environmental Condition" means the occurrence of any Hazardous Condition or any of the matters referred to in the definition of Environmental Claim. "Agent" means Key Bank National Association, in such capacity under the Operative Documents, and its permitted successors and assigns. "Affected Party" is defined in Section 4.7 of the Participation Agreement. "Affiliate" means, as to any Person, any other Person that would be considered an affiliate of such Person under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if such Person were issuing securities, by APP-2 Appendix A contract or otherwise. Nothing in the foregoing definition shall be interpreted to construe that any of the Lessor Parties is an Affiliate of the Guarantor or Lessee. "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 with respect to the receipt by the recipient of such amounts, such increased payment (after such deduction) is equal to the payment otherwise required to be made. "Aggregate Commitment Amount" means the sum of the Aggregate Equity Investment Commitment and the Aggregate Note Purchase Commitment. "Aggregate Equity Investment Commitment" is defined in Section 3.2 of the Participation Agreement. "Aggregate Note Purchase Commitment" is defined in Section 3.1 of the Participation Agreement. "ALTA" means American Land Title Association. "ALTA Improvements Survey" is defined in Section 6.3(g) of the Participation Agreement. "ALTA Land Survey" is defined in Section 6.1(o) of the Participation Agreement. "Alternate Rate" means, on any day, the greater of (i) the Prime Rate in effect on such date and (ii) the Federal Funds Rate for such day plus one-half percent (0.50%). "Applicable Law" means all existing and future applicable laws, rules, regulations (including Environmental Laws), statutes, treaties, codes, ordinances, permits, certificates, 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, those pertaining to the construction of Improvements or the use or occupancy of the Property and those which in any way limit the use or enjoyment thereof), or common law, in each case affecting the Lessee, the Guarantor or the Property, and any restrictive covenant or deed restriction or easement of record encumbering the Property. "Applicable Margin" means the spread over the one (1) month LIBOR rate determined by reference to the Guarantor's Consolidated Debt/Tangible Net Worth Ratio set forth in the following pricing grid:

Total Consolidated Debt/ ------------------------ Consolidated Tangible Net Worth LIBOR Margin - ------------------------------- ------------ < than = to 0.33 1.25% < than = to 0.50 1.50% < than = to 0.65 1.75% > 0.65 2.00%

APP-3 Appendix A "Appraisal" means an appraisal of the Property acceptable in form and substance to the Lessor Parties in their sole discretion. "Appraiser" means Hulberg & Associates or such other appraiser as may be acceptable to the Transaction Parties from time to time. "Appurtenant Rights" means, with respect to the Land, (i) all agreements, easements, rights of way or use, rights of ingress or egress, privileges, appurtenances, tenements, hereditaments and other rights and benefits, if any, at any time heretofore or hereafter granted to the Land or the Improvements thereon, including, the use of any streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or contiguous to the Land and (ii) all permits, licenses and rights, whether or not of record, appurtenant to the Land. "Asset Purchase Agreement" means that certain Asset Purchase Agreement, dated as of December 6, 2000, among the Program Administrator, the Note Purchaser and the Liquidity Banks. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy". "Base Lease Term" means that portion of the Lease Term that begins immediately after the Construction Period. "Base Lease Term Funding Date" has the meaning specified in Section 2.2(e) of the Participation Agreement. "Basic Rent" means the amount determined in accordance with Article IV of the Participation Agreement and payable as such under the Participation Agreement and the Master Lease. "Basic Rent Payment Date" means the 12th calendar day of each month, commencing on January 12, 2001; provided, however, that if the 12th calendar day of any month is not a Business Day, the Basic Rent Payment Date for such month shall be the next succeeding Business Day. "Budget" means the project budget attached to the Construction Contract, as approved by the Lessor Parties in their reasonable discretion. "Business Day" means any day on which (i) commercial banks are not authorized or required to close in San Francisco, California or New York, New York and (ii) if such Business Day is related to a LIBOR rate, dealings in Dollar deposits are carried out in the London interbank market. "Capital Lease" means, as applied to any Person, any lease of property by such Person as lessee which would be capitalized on a balance sheet for such Person prepared in accordance with GAAP. "Capital Lease Obligations" means the capitalized amount of all obligations under Capital Leases. APP-4 Appendix A "Cash Equivalents" means: (i) Direct obligations of, or obligations the principal and interest on which are unconditionally guaranteed by, the United States or obligations of any agency of the United States to the extent such obligations are backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) Certificates of deposit maturing within one year from the date of acquisition thereof issued by a commercial bank or trust company organized under the laws of the United States or a state thereof or that is a Lessor Party, provided that (a) such deposits are denominated in Dollars, (b) such bank or trust company has capital, surplus and undivided profits of not less than $100,000,000 and (c) such bank or trust company has certificates of deposit or other debt obligations rated at least A-1 (or its equivalent) by S&P or P-1 (or its equivalent) by Moody's; and (iii) Open market commercial paper maturing within 270 days from the date of acquisition thereof issued by a corporation organized under the laws of the United States or a state thereof, provided such commercial paper is rated at least A-1 (or its equivalent) by S&P or P-1 (or its equivalent) by Moody's. "Casualty" means any damage or destruction of all or any portion of the Property as a result of a fire or other casualty. "Casualty Proceeds" means the proceeds of any awards, settlements or payment made to the Lessor and/or the Lessee as a result of a Casualty having occurred on the Property. "Certifying Party" is defined in Section 21.3 of the Master Lease. "Chief Financial Officer" means, with respect to any company or organization, the chief financial officer, or, in case of his or her unavailability, the treasurer, assistant treasurer or chief accounting officer of such company or organization. "Claims" means any and all obligations, liabilities, losses, actions, suits, judgments, penalties, fines, claims, demands, settlements, costs and expenses (including, reasonable legal fees and expenses) of any nature whatsoever. "Collateral" means the "Collateral" as defined in all of the Conveyance Instruments and all other collateral pledged to the Agent pursuant to any other Operative Document. "Commercial Paper" means commercial paper issued by the Note Purchaser to fund its purchase of the Notes and the advances to be funded thereunder. "Commitment Fees" is defined in Section 4.8(b) of the Participation Agreement. "Commitment Termination Event" means (i) the occurrence of any Lease Event of Default described in clause (g) or (h) of Section 17.1 of the Master Lease; or APP-5 Appendix A (ii) the occurrence and continuance of any other Lease Event of Default and either (i) the Lessor or the Agent shall have commenced its exercise of remedies pursuant to Section 17.3 of the Master Lease or (ii) the Agent, acting at the direction of the Consenting Parties, shall have given notice to the Lessee that the Commitments have terminated; or (iii) the Agent shall have delivered a Notice of Default to the Lessee pursuant to the Note Purchase Agreement. "Commitments" means (i) the commitment of the Note Purchaser and/or the Liquidity Banks to purchase the Notes and to fund the advances to be made thereunder pursuant to the Note Purchase Agreement or the Liquidity Documentation, as applicable, and (ii) the commitment of the Lessor to make the Equity Investment. "Compliance Certificate" is defined in Section 8.1(d)(iv) of the Participation Agreement. "Condemnation" means any condemnation, requisition, confiscation, seizure or other taking or sale of the use, access, occupancy, easement rights or title to the 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, the Property or alter the pedestrian or vehicular traffic flow to the Property so as to result in change in access to the 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. "Condemnation Proceeds" shall mean the proceeds received by the Lessor relating to a condemnation (whether partial or total) of the Property. "Conduit Agent" means The Bank of Tokyo-Mitsubishi, Ltd., New York Branch, and its permitted successors and assigns. "Consenting Parties" shall have the meaning specified in Section 11.1(b) of the Participation Agreement. "Consent to Assignment of Construction Contract" means that certain Consent to Assignment of Construction Contract, substantially in the form of Exhibit L to the Participation Agreement, as the same may be amended, modified and in effect from time to time. "Consolidated EBITDAR" means, with respect to the Guarantor, the sum of the following, which shall be calculated for any Fiscal Quarter on a rolling four quarter basis: (i) the Guarantor's and its Subsidiaries' consolidated Net Income before any extraordinary items and deduction of interest expenses and income taxes, plus (ii) depreciation and amortization expenses of the Guarantor and its Subsidiaries accruing during such period, plus (iii) the aggregate amount of all rentals paid during such period by the Guarantor and its Subsidiaries under any lease (other than capital leases) plus (iv) any interest which is capitalized for purposes of the lease transactions contemplated by the Participation Agreement. APP-6 Appendix A "Consolidated Fixed Charges" means, with respect to the Guarantor, the sum of: (i) the aggregate amount of all interest and principal payments of the Guarantor and its Subsidiaries, plus (ii) the aggregate amount of all rental expenses of the Guarantor and its Subsidiaries, plus (iii) any interest which is capitalized for purposes of the lease transactions contemplated by the Participation Agreement. "Consolidated Net Worth" means, with respect to the Guarantor, the total stockholder's equity of the Guarantor and its Subsidiaries as reflected in accordance with GAAP on its most recent consolidated balance sheet. "Consolidated Tangible Net Worth" means with respect to the Guarantor, the remainder of (i) Consolidated Net Worth of the Guarantor and its Subsidiaries minus (ii) all intangible assets of the Guarantor and its Subsidiaries (to the extent included in calculating Consolidated Net Worth), including, without limitation, goodwill (including any amounts, however designated on the balance sheet, representing the cost of acquisition of businesses and investments in excess of underlying tangible assets), trademarks, trademark rights, trade name rights, copyrights, patents, patent rights, licenses, unamortized debt discount, marketing expenses, organizational expenses, non-compete agreements and deferred research and development. "Construction Agency Agreement" means that certain Construction Agency Agreement, substantially in the form of Exhibit D to the Participation Agreement, dated as of the Initial Funding Date, between the Lessor and the Lessee, as the same may be amended, modified and in effect from time to time. "Construction Agency Agreement Event of Default" is defined in Section 6.1 of the Construction Agency Agreement. "Construction Agent" means Electronic Arts Redwood, Inc. in its capacity as such under the Construction Agency Agreement. "Construction Contract" means that certain Agreement Between Electronic Arts Redwood, Inc., as Construction Agent and Webcor Builders, dated as of December 5, 2000. "Construction Period" means the period commencing as of the Initial Funding Date and ending on the earlier to occur of (x) the Outside Completion Date and (y) the date on which Substantial Completion is deemed to have occurred pursuant to the Construction Agency Agreement. "Contingent Obligation" means, as applied to the Guarantor or any Subsidiary, any direct or indirect liability, contingent or otherwise, of the Guarantor with respect to any Indebtedness of another Person which is not the Guarantor or a Subsidiary of the Guarantor (the "primary obligor"), if the purpose or intent thereof by the Guarantor is to provide assurance to the obligee of such Indebtedness of the primary obligor that such Indebtedness will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such Indebtedness will be protected (in whole or in part) against loss in respect thereof. Contingent Obligations include, without limitation, (i) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by the Guarantor of the Indebtedness of the primary obligor, and APP-7 Appendix A (ii) any liability of the Guarantor for the Indebtedness of the primary obligor through any agreement (contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such Indebtedness or any security therefor, or to provide funds for the payment or discharge of such Indebtedness (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), (b) to maintain the solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (c) to make take-or-pay or similar payments, if required regardless of nonperformance by any other party or parties to an agreement, if in the case of any agreement described under subclause (a), (b) or (c) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the Indebtedness so guaranteed or otherwise supported. "Contractor" means Webcor Builders. "Conveyance Instrument" means any deed, assignment of lease, mortgage, deed of trust, memorandum of lease, memorandum of mortgage, UCC-1 Financing Statement, any assignment of any of the foregoing, or any other similar instrument purporting to create or evidence a Lien against, or convey or otherwise transfer any interest in, the Property to any Person. "CP Rate" means, with respect to the Note Purchaser, the all-in-cost of funding its acquisition of the Notes and the funding of the advances thereunder to the extent such funding is being provided by the Note Purchaser's issuance of Commercial Paper (including discount, dealer commissions and such other amounts as the Conduit Agent determines to be appropriate). The determination of the Note Purchaser's CP Rate, as well as the determination of which maturities of Commercial Paper to issue, will be made by the Conduit Agent, whose determination shall be binding for all purposes absent manifest error; provided, however, that the Conduit Agent shall consult with the Lessee concerning Commercial Paper maturities. Accrued discount on the Commercial Paper maturing between Basic Rent Payment Dates will be capitalized. "Deed" means a grant deed with respect to the Property, in conformity with Applicable Law and appropriate for recording with the applicable Governmental Authorities, conveying fee simple title to the Property to the Lessor. "Deed of Trust" means that certain Deed of Trust, Assignment of Leases and Rents, Security Agreement, Financing Statement and Fixture Filing, substantially in the form of Exhibit J to the Participation Agreement, as the same may be amended, modified and in effect from time to time. "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. "Early Termination Date" is defined in Section 16.2 of the Master Lease. "Early Termination Notice" is defined in Section 16.1 of the Master Lease. APP-8 Appendix A "Eligible Account" means (i) any account maintained with a federal or state chartered depository institution or trust company whose (x) commercial paper, short-term debt obligations or other short-term deposits are rated at least A-1 or P-1 by a Rating Agency if the deposits in such account are to be held in such account for thirty (30) days or less or (y) long-term unsecured debt obligations are rated at least AA- or A1 by each Rating Agency if the deposits in such account are to be held in such account for more than thirty (30) days; or (ii) a segregated trust account maintained with the trust department of a federal or state chartered depository institution or trust company acting in its fiduciary capacity which institution or trust company is subject to regulations regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section 9.10; or (iii) an account otherwise acceptable to each Rating Agency, as confirmed in writing that such account would not, in and of itself, result in a downgrade, qualification or withdrawal of the then current ratings assigned to any of the Notes. "Eligible Assignee" means, with respect to the replacement of a Liquidity Bank as set forth in the Participation Agreement, the commercial financial institution proposed by the Lessee in the Replacement Notice to replace such Liquidity Bank, which financial institution shall meet the qualifications to become an assignee of such Liquidity Bank under the applicable Liquidity Documentation and shall be acceptable to the Note Purchaser in its sole discretion. "Employee Benefit Plan" means any employee benefit plan within the meaning of Section 3(2) of ERISA maintained or contributed to by the Guarantor or any ERISA Affiliate, other than a Multiemployer Plan. "End of Term Report" is defined in Section 13.2 of the Participation Agreement. "Environmental Audit" or "Environmental Report" means a written report from an environmental consultant selected by the Lessee and approved by the Lessor Parties, documenting that such environmental consultant has performed a review of the environmental condition of and compliance of the Property and that such review contains, at a minimum, site assessment information that generally meets or exceeds applicable industry standards and practices and the most current ASTM Standard Practice for Environmental Site Assessments: Phase One Environmental Site Assessment. "Environmental Claim" means any legal obligation or notice of violation, claim, action, proceeding, demand, abatement, lien or other order or direction (conditional or otherwise) by any Governmental Authority or any Person relating to personal injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment, nuisance, pollution, contamination or other adverse effects on the environment, or for fines, penalties or restrictions, resulting from or based upon (i) the existence (whether currently known or unknown), or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or nonaccidental Releases) of, or exposure to, any Hazardous Substance, odor or audible noise or other release or emission in, into or onto the environment (including the air, ground, water or any surface) at, in, by, from, or related to (a) the Property or (b) the transportation, storage, treatment or disposal of materials in connection with the operation of the Property, or (ii) the violation, or alleged violation, of any Environmental Laws or Permits of, or from, any Governmental Authority relating to environmental matters connected with the Property. APP-9 Appendix A "Environmental Indemnity Agreement" means that certain Environmental Indemnity Agreement, substantially in the form of Exhibit F to the Participation Agreement, as the same may be amended, modified and in effect from time to time. "Environmental Law" means all present and future Applicable Laws relating to the environment, including without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, the Hazardous Material Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, the Federal Clean Water Act, as amended, the Federal Clean Air Act as amended, the Toxic Substances Control Act as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended and the Occupational Safety and Health Act, as amended, and any other federal, state or local statutes, present or future, relating to health, safety, or the environment, including, without limitation, transfer of ownership notification statutes and the regulations promulgated pursuant thereto. "Equity Investment" means the equity investment to be made by the Lessor pursuant to Article III of the Participation Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder. "ERISA Affiliate" means any Person which is treated as a single employer, trade or business (whether or not incorporated) with the Guarantor under Section 414 of the Revenue Code. "ERISA Reportable Event" means a reportable event with respect to a Guaranteed Pension Plan within the meaning of Section 4043 of ERISA and the regulations promulgated thereunder as to which the requirement of notice has not been waived. "ESOP" means any employee stock ownership plan of the Guarantor currently in existence or hereafter adopted by the Guarantor. "Event of Loss" means, with respect to the Property, any of the following events: (i) any Casualty that renders the Property unsuitable for continued use as property of its type immediately prior to such Casualty, (ii) any Casualty that is so substantial in nature that restoration of the Property to substantially its condition as existed immediately prior to such Casualty would be impracticable or impossible, (iii) any Casualty which results in an insurance settlement with respect to the Property on the basis of a total loss of the Improvements; (iv) any Condemnation that involves the taking of the applicable Lessor's entire title to the Property, (v) any Condemnation that is such that restoration of the Property to substantially its condition as existed immediately prior to such Condemnation would be impracticable or impossible, or (vi) any Condemnation whereby the use or occupancy of the Property by the Lessee thereof shall have been prohibited, directly or indirectly, for a period equal to the lesser of (vii) ninety (90) consecutive days and (y) the remaining Lease Term. "Excess Remarketing Proceeds" is defined in Section 18.3(n) of the Master Lease. APP-10 Appendix A "Excess Sales Proceeds" means the excess, if any, of (x) the aggregate of all proceeds received by the Lessor under the Master Lease in connection with the sale of the Property pursuant to the Lessor's or the Agent's exercise of remedies under Section 17.3 of the Master Lease or the Lessee's exercise of the Remarketing Option pursuant to the Master Lease over (y) the sum of the Outstanding Lease Balance plus all unpaid Basic Rent and Supplemental Rent thereunder. "Excess Unwind Proceeds" is defined in Section 17.8(c)(9) of the Master Lease. "Existing Land Owner" means Flatirons Funding, Limited Partnership, a Delaware limited partnership. "Expiration Date" is defined in Section 1.1 of the Liquidity Agreement. "Expiration Date Extension Request" is defined in Section 15.17 of the Participation Agreement. "Fair Market Value" means, with respect to the 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 the Property. The Fair Market Value shall be determined based on the assumption that (x) the Property is in the condition and state of repair required under Section 9.2 of the Master Lease and (y) 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, the rate per annum set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor publication, "H.15 (519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day, such rate is not yet published in H.15 (519), the rate for such day shall be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor publication, the "Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds Effective Rate". If on any relevant day, such rate is not yet published in either H.15 (519) or the Composite 3:30 p.m. Quotations, the rate for such day shall be the arithmetic means, as determined by Agent, of the rates quoted to the Agent for such day by three (3) Federal funds brokers of recognized standing selected by the Agent. "Federal Reserve Board" has the meaning specified in Section 7.1(e) of the Participation Agreement. "Final Completion" is defined in Section 1.1 of the Construction Agency Agreement. "Final Construction Period Funding Date" is defined in Section 2.2 of the Participation Agreement. "Financing Statements" means UCC Financing Statements appropriately completed and executed for filing in each applicable jurisdiction in order to protect the interests of each of the APP-11 Appendix A Lessor Parties under the Operative Documents to the extent the Master Lease, the Memorandum of Lease, the Deed of Trust, Precautionary Deed of Trust and any other Conveyance Instruments constitute security agreements. "Fiscal Quarter" means any fiscal quarter of the Guarantor ending on March 31, June 30, September 30 or December 31. Subsequent changes of the fiscal quarter of the Guarantor shall not change the term "Fiscal Quarter" as used herein, unless the Consenting Parties shall consent in writing to such a change. "Fiscal Year" means the fiscal year of the Guarantor ending on December 31. Subsequent changes of the fiscal year of the Guarantor shall not change the term "Fiscal Year" as used herein, unless the Consenting Parties shall consent in writing to such a change. "Flatirons Lease" means that certain "synthetic lease" transaction evidenced by that certain Amended and Restated Agreement for Lease, dated as of March 7, 1997, by and between the Existing Land Owner and the Lessee, together with all documents, instruments and agreements related thereto, as amended, restated or modified and in effect from time to time. "Funding Date" is defined in Section 2.2 of the Participation Agreement and shall include the Initial Funding Date, each Interim Funding Date, the Final Construction Period Funding Date and each Base Lease Term Funding Date. "Funding Notice" is a written notice, substantially in the form of Exhibit B-1 (with respect to the Initial Funding Date), Exhibit B-2 (with respect to an Interim Construction Period Funding Date) or Exhibit B-3 (with respect to the Final Construction Period Funding Date) to the Participation Agreement to be delivered by the Lessee prior the relevant Funding Date pursuant to Section 3.5 and Article VI of the Participation Agreement. "GAAP" means, subject to the immediately succeeding sentence, (i) when used in the Operative Documents with respect to the books, records and financial statements of the Lessee or the Guarantor, whether directly or indirectly through reference to a capitalized term used therein, (A) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board of the United States and its predecessors, in effect for the relevant fiscal year, and (B) to the extent consistent with such principles, the accounting practice of the Guarantor reflected in its financial statements for the relevant fiscal year, and (ii) when used in general, other than as provided above, means principles that are (A) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time, and (B) consistently applied with past financial statements of the Person adopting the same principles. In each case provided in the preceding sentence with respect to any financial statements, a certified public accountant would be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) that "generally accepted accounting principles" have been properly applied to such financial statements. "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, APP-12 Appendix A any Governmental Authority, or required by any Applicable Law, including all required environmental and operating permits and licenses, for the full use, occupancy, zoning and operation of the 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 18.3(k) of the Master Lease. "Guaranteed Pension Plan" means any employee pension benefit plan within the meaning of Section (3)(2) of ERISA (other than a Multiemployer Plan) which the Guarantor, any of its Subsidiaries or any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants and which is guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA. "Guarantor" means Electronic Arts, Inc., a Delaware corporation, in such capacity under the Operative Documents, together with its permitted successors and assigns. "Guaranty" means that certain Guaranty, substantially in the form of Exhibit E to the Participation Agreement, as the same may be amended, modified and in effect from time to time. "Hazardous Activity" means any activity, process, procedure or undertaking that directly or indirectly (i) produces, generates or creates any Hazardous Substance; (ii) causes or results in (or threatens to cause or result in) the Release of any Hazardous Substance 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 Substance; or (iv) would be regulated under any Environmental Law. "Hazardous Condition" means any condition at the Property that violates or threatens to violate, that results in or threatens noncompliance with, or that creates liability under, any Environmental Law. "Hazardous Substance" means any of the following: (i) any petroleum or petroleum product (or additives thereto, such as, but not limited to, MTBE), explosives, radioactive materials, asbestos, ureaformaldehyde, polychlorinated biphenyls, lead and radon gas; (ii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste, or pollutant, in each case whether naturally occurring, man-made or the by-product of any process, that is toxic or hazardous to the environment or human health or safety, or which is now or hereafter defined or regulated as such under any regulation under any Environmental Law; or (iii) any substance, material, product, derivative, compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant that would support the assertion of any claim under any Environmental Law, whether or not defined as hazardous as such under any Environmental Law. "Impositions" means any and all liabilities, losses, expenses and costs of any kind whatsoever for Taxes (including, (i) real and personal property taxes, including personal property taxes on any portion of the Property that is classified by Governmental Authorities as personal APP-13 Appendix A property; (ii) sales taxes, use taxes and other similar taxes (including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) conveyance taxes, intangible taxes, stamp taxes and documentary recording taxes and fees; (v) taxes that are or are in the nature of franchise, income, value added, gross receipts, privilege and doing business taxes, license and registration fees; and (vi) assessments on the 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. Notwithstanding anything in the first paragraph of this definition (except as provided in the final paragraph of this definition) the term "Impositions" shall not mean or include: (i) Taxes that are based upon or measured by or with respect to the gross or net income, receipts, profits, gains, capital or net worth (including, any minimum or alternative minimum Taxes, income or capital gains Taxes, excess profits Taxes, items of Tax preference, or capital stock, franchise, business privilege or doing business Taxes), or accumulated earnings Taxes or personal holding company Taxes, including Taxes collected by withholding, if and to the extent that such Taxes collected by withholding are not attributable to a change in Applicable Law after the effective date hereof (but Taxes described in this clause (i) shall not include Taxes that are, or are in the nature of, sales, use, rental, transfer or property Taxes), in each case imposed by any Governmental Authority in the jurisdiction of incorporation of such Tax Indemnitee, or the jurisdiction in which such Tax Indemnitee either maintains its applicable lending office or is otherwise subject to tax other than as a result of transactions contemplated by the Operative Documents, and any interest, additions to tax, penalties or other charges in respect of such Taxes and impositions; 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 with respect to the Property to the extent, but only to the extent, such Tax or imposition is attributable to any act, event or omission that occurs after, or is attributable to a period beginning after, the return of the Property to the Lessor in accordance with the terms of the Master Lease, provided, that there shall not be excluded from the definition of the term "Impositions" any Taxes or impositions to the extent such Taxes or impositions are attributable to events or circumstances occurring after the occurrence and during the continuance of a Lease Event of Default; (iii) any Tax for so long as, but only for so long as, it is being contested in accordance with the provisions of Section 13.4 of the Participation Agreement provided that the foregoing shall not limit any obligation under such Section to advance to the relevant Tax Indemnitee amounts with respect to Taxes that are being contested in accordance with such Section or any expenses reasonably incurred by such Tax Indemnitee in connection with such contest; (iv) any interest, additions to tax or penalties imposed as a result of a breach by the Tax Indemnitee of its obligations under the Operative Documents or as a result of the 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 APP-14 Appendix A interest, additions to tax or penalties arise as a result of a position taken (or requested to be taken) by the Guarantor or the Lessee in a contest controlled by the Guarantor or the Lessee under Section 13.4 of the Participation Agreement or (y) if such failure is attributable to a failure by the Guarantor or the Lessee; provided that, the treatment by a Governmental Authority of the arrangement created by the Operative Documents as other than a loan secured by the Property shall not cause any return or other document to be considered not having been filed as prescribed by applicable law. (v) any Taxes imposed with respect to any voluntary (or, with respect to the Lessor, involuntary) transfer, sale, financing or other voluntary (or, with respect to the Lessor, involuntary) disposition by the Tax Indemnitee of any interest in the Property or any part thereof, or any interest therein or any interest or obligation under the Operative Documents (other than any transfer in connection with (1) the exercise by the Lessee of its Purchase Option or Remarketing Option under the Master Lease or any termination option or other purchase of the Property by the Lessee, (2) the occurrence of a Lease Event of Default, (3) a Casualty or Condemnation affecting the Property, or (4) any sublease, modification or addition to the Property by the Lessee); (vi) other than with respect to the Agent and any Liquidity Bank or the Note Purchaser, or, in each case, each of their Affiliates and their respective successors and assigns, Taxes imposed on or with respect to, based on, or measured by any fees received by any Tax Indemnitee; (vii) Taxes resulting from, or that would not have been imposed but for, the gross negligence or willful misconduct of such Tax Indemnitee or Affiliate thereof, (viii) Taxes resulting from, or that 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 or Guarantor's breach of any of its representations, warranties or covenants set forth in the Operative Documents); (ix) Taxes arising out of or resulting from the Tax Indemnitee's failure to comply with the provisions of Section 13.4 of the Participation Agreement, which failure precludes or materially adversely affects the ability to conduct a contest pursuant to Section 13.4 of the Participation Agreement (unless such failure is caused by the Lessee's or Guarantor's breach of any of its obligations under such Section); (x) Taxes that would have been imposed in the absence of the transactions contemplated by the Operative Documents, and Taxes arising out of, or imposed as a result of, activities of a Tax Indemnitee or Affiliate thereof unrelated to the transactions contemplated by the Operative Documents; (xi) Taxes Imposed on a Tax Indemnitee arising out of or resulting from, or that would not have been imposed but for the existence of, any Lessor Lien attributable to such Tax Indemnitee; APP-15 Appendix A (xii) any Tax imposed against or payable by the Tax Indemnitee that is a direct or indirect successor, transferee, or assignee of an original Tax Indemnitee to the extent that, based on the Applicable Law in effect on the date of transfer or assignment, the amount of such Tax exceeds the amount of such Tax that would have been imposed against or payable by (or, if less, that would have been subject to indemnification under Section 13.3 of the Participation Agreement) such original Tax Indemnitee; provided, however, that this exclusion shall not apply if such direct or indirect successor, transferee or assignee acquired its interest as a result of a transfer while a Lease Event of Default shall have occurred and is continuing; (xiii) Taxes that would not have been imposed but for an amendment, supplement, modification, consent or waiver to any Operative Document (i) not initiated, requested or consented to by the Lessee and (ii) initiated, requested or consented to by the Tax Indemnitee unless such amendment, supplement, modification, consent or waiver (A) arises from, or in connection with the occurrence of, a Lease 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; (xiv) Taxes in the nature of intangibles, stamp, documentary or similar Taxes, other than stamp, transfer and other similar taxes, fees and excises, including interest and penalties, which are arising out of or payable in connection with the transactions contemplated by the Participation Agreement or the other Operative Documents; (xv) any Tax imposed under Section 4975 of the Revenue Code or Section 406 of ERISA other than, and subject to the accuracy of the representations set forth in Section 7.3(a) of the Participation Agreement, a Tax or imposition resulting from the transactions contemplated by the Master Lease or by any other Operative Document, in respect of the application of Section 406(a) of ERISA and any prohibited transaction described in Section 4975(c)(1)(A)-(D) of the Revenue Code; and (xvi) any Tax, assessment or other governmental charge that would not have been imposed but for the failure of a Lessor Party, upon reasonable request, to comply with any certification, information, documentation or other reporting requirement with which such Lessor Party is eligible to comply and compliance with which such Lessor Party has determined is not adverse to it in any material respect. Notwithstanding the foregoing, the exclusions from the definition of Impositions set forth above shall not apply (but the exclusions set forth in clauses (iii), (iv), (vii), (viii), (x) and (xv) shall apply) to (i) any aggregate 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 would not have occurred if on the Funding Date the Tax Indemnitee had advanced funds to the Lessee under an arrangement properly characterized for federal income tax purposes as a loan secured by the Property acquired on such Funding Date in an amount equal to the Outstanding Lease Balance funded on such Funding Date, with interest for such loans equal to the Basic Rent payable on each Basic Rent Payment Date and a principal balance at the maturity of such loans in an amount equal to the Outstanding Lease Balance of the Master Lease outstanding at the end APP-16 Appendix A of the Lease Term or (ii) any aggregate net increase in Taxes attributable to the treatment of all or a portion of the arrangement created by the Operative Documents as a separate taxable entity (or otherwise not as a non-taxable entity) for tax purposes. "Improvements" means all buildings, structures, and other improvements to be constructed on, at or under the Land in accordance with the Plans. "Improvements Construction Costs" is defined in Section 1.1 of the Construction Agency Agreement. "Imputed Return" means the cost to the Lessor Parties of maintaining their unrecovered investment after the Lease Termination Date or the expected return to such persons, determined as (i) the average daily Outstanding Lease Balance after the Lease Termination Date multiplied by (ii) the number of days from and excluding the Lease Termination Date to and including the date of the sale of the Property multiplied by (iii) the rate equal to applicable interest rate, with respect to each of the Note Purchaser multiplied by (iv) 1/365. "Income Tax Savings" is defined in Section 13.4(g) of the Participation Agreement. "Indebtedness" means, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services, and including, without limitation, the face amount available to be drawn under all letters of credit, reimbursement and similar obligations with respect to surety bonds, letters of credit and banks' acceptances, whether or not matured, and letters of credit and other credit facilities which secure or finance such purchase price obligations under "synthetic" leases, (ii) all obligations evidenced by notes, bonds, debentures or similar instruments, (iii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) all Capital Lease Obligations, (v) all Contingent Obligations, (vi) all Indebtedness referred to in clause (i), (ii), (iii), (iv) or (v) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including, without limitation, accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, and (vi) the amount at which any redeemable preferred stock of such Person is required to be redeemed; provided that Indebtedness shall not include current accounts payable arising in the ordinary course of business. "Indemnitees" means, collectively, the Lessor Parties and the Program Administrator, together with their respective Affiliates, successors, assigns, directors, shareholders, partners, members (and direct and indirect owners of its members), officers, managers, employees and agents. "Initial Appraisal" means that the Appraisal delivered to the Lessor Parties prior to the initial Funding pursuant to Section 6.1(g) of the Participation Agreement. "Initial Funding Date" has the meaning specified in Section 2.2 of the Participation Agreement. APP-17 Appendix A "Insurance Requirements" means all terms and conditions of any insurance policy required by the Construction Agency Agreement and the Master Lease to be maintained by the Lessee thereunder. "Interest Amount" is defined in Section 4.2(a) of to the Participation Agreement. "Interim Construction Period Funding Date" has the meaning specified in Section 2.2(c) of the Participation Agreement. "Investments" means (i) any loan or advance of funds by any Person to any other Person (other than advances to employees of such Person for moving and travel expenses, drawing accounts and similar expenditures in the ordinary course of business); (ii) any purchase or other acquisition of any Stock or Indebtedness of any other Person; and (iii) any capital contribution by such Person to or any other investment by such Person in any other Person (including any Contingent Obligation of such Person and any indebtedness of such Person of the type described in clause (v) of the definition of "Indebtedness" on behalf of any other Person); provided, however, that Investments shall not include (A) accounts receivable or other indebtedness owed by customers of such Person which are current assets and arose from sales of inventory in the ordinary course of such Person's business or (B) prepaid expenses of such Person incurred and prepaid in the ordinary course of business. "Issuance Fee" is defined in Section 4.8(c) of the Participation Agreement. "KeyBank" means KeyBank National Association. "Land" means that certain tract of land (including Appurtenant Rights attached thereto) described in Exhibit A to the Participation Agreement. "Land Acquisition Costs" is defined in Section 1.1 of the Construction Agency Agreement. "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" is defined in Section 17.1 of the Master Lease. "Lease Term" is defined in Section 2.3 of the Master Lease. "Lease Termination Date" means the Maturity Date; provided, that if the Master Lease is earlier terminated, the "Lease Termination Date" shall be such earlier date. "Lessee" means Electronic Arts Redwood, Inc., a Delaware corporation, in such capacity under the Operative Documents, together with its permitted successors and assigns. "Lessee Parties" means collectively (i) the Lessee, (ii) the Construction Agent, (iii) the Guarantor, (iv) any third party for which any Person identified in clauses (i), (ii) and (iii) above has control or supervisory authority or delegated responsibility by contract or otherwise and (v) their respective employees, officers and agents. APP-18 Appendix A "Lessor" means SELCO Service Corporation, an Ohio corporation doing business in California as Ohio SELCO Service Corporation, in such capacity under the Operative Documents, together with its permitted successors and assigns. "Lessor Lien" means any Lien on or against the Property, lease or sublease or disposition of title, easement, covenant, restriction or other matter affecting title to the Property arising as a result of (i) any claim against the Lessor not resulting from the transactions contemplated by the Operative Documents, (ii) any act or omission of the Lessor which is not required or expressly permitted by the Operative Documents, requested by the Lessee or is in violation of any of the terms of the Operative Documents, (iii) any claim against the Lessor with respect to Taxes or Transaction Expenses against which neither the Guarantor nor the Lessee is required to indemnify the Lessor pursuant to the Participation Agreement or the other Operative Documents or (iv) any claim against the Lessor arising out of any transfer by the Lessor of all or any portion of its interest in the Property or the Operative Documents other than the transfer of title to or possession of the Property by the Lessor pursuant to and in accordance with the Operative Documents. "Lessor Parties" means collectively, the Transaction Parties, except for the Lessee Parties. "Letter of Credit" means that certain irrevocable standby letter of credit issued by the Letter of Credit Issuer for the benefit of the Agent on behalf of the Liquidity Banks, substantially in the form attached to the form of Reimbursement Agreement, which shall (i) expire on or after the stated maturity date of the Notes; (ii) be in a face amount equal to or greater than the Maximum Lessor Risk Payment less the Aggregate Equity Investment Commitment; and (iii) only be drawn upon if a Letter of Credit Event has occurred. "Letter of Credit Event" means an event whereby (i) no Lease Default or Lease Event of Default shall have occurred an be continuing, (ii) the Lessee shall have exercised the Remarketing Option, and (iii) the Property has been sold and the Gross Remarketing Proceeds from such sale are less than the Maximum Lessor Risk Payment. "Letter of Credit Issuer" means KeyBank, in such capacity under the Operative Documents, together with its permitted successors and assigns. "LIBOR" means, with respect to a Rent Period, the rate for deposits in Dollars for a period comparable to such Rent Period appearing on the Telerate Page 3750 (or any successor publication) as of 11:00 A.M. (London time) two (2) Business Days preceding the applicable Basic Rent Payment Date; provided, however, that if such rate is not reasonably available, then "LIBOR" shall mean the arithmetic means of the rates, expressed in decimal, quoted to the Agent at such time on such day by two or more major banks in the London interbank market selected in good faith by the Agent as a rate per annum for such deposit, for such period commencing on such first day and in such amount that the Agent reasonably determines is representative for a single transaction on such market on such day, is offered. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), security interest or preference, priority or APP-19 Appendix A other security agreement or preferential arrangement of any kind or nature whatsoever, including, any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease Obligation, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement naming the owner of the asset to which such Lien relates as debtor. "Liquidity Agreement" means the Liquidity Agreement, dated as of December 6, 2000, among the Note Purchaser, Bankers Trust Company, The Bank of Tokyo-Mitsubishi, Ltd. and the Banks (as defined therein), as the same may be amended, modified and in effect from time to time. "Liquidity Banks" is defined in the introductory paragraph of the Participation Agreement. "Liquidity Documentation" means (a) as of the Documentation Date, the Asset Purchase Agreement and the Liquidity Agreement and (b) thereafter, shall include any other contract, instrument or documentation pursuant to which one or more Liquidity Banks agree, from time to time, to provide liquidity, credit, asset purchase and/or cash collateral support to the Note Purchaser's Commercial Paper notes issued to fund its acquisition of the Notes and the funds advanced thereunder. "Loans" is defined in Section 1.1 of the Liquidity Agreement. "Marketing Period" means the period commencing on (but excluding) the date that the Lessee delivers a Remarketing Notice pursuant to Section 18.3(a) of the Master Lease and ending on (and including) the Lease Termination Date with respect to the Master Lease. "Master Lease" means that certain Master Lease and Deed of Trust, substantially in the form of Exhibit C to the Participation Agreement, as the same may be amended, modified and in effect from time to time. "Material Adverse Effect" means (a) a material adverse effect on the Property, including any Lessor Party's security interest, Liens or other rights in the Property and the Collateral or the perfection or priority of such security interests, Liens or rights; or (b) a change in the condition (financial or otherwise) or business of the Guarantor which could reasonably be expected to cause the Guarantor's Consolidated Tangible Net Worth to be reduced by 50% or more from that reflected in the Guarantor's most recent audited financial statements delivered to the Agent on behalf of the Lessor Parties pursuant to Section 8.1(d) of the Participation Agreement, other than any such reduction caused by a change in GAAP, and excluding any write-off of intangibles assets provided that it can be reasonably expected that the impairment which relates to the write-off of such intangible assets will be mitigated within two years. "Material Adverse Environmental Condition" shall mean an Adverse Environmental Condition with respect to which the Remediation Costs will exceed five percent (5%) of the Property Cost. APP-20 Appendix A "Material Subsidiary" means (a) the Lessee and (b) at any time during any Fiscal Year of the Guarantor, any Subsidiary of the Guarantor whose assets equal or exceed ten percent (10%) of the total consolidated assets of the Guarantor at such time. "Maturity Date" means June 6, 2006; provided, that if the Lease Termination Date is extended pursuant to Section 18.2 of the Master Lease, the "Maturity Date" shall be such later date. "Maximum Lessor Risk Payment" means $11,206,037.11 which constitutes 8.62% of the Aggregate Commitment Amount. "Maximum Recourse Amount" means $118,793,962.89 which constitutes 91.38% of the Aggregate Commitment Amount. "Maximum Unwind Amount" means, at any particular date, an amount equal to (i) 100% of the Property Cost at such date for the acquisition of the Land and related expenses, plus (ii) 89.9% of the Property Cost at date for the construction of the Improvements and related expenses, capitalized in accordance with GAAP, minus (iii) the accreted value of cash payments made by the Lessee during the Construction Period. "Memorandum of Lease" means that certain Memorandum of Lease, substantially in the form of Exhibit G to the Participation Agreement, as the same may be amended, modified and in effect from time to time. "Modifications" is defined in Section 10.2(a) of the Master Lease. "Moody's" means Moody's Investors Service, Inc. or any successor agency thereto. "Multi-Employer Plan" means any multi-employer plan within the meaning of Section 3(37) of ERISA maintained or contributed to by the Guarantor or any ERISA Affiliate. "Net Income (Loss)" means, in respect of any fiscal period, the net income (or net loss, as the case may be) of the Guarantor and its Subsidiaries for such period, after deduction of all expenses, taxes and other proper charges determined on a consolidated basis in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring items of income. "Note Purchase Agreement" means the Note Purchase Agreement, dated as of December 6, 2000, among the Lessor, the Lessee, the Guarantor and the Note Purchaser, as the same may be amended, modified and in effect from time to time. "Note Purchaser" means Victory Receivables Corporation, a Delaware corporation, in such capacity under the Operative Documents, together with its permitted successors and assigns. "Notes" means the notes to be issued by Lessor pursuant to the Note Purchase Agreement and Section 3.1 of the Participation Agreement. "Notice of Default" is defined in the Note Purchase Agreement. APP-21 Appendix A "Obligations" means all obligations (monetary or otherwise, whether absolute or contingent, matured or unmatured, direct or indirect, choate or inchoate, sole, joint, several or joint and several, due or to become due, heretofore or hereafter contracted or acquired) of the Lessee arising under or in connection with the Operative Documents including (i) all obligations for Basic Rent, Outstanding Lease Balance, Maximum Recourse Amount and Purchase Option Price, whether incurred on the Documentation Date or thereafter, (ii) all obligations for Supplemental Rent and all other obligations and liabilities of the Lessee, whether incurred on the Documentation Date or thereafter, whether for fees, costs, indemnification or otherwise, arising under any Operative Document, (iii) all out-of-pocket costs and expenses, including reasonable attorneys' fees and legal expenses, incurred by any Lessor Party to the extent set forth in the Operative Documents in connection with such indebtedness, obligations and liabilities, including, without limitation, all Transaction Expenses, and (iv) following the occurrence and during the continuance of a Lease Event of Default, all advances made by any Lessor Party for the maintenance, protection, preservation or enforcement of, or realization upon, the collateral in which any Lessor Party, or all of them, have been granted a security interest pursuant to an Operative Document (or any portion thereof) including advances for storage, transportation charges, taxes, insurance, repairs and the like. "Operative Documents" means the following: (i) the Participation Agreement; (ii) the Master Lease; (iii) the Guaranty; (iv) the Memorandum of Lease; (v) the Precautionary Deed of Trust; (vi) the Deed of Trust; (vii) the Deed; (vii) each Financing Statement; (ix) each Precautionary Financing Statement; (x) each Conveyance Instrument; (xi) each document or instrument constituting part of the Liquidity Documentation; (xii) the Note Purchase Agreement; (xiii) the Environmental Indemnity Agreement; (xiv) the Construction Agency Agreement; (xv) the Administration Agreement; (xvi) the Proposal (but only as it relates to the payment of the Structuring Fee and the Upfront Fee payable to KeyBank); (xvii) the Notes; (xviii) the Reimbursement Agreement; (xix) the Letter of Credit; and (xx) any other document that the Lessee, the Lessor and the Note Purchaser agree in writing to designate as an "Operative Document". "Other Taxes" is defined in Section 4.6 of the Participation Agreement. APP-22 Appendix A "Outside Completion Date" means the date which is no later than eighteen (18) months after the Initial Funding Date. "Outstanding Lease Balance" means, as of any date of determination, (i) the aggregate outstanding principal amount of the Notes plus the aggregate amount of made but unredeemed Equity Investment. "Overall Transaction" means all the transactions and activities referred to in or contemplated by the Operative Documents. "Overdue Rate" is defined in the Note Purchase Agreement and the respective Notes. "Participation Agreement" means the Participation Agreement, dated as of December 6, 2000, by and among the Lessee, the Guarantor, the Lessor, the Note Purchaser, the Conduit Agent, the Liquidity Banks, the Letter of Credit Issuer and the Agent, as the same may be amended, modified and in effect from time to time. "PBGC" means the Pension Benefit Guaranty Corporation created by Section 4002 of ERISA and any successor entity or entities having similar responsibilities. "Percentage" is defined in Section 1(a) of the Asset Purchase Agreement. "Percentage Interest" is defined in the fifth introductory paragraph of the Asset Purchase Agreement. "Permit" means any permit, approval, consent, authorization, license, variance or permission required from a Governmental Authority under an applicable Requirement of Law. "Permitted Businesses" means businesses substantially the same as the primary businesses conducted by the Guarantor and its Subsidiaries as of the date hereof. "Permitted Exceptions" means (i) Liens of the types described in clauses (i), (ii), (iii), (v), (vii), (viii) and (ix) of the definition of Permitted Liens and (ii) Liens described on the title insurance policy delivered pursuant to Section 6.1(p) of the Participation Agreement that have been consented to by the Lessor Parties in their reasonable discretion. "Permitted Liens" means any of the following: (i) the respective rights and interests of the parties under the Operative Documents as provided in the Operative Documents (including, any Lien created pursuant to or contemplated by the terms of the Operative Documents); (ii) Liens for Taxes that either are not yet delinquent or are being contested in accordance with the provisions of Section 13.4(b) of the Participation Agreement; (iii) the rights of any sublessee under a sublease permitted by the terms of the Master Lease; APP-23 Appendix A (iv) Liens arising by operation of law, materialmen's, mechanics', workers', repairmen's, employees', carriers', warehousemen's and other like Liens relating to the construction of the Improvements or in connection with any Modifications or arising in the ordinary course of business for amounts that are not more than sixty (60) days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy the conditions for contest proceedings 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 title insurance reasonably satisfactory to the Lessor and the other Lessor Parties has been provided or other security arrangements reasonably satisfactory to the Lessor and the Note Purchaser 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 adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, so long as such Liens are subordinate to the Liens of the Deed of Trust and 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) zoning restrictions, easements, rights of way and other encumbrances on title to real property permitted pursuant to Section 11.2 of the Master Lease; (viii) Lessor Liens; (ix) Liens created by the Lessee with the consent of the Agent on behalf of the Lessor and the Note Purchaser, or otherwise permitted in the Operative Documents; (x) Liens described on the title insurance policy delivered with respect to the Property pursuant to Section 6.1(p) of the Participation Agreement that have been consented to by the Lessor Parties in their reasonable discretion. (xi) Liens securing the Lessee's obligations under the Flatirons Lease; and (xii) Other Liens on the property of Guarantor and its Subsidiaries securing Indebtedness otherwise permitted pursuant to Section 8.2(a) of the Participation Agreement; provided, however, that, with respect to the Property, the foregoing shall not be construed to permit any Lien, except for Permitted Exceptions, on the Property or any component thereof. "Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, any instrumentality, division, agency, body or department thereof). "Plans" is defined in Section 1.1 of the Construction Agency Agreement. APP-24 Appendix A "Pledged Property" is defined in Section 14.8(a) of the Participation Agreement. "Precautionary Deed of Trust" means that certain Precautionary Deed of Trust, Assignment of Leases and Rents, Security Agreement, Financing Statement and Fixture Filing, substantially in the form of Exhibit H to the Participation Agreement, as the same may be amended, modified and in effect from time to time. "Precautionary Financing Statements" means UCC financing statements appropriately completed and executed for filing in each applicable jurisdiction naming the Lessor as the secured party and the Lessee as the debtor in order to protect the interests of each of the Lessor Parties under the Operative Documents to the extent that Article XV of the Master Lease constitutes a security agreement. "Prepayment" has the meaning specified in Section 4.2(e) of the Participation Agreement. "Prepayment Account" has the meaning specified in Section 4.2(e) of the Participation Agreement. "Prime Rate" means the per annum rate publicly announced by KeyBank from time to time at its office in Cleveland, Ohio. The Prime Rate is determined by KeyBank from time to time as a means of pricing credit extensions to some customers and is neither directly tied to any external rate of interest or index nor necessarily the lowest rate of interest charged by KeyBank at any given time for any particular class of customers or credit extensions. Any change in the Prime Rate resulting from a change in the Prime Rate shall become effective on the Business Day on which each change in the Prime Rate occurs. "Program Administrator" means, collectively, Banker's Trust Company, and each of its agents, subagents and successors and assigns. "Property" means the property subject from time to time to the Master Lease, and includes the interest in the Land held by the Lessor with respect to such property and all buildings, structures, fixtures and other improvements of every kind existing at any time and from time to time on or under the Land (including the Improvements), together with any and all appurtenances to such buildings, structures or improvements, including sidewalks, utility pipes, conduits and lines, parking areas and roadways located on or under the Land, and including all Modifications and other additions to or changes in the Improvements at any time, and the equipment, parts and supplies related to the Property (as described on the Memorandum of Lease, Precautionary Deed of Trust or Deed of Trust, as the case may be). "Proposal" means that certain proposal dated as of September 21, 2000, from the Structuring Agent to the Guarantor outlining the terms and conditions of the Overall Transaction. "Purchase Notice" means a 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 Purchase Option pursuant to such Section, which notice shall identify the proposed date of such purchase. APP-25 Appendix A "Purchase Option" is defined in Section 18.1 of the Master Lease. "Purchase Option Price" is defined in Section 18.1 of the Master Lease. "Purchase Termination Date" is defined in the Note Purchase Agreement. "Rating Agencies" means S&P and Moody's. "Redwood Shores Documents" means, collectively, The Shores Business Center Declaration of Covenants, Conditions, Restrictions & Charges for Commercial Development by Redwood Shores, Inc., a California corporation dated January 8, 1981 and recorded on February 6, 1981 as Instrument No. 12350-AS; Development Agreement between City of Redwood City and Redwood Shores, Inc., a California corporation dated June 16, 1982 and recorded on July 8, 1982 as Instrument No. 82057195; Median Landscaping Agreement by and between City of Redwood City, Redwood Shores, Inc., a California corporation and Shores Business Center Association, a California corporation dated August 23, 1982 and recorded on September 20, 1982 as Instrument No. 82080558; Covenants Agreement by and between Redwood Shores Properties, a California joint venture partnership and Flatirons Funding, Limited Partnership, a Delaware limited partnership dated February 14, 1995 and recorded on February 15, 1995 as Instrument No. 95015506; License and Improvement Agreement Containing Terms Covenants and Conditions between Flatirons Funding, Limited Partnership, a Delaware limited partnership and Redwood Shores, Inc., a California corporation dated February 14, 1995 and recorded on February 15, 1995 as Instrument No. 95015507; Memorandum of Option Agreement between Redwood Shores Properties, a California joint venture general partnership and Flatirons Funding, Limited Partnership, a Delaware limited partnership dated February 14, 1995 and recorded on February 15, 1995 as Instrument No. 95015508; Development Agreement between Flatirons Funding, Limited Partnership, a Delaware limited partnership and The City of Redwood City dated November 7, 1996 and recorded on November 8, 1996 as Instrument No. 96138988; Restrictive Covenant Agreement between Shores Business Center Association, a California non-profit mutual benefit corporation and Flatirons Funding, Limited Partnership, a Delaware limited partnership dated March 27, 1997 and recorded on March 27, 1997 as Instrument No. 97034609; Covenants, Condition and Restrictions for Electronic Arts Business Park by Flatirons Funding, Limited Partnership, a Delaware limited partnership dated September 3, 1998 and recorded on September 18, 1998; Assumption and Covenants Agreement by and between Flatirons Funding, Limited Partnership and SELCO Service Corporation dated December 6, 2000; Assignment of Sewage Treatment Capacity by and between Flatirons Funding, Limited Partnership and SELCO Service Corporation, an Ohio corporation dated December 6, 2000; Assignment and Assumption of Development Agreement and Permits by and between Flatirons Funding, Limited Partnership and SELCO Service Corporation, an Ohio corporation dated December 6, 2000; and the Grant Deed by Flatirons Funding, Limited Partnership, a Delaware limited partnership dated December 6, 2000, as such documents may be amended, modified and in effect from time to time. "Reimbursement Agreement" means that certain Reimbursement Agreement for Irrevocable Standby Letter of Credit, substantially in the form of Exhibit O to the Participation Agreement, to be entered into between the Lessor and the Letter of Credit Issuer, as the same may be amended, modified and in effect from time to time. APP-26 Appendix A "Related Security" means all collateral rights granted to the Note Purchaser to secure repayment of the Notes. "Release" means, the presence (whether currently known or unknown) of Hazardous Substances or any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any property, including the movement of Hazardous Substances through or in the air, soil, surface water, ground water or property and/or the threat thereof. "Remarketing Notice" is defined in Section 18.3(a) of the Master Lease. "Remarketing Option" is defined in Section 18.3 of the Master Lease. "Remedial Action" means all actions, including corrective actions, equipment upgrades or relocation, or building demolition, repair or reconstruction necessary or appropriate to (i) investigate, clean up, remove, treat or in any other way address any Hazardous Substances or other substance in the indoor or outdoor environment, (ii) prevent the Release or threat of Release or minimize the further Release of any Hazardous Substances or other substance so it does not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, or (iii) perform pre-remedial studies and investigations, remedial designs and actions and post-remedial monitoring and care including, without limitation, any such actions performed pursuant to any voluntary cleanup program or similar program administered by any Governmental Authority for the purposes of addressing any Hazardous Conditions. "Remediation Costs" means all costs and expenses associated with Remedial Action. "Renewal Notice" is defined in Section 18.2(b) of the Master Lease. "Renewal Option" is defined in Section 18.2(a) of the Master Lease. "Renewal Period" is defined in Section 18.2(a) of the Master Lease. "Rent" means, collectively, the Basic Rent and the Supplemental Rent, in each case payable under the Master Lease. "Rent Period" means, initially, the period commencing on the Initial Funding Date and ending as of (but excluding) the first Basic Rent Payment Date, and thereafter, the period beginning on each Basic Rent Payment Date and ending as of (but excluding) the following Basic Rent Payment Date. "Replacement Notice" is defined in Section 4.7 of the Participation Agreement. "Requesting Party" is defined in Section 21.3 of the Master Lease. "Required Builder's Risk Insurance" means the builder's risk policy coverage to be provided by the Contractor pursuant to the Construction Contract, as approved by the Agent in its reasonable discretion. APP-27 Appendix A "Required Modification" is defined in Section 10.2(a)(i) of the Master Lease. "Requirement of Law" means, as to any Person, the Organic Documents or other organizational or governing documents of such Person, and all federal, state and local laws, rules, regulations, orders, decrees or other determinations of an arbitrator, court or other Governmental Authority including, all disclosure requirements of ERISA and the requirements of Environmental Laws, 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, with respect to any Person, any of the executive officers of such Person. "Responsible Officer's Certificate" means a certificate to be delivered by a Responsible Officer pursuant to the Participation Agreement. "Return Conditions" is defined in Section 18.3 of the Master Lease. "Revenue Code" means the Internal Revenue Code of 1986, as the same may be amended from time to time, and any successor statute or statutes, and any regulations promulgated thereunder. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw Hill Companies Inc., or any successor agency thereto. "Secured Obligations" means all amounts due and payable from time to time pursuant to the Notes. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. "Security Deposit" is defined in Section 3.4 of the Master Lease. "Shortfall Amount" with respect to the Master Lease as of the Lease Termination Date, the amount of the Outstanding Lease Balance remaining after the completion of a sale (if any) of the Property subject thereto pursuant to Article XVIII of the Master Lease and the payment by the Lessee of the Maximum Recourse Amount under Section 18.3(k) of the Master Lease. "Solvent" shall mean, with respect to any Person on any date, that on such date (i) the fair value of the property of such Person is greater than the fair value of the liabilities (including, without limitation, contingent liabilities) of such Person, (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person 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 (iv) 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 an unreasonably small capital. APP-28 Appendix A "Stock" means all shares, options, interests, participations or other equivalents (regardless of how designated) of or in a corporation or equivalent entity (including, a partnership, business trust or limited liability company), whether voting or nonvoting, and including, without limitation, common stock, preferred stock, beneficial interests in trusts, securities convertible into or exchangeable for stock, or warrants or options for any of the foregoing. "Structuring Agent" means Key Global Finance, together with its permitted successors and assigns. "Structuring Fee" is defined in Section 4.8(d) of the Participation Agreement. "Subsidiary" means, with respect to any Person, any corporation, partnership or other business entity (including business trusts) of which an aggregate of more than 50% of the outstanding Stock, having ordinary voting power to elect or appoint a majority of the members of the board of directors, trustees or members of a similar governing body of such corporation, partnership or other entity (irrespective of whether, at the time, Stock of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency), is, or of which an aggregate of more than 50% of the interests in which are, at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person. "Substantial Completion" is defined in Section 1.1 of the Construction Agency Agreement. "Subtenant" means any sublessee of the Property, or any part thereof, under a sublease described in Article VI of the Master Lease. "Supplemental Rent" means the amount determined in accordance with Article III of the Master Lease and payable as such under the Participation Agreement and the Master Lease. "Support Amount" has the meaning specified in Section 4.2(c) of the Participation Agreement. "Tax Indemnitees" means, collectively, the Lessor Parties, in each case, each of their officers, employees, directors, agents and Affiliates and respective successors and assigns. "Taxes" is defined in Section 4.6 of the Participation Agreement. "Title Company" means First American Title Insurance Company. "Total Consolidated Capital" means, with respect to Guarantor and its Subsidiaries, the sum of (i) Consolidated Net Worth plus (ii) Total Consolidated Debt. "Total Consolidated Debt" means, with respect to Guarantor, all of Guarantor's and its Subsidiaries' (i) borrowed funds, (ii) conditional sale agreements, (iii) synthetic leases and other off-balance sheet financing, (iv) bonds, debentures, notes or similar instruments, (v) capital lease obligations, (vi) outstanding letters of credit, (vii) indebtedness or guarantees of the indebtedness APP-29 Appendix A of others, (viii) acceptance facilities and (ix) any other obligations in which interest charges are customarily paid by Guarantor and its Subsidiaries. "Transaction Expenses" means all costs and expenses incurred in connection with the preparation, execution and delivery of the Operative Documents and the transactions contemplated by the Operative Documents including: (i) the reasonable fees, out-of-pocket expenses and disbursements of counsel for each of the Lessor Parties 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; (ii) the reasonable fees, out-of-pocket expenses and disbursements of counsel for each of the Lessor Parties in connection with (1) any amendment, supplement, waiver or consent with respect to any Operative Documents, (2) any enforcement of any rights or remedies against the Guarantor or the Lessee in respect of the Operative Documents and (3) the purchase of the Property by the Lessee or any other Person pursuant to Articles XVI, XVII, XVIII or XIX of the Master Lease; (iii) the reasonable fees, out-of-pocket expenses and disbursements of counsel for each of the Lessor Parties in connection with (1) the transactions contemplated to occur on the Funding Dates, (2) any amendment, supplement, waiver or consent with respect to any Operative Documents, (3) any enforcement of any rights or remedies against the Guarantor or the Lessee in respect of the Operative Documents and (4) any purchase of the Property by the Lessee or any other Person pursuant to Articles XVI, XVII, XVIII or XIX of the Master Lease; (iv) any and all Taxes and fees incurred in recording, registering or filing any Operative Document, any other transaction document, any deed, assignment of ground lease, 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; (v) all title fees, premiums, escrow costs and other expenses relating to title insurance and the closings contemplated by the Operative Documents; (vi) all fees, expenses and disbursements of each local counsel retained in connection with the transactions contemplated by the Operative Documents; (vii) all costs and expenses relating to surveys and Environmental Audits for the Property; (viii) fees and other expenses relating to Appraisals; and (ix) all incentive fees, purchase prices or other costs paid by the Lessor in connection with the transactions contemplated by the Operative Documents. APP-30 Appendix A "Transaction Parties" means, collectively, the parties to the Participation Agreement. "UCC Financing Statements" shall mean Form UCC-1, each in the form required in each jurisdiction in which such UCC Financing Statements are required to be filed. "Unmatured Acceleration Event" is defined in the Note Purchase Agreement. "Uniform Commercial Code" or "UCC" means the Uniform Commercial Code as in effect in any applicable jurisdiction. "United States" means the United States of America. "Unwind Event" is defined in Section 6.3 of the Construction Agency Agreement. "Unwind Marketing Period" is defined in Section 17.8(c)(2) of the Master Lease "Unwind Option" is defined in Section 17.8(a) of the Master Lease. "Unwind Proceeds" is defined in Section 17.8(c)(9) of the Master Lease. "Upfront Fees" is defined in Section 4.8(a) of the Participation Agreement. "Yield Amount" is defined in Section 4.2(b) of the Participation Agreement. APP-31 EX-3.05 5 f87407exv3w05.txt EXHIBIT 3.05 EXHIBIT 3.05 AMENDED AND RESTATED BYLAWS OF ELECTRONIC ARTS INC. ( A DELAWARE CORPORATION) BYLAWS OF ELECTRONIC ARTS INC. (a Delaware Corporation) TABLE OF CONTENTS

PAGE ---- Article I - STOCKHOLDERS..............................................................................................1 Section 1.1: Annual Meetings...............................................................................1 Section 1.2: Special Meetings .............................................................................1 Section 1.3: Notice of Meetings............................................................................1 Section 1.4: Adjournments .................................................................................1 Section 1.5 Quorum........................................................................................1 Section 1.6: Organization..................................................................................2 Section 1.7: Voting; Proxies...............................................................................2 Section 1.8: Fixing Date for Termination of Stockholders of Record.........................................2 Section 1.9: List of Stockholders Entitled to Vote.........................................................3 Section 1.10: Action by Written Consent of Stockholders.....................................................3 Section 1.11: Inspectors of Elections.......................................................................4 Article II - BOARD OF DIRECTORS........................................................................................4 Section 2.1: Number; Qualifications........................................................................4 Section 2.2: Election; Resignation; Removal; Vacancies.....................................................4 Section 2.3: Regular Meetings..............................................................................4 Section 2.4: Special Meetings..............................................................................4 Section 2.5: Telephonic Meetings Permitted.................................................................5 Section 2.6: Quorum; Vote Required for Action..............................................................5 Section 2.7: Organization..................................................................................5 Section 2.8: Written Action By Directors...................................................................5 Section 2.9: Powers........................................................................................5

TABLE OF CONTENTS (CONT.)

PAGE ---- Section 2.10: Compensation of Directors.....................................................................5 Article III - COMMITTEES...............................................................................................5 Section 3.1: Committees....................................................................................5 Section 3.2: Committee Rules...............................................................................6 Article IV - OFFICERS..................................................................................................6 Section 4.1: Generally.....................................................................................6 Section 4.2: Chairman of the Board.........................................................................6 Section 4.3: President.....................................................................................6 Section 4.4: Vice President................................................................................6 Section 4.5: Chief Financial Officer.......................................................................6 Section 4.6: Treasurer.....................................................................................6 Section 4.7: Secretary.....................................................................................6 Section 4.8: Delegation of Authority.......................................................................7 Section 4.9: Removal.......................................................................................7 Article V - STOCK......................................................................................................7 Section 5.1: Certificates..................................................................................7 Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificate.................... 7 Section 5.3: Other regulations.............................................................................7 Article VI - INDEMNIFICATION...........................................................................................7 Section 6.1: Indemnification of Officers and Directors.....................................................7 Section 6.2: Advance of Expenses...........................................................................8 Section 6.3: Non-Exclusively of Rights.....................................................................8 Section 6.4: Indemnification Contracts.....................................................................8 Section 6.5: Effect of Amendment...........................................................................8

TABLE OF CONTENTS (CONT.)

PAGE ---- Article VII - NOTICES..................................................................................................8 Section 7.1: Notice........................................................................................8 Section 7.2: Waiver of Notice..............................................................................8 Article VIII - INTERESTED DIRECTORS....................................................................................9 Section 8.1: Interested Directors..........................................................................9 Article IX - MISCELLANEOUS.............................................................................................9 Section 9.1: Fiscal Year...................................................................................9 Section 9.2: Seal..........................................................................................9 Section 9.3: Form of Records...............................................................................9 Section 9.4: Reliance Upon Books and Records...............................................................9 Section 9.5: Certificate of Incorporation Governs..........................................................9 Section 9.6: Severability..................................................................................9 Article X - AMENDMENT.................................................................................................10 Section 10.1: Amendments...................................................................................10

BYLAWS OF ELECTRONIC ARTS INC. (a Delaware Corporation) AMENDED AND RESTATED BYLAWS OF ELECTRONIC ARTS INC. (a Delaware Corporation) AMENDED THROUGH JULY 27, 1994 ARTICLE I STOCKHOLDERS Section 1.1: Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as the Board of Directors shall each year fix. Any other proper business may be transacted at the annual meeting. Section 1.2: Special Meetings. Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairman of the Board, the Chief Executive Officer, the President, or by a majority of the members of the Board of Directors or stockholders holding shares representing not less than ten percent of the outstanding votes entitled to be cast by all stockholders at such meeting. Special meetings may not be called by any other person or persons. Section 1.3: Notice of Meetings. Written notice of all meetings of stockholders shall be given stating the place, date and time, and in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation, such notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. Section 1.4: Adjournments. Any meeting of stockholders may adjourn from time to time to reconvene at the same or other place, and notice need not be given of any such adjourned meeting if the time, date and place thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, than a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. Section 1.5: Quorum. At each meeting of stockholders the holders of a majority of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, except if otherwise required by applicable law. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of the majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. Shares of the Corporation's stock belonging to the Corporation (or to another corporation, if a majority of the shares Page 1 entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided, however that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation's stock held by it in a fiduciary capacity. Section 1.6: Organization. Meetings of stockholders shall be presided over by such person as the Board of Directors may designate, or, in the absence of such person, the Chairman of the Board, or in the absence of such person, the President of the Corporation, or in the absence of such person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting. Such person shall be chairman of the meeting and, subject to Section 1.11 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order. The Secretary of the Corporation shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 1.7: Voting; Proxies. Unless otherwise provided by law or the Certificate of Incorporation, and subject to the provisions of Section 1.8 of these Bylaws, each stockholder shall be entitled to one (1) vote for each share of stock held by such stockholder. Each stockholder entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for such stockholder by proxy. Such proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Voting at meeting of stockholders need not be by written ballot unless such is demanded at the meeting before voting begins by a stockholder or stockholders holding shares representing at least one percent (1%) of the votes entitled to vote at such meeting, or by such stockholders' proxy; provided, however, that an election of directors shall be by written ballot if demand is so made by any stockholder at the meeting before voting begins. If a vote is to be taken by written ballot, then each such ballot shall state the name of the stockholder or proxy voting and such other information as the chairman of the meeting deems appropriate, and the ballots shall be counted by one or more inspectors appointed pursuant to Section 1.11 of these Bylaws. At all meetings of stockholders, directors shall be elected by a plurality of the votes of shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Unless otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, every other matter shall be decided by the affirmative vote of the holders of outstanding stock having not less than a majority of the votes entitled to be cast thereon by stockholders that are present in person or represented by proxy at the meeting and are voted for or against the matter. Section 1.8: Fixing Date for Determination of Stockholders of Record. (a) Generally. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed by the Board of Directors, than the record date shall be as provided by applicable law. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) Stockholder Request for Action by Written Consent. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent without a meeting shall, by written notice to the Secretary of the Corporation, request the Board of Directors to fix a record date for such consent. Such request shall include a brief description of the action proposed to be taken. The Board of Directors shall, within ten (10) days after the date on which such a request is received, adopt a Page 2 resolution fixing the record date. Such record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, then the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the state of Delaware, to its principal place of business, or to any officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directions and prior action by the Board of Directors is required by applicable law, then the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. Section 1.9: List of Stockholders Entitled to Vote. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting. Section 1.10: Action by Written Consent of Stockholders. (a) Procedure. Unless otherwise provided by the Certificate of Corporation, and except as set forth in Section 1.8 above, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon where present and voted. Written stockholder consents shall bear the date of signature of each stockholder who signs the consent and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, to its principal place of business or to any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. No written consent shall be effective to take the action set forth therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation in the manner provided above, written consents signed by a sufficient number of stockholders to take the action set forth therein are delivered to the Corporation in the manner provided above. (b) Notice of Consent. Prompt notice of the taking of corporate action by stockholders without a meeting by less than unanimous written consent of the stockholders shall be given to those stockholders who have not consented thereto in writing and, in the case of a Certificate Action (as defined below), if the Delaware General Corporation Law so requires, such notice shall be given prior to filling out the certificate in question. If the action which is consented to requires filing a certificate under the Delaware General Corporation Law (a "Certificate Action"), then if the Delaware General Corporation Law so requires, the certificate so filed shall state that written stockholder consent has been given in accordance with Section 228 of the Delaware General Corporation Law and that written notice of the taking of corporate action by stockholders without a meeting as described herein has been given as provided in such section. Page 3 Section 1.11: Inspector(s) of Elections. In advance of any meeting of stockholders, the Board of Directors shall appoint one or more Inspector(s) to act at such meeting or any adjournment thereof and make a written report thereof. If Inspector(s) are not so appointed or if the person(s) so appointed fail to appear or act, the person presiding at such meeting shall appoint one or more Inspector(s). Each Inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithful to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The Inspector shall (i) determine the number of shares outstanding and the voting power of each, (ii) determine the shares represented at the meeting, the existence of a quorum and the validity and effect of proxies, (iii) receive votes, ballots and consents, (iv) hear and determine all challenges and questions arising in connection with the right to vote, (v) count and tabulate all votes, ballots or consents, (vi) determine the results of elections and votes, (vii) retain for a reasonable period a record of the disposition of any challenges made to any determination by the Inspector(s), and (viii) do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting or any stockholder entitled to vote thereon, the Inspector(s) shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the votes as certified by them. ARTICLE II BOARD OF DIRECTORS Section 2.1: Number; Qualifications. The Board of Directors shall consist of one or more members. The initial number of directors shall be six (6), and thereafter shall be fixed from time to time by resolution of the Board of Directors. Directors need not be stockholders of the Corporation. Section 2.2: Election; Resignation; Removal; Vacancies. The Board of Directors shall initially consist of the person or persons elected by the incorporator or named in the Corporation's initial Certificate of Incorporation. Each Director shall hold office until the next annual meeting of stockholders and until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. Any director may resign at any time upon written notice to the Corporation. Subject to the rights of any holders of preferred stock then outstanding: (i) any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors and (ii) any vacancy occurring in the Board of Directors for any cause, and any newly created directorship resulting from any increase in the authorized number of directors to be elected by all stockholders having the right to vote as a single class, may be filled by the stockholders, by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 2.3: Regular Meetings. Regular meetings of the Board of Directors may be held at such places, within or without the State of Delaware, and at such times as the Board of Directors may from time to time determine. Notice of regular meetings need not be given if the date, time and places thereof are fixed by resolution of the Board of Directors. Section 2.4: Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or a majority of the members of the Board of Directors then in office and may be held at any time, date or place, within or without the State of Delaware, as the person(s) calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally or in writing, by the person(s) calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least two (2) days before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile or similar communication method. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting. Page 4 Section 2.5: Telephonic Meetings Permitted. Members of the Board of Directors, or any committee of the Board, may participate in a meeting of the Board or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or similar communications equipment shall constitute presence in person at such meeting. Section 2.6: Quorum; Vote Required for Action. At all meetings of the Board of Directors a majority of the total number of authorized directors shall constitute a quorum for the transaction of business. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Section 2.7: Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or in his or her absence by the President, or in his or her absence, by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8: Written Action By Directors. Any action required or permitted to be taken at any meeting at the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee, respectively. Section 2.9: Powers. The Board of Directors may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Section 2.10: Compensation of Directors. Directors, as such, may receive, pursuant to a resolution of the Board of Directors, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board of Directors. ARTICLE III COMMITTEES Section 3.1: Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in subsection (a) of Section 151 of the Delaware General Corporation Law, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation, or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation under Sections 251 or 252 of the Delaware General Corporation law, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to Page 5 the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and unless the resolution of the Board of Directors expressly so provides, no such committee shall have the power or authority to declare a dividend, authorize the issuance of stock or adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. Section 3.2: Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws. ARTICLE IV OFFICERS Section 4.1: Generally. The officers of the Corporation shall consist of a Chief Executive Officer and/or a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers, including a Chairman of the Board of Directors and/or Chief Financial Officer, as may from time to time be appointed by the Board of Directors. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any number of offices may be held by the same person. Any officer may resign at any time upon written notice to the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal (pursuant to Section 4.9 below or otherwise may be filled by the Board of Directors. Section 4.2: Chairman of the Board. The Chairman of the Board shall have the power to preside at all meetings of the Board of Directors and shall have such other powers and duties as provided in these Bylaws and as the Board of Directors may from time to time prescribe. Section 4.3: President. Unless otherwise designated by the Board of Directors, the President shall be the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the President shall have the responsibility for the general management and control of the business and the affairs of the Corporation and shall perform all duties and have all powers that are commonly incident to the office of chief executive or that are delegated to the president by the Board of Directors. The President shall have general supervision and direction of all of the officers, employees and agents of the Corporation. Section 4.4: Vice President. Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board of Directors or the President. A Vice President may be designated by the Board to perform the duties and exercise the powers of the President in the event of the President's absence or disability. Section 4.5: Chief Financial Officer. Subject to the direction of the Board of Directors and the President, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of chief financial officer. Section 4.6: Treasurer. The Treasurer shall have the custody of all moneys and securities of the Corporation. The treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such powers as are commonly incident to the office of treasurer, or as the Board of Directors or the President may from time to time prescribe. Section 4.7: Secretary. The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board of Directors. The Secretary shall have charge of the corporate minute books and similar records and shall perform such Page 6 other duties and have such other powers as are commonly incident to the office of secretary, or as the Board of Directors or the President may from time to time prescribe. Section 4.8: Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 4.9: Removal. Any officer of the Corporation shall serve at the pleasure of the Board of Directors and may be removed at any time, with or without cause, by the Board of Directors. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. ARTICLE V STOCK Section 5.1 Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. Any or all of the signatures on the certificate may be a facsimile. Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section: 5.3 Other Regulations. The issue, transfer, conversion and registration of stock certificates shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI INDEMNIFICATION Section 6.1: Indemnification of Officers and Directors. Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he or she (or a person of whom he or she is the legal representative), is or was a director or officer of the Corporation or a Reincorporated Predecessor (as defined below) or is or was serving at the request of the Corporation or Reincorporated Predecessor (including any constituent corporation) as a director or officer of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Delaware General Corporation Law, against all expenses, liability and loss (including attorney fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation or a Reincorporated Predecessor and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors. As used herein, the term "Reincorporated Predecessor" means a corporation that is merged with and into the Corporation in a statutory merger where (a) the Corporation is the surviving corporation of such merger; and (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor. Page 7 Section 6.2: Advance of Expenses. The Corporation shall pay all expenses (including attorneys' fees) incurred by such a director or officer in defending any such proceeding as they are incurred in advance of its final disposition; provided, however, that if the Delaware General Corporation Law then so requires, the payment of such expenses incurred by such director or officer in advance of the final disposition of such proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined that such director or officer is not entitled to be indemnified under this Article VI or otherwise; and provided, further, that the Corporation shall not be required to advance any expenses to a person against whom the Corporation directly brings a claim, in a proceeding, alleging that such person has breached his or her duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction. Section 6.3: Non-Exclusivity of Rights. The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the corporation is not obligated to indemnify or advance expenses pursuant to this Article VI. Section 6.4: Indemnification Contracts. The Board of Directors is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person. Such rights may be greater than those provided in this Article VI. Section 6.5: Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VI shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification. ARTICLE VII NOTICES Section 7.1: Notices. Except otherwise specifically provided herein or required by law, all notices required to be given pursuant to these Bylaws shall be in writing and may in every instance be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, telex, overnight express courier, mailgram or facsimile. Any such notice shall be addressed to the person whom notice is to be given at such persons address as it appears on the records of the Corporation. The notice shall be deemed given (i) in the case of hand delivery, when received by the person whom notice is to be given or by any person accepting such notice on behalf of such person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in the case of delivery overnight express courier, on the first business day after such notice is dispatched, and (iv) in the case of delivery via telegram, telex, mailgram, or facsimile, when dispatched. Section 7.2: Waiver of Notice. Whenever notice is required to be given under any provision by these Bylaws, a written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice. Page 8 ARTICLE VIII INTERESTED DIRECTORS Section 8.1: Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (i) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (ii) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders, or; (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract transaction. ARTICLE IX MISCELLANEOUS Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. Section 9.2: Seal. The Board of Directors may provide for a corporate seal, which shall have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board of Directors. Section 9.3: Form of Records. Any records maintained by the Corporation in the regular course of business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, magnetic tape, diskettes, photographs, microphotographs, or any other information storage device, provided that the records so kept can be converted into clearly legible form within reasonable time. The Corporation shall so convert any records so kept upon request of any person entitled to inspect the same. Section 9.4: Reliance Upon Books and Records. A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall, in the performance of his or her duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation's officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 9.5: Certificate of Incorporation Governs. In the event of any conflict between the provisions of the Corporation's Certificate of Incorporation and these Bylaws, the provisions of the Certificate of Incorporation shall govern. Section 9.6: Severability. If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Corporation's Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and Page 9 the remaining provisions of the Bylaws (including without limitation all portions of any section of these Bylaws containing any such provisions held to be invalid, illegal, unenforceable, or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect. ARTICLE X AMENDMENTS Section 10.1: Amendments. Stockholders of the Corporation holding a majority of the Corporation's outstanding voting stock shall have the power to adopt, amend or repeal Bylaws of the Corporation. To the extent provided in the Corporation's Certificate of Incorporation, the Board of Directors of the Corporation shall also have the power to adopt, amend or repeal Bylaws of the Corporation, except insofar as Bylaws adopted by the stockholders shall otherwise provide. Page 10 -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.58

                                                                   EXHIBIT 10.58

                              ELECTRONIC ARTS INC.

                               INDEMNITY AGREEMENT

      This Indemnity Agreement is entered into between Electronic Arts Inc. a
corporation incorporated under the laws of Delaware (the "Company") and the
member of the Board of Directors of the Company named below ("Director").

                                    RECITALS

      A. The Company has provided in its Articles of Incorporation that a
director's liability as a director of the Company will be limited to the extent
permitted by the Delaware Corporations Code.

      B. The Company has provided in its Bylaws that the Company will indemnify
directors to the maximum extent permitted by the Delaware Corporations Code and
will advance expenses of litigation to its directors subject to an undertaking
to repay such expenses if it is determined that they may not be reimbursed by
the Company.

      C. In order to induce Director to serve as a member of the Board of
Directors of the Company, the Company desires to provide Director with the
following additional contractual assurances.

      NOW, THEREFORE, the Company and Director agree as follows:

      1. Reimbursement of Expenses. The Company will reimburse Director for all
reasonable and necessary expenses incurred by Director in connection with
Director's service as a member of the Board of Directors of the Company.

      2. Advancement of Expenses. In the event that Director at any time is, or
is threatened to be, sued or made a party to any judicial, administrative or
investigative proceeding as a result of Director's service as a member of the
Board of Directors of the Company (or Director's providing services at the
request of the Company as a director, officer, employee or agent of another
corporation or other entity), the Company will, upon the request of Director
(and within ten (10) days of the presentment of invoices therefor), advance the
costs and expenses, including attorneys' fees, incurred by Director in defending
such suit or other proceeding, or investigating any such threat, subject to an
undertaking by Director, if required by law, to repay the Company if it is
determined by a final judicial decision (from which there is no right of appeal)
that Director is not entitled, under applicable law, the Bylaws, or this
Agreement to be indemnified by the Company for such expenses. The burden of
proving that Director is not so entitled shall be on the Company.

      3. Indemnification. The Company agrees to indemnify Director, to the
maximum extent permitted by law, against any and all liabilities, costs,
expenses, amounts paid in settlement and damages incurred by Director as a
result of any lawsuit, judicial, administrative or investigative proceeding
(criminal or civil, including an action by or in the right of the Company) in
which Director at any time is sued or made a party, or is threatened to be made
a party, as a result of Director's service as a member of the Board of Directors
of the Company (or Director's providing services at the request of the Company
as a director, officer, agent or employee of another corporation or other
entity). The termination of any lawsuit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendre or its equivalent,
shall not, of itself,


                                      -1-

create a presumption that (i) Director did not act in good faith, (ii) Director
did not act in a manner which Director reasonably believed to be or not opposed
to the best interests of the Company or (iii) with respect to any criminal
action or proceeding, Director had no reasonable cause to believe that
Director's conduct was unlawful. It is the parties' intention that if the
Company contests Director's right to indemnification, the question of Director's
right to indemnification shall be for the court or arbitration panel to decide,
and neither the failure of the Company (including its Board of Directors,
independent legal counsel or its shareholders) to have made a determination that
indemnification of a director is proper in the circumstances because Director
has met the applicable standard of conduct required by applicable law, nor any
actual determination by the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel or
its shareholders) that Director has not met such applicable standard of conduct,
shall create a presumption that Director has or has not met the applicable
standard of conduct.

      4. Directors' and Officers' Insurance. The Company will, to the extent
that it is determined to be economically reasonable by the Company's Board of
Directors, maintain a policy of directors' and officers' liability insurance, on
such terms and conditions as may be approved by the Board of Directors.

      5. Contribution. If the indemnification provided in Section 3 is
unavailable and may not be paid to Director for any reason other than statutory
limitations, then in respect of any threatened, pending or completed action,
suit or proceeding in which the Company is jointly liable with Director (or
would be if joined in such action, suit or proceeding), the Company shall
contribute to the amount of expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred and paid
or payable by Director in such proportion as is appropriate to reflect (i) the
relative benefits received by the Company on the one hand and Director on the
other hand from the transaction from which such action, suit or proceeding
arose, and (ii) the relative fault of Company on the one hand and of Director on
the other in connection with the events which resulted in such expenses,
judgments, fines or settlement amounts, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of
Director on the other shall be determined by reference to, among other things,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the circumstances resulting in such expenses, judgments,
fines or settlement amounts. The Company agrees that it would not be just and
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or any other method of allocation which does not take account of the
foregoing equitable considerations.

      6. Miscellaneous. Each of the provisions of this agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be judicially determined to be invalid or unenforceable, such
determination shall not affect the validity or enforceability of any other
provision. In the event any provision hereof is determined to be unenforceable,
the provision's effect shall be deemed to be limited so as to be equal to the
maximum effect which would be enforceable. This Agreement shall be interpreted
and enforced in accordance with the laws within the state of California and
shall be binding upon the Company and its successors and assigns and shall inure
to the benefit of Director, his heirs, personal representatives and assigns. No
cancellation, amendment or modification of this Agreement shall be effective
unless in writing signed by both parties.

      7. Attorneys' Fees. In the event that any action is instituted or claim is
submitted to arbitration by Director under this Agreement to enforce or
interpret any of the terms hereof, Director shall be entitled to be paid all
court costs and expenses, including reasonable attorneys' fees, incurred by
Director with respect to such action or arbitration, unless as a part of such
action, a court of competent jurisdiction or the arbitrator(s) determines that
each of the material


                                      -2-

assertions made by Director as a basis for such claim was not made in good faith
or was frivolous. In the event of any action instituted or a claim submitted to
arbitration by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Director shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Director in defense of such action or claim (including with respect to
Director's counterclaims and cross-claims made in such action or arbitration),
unless as a part of such action the court or the arbitrator(s) determines that
each of Director's material defenses to such action or claim was made in bad
faith or was frivolous.

      IN WITNESS WHEREOF, the parties have executed this Agreement as of the
______ day of ________________, 20__.


ELECTRONIC ARTS INC.                DIRECTOR


By: ______________________          ______________________________





                                      -3-

EX-10.59

                                                                   EXHIBIT 10.59

================================================================================

                             PARTICIPATION AGREEMENT

                          Dated as of December 6, 2000

                                      among

                         ELECTRONIC ARTS REDWOOD, INC.,
                    as the Lessee and the Construction Agent,

                             ELECTRONIC ARTS, INC.,
                                as the Guarantor,

                           SELCO SERVICE CORPORATION,
                                 as the Lessor,

                        VICTORY RECEIVABLES CORPORATION,
                             as the Note Purchaser,

              THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK BRANCH,
                              as the Conduit Agent,

                          THE VARIOUS LIQUIDITY BANKS,

                                       and

                          KEYBANK NATIONAL ASSOCIATION
                  as the Letter of Credit Issuer and the Agent

================================================================================

                             PARTICIPATION AGREEMENT

         THIS PARTICIPATION AGREEMENT (as amended, restated or otherwise
modified and in effect from time to time, this "Participation Agreement"), dated
as of December 6, 2000, is entered into by and among ELECTRONIC ARTS REDWOOD,
INC., a Delaware corporation, as the lessee (in such capacity, together with its
permitted successors and assigns, the "Lessee") and as the construction agent
(in such capacity, together with its permitted successors and assigns, the
"Construction Agent"); ELECTRONIC ARTS, INC., a Delaware corporation, as the
guarantor (in such capacity, together with its permitted successors and assigns,
the "Guarantor"); SELCO SERVICE CORPORATION, an Ohio corporation doing business
in California as Ohio SELCO Service Corporation, as the lessor and as the sole
equity investor (in such capacities, together with its permitted successors and
assigns, the "Lessor"); VICTORY RECEIVABLES CORPORATION, a Delaware corporation,
as the note purchaser (in such capacity, together with its permitted successors
and assigns, the "Note Purchaser"); THE BANK OF TOKYO-MITSUBISHI, LTD., NEW YORK
BRANCH, as the agent for the Note Purchaser and the administrative agent for the
Liquidity Banks (in such capacities, together with its permitted successors and
assigns, the "Conduit Agent"); the financial institutions (including, without
limitation, those certain financial institutions appearing on the signature
pages hereof) which are parties to this Participation Agreement and the
Liquidity Documentation from time to time (such financial institutions to be
referred to collectively as the "Liquidity Banks"); and KEYBANK NATIONAL
ASSOCIATION, as issuer of the Letter of Credit (in such capacity, together with
its permitted successors and assigns, the "Letter of Credit Issuer") and as the
agent for the Lessor, the Note Purchaser, the Conduit Agent, the Liquidity Banks
and the Letter of Credit Issuer (in such capacity, together with its permitted
successors and assigns, the "Agent"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings specified in Appendix A.

                                   WITNESSETH:

         WHEREAS, the Lessee, the Construction Agent, the Guarantor, the Lessor,
the Note Purchaser, the Conduit Agent, the Liquidity Banks, the Letter of Credit
Issuer and the Agent have entered into this Participation Agreement for the
purpose of setting forth the terms and conditions pursuant to which the Lessor
would provide a lease facility to the Lessee; and

         WHEREAS, in order for the Lessor to provide such lease facility to the
Lessee, the Lessor shall (a) acquire the land described in Exhibit A (as more
fully defined in Appendix A, the "Land") from the Existing Land Owner with funds
advanced by the Note Purchaser to the Lessor under one or more Notes issued by
the Lessor to the Note Purchaser on the Initial Funding Date pursuant to the
Note Purchase Agreement and through the funding by the Lessor of the Equity
Investment from its own funds pursuant to the terms of this Participation
Agreement; (b) construct the Improvements on the Land with funds to be advanced
from time to time by the Note Purchaser under the Notes; (c) lease such Land and
Improvements to the Lessee pursuant to the terms and conditions of the Master
Lease, and (d) grant to the Lessee the right to purchase such property; and

         WHEREAS, the Lessor and certain of the other Lessor Parties will have
certain rights and remedies under the Master Lease, including, without
limitation, the right to receive payments of Rent thereunder; and

         WHEREAS, in order to finance the funds to be advanced under the Notes
by the Note Purchaser pursuant to the Note Purchase Agreement, the Note
Purchaser, pursuant to the Liquidity Documentation, may from time to time
request Loans from the Liquidity Banks or sell Percentage Interests in the
obligations evidenced by the Notes to the Liquidity Banks; and

         WHEREAS, to secure the obligations of the Lessee to the Lessor under
the Operative Documents, the Lessee has, under each of the Master Lease, the
Precautionary Deed of Trust, the Precautionary Financing Statements and the
Memorandum of Lease, granted a security interest in and Lien on all of its right
and interest in and to the Property covered by the Master Lease; and

         WHEREAS, to secure the obligations of the Lessor pursuant to the
Operative Documents, the Lessor has, pursuant to the Deed of Trust, granted a
security interest in and a Lien on all of its right and interest in and to the
Property and the Master Lease and has assigned all of its right and interest in
and to the Precautionary Deed of Trust and the Precautionary Financing
Statements to the Agent; and

         WHEREAS, the Guarantor has agreed to guarantee the Obligations of the
Lessee inasmuch as the Guarantor will derive substantial direct and indirect
benefits from the leasing of the Property by the Lessor to the Lessee; and

         WHEREAS, to cover any shortfall that may occur upon the exercise by the
Lessee of the Remarketing Option pursuant to Section 18.3 of the Master Lease,
the Letter of Credit Issuer has agreed to issue the Letter of Credit for the
benefit of the Liquidity Banks.

         NOW, THEREFORE, in consideration of the mutual agreements contained in
this Participation Agreement and the other Operative Documents 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

         Section 1.1 Definitions; Interpretation. Unless the context shall
otherwise require, capitalized terms used and not defined herein and in the
other Operative Documents 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 and the other
Operative Documents.

                                       2

                                   ARTICLE II

                        DOCUMENTATION DATE; FUNDING DATES

         Section 2.1 Documentation Date. The Documentation Date (the
"Documentation Date") shall occur on the earliest date on which the following
conditions precedent shall have been satisfied or waived:

                  (a) Participation Agreement. This Participation Agreement
shall have been duly authorized, executed and delivered by the parties hereto.

                  (b) Note Purchase Agreement. The Note Purchase Agreement shall
have been duly authorized, executed and delivered by the parties thereto.

                  (c) Liquidity Documentation. All Liquidity Documentation shall
have been duly authorized, executed and delivered by the parties thereto.

                  (d) Letter of Credit The Letter of Credit, substantially in
the form attached to the Reimbursement Agreement, shall have been duly issued
and delivered by the Letter of Credit Issuer to the Agent for the benefit of the
Liquidity Banks.

                  (e) The Lessee's Resolutions and Incumbency Certificate, etc.
The Lessee shall have delivered to the Lessor Parties (i) a certificate of its
Secretary or an Assistant Secretary attaching and certifying as to (A) the
resolutions of its Board of Directors duly authorizing the execution, delivery
and performance by it of the Operative Documents to which it is 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 its incorporation
and for the jurisdiction in which the Property is located, no earlier than ten
(10) days prior to the Documentation Date.

                  (f) The Guarantor's Resolutions and Incumbency Certificate,
etc. The Guarantor shall have delivered to the Lessor Parties (i) a certificate
of its Secretary or an Assistant Secretary attaching and certifying as to (A)
the resolutions of its Board of Directors duly authorizing the execution,
delivery and performance by it of the Operative Documents to which it is 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 its
incorporation and for the jurisdiction in which the Property is located no
earlier than ten (10) days prior to the Documentation Date.

         Section 2.2 Funding Dates.

                  (a) The dates on which the funds are to be advanced under the
Notes (and, with respect to the Initial Funding Date, the funding of the Equity
Investment shall be made) shall be referred to herein and in other Operative
Documents as the "Funding Dates" and each, a "Funding Date".

                                       3

                  (b) The Funding Date with respect to the financing of the Land
Acquisition Costs by the Lessor (the "Initial Funding Date") shall be December
7, 2000 (or such other Business Day selected by the Lessee which in no event
shall be earlier than the first Business Day after the Documentation Date)
subject to the satisfaction (or waiver by the appropriate Lessor Parties) of the
conditions set forth in Section 6.1 herein.

                  (c) Each interim Funding Date with respect to the financing of
the Improvements Construction Costs (each, an "Interim Construction Period
Funding Date") shall be on a Business Day selected by the Lessee and shall occur
no more frequently than once a month during the Construction Period, subject in
each instance to the satisfaction (or waiver by the appropriate Lessor Parties)
of the conditions set forth in Section 6.2 herein.

                  (d) The final Funding Date with respect to the financing of
the final Improvements Construction Costs (the "Final Construction Period
Funding Date") shall be on the Business Day selected by the Lessee occurring no
later than ninety (90) days after the date on which Final Completion shall have
occurred, subject to the satisfaction (or waiver by the appropriate Lessor
Parties) of the conditions set forth in Section 6.3 herein.

                  (e) Subject to Section 3.5(c) below, each Funding Date with
respect to the funding of the Accreted Amounts (as defined in Section
3.1(a)(iii) below) during the Base Lease Term (each, a "Base Lease Term Funding
Date") shall occur on each Basic Rent Payment Date during the Base Lease Term,
subject to the satisfaction (or waiver by the appropriate Lessor Parties) of the
conditions set forth in Section 6.4 herein.

                                  ARTICLE III

             ISSUANCE OF NOTES AND FUNDING OF THE EQUITY INVESTMENT;
                       PURCHASES OF NOTES; APPLICATION OF
                   PROCEEDS OF NOTES AND THE EQUITY INVESTMENT

         Section 3.1 Commitment of the Lessor to Issue Notes.

                  (a) Subject to the terms and conditions hereof, including,
without limitation, the delivery of a Funding Notice with respect to each
Funding Date (other than a Base Lease Term Funding Date), and pursuant to the
relevant provisions of the Note Purchase Agreement:

                           (i)      on the Initial Funding Date, the Lessor
shall issue one or more Notes in an aggregate principal amount of $125,450,000.

                           (ii)     Subject to Section 3.1(b) hereof, on each
Interim Construction Period Funding Date and on the Final Construction Period
Funding Date, the Note Purchaser shall advance funds to the Lessor under the
Notes in the aggregate principal amount equal to the amount specified in the
relevant Funding Notice.

                           (iii)    Subject to Section 3.1(b) hereof, on each
Base Lease Term Funding Date, and provided that the Lessee shall have paid to
the Lessor the Security Deposit as provided in Section 3.4 of the Master Lease,
the Note Purchaser shall advance funds to the

                                       4

Lessor under the Notes in an aggregate principal amount equal to $380,952.38
(each such amount, the "Accreted Amount").

                  (b) The aggregate principal amount outstanding under the Notes
at any time shall not exceed $125,450,000 (such amount, the "Aggregate Note
Purchase Commitment"). For accounting purposes, all funds advanced to the Lessor
under the Notes pursuant to the Note Purchase Agreement shall constitute debt.

                  (c) Upon payment of the Security Deposit by the Lessee
pursuant to Section 3.4 of the Master Lease, the Agent, on behalf of the Lessor
shall apply the proceeds of the Security Deposit to repay funds advanced under
the Notes in an aggregate principal amount equal to the amount of the Security
Deposit so paid and, thereafter, such repaid funds shall no longer be
outstanding for any purpose, including the calculation of the Interest Amount
under Section 4.2(a) hereof. After such repayment, however, the aggregate
principal amount outstanding under the Notes will be increased on each Base
Lease Term Funding Date to reflect the funds advanced to the Lessor under the
Notes on such Funding Date for the Accreted Amount.

         Section 3.2 Commitment of the Lessor to Fund the Equity Investment.
Subject to the terms and conditions hereof, including, without limitation, the
delivery of the initial Funding Notice, on the Initial Funding Date, the Lessor
shall fund the entire Equity Investment in the amount of $4,550,000,
representing three and one-half percent (3.5%) of the Aggregate Commitment
Amount (such amount, the "Aggregate Equity Investment Commitment"). For
accounting purposes, the Equity Investment made by the Lessor hereunder shall
constitute equity.

         Section 3.3 Commitment to Make Note Purchases. Subject to the terms and
conditions hereof and the terms and conditions of the Note Purchase Agreement,
the Note Purchaser shall purchase the Note or Notes issued on the Initial
Funding Date and on each subsequent Funding Date shall advance funds under the
Notes as requested in the relevant Funding Notice. Notwithstanding the
foregoing, the Note Purchaser shall not be required to purchase the Notes to be
issued on the Initial Funding Date or to advance funds to be advanced to the
Lessor under such Notes on the Initial Funding Date unless the Lessor
simultaneously funds the Equity Investment to be made on the Initial Funding
Date.

         Section 3.4 Commitment to Fund the Equity Investment. Subject to the
terms and conditions hereof, the Lessor shall, on the Initial Funding Date, fund
the Equity Investment as requested in the initial Funding Notice.
Notwithstanding the foregoing, the Lessor shall not be required to fund the
Equity Investment on the Initial Funding Date unless the Note Purchaser
simultaneously purchases the Notes to be issued by the Lessor on the Initial
Funding Date and advances the funds to be advanced to the Lessor under such
Notes on the Initial Funding Date.

         Section 3.5 Notice Procedures with respect to the Funding of Advances
under the Notes and the Equity Investment.

                  (a) With respect to the purchase of the Notes, the funding of
the advances to be made under such Notes, and the funding of the Equity
Investment to be made on the Initial Funding Date, the Lessee shall give the
Agent, for the benefit of the Lessor and the Note

                                       5

Purchaser, prior written notice delivered not later than 10:00 a.m., New York
time, one Business Day prior to the proposed Funding Date specifying: (i) the
proposed Funding Date, (ii) the principal amount to be advanced on such Funding
Date under the Notes, (iii) the amount of the Equity Investment to be funded and
(iv) the application of the proceeds of such funds advanced under the Notes and
the Equity Investment. The Funding Notice shall be in the form of Exhibit B-1.

                  (b) With respect to the funds to be advanced under the Notes
on each Funding Date (other than the Initial Funding Date and any Base Lease
Term Funding Date), the Lessee shall give the Lessor and the Note Purchaser
prior written notice delivered not later than 2:00 p.m., New York time, three
(3) Business Days prior to the proposed Funding Date, specifying: (i) the
proposed Funding Date, (ii) the principal amount to be advanced on such Funding
Date under the Notes (which, unless otherwise agreed to by the Note Purchaser,
shall be in an aggregate amount equal to or greater than $1,000,000) and (iii)
the application of the proceeds of such funds advanced under the Notes. The
Funding Notice shall be in the form of Exhibit B-2 with respect to all Interim
Construction Period Funding Dates and Exhibit B-3 with respect to the Final
Construction Period Funding Date.

                  (c) With respect to the funds to be advanced under the Notes
on each Base Lease Term Funding Date, provided that the Lessee shall have paid
the Security Deposit pursuant to Section 3.4 of the Master Lease, such funds
shall be in the amount set forth in Section 3.1(a)(iii) hereof and shall be used
to increase the Outstanding Lease Balance such that the Outstanding Lease
Balance at the Maturity Date shall be equal to the aggregate amount of the Land
Acquisition Costs and the Improvements Construction Costs. Unless the Lessee
provides the Lessor and the Note Purchaser with ten (10) Business Day's prior
written notice to the contrary, the Lessee shall be deemed to have requested the
funds to be advanced on each Base Lease Term Funding Date.

                  (d) Upon satisfaction or waiver of the conditions precedent to
each advance under the Notes, and with respect to the Initial Funding Date, the
funding of the Equity Investment, set forth in Article VI hereof, the Note
Purchaser shall advance such funds under the Notes and the Lessor shall fund the
Equity Investment, in each case in accordance with the allocation provisions set
forth above.

                  (e) All remittances made by the Note Purchaser for funds
advanced under the Notes or by the Lessor for the funding of the Equity
Investment on each Funding Date other than a Base Lease Term Funding Date shall
be made on the relevant Funding Dates in immediately available federal funds by
wire transfer to the accounts specified in the Funding Notices. All remittances
received by the Conduit Agent from funds advanced under the Notes in the
principal amount of the Accreted Amount on each Base Lease Term Funding Date
shall be applied to the account of the Note Purchaser for a partial or total
offset (in the amount of such remittance) of the Interest Amount due on such
date.

                  (f) Each of the Funding Notices and each advance of funds made
on each Base Lease Term Funding Date shall be irrevocable and binding on the
Lessee and the Lessee shall indemnify the Note Purchaser (or the Liquidity
Banks, if applicable) and, with respect to the Initial Funding Date, the Lessor,
against any actual loss or expense incurred by the Note

                                       6

Purchaser (or the Liquidity Banks, if applicable) and the Lessor, as a result of
the Notes not being issued and/or funds not being advanced thereunder and the
Equity Investment not being funded in accordance therewith (other than as a
result of a breach of this Participation Agreement by the Note Purchaser, any
Liquidity Bank or the Lessor, as applicable) including any actual loss or
expense incurred by the Note Purchaser, the Liquidity Banks or the Lessor, as
the case may be, by reason of the liquidation or reemployment of funds or the
termination of any hedging arrangements acquired or requested by the Note
Purchaser, the Liquidity Banks and the Lessor, to fund the purchase of such
Notes and the funds to be advanced thereunder, and the Equity Investment.

         Section 3.6 Use of Proceeds of Notes and Equity Investment. The
proceeds of the funds advanced under the Notes on the Initial Funding Date and
the Equity Investment funded on the Initial Funding Date shall be applied to
finance the Land Acquisition Costs. The proceeds of the funds advanced under the
Notes on any Interim Construction Period Funding Date or the Final Construction
Period Funding Date shall be applied to finance the Improvements Construction
Costs. The proceeds of the funds advanced under the Notes on any Base Lease Term
Funding Date shall, in the manner provided in Section 3.5(e) above, be used to
repay the then-accreted portion of the Outstanding Lease Balance occurring as a
result of the funding by the Lessee of the Security Deposit.

         Section 3.7 Commitment of the Liquidity Banks and Letter of Credit
Issuer. Subject to the terms and conditions set forth herein and in the other
Operative Documents, (a) the Liquidity Banks shall severally, but not jointly,
make available Loans (as defined in the Liquidity Agreement) in an aggregate
principal amount not to exceed at any one time, $125,450,000, plus all accrued
discount on all related Commercial Paper (as such amount may be adjusted
pursuant to the Liquidity Agreement) less the aggregate principal amount of
outstanding Percentage Interest purchased by the Liquidity Banks pursuant to the
Asset Purchase Agreement, (b) the Letter of Credit Issuer shall issue the Letter
of Credit in the stated amount of not less than $6,656,037.11, and (c) each of
the Liquidity Banks and the Letter of Credit Issuer shall, at the times set
forth therein, duly perform their respective obligations set forth herein and
under the applicable Operative Documents to which such Person is a party.

                                   ARTICLE IV

                CALCULATION OF BASIC RENT AND SUPPLEMENTAL RENT;
                      DETERMINATION OF NOTE RATE; BREAKAGE
                  EXPENSES, INCREASED COSTS, ETC.; TAXES; FEES

         Section 4.1 Rent.

                  (a) Basic Rent shall be equal to the sum of the Interest
Amount, the Yield Amount and the Support Amount. Basic Rent payable on each
Basic Rent Payment Date shall be equal to the sum of the Interest Amount, the
Yield Amount and the Support Amount payable on such date.

                  (b) Any Supplemental Rent payable pursuant to this
Participation Agreement and the other Operative Documents shall be paid
forthwith upon the determination thereof.

                                       7

                  (c) The Lessor Parties hereby acknowledge that the Notes and
the Equity Investment may be prepaid with the proceeds of the Supplemental Rent
payments due pursuant to the Master Lease, with the proceeds of such payments
applied in accordance with the provisions of Article XI hereof, subject in any
event to compliance with Section 4.3 hereof and to the timely application of
such Supplemental Rent pursuant to the relevant provisions of Article XI hereof.

         Section 4.2 Calculation of Basic Rent.

                  (a) The Interest Amount portion of Basic Rent with respect to
the outstanding principal amount of the Notes shall be computed based upon one
of the rates set forth below:

                           (i)      To the extent that the Note Purchaser is
funding advances under the Notes by issuance of Commercial Paper, the Interest
Amount portion of Basic Rent with respect to the amounts outstanding under the
Notes shall be computed based upon the CP Rate as in effect from time to time
plus fifteen one hundredths of one percent (.15%); and

                           (ii)     To the extent the Note Purchaser is not
funding advances under the Notes by issuance of Commercial Paper or the Notes
have been purchased by the Liquidity Banks pursuant to the Liquidity
Documentation, the Interest Amount portion of Basic Rent with respect to the
amounts outstanding under the Notes shall be computed as follows: (A) until such
time as a Loan based upon a one (1) month LIBOR rate can be advanced by the
Liquidity Banks pursuant to the Liquidity Documents, the Alternate Rate, and (B)
thereafter, one of the following two rates as selected by the Note Purchaser (or
if the Notes have been purchased by the Liquidity Banks pursuant to the
Liquidity Documentation, the Agent) in its reasonable discretion: (x) the one
(1) month LIBOR rate as in effect from time to time (adjusted for reserve
requirements in effect on the first day of each period for which a payment is
due) plus the Applicable Margin; or (y) if the one (1) month LIBOR rate is not
available for any reason, the Alternate Rate.

         The aggregate amount payable in accordance with this Section 4.2(a)
with respect to all Notes as of any Basic Rent Payment Date shall be the
"Interest Amount" payable as of such date.

                  (b) The Yield Amount portion of Basic Rent payable with
respect to the Equity Investment shall be computed based upon either (A) the one
(1) month LIBOR rate as in effect from time to time, adjusted for reserve
requirements in effect on the first day of each period for which a payment is
due, plus eight-tenths of one percent (.80%) or (B) if the one (1) month LIBOR
rate is not available or cannot be determined for the reasons set forth in
Section 4.5 herein, the Alternate Rate. Notwithstanding the foregoing, for the
period beginning on the Initial Funding Date and ending on the first Basic Rent
Payment Date, the Yield Amount portion of Basic Rent payable with respect to the
outstanding Equity Investment shall be computed based upon the Alternate Rate or
such other rate as agreed upon between the Lessee and the Lessor immediately
prior to the Initial Funding Date. The aggregate amount payable in accordance
with this Section 4.2(b) with respect to the Equity Investment as of any Basic
Rent Payment Date shall be the "Yield Amount" payable as of such date.

                  (c) The Support Amount portion of Basic Rent payable to the
Letter of Credit Issuer to compensate it for the issuance of the Letter of
Credit shall be equal to one-twentieth of

                                       8

one percent of the outstanding principal amount of the Notes. The aggregate
amount payable in accordance with this Section 4.2(c) as of any Basic Rent
Payment Date shall be the "Support Amount" payable as of such date.

                  (d) All calculations of Basic Rent shall be performed by the
Agent based on the information provided to it pursuant to Section 5.3. Such
information shall be provided to the Lessee and the Guarantor no later than 5:00
p.m., New York time, on the third (3rd) Business Day prior to the relevant Basic
Rent Payment Date, together with reasonable detail supporting the calculations
made. The Guarantor and Lessee shall promptly acknowledge receipt of such
calculations in writing to the Agent. Such calculations shall be deemed final in
the absence of manifest error. The Guarantor and the Lessee shall be entitled to
rely on any calculation of Basic Rent performed by the Agent, and to deal
directly with the Agent in connection with the verification of such
calculations.

                  (e) Except with respect to payments made pursuant to Sections
4.3, 4.4, 4.6, 13.1, 13.3 and 13.5, proceeds derived upon exercise of the
Remarketing Option or Unwind Proceeds (which shall be remitted to the Agent to
be distributed as provided in Article XI hereof), to the extent that a payment
of Basic Rent or Supplemental Rent is made other than on a Basic Rent Payment
Date, upon the request of the Lessee, the proceeds of any such payment (such
receipts, "Prepayments") shall be deposited in a special, segregated account
which shall be an Eligible Account held in the name of, and under the sole
dominion and control of the Agent (the "Prepayment Account").

                           Funds in the Prepayment Account shall be invested by
the Agent, at the direction and for the benefit of the Lessee, in Cash
Equivalents maturing no later than the next succeeding Basic Rent Payment Date.
The Agent is hereby authorized, in making or disposing of any investment
permitted by this Section, to deal with itself (in its individual capacity) or
with any one or more of its Affiliates, whether it or such Affiliate is acting
as an agent of the Agent or for any third person or dealing as a principal for
its own account; provided, however, that all such dealings between the Agent and
any one or more of its Affiliates shall be conducted on an arm's-length,
commercially reasonable basis.

                           The Lessee may, at its discretion, provide written
instructions to the Agent as to timing and application of moneys in the
Prepayment Account, so long as any money so withdrawn shall be used for the
payment of Rent. Absent any written instruction from the Lessee to the Agent or
if a Lease Default or a Lease Event of Default shall have occurred and be
continuing, the Agent shall withdraw money from the Prepayment Account and apply
such amount to the payment of Basic Rent and Supplemental Rent as such Rent
becomes due, but only to the extent that such Rent would otherwise, in the
ordinary course under the Operative Documents, be paid by the Lessee to the
Agent for application and allocation in accordance with the Operative Documents.
The Agent acknowledges and agrees that the Lessee and the Guarantor shall be
entitled to assume, and rely on such assumption, that the Agent will properly
apply and allocate any amount withdrawn from the Prepayment Account pursuant to
the Lessee's written instructions (if any, and absent any Lease Default or Lease
Event of Default) and the procedures and allocations under the Operative
Documents. Any amount remaining in the Prepayment Account upon the Lease
Termination Date and the full satisfaction of the

                                       9

Obligations under the Operative Documents shall be promptly withdrawn from the
Prepayment Account and returned to the Lessee.

         Section 4.3 Breakage Expenses; Yield Maintenance Premium.

                  (a) If, with respect to the amounts outstanding under the
Notes or the outstanding portion of the Equity Investment, (i) interest or
principal is repaid or prepaid (including as a result of acceleration) in each
case (A) subject to Section 4.2(e) above, on a date other than a Basic Rent
Payment Date applicable thereto (including, without limitation, the Maturity
Date) or (B) in an amount other than the amount currently due, or (ii) Lessee
shall cancel or otherwise fail to consummate any funding requested under a
Funding Notice which has been delivered to the Agent (whether as a result of the
failure to satisfy any applicable conditions or otherwise) or shall fail to make
any prepayment after notice has been given to the Agent, then the Lessee shall
hold such Lessor Parties harmless from, and pay as Supplemental Rent to the
Agent for the benefit of such Lessor Parties, as their respective interests may
appear, within five (5) Business Days following demand therefor (which demand
shall be accompanied by one or more certificates contemplated by Section 4.3(c)
below), all actual costs and losses incurred by such Lessor Parties as a result
of such payment, cancellation or failure.

                  (b) Without duplication of the foregoing, and subject to
Section 4.2(e) above, in the event that any Lessor Party shall incur any loss or
expense (including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such party or the
termination of any hedging arrangements) to make, continue or maintain any
portion of the principal amount of its investment as the result of a breach by
the Lessee or the Guarantor under the Operative Documents, such Lessor Party
shall deliver a notice accompanied by a certificate as contemplated by Section
4.3(c) below, regarding such loss or expenses. The Lessee shall, within thirty
(30) days of receipt of such notice, pay directly to the Agent for the benefit
of such Lessor Party as Supplemental Rent, an amount, reasonably determined to
be equal to the excess, if any, of (A) the amount such Lessor Party would have
received if its investment had been made or continued based on the interest rate
borne by the relevant instrument over (B) the amount realized by such party from
reemploying the funds.

                  (c) A certificate (describing in reasonable detail the
calculation of the yield maintenance or other amount, as applicable, to be paid
under this Section 4.3) submitted by the applicable Lessor Party to the Lessee
(with a copy to the Agent) shall, absent demonstrable error, be final and
conclusive.

         Section 4.4 Increased Costs, etc. If after the date hereof any change
in applicable law or regulation or in the interpretation or administration
thereof by any Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law) (i) shall
subject any Lessor Party to, or increase the net amount of, any tax, levy,
impost, duty, charge, fee, deduction or withholding with respect to any Note,
Loan or the Equity Investment (or any portion thereof), or the funding of (or
agreement to provide funding for) such Notes, Loans or the Equity Investment, or
shall change the basis of taxation of payments to the Lessor Parties or any
other fees or amounts payable under the Operative Documents (other than (x) with
respect to the Lessor, any Taxes or other items specifically excluded from the
definition of Impositions, and (y) with respect to any Lessor Party other than
the Lessor, any Taxes (A)

                                       10

attributable to changes in the rate of general corporate, franchise, net income
or other income tax imposed on such Lessor Party by the jurisdiction in which
such Lessor Party either maintains its applicable lending office or is otherwise
subject to tax other than as a result of the transactions contemplated by the
Operative Documents or (B) that would not have been imposed but for the failure
of such Lessor Party to comply with any certification, information,
documentation or other reporting requirement), (ii) shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by, such Lessor
Party that would affect the amount of capital required or reasonably expected to
be maintained by such Lessor Party or any Person directly or indirectly
controlling such parties, and such Lessor Party reasonably and in good faith
determines that the rate of return on its or such controlling Person's capital
as a consequence of its obligations under or in respect of the Operative
Documents is reduced to a level below that which such party would have achieved
but for the occurrence of any such circumstance by an amount deemed by such
party to be material, or (iii) shall impose on such Lessor Party any other
condition (other than a condition involving administrative matters such as
additional reporting requirements to any such Governmental Authority) affecting
this Participation Agreement or any other Operative Document or the funding (or
agreement to provide funding hereunder), and the result of any of the foregoing
shall be to increase the cost to such Lessor Party of, or to reduce the amount
of any sum received or receivable by such Lessor Party in respect of, making,
continuing or maintaining (or its obligation to make, continue or maintain) its
investments in the respective instruments (or providing funding therefor) by an
amount reasonably determined in good faith by such Lessor Party to be material,
then the Lessee shall pay to the Agent for the benefit of the Lessor Party, as
Supplemental Rent, such additional amount or amounts, as will compensate such
Lessor Party on an After Tax Basis for such increase or reduction upon demand by
such party. Each such Lessor Party shall within thirty (30) days of such Lessor
Party's discovery of such event, notify the Lessee in writing of the occurrence
of any such event, such notice to state, in reasonable detail, the reasons
therefor and the calculation of the additional amount required fully to
compensate such party for such increased costs or reduced amount. Such
additional amount shall be payable by the Lessee to the Agent for the benefit of
such claiming party within fifteen (15) Business Days of its receipt of such
notice and such notice shall, in the absence of manifest error, be conclusive
and binding on the Lessee. Notwithstanding any other provision of this
Participation Agreement, any amount of Taxes that would, but for this sentence,
give rise to both Supplemental Rent payable to the Lessor pursuant to this
Section 4.4 and an indemnity payment obligation in favor of the Lessor pursuant
to Section 13.4 shall be governed solely by the provisions of Section 13.4;
provided, however, that this sentence is intended to apply Section 13.4 to Taxes
subject to an actual indemnity payment obligation pursuant to both Section 4.4
and Section 13.4, but not to diminish any claim for indemnification (or
Supplemental Rent) pursuant to this Section 4.4 that would not give rise to an
actual indemnity payment obligation pursuant to Section 13.4.

         Section 4.5 Change of Circumstances.

                  (a) If, on or before the first day of any Rent Period, the
Lessor or any Liquidity Bank shall advise the Agent that the one (1) month LIBOR
rate cannot be adequately and reasonably determined due to the unavailability of
funds in or other circumstances generally affecting the London interbank market,
the Agent shall immediately give notice of such condition to the other
Transaction Parties. After the giving of any such notice (and until the

                                       11

Agent shall otherwise notify the Lessee that the circumstances giving rise to
such condition no longer exist), the rates to be paid by the Lessee pursuant to
Section 4.2(a)(ii) and 4.2(b) herein (as applicable) as of the first day of the
next Basic Rent Payment Date shall be the Alternate Rate.

                  (b) If, after the date of this Participation Agreement, as the
result of the adoption of any Requirement of Law, any change in any Requirement
of Law or the application or requirements thereof (whether such change occurs in
accordance with the terms of such Requirement of Law as enacted, as a result of
amendment or otherwise), any change in the interpretation or administration of
any Requirement of Law by any Governmental Authority, or any request or
directive (whether or not having the force of law) of any Governmental Authority
(each a "Change of Law"), it shall become unlawful or impossible for the Lessor
or any Liquidity Bank to fund or maintain its portion of the Outstanding Lease
Balance at the one (1) month LIBOR rate, such Person shall immediately notify
the Agent and the Agent shall immediately notify the other Transaction Parties
of such Change of Law. After the giving of any such notice (and until the Agent
shall otherwise notify the Lessee and the Lessor that such Change of Law is no
longer in effect), the one (1) month LIBOR rate shall be unavailable and the
rates to be paid by the Lessee pursuant to Section 4.2(a)(ii) and 4.2(b) herein
(as applicable) as of the next Basic Rent Payment Date shall be the Alternate
Rate.

         Section 4.6 Taxes. All payments of Basic Rent, Supplemental Rent,
principal of, and interest or yield on, the Notes, the Loans and the Equity
Investment and all other amounts payable hereunder and under the Master Lease
shall be made free and clear of and without deduction for any present or future
income, excise, stamp, transfer or franchise taxes and other taxes, fees,
duties, withholdings or other charges of any nature whatsoever (including
interest and penalties) now or hereafter imposed by any Governmental Authority
or taxing authority thereof ("Taxes"), but excluding (x) with respect to the
Lessor, any Taxes or other items, in each case, specifically excluded from the
definition of Impositions, and (y) with respect to any Lessor Party other than
the Lessor, franchise taxes and other taxes imposed on or measured by the net
income of, as the case may be, of such Lessor Party (or its applicable lending
office) by its jurisdiction of incorporation or the jurisdiction in which it
maintains its applicable lending office (in each case, such non-excluded items
being called "Other Taxes"). In the event that any withholding or deduction from
any payment to be made by the Lessee hereunder is required in respect of any
Taxes pursuant to any applicable law, rule or regulation, then the Lessee will:

                  (a) pay as Supplemental Rent directly to the relevant
Governmental Authority or taxing authority the full amount required to be so
withheld or deducted;

                  (b) forward to the Agent for the benefit of the relevant
Lessor Party official receipts or other documentation reasonably satisfactory to
such Lessor Party evidencing such payment to such authority; and

                  (c) with respect to Other Taxes, pay to the Agent for the
benefit of the relevant Lessor Party such additional amount or amounts as is
necessary to ensure that the net amount actually received by such Lessor Party
will equal the full amount such Lessor Party would have received had no such
withholding or deduction been required.

                                       12

         Moreover, if any Other Taxes are directly asserted against any Lessor
Party with respect to any payment received by such Lessor Party, such Lessor
Party may pay such Other Taxes and the Lessee will pay to the Agent for the
benefit of such Lessor Party, as Supplemental Rent, within fifteen (15) Business
Days after receipt of a written demand therefor (accompanied by a written
statement describing in reasonable detail the amount so payable) from such
Lessor Party such additional amounts (including any interest, reasonable
expenses and any penalties incurred in connection therewith) as are necessary in
order that the net after-tax amount received by such Person after the payment of
such Other Taxes (including any Taxes on such additional amount) shall equal the
amount such Person would have received had such Other Taxes not been asserted
plus interest on such additional amounts at the Alternate Rate calculated from
the date of payment of such Other Taxes by such Lessor Party to the date of
payment of such additional amounts by the Lessee.

         If the Lessee fails to pay any Other Taxes when due to the appropriate
taxing authority or fails to remit to the Agent for the benefit of the relevant
Lessor Party the required receipts or other required documentary evidence, then
the Lessee shall indemnify such Lessor Party for any incremental Taxes,
interest, penalties and reasonable expenses that may become payable by such
Lessor Party as a result of any such failure.

         Notwithstanding any other provision of this Participation Agreement,
any amount of Taxes that would, but for this sentence, give rise to both
Supplemental Rent payable to the Lessor pursuant to this Section 4.6 and an
indemnity payment obligation in favor of the Lessor pursuant to Section 13.4
shall be governed solely by the provisions of Section 13.4; provided, however,
that this sentence is intended to apply Section 13.4 to Taxes subject to an
actual indemnity payment obligation pursuant to both Section 4.6 and Section
13.4, but not to diminish any claim for indemnification (or Supplemental Rent)
pursuant to this Section 4.6 that would not give rise to an actual indemnity
payment obligation pursuant to Section 13.4.

         Section 4.7 Replacement of Affected Parties.

                  (a) If any Liquidity Bank (an "Affected Party") makes demand
upon the Lessee for amounts pursuant to Section 4.3, 4.4 or 4.6 hereof, then the
Lessee may (x) request such Affected Party to, and such Affected Party shall
upon such request, use reasonable efforts to designate another lending office
acceptable to such Affected Party in its sole discretion for its investment
(with the object of avoiding the consequences of such events) or (y) give notice
(a "Replacement Notice") in writing to such Liquidity Bank, the Note Purchaser,
the Conduit Agent and the Agent of its intention to replace such Affected Party
with an Eligible Assignee designated in such Replacement Notice, if such
replacement would result in the elimination or reduction of charges similar to
those being claimed by the Affected Party. Any replacement of a Liquidity Bank
pursuant to the foregoing provisions must be acceptable to the Note Purchaser
and the Conduit Agent in their sole discretion (including, without limitation,
for Rating Agency concerns).

                  (b) The Note Purchaser and the Conduit Agent shall, in the
exercise of their sole discretion and within thirty (30) days of its receipt of
a Replacement Notice with respect to one of the Liquidity Banks, notify the
Lessee and the Affected Party whether the designated Eligible

                                       13

Assignee is satisfactory to the Note Purchaser and the Conduit Agent; and if
either shall fail to give such notice, the Eligible Assignee shall be deemed
rejected.

                  (c) Upon approval of the designated Eligible Assignee as
aforesaid, the Affected Party shall assign its rights and obligations under the
Operative Documents to such Eligible Assignee and, as a condition of such
assignment, the Affected Party shall receive payment in full of all outstanding
Loans and all other amounts due it under the Operative Documents.

                  (d) In the event the Note Purchaser and the Conduit Agent do
not approve the replacement of the Affected Party with the designated Eligible
Assignee, the Lessee shall have the option to designate another Eligible
Assignee pursuant to Section 4.7(a) and Section 4.7(b) above.

         Section 4.8 Fees.

                  (a) The Lessee shall pay to the Agent for the benefit of the
Liquidity Banks a one-time upfront fee equal to (i) one basis point per
$1,000,000 of the Aggregate Note Purchase Commitment provided by each Liquidity
Bank other than KeyBank and (ii) for KeyBank, the amount as set forth in the
Proposal (the "Upfront Fees"). The Lessee shall pay the Upfront Fees in advance
on the Initial Funding Date as a Transaction Expense.

                  (b) The Lessee shall pay to the Agent, for the ratable benefit
of the Liquidity Banks to be paid pro rata based upon each Liquidity Bank's
Percentage, commitment fees (the "Commitment Fees") equal to thirty-five
one-hundredths of one percent (.35%) of the unused Aggregate Note Purchase
Commitment. The Lessee shall pay the Commitment Fees in arrears on each Basic
Rent Payment Date in each March, June, September and December (commencing on
March 12, 2001) and on the Maturity Date (or if the Overall Transactions are
terminated on a date prior to such date, on such prior date); provided, however,
the payment of Commitment Fees due on March 12, 2001 shall be prorated to
reflect the number of days from the Documentation Date to March 12, 2001. The
Commitment Fees shall constitute Supplemental Rent for the purposes of the
Operative Documents.

                  (c) The Lessee shall pay to the Agent for the benefit of the
Letter of Credit Issuer an annual issuance fee (the "Issuance Fee") equal to one
quarter of one percent (.25%) of the face amount of the Letter of Credit. The
Lessee shall pay the Issuance Fee in arrears in four installments on each Basic
Rent Payment Date in each March, June, September and December (commencing on
March 12, 2001) and on the Maturity Date (or if the Overall Transactions are
terminated on a date prior to such date, on such prior date). The Issuance Fee
shall constitute Supplemental Rent for the purposes of the Operative Documents.

                  (d) The Lessee shall pay to the Agent for the benefit of the
Structuring Agent a one-time structuring fee (the "Structuring Fee") as set
forth in the Proposal. The Lessee shall pay the Structuring Fee in advance on
the Initial Funding Date as a Transaction Expense.

         Section 4.9 Calculation of Interest and Fees. All calculations of the
Interest Amount, the Yield Amount, any other forms of interest or fees under
this Participation Agreement and the other Operative Documents for any period,
unless otherwise specified herein or therein, shall (a) include the first day of
such period and exclude the last day of such period and (b) be calculated

                                       14

on the basis of a year of 360 days for actual days elapsed, except that during
any period any of the foregoing amounts is calculated based upon the Alternate
Rate, such amount shall be calculated on the basis of a year of 365 or 366 days,
as appropriate, for actual days elapsed.

                                   ARTICLE V

                        CERTAIN INTENTIONS OF THE PARTIES

         Section 5.1 Nature of Transaction.

                  (a) The parties hereto intend that, with respect to the
Property and the Master Lease, (i) for financial accounting purposes with
respect to the Lessee, (x) the Master Lease will be treated as an "operating
lease" pursuant to Statement of Financial Accounting Standards (SFAS) No. 13, as
amended, (y) the Lessor will be treated as the owner and the lessor of the
Property to which it holds title subject to the Master Lease and the Lessee will
be treated as the lessee of the Property, (ii) for federal and all state and
local income tax purposes and bankruptcy purposes, (A) the Master Lease will be
treated as a financing arrangement, (B) the Note Purchaser with respect to the
Notes and the Lessor with respect to the Equity Investment will be deemed to be
lenders making loans to the Lessee in an aggregate amount equal to the
Outstanding Lease Balance, which loans are secured, inter alia, by the Property
subject to the Master Lease, and (C) the Lessee under the Master Lease will be
treated as the owner of the Property and will be entitled to all tax benefits
ordinarily available to an owner of property like such Property for such tax
purposes, and (iii) all risks relating to environmental matters shall be borne
by the Lessee in accordance with the provisions of this Participation Agreement,
the Construction Agency Agreement and the Environmental Indemnity Agreement.

                  (b) The parties hereto intend that, for federal, state, local
and foreign tax and regulatory purposes, the Notes and the Equity Investment
will be Indebtedness of the Lessee secured, inter alia, by the Property and the
rights to payment of Rent under the Master Lease, and agree to treat the Notes
and the Equity Investment accordingly for all such purposes.

                  (c) Notwithstanding anything else to the contrary set forth
herein, each Transaction Party acknowledges and agrees that none of the other
Transaction Parties has made any representations or warranties concerning the
tax, accounting or (except as otherwise expressly contained in this
Participation Agreement or other Operative Documents) legal characteristics of
the Operative Documents and that each Transaction Party, respectively, has
obtained and relied upon such tax, accounting and legal advice concerning the
Operative Documents as it deems appropriate.

                  (d) Specifically, without limiting the generality of the
foregoing, 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 statutes of the
United States of America or any state or commonwealth thereof affecting the
Lessee or any other Transaction Party or any collection actions, the
transactions evidenced by the Operative Documents are loans made to the Lessee
by the Lessor (using its own funds as well as funds provided by the Note
Purchaser and/or the Liquidity Banks as unrelated third party lenders).

                                       15

         Section 5.2 Amounts Due Under the Master Lease. Anything else herein or
elsewhere to the contrary notwithstanding, it is the intention of the
Transaction Parties that: (i) the amount and timing of installments of Basic
Rent due and payable from time to time from the Lessee under the Master Lease
shall be equal to the aggregate payments due and payable in respect of the
amounts outstanding under the Notes and the outstanding portion of the Equity
Investment on each Basic Rent Payment Date then due and payable; (ii) if the
Lessee elects to purchase all of the Property under the Master Lease or becomes
obligated to purchase all of the Property pursuant thereto, the Outstanding
Lease Balance, all accrued and unpaid Basic Rent, Supplemental Rent and all
other obligations of the Lessee owing to the Lessor Parties or any other Person
under the Operative Documents shall be paid in full by the Lessee; and (iii) if
the Lessee properly elects the Remarketing Option under the Master Lease, the
Lessee shall only be required to pay to the Lessor the Gross Remarketing
Proceeds of the sale of the Property, the corresponding Maximum Recourse Amount
and any amounts due pursuant to Articles XI and XIII hereof and Section 18.3 of
the Master Lease (subject to Section 18.3(n) of the Master Lease) (which
aggregate amount may be less than the Outstanding Lease Balance); and (iv) upon
a Lease Event of Default resulting in the obligations of the Lessee becoming due
and payable, the amounts then due and payable by the Lessee under the Master
Lease shall include all amounts necessary to pay in full the Outstanding Lease
Balance, plus all accrued and unpaid Rent (including, without duplication,
Supplemental Rent) plus all other amounts then due from Lessee to the Lessor
Parties, or any other Person under the Operative Documents. Amounts payable to
the Lessor pursuant to Section 5.2(ii) or (iii) hereof shall be remitted to the
Agent upon receipt by the Lessee and shall be applied upon receipt thereof in
accordance with the provisions of Article XI hereof.

         Section 5.3 Allocation of Payment Obligations; Payment to Agent.

                  (a) The Note Purchaser, the Lessor and the Letter of Credit
Issuer shall submit to the Agent no later than 5:00 p.m., New York time, on the
fourth (4th) Business Day prior to each Basic Rent Payment Date, a summary of
the Basic Rent payments due in respect of the amounts outstanding under the
Notes and the outstanding portion of the Equity Investment, together with
reasonable detail supporting the calculations made. The Agent shall prepare and
distribute to the Note Purchaser, the Lessor, the Letter of Credit Issuer, the
Lessee and the Guarantor, no later than three (3) Business Days prior to each
Basic Rent Payment Date, an invoice with respect to the Basic Rent payable as of
such date, which invoice shall set forth, inter alia, the aggregate amount of
Basic Rent payable by the Lessee as of the upcoming Basic Rent Payment Date
together with a detailed description of the allocation of Basic Rent to each
outstanding type of instrument, with such amounts further allocated to reflect
the amounts payable by the Lessee and the interest rates payable on such
instrument. Such invoice shall further specify the relevant payment
instructions. Notwithstanding the foregoing, any delay or failure on the part of
the Agent to deliver the invoice shall neither extinguish nor diminish Lessee's
obligations to pay the Basic Rent due and payable on the applicable Basic Rent
Payment Date.

                  (b) Except as otherwise expressly set forth in this
Participation Agreement or any other Operative Documents, all payments to be
made by the Lessee or any other Lessee Party shall be paid to the Agent for the
benefit of, and disbursement to, the Lessor Party for whose account such payment
has been made, and payment to the Agent, shall, as between such Lessee Party and
such Lessor Party, constitute payment to such Lessor Party.

                                       16

                                   ARTICLE VI

                             CONDITIONS PRECEDENT TO
                                  FUNDING DATES

         Section 6.1 Conditions Precedent to the Initial Funding Date. The
obligation of the Lessor to issue the Notes specified in Section 3.1 and the
Note Purchaser to fund advances thereunder and the Lessor to fund the Equity
Investment specified in Section 3.2, the Note Purchaser (or the Liquidity Banks
if the Note Purchaser does not) to purchase such Notes and fund amounts
thereunder or Percentage Interests, the obligation of the Lessor to acquire the
Land, the obligation of the Letter of Credit Issuer to issue the Letter of
Credit and the obligation of the Lessee to enter into the Master Lease are
subject to the satisfaction (or waiver by the appropriate Lessor Parties) of
each of the following conditions precedent (such satisfaction or waiver to be
evidenced by the purchase of the Notes and the funding of the advances
thereunder, and funding of the Equity Investment on the Initial Funding Date
unless otherwise documented in writing by the appropriate parties):

                  (a) Funding Notice. The Agent, for the benefit of the Lessor
Parties, shall have received a fully executed counterpart of the Initial Funding
Notice substantially in the form of Exhibit B-1 attached hereto with respect to
the issuance of the Notes and the funding of the advances thereunder, and the
funding of the Equity Investment to finance the Land Acquisition Costs. The
delivery of such Funding Notice and the acceptance by the Lessee of the proceeds
of the initial funds advanced under the Notes by the Note Purchaser and the
Equity Investment described therein shall constitute a representation and
warranty by the Lessee that on such Funding Date (both immediately before and
after giving effect to such advances under the Notes and the Equity Investment
and the application of the proceeds thereof), the statements made in Section 7.1
and 7.2 are true and correct in all material respects.

                  (b) Operative Documents to be Delivered on the Initial Funding
Date.

                           (i)      Master Lease. The Lessee and the Lessor
shall have duly executed and delivered the Master Lease in the form of Exhibit C
attached hereto, such Master Lease to be dated as of the Initial Funding Date.

                           (ii)     Construction Agency Agreement. The
Construction Agent and the Lessor shall have duly executed and delivered the
Construction Agency Agreement in the form of Exhibit D attached hereto, such
Construction Agency Agreement to be dated as of the Initial Funding Date, and
all conditions therein required to be satisfied prior to commencement of the
construction of the Improvements shall have been satisfied.

                           (iii)    Guaranty. The Guarantor shall have duly
authorized, executed and delivered by the Guaranty in the form of Exhibit E
attached hereto, with respect to the guaranty by the Guarantor of obligations of
the Lessee under the Operative Documents, such Guaranty to be dated as of the
Initial Funding Date.

                           (iv)     Environmental Indemnity Agreement. The
Lessee shall have duly authorized, executed and delivered the Environmental
Indemnity Agreement in the form of

                                       17

Exhibit F attached hereto, such Environmental Indemnity Agreement to be dated as
of the Initial Funding Date.

                  (c) Memorandum of Lease. The Memorandum of Lease substantially
in the form of Exhibit G attached hereto, shall have been executed and delivered
by the Lessee and Lessor, such Memorandum of Lease to be dated as of the Initial
Funding Date.

                  (d) Precautionary Deed of Trust. The Precautionary Deed of
Trust substantially in the form of Exhibit H attached hereto shall have been
executed and delivered by the Lessee, such document to be dated as of the
Initial Funding Date.

                  (e) Deed of Trust. The Lessor shall have executed and
delivered the Deed of Trust to the Agent substantially in the form of Exhibit I
attached hereto, such instrument to be dated as of the Initial Funding Date.

                  (f) Opinion of Counsel to Lessee and Guarantor. The Agent on
behalf of the Lessor Parties shall have received an opinion of Perkins Coie LLP,
counsel to the Lessee and the Guarantor, to be dated as of the Initial Funding
Date, as to the matters set forth in Exhibit J, which opinion shall be
acceptable in form and substance to the Lessor Parties. By its execution hereof,
each of the Lessee and the Guarantor expressly instruct such counsel to execute
and deliver such opinion to the Persons designated in the preceding sentence
and, if requested by the Note Purchaser or the Liquidity Banks, the Rating
Agencies.

                  (g) Initial Appraisal. The Agent on behalf of the Lessor
Parties shall have received the Initial Appraisal of the Property dated as of a
date that is satisfactory to the Lessor Parties and in form and substance
satisfactory to the Lessor Parties in their sole discretion.

                  (h) Environmental Audit. The Agent on behalf of the Lessor
Parties shall have received the results of an Environmental Audit with respect
to the Property which is dated no earlier than thirty (30) days prior to the
Initial Funding Date, which Environmental Audit shall be satisfactory in form
and substance to the Lessor Parties in their sole discretion.

                  (i) Conveyance Instruments. On or prior to the Initial Funding
Date, the Agent on behalf of the Lessor Parties shall have received evidence
satisfactory to them that appropriate Conveyance Instruments have been executed
and delivered and, if deemed necessary or desirable by any such Person or its
counsel, recorded in such jurisdictions as such Person may request, in order to
properly convey fee title to the Property to the Lessor and (y) perfect the
interests of the Agent in the Master Lease and the Property.

                  (j) Matters with Respect to the Construction of the
Improvements

                           (i)      Construction Contract. The Construction
Contract shall have been duly executed and delivered by the parties thereto, and
all conditions therein required to be satisfied prior to commencement of the
construction of the Improvements shall have been satisfied.

                                       18

                           (ii)     Budget. The Budget shall have been delivered
to the Agent on behalf of the Lessor Parties and the Construction Agent shall
have identified the funding sources with respect to all Budget items.

                           (iii)    Evidence of Access to Utilities. The
Construction Agent shall have delivered to the Agent on behalf of the Lessor
Parties evidence of the availability, capacity and suitability of electric, gas,
telephone, water, sanitary sewer and storm water drainage services with respect
to Property.

                           (iv)     No Flood Hazard Area. The Construction Agent
shall have delivered to the Agent on behalf of the Lessor Parties evidence that
the Improvements are not being built in a special flood hazard area.

                           (v)      Permits. The Construction Agent shall have
delivered to the Agent on behalf of the Lessor Parties copies of all
certificates, permits, licenses or other authorizations (including confirmation
of zoning compliance) which are necessary to have been obtained in connection
with the commencement of the construction of the Improvements.

                           (vi)     Absence of Condemnation or Similar
Proceedings. The Construction Agent shall have delivered to the Agent on behalf
of the Lessor Parties evidence to the effect that no part of the Property has
been taken in condemnation or other similar proceedings (and that no such
proceedings are pending or shall have been notified to any of the Construction
Agent, the Lessee or the Guarantor).

                           (vii)    Assignment of Construction Agreements and
Contractor's Consent to Assignment, The Lessee shall have duly executed and
delivered the Assignment of Construction Agreements substantially in the form of
Exhibit K attached hereto and shall also have delivered to the Agent on behalf
of the Lessor Parties a Contractor's Consent to Assignment executed by the
Contractor, substantially in the form attached to the Assignment of Construction
Agreements.

                           (viii)   Evidence of Insurance Required by
Construction Contract. The Agent on behalf of the Lessor Parties shall have
received evidence that Required Builder's Risk Insurance required to be
maintained with respect to the construction of the Improvements pursuant to the
Construction Contract is in full force and effect.

                           (ix)     Evidence of Additional Insurance During
Construction Period. The Agent on behalf of the Lessor Parties shall have
received evidence that the Additional Construction Period Insurance is in full
force and effect.

                           (x)      Evidence of Acceptable Construction Period
Title Coverage. The Agent on behalf of the Lessor Parties shall have received
evidence of the issuance and effectiveness of Title Policies which provide,
inter alia, for title insurance covering amounts acceptable to the Lessor
Parties in their reasonable discretion.

                  (k) The Lessee's Responsible Officer's Certificate. The Agent
on behalf of the Lessor Parties shall have received a Responsible Officer's
Certificate of the Lessee, substantially in the form of Exhibit L attached
hereto, dated as of the Initial Funding Date, stating that to such

                                       19

Responsible Officer's knowledge (i) 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 the Initial Funding Date,
except to the extent such representation or warranty relates solely to an
earlier date, in which case such representation or warranty shall have been true
and correct on and as of such earlier date, (ii) no Lease Default or Lease Event
of Default has occurred and is continuing, (iii) each Operative Document to
which the Lessee is a party is in full force and effect with respect to it, and
(iv) the Lessee has duly performed and complied with all conditions contained
herein or in any other Operative Document required to be performed or complied
with by it on or prior to such Initial Funding Date.

                  (l) Guarantor's Responsible Officer's Certificate. The Agent
on behalf of the Lessor Parties shall have received a Responsible Officer's
Certificate of the Guarantor in substantially the form of Exhibit M attached
hereto, dated as of the Initial Funding Date stating that to such Responsible
Officer's knowledge (i) each and every representation and warranty of the
Guarantor contained in each Operative Document to which it is a party is true
and correct in all material respects on and as of the Initial Funding Date,
except to the extent such representation or warranty relates solely to an
earlier date, in which case such representation or warranty shall have been true
and correct on and as of such earlier date, (ii) no Lease Default or Lease Event
of Default has occurred and is continuing, (iii) each Operative Document to
which the Guarantor is a party is in full force and effect with respect to it,
and (iv) the Guarantor 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 Initial Funding Date.

                  (m) UCC Financing Statements. On or prior to the Initial
Funding Date, the Lessee shall have delivered to the Agent on behalf of the
Lessor Parties all UCC Financing Statements relating to the Property and other
security interests granted under the Operative Documents, as the Lessor Parties
may reasonably request in order to protect the interests of the Lessor Parties
under the Operative Documents to the extent the Master Lease, Memorandum of
Lease, Precautionary Deed of Trust, Deed of Trust, Conveyance Instruments or
other Operative Documents constitute security agreements.

                  (n) Recordation of Conveyance Instruments and Financing
Statements. The Agent on behalf of the Lessor Parties shall have received
evidence reasonably satisfactory to each of them that (i) the Memorandum of
Lease, (ii) the Precautionary Deed of Trust, (iii) the Deed of Trust, and (iv)
the UCC Financing Statements have been or are being recorded in a manner
sufficient to properly perfect each of their respective interests therein.

                  (o) Property Survey. On or prior to the Initial Funding Date,
the Lessee shall have delivered to Agent on behalf of the Lessor Parties copies
of the ALTA/1997 (Urban) Survey with respect to the unimproved Property (the
"ALTA Land Survey"), which survey shall be reasonably satisfactory to the Lessor
Parties.

                  (p) Title Policies. On or prior to the Initial Funding Date,
the Lessee shall have delivered to the Agent on behalf of the Lessor Parties a
commitment from the Title Company to deliver (x) an ALTA extended owner's title
insurance policy covering the Property in favor of the Lessor and (y) ALTA
extended lender's title insurance policies covering the Property in

                                       20

favor of the Lessor and the Agent. The owner's policy described in clause (x)
shall (i) be subject only to Permitted Exceptions, (ii) be in an amount not less
than the Aggregate Commitment Amount, (iii) be reasonably satisfactory to the
Lessor Parties and (iv) contain comprehensive, mechanics liens, zoning,
recharacterization endorsements, pending disbursements endorsements and such
other endorsements reasonably requested by the Lessor Parties. The lender's
policy described in clause (y) shall (i) be subject only to Permitted
Exceptions, (ii) be in an amount not less than the Aggregate Commitment Amount,
(iii) be reasonably satisfactory to the Lessor Parties and (iv) contain
revolving credit, variable rate, comprehensive, fraudulent conveyances, doing
business, mechanics liens, zoning, pending disbursement endorsements and such
other endorsements reasonably requested by the Lessor Parties.

                  (q) Evidence of Property Insurance. The Agent on behalf of the
Lessor Parties shall have received evidence that the insurance maintained by the
Lessee with respect to the Property as of the Initial Funding Date 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.

                  (r) Governmental Approvals. All necessary Governmental Actions
required by any Requirement of Law for the purpose of (i) authorizing the Lessor
to enter into the transactions contemplated by the Operative Documents as of the
Initial Funding Date, or (ii) authorizing the Lessee or the Guarantor to execute
and deliver the Operative Documents to which it is a party and perform its
obligations thereunder, shall have been obtained or made and be in full force
and effect.

                  (s) Requirements of Law. The transactions contemplated by the
Operative Documents do not and will not violate any Requirement of Law and do
not and will not subject the Transaction Parties to any adverse regulatory
prohibitions or constraints.

                  (t) No Lease Event of Default. There shall not have occurred
and be continuing any Lease Default or Lease Event of Default, and no Lease
Default or Lease Event of Default will have occurred after giving effect to the
issuance of the Notes and the funding of the advances thereunder, the purchase
thereof by the Note Purchaser or the Liquidity Banks as of the Initial Funding
Date, or the funding of the Equity Investment as of the Initial Funding Date.

                  (u) Administration Agreement. The Administration Agreement
shall have been executed and delivered by all parties thereto substantially in
the form of Exhibit N attached hereto.

                  (v) Representation and Warranties. On the Initial Funding
Date, the representations and warranties of the Lessee and the Guarantor
contained herein and in each of the other Operative Documents shall be true and
correct in all material respects as though made on and as of such date, except
to the extent such representations or warranties relate solely to an earlier
date, in which case such representations and warranties shall have been true and
correct in all material respects on and as of such earlier date.

                  (w) Litigation. On the Initial Funding Date, there shall not
be any actions, suits or proceedings pending or, to the knowledge of the Lessee
or the Guarantor, threatened with respect

                                       21

to the Lessee, the Guarantor or the Property (i) that are reasonably likely to
reduce the Fair Market Value of the Property or the ability of the Lessee or the
Guarantor to fulfill their obligations under the Operative Documents or have a
material adverse effect on the title to, or the use or operation of all or any
portion of the Property or (ii) that question the validity of the Operative
Documents or the rights or remedies of the Lessor Parties with respect to the
Lessee, the Guarantor or the Property under the Operative Documents.

                  (x) Available Commitments; Maximum Amount of Notes and Equity
Investment. After giving effect to the purchase of the Notes and the funding of
the advances thereunder, and the funding of the Equity Investment requested to
be issued and made pursuant to the Funding Notice delivered as of the Initial
Funding Date, and the application of the proceeds thereof to the acquisition of
the Land and the commencement of construction of the Improvements, the
Outstanding Lease Balance shall not exceed the Aggregate Commitment Amount.

                  (y) Taxes. All taxes, fees and other charges in connection
with the execution, delivery, recording, filing and registration of the
Operative Documents to be delivered as of the Initial Funding Date shall have
been paid or provisions for such payment shall have been made by the Lessee to
the reasonable satisfaction of the Lessor Parties.

                  (z) No Material Adverse Effect. After giving effect to the
purchase of the Notes and the funding of the advances thereunder, and the
funding of any portion of the Equity Investment, there shall be no change with
respect the Property or the financial condition of the Lessee or the Guarantor
that would have a Material Adverse Effect.

                  (aa) Fees. The Agent on behalf of each Liquidity Bank, the
Letter of Credit Issuer and the Structuring Agent shall have received from the
Lessee fees in the amounts required pursuant to Section 4.8 hereof.

                  (bb) Other Documents. The Lessee and the Guarantor shall have
delivered or caused to be delivered such other documents as the Lessor Parties
may reasonably request.

         Section 6.2 Conditions Precedent to all Interim Construction Period
Funding Dates (Except the Final Construction Period Funding Date). The
obligation of the Lessor to issue the Notes and to fund the advances thereunder
with respect to the funding of the interim advances to finance the construction
of the Improvements during the Construction Period and up to ninety (90) days
after the Construction Period are subject to the satisfaction (or waiver by the
appropriate Lessor Parties) of each of the following conditions precedent (such
satisfaction or waiver to be evidenced by the funding of such advances under the
Notes on such Funding Date unless otherwise documented in writing by the
appropriate parties):

                  (a) Interim Funding Notice. The Agent, on behalf of the Lessor
Parties, shall have received a fully executed counterpart of an Interim Funding
Notice substantially in the form of Exhibit B-2 hereto (including all
attachments thereto), executed by the Lessee, in accordance with Section 3.5
hereof. The delivery of such Interim Funding Notice shall constitute a
representation and warranty by the Lessee that on such Interim Construction
Period Funding Date (both immediately before and after giving effect to the
funding of such advances under the

                                       22

Notes and the application of the proceeds thereof), the statements made in
Section 7.2 hereof are true and correct in all material respects.

                  (b) Title Policy Endorsement. On or prior to each Interim
Construction Period Funding Date, there shall have been delivered a commitment
from the Title Company to deliver an endorsement with respect to the ALTA
extended lender's title insurance policy insuring the priority of advances made
in the amount requested in the Interim Funding Notice as of such Funding Date in
favor of the Lessor and the Agent.

                  (c) Affidavits; Lien Waivers. To the extent required to obtain
the commitment of the Title Company described in Section 6.2(b), executed
interim affidavits and interim lien waivers, indicating the aggregate amount for
which each contractor, subcontractor, architect, engineer, material supplier or
other Person who has supplied labor, materials or services for the construction
of the Improvements has delivered lien waivers (including the present and all
prior lien waivers) and the incremental amount by which such amount has
increased from the immediately preceding lien waiver delivered by such Person
and otherwise in form and substance reasonably satisfactory to the Construction
Agent and the Title Company from the Contractor and such other parties who have
furnished materials or services or performed labor of any kind in connection
with the construction of the Improvements as deemed reasonably necessary by the
Construction Agent, together with a cumulative lien waiver log in form and
substance reasonably satisfactory to the Construction Agent.

                  (d) Updated Budget. An updated Budget, if any material changes
shall have occurred with respect to the current and prospective expenditures.

                  (e) Statement Regarding Costs. A statement reflecting (i) the
aggregate costs of all labor, materials, equipment and fixtures incurred and to
be incurred, trade by trade, which are necessary for completion of construction
of the Improvements prepared by the Construction Agent and (ii) certain costs
(other than as described in the immediately preceding clause) of completion of
the Improvements, including apportioned amounts of architects', engineers',
interest on and recording taxes and title charges in respect of project loan
mortgages, real estate taxes, water and sewer rents, survey costs, loan
commitment fees, insurance and bond premiums and other non-construction costs as
are part of the "cost of improvement", prepared by the Construction Agent.

                  (f) Proof of Payment. Upon request of any Lessor Party, proof
of payment of all items for which disbursements have been made.

         Section 6.3 Conditions Precedent to Final Construction Period Funding
Date. The obligation of the Lessor to fund the advance under the Notes
constituting the final advance with respect to the completion of construction of
the Improvements is subject to the satisfaction (or waiver by the appropriate
Lessor Parties) of each of the following conditions precedent (such satisfaction
or waiver to be evidenced by the funding of the advances under the Notes on such
Funding Date unless otherwise documented in writing by the appropriate parties):

                  (a) Final Funding Notice. The Lessor Parties shall each have
received a fully executed counterpart of the Final Funding Notice substantially
in the form of Exhibit B-3 hereto

                                       23

(including all attachments thereto), in accordance with Section 3.5 hereof. The
delivery of such Funding Notice and the acceptance by the Lessor of the proceeds
thereof shall constitute a representation and warranty on such Funding Date
(both immediately before and after giving effect to the funding of the advances
under the Notes and the application of the proceeds thereof), the statements
made in Section 7.2 hereof are true and correct in all material respects.

                  (b) Completion. Final Completion shall be deemed to have
occurred pursuant to the Construction Agency Agreement.

                  (c) Lessee's Responsible Officer's Certificate. The Agent on
behalf of the Lessor Parties shall each have received a Responsible Officer's
Certificate of the Lessee, in substantially the form of Exhibit M attached
hereto, dated as of such Funding Date, stating that to such Responsible
Officer's knowledge (i) 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 Funding Date, except to the extent
such representation or warranty relates solely to an earlier date, in which case
such representation or warranty shall have been true and correct in all material
respects on and as of such earlier date, (ii) no Lease Default or Lease Event of
Default has occurred and is continuing, (iii) each Operative Document to which
the Lessee is a party is in full force and effect with respect to it; and (iv)
the Lessee has duly performed and complied in all material respects 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 Funding Date.

                  (d) Guarantor's Responsible Officer's Certificate. The Agent
on behalf of the Lessor Parties shall each have received a Responsible Officer's
Certificate of the Guarantor in substantially the form of Exhibit N attached
hereto, dated as of such Funding Date, stating that (i) to such Responsible
Officer's knowledge each and every representation and warranty of the Guarantor,
contained in each Operative Document to which it is a party is true and correct
in all material respects on and as of such Funding Date, except to the extent
such representation or warranty relates solely to an earlier date, in which case
such representation or warranty shall have been true and correct in all material
respects on and as of such earlier date, (ii) to such Responsible Officer's
knowledge, no Lease Default or Lease Event of Default has occurred and is
continuing, (iii) to such Responsible Officer's knowledge each Operative
Document to which Guarantor is a party is in full force and effect with respect
to it; and (iv) to the best of such Responsible Officer's knowledge, Guarantor
has duly performed and complied in all material respects 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 Funding Date.

                  (e) Property Survey and Plans. On or prior to such Funding
Date, the Lessee shall have delivered to the Agent on behalf of the Lessor
Parties an original copy of the "as-built" plat of survey and the final
"as-built" Plans in satisfaction of clauses (1) and (2) of Section 5.3(f) of the
Construction Agency Agreement.

                  (f) Title Policy. On or prior to such Funding Date, the Lessee
shall have delivered to the Agent on behalf of the Lessor Parties a commitment
from the Title Company to reissue (x) the ALTA extended owner's title insurance
policy insuring the Lessor covering the Land and the Improvements as built and
(y) the ALTA extended lender's title insurance policies

                                       24

insuring the Lessor and the Agent covering the Land and the Improvements as
completed. The owner's policy described in clause (x) shall (i) be subject only
to Permitted Exceptions, (ii) be in an amount not less than the Outstanding
Lease Balance, (iii) be reasonably satisfactory to the Lessor Parties and (iv)
contain comprehensive, mechanics liens, zoning endorsements and such other
endorsements reasonably requested by any Lessor Party. The lender's policies
described in clause (y) shall (i) be subject only to Permitted Exceptions, (ii)
be in an amount not less than the Outstanding Lease Balance, (iii) be reasonably
satisfactory to any of the Lessor Parties and (iv) contain revolving credit,
variable rate, usury, comprehensive, fraudulent conveyances, recharacterization,
doing business, mechanics liens, zoning endorsements and such other endorsements
reasonably requested by any Lessor Party.

                  (g) Evidence of Property Insurance. The Agent on behalf of the
Lessor Parties shall have received evidence that the insurance maintained by the
Lessee with respect to the Property as of such Funding Date 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) Governmental Approvals. All necessary Governmental Actions
required by any Requirement of Law for the purpose of completing and commencing
commercial operation of the Property shall have been obtained or made and be in
full force and effect.

                  (i) No Lease Event of Default. There shall not have occurred
and be continuing any Lease Default or Lease Event of Default, and no Lease
Default or Lease Event of Default will have occurred after giving effect to the
funding of the advances under the Notes on such Funding Date.

                  (j) Representation and Warranties. On such Funding Date, the
representations and warranties of the Lessee contained herein and in each of the
other Operative Documents with respect to the Property 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.

                  (k) Litigation. On such Funding Date, there shall not be any
actions, suits or proceedings pending or, to the knowledge of the Lessee,
threatened with respect to the Lessee or the Property (i) that are reasonably
likely to reduce the Fair Market Value of the Property to an amount less than
the Outstanding Lease Balance or have a material adverse effect on the title to,
or the use or operation of the Property or (ii) that question the validity of
the Operative Documents or the rights or remedies of the Lessor or the Agent
with respect to the Lessee or the Property under the Operative Documents.

                  (l) Other Documents. The Lessee and the Guarantor shall have
delivered or caused to be delivered such other documents as the Lessor Parties
may reasonably request.

         Section 6.4 Conditions Precedent to all Base Lease Term Funding Dates.
The obligation of the Lessor to fund the advances under the Notes with respect
to the funding of the Accreted Amounts are subject to the satisfaction (or
waiver by the appropriate Lessor Parties) of each of

                                       25

the following conditions precedent (such satisfaction or waiver to be evidenced
by the funding of the advances under the Notes on such Funding Date unless
otherwise documented in writing by the appropriate parties):

                  (a) Representations and Warranties. The representations and
warranties of the Guarantor and the Lessee set forth in the Operative Documents
(including the representations and warranties set forth in Sections 7.1 and 7.2)
shall be true and correct in all material respects on and as of such Funding
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. The
acceptance by the Lessor of the proceeds of such funding shall constitute a
representation and warranty on such Funding Date (both immediately before and
after giving effect to the funding of such advances under the Notes and the
application of the proceeds thereof), the statements made in Section 7.2 hereof
are true and correct in all material respects.

                  (b) No Lease Event of Default. No Lease Event of Default has
occurred and is continuing or will result from such funding.

                  (c) Operative Documents. All of the Operative Documents are in
full force and effect.

         Section 6.5 Closing. All documents, instruments and agreements required
to be delivered on the Initial Funding Date shall be delivered to the offices of
Orrick, Herrington & Sutcliffe LLP, 400 Sansome Street, San Francisco,
California 94111, or at such other location as may be determined by the
Transaction Parties.

                                   ARTICLE VII

                                 REPRESENTATIONS

         Section 7.1 Representations and Warranties of the Lessee and the
Guarantor. Each of the Guarantor and the Lessee hereby represents and warrants,
as of the Initial Funding Date, to the Lessor Parties as follows:

                  (a) Corporate Authority.

                           (i)      Incorporation; Good Standing. Each of the
Guarantor and the Lessee (A) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization, (B) has all requisite corporate power and authority and legal
right to own and operate its property, as to the Lessee, to lease the property
it operates as lessee, and to conduct its business as now conducted and as
presently contemplated, and (C) is in good standing as a foreign corporation and
is duly authorized to do business in each jurisdiction where such qualification
is necessary except where a failure to be so qualified would not have a Material
Adverse Effect. Except as provided in Subsection (c)(iv) hereof, the Lessee and
the Guarantor each has full power and authority and holds all requisite
governmental licenses, permits and other approvals to enter into and perform its
Obligations under the Operative Documents to which it is a party and, as to the
Lessee, to own and hold under lease its rights in the Property and to conduct
its business substantially as currently conducted by it.

                                       26

                           (ii)     Authorization. The execution, delivery and
performance of this Participation Agreement and the other Operative Documents to
which it is a party and the transactions contemplated hereby and thereby (A) are
within its corporate authority and legal right, (B) have been duly authorized by
all necessary corporate proceedings, (C) do not conflict with or result in any
breach or contravention of any provision of law, statute, rule or regulation to
which it is subject or any judgment, order, writ, injunction, license or permit
applicable to it which could have a Material Adverse Effect, (D) do not conflict
with any provision of its corporate charter or bylaws of, or any agreement or
other instrument binding upon it, (E) do not require any consent, approval or
authorization of any Governmental Authority or any other Person not a party
hereto and (F) do not result in, or require the creation or imposition of, any
Lien on any of its properties other than as contemplated by the Operative
Documents.

                           (iii)    Enforceability. The execution and delivery
of this Participation Agreement and the other Operative Documents to which it is
a party will result in valid and legally binding obligations of it enforceable
against it in accordance with the respective terms and provisions hereof and
thereof, except as enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting generally
the enforcement of creditors' rights and except to the extent that availability
of the remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought. The
Guarantor further specifically represents that the Guaranty shall be enforceable
against it in accordance with its terms, notwithstanding the occurrence of a
bankruptcy or insolvency proceeding with respect to the Lessee.

                           (iv)     Subsidiaries. The Guarantor and each of its
Subsidiaries have only those Subsidiaries listed on Item 7.1(a) of Schedule II
hereto (as supplemented from time to time). The Lessee is a wholly-owned
Subsidiary of the Guarantor.

                           (v)      Chief Executive Office. The chief executive
office and principal place of business of the Lessee is specified below its
name on Schedule I hereto.

                  (b) Litigation, etc. Except as disclosed on Item 7.1(b) of
Schedule II hereto, there is no litigation, at law or in equity, or any
proceeding before any federal, state or municipal board or other governmental or
administrative agency or any arbitration pending or to the knowledge of the
Guarantor or the Lessee threatened which is likely to involve any risk of any
judgment or liability not covered by insurance which may result in a Material
Adverse Effect or which may otherwise result in a Material Adverse Effect, or
which seeks to enjoin the consummation of, or which questions the validity of,
any of the transactions contemplated by this Participation Agreement or any of
the other Operative Documents, and no judgment, decree or order of any court,
board or other governmental or administrative agency or arbitrator has been
issued against or binds the Guarantor, the Lessee or any of their respective
Subsidiaries which has, or could have, a Material Adverse Effect.

                  (c) Burdensome Obligations; Compliance with Other Instruments,
Laws; No Defaults; Permits.

                           (i)      Except as disclosed on Item 7.1(c) of
Schedule II hereto, neither the Guarantor nor any of its Subsidiaries, is
subject to any charter, corporate or other legal

                                       27

restriction, or any judgment, decree, order, rule or regulation that has or, to
the Guarantor's knowledge, is expected in the future to have a Material Adverse
Effect. Except as disclosed on Item 7.1(c) of Schedule II hereto, neither the
Guarantor nor any of its Subsidiaries, is a party to any contract or agreement
that has or, to the best of the Guarantor's knowledge, in the judgment of the
Guarantor's officers, could have, a Material Adverse Effect.

                           (ii)     Neither the Guarantor nor the Lessee, is in
violation of any provision of its charter documents, bylaws, or any agreement or
instrument to which it is subject or by which it or any of its properties are
bound or any law, decree, order, judgment, statute, license, rule or regulation
(including, without limitation, all Environmental Laws) in a manner that is
reasonably likely to result in the imposition of substantial penalties that may
result in a Material Adverse Effect or that may otherwise have a Material
Adverse Effect.

                           (iii)    No Lease Default or Lease Event of Default
has occurred and is continuing.

                           (iv)     Except as set forth on Item 7.1(c) of
Schedule II hereto, the Guarantor and the Lessee have all necessary Permits from
or by, have made all necessary filings with, and have given all necessary
notices to, each Governmental Authority having jurisdiction over it, to the
extent required to own and operate its properties, to lease the properties it
operates under lease and to conduct its business as now conducted or presently
proposed to be conducted by it, except for (x) Permits which can be obtained by
the taking of ministerial action to secure the grant or transfer thereof and
where the failure to have such Permits would not have a Material Adverse Effect
and (y) where failure to have such Permits will not have a Material Adverse
Effect.

                           (v)      No authorization or approval or other action
by, and no notice to of filing with, any Governmental Authority or regulatory
body or other Person (other than in connection with the repair, maintenance or
renovation of the Property in accordance with applicable local law) is required
for the due execution, delivery or performance by the Lessee or the Guarantor of
any Operative Document to which it is a party, except as contemplated by the
Operative Documents.

                           (vi)     The delivery and performance by each Lessee
Party of its obligation under the Operative Documents to which such Lessee Party
is a party do not contravene or result in a breach of, or constitute a default
under any bond, indenture, deed of trust, mortgage, agreement or any other
instrument to which the deed of trust, mortgage, agreement or any other
instrument to which such Lessee Party is subject or by which the Lessee Party is
bound.

                  (d) Government Regulation. Neither the Guarantor nor the
Lessee is subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act or the Investment Company Act of 1940, in each case
as amended and in effect from time to time, or is subject to any Requirement of
Law which regulates the incurring by the Guarantor or the Lessee of Indebtedness
for borrowed money, including, without limitation, any Requirement of Law
relating to common or contract carriers or to the sale of electricity, gas,
steam, water or other public utility services.

                                       28

                  (e) Margin Regulations. Neither the Guarantor nor any of its
respective Subsidiaries is engaged in the business of extending credit for the
purpose of purchasing or carrying "margin stock" or "margin securities" within
the meaning of Regulation T, U or X issued by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") and does not own any margin
stock or margin securities. The proceeds of the funds advanced under the Notes
will not be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security, for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause the funds advanced under the
Notes to be considered an advance of "purpose credit" within the meaning of
Regulation U or X of the Federal Reserve Board. The Guarantor will not take nor
permit any of its Subsidiaries or any agent acting on its or their behalf to
take, any action which might cause this Participation Agreement or any other
Operative Document or any document or instrument delivered pursuant to this
Participation Agreement to violate any regulation of the Federal Reserve Board.

                  (f) Certain Tax Matters.

                           (i)      The Guarantor and its Subsidiaries have (a)
made or filed all material federal, state, local and foreign income and all
other material Tax returns, reports and declarations required by any
jurisdiction to which any of them is subject or properly filed for and received
extensions with respect thereto which are still in full force and effect and
which have been fully complied with in all material respects, (b) paid all Taxes
and other governmental assessments and charges shown or determined to be due on
such returns, reports and declarations, except those being contested in good
faith by appropriate proceedings and for which adequate reserves, to the extent
required by GAAP, have been established and (c) to the extent required by GAAP,
set aside on their books provisions reasonably adequate for the payment of all
estimated taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid Taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Guarantor know of no basis for any such claim other than Taxes that the
Guarantor and its Subsidiaries are contesting in good faith through appropriate
proceedings and for which appropriate reserves, to the extent required by GAAP,
have been established.

                           (ii)     Except as set forth in Schedule 7.1(f) of
Schedule II hereto, no material sales, use, excise, transfer or other Tax, fee
or imposition shall result from the sale, transfer or purchase of the Property,
except such material Taxes, fees or impositions that have been paid in full or
are insured as to payment in full by the Title Company.

                  (g) Liens. Except as set forth on Item 7.1(g) of Schedule II
hereto or as permitted by Section 8.2(b), there are no Liens on or rights of
third parties in, nor has there occurred any event which would give any third
party a claim to such a right in, any of the properties or assets of the
Guarantor or the Lessee. The Permitted Exceptions do not and will not materially
and adversely affect (1) the ability of the Lessee or the Guarantor to pay their
respective obligations under the Operative Documents in a timely manner or (2)
the use of the Property for the use currently being made thereof, the operation
of the Property as currently being operated or the value of the Property. Upon
execution by the Lessee and recording thereof of the Precautionary Deed of
Trust, and upon execution and filing of the Precautionary Financing Statements,
the

                                       29

Agent will have a valid first lien on the Lessee's interest in the Property and
a valid security interest in the personal property thereon subject to no Liens,
charges or encumbrances other than the Permitted Exceptions.

                  (h) Financial Matters.

                           (i)      There has been delivered to each of the
Lessor Parties a complete and correct copy of the consolidated balance sheet of
the Guarantor as at the end of the Fiscal Year ended December 31, 1999 and the
related consolidated statements of income, common shareholders' equity and cash
flows of the Guarantor for such Fiscal Year, prepared in each case in accordance
with Section 8.1(d)(iii), together with the accountant's report with respect
thereto as required by such Section. Such financial statements have been
prepared in accordance with GAAP consistently applied and present fairly the
consolidated financial condition of the Guarantor as at December 31, 1999, and
the results of operations of the Guarantor for the Fiscal Year ended December
31, 1999.

                           (ii)     There has been delivered to each of the
Lessor Parties a complete and correct copy of the consolidated balance sheet of
the Guarantor as at the end of the Fiscal Quarter ended September 30, 2000 and
the related consolidated statements of income and cash flows of the Guarantor
for such Fiscal Quarter, prepared in each case in accordance with Section
8.1(d)(ii). Such financial statements have been prepared in accordance with GAAP
consistently applied and present fairly the consolidated financial condition of
the Guarantor as at September 30, 2000, and the results of operations of the
Guarantor for the Fiscal Quarter ended September 30, 2000, subject only to
normal year-end audit adjustments.

                  (i) Changes, etc. Except as set forth on Item 7.1(i) of
Schedule II hereto, or as disclosed in or reflected on the consolidated balance
sheet of the Guarantor as at December 31, 1999 referred to in Section 7.1(h)(i)
no event has occurred and is continuing which has had or could have a Material
Adverse Effect.

                  (j) Employee Benefit Plans.

                           (i)      In General. Each Employee Benefit Plan has
been maintained and operated in compliance in all material respects with the
provisions of ERISA and, to the extent applicable, the Revenue Code, including
but not limited to the provisions thereunder respecting prohibited transactions.
The Guarantor has heretofore delivered to the Lessor Parties the most recently
completed annual report, Form 5500, with all required attachments, with respect
to each Guaranteed Pension Plan.

                           (ii)     Terminability of Welfare Plans. Under each
Employee Benefit Plan which is an employee welfare benefit plan within the
meaning of Section 3(l) or Section 3(2)(B) of ERISA, no benefits are due unless
the event giving rise to the benefit entitlement occurs prior to plan
termination (except as required by Title 1, Part 6 of ERISA). The Guarantor or
an ERISA Affiliate, as appropriate, may terminate each such plan at any time (or
at any time subsequent to the expiration of any applicable bargaining agreement)
in the discretion of the Guarantor or such ERISA Affiliate without liability to
any Person.

                                       30

                           (iii)    Guaranteed Pension Plans. Each contribution
required to be made to a Guaranteed Pension Plan, without regard to any waiver
or extension, whether required to be made to avoid the incurrence of an
accumulated funding deficiency, the notice of lien provisions of Section 302(f)
of ERISA, or otherwise, has been timely made. No waiver of an accumulated
funding deficiency or extension of amortization periods has been received with
respect to any Guaranteed Pension Plan. No liability to the PBGC (other than
required insurance premiums, all of which have been paid) has been incurred by
the Guarantor or any ERISA Affiliate with respect to any Guaranteed Pension Plan
and there has not been any ERISA Reportable Event, or any other event or
condition which presents a material risk of termination of any Guaranteed
Pension Plan by the PBGC, other than those ERISA Reportable Events or other
events or conditions which have been disclosed in writing to the Lessor Parties
and which have not been deemed by any of the foregoing to pose a material risk
of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest
valuation of each Guaranteed Pension Plan (which in each case occurred within
twelve months of the date of this representation), and on the actuarial methods
and assumptions employed for that valuation, the aggregate benefit liabilities
of all such Guaranteed Pension Plans within the meaning of Section 4001 of ERISA
did not exceed the aggregate value of the assets of all such Guaranteed Pension
Plans by more than $500,000, disregarding for this purpose the benefit
liabilities and assets of any Guaranteed Pension Plan with assets in excess of
benefit liabilities.

                           (iv)     Multiemployer Plans. Neither the Guarantor
nor any ERISA Affiliate has incurred any material liability (including secondary
liability) to any Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan under Section 4201 of ERISA or as a
result of a sale of assets described in Section 4204 of ERISA. Neither the
Guarantor nor any ERISA Affiliate has been notified that any Multiemployer Plan
is in reorganization or insolvent under and within the meaning of Section 4241
or Section 4245 of ERISA or that any Multiemployer Plan intends to terminate or
has been terminated under Section 4041A of ERISA.

                           (v)      No Prohibited Transactions. Compliance by
the parties with the terms of the Operative Documents will not involve any
non-exempt prohibited transactions under Section 406(a) of ERISA or Section 4975
of the Internal Revenue Code of 1986, as amended.

                  (k) Insurance. All policies of insurance of any kind or nature
owned by or issued to the Guarantor or any of its Subsidiaries, the lapse of
which, individually or collectively, would have a Material Adverse Effect, are
in full force and effect and are of a nature and provide such coverage as is
sufficient and as is customarily carried by companies of the size and character
of the Guarantor and the Subsidiaries. In addition, all insurance coverage
meeting the requirements of Article XIII of the Master Lease is in full force
and effect with respect to the Property.

                  (l) Labor Matters. Except as set forth on Item 7.1(l) of
Schedule II hereto, there are no strikes, grievances, unfair labor practices,
written complaints, or other labor disputes pending or threatened against the
Guarantor or its Subsidiaries except for those strikes, grievances, unfair labor
practices, written complaints or other labor disputes which could not have a
Material Adverse Effect. All payments due from any of the Guarantor or its
Subsidiaries pursuant to the provisions of any collective bargaining agreement
have been paid or accrued as a liability on the books of the Guarantor or such
Subsidiaries unless, in the case of any Subsidiary

                                       31

other than the Lessee, the failure to make such payment could not reasonably be
expected to have a Material Adverse Effect.

                  (m) Environmental Protection. Except as disclosed on Item
7.1(m) of Schedule II hereto (which items, individually or in the aggregate, do
not constitute a Material Adverse Environmental Condition): (i) the operations
of the Guarantor and each of its Material Subsidiaries comply in all material
respects with all Environmental Laws, (ii) the Guarantor and each of its
Material Subsidiaries have obtained all material environmental, health and
safety Permits necessary for its operation, and all such Permits are in good
standing, with all applicable applications or renewals being timely filed, and
the Guarantor and each of its Material Subsidiaries are in material compliance
with all terms and conditions of such Permits, (iii) none of the operations of
the Guarantor or any of its Material Subsidiaries is subject to any material
proceeding by or before any Governmental Authority alleging the violation of, or
any liability under any, Environmental Laws, (iv) neither the Guarantor nor any
of its Material Subsidiaries (including all of their present facilities and
operations, as well as its past facilities and operations), is subject to any
material outstanding written order or agreement with any Governmental Authority
or Person respecting (A) any Remedial Action, or (B) any Environmental Claims,
(v) to the best of the Guarantor's knowledge, none of the operations of the
Guarantor or any of its Material Subsidiaries is the subject of any material
federal or state investigation under Environmental Laws including any
investigation evaluating whether any Remedial Action is needed to respond to a
Release of any Hazardous Substance, (vi) none of the operations of the Guarantor
or any of its Material Subsidiaries is subject to any other Environmental Law,
which could result in a Material Adverse Environmental Condition upon such
operations, taken as a whole and (vii) neither the Guarantor nor any of its
Material Subsidiaries has received notice that any Hazardous Substance which any
one of them has Released, generated, transported or disposed of has been found
at any site at which any third party (including any Governmental Authority) has
conducted or is conducting or is required to conduct any Remedial Action.

                  (n) Copyrights, Patents and Trademarks. The Guarantor and its
Subsidiaries own or possess all patents, trademarks, service marks, copyrights
and licenses, and all rights with respect to the foregoing, necessary for the
conduct of its business as now conducted. To the best of the Guarantor's and the
Lessee's knowledge, such ownership or possession do not materially conflict with
the rights of others, except for conflicts, which if become the subject of any
action or proceedings brought by any third party, including any Governmental
Authority, would not have a Material Adverse Effect.

                  (o) Title. The Guarantor and the Lessee have title to its
assets reflected in the balance sheet for the Fiscal Year ended December 31,
1999 referred to in Section 7.1(h)(i) (except as set forth on Item 7.1(o) of
Schedule II hereto and except for assets disposed of since such date in the
ordinary course of business), and none of the properties and assets of the
Guarantor or the Lessee is subject to any Liens, except Liens permitted by this
Participation Agreement. The Guarantor and the Lessee enjoy peaceful and
undisturbed possession of the Property. Neither the Guarantor nor the Lessee
nor, to the Guarantor's and the Lessee's knowledge, any other party to any lease
of real property on which facilities operated by the Guarantor or the Lessor is
situated is in default of its obligations thereunder or has delivered or
received any notice of default under any such lease, nor has any event occurred
which, with the

                                       32

giving of notice, the passage of time or both, would constitute a default under
any such lease, except for any default which would not have a Material Adverse
Effect.

                  (p) Full Disclosure; Pro Forma Effect of Overall Transaction.
Neither this Participation Agreement (including the schedules and exhibits
hereto), nor any of the other Operative Documents, nor any written statement
prepared or furnished by or on behalf of the Guarantor or the Lessee to a Lessor
Party in connection with the negotiation, preparation, execution or performance
of this Participation Agreement and the other Operative Documents contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. There is no fact known
to the Guarantor or the Lessee which the Guarantor or the Lessee has not
disclosed to the Lessor Parties which had or would have a Material Adverse
Effect or which would, immediately after giving effect to the Overall
Transaction, cause any of the representations and warranties of the Guarantor
and the Lessee set forth in this Section 7.1 to be untrue in any material
respect or which would cause any of the statements made herein to be misleading
in any material respect.

                  (q) Seniority. Neither the Notes nor the Equity Investment is
subordinate or junior in right of payment, in any manner, to any other
Indebtedness of the Guarantor or any Indebtedness of the Lessee (except as
anticipated under Article XI of this Participation Agreement and other
provisions of the Operative Documents).

                  (r) Compliance of Property with Requirements of Law. The
contemplated use of the Property by the Lessee and its respective agents,
assignees, employees, lessees, licensees and tenants complies in all material
respects with all (i) Requirements of Law (including, all zoning and land use
laws and Environmental Laws) and (ii) Insurance Requirements.

                  (s) Plans and Specifications, Utilities, etc. All water,
sewer, electric, gas, telephone and drainage facilities for the Property, all
other utilities required to adequately service the Property for its intended use
and means of access between the Property and public highways for pedestrians and
motor vehicles are available pursuant to adequate permits (including any that
may be required under applicable Environmental Laws). All utilities serving the
Property are located in, and vehicular access to the Property is provided by,
either public rights-of-way abutting the Property or Appurtenant Rights. The
Property has adequate rights of access to public ways.

                  (t) No Adverse Proceedings. There is no action, suit or
proceeding (including any proceeding in condemnation or eminent domain under any
Environmental Law or any proceeding proposing special or other assessments for
public improvements or affecting the Property) pending or, to the best knowledge
of the Lessee, threatened, with respect to the Lessee, its Affiliates or the
Property or any part thereof which adversely affects the title to the Property,
or adversely affects the use, operation or value of, the Property.

                  (u) Master Lease. Upon the execution and delivery of the
Master Lease, (i) the Lessee will have unconditionally accepted the Property
covered thereby and (ii) no right of offset will exist with respect to any Rent
or other sums payable under the Master Lease covering the Property.

                                       33

                  (v) Conveyance Instruments. The Conveyance Instruments, when
filed and recorded in the jurisdictions specified in the opinion delivered
pursuant to Sections 6.1(f), will create, inter alia, in favor of the Agent,
enforceable Liens of record and perfected first priority security interests in
the Property, subject to Permitted Exceptions.

                  (w) Private Offering. Neither the Lessee nor the Guarantor has
offered any interest in this Participation Agreement, the Notes, the Equity
Investment, the Master Lease, the Rent or any similar security for sale to, or
solicited offers to buy any thereof from, or otherwise directly or indirectly
approached or negotiated with respect thereto with, any prospective purchaser
other than the Note Purchaser, the Lessor and the Liquidity Banks, each of which
was offered such interest by the Lessee and the Guarantor in a manner that will
not require registration of such interests under the Securities Acts or the
qualification of any of the Operative Documents under the Trust Indenture Act of
1939, and each of which the Lessee had reasonable grounds to believe, and as to
the Note Purchaser, the Lessor and the Liquidity Banks, after reasonable inquiry
does believe, has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of such an
investment; and, assuming the truthfulness of the representations by the other
Lessor Parties herein, the issuance, sale and delivery of the Notes, the funding
of the advances thereunder and the funding of the Equity Investment and the
interests in this Participation Agreement represented thereby under the
circumstances contemplated by this Participation Agreement do not require the
registration of such Notes, Equity Investment or interests under the Securities
Act or the qualification of any of the Operative Documents (or of any indenture
in respect of any thereof) under the Trust Indenture Act of 1939, as amended.

         Section 7.2 Representations and Warranties of the Guarantor and the
Lessee as of each Funding Date after the Initial Funding Date. Each of the
Guarantor and the Lessee represents and warrants to each of the Lessor Parties
as of each Funding Date after the Initial Funding Date as follows:

                  (a) Representations and Warranties. The representations and
warranties of the Guarantor and the Lessee set forth in the Operative Documents
(including the representations and warranties set forth in Section 7.1) are true
and correct in all material respects on and as of the Funding 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.

                  (b) Liens. Neither the Guarantor nor the Lessee has permitted
any Liens to be placed against the Property other than Permitted Liens.

                  (c) Absence of Default, Etc. No Lease Default or Lease Event
of Default has occurred and is continuing. No Lease Default or Lease Event of
Default will occur as a result of, or after giving effect to, the funding of the
advances under the Notes requested by the Funding Notice on such date.

         Section 7.3 Representations and Warranties of the Note Purchaser. The
Note Purchaser represents and warrants to each of the Transaction Parties as
follows:

                                       34

                  (a) ERISA. It is not and will not be purchasing the Notes or
funding the advances thereunder with the assets of an "employee benefit plan"
(as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA, or
"plan" (as defined in Section 4975(e)(1) of the Revenue Code), nor will any such
assets be used in connection with any other arrangement related to the
transactions contemplated hereby, including the Note Purchase Agreement, the
Liquidity Agreement or the sale of Commercial Paper.

                  (b) Corporate Existence. It is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation.

                  (c) Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by it of this
Participation Agreement and each other Operative Document to which it is or will
be a party (i) are within its corporate powers, (ii) have been duly authorized
by all necessary corporate action, (iii) require no action by or in respect of,
or filing with, any governmental body, agency or official, and (iv) do not
contravene, or constitute a default under, its certificate of incorporation or
by-laws.

                  (d) No Lessor Liens. The Property is free and clear of all
Lessor Liens created by it.

                  (e) Validity. This Participation Agreement constitutes the
legal, valid and binding obligation of the Note Purchaser, enforceable against
it in accordance with its terms, and each Operative Document executed by it
pursuant hereto will, on the due execution and delivery thereof, be its legal,
valid and binding obligation, enforceable in accordance with its terms, subject,
in each case, as to enforceability, bankruptcy, insolvency, reorganization and
other similar laws affecting enforcement of creditor rights generally (insofar
as any such law relates to the bankruptcy, insolvency, reorganization or similar
event with respect to it) and, as to the availability of specific performance or
other injunctive relief, subject to the discretionary power of a court to deny
such relief and to general equitable principles.

                  (f) Private Offering. The Note Purchaser has not offered (or
solicited offers for), and will not offer (or solicit offers for), any interest
in this Participation Agreement, the Notes, the Equity Investment, the Master
Lease or the Rent in a manner which would require the registration of such
interest, Notes, Equity Investment under the Securities Act or the qualification
of any of the Operative Documents (or of any indenture in respect of any
thereof) under the Trust Indenture Act of 1939, as amended.

         Section 7.4 Representations and Warranties of the Lessor. Effective as
of the date of execution hereof and as of the Initial Funding Date, the Lessor
represents and warrants to each of the other parties hereto as follows:

                  (a) ERISA. It is not and will not be funding the Equity
Investment with the assets of an "employee benefit plan" (as defined in Section
3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as defined in
Section 4975(e)(1) of the Revenue Code), nor will any such assets be used in
connection with any other arrangement related to the transactions contemplated
hereby.

                                       35

                  (b) Chief Executive Office. Its chief executive office and
principal place of business, and the place where the documents, accounts and
records relating to the Overall Transaction are kept, are located at the
location specified below its name on Schedule I hereto.

                  (c) Corporate Existence. It is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation.

                  (d) Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by it of this
Participation Agreement and each other Operative Document to which it is or will
be a party (i) are within its corporate powers, (ii) have been duly authorized
by all necessary corporate action, (iii) require no action by or in respect of,
or filing with, any governmental body, agency or official, and (iv) do not
contravene, or constitute a default under, its certificate of incorporation or
by-laws.

                  (e) No Lessor Liens. The Property is free and clear of all
Lessor Liens created by it.

                  (f) Validity. This Participation Agreement constitutes the
legal, valid and binding obligation of the Lessor, enforceable against it in
accordance with its terms, and each Operative Document executed by it pursuant
hereto will, on the due execution and delivery thereof, be its legal, valid and
binding obligation, enforceable in accordance with its terms, subject, in each
case, as to enforceability, bankruptcy, insolvency, reorganization and other
similar laws affecting enforcement of creditor rights generally (insofar as any
such law relates to the bankruptcy, insolvency, reorganization or similar event
with respect to it) and, as to the availability of specific performance or other
injunctive relief, subject to the discretionary power of a court to deny such
relief and to general equitable principles.

                  (g) Litigation. There is no litigation, at law or in equity,
or any proceeding before any federal, state or municipal board or other
governmental or administrative agency or any arbitration pending or, to the
knowledge of the Lessor, threatened which is likely to involve any risk of any
material judgment or liability not covered by insurance or which may otherwise
result in a material adverse effect on the Lessor's ability to perform its
obligations under the Operative Documents, or which seeks to enjoin the
consummation of, or which questions the validity of, any of the transactions
contemplated by this Participation Agreement or any of the other Operative
Documents, and no judgment, decree or order of any court, board or other
governmental or administrative agency or arbitrator has been issued against or
binds the Lessor which has, or could have, a material adverse effect of the
Lessor's ability to perform its obligations under the Operative Documents.

                  (h) Private Offering. The Lessor has not offered (or solicited
offers for), and will not offer (or solicit offers for), any interest in this
Participation Agreement, the Notes, the Equity Investment, the Master Lease or
the Rent in a manner which would require the registration of such interest,
Notes, Equity Investment under the Securities Act or the qualification of any of
the Operative Documents (or of any indenture in respect of any thereof) under
the Trust Indenture Act of 1939, as amended.

                                       36

                  (i) Certain Tax Matters. [Each of the Lessor and its
Affiliates has (a) made or filed all material federal, state, local and foreign
income and all other material Tax returns, reports and declarations required by
any jurisdiction to which it is subject or properly filed for and received
extensions with respect thereto which are still in full force and effect and
which have been fully complied with in all material respects, (b) paid all Taxes
and other governmental assessments and charges shown or determined to be due on
such returns, reports and declarations, except those being contested in good
faith by appropriate proceedings and for which adequate reserves, to the extent
required by GAAP, have been established and (c) to the extent required by GAAP,
set aside on their books provisions reasonably adequate for the payment of all
estimated taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid Taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Lessor know of no basis for any such claim other than Taxes that the
Lessor and/or its Affiliates are contesting in good faith through appropriate
proceedings and for which appropriate reserves, to the extent required by GAAP,
have been established. Notwithstanding the foregoing, the Lessor shall not be
deemed to have breached any of the representations contained herein made as to
its Affiliates unless such breach would have a material adverse effect on the
Property or the Lessor Parties' security interest, Liens or other rights in the
Property and the Collateral.

         Section 7.5 Representations and Warranties of each Liquidity Bank and
the Letter of Credit Issuer. Effective as of the date of execution hereof and as
of the Initial Funding Date, each of Liquidity Bank and the Letter of Credit
Issuer represents and warrants to each of the other parties hereto as follows:

                  (a) Existence. It is validly existing and is duly licensed and
qualified to operate as a banking corporation (or as an agency or branch, if it
is an agency or a branch of a foreign bank) and is in good standing under the
laws of the United States or the State of New York or such other State where it
is qualified to operate in the United States.

                  (b) Authorization; Validity. The execution, delivery and
performance by it of this Participation Agreement and each other Operative
Document to which it is or will be a party have been duly authorized. This
Participation Agreement constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, and each Operative Document
executed by it pursuant hereto will, on the due execution and delivery thereof,
be its legal, valid and binding obligation, enforceable in accordance with its
terms, subject, in each case, as to enforceability, bankruptcy, insolvency,
reorganization and other similar laws affecting enforcement of creditor rights
generally (insofar as any such law relates to the bankruptcy, insolvency,
reorganization or similar event with respect to it) and, as to the availability
of specific performance or other injunctive relief, subject to the discretionary
power of a court to deny such relief and to general equitable principles.

                  (c) Private Offering. It has not offered (or solicited offers
for), and will not offer (or solicit offers for), any interest in this
Participation Agreement, the Notes, the Equity Investment, the Master Lease or
the Rent in a manner which would require the registration of such interest,
Notes, Equity Investment under the Securities Act or the qualification of any of
the Operative Documents (or of any indenture in respect of any thereof) under
the Trust Indenture Act of 1939, as amended.

                                       37

                                  ARTICLE VIII

                                    COVENANTS

         Section 8.1 Affirmative Covenants of Guarantor and Lessee. Each of the
Guarantor and the Lessee hereby agrees for the benefit of the Lessor Parties
that, until all Commitments have terminated and all Obligations have been paid
and performed in full, it will, and, to the extent required, will cause each of
its Subsidiaries to, perform the obligations set forth in this Section 8.1.

                  (a) Conduct of Business.

                           (i)      Corporate Existence; Maintenance of
Properties. The Guarantor will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, material
rights, and those of its Subsidiaries except to the extent that the Guarantor's
failure to do so will not have a Material Adverse Effect; provided, however,
that the corporate existence and material rights of the Lessee shall always be
preserved and kept in full force and effect. The Guarantor (a) will cause all of
its material properties and those of its Subsidiaries used or useful in the
conduct of its business or the business of its Subsidiaries to be maintained and
kept in good condition, repair and working order and supplied with all
reasonably necessary equipment, and (b) will cause to be made all reasonably
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Guarantor may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section 8.1(a) shall
prevent the Guarantor from discontinuing the operation and maintenance of any of
its properties or those of its Subsidiaries if such discontinuance is, in the
reasonable discretion of the Guarantor, desirable in the conduct of its or their
business and would not have a Material Adverse Effect; provided, further, that
the Property shall always be maintained and operated in accordance with the
Master Lease.

                           (ii)     Compliance with Laws, Contracts, Licenses,
and Permits. The Guarantor will, and will cause each of its Subsidiaries to,
comply with (A) the applicable laws and regulations wherever its business is
conducted, including all Environmental Laws which may be in effect from time to
time, (B) the provisions of its charter documents and by-laws, (C) all
agreements and instruments by which it or any of its properties or business may
be bound and (D) all applicable decrees, orders, and judgments; if in each such
case failure to comply would have a Material Adverse Effect. If at any time any
authorization, consent, approval, permit or license from any office, agency or
instrumentality of any government shall become necessary or required in order
that the Guarantor may fulfill any of the Obligations, the Guarantor will
promptly take or cause to be taken all reasonable steps within the power of the
Guarantor to obtain such authorization, consent, approval, permit or license and
furnish the Lessor Parties with evidence thereof.

                  (b) Insurance. The Guarantor and the Lessee shall keep their
respective assets which are of an insurable character insured by financially
sound and reputable insurers (or make adequate and prudent provisions for self
insurance) against loss or damage (i) to the extent and in the manner customary
for companies in similar businesses similarly situated and (ii) to the extent

                                       38

such coverage is available on commercially reasonable terms. Without limiting
the generality of the foregoing, the Lessee shall maintain insurance on and with
respect to the Property in accordance with the relevant provisions of the
Construction Agency Agreement and the Master Lease.

                  (c) Records and Accounts. The Guarantor and the Lessee will
each (i) keep true and accurate records and books of account in which full, true
and correct entries will be made in accordance with GAAP, and (ii) maintain
adequate accounts and reserves for all taxes (including income taxes),
depreciation, depletion, obsolescence and amortization of its properties and the
properties of its Subsidiaries, contingencies, and other reserves.

                  (d) Reports. The Guarantor shall deliver to the Lessor
Parties:

                           (i)      Promptly (but in no event later than five
(5) Business Days after obtaining knowledge thereof) upon any principal officer
of the Guarantor or the Lessee obtaining knowledge of any Lease Default or Lease
Event of Default, a certificate of a Responsible Officer of the Guarantor
specifying the nature and period of existence thereof and what action has been
taken, is being taken or is proposed to be taken with respect thereto.

                           (ii)     As soon as available, and in any event
within sixty (60) days after the last day of each of the first three Fiscal
Quarters of each Fiscal Year, commencing with the Fiscal Quarter ending
immediately after the Initial Funding Date the consolidated and consolidating
balance sheets of the Guarantor as at the end of such quarter and the
consolidated and consolidating statements of income, retained earnings and cash
flows of the Guarantor for such quarter and for the portion of the current
Fiscal Year then ended, all in reasonable detail and accompanied by a
certificate from the Chief Financial Officer of the Guarantor stating that such
statements have been properly prepared in accordance with the books and records
of the Guarantor and fairly present the financial condition and operations of
the Guarantor subject only to normal year-end audit adjustments.

                           (iii)    As soon as available, and in any event
within one hundred and five (105) days after the end of each Fiscal Year, the
consolidated and consolidating balance sheets of the Guarantor as at the end of
such year and the consolidated and consolidating statements of income, retained
earnings and cash flows of the Guarantor for such Fiscal Year, setting forth in
each case in comparative form the consolidated figures for the Guarantor for the
previous Fiscal Year (all in reasonable detail), which consolidated statements
of the Guarantor shall be audited by KPMG, or other independent public
accountants of recognized national standing selected by the Guarantor, and
accompanied by a letter of such accountants that such financial statements have
been prepared in accordance with GAAP.

                           (iv)     Together with the financial statements
delivered pursuant to clause (ii) and clause (iii), a certificate of the Chief
Financial Officer of the Guarantor setting forth a computation showing
compliance by the Guarantor with the financial tests set forth in Section 8.3
hereof, certifying as to the Lessee's compliance with the maintenance
requirements for the Property set forth in the Master Lease, and stating that
such officer has caused the provisions of this Participation Agreement to be
reviewed and has no knowledge of any Lease Default or Lease Event of Default,
or, if such signing officer has such knowledge, specifying

                                       39

such Lease Default or Lease Event of Default and the nature thereof, and what
action the Guarantor has taken, is taking, or proposes to take with respect
thereto (the "Compliance Certificate").

                           (v)      Promptly upon its receipt thereof, copies of
all audit reports (including so-called "management letters") submitted by
independent public accountants in connection with each annual, interim or
special audit of the financial statements of the Guarantor or any of its
Subsidiaries made by such accountants.

                           (vi)     Promptly and in any event within thirty (30)
days after the Guarantor, any of its Subsidiaries or any ERISA Affiliate knows
or has reason to know that any ERISA Reportable Event has occurred.

                           (vii)    Upon request of any Lessor Party, a copy of
the most recent actuarial statement required to be submitted under Section
103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in
respect of each Guaranteed Pension Plan and promptly upon receipt or dispatch,
any notice, report, demand or letter sent or received in respect of a Guaranteed
Pension Plan under Sections 302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of
ERISA, or in respect of a Multiemployer Plan, under Sections 4041A, 4202, 4219,
4242, or 4245 of ERISA.

                           (viii)   Promptly and in any event within thirty (30)
days after notice or knowledge thereof, notice that the Guarantor or any of its
Subsidiaries has become subject to the tax on prohibited transactions imposed by
Section 4975 of the Revenue Code in an amount which has, individually or in the
aggregate, a reasonable likelihood of resulting in a Material Adverse Effect,
together with a copy of Form 530.

                           (ix)     As soon as available, copies of all notices,
proxy statements, reports and financial statements which the Guarantor or any of
its Subsidiaries shall send or make available to its shareholders and all
registration statements and reports which the Guarantor or any of its
Subsidiaries shall file with the Securities and Exchange Commission.

                           (x)      With reasonable promptness, such other
information respecting the business, properties, assets, operations or
condition, financial or otherwise, of the Guarantor or any of its Subsidiaries
as from time to time any of the Lessor Parties may reasonably request.

                  (e) Right to Inspect Premises and Records. Without limiting
the Lessor Parties' inspection rights set forth in Section 4.2 of the Master
Lease, the Guarantor and the Lessee will agree to all reasonable requests by the
Lessor Parties (i) to make extracts from the books of account and financial
records of the Guarantor or the Lessee solely for its own use in connection with
the Obligations of the Lessee and the Guarantor under the Operative Documents,
(ii) to provide the Lessor Parties or its authorized representatives, during
normal business hours or such other time as agreed upon by the parties, at the
offices of the Guarantor, all books and records for inspections or consultation
in connection with the Guarantor's and Lessee's compliance and performance of
the obligations under the Operative Documents, and (iii) to authorize the Lessor
Parties or its authorized representatives right of access and entry on the
Property for inspection of any or all components of the Property; provided,
however, at any time no Lease Default or Lease Event of Default shall have
occurred and be continuing, a Lessor Party shall give the

                                       40

Guarantor and the Lessee written notice no later than five (5) Business Days
prior to the day of inspection. Upon the occurrence and during the continuance
of a Lease Default or a Lease Event of Default, the Guarantor shall reimburse
the Lessor Parties for the costs incurred by such parties in connection with the
exercise of their respective rights under this subsection.

                  (f) Payment of Liabilities. The Guarantor shall pay and
discharge, and shall cause each of its Subsidiaries to pay and discharge, at or
before their maturity or in accordance with customary trade terms, all of their
respective Indebtedness due and payable, except where such Indebtedness is
contested in good faith and by appropriate proceedings diligently conducted and
reserves or other appropriate provisions, if any, as shall be required by GAAP,
shall have been made therefor, and except to the extent otherwise provided by
any subordination provisions applicable to such Indebtedness, unless, in the
case of the Guarantor or any such Subsidiary other than the Lessee, failure to
pay or discharge such Indebtedness could not reasonably be expected to have a
Material Adverse Effect.

                  (g) Payment of Charges and Indebtedness. The Guarantor shall,
and shall cause each of its Subsidiaries to, timely file or cause to be filed
all tax returns, and shall timely pay and discharge all taxes and other
governmental charges and assessments, due and payable, and shall pay all claims
for labor, materials or supplies which if unpaid might by law become a Lien or
charge upon any property of the Guarantor or any of its Subsidiaries; provided,
however, that any such taxes and other governmental charges and assessments or
claims, the nonpayment of which would not be reasonably likely to have a
Material Adverse Effect, need not be paid if the validity or amount thereof
shall currently be contested in good faith by appropriate proceedings and if the
Guarantor or such Subsidiary shall, in accordance with GAAP, have set aside on
its books adequate reserves with respect thereto; and provided further, however,
that the Guarantor shall, and shall cause each Subsidiary to, pay all such
taxes, governmental charges, assessments or claims forthwith upon the
commencement of proceedings to foreclose any Lien which may have attached as
security therefor. The obligations of the Guarantor under this Section 8.1(g)
with respect to the filing of tax returns and the payment of taxes, governmental
charges, assessments and claims shall survive the payment, prepayment or
redemption of the Notes and the Equity Investment and the termination of this
Participation Agreement and the other Operative Documents.

                  (h) Material Change in Business. The primary business of the
Guarantor, the Lessee and the Guarantor's Subsidiaries shall continue to be
developing and publishing products for interactive electronic media.

                  (i) Compliance with Securities Laws. Except for non-compliance
which, individually or collectively, does not have a Material Adverse Effect,
(i) any and all purchases or redemptions by the Guarantor and/or any of its
Subsidiaries of any securities issued by the Guarantor or any of its
Subsidiaries or any other Person shall be effected in compliance with all
applicable Requirements of Law, including, but not limited to, the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended,
and (ii) any and all offers to sell and sales of securities or of obligations of
the Guarantor or any of its Subsidiaries evidenced by notes, bonds, debentures
or similar instruments, shall be effected in compliance with all applicable
Requirements of Law, including, but not limited to, the Trust Indenture Act of
1939, as amended.

                                       41

                  (j) Application of Proceeds. The Lessee shall cause proceeds
of the Notes and funding of the Equity Investment to be used as contemplated by
the Operative Documents.

                  (k) Environmental Protection.

                           (i)      The Guarantor shall, and shall cause each of
its Material Subsidiaries to, (i) comply in all material respects with the
requirements of all Environmental Laws applicable to it, except where such
non-compliance could not reasonably be expected to result in a material
impairment in the value of, or a material liability with respect to the affected
premises, (ii) notify the Lessor Parties promptly in the event of any Release,
Environmental Claim or other Adverse Environmental Condition from, upon or
affecting any premises owned or occupied by the Guarantor or any Material
Subsidiary which Release, Environmental Claim or Adverse Environmental Condition
could result in a Material Adverse Effect or a material impairment of the value
of, or a material liability with respect to, such premises and (iii) promptly
forward to the Lessor Parties copies of all orders, notices, permits,
applications or other communications and reports in connection with any such
Release, Environmental Claim or other Adverse Environmental Condition or any
other matter relating to the Environmental Laws as they may affect such premises
which could result in a Material Adverse Effect or result in a material
impairment of the value of, or material liability with respect to, such
premises. The covenants provided for herein shall survive the payment or
redemption of the Notes and the Equity Investment and the termination of this
Participation Agreement and the other Operative Documents.

                           (ii)     The Guarantor shall fully and promptly pay,
perform, discharge, defend, indemnify and hold harmless the Lessor Parties,
their respective Subsidiaries and Affiliates, and the respective managers,
members, directors, officers, employees and agents of any of the foregoing as to
any environmental matter as provided in Article XIII hereof.

                           (iii)    Without limiting the foregoing, the
Guarantor and the Lessee will comply at all times with the environmental
provisions of the Participation Agreement, the Construction Agency Agreement and
the Environmental Indemnity Agreement and shall take all actions necessary or
required to preserve all indemnities and other remedies available under the
Participation Agreement, the Construction Agency Agreement and the Environmental
Indemnity Agreement.

                  (l) Ownership of the Lessee. The Guarantor shall at all times
maintain direct or indirect ownership of 100% of the issued and outstanding
Stock of the Lessee (including all rights to subscribe for, purchase (including
by conversion of any other security) or otherwise acquire any such Stock), free
and clear of all Liens.

                  (m) Notice of Change in Name, Identity or Address. Each of the
Guarantor and the Lessee shall provide the Lessor Parties thirty (30) days prior
written notice of any change in its name or the address of its chief executive
office and principal place of business or the office where it keeps its records
concerning its accounts and the Property leased by the Lessee under the Master
Lease.

                                       42

                  (n) Further Assurances. The Guarantor and the Lessee shall
take or cause to be taken from time to time all action reasonably necessary to
assure that the intent of the parties pursuant to the Operative Documents is
given effect as contemplated by Section 23.1 of the Master Lease, and that the
Lessor and the Agent, for the benefit of the other Lessor Parties, as each such
Lessor Party's respective interests may appear, holds a first priority perfected
Lien on the Property and the Master Lease, securing the amounts due thereon or
under the Operative Documents. The Guarantor and the Lessee shall execute and
deliver, or cause to be executed and delivered, to the Lessor Parties from time
to time, promptly upon request therefor, any and all other and further
instruments (including correction instruments and supplemental mortgages and
security agreements, as appropriate) that may be reasonably requested by the
Lessor Parties to cure any deficiency in the execution and delivery of this
Participation Agreement or any other Operative Document to which it is a party.

                  (o) No Disposition of the Property. The Lessee shall not sell,
contract to sell, assign, lease, transfer, convey or otherwise dispose of, or
permit to be sold, assigned, leased, transferred, conveyed or otherwise disposed
of, the Property or any part thereof except as expressly permitted by the
Operative Documents.

                  (p) Defense of Title. The Lessee will, at all times, at its
own cost and expense, warrant and defend the title of the Lessor to the Property
except with respect to Lessor Liens.

         Section 8.2 Negative Covenants. The Guarantor hereby covenants and
agrees, subject to Section 15.5 hereof, for the benefit of the Lessor Parties
from and after the Documentation Date and until all Commitments have terminated
and all Obligations have been paid and performed in full:

                  (a) Limitations on Indebtedness. Neither the Guarantor nor any
of its Subsidiaries, including the Lessee, shall create, incur, assume or permit
to exist any Indebtedness except for Indebtedness which, in aggregate, on a pro
forma basis, would not result in a violation by the Guarantor of the financial
covenants set forth in Section 8.3 ("Permitted Indebtedness").

                  (b) Limitation on Liens, Etc. Neither Guarantor nor any of its
Subsidiaries shall create, incur, assume or permit to exist any Lien on or with
respect to any of its assets or property of any character, whether now owned or
hereafter acquired, except for Permitted Liens.

                  (c) Asset Dispositions. Neither the Guarantor nor any of its
Subsidiaries shall sell, lease, transfer or otherwise dispose of any of its
assets or property, whether now owned or hereafter acquired, except for the
following:

                           (i)      Sales of inventory and products by the
Guarantor and its Subsidiaries in the ordinary course of their businesses;

                           (ii)     Sales of surplus, damaged, worn or obsolete
equipment or inventory for not less than fair market value;

                           (iii)    Sales or other dispositions of Investments
permitted by clauses (i) and (iii) of Section 8.2(e) below for not less than
fair market value;

                                       43

                           (iv)     Sales or assignments of defaulted
receivables to a collection agency in the ordinary course of business;

                           (v)      Licenses by the Guarantor or its
Subsidiaries of its patents, copyrights, trademarks, trade names and service
marks in the ordinary course of its business provided that, in each case, the
terms of the transaction are terms which then would prevail in the market for
similar transactions between unaffiliated parties dealing at arm's length;

                           (vi)     Sales or other dispositions of assets and
property by the Guarantor to any of the Guarantor's Subsidiaries or by any of
the Guarantor's Subsidiaries to the Guarantor or any of its other Subsidiaries,
provided that, on the date of any such sale or disposition, the Guarantor and
such Subsidiary each reasonably believes that such sale or disposition is made
on terms which are no less favorable to the Guarantor then would prevail in the
market for similar transactions between unaffiliated parties dealing at arm's
length; and

                           (vii)    Other sales, leases, transfers and disposals
of assets and property for not less than fair market value, provided that the
net proceeds from any such sale, lease, transfer or disposal shall not exceed
ten percent (10%) of the consolidated total assets of the Guarantor and its
Subsidiaries immediately prior to such sale, lease, transfer or disposal.

provided, however, that the foregoing exceptions shall not be construed to
permit any sales, leases, transfers or disposals of any of the Property, except
as expressly permitted by the Master Lease or any of the other Operative
Documents.

                  (d) Mergers, Acquisitions, Etc. Neither the Guarantor nor any
of its Subsidiaries shall consolidate with or merge into any other Person or
permit any other Person to merge into it, establish any new Subsidiary, acquire
any Person as a new Subsidiary or acquire all or substantially all of the assets
of any other Person, except for the following:

                           (i)      Any Subsidiary of the Guarantor (other than
the Lessee) may merge or consolidate with any other Subsidiary of Guarantor;

                           (ii)     Any Subsidiary of the Guarantor (other than
the Lessee) may merge or consolidate with the Guarantor, provided that the
Guarantor is the surviving corporation; and

                           (iii)    The Guarantor may merge or consolidate with
any other corporation, establish a new Subsidiary, acquire any Person as a new
Subsidiary or acquire all or substantially all of the assets of any other
Person, provided that (A) in the case of any merger or consolidation, either (1)
the Guarantor is the surviving corporation or (2) the surviving corporation (y)
is a Solvent United States corporation with a financial condition equal to or
better than the financial condition of the Guarantor immediately prior to such
merger or consolidation and (z) assumes all of the obligations of the Guarantor
in a manner reasonably acceptable to the Consenting Parties; (B) no Lease
Default has occurred and is continuing at the time of such merger,
consolidation, establishment or acquisition or will occur after giving effect to
such merger, consolidation or acquisition; and (C) based upon a pro forma
Compliance Certificate provided to the Agent on behalf of the Lessor Parties
immediately prior to the consummation of any such merger, consolidation or
acquisition, the Guarantor shall continue to be in compliance

                                       44

with each of the financial covenants set forth in Section 8.3 hereof immediately
after giving effect to such merger, consolidation or acquisition.

                  (e) Investments. Neither the Guarantor nor any of its
Subsidiaries shall make any Investment except for the following:

                           (i)      Investments by the Guarantor and its
Subsidiaries in Cash Equivalents;

                           (ii)     Any transaction permitted by Section 8.2(a);

                           (iii)    Money market mutual funds registered with
the Securities and Exchange Commission, meeting the requirements of Rule 2a-7
promulgated under the Investment Company Act of 1940;

                           (iv)     Investments listed in Item 8.2(e) of
Schedule II hereto existing on the date of this Participation Agreement;

                           (v)      Investments in Guarantor's Affiliates and
Subsidiaries; and

                           (vi)     Other Investments, provided that the
Guarantor shall continue to be in compliance with each of the financial
covenants set forth in Section 8.3 hereof immediately after giving effect to
each such Investment, and provided further that before making any such
Investment in an amount greater than $25,000,000, the Guarantor shall provide
the Agent on behalf of the Lessor Parties a pro forma Compliance Certificate to
the effect that such Investment will not otherwise violate this clause (v).

                  (f) Dividends, Redemptions, Etc. Neither the Guarantor nor any
of its Subsidiaries shall (i) pay any dividends or make any distributions on its
Stock; (ii) purchase, redeem, retire, defease or otherwise acquire for value any
of its Stock; (iii) return any capital to any holder of its Stock as such; (iv)
make any distribution of assets, Stock, obligations or securities to any holder
of its Stock as such; or (v) set apart any sum for any such purpose (each act
described in clauses (i), (ii), (iii), (iv) and (v) being a "Distribution");
except under the following conditions:

                           (A)      No Lease Event of Default shall have
occurred and be continuing;

                           (B)      The Guarantor shall continue to be in
compliance with each of the financial covenants set forth in Section 8.3 hereof
immediately after giving effect to each such Distribution; and

                           (C)      If the Distribution (in cash or value) is in
an amount greater than $25,000,000, the Guarantor shall have provided to the
Agent on behalf of the Lessor Parties a pro forma Compliance Certificate to the
effect that the Guarantor shall continue to be in violation of each of its
financial covenants set forth in Section 8.3 hereof immediately after giving
effect to such Distribution.

                                       45

Notwithstanding the foregoing, a conversion of the Guarantor's Class B Common
Stock into the Guarantor's Class A Common Stock shall not be deemed a
Distribution for the purpose of this Section 8.2(f).

                  (g) Employee Benefit Plans. Neither the Guarantor nor any
ERISA Affiliate will:

                           (i)      engage in any "prohibited transaction"
within the meaning of Section 406 of ERISA or Section 4975 of the Revenue Code
which could result in a material liability for the Guarantor or any of its
Subsidiaries; or

                           (ii)     permit any Guaranteed Pension Plan to incur
an "accumulated funding deficiency", as such term is defined in Section 302 of
ERISA, in excess of $1,000,000, whether or not such deficiency is or may be
waived; or

                           (iii)    fail to contribute to any Guaranteed Pension
Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner
which, could result in the imposition of a lien or encumbrance on the assets of
the Guarantor or any of its Subsidiaries pursuant to Section 302(f) or Section
4068 of ERISA; or

                           (iv)     permit or take any action which would result
in the aggregate benefit liabilities (with the meaning of Section 4001 of ERISA)
of all Guaranteed Pension Plans exceeding the value of the aggregate assets of
such plans by more than $1,000,000, disregarding for this purpose the benefit
liabilities and assets of any such plan with assets in excess of benefit
liabilities.

                  (h) Prohibited Uses of Proceeds. The Guarantor and the Lessee
shall not directly or indirectly, use the proceeds of any financial
accommodations provided hereunder in any manner which would result in a
violation of Regulation T, U or X of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect.

                  (i) Transactions with Affiliates. The Guarantor shall not and
shall not permit any of its Subsidiaries to, enter into any transaction with any
Affiliate on terms that are less favorable to the Guarantor or such Subsidiary,
as the case may be, than terms which might be obtained at the time from Persons
that are not Affiliates if a Lease Default or Lease Event of Default shall be
continuing hereunder immediately prior to such transaction or would occur under
Article XVII of the Master Lease on a pro forma basis after giving effect to
such transaction.

         Section 8.3 Financial Covenants. The Guarantor hereby covenants and
agrees, subject to Section 15.5 hereof, for the benefit of the Lessor Parties
from and after the Documentation Date and until all Commitments have terminated
and all Obligations have been paid and performed in full:

                  (a) Consolidated Net Worth The Guarantor shall not permit the
Consolidated Net Worth of the Guarantor at any time (such day on which the
Consolidated Net Worth of the Guarantor is measured shall be referred to herein
as a "determination date") which commences after the Documentation Date to be
less than the sum on such determination date of the following:

                                       46

                           (i)      Ninety percent (90%) of the Consolidated Net
Worth of the Guarantor as of September 30, 2000;

                                      plus

                           (ii)     Seventy-five percent (75%) of the sum of the
positive net income of the Guarantor for each quarter after September 30, 2000;

                                      plus

                           (iii)    Seventy-five percent (75%) of net equity
proceeds (excluding equity issued through the ESOP or employee stock purchase
plans) and equity issued pursuant to the conversion of debt for each quarter
after September 30, 2000.

                  (b) Fixed Charge Coverage Ratio. The Guarantor shall not
permit the ratio of its Consolidated EBITDAR to Consolidated Fixed Charges as of
the end any measurement period to be less than 3.00:1.00. For purpose of this
paragraph, "measurement period" shall mean, with respect to any four fiscal
quarter period, the period of four fiscal quarters ending on the last day of
such fiscal quarter.

                  (c) Total Consolidated Debt to Total Consolidated Capital. The
Guarantor shall not, at any time, permit its Total Consolidated Debt to exceed
sixty percent (60%) of its Total Consolidated Capital.

                  (d) Quick Ratio. The Guarantor shall not, at any time, permit
the ratio of the sum its cash and Cash Equivalents and accounts receivables (net
reserves) to Total Consolidated Debt to be less than 1.00:1.00 for those fiscal
quarters ending on June 30 and September 30 and 1.75:1.00 for those fiscal
quarters ending on December 31 and March 31.

                                   ARTICLE IX

                            COVENANTS OF THE LESSOR,
                   THE NOTE PURCHASER AND THE LIQUIDITY BANKS

         Section 9.1 General Covenants of the Lessor and the Note Purchaser.
Each of the Lessor and the Note Purchaser hereby covenants and agrees,
individually and not jointly, that so long as this Participation Agreement and
the other Operative Documents are in effect:

                  (a) it will not create, incur, assume or suffer to exist any
Lessor Lien attributable to such Person upon the Master Lease or the Property
(other than as contemplated by any of the Operative Documents); and

                  (b) it will remove, at its sole expense, any Lessor Lien
created or incurred by it and attributable to it upon the Master Lease or the
Property (other than such Liens as are contemplated by any of the Operative
Documents).

                                       47

         Section 9.2 Specific Covenants of the Lessor. The Lessor hereby
covenants and agrees, for the benefit of the Lessee, that so long as this
Participation Agreement and the other Operative Documents are in effect:

                  (a) the representations and warranties of the Lessor contained
in the Note Purchase Agreement shall be true and correct in all material
respects on and as of the date of each Note Purchase, 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 on and as of such earlier date;

                  (b) it will comply with each of its covenants set forth in the
Note Purchase Agreement (including, without limitation, (i) to timely present
all requests and information necessary to cause the Note Purchaser to purchase
the Notes and fund the advances to be made thereunder as and when required under
the Note Purchase Agreement and (ii) to not cause an Acceleration Event or an
Unmatured Acceleration Event to occur and be continuing) except to the extent
such failure to comply is a result of a breach by the Guarantor or the Lessee of
its obligations under this Participation Agreement or any of the other Operative
Documents;

                  (c) when it receives funds from the Note Purchaser, it will
transmit such funds to the Lessee without deduction or offset as and when
required under this Participation Agreement and the other Operative Documents;

                  (d) when it receives funds from the Lessee, it will transmit
such finds to the Note Purchaser without deduction or offset as and when
required under the Note Purchase Agreement and the other Operative Documents;

                  (e) it will keep complete and accurate books and records of
the transactions involving the Lessor arising under the Note Purchase Agreement
and the other Operative Documents; and

                  (f) so long as no Lease Default or Lease Event of Default
shall have occurred and be continuing, it will (i) not assign its Equity
Investment or its interest in the Operative Documents without the prior written
consent of the Lessee (which consent shall not be unreasonably withheld) and
(ii) not become a special purpose, bankruptcy-remote entity.

         Section 9.3 Specific Covenant of the Note Purchaser. The Note Purchaser
hereby covenants and agrees, for the benefit of the Lessee, that so long as this
Participation Agreement and the other Operative Documents are in effect and no
Lease Event of Default or Lease Default shall have occurred and be continuing,
it shall purchases the Notes and make advances under the Notes in accordance
with the terms of this Participation Agreement and the Note Purchase Agreement.

         Section 9.4 Covenants of the Other Lessor Parties. To the extent not
otherwise provided above, each of the Lessor Parties hereby covenants and
agrees, for the benefit of the Lessee, that so long as this Participation
Agreement and the other Operative Documents are in effect and no Lease Event of
Default or Lease Default shall have occurred and be continuing, it will comply
with each of its covenants set forth in the Operative Documents to which such
Person is a party, except to the extent such failure to comply directly or
indirectly arises out of, or relates to (or is

                                       48

alleged to have arisen out of or be related to) a breach by the Guarantor or the
Lessee of its obligations under this Participation Agreement or any of the other
Operative Documents.

         Section 9.5 Notices Under the Note Purchase Agreement and the Liquidity
Documentation. Each of the Lessor and the Note Purchaser hereby agrees that it
shall promptly (but in any event no later than ten (10) Business Days after
delivery thereof), deliver to the Guarantor a copy of each notice sent by it
under the Note Purchase Agreement and the Liquidity Documentation to any other
party thereto.

                                   ARTICLE X

                PAYMENT OF CERTAIN EXPENSES; OPTIONAL APPRAISALS

         The Lessee agrees, for the benefit of the Lessor, that:

         Section 10.1 Transaction Expenses. The Lessee shall pay, or cause to be
paid, from time to time all Transaction Expenses. Transaction Expenses may,
subject to the conditions hereof, be paid with the proceeds of the Notes and/or
the funding of any portion of the Equity Investment.

         Section 10.2 Stamp Taxes. The Lessee shall pay or cause to be paid 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 10.3 Note Purchase Agreement and Related Obligations. The
Lessee shall pay, before the delinquency date thereof, all costs, expenses and
other amounts (other than amounts that, pursuant to the Operative Documents, are
specifically required to be paid by any Lessor Party or that arise out of or in
connection with a default by the Lessor under the Operative Documents that does
not directly or indirectly arise out of or relate to a breach by the Guarantor
or the Lessee of its obligations under any of the Operative Documents) required
to be paid by the Lessor under the Note Purchase Agreement, any Note, the Asset
Purchase Agreement or the Liquidity Agreement.

         Section 10.4 Optional Appraisals. If the Lessee elects the Remarketing
Option pursuant to Section 18.3 of the Master Lease, then any Lessor Party may,
at the sole option of each party, respectively, but at the expense and cost of
the Lessee, require reports of one or more independent appraisers selected by
the requesting parties, which reports shall state, in a manner reasonably
satisfactory to the requesting parties, the following:

                  (a) the appraiser's determination of the Fair Market Value of
the Property as of (i) the day on which the Remarketing Option was elected and
(ii) the Lease Termination Date; and

                  (b) such other matters as the Lessor Parties may reasonably
request.

Upon any party's delivery of written notice to the Guarantor that any of the
referenced parties is requiring delivery of appraisals pursuant to this Section
10.4, the Guarantor shall cause such reports to be delivered to the requesting
party no later than thirty (30) days after such notice.

                                       49

                                   ARTICLE XI

                             APPLICATION OF PAYMENTS

         Section 11.1 Consenting Parties; Voting Rights of Lessor Parties in
Connection with Direction of the Agent.

                  (a) In accordance with Article XIV hereof and subject to
Section 15.5 hereof, all actions taken by the Agent prior to the occurrence and
continuance of a Lease Event of Default, and all amendments, modifications,
consents or approvals with respect to any Operative Documents, shall be taken
solely at the direction of the Consenting Parties. The Lessee and the Guarantor
shall be entitled to rely on all such actions by the Agent and amendments,
modifications, consents and approvals entered into or provided by the Agent as
authorized by the Consenting Parties without inquiry or investigation.

                  (b) The "Consenting Parties" shall mean, with respect to
amendments, modifications, consents or approvals with respect to any Operative
Document, (i) at any time the Outstanding Lease Balance is greater than $0, the
Note Purchaser and Lessor Parties whose aggregate percentage of the Outstanding
Lease Balance equals or exceeds sixty-six and two-thirds percent (66-2/3%); and
(ii) at any time the Outstanding Lease Balance is $0, the Note Purchaser and
Lessor Parties whose portion of the Aggregate Commitment Amount equals or
exceeds sixty-six and two-thirds percent (66-2/3%). For purposes of calculating
each Lessor Party's percentage of the Outstanding Lease Balance or portion of
the Aggregate Commitment Amount, so long as the Liquidity Banks have an
obligation to fund the Aggregate Note Purchase Commitment pursuant to the
Liquidity Agreement or have purchased the Notes from the Note Purchaser pursuant
to the Asset Purchase Agreement, each Liquidity Bank shall be deemed to hold a
percentage or portion (as applicable) calculated based upon its Percentage as
provided pursuant to the Asset Purchase Agreement. (Thus, for example, if the
Outstanding Lease Balance is $100,000,000, consisting of $3,500,000 (principal
amount) of Equity Investment and $96,500,000 (principal amount) of outstanding
Notes, and each of four Liquidity Banks' Percentage under the Asset Purchase
Agreement is exactly 25%, then the Lessor's percentage of the Outstanding Lease
Balance would be 3.500% and each Liquidity Bank's percentage of the Outstanding
Lease Balance would be 24.125%).

         Section 11.2 Application of Payments made by the Lessee and Guarantor
Pursuant to the Operative Documents prior to the Occurrence and Continuance of
any Lease Event of Default. Prior to the occurrence and continuance of any Lease
Event of Default, moneys received by the Lessor (or by the Agent on behalf of
the Lessor), including, without limitation, funds deposited in the Prepayment
Account, shall be applied as follows:

                  (a) Basic Rent shall be applied pro rata to satisfy the
obligations of the Lessor with respect to the Interest Amount, the Yield Amount,
the Support Amount and any other costs related to the Notes and the Equity
Investment.

                  (b) Payments made pursuant to Sections 4.3, 4.4, 4.6, 4.8 and
11.4 hereof shall be applied as specified therein.

                                       50

                  (c) All other payments made by the Lessee Parties and proceeds
received under the Letter of Credit pursuant to this Participation Agreement and
the other Operative Documents, unless otherwise specified, shall be applied
first, to repay, in full, the Notes together with any other amounts payable to
the Note Purchaser (or the Liquidity Banks, if applicable) pursuant to the
Operative Documents, ratably in accordance with their respective interests,
second, to redeem the Equity Investment together with any other amounts payable
to the Lessor pursuant to the Operative Documents (provided however, that none
of the proceeds received under the Letter of Credit shall be used for this
purpose), and third, to any other Person as such Person's interest may appear.

         Section 11.3 Application of Funds Upon the Occurrence and Continuance
of any Lease Event of Default. Upon the occurrence and continuance of any Lease
Event of Default, moneys received by the Lessor (or by the Agent on behalf of
the Lessor) shall be applied as follows:

                  (a) Basic Rent shall be applied pro rata to satisfy the
obligations of the Lessor with respect to the Interest Amount, the Yield Amount,
the Support Amount and any other costs related to the Notes and the Equity
Investment.

                  (b) Payments made pursuant to Sections 4.3, 4.4, 4.6, 4.8 and
11.4 hereof shall be applied as specified therein.

                  (c) All other payments made by the Lessee Parties and received
as remarketing, casualty, sale, foreclosure or other proceeds pursuant to this
Participation Agreement and the other Operative Documents, shall be applied
first, to repay ratably in full the Notes together with any other amounts
payable to the Note Purchaser (or the Liquidity Banks) pursuant to the Operative
Documents and to redeem the Equity Investment together with any other amounts
payable to the Lessor pursuant to the Operative Documents, and second, to any
other Person as such Person's interest may appear.

         Section 11.4 Casualty, Condemnation or Unwind Proceeds. Except to the
extent such amounts are returned to the Lessee pursuant to Sections 14.3(a) and
14.3(f) of the Master Lease, without regard to whether a Lease Default, Lease
Event of Default, Acceleration Event or Unmatured Acceleration Event shall have
occurred and be continuing, Casualty Proceeds, Condemnation Proceeds or Unwind
Proceeds with respect to the Property shall be applied first, to the ratable
repayment in full of the Notes together with any other amounts payable to the
holders of such Notes and second, to the redemption of the Equity Investment,
together with any other amounts payable to the Lessor pursuant to the Operative
Documents.

         Section 11.5 Construction of Local Laws. It is acknowledged and agreed
that the foreclosure on the Property may give rise to the application of local
laws which require, inter alia, that the proceeds of such foreclosure(s) be
applied in a manner which is not consistent with the application of proceeds
specified in this Article XI. To the extent such inconsistent applications are
made in accordance with applicable law, the parties hereto agree to reallocate
the remaining proceeds in a manner which gives effect to the allocations
specified in this Article XI.

                                       51

                                   ARTICLE XII

                      ASSIGNMENTS AND TRANSFERS BY LESSOR,
                       LIQUIDITY BANKS AND NOTE PURCHASER

         Section 12.1 Acknowledgment of Grant of Security Interest to the Agent;
Assignments.

                  (a) The Lessor, the Guarantor and the Lessee hereby
acknowledge that the right of the Lessor to receive Rent and certain other
rights under the Master Lease will be pledged to the Agent to secure payment of
the Notes, the Loans and the Equity Investment in the manner specified in
Article XI. In addition, in accordance with the terms and conditions of the
Liquidity Documentation, the Notes may be transferred to the Liquidity Banks or
otherwise transferred from time to time. Such transfers shall be governed by the
relevant provisions of the Note Purchase Agreement, and this Participation
Agreement, as the context requires.

                  (b) Each Liquidity Bank may, at any time, sell and assign to
any Eligible Assignee all or any portion of its rights and obligations under
this Participation Agreement and the other Operative Documents in accordance
with the Liquidity Documentation.

         Section 12.2 Assignments by Note Purchaser, etc. Provided the same does
not require registration of the Notes under the Securities Act of 1933, as
amended, the Note Purchaser may, without restriction or formality of any kind:
(x) transfer all or part of its rights, obligations and interest in, to and
under the Notes and the Operative Documents to any Lessor Party and grant a
security interest therein to the Collateral Agent for its commercial paper
program; and (y) the Collateral Agent may similarly transfer any interest it so
receives.

         Section 12.3 Disclosure of Information. Each Lessor Party may, in
connection with any assignment, sale of a participation, proposed assignment or
proposed sale of a participation by it pursuant to this Article XII, disclose to
the applicable transferee or proposed transferee any information relating to the
Lessee, the Guarantor or the Property in its possession.

         Section 12.4 Limitation on Assignment. Except as otherwise provided
above or as contemplated in the Asset Purchase Agreement or Section 15.17
hereof, no Lessor Party shall assign or transfer its rights, obligations or
interest in, to and under the Operative Documents without the written consent of
the Agent and, if no Lease Default or Lease Event of Default has occurred and is
continuing, the Guarantor (which consent of the Agent and the Guarantor shall
not be unreasonably withheld).

                                  ARTICLE XIII

                                 INDEMNIFICATION

         Section 13.1 General Indemnification. The Lessee and the Guarantor
jointly and severally agree, 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

                                       52

indemnified as to any such Claim by any other Person and whether or not such
Claim arises or accrues prior to the Documentation Date or after the Lease
Termination 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 Property 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 any sale
pursuant to Article XVI, XVII or XVIII of the Master Lease), return or other
disposition of all or any part or any interest in the Property 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 (1) Claims or penalties arising from any
violation of law or in tort (strict liability or otherwise), (2) latent or other
defects, whether or not discoverable, (3) any Claim based upon a violation or
alleged violation of the terms of any restriction, easement, condition or
covenant or other matter affecting title to the Property, including, but not
limited to, the terms set forth in the Redwood Shores Documents, (4) the making
of any Modifications in violation of any standards imposed by any insurance
policies required to be maintained by the Lessee pursuant to the Master Lease
which policies are in effect at any time with respect to the Property 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 Property
resulting in any change or special assessments being levied against the Property
or any plans to widen, modify or realign any street or highway adjacent to the
Property, or any Claim for utility "tap-in" fees;

                  (d) the breach by the Lessee or the Guarantor 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
Property, any improvements, title thereto, any interest therein or any Basic
Rent or Supplemental Rent, including any Liens which arise out of the
possession, use, occupancy, construction, repair or rebuilding of the 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 personally or equipment purchased or leased by the Lessee or
Modifications constructed by the Lessee, except Lessor Liens and Liens created
under the Operative Documents in favor of one or more of the Lessor Parties;

                  (g) the transactions contemplated by this Participation
Agreement 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 Revenue Code; or

                                       53

                  (h) any indemnification claim made against any Liquidity Bank
under the Liquidity Documentation;

provided, however, neither the Lessee nor the Guarantor shall 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 (it being understood that the Lessee and the
Guarantor shall be required to indemnify an Indemnitee even if the ordinary (but
not gross) negligence of such Indemnitee caused or contributed to such Claim),
(2) any Claim resulting from Lessor Liens to the extent such Indemnitee is in
breach of any obligation under the Operative Documents to discharge such Liens,
(3) any Claim to the extent solely attributable to acts or events attributable
to such Indemnitee and occurring after the return of the Property or the Lease
Termination Date so long as no Lease Default or Lease Event of Default shall
have occurred and be continuing as of the date of such return or the Lease
Termination Date, (4) any Claim arising from a breach by such Indemnitee of any
agreement entered into in connection with the assignment or participation of any
interest of such Indemnitee under this Participation Agreement or the other
Operative Documents, (5) Taxes (other than Taxes necessary for any claim under
this Section 13.1 to be indemnified on an After-Tax Basis) or (6) any Claim
arising solely from the failure of such Indemnitee to comply with laws
applicable to banks or their affiliates generally or the failure of such
Indemnitee to file any notice, report, filing or other document required by any
Governmental Authority regulating banks or their affiliates in connection with
such Indemnitee's execution of, and participation in the transactions
contemplated by, 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
Master 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
Property or as a guaranty of the repayment of the Notes or the redemption of the
Equity Investment.

         Section 13.2 Environmental Indemnity. Without limitation of the other
provisions of this Article XIII or the Environmental Indemnity Agreement, the
Lessee and the Guarantor hereby agree, jointly and severally, to indemnify, hold
harmless and defend each Indemnitee from and against any and all claims
(including third party claims for personal injury or real or personal property
damage or diminution of value), losses (including, to the extent the Outstanding
Lease Balance and all other Obligations have not been fully paid, any loss of
value of any Property related thereto), damages, liabilities, fines, penalties,
charges, administrative and judicial proceedings (including any informal
proceedings) and all orders, judgments, remedial action, requirements,
enforcement actions of any kind, and all reasonable and documented costs and
expenses incurred in connection therewith (including reasonable and documented
attorneys' and/or paralegals' fees, experts' fees and expenses), including all
costs incurred in connection with any investigation or monitoring of site
conditions or any Remedial Action, arising in whole or in part, out of:

                  (a) the presence on or under the Property of any Hazardous
Substances, or any Releases or threat of Release or discharges of any Hazardous
Substances on, under, from or onto the Property;

                                       54

                  (b) any Hazardous Activity or activity, including
construction, carried on at the Property, 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 Substances
that at any time are Released on, at, from or under or are located or present on
or under the Property,

                  (c) loss of or damage to any property or the environment
(including Remediation Costs, investigation costs, clean-up costs, response
costs, remediation and removal costs, cost of corrective action, costs of
financial assurance, fines and penalties and natural resource damages and
diminution of value), 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 Environmental Laws, in
each case arising from activities on or conditions with respect to the Property;

                  (d) any Governmental Claim, Adverse Environmental Condition or
any other claim concerning lack of compliance with Environmental Laws, or any
act or omission causing an environmental condition that requires remediation or
would allow any Governmental Authority or Person to record a Lien on the land
records, in each case arising from activities on or conditions with respect to
the Property; or

                  (e) any residual contamination on or under the Property, or
affecting any natural resources, and any contamination of any property or
natural resources arising in connection with the generation, use, handling,
storage, transport or disposal of any such Hazardous Substances from the
Property; and irrespective of whether any of such activities were or will be
undertaken in accordance with applicable laws, regulations, codes and
ordinances;

provided, however, neither the Lessee nor the Guarantor shall be required to
indemnify any Indemnitee under this Section 13.2 for (1) any Claim to the extent
resulting from the willful misconduct or gross negligence of such Indemnitee (it
being understood that the Lessee and the Guarantor 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 (2) any Claim to the extent
solely attributable to acts or events attributable to such Indemnitee first
occurring after the return of all of the Property on the Lease Termination Date
so long as no Lease Default or Lease Event of Default shall have occurred and be
continuing as of the date of such return or the Lease Termination Date. 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 Master Lease or any other Operative Document.

         Section 13.3 Proceedings in Respect of Claims. With respect to any
amount that Lessee or the Guarantor is requested by an Indemnitee to pay by
reason of Section 13.1 or 13.2, such Indemnitee shall, if so requested by Lessee
or the Guarantor, as applicable, and prior to any payment, submit such
additional information to the Lessee or the Guarantor as such Person may
reasonably request and which is in the possession of or available to such
Indemnitee to substantiate properly the requested payment.

                                       55

         In case any action, suit or proceeding shall be brought against any
Indemnitee or any Indemnitee receives written notice of any threatened action,
suit or proceeding, such Indemnitee shall with reasonable promptness notify the
Guarantor of the commencement thereof, and the Guarantor shall be entitled, at
its expense, to participate in, and, to the extent that the Guarantor desires
to, assume and control the defense thereof (with counsel reasonably satisfactory
to such Indemnitee) provided, however, that the Guarantor shall have
acknowledged in writing its obligation to fully indemnify such Indemnitee in
respect of such action, suit or proceeding, and the Guarantor shall keep such
Indemnitee fully apprised of the status of such action, suit or proceeding and
shall provide such Indemnitee with all information with respect to such action,
suit or proceeding as such Indemnitee shall reasonably request; and provided,
further, that the Guarantor 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 any
material risk of the sale, forfeiture or loss of the Property or any part
thereof not stayed during the pendency of the contest or (y) the control of such
action, suit or proceeding by the Guarantor would involve an actual or potential
conflict of interest, (B) such proceeding involves Claims not fully indemnified
by the Lessee and the Guarantor which the Guarantor 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 and the Indemnitee notifies the Guarantor that it
does not want the Guarantor to assume and control such defense. The Indemnitee
will undertake all reasonable efforts to join in the Guarantor's efforts to
sever any such action referred to in clause (B) above. The Indemnitee may
participate in a reasonable manner at its own expense (provided that in the case
of clauses (A), (B) or (C) above, the Guarantor shall pay the reasonable
expenses of such Indemnitee) and with its own counsel in any proceeding
conducted by the Guarantor in accordance with the foregoing. The Guarantor shall
not enter into any settlement or other compromise with respect to any Claim
which is entitled to be indemnified under Section 13.l or 13.2 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 Guarantor, with reasonable
promptness supply the Guarantor with such information and documents reasonably
requested by the Guarantor as are necessary or advisable for the Guarantor to
participate in and, to the extent permitted hereunder, control any action, suit
or proceeding to the extent permitted by Section 13.1 or 13.2. Unless a Lease
Event of Default 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 13.2 without the prior written
consent of the Guarantor, which consent shall not be unreasonably withheld,
unless such Indemnitee waives its right to be indemnified under Section 13.1 or
13.2 with respect to such Claim.

         Upon payment in full, or provision for payment in full reasonably
satisfactory to the Indemnitee, of any Claim by the Lessee or the Guarantor
pursuant to Section 13.1 or 13.2 to or on behalf of an Indemnitee, the
Guarantor, 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

                                       56

claims and otherwise cooperate with the Guarantor and give such further
assurances as are necessary or advisable to enable the Guarantor vigorously to
pursue such claims.

         Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.2
shall be paid to such Indemnitee promptly upon receipt of a written demand
therefor from such Indemnitee, accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the computation of the amount
so payable.

         Section 13.4 General Tax Indemnity.

                  (a) Indemnification. The Lessee and the Guarantor, jointly and
severally, shall pay and assume liability for, and do hereby agree to indemnify,
protect and defend the 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 or the Guarantor may have an indemnity obligation pursuant to this
Section 13.4, or if any Tax Indemnitee shall determine that any Imposition to
which the Lessee or the Guarantor may have an indemnity obligation pursuant to
this Section 13.4 may be payable, such Tax Indemnitee shall promptly (and in any
event, within fifteen (15) Business Days) notify the Guarantor in writing
(provided that failure to so notify the Guarantor within fifteen (15) Business
Days shall not alter such Tax Indemnitee's rights under this Section 13.4 except
to the extent such failure precludes or materially adversely affects the ability
to conduct a contest of any indemnified Taxes) and shall not take any action
with respect to such claim, proceeding or Imposition without the written consent
of the Guarantor (such consent not to be unreasonably withheld or unreasonably
delayed) for thirty (30) days after the receipt of such notice by the Guarantor;
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 thirty (30) day period, such Tax Indemnitee shall in such notice to
the Guarantor, so inform the Guarantor, and such Tax Indemnitee shall not take
any action with respect to such claim, proceeding or Imposition without the
consent of the Guarantor (such consent not to be unreasonably withheld or
unreasonably delayed) for ten (10) days after the receipt of such notice by the
Guarantor unless such Tax Indemnitee shall be required by law or regulation to
take action prior to the end of such ten (10) day period.

         The Guarantor shall be entitled for a period of thirty (30) days from
receipt of such notice from such Tax Indemnitee (or such shorter period as such
Tax Indemnitee has notified the Guarantor 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 Guarantor's expense.
If (x) such contest can be pursued in the name of the Guarantor or the Lessee
and independently from any other proceeding involving a Tax liability of such
Tax Indemnitee for which the Lessee and the Guarantor have 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 and the
Guarantor have not agreed to indemnify such Tax Indemnitee or (z) such Tax
Indemnitee so requests, then the Guarantor or such Lessee shall be permitted to
control the contest of such claim, provided that in the case of a contest
described in

                                       57

clause (y) if such Tax Indemnitee determines reasonably and in good faith that
such contest by the Guarantor or the Lessee could have a material adverse impact
on the business or operations of such Tax Indemnitee and provides a written
explanation to the Guarantor of such determination, such Tax Indemnitee may
elect to control or reassert control of the contest, and provided that the
taking control by the Guarantor or the Lessee of any contest shall not alter the
applicable Tax Indemnitee's rights to indemnification hereunder, 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 and the Guarantor
indemnify hereunder from Taxes for which the Lessee and the Guarantor are not
obligated to indemnify hereunder, so that the Guarantor can control the contest
of the former. In all other claims requested to be contested by the Guarantor,
such Tax Indemnitee shall control the contest of such claim, acting through
counsel selected by such Tax Indemnitee and reasonably acceptable to the
Guarantor. In no event shall the Guarantor be permitted to contest (or such Tax
Indemnitee be required to contest) any claim, (A) if such Tax Indemnitee
provides the Guarantor with a legal opinion of counsel reasonably acceptable to
the Guarantor 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 the
Property or any part thereof unless the Guarantor shall have posted and
maintained a bond or other security reasonably satisfactory to the relevant Tax
Indemnitee in respect to such risk, (B) if a Lease Event of Default has occurred
and is continuing unless the Guarantor shall have posted and maintained a bond
or other security reasonably satisfactory to the relevant Tax Indemnitee in
respect of the Taxes subject to such claim and any and all expenses for which
the Guarantor or the Lessee is responsible hereunder reasonably foreseeable in
connection with the contest of such claim, (C) unless the Guarantor shall have
agreed to pay and shall pay, to such Tax Indemnitee on written demand all
reasonable, documented 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 and (if
applicable) reasonable, allocable internal overhead costs determined in
accordance with normal bank operating procedures, or (D) if such contest shall
involve the payment of the Tax prior to the contest, unless the Guarantor shall
provide to such Tax Indemnitee an interest-free advance in an amount equal to
the Imposition that such Tax Indemnitee is required to pay (with no additional
net after-tax costs to such Tax Indemnitee). In addition, for contests
controlled by such Tax Indemnitee 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 any or
all such Tax Indemnitees with respect to any period for which the Guarantor or
the Lessee may be liable to pay an indemnity under this Section 13.4(b)) exceeds
(1) with respect to the Lessor, $25,000 and (2) with respect to any Tax
Indemnitee other than the Lessor, $75,000 and (B) unless, if requested by such
Tax Indemnitee, the Guarantor shall have provided to such Tax Indemnitee an
opinion of counsel selected by the Guarantor (which may be in-house counsel)
(except, in the case of income taxes indemnified hereunder, in which case such
opinion shall be an opinion of independent tax counsel selected by the Guarantor
and reasonably acceptable to such Tax Indemnitee) 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.

                                       58

         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 judgment; provided, however, that
if such Tax Indemnitee is the controlling party and the Guarantor 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 a
Lessee and the Guarantor 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 provided that any Tax
Indemnitee shall be entitled to reject any indemnity payment it would otherwise
be entitled to hereunder if such Tax Indemnitee reasonably determines that
accepting such offer would have an unindemnified impact on such Tax Indemnitee
and provided further that no Tax Indemnitee may reject any such indemnity
payment if the Guarantor agrees to pay to such Tax Indemnitee the amount of such
unindemnified impact, as reasonably determined by such Tax Indemnitee. In
addition, the controlling party shall keep the noncontrolling party reasonably
informed as to the progress of the contest, and shall provide the noncontrolling
party with a copy of (or appropriate excerpts from) any reports or claims issued
by the relevant auditing agents or taxing authority to the controlling party
thereof, in connection with such claim or the contest thereof, provided,
however, that such obligation shall not obligate any Tax Indemnitee to disclose
its tax returns or information or documentation unrelated to such claim or
contest.

         Each Tax Indemnitee shall, at the expense of the Lessee and the
Guarantor, supply the Lessee or the Guarantor with such information and
documents reasonably requested by the Lessee or the Guarantor as are necessary
or advisable for such Person to participate in any action, suit or proceeding to
the extent permitted by this Section 13.4(b); provided, however, that such Tax
Indemnitee shall not be required to provide to such Lessee or the Guarantor
copies of its tax returns or any other information, documentation, or materials
that it deems to be confidential or proprietary. Notwithstanding anything in
this Section 13.4(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 13.4 (and
with respect to which contest is required under this Section 13.4(b)) without
the prior written consent of the Guarantor, unless such Tax Indemnitee waives
its right to be indemnified under this Section 13.4 with respect to such claim.

         Notwithstanding anything contained herein to the contrary, a Tax
Indemnitee shall not be required to contest (and neither the Lessee nor the
Guarantor shall be permitted to contest in any judicial forum if such contest
could, in a Tax Indemnitee's reasonable judgment, be materially adverse to it) a
claim with respect to the imposition of any Tax if such Tax Indemnitee shall
have waived its right to indemnification under this Section 13.4 with respect to
such claim (and any claim with respect to such year or any other taxable year
the contest of which is precluded or materially adversely affected as a result
of such waiver).

                  (c) Reimbursement. If (x) a Tax Indemnitee or any Affiliate
thereof actually realizes a refund or reduction of any Taxes in respect of which
the Lessee or the Guarantor has paid an indemnity pursuant to this Section 13.4
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 was
indemnified hereunder or any payment made to or for the account of such Tax
Indemnitee by the

                                       59

Lessee or the Guarantor pursuant to this Section 13.4 or any payment made by a
Tax Indemnitee to the Lessee or the Guarantor by reason of this Section 13.4(c),
such Tax Indemnitee at any time actually realizes a reduction in any Taxes for
which neither the Lessor nor the Guarantor are required to indemnify such Tax
Indemnitee pursuant to this Section 13.4, which reduction in Taxes was not taken
into account in computing such payment by the Lessee and the Guarantor to or for
the account of such Tax Indemnitee or by such Tax Indemnitee to the Lessee and
the Guarantor, any such refund or reduction to be determined without regard to
Income Tax Savings, then such Tax Indemnitee shall promptly pay to the Guarantor
(xx) the amount of the net tax savings refund, together with the amount of any
interest received by such Tax Indemnitee on account of such refund 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 Lease Default or Lease Event of Default shall have occurred
and be continuing, but shall be paid promptly after cure of such Lease Default
or Lease Event of Default. Notwithstanding the foregoing, no Tax Indemnitee
shall be required to make any payment to the Guarantor or the Lessee pursuant to
this Section 13.4(c) to the extent such payment would exceed, in the aggregate
at any time, the amount of all prior payments made by or on behalf of the Lessee
and the Guarantor to such Tax Indemnitee and/or its Affiliates pursuant to this
Section 13.4 that gave rise to such refund or reduction in Taxes. Each Tax
Indemnitee agrees to take such actions as the Guarantor may reasonably request
(provided, in the reasonable good faith judgment of such Tax Indemnitee, such
actions would not result in an adverse effect on such Tax Indemnitee for which
such Tax Indemnitee is not entitled to indemnification from such Lessee and the
Guarantor) 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 and the Guarantor pursuant to this
Section 13.4 and to maximize the amount of any Tax savings available to the
Lessee and the Guarantor. The disallowance or reduction of any refund or other
Tax savings with respect to which a Tax Indemnitee has made a payment to the
Lessee under this Section 13.4(c) shall be treated as a Tax for which the Lessee
is obligated to indemnify such Tax Indemnitee hereunder without regard to the
exclusions set forth in the definition of "Impositions" except the exclusions
set forth in clauses (iv), (v), (vii), (ix) and (xii) of such definition.

                  (d) Payments. Any Imposition indemnifiable under this Section
13.4 shall be paid directly when due to the applicable taxing authority if
direct payment is practicable and permitted. If direct payment to the applicable
taxing authority is not permitted or is otherwise not made, any amount payable
to a Tax Indemnitee pursuant to Section 13.4 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 (2) Business Days prior to the date that the
relevant Taxes are due. Any payments made pursuant to this Section 13.4 shall be
made directly to such Tax Indemnitee entitled thereto or the Guarantor, 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 I hereto. Upon the request of any Tax Indemnitee with respect to a Tax
that the Guarantor or the Lessee is required to pay, the Guarantor or the
Lessee, as the case may be, shall furnish to such Tax Indemnitee the original or
a certified copy of a receipt for such Person's payment of such Tax or such
other evidence of payment as is reasonably acceptable to such Tax Indemnitee.

                                       60

                  (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 13.4 and of which the Guarantor or the Lessee
has knowledge, the Guarantor or the Lessee, as the case may be, shall promptly
notify such Tax Indemnitee of such requirement and, at the expense of the
Guarantor and the Lessee (i) if the Guarantor or the Lessee, as the case may be,
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 such report,
return or such 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 fifteen (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 Guarantor or the Lessee shall, upon written request of
such Tax Indemnitee, provide such Tax Indemnitee with such information as is
reasonably necessary to allow such Tax Indemnitee to file such report, return or
statement.

                  (f) Verification. At the request of the Guarantor or the
Lessee, the amount of any indemnity payment by the Lessee or the Guarantor or
any payment by a Tax Indemnitee to the Lessee or the Guarantor pursuant to this
Section 13.4 shall be verified and certified by an independent public accounting
firm mutually acceptable to the Lessee or the Guarantor and such Tax Indemnitee.
The costs of such verification shall be borne by the Lessee or the Guarantor
unless such verification shall result in an adjustment in favor of the Lessee or
the Guarantor in an amount greater than the lesser of (i) $10,000, and (ii) ten
percent (10%) 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 Guarantor
or 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 thirty (30) days of the Guarantor's or the Lessee's request
for verifications and the computations of the accounting firm shall be final,
binding and conclusive upon the Guarantor, the Lessee and such Tax Indemnitee
absent manifest error. The parties agree that the sole responsibility of the
independent public accounting firm shall be to verify the amount of a payment
pursuant to the Operative Documents and that matters of interpretation of the
Operative Documents are not within the scope of the independent accounting
firm's responsibilities.

                  (g) Tax Ownership. Each Tax Indemnitee represents and warrants
that except as actually required by law it will (i) not claim ownership of (or
any tax benefits, including depreciation, with respect to) the Property for any
income tax purposes, it being understood that the Lessee is and will remain the
owner of the Property leased under the Master Lease for such income tax purposes
and (ii) treat all Notes and all portions of the Equity Investment as
Indebtedness of the Lessee for federal income tax purposes; provided that this
sentence shall not preclude the Lessor from claiming ownership of, and any tax
benefits with respect to, the Property for periods beginning after (x) the
Property has been returned to the Lessor pursuant to the Lessee's exercise of
the Remarketing Option or (y) the Lessor has exercised remedies under

                                       61

Section 17.3 of the Master Lease and foreclosed or otherwise sold the Property
pursuant to such exercise. 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 benefits (collectively,
"Income Tax Savings") as a result of any claim for, or recharacterization
requiring such party to take, any tax benefits attributable to ownership of the
Property for income tax purposes, such Tax Indemnitee shall pay to the
Guarantor, 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 is payable as a result of such claim or
recharacterization), provided that the Guarantor and 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 Guarantor, up to the net amount
paid to the Guarantor by each Tax Indemnitee and provided further, that no Lease
Default or Lease Event of Default shall have occurred and be continuing. The
parties agree that this Section 13.4(g) is intended to require a Tax Indemnitee
to make a payment to the Guarantor if and only if such Tax Indemnitee shall have
actually received any net unanticipated Income Tax Savings with respect to the
Property that would not have been received if such Tax Indemnitee had advanced
funds to the Lessee under an arrangement properly characterized for federal
income tax purposes as a loan secured by the Property in an amount equal to such
Tax Indemnitee's portion of the Outstanding Lease Balance. Nothing in this
Section 13.4(g) shall be construed to require any Tax Indemnitee to take any
affirmative action to realize any Income Tax Savings if in its sole discretion,
exercised in good faith, such action may have a material adverse effect on such
Tax Indemnitee (including as a result of such position being or being viewed as
materially inconsistent with any other tax position claimed by such Tax
Indemnitee for the relevant period or periods).

         Section 13.5 Indemnity Payments in Addition to Master Lease
Obligations. Each of the Lessee and the Guarantor acknowledges and agrees that
the obligations of the Lessee and the Guarantor to make indemnity payments under
this Article XIII are separate from, in addition to, and do not reduce (i) the
Lessee's obligations under the Master Lease and (ii) without duplication, the
indemnities provided in Article IV hereof.

         Section 13.6 Indemnity Under Construction Agency Agreement. The Lessor
hereby acknowledges and agrees for the benefit of the other Lessor Parties that
to the extent the Lessor is indemnified by any Lessee Party pursuant to Section
8.1 of the Construction Agency Agreement, the rights and benefits of the Lessor
derived pursuant to any such indemnification shall pass through to, and be for
the benefit of, any Lessor Party otherwise entitled to such indemnification
pursuant to this Article XIII.

                                  ARTICLE XIV

                             AGENT; PLEDGED PROPERTY

         Section 14.1 Appointment and Duties of the Agent.

                  (a) The Lessor Parties (excluding the Agent) hereby designate
and appoint KeyBank to act as the Agent under the Operative Documents, and such
parties hereby authorize

                                       62

the Agent to take such actions on their behalf under the provisions of the
Operative Documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent by the terms of the Operative Documents,
together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in the Operative
Documents, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein or in the other Operative Documents, or any fiduciary
relationship with the other Lessor Parties and no implied covenants, functions
or responsibilities shall be read into the Operative Documents, or otherwise
exist against the Agent. The Agent shall not be liable for any action taken or
omitted to be taken by it hereunder or under any other Operative Document, or in
connection herewith or therewith, unless caused by its gross negligence or
willful misconduct.

                  (b) The Agent shall not exercise any rights or remedies under
any of the Operative Documents or give any consent or approve as satisfactory to
it any matters requiring such approval under any of the Operative Documents or
enter into any agreement amending, modifying, supplementing or waiving any
provision of any Operative Document unless it shall have been directed to do so
in writing by the requisite percentages required under the Operative Documents
or, in the absence of an express provision, by the Consenting Parties. The
Lessor and the Guarantor shall be entitled to assume, and rely on such
assumption, that the Agent will be in compliance with the preceding sentence at
all times during which this Participation Agreement and the other Operative
Documents are in effect.

                  (c) The Agent will prepare continuation statements for the
Financing Statements and the Precautionary Financing Statements. The costs of
such continuation statements shall be paid by the Guarantor.

                  (d) The Agent shall promptly notify the other Lessor Parties
of any communication it receives from a Lessee Party, and shall promptly provide
the other Lessor Parties with copies of any documents it receives from a Lessee
Party relating to the Overall Transactions.

         Section 14.2 Rights of the Agent.

                  (a) The Agent may execute any of its duties pursuant to the
Operative Document by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.

                  (b) Neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates shall (i) be liable for any
action lawfully taken or omitted to be taken by it under or in connection with
any Operative Document or this Participation Agreement except for its gross
negligence or willful misconduct, or (ii) be responsible in any manner to any
Transaction Party for any recitals, statements, representations or warranties
made by the Lessee or the Guarantor or any representative thereof contained in
any Operative Document or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent or in
connection with, any Operative Document or this Participation Agreement or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of the Operative Documents or this Participation Agreement or for any failure of
the Guarantor or the Lessee to

                                       63

perform their obligations thereunder. The Agent shall not be under any
obligation to any Transaction Party to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, any Operative Document or this Participation Agreement, or to inspect the
properties, books or records of the Lessee or the Guarantor.

                  (c) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent. In connection with any
request of a Transaction Party, the Agent shall be fully justified in failing or
refusing to take action under any Operative Document or this Participation
Agreement (i) if such action would, in the reasonable opinion of the Agent, be
contrary to law or the terms of this Participation Agreement or the other
Operative Documents, (ii) if such action is not specifically provided for in
such Operative Document or this Participation Agreement and it shall not have
received the consent or concurrence it deems appropriate or, (iii) if, in
connection with taking of any such action that would constitute an exercise of
remedies under such Operative Document or this Participation Agreement, it shall
not first be indemnified to its satisfaction against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. The Agent shall in all cases be fully protected in acting, or
in refraining from acting, under any Operative Document or this Participation
Agreement in accordance with any such request, and such request and any action
taken or failure to act pursuant thereto shall be binding upon the other
Transaction Parties.

                  (d) The Agent shall not be deemed to have actual,
constructive, direct or indirect knowledge or notice of the occurrence of any
Lease Event of Default unless and until it has received a written notice or a
certificate from a Transaction Party stating that a Lease Event of Default has
occurred under the Operative Documents. The Agent shall have no obligation
whatsoever either prior to or after receiving such notice or certificate to
inquire whether a Lease Event of Default has in fact occurred and shall be
entitled to rely conclusively, and shall be fully protected in so relying, on
any such notice or certificates furnished to it. No provision of this
Participation Agreement or any other Operative Document shall require the Agent
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or under any Operative Document
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it.

                  (e) To the extent that such expenses shall not be reimbursed
by the Lessee or the Guarantor where so required by the terms of the Operative
Documents, the Agent shall be entitled to reimbursement from the other Lessor
Parties (other than the Note Purchaser, the Conduit Agent and the Program
Administrator) for reasonable out-of-pocket expenses, including the reasonable
fees and expenses of its counsel (and any local counsel) and of any experts and
agents, which the Agent may reasonably incur in connection with (i) the
administration of this Participation Agreement and the other Operative
Documents, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, the Property or the Related Security, or (iii) the
exercise or enforcement (whether through negotiations, legal proceedings or
otherwise)

                                       64

of any of the rights of the Agent or the other Transaction Parties hereunder or
under the other Operative Documents.

                  (f) Notwithstanding any provision herein or in any other
Operative Document to the contrary, with the exception of Section 14.2(b), the
Agent shall not be entitled to any payment or collection from any other Lessor
Parties, but for all fees, expenses and indemnities irrevocably agrees to look
solely and exclusively to the Lessee and the Guarantor.

         Section 14.3 Lack of Reliance on the Agent. Each of the Transaction
Parties represents to the Agent that it has, independently and without reliance
upon the Agent and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into the
transactions contemplated by the Operative Documents. Each such party also
represents that it will, independently and without reliance upon the Agent, and
based on such documents and information as it shall deem appropriate at the time
continue to make its own credit decisions with respect to this Participation
Agreement or any of the other Operative Documents.

         Section 14.4 Resignation of the Agent. The Agent may resign as Agent
upon thirty (30) days' notice to the Transaction Parties, with any such
resignation to become effective only upon the appointment of a successor Agent
hereunder. If the Agent shall resign as Agent, the Note Purchaser shall appoint
a successor Agent, subject to the consent of the Guarantor if no Lease Event of
Default exists (which consent shall not be unreasonably withheld) and the
consent of the Liquidity Banks. If no successor Agent shall have been so
appointed within thirty (30) days, the resigning Agent or any Lessor Party may
petition any court of competent jurisdiction for the appointment of a new Agent.
Upon the appointment of a successor agent pursuant to this Section 14.4, such
successor agent shall succeed to the rights, powers and duties of the "Agent,"
and the term "Agent" shall mean such successor agent, and the former Agent's
rights, powers and duties as Agent shall be terminated, without any other or
further act or deed on the part of such former Agent or any other Lessor
Parties. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Participation Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent.

         Section 14.5 Successor Agent by Merger. If the Agent consolidates with,
merges or converts into, or transfers substantially all of its assets to another
corporation, the resulting, surviving or transferee corporation, without any
further action, shall be the successor Agent.

         Section 14.6 Eligibility of the Agent The Agent shall at all times have
a combined capital and surplus of at least $100,000,000 (or a combined capital
and surplus in excess of $50,000,000 and the obligations of which, whether or
not in existence or hereafter incurred, are fully and unconditionally guaranteed
by a corporation organized and doing business under the laws of the United
States, any state or territory thereof or the District of Columbia that has a
combined capital and surplus of at least $100,000,000). If such corporation
publishes reports of condition at least annually, pursuant to law or to
requirements of Federal, State, Territorial or District of Columbia supervising
or examining authority, then for the purposes of this Section 14.6, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of conditions so
published. The Agent shall not be an Affiliate of the Guarantor or the Lessee.

                                       65

         Section 14.7 Collection of Payments Notwithstanding anything in this
Participation Agreement, the Master Lease or the other Operative Documents to
the contrary, all payments under this Participation Agreement, the Master Lease
or under the other Operative Documents, including but not limited to, payments
of Basic Rent, Supplemental Rent, Purchase Option Price, Remarketing Proceeds or
Maximum Recourse Amount by the Lessee or the Guarantor under this Participation
Agreement, the Master Lease or the other Operative Documents shall be made
directly to the Agent and not the Lessor. The Agent shall immediately remit such
amounts in accordance with the terms of Article XI of this Participation
Agreement or, to the extent such funds cannot be remitted immediately, shall
deposit such funds into an Eligible Account for distribution as soon as possible
in accordance with the terms of Article XI of this Participation Agreement.
Unless specifically provided herein or in any other Operative Documents that
such payment is to be made directly to a particular Lessor Party or any other
Person, upon payment by the Lessee (or the Guarantor) to the Agent of an amount
required to be paid under the Operative Documents, the Lessee (or the Guarantor)
shall be deemed to have satisfied its obligation with respect to such payment
and neither the Lessee nor the Guarantor shall have any liability or
responsibility for the Agent's failure or delay in remitting such amount to the
Person or Persons entitled thereto.

         Section 14.8 Pledged Property

                  (a) Grant of Security Interest in Pledged Property. In
furtherance and not in limitation of any provisions of the Conveyance
Instruments, the Lessor does hereby grant, bargain, sell, convey, mortgage,
assign, transfer and warrant to the Agent under the Operative Documents for the
benefit of the Lessor Parties (other than the Lessor), as their respective
interests may appear, a continuing first security interest in and to all right,
title and interest of the Lessor not otherwise conveyed to the Agent pursuant to
the Conveyance Instruments executed by the Lessor in favor of the Agent for the
benefit of the Lessor Parties (other than the Lessor), whether now owned, or
hereafter acquired, in and to the Collateral, including, without limitation, all
right, title and interest in and to any accounts maintained from time to time by
the Agent in which the proceeds of any payments made to or for the account of
the Lessor may be deposited from time to time (such property, rights and
interests being hereinafter collectively called the "Pledged Property") to
secure the repayment of the Secured Obligations

                  (b) Duty of Care. The Agent shall exercise reasonable care in
the custody and preservation of Pledged Property in its actual possession. At
any time and from time to time, the Agent may at its option file in any
jurisdiction, at the expense of the Guarantor, one or more financing,
continuation and similar statements, and any amendments thereto, with or (to the
extent permitted by Applicable Law) without the signature of the Lessor or the
Guarantor, as the case may be, covering any or all of the Pledged Property. Each
of the Lessor and the Guarantor hereby agrees to join with the Agent at the
Agent's request in executing any such statements and amendments.

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                                   ARTICLE XV

                                  MISCELLANEOUS

         Section 15.1 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 the Property to the Lessor, the construction of the Improvements and
any disposition of any interest of the Lessor in the Property 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. The indemnities of the parties
provided for in the Operative Documents shall survive the termination of any
Operative Documents.

         Section 15.2 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 to act on its behalf in connection with this Participation Agreement or
the transactions contemplated herein, nor has it authorized any broker, finder
or financial adviser retained or employed by any other Person so to act. Any
party who is in breach of this representation shall indemnify and hold the other
parties harmless from and against any liability arising out of such breach of
this representation.

         Section 15.3 Notices. Except as otherwise provided herein, all notices,
requests, demands, consents, instructions or other communications to or upon any
Transaction Party under this Participation Agreement or the other Operative
Documents shall be in writing and faxed, mailed or delivered, if to such Person,
at its respective facsimile number or address set forth on Schedule I hereto
specified beneath the heading "Address for Notices" under the name of such
Transaction Party (or to such other facsimile number or address for any party as
indicated in any notice given by that party to the other parties). All such
notices and communications shall be effective (a) when sent by Federal Express
or other overnight service of recognized standing, on the Business Day following
the deposit with such service; (b) when mailed, first class postage prepaid and
addressed as aforesaid through the United States Postal Service, upon receipt;
(c) when delivered by hand, upon delivery; and (d) when faxed, upon confirmation
of receipt; provided, however, that any Funding Notice, Early Termination
Notice, Purchase Notice or Remarketing Notice shall not be effective until
received by the Lessor or the Agent. Each Funding Notice, Early Termination
Notice, Purchase Notice and Remarketing Notice shall be given by the Lessee to
the Agent's office located at its address referred to above during its normal
business hours; provided, however, that any such notice received by the Agent on
any Business Day after the time specified in the applicable Operative Document
for the giving of such notice (or, if no such time is specified, after 2:00
p.m.) shall be deemed received by the Agent on the next Business Day. In any
case where this Participation Agreement authorizes notices, requests, demands or
other communications by the Lessee or the Guarantor to any Lessor Party to be
made by telephone or facsimile, any Lessor Party may conclusively presume that
anyone purporting to be a person designated in any incumbency certificate or
other similar document received by such Lessor Party is such a person.

         Section 15.4 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

                                       67

original, but all such counterparts shall together constitute but one and the
same instrument. Delivery of an executed signature page hereto by facsimile or
other electronic means shall be equally effective as delivery of an original
signature page.

         Section 15.5 Amendments. Except as otherwise provided pursuant to
Section 11.1 hereof, any term, covenant, agreement or condition of this
Participation Agreement or any other Operative Document may be amended or waived
if such amendment or waiver is in writing and is signed by the Lessor, the
Lessee, the Guarantor (if the Guarantor is a party to such Operative Document)
and the Consenting Parties; provided, however that:

                  (a) any amendment, waiver or consent which (i) increases the
Aggregate Commitment Amount or the Aggregate Note Purchase Commitment, (ii)
extends the Maturity Date, (iii) reduces the amount of Basic Rent or any other
amounts to be paid by the Lessee under the Master Lease or any other Operative
Documents or any fees or other amounts payable for the account of the Lessor
Parties hereunder or thereunder, (iv) postpones any date scheduled for any
payment of Basic Rent or any other amounts or any fees or other amounts payable
for the account of the Lessor Parties hereunder or thereunder, (v) amends
Article XI or this Section 15.5, (vi) amends the definition of "Consenting
Parties", (vii) releases the Lessor's interest in any material part of the
Property, (viii) releases the Lessee from its indemnity obligations under the
Operative Documents, or (ix) releases the Guarantor from its obligations under
the Guaranty, must be in writing and signed or approved in writing by all of the
Lessor Parties;

                  (b) any amendment, waiver or consent which increases or
decreases the Commitment of any Lessor Party must be in writing and signed by
such Lessor Party;

                  (c) any amendment, waiver or consent which affects the rights
or obligations of the Agent or any Liquidity Bank must be in writing and signed
by the Agent or such Liquidity Bank, as applicable;

                  (d) any amendment, waiver or consent which affects the rights
or obligations of the Note Purchaser must be in writing and signed by the Note
Purchaser; and

                  (e) any amendment, waiver or consent which terminates this
Participation Agreement or any other Operative Document (except upon payment in
full of the Outstanding Lease Balance and all other Obligations or the effective
exercise and consummation of the Remarketing Option with respect to the Property
in accordance with Article XVIII of the Master Lease and payment in full of all
amounts due in accordance therewith), must be in writing and signed by each
Transaction Party.

         Section 15.6 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 15.7 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 Transaction Parties. Neither the Lessee nor the
Guarantor shall assign or transfer any of its rights or obligations under the
Operative Documents without the prior written consent of the Transaction
Parties. Except as provided in Section 12.1, the Lessor shall not assign or
transfer

                                       68

any of its rights or obligations under the Operative Documents without the prior
written consent of the Consenting Parties and, so long as no Lease Default or
Lease Event of Default shall have occurred and be continuing, the Guarantor
(which consent, in each case, shall not be unreasonably withheld).

         Section 15.8 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 15.9 Severability. Any provision of this Participation
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

         Section 15.10 Liability Limited. None of the Lessor Parties shall have
any obligation to any other party hereto with respect to transactions
contemplated by the Operative Documents, except those obligations of such Person
expressly set forth in the Operative Documents or except as set forth in the
instruments delivered in connection therewith, and none of the Lessor Parties
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 15.11 Further Assurances. The parties hereto shall promptly
cause to be taken, executed, acknowledged or delivered, at the sole expense of
the Lessee and the Guarantor, all such further acts, conveyances, documents and
assurances as the other parties may from time to time reasonably request in
order to carry out and preserve the security interests and liens (and the
priority thereof) intended to be created pursuant to this Participation
Agreement, the other Operative Documents, and the transactions thereunder
(including 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). The
Lessee and the Guarantor, upon the written request from any other party to this
Participation Agreement, shall take such action as may be necessary (including
any action specified in the preceding sentence), as so requested, in order to
maintain and protect all security interests provided for hereunder or under any
other Operative Document. Expenses relating to any action to be taken by the
Guarantor or the Lessee pursuant to the preceding sentence shall be the
responsibility of the Guarantor and the Lessee; provided, however, that expenses
relating to any such action with respect to any Lessor Lien shall be paid (or be
promptly reimbursed to the Guarantor or the Lessee, as applicable) by the party
requesting such action.

         Section 15.12 Submission to Jurisdiction. The Lessee and the Guarantor
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the Northern District of California for purposes of all legal
proceedings arising out of or relating to the Operative Documents or the
transactions contemplated hereby. The Lessee and the Guarantor each irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or

                                       69

hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum.

         Section 15.13 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 OPERATIVE 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 15.13
HAVE BEEN FULLY NEGOTIATED BY THE PARTIES HERETO AND SHALL BE SUBJECT TO NO
EXCEPTIONS. EACH OF THE LESSEE AND THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT
HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH
OTHER PROVISION OF EACH OTHER OPERATIVE DOCUMENT TO WHICH IT IS A PARTY) AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LESSOR PARTIES ENTERING
INTO THIS PARTICIPATION AGREEMENT AND EACH SUCH OTHER OPERATIVE DOCUMENT.

         Section 15.14 No Bankruptcy Petition Against the Note Purchaser. Each
Transaction Party hereby covenants and agrees, on behalf of itself and each of
its Affiliates, with the Note Purchaser that, prior to the date which is one
year and one day after the payment in full of all commercial paper or other
Indebtedness issued by the Note Purchaser, it will not institute against, or
join any other Person in instituting against, the Note Purchaser any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceedings under the law of the United States or any state of the
United States.

         Section 15.15 Limited Recourse to the Note Purchaser and the Lessor.

                  (a) Notwithstanding anything to the contrary contained in this
Participation Agreement or any other Operative Document, the obligations of the
Note Purchaser under this Participation Agreement and the other Operative
Documents are solely the corporate obligations of the Note Purchaser and, with
respect to claims made by any other Lessor Party, shall be payable solely to the
extent of funds or property received from the Lessee and/or the Guarantor in
accordance with this Participation Agreement and the other Operative Documents;
provided, however, that the foregoing obligations shall constitute a claim (as
defined in Section 101 of the Bankruptcy Code) upon the Note Purchaser only to
the extent of such funds or property actually received by the Note Purchaser and
not required to repay Commercial Paper. No recourse shall be had for the payment
of any amount owing hereunder or any other obligation or claim arising out of or
based upon this Participation Agreement or any other Operative Document against
any present or former stockholder, manager, member, employee or officer of the
Note Purchaser or, unless such obligation or claim arises from the gross
negligence or willful misconduct of the Note Purchaser, in such capacity or any
employee, officer or director thereof; provided, however,

                                       70

that the foregoing shall not relieve any such person or entity from any
liability they might otherwise have as a result of fraudulent actions or
omissions taken by them.

                  (b) Notwithstanding anything to the contrary contained in this
Participation Agreement or any other Operative Document, the obligations of the
Lessor under this Participation Agreement and the other Operative Documents
(including, without limitation, the Notes) are solely the corporate obligations
of the Lessor and, with respect to claims made by any other Lessor Party, shall
be payable solely to the extent of funds or property received from the Lessee
and/or the Guarantor in accordance with this Participation Agreement and the
other Operative Documents or advanced or to be advanced pursuant to the Equity
Investment; provided, however, that the foregoing obligations shall constitute a
claim (as defined in Section 101 of the Bankruptcy Code) upon the Lessor only to
the extent of such funds or property actually received by the Lessor and not
required to repay Notes. No recourse shall be had for the payment of any amount
owing hereunder or any other obligation or claim arising out of or based upon
this Participation Agreement or any other Operative Document against any present
or former stockholder, manager, member, employee or officer of the Lessor or,
unless such obligation or claim arises from the gross negligence or willful
misconduct of the Lessor, in such capacity or any employee, officer or director
thereof; provided, however, that the foregoing shall not relieve any such person
or entity from any liability they might otherwise have as a result of fraudulent
actions or omissions taken by them.

                  (c) Each Transaction Party agrees that neither the Program
Administrator nor the Conduit Agent shall have any liability hereunder as the
Program Administrator or the Conduit Agent, as the case may be, for the Note
Purchaser or otherwise following its ceasing to act as Program Administrator or
the Conduit Agent for the Note Purchaser.

         Section 15.16 Confidentiality. No Lessor Party shall disclose to any
Person any information with respect to the Guarantor or the Lessee which is
furnished pursuant to this Participation Agreement or under any other Operative
Document, except that any Lessor Party may disclose any such information (a) to
its own directors, officers, employees, auditors, counsel and other advisors and
to its Affiliates; (b) to any other Lessor Party; (c) which is otherwise
available to the public; (d) if required or appropriate in any report, statement
or testimony submitted to any Governmental Authority having or claiming to have
jurisdiction over such Lessor Party; (e) if required in response to any summons
or subpoena; (f) in connection with any litigation relating to the Operative
Documents or the transactions contemplated thereby; (g) to comply with any
Requirement of Law applicable to such Lessor Party; (h) to any assignee,
participant or any prospective assignee or participant, provided that such
Person agrees to be bound by this Section 15.16; or (i) otherwise with the prior
consent of the Guarantor or the Lessee; provided, however, that any disclosure
made in violation of this Participation Agreement shall not affect the
obligations of the Guarantor or the Lessee under this Participation Agreement
and the other Operative Documents.

         Section 15.17 Request for Extension of Expiration Date; Replacement of
Non-Consenting Liquidity Banks.

                  (a) If, eight (8) months prior to the Maturity Date, the
Maturity Date is still scheduled to occur six (6) months after the then current
Expiration Date as set forth in the

                                       71

Liquidity Agreement, the Lessee shall, not later than the date occurring seven
(7) months prior to the Maturity Date, request that the Liquidity Banks extend
the then scheduled Expiration Date to the Maturity Date. In addition, if the
Lessee has exercised the Renewal Option pursuant to Section 18.2 of the Master
Lease, the Lessee shall also request (in a manner provided in Section 18.2 of
the Master Lease) that the Liquidity Banks extend the then scheduled Expiration
Date to the new Maturity Date. (For purposes of this Section 15.17, each such
request shall constitute a "Expiration Date Extension Request".) Pursuant to
Section 3.11 of the Liquidity Agreement, each Liquidity Bank may grant or deny
its consent to such Expiration Date Extension Request in its sole discretion.
Notwithstanding the foregoing, if the Lessee has exercised the Purchase Option
and the purchase of the Property is scheduled to close on or before the
Expiration Date, the Lessee shall not be required to make an Expiration Date
Extension Request.

                  (b) If one or more Liquidity Banks denies the Lessee's
Expiration Date Extension Request, then the Lessee may give notice in writing to
such Liquidity Bank(s), the Note Purchaser, the Conduit Agent and the Agent of
its intention to replace such Liquidity Bank(s) on or prior to the then
scheduled Expiration Date with an Eligible Assignee designated in such notice.
Any replacement of a Liquidity Bank pursuant to the foregoing provisions must be
acceptable to the Note Purchaser and the Conduit Agent in their sole discretion
(including, without limitation, for rating agency concerns).

                  (c) The Note Purchaser and the Conduit Agent shall, in the
exercise of their sole discretion and within thirty (30) days of its receipt of
any such notice with respect to one or more of the Liquidity Banks, notify the
Lessee and such Liquidity Bank(s) whether the designated Eligible Assignee is
satisfactory to the Note Purchaser and the Conduit Agent; and, if either shall
fail to give such a notice, the request shall be deemed rejected.

                  (d) Upon approval of the designated Eligible Assignee as
aforesaid, the Affected Party shall assign its rights and obligations under the
Operative Documents to such Eligible Assignee on or prior to the then scheduled
Expiration Date.

                  (e) In the event the Note Purchaser and the Conduit Agent does
not approve the replacement of such Liquidity Bank(s) with the designated
Eligible Assignee, the Lessee shall have the option to (i) designate another
Eligible Assignee pursuant to Sections 4.7(a) and 4.7(b) above or (ii) if it is
unable to find another Eligible Assignee, the Lessee shall purchase Notes from
the Note Purchaser in a principal amount, which in relation to the then
outstanding principal amount of the Notes, is equal to the amount in dollars of
the Percentage provided by such Liquidity Bank(s) pursuant to the Asset Purchase
Agreement, whereupon such Liquidity Bank(s) shall cease to be parties to the
Liquidity Documentation and the Expiration Date approved by the remaining
Liquidity Banks shall become effective.

                  (f) In addition, if eight (8) months prior to the Maturity
Date, the stated maturity date of the Notes is still scheduled to occur six (6)
months prior to the Maturity Date, the Lessee on behalf of the Lessor shall, not
later than the date occurring seven (7) months prior to the Maturity Date,
request that the holder or holders of the Notes extend the then stated maturity
date of the Notes to the Maturity Date. In the event the holder or holders of
the Notes elect not to extend such stated maturity date in such holder's or
holders' sole discretion, the Lessee (without prejudice to its ability to
exercise the Remarketing Option) shall purchase the Notes from such

                                       72

holder or holders on or prior to such stated maturity date for an amount equal
to the outstanding balance of such Notes without recourse or representation or
warranties of any kind.

                  (g) As a condition precedent to any extension of the
Expiration Date or any extension of the stated maturity date of the Notes, the
Letter of Credit Issuer shall extend the expiry date of the Letter of Credit so
that it is conterminous with such new Expiration Date or new maturity date of
the Notes, as applicable.

         Section 15.18 Tax Representation; Tax Forms.

                  (a) Each Lessor Party represents that, except for any
withholding of U.S. federal income tax which results from the adoption of or a
change in applicable law, regulation or, in each case, the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) (including any statute, treaty, ruling or regulation by a governmental,
judicial or taxing authority), with respect to Indebtedness of the Lessee or any
other party to the Operative Documents for federal income tax purposes (and
assuming that the payments of (x) Basic Rent and (y) Purchase Option Price,
Outstanding Lease Balance or Maximum Recourse Amount, as the case may be, are
treated for federal income tax purposes as payments of interest and principal,
respectively), such Lessor Party is entitled to receive any payments to be made
to it by the Lessee or any other party to the Operative Documents without the
withholding of any U.S. federal income tax and will furnish to the Agent upon
the request of the Lessee such certifications, statements and other documents as
are reasonably requested by the Lessee to evidence such Lessor Party's exemption
from the withholding of any U.S. federal income tax or to enable the Lessee to
comply with any applicable laws or regulations relating thereto.

                  (b) Without limiting the effect of the foregoing Section
15.18(a), if any Lessor Party is not created or organized under the laws of the
United States or any state or political subdivision thereof, such Lessor Party
will furnish to the Agent upon the request of the Lessee, to the extent required
for U.S. federal income tax purposes, Internal Revenue Service Form W-8 BEN or
Form W-8 ECI or any subsequent versions of such forms or successors thereto as
evidence of such Lessor Party's complete exemption from the withholding of U.S.
federal income tax with respect to indebtedness of the Lessee for federal income
tax purposes. Such forms shall be delivered by such Lessor Party (i) on or
before the date such Lessor Party becomes a party to any of the Operative
Documents and promptly before the expiration, obsolescence or invalidity of any
form previously delivered by such Lessor Party and (ii) before or promptly after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Lessee pursuant to this Section 15.18, unless,
in the case of either clause (i) or (ii), as a result of the adoption of or a
change in applicable law, regulation or, in each case, the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) (including any statute, treaty, ruling or regulation by a governmental,
judicial or taxing authority), such Lessor Party is not entitled to provide such
a form. The Agent and the Lessee shall be entitled to rely on such forms in its
possession until receipt of any revised or successor form pursuant to the
preceding sentence.

                                       73

                  (c) For any period with respect to which any Lessor Party is
required under subsection (a) or (b) above to furnish the Agent with the
appropriate forms described in such subsections but has failed to do so (other
than if such failure is due to the adoption of or a change in applicable law as
described in subsection (a) or (b) above), such Lessor Party shall not be
entitled to any indemnification with respect to Impositions under Section 13.4
hereof, additional payments with respect to increased costs under Section 4.4
hereof, or additional payments with respect to Other Taxes under Section 4.6
hereof to the extent that such Impositions, increased costs or Other Taxes are
imposed as a result of such failure.

                            [Signature Page Follows]

                                       74

                  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.

                                    ELECTRONIC ARTS REDWOOD, INC.,
                                    as the Lessee

                                    By: ________________________________________
                                    Name:  Khuyen Dang
                                    Title: Chief Financial Officer

                                    ELECTRONIC ARTS REDWOOD, INC.,
                                    as the Construction Agent

                                    By: ________________________________________
                                    Name:  Khuyen Dang
                                    Title: Chief Financial Officer

                                    ELECTRONIC ARTS, INC.,
                                    as the Guarantor

                                    By: ________________________________________
                                    Name:  David L. Carbone
                                    Title: Vice President - Finance

                                       75

                                    SELCO SERVICE CORPORATION, doing
                                    business in California as Ohio SELCO Service
                                    Corporation, as the Lessor

                                    By: ________________________________________
                                    Name:  Donald Davis
                                    Title: Vice President

                                       76

                                    VICTORY RECEIVABLES CORPORATION,
                                    as the Note Purchaser

                                    By: ________________________________________
                                    Name:  Rosa Oliveri
                                    Title: Vice President

                                       77

                                    KEYBANK NATIONAL ASSOCIATION,
                                    as the Letter of Credit Issuer

                                    By: ________________________________________
                                    Name:  Mary K. Young
                                    Title: Vice President

                                       78

                                    KEYBANK NATIONAL ASSOCIATION,
                                    as the Agent

                                    By: ________________________________________
                                    Name:  Mary K. Young
                                    Title: Vice President

                                       79

                                    THE BANK OF TOKYO-MITSUBISHI, LTD.,
                                    NEW YORK BRANCH, as the Conduit Agent

                                    By: ________________________________________
                                    Name:  Aditya Reddy
                                    Title: Vice President

                                       80

                                    KEYBANK NATIONAL ASSOCIATION,
                                    as a Liquidity Bank

                                    By: ________________________________________
                                    Name:  Mary K. Young
                                    Title: Vice President

                                       81

                                    THE BANK OF NOVA SCOTIA,
                                    as a Liquidity Bank

                                    By: ________________________________________
                                    Name:  Ed Kofman
                                    Title: Director

                                       82

                                    BARCLAYS BANK PLC,
                                    as a Liquidity Bank

                                    By: ________________________________________
                                    Name:  Marlene Wechselblatt
                                    Title: Vice President

                                       83

                                    BNP PARIBAS,
                                    as a Liquidity Bank

                                    By: ________________________________________
                                        Name:
                                        Title:

                                    By: ________________________________________
                                        Name:
                                        Title:

                                       84

               
Appendix A        Definitions and Interpretation

Schedule I        Contacts, Addresses and Wire Accounts Information

Schedule II       Disclosure Schedule of the Lessee and the Guarantor

Exhibit A         Legal Description of the Land

Exhibit B-1       Form of Initial Funding Notice

Exhibit B-2       Form of Interim Construction Period Funding Notice

Exhibit B-3       Form of Final Construction Period Funding Notice

Exhibit C         Form of Master Lease

Exhibit D         Form of Construction Agency Agreement

Exhibit E         Form of Guaranty

Exhibit F         Form of Environmental Indemnity Agreement

Exhibit G         Form of Memorandum of Lease

Exhibit H         Form of Precautionary Deed of Trust

Exhibit I         Form of Deed of Trust

Exhibit J         Form of Opinion of Counsel to Lessee and Guarantor

Exhibit K         Form of Assignment of Construction Agreements

Exhibit L         Form of Certificate of Responsible Officer - Lessee

Exhibit M         Form of Certificate of Responsible Officer - Guarantor

Exhibit N         Form of Administration Agreement

Exhibit O         Form of Reimbursement Agreement



                                TABLE OF CONTENTS



                                                                                            PAGE
                                                                                         
ARTICLE I      DEFINITIONS; INTERPRETATION.................................................   2

   Section 1.1   Definitions; Interpretation...............................................   2

ARTICLE II     DOCUMENTATION DATE; FUNDING DATES...........................................   3

   Section 2.1   Documentation Date........................................................   3

   Section 2.2   Funding Dates.............................................................   3

ARTICLE III    ISSUANCE OF NOTES AND FUNDING OF THE EQUITY INVESTMENT;
               PURCHASES OF NOTES; APPLICATION OF PROCEEDS OF NOTES
               AND THE EQUITY INVESTMENT...................................................   4

  Section 3.1    Commitment of the Lessor to Issue Notes...................................   4

  Section 3.2    Commitment of the Lessor to Fund the Equity Investment....................   5

  Section 3.3    Commitment to Make Note Purchases.........................................   5

  Section 3.4    Commitment to Fund the Equity Investment..................................   5

  Section 3.5    Notice Procedures with respect to the Funding of Advances under
                 the Notes and the Equity Investment.......................................   5

  Section 3.6    Use of Proceeds of Notes and Equity Investment............................   7

  Section 3.7    Commitment of the Liquidity Banks and Letter of Credit Issuer.............   7

ARTICLE IV     CALCULATION OF BASIC RENT AND SUPPLEMENTAL RENT;
               DETERMINATION OF NOTE RATE; BREAKAGE EXPENSES, INCREASED
               COSTS, ETC.; TAXES; FEES....................................................   7

  Section 4.1    Rent......................................................................   7

  Section 4.2    Calculation of Basic Rent.................................................   8

  Section 4.3    Breakage Expenses; Yield Maintenance Premium..............................  10

  Section 4.4    Increased Costs, etc......................................................  10

  Section 4.5    Change of Circumstances...................................................  11

  Section 4.6    Taxes.....................................................................  12

  Section 4.7    Replacement of Affected Parties...........................................  13

  Section 4.8    Fees......................................................................  14

  Section 4.9    Calculation of Interest and Fees..........................................  14

ARTICLE V      CERTAIN INTENTIONS OF THE PARTIES...........................................  15

  Section 5.1    Nature of Transaction.....................................................  15

  Section 5.2    Amounts Due Under the Master Lease........................................  16

  Section 5.3    Allocation of Payment Obligations; Payment to Agent.......................  16

ARTICLE VI     CONDITIONS PRECEDENT TO FUNDING DATES.......................................  17


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                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                            PAGE
                                                                                         
  Section 6.1    Conditions Precedent to the Initial Funding Date..........................  17

  Section 6.2    Conditions Precedent to all Interim Construction Period Funding
                 Dates (Except the Final Construction Period Funding Date).................  22

  Section 6.3    Conditions Precedent to Final Construction Period Funding Date............  23

  Section 6.4    Conditions Precedent to all Base Lease Term Funding Dates.................  25

  Section 6.5    Closing...................................................................  26

ARTICLE VII    REPRESENTATIONS.............................................................  26

  Section 7.1    Representations and Warranties of the Lessee and the
                 Guarantor.................................................................  26

  Section 7.2    Representations and Warranties of the Guarantor and
                 the Lessee as of each Funding Date after the Initial
                 Funding Date..............................................................  34

  Section 7.3    Representations and Warranties of the Note Purchaser......................  34

  Section 7.4    Representations and Warranties of the Lessor..............................  35

  Section 7.5    Representations and Warranties of each Liquidity Bank
                        and the Letter of Credit Issuer....................................  37

ARTICLE VIII   COVENANTS...................................................................  38

  Section 8.1    Affirmative Covenants of Guarantor and Lessee.............................  38

  Section 8.2    Negative Covenants........................................................  43

  Section 8.3    Financial Covenants.......................................................  46

ARTICLE IX     COVENANTS OF THE LESSOR, THE NOTE PURCHASER AND THE
               LIQUIDITY BANKS.............................................................  47

  Section 9.1   General Covenants of the Lessor and the Note
                Purchaser..................................................................  47

  Section 9.2   Specific Covenants of the Lessor...........................................  48

  Section 9.3   Specific Covenant of the Note Purchaser....................................  48

  Section 9.4   Covenants of the Other Lessor Parties......................................  48

  Section 9.5   Notices Under the Note Purchase Agreement and the
                           Liquidity Documentation.........................................  49

ARTICLE X      PAYMENT OF CERTAIN EXPENSES; OPTIONAL APPRAISALS............................  49

  Section 10.1   Transaction Expenses......................................................  49

  Section 10.2   Stamp Taxes...............................................................  49

  Section 10.3   Note Purchase Agreement and Related Obligations...........................  49

  Section 10.4   Optional Appraisals.......................................................  49

ARTICLE XI     APPLICATION OF PAYMENTS.....................................................  50


                                      -ii-

                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                            PAGE
                                                                                         
  Section 11.1   Consenting Parties; Voting Rights of Lessor Parties
                 in Connection with Direction of the Agent.................................  50

  Section 11.2   Application of Payments made by the Lessee and
                 Guarantor Pursuant to the Operative Documents prior
                 to the Occurrence and Continuance of any Lease Event
                 of Default................................................................  50

  Section 11.3   Application of Funds Upon the Occurrence and
                 Continuance of any Lease Event of Default.................................  51

  Section 11.4   Casualty, Condemnation or Unwind Proceeds.................................  51

  Section 11.5   Construction of Local Laws................................................  51

ARTICLE XII    ASSIGNMENTS AND TRANSFERS BY LESSOR, LIQUIDITY BANKS AND
               NOTE PURCHASER..............................................................  52

  Section 12.1   Acknowledgment of Grant of Security Interest to the
                 Agent; Assignments........................................................  52

  Section 12.2   Assignments by Note Purchaser, etc........................................  52

  Section 12.3   Disclosure of Information.................................................  52

  Section 12.4   Limitation on Assignment..................................................  52

ARTICLE XIII   INDEMNIFICATION.............................................................  52

  Section 13.1   General Indemnification...................................................  52

  Section 13.2   Environmental Indemnity..................................................   54

  Section 13.3   Proceedings in Respect of Claims..........................................  55

  Section 13.4   General Tax Indemnity.....................................................  57

  Section 13.5   Indemnity Payments in Addition to Master Lease Obligations................  62

  Section 13.6   Indemnity Under Construction Agency Agreement.............................  62

ARTICLE XIV    AGENT; PLEDGED PROPERTY.....................................................  62

  Section 14.1   Appointment and Duties of the Agent.......................................  62

  Section 14.2   Rights of the Agent.......................................................  63

  Section 14.3   Lack of Reliance on the Agent.............................................  65

  Section 14.4   Resignation of the Agent..................................................  65

  Section 14.5   Successor Agent by Merger.................................................  65

  Section 14.6   Eligibility of the Agent..................................................  65

  Section 14.7   Collection of Payments....................................................  66

  Section 14.8   Pledged Property..........................................................  66

ARTICLE XV     MISCELLANEOUS...............................................................  67


                                      -iii-

                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                            PAGE
                                                                                         
  Section 15.1   Survival of Agreements....................................................  67

  Section 15.2   No Broker, etc............................................................  67

  Section 15.3   Notices...................................................................  67

  Section 15.4   Counterparts..............................................................  67

  Section 15.5   Amendments................................................................  68

  Section 15.6   Headings, etc.............................................................  68

  Section 15.7   Parties in Interest.......................................................  68

  Section 15.8   Governing Law.............................................................  69

  Section 15.9   Severability..............................................................  69

  Section 15.10  Liability Limited.........................................................  69

  Section 15.11  Further Assurances........................................................  69

  Section 15.12  Submission to Jurisdiction................................................  69

  Section 15.13  Waiver of Jury Trial......................................................  70

  Section 15.14  No Bankruptcy Petition Against the Note Purchaser.........................  70

  Section 15.15  Limited Recourse to the Note Purchaser and the Lessor.....................  70

  Section 15.16  Confidentiality...........................................................  71

  Section 15.17  Request for Extension of Expiration Date; Replacement
                 of Non-Consenting Liquidity Banks.........................................  71

  Section 15.18  Tax Representation; Tax Forms.............................................  73


                                      -iv-

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Contents/Authorities. Deleting this break will cause Table of Contents/
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Contents/Authorities.

                                                                      Appendix A

                                   APPENDIX A
                                       TO
                             PARTICIPATION AGREEMENT

                         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,
supplemented, restated 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, and reference in any Section or definition
contained in any Operative Document to any clause means such clause of such
Section or definition;

         (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;

         (ix)     relative to the determination of any period of time, "from"
means "from and including" and "to" means "to but excluding"; and

                                      APP-1

                                                                      Appendix A

         (x)      "now", "currently", "existing" and other words to that effect
mean the date on which each respective Operative Document has been executed by
all parties thereto.

         B. Accounting Terms and Determinations. Unless otherwise specified in
any Operative Document, all accounting terms used therein shall be interpreted,
all accounting determinations thereunder shall be made, and all financial
statements required to be delivered thereunder shall be prepared in accordance
with GAAP, applied on a basis consistent (except for changes concurred in by the
Guarantor's independent public accountants) with the most recent audited
consolidated financial statements of the Guarantor and its Subsidiaries
delivered to the Lessor.

         C. 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.

         D. 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.

         E. Defined Terms. Unless a clear contrary intention appears, terms
defined herein have the respective indicated meanings when used in each
Operative Document.

         "Acceleration Event" is defined in the Note Purchase Agreement.

         "Acceptable Condition" is defined in Section 1.1 of the Construction
Agency Agreement.

         "Accreted Amount" is defined in Section 3.1(a) of the Participation
Agreement.

         "Additional Construction Period Insurance" means the insurance Lessee
is required to maintain and/or cause to be maintained during the Construction
Period pursuant to Section 2.10 of the Construction Agency Agreement.

         "Administration Agreement" means that certain Administration Agreement,
substantially in the form of Exhibit N to the Participation Agreement, as the
same may be amended, modified and in effect from time to time.

         "Adverse Environmental Condition" means the occurrence of any Hazardous
Condition or any of the matters referred to in the definition of Environmental
Claim.

         "Agent" means Key Bank National Association, in such capacity under the
Operative Documents, and its permitted successors and assigns.

         "Affected Party" is defined in Section 4.7 of the Participation
Agreement.

         "Affiliate" means, as to any Person, any other Person that would be
considered an affiliate of such Person under Rule 144(a) of the Rules and
Regulations of the Securities and Exchange Commission, as in effect on the date
hereof, if such Person were issuing securities, by

                                      APP-2

                                                                      Appendix A

contract or otherwise. Nothing in the foregoing definition shall be interpreted
to construe that any of the Lessor Parties is an Affiliate of the Guarantor or
Lessee.

         "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 with respect to the receipt by
the recipient of such amounts, such increased payment (after such deduction) is
equal to the payment otherwise required to be made.

         "Aggregate Commitment Amount" means the sum of the Aggregate Equity
Investment Commitment and the Aggregate Note Purchase Commitment.

         "Aggregate Equity Investment Commitment" is defined in Section 3.2 of
the Participation Agreement.

         "Aggregate Note Purchase Commitment" is defined in Section 3.1 of the
Participation Agreement.

         "ALTA" means American Land Title Association.

         "ALTA Improvements Survey" is defined in Section 6.3(g) of the
Participation Agreement.

         "ALTA Land Survey" is defined in Section 6.1(o) of the Participation
Agreement.

         "Alternate Rate" means, on any day, the greater of (i) the Prime Rate
in effect on such date and (ii) the Federal Funds Rate for such day plus
one-half percent (0.50%).

         "Applicable Law" means all existing and future applicable laws, rules,
regulations (including Environmental Laws), statutes, treaties, codes,
ordinances, permits, certificates, 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, those
pertaining to the construction of Improvements or the use or occupancy of the
Property and those which in any way limit the use or enjoyment thereof), or
common law, in each case affecting the Lessee, the Guarantor or the Property,
and any restrictive covenant or deed restriction or easement of record
encumbering the Property.

         "Applicable Margin" means the spread over the one (1) month LIBOR rate
determined by reference to the Guarantor's Consolidated Debt/Tangible Net Worth
Ratio set forth in the following pricing grid:



   Total Consolidated Debt/
   ------------------------
Consolidated Tangible Net Worth      LIBOR Margin
- -------------------------------      ------------
                                  
        < than = to 0.33                 1.25%
        < than = to 0.50                 1.50%
        < than = to 0.65                 1.75%
        >           0.65                 2.00%


                                      APP-3

                                                                      Appendix A

         "Appraisal" means an appraisal of the Property acceptable in form and
substance to the Lessor Parties in their sole discretion.

         "Appraiser" means Hulberg & Associates or such other appraiser as may
be acceptable to the Transaction Parties from time to time.

         "Appurtenant Rights" means, with respect to the Land, (i) all
agreements, easements, rights of way or use, rights of ingress or egress,
privileges, appurtenances, tenements, hereditaments and other rights and
benefits, if any, at any time heretofore or hereafter granted to the Land or the
Improvements thereon, including, the use of any streets, ways, alleys, vaults or
strips of land adjoining, abutting, adjacent or contiguous to the Land and (ii)
all permits, licenses and rights, whether or not of record, appurtenant to the
Land.

         "Asset Purchase Agreement" means that certain Asset Purchase Agreement,
dated as of December 6, 2000, among the Program Administrator, the Note
Purchaser and the Liquidity Banks.

         "Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy".

         "Base Lease Term" means that portion of the Lease Term that begins
immediately after the Construction Period.

         "Base Lease Term Funding Date" has the meaning specified in Section
2.2(e) of the Participation Agreement.

         "Basic Rent" means the amount determined in accordance with Article IV
of the Participation Agreement and payable as such under the Participation
Agreement and the Master Lease.

         "Basic Rent Payment Date" means the 12th calendar day of each month,
commencing on January 12, 2001; provided, however, that if the 12th calendar day
of any month is not a Business Day, the Basic Rent Payment Date for such month
shall be the next succeeding Business Day.

         "Budget" means the project budget attached to the Construction
Contract, as approved by the Lessor Parties in their reasonable discretion.

         "Business Day" means any day on which (i) commercial banks are not
authorized or required to close in San Francisco, California or New York, New
York and (ii) if such Business Day is related to a LIBOR rate, dealings in
Dollar deposits are carried out in the London interbank market.

         "Capital Lease" means, as applied to any Person, any lease of property
by such Person as lessee which would be capitalized on a balance sheet for such
Person prepared in accordance with GAAP.

         "Capital Lease Obligations" means the capitalized amount of all
obligations under Capital Leases.

                                      APP-4

                                                                      Appendix A

         "Cash Equivalents" means:

                  (i)      Direct obligations of, or obligations the principal
         and interest on which are unconditionally guaranteed by, the United
         States or obligations of any agency of the United States to the extent
         such obligations are backed by the full faith and credit of the United
         States, in each case maturing within one year from the date of
         acquisition thereof;

                  (ii)     Certificates of deposit maturing within one year from
         the date of acquisition thereof issued by a commercial bank or trust
         company organized under the laws of the United States or a state
         thereof or that is a Lessor Party, provided that (a) such deposits are
         denominated in Dollars, (b) such bank or trust company has capital,
         surplus and undivided profits of not less than $100,000,000 and (c)
         such bank or trust company has certificates of deposit or other debt
         obligations rated at least A-1 (or its equivalent) by S&P or P-1 (or
         its equivalent) by Moody's; and

                  (iii)    Open market commercial paper maturing within 270 days
         from the date of acquisition thereof issued by a corporation organized
         under the laws of the United States or a state thereof, provided such
         commercial paper is rated at least A-1 (or its equivalent) by S&P or
         P-1 (or its equivalent) by Moody's.

         "Casualty" means any damage or destruction of all or any portion of the
Property as a result of a fire or other casualty.

         "Casualty Proceeds" means the proceeds of any awards, settlements or
payment made to the Lessor and/or the Lessee as a result of a Casualty having
occurred on the Property.

         "Certifying Party" is defined in Section 21.3 of the Master Lease.

         "Chief Financial Officer" means, with respect to any company or
organization, the chief financial officer, or, in case of his or her
unavailability, the treasurer, assistant treasurer or chief accounting officer
of such company or organization.

         "Claims" means any and all obligations, liabilities, losses, actions,
suits, judgments, penalties, fines, claims, demands, settlements, costs and
expenses (including, reasonable legal fees and expenses) of any nature
whatsoever.

         "Collateral" means the "Collateral" as defined in all of the Conveyance
Instruments and all other collateral pledged to the Agent pursuant to any other
Operative Document.

         "Commercial Paper" means commercial paper issued by the Note Purchaser
to fund its purchase of the Notes and the advances to be funded thereunder.

         "Commitment Fees" is defined in Section 4.8(b) of the Participation
Agreement.

         "Commitment Termination Event" means

                  (i)      the occurrence of any Lease Event of Default
         described in clause (g) or (h) of Section 17.1 of the Master Lease; or

                                      APP-5

                                                                      Appendix A

                  (ii)     the occurrence and continuance of any other Lease
         Event of Default and either (i) the Lessor or the Agent shall have
         commenced its exercise of remedies pursuant to Section 17.3 of the
         Master Lease or (ii) the Agent, acting at the direction of the
         Consenting Parties, shall have given notice to the Lessee that the
         Commitments have terminated; or

                  (iii)    the Agent shall have delivered a Notice of Default to
         the Lessee pursuant to the Note Purchase Agreement.

         "Commitments" means (i) the commitment of the Note Purchaser and/or the
Liquidity Banks to purchase the Notes and to fund the advances to be made
thereunder pursuant to the Note Purchase Agreement or the Liquidity
Documentation, as applicable, and (ii) the commitment of the Lessor to make the
Equity Investment.

         "Compliance Certificate" is defined in Section 8.1(d)(iv) of the
Participation Agreement.

         "Condemnation" means any condemnation, requisition, confiscation,
seizure or other taking or sale of the use, access, occupancy, easement rights
or title to the 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, the Property or alter the pedestrian or
vehicular traffic flow to the Property so as to result in change in access to
the 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.

         "Condemnation Proceeds" shall mean the proceeds received by the Lessor
relating to a condemnation (whether partial or total) of the Property.

         "Conduit Agent" means The Bank of Tokyo-Mitsubishi, Ltd., New York
Branch, and its permitted successors and assigns.

         "Consenting Parties" shall have the meaning specified in Section
11.1(b) of the Participation Agreement.

         "Consent to Assignment of Construction Contract" means that certain
Consent to Assignment of Construction Contract, substantially in the form of
Exhibit L to the Participation Agreement, as the same may be amended, modified
and in effect from time to time.

         "Consolidated EBITDAR" means, with respect to the Guarantor, the sum of
the following, which shall be calculated for any Fiscal Quarter on a rolling
four quarter basis: (i) the Guarantor's and its Subsidiaries' consolidated Net
Income before any extraordinary items and deduction of interest expenses and
income taxes, plus (ii) depreciation and amortization expenses of the Guarantor
and its Subsidiaries accruing during such period, plus (iii) the aggregate
amount of all rentals paid during such period by the Guarantor and its
Subsidiaries under any lease (other than capital leases) plus (iv) any interest
which is capitalized for purposes of the lease transactions contemplated by the
Participation Agreement.

                                      APP-6

                                                                      Appendix A

         "Consolidated Fixed Charges" means, with respect to the Guarantor, the
sum of: (i) the aggregate amount of all interest and principal payments of the
Guarantor and its Subsidiaries, plus (ii) the aggregate amount of all rental
expenses of the Guarantor and its Subsidiaries, plus (iii) any interest which is
capitalized for purposes of the lease transactions contemplated by the
Participation Agreement.

         "Consolidated Net Worth" means, with respect to the Guarantor, the
total stockholder's equity of the Guarantor and its Subsidiaries as reflected in
accordance with GAAP on its most recent consolidated balance sheet.

         "Consolidated Tangible Net Worth" means with respect to the Guarantor,
the remainder of (i) Consolidated Net Worth of the Guarantor and its
Subsidiaries minus (ii) all intangible assets of the Guarantor and its
Subsidiaries (to the extent included in calculating Consolidated Net Worth),
including, without limitation, goodwill (including any amounts, however
designated on the balance sheet, representing the cost of acquisition of
businesses and investments in excess of underlying tangible assets), trademarks,
trademark rights, trade name rights, copyrights, patents, patent rights,
licenses, unamortized debt discount, marketing expenses, organizational
expenses, non-compete agreements and deferred research and development.

         "Construction Agency Agreement" means that certain Construction Agency
Agreement, substantially in the form of Exhibit D to the Participation
Agreement, dated as of the Initial Funding Date, between the Lessor and the
Lessee, as the same may be amended, modified and in effect from time to time.

         "Construction Agency Agreement Event of Default" is defined in Section
6.1 of the Construction Agency Agreement.

         "Construction Agent" means Electronic Arts Redwood, Inc. in its
capacity as such under the Construction Agency Agreement.

         "Construction Contract" means that certain Agreement Between Electronic
Arts Redwood, Inc., as Construction Agent and Webcor Builders, dated as of
December 5, 2000.

         "Construction Period" means the period commencing as of the Initial
Funding Date and ending on the earlier to occur of (x) the Outside Completion
Date and (y) the date on which Substantial Completion is deemed to have occurred
pursuant to the Construction Agency Agreement.

         "Contingent Obligation" means, as applied to the Guarantor or any
Subsidiary, any direct or indirect liability, contingent or otherwise, of the
Guarantor with respect to any Indebtedness of another Person which is not the
Guarantor or a Subsidiary of the Guarantor (the "primary obligor"), if the
purpose or intent thereof by the Guarantor is to provide assurance to the
obligee of such Indebtedness of the primary obligor that such Indebtedness will
be paid or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such Indebtedness will be protected (in whole or in
part) against loss in respect thereof. Contingent Obligations include, without
limitation, (i) the direct or indirect guarantee, endorsement (other than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by the Guarantor of the
Indebtedness of the primary obligor, and

                                      APP-7

                                                                      Appendix A

(ii) any liability of the Guarantor for the Indebtedness of the primary obligor
through any agreement (contingent or otherwise) (a) to purchase, repurchase or
otherwise acquire such Indebtedness or any security therefor, or to provide
funds for the payment or discharge of such Indebtedness (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), (b) to
maintain the solvency or any balance sheet item, level of income or financial
condition of the primary obligor, or (c) to make take-or-pay or similar
payments, if required regardless of nonperformance by any other party or parties
to an agreement, if in the case of any agreement described under subclause (a),
(b) or (c) of this sentence, the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the Indebtedness so guaranteed or otherwise
supported.

         "Contractor" means Webcor Builders.

         "Conveyance Instrument" means any deed, assignment of lease, mortgage,
deed of trust, memorandum of lease, memorandum of mortgage, UCC-1 Financing
Statement, any assignment of any of the foregoing, or any other similar
instrument purporting to create or evidence a Lien against, or convey or
otherwise transfer any interest in, the Property to any Person.

         "CP Rate" means, with respect to the Note Purchaser, the all-in-cost of
funding its acquisition of the Notes and the funding of the advances thereunder
to the extent such funding is being provided by the Note Purchaser's issuance of
Commercial Paper (including discount, dealer commissions and such other amounts
as the Conduit Agent determines to be appropriate). The determination of the
Note Purchaser's CP Rate, as well as the determination of which maturities of
Commercial Paper to issue, will be made by the Conduit Agent, whose
determination shall be binding for all purposes absent manifest error; provided,
however, that the Conduit Agent shall consult with the Lessee concerning
Commercial Paper maturities. Accrued discount on the Commercial Paper maturing
between Basic Rent Payment Dates will be capitalized.

         "Deed" means a grant deed with respect to the Property, in conformity
with Applicable Law and appropriate for recording with the applicable
Governmental Authorities, conveying fee simple title to the Property to the
Lessor.

         "Deed of Trust" means that certain Deed of Trust, Assignment of Leases
and Rents, Security Agreement, Financing Statement and Fixture Filing,
substantially in the form of Exhibit J to the Participation Agreement, as the
same may be amended, modified and in effect from time to time.

         "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.

         "Early Termination Date" is defined in Section 16.2 of the Master
Lease.

         "Early Termination Notice" is defined in Section 16.1 of the Master
Lease.

                                      APP-8

                                                                      Appendix A

         "Eligible Account" means (i) any account maintained with a federal or
state chartered depository institution or trust company whose (x) commercial
paper, short-term debt obligations or other short-term deposits are rated at
least A-1 or P-1 by a Rating Agency if the deposits in such account are to be
held in such account for thirty (30) days or less or (y) long-term unsecured
debt obligations are rated at least AA- or A1 by each Rating Agency if the
deposits in such account are to be held in such account for more than thirty
(30) days; or (ii) a segregated trust account maintained with the trust
department of a federal or state chartered depository institution or trust
company acting in its fiduciary capacity which institution or trust company is
subject to regulations regarding fiduciary funds on deposit substantially
similar to 12 C.F.R. Section 9.10; or (iii) an account otherwise acceptable to
each Rating Agency, as confirmed in writing that such account would not, in and
of itself, result in a downgrade, qualification or withdrawal of the then
current ratings assigned to any of the Notes.

         "Eligible Assignee" means, with respect to the replacement of a
Liquidity Bank as set forth in the Participation Agreement, the commercial
financial institution proposed by the Lessee in the Replacement Notice to
replace such Liquidity Bank, which financial institution shall meet the
qualifications to become an assignee of such Liquidity Bank under the applicable
Liquidity Documentation and shall be acceptable to the Note Purchaser in its
sole discretion.

         "Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by the Guarantor
or any ERISA Affiliate, other than a Multiemployer Plan.

         "End of Term Report" is defined in Section 13.2 of the Participation
Agreement.

         "Environmental Audit" or "Environmental Report" means a written report
from an environmental consultant selected by the Lessee and approved by the
Lessor Parties, documenting that such environmental consultant has performed a
review of the environmental condition of and compliance of the Property and that
such review contains, at a minimum, site assessment information that generally
meets or exceeds applicable industry standards and practices and the most
current ASTM Standard Practice for Environmental Site Assessments: Phase One
Environmental Site Assessment.

         "Environmental Claim" means any legal obligation or notice of
violation, claim, action, proceeding, demand, abatement, lien or other order or
direction (conditional or otherwise) by any Governmental Authority or any Person
relating to personal injury (including sickness, disease or death), tangible or
intangible property damage, damage to the environment, nuisance, pollution,
contamination or other adverse effects on the environment, or for fines,
penalties or restrictions, resulting from or based upon (i) the existence
(whether currently known or unknown), or the continuation of the existence, of a
Release (including sudden or non-sudden, accidental or nonaccidental Releases)
of, or exposure to, any Hazardous Substance, odor or audible noise or other
release or emission in, into or onto the environment (including the air, ground,
water or any surface) at, in, by, from, or related to (a) the Property or (b)
the transportation, storage, treatment or disposal of materials in connection
with the operation of the Property, or (ii) the violation, or alleged violation,
of any Environmental Laws or Permits of, or from, any Governmental Authority
relating to environmental matters connected with the Property.

                                      APP-9

                                                                      Appendix A

         "Environmental Indemnity Agreement" means that certain Environmental
Indemnity Agreement, substantially in the form of Exhibit F to the Participation
Agreement, as the same may be amended, modified and in effect from time to time.

         "Environmental Law" means all present and future Applicable Laws
relating to the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, the
Hazardous Material Transportation Act, as amended, the Resource Conservation and
Recovery Act, as amended, the Federal Clean Water Act, as amended, the Federal
Clean Air Act as amended, the Toxic Substances Control Act as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended and the
Occupational Safety and Health Act, as amended, and any other federal, state or
local statutes, present or future, relating to health, safety, or the
environment, including, without limitation, transfer of ownership notification
statutes and the regulations promulgated pursuant thereto.

         "Equity Investment" means the equity investment to be made by the
Lessor pursuant to Article III of the Participation Agreement.

         "ERISA" means the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time, and any
regulations promulgated thereunder.

         "ERISA Affiliate" means any Person which is treated as a single
employer, trade or business (whether or not incorporated) with the Guarantor
under Section 414 of the Revenue Code.

         "ERISA Reportable Event" means a reportable event with respect to a
Guaranteed Pension Plan within the meaning of Section 4043 of ERISA and the
regulations promulgated thereunder as to which the requirement of notice has
not been waived.

         "ESOP" means any employee stock ownership plan of the Guarantor
currently in existence or hereafter adopted by the Guarantor.

         "Event of Loss" means, with respect to the Property, any of the
following events: (i) any Casualty that renders the Property unsuitable for
continued use as property of its type immediately prior to such Casualty, (ii)
any Casualty that is so substantial in nature that restoration of the Property
to substantially its condition as existed immediately prior to such Casualty
would be impracticable or impossible, (iii) any Casualty which results in an
insurance settlement with respect to the Property on the basis of a total loss
of the Improvements; (iv) any Condemnation that involves the taking of the
applicable Lessor's entire title to the Property, (v) any Condemnation that is
such that restoration of the Property to substantially its condition as existed
immediately prior to such Condemnation would be impracticable or impossible, or
(vi) any Condemnation whereby the use or occupancy of the Property by the Lessee
thereof shall have been prohibited, directly or indirectly, for a period equal
to the lesser of (vii) ninety (90) consecutive days and (y) the remaining Lease
Term.

         "Excess Remarketing Proceeds" is defined in Section 18.3(n) of the
Master Lease.

                                     APP-10

                                                                      Appendix A

         "Excess Sales Proceeds" means the excess, if any, of (x) the aggregate
of all proceeds received by the Lessor under the Master Lease in connection with
the sale of the Property pursuant to the Lessor's or the Agent's exercise of
remedies under Section 17.3 of the Master Lease or the Lessee's exercise of the
Remarketing Option pursuant to the Master Lease over (y) the sum of the
Outstanding Lease Balance plus all unpaid Basic Rent and Supplemental Rent
thereunder.

         "Excess Unwind Proceeds" is defined in Section 17.8(c)(9) of the Master
Lease.

         "Existing Land Owner" means Flatirons Funding, Limited Partnership, a
Delaware limited partnership.

         "Expiration Date" is defined in Section 1.1 of the Liquidity Agreement.

         "Expiration Date Extension Request" is defined in Section 15.17 of the
Participation Agreement.

         "Fair Market Value" means, with respect to the 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 the Property. The Fair Market Value
shall be determined based on the assumption that (x) the Property is in the
condition and state of repair required under Section 9.2 of the Master Lease and
(y) 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, the rate per annum set forth
in the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Board (including any such
successor publication, "H.15 (519)") for such day opposite the caption "Federal
Funds (Effective)". If on any relevant day, such rate is not yet published in
H.15 (519), the rate for such day shall be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor publication, the
"Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds
Effective Rate". If on any relevant day, such rate is not yet published in
either H.15 (519) or the Composite 3:30 p.m. Quotations, the rate for such day
shall be the arithmetic means, as determined by Agent, of the rates quoted to
the Agent for such day by three (3) Federal funds brokers of recognized standing
selected by the Agent.

         "Federal Reserve Board" has the meaning specified in Section 7.1(e) of
the Participation Agreement.

         "Final Completion" is defined in Section 1.1 of the Construction Agency
Agreement.

         "Final Construction Period Funding Date" is defined in Section 2.2 of
the Participation Agreement.

         "Financing Statements" means UCC Financing Statements appropriately
completed and executed for filing in each applicable jurisdiction in order to
protect the interests of each of the

                                     APP-11

                                                                      Appendix A

Lessor Parties under the Operative Documents to the extent the Master Lease, the
Memorandum of Lease, the Deed of Trust, Precautionary Deed of Trust and any
other Conveyance Instruments constitute security agreements.

         "Fiscal Quarter" means any fiscal quarter of the Guarantor ending on
March 31, June 30, September 30 or December 31. Subsequent changes of the fiscal
quarter of the Guarantor shall not change the term "Fiscal Quarter" as used
herein, unless the Consenting Parties shall consent in writing to such a change.

         "Fiscal Year" means the fiscal year of the Guarantor ending on December
31. Subsequent changes of the fiscal year of the Guarantor shall not change the
term "Fiscal Year" as used herein, unless the Consenting Parties shall consent
in writing to such a change.

         "Flatirons Lease" means that certain "synthetic lease" transaction
evidenced by that certain Amended and Restated Agreement for Lease, dated as of
March 7, 1997, by and between the Existing Land Owner and the Lessee, together
with all documents, instruments and agreements related thereto, as amended,
restated or modified and in effect from time to time.

         "Funding Date" is defined in Section 2.2 of the Participation Agreement
and shall include the Initial Funding Date, each Interim Funding Date, the Final
Construction Period Funding Date and each Base Lease Term Funding Date.

         "Funding Notice" is a written notice, substantially in the form of
Exhibit B-1 (with respect to the Initial Funding Date), Exhibit B-2 (with
respect to an Interim Construction Period Funding Date) or Exhibit B-3 (with
respect to the Final Construction Period Funding Date) to the Participation
Agreement to be delivered by the Lessee prior the relevant Funding Date pursuant
to Section 3.5 and Article VI of the Participation Agreement.

         "GAAP" means, subject to the immediately succeeding sentence, (i) when
used in the Operative Documents with respect to the books, records and financial
statements of the Lessee or the Guarantor, whether directly or indirectly
through reference to a capitalized term used therein, (A) principles that are
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board of the United States and its predecessors, in effect
for the relevant fiscal year, and (B) to the extent consistent with such
principles, the accounting practice of the Guarantor reflected in its financial
statements for the relevant fiscal year, and (ii) when used in general, other
than as provided above, means principles that are (A) consistent with the
principles promulgated or adopted by the Financial Accounting Standards Board
and its predecessors, as in effect from time to time, and (B) consistently
applied with past financial statements of the Person adopting the same
principles. In each case provided in the preceding sentence with respect to any
financial statements, a certified public accountant would be in a position to
deliver an unqualified opinion (other than a qualification regarding changes in
generally accepted accounting principles) that "generally accepted accounting
principles" have been properly applied to such financial statements.

         "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,

                                     APP-12

                                                                      Appendix A

any Governmental Authority, or required by any Applicable Law, including all
required environmental and operating permits and licenses, for the full use,
occupancy, zoning and operation of the 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 18.3(k) of the
Master Lease.

         "Guaranteed Pension Plan" means any employee pension benefit plan
within the meaning of Section (3)(2) of ERISA (other than a Multiemployer Plan)
which the Guarantor, any of its Subsidiaries or any ERISA Affiliate maintains,
contributes to or has an obligation to contribute to on behalf of participants
and which is guaranteed on termination in full or in part by the PBGC pursuant
to Title IV of ERISA.

         "Guarantor" means Electronic Arts, Inc., a Delaware corporation, in
such capacity under the Operative Documents, together with its permitted
successors and assigns.

         "Guaranty" means that certain Guaranty, substantially in the form of
Exhibit E to the Participation Agreement, as the same may be amended, modified
and in effect from time to time.

         "Hazardous Activity" means any activity, process, procedure or
undertaking that directly or indirectly (i) produces, generates or creates any
Hazardous Substance; (ii) causes or results in (or threatens to cause or result
in) the Release of any Hazardous Substance 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 Substance; or (iv) would be regulated under any
Environmental Law.

         "Hazardous Condition" means any condition at the Property that violates
or threatens to violate, that results in or threatens noncompliance with, or
that creates liability under, any Environmental Law.

         "Hazardous Substance" means any of the following: (i) any petroleum or
petroleum product (or additives thereto, such as, but not limited to, MTBE),
explosives, radioactive materials, asbestos, ureaformaldehyde, polychlorinated
biphenyls, lead and radon gas; (ii) any substance, material, product,
derivative, compound or mixture, mineral, chemical, waste, gas, medical waste,
or pollutant, in each case whether naturally occurring, man-made or the
by-product of any process, that is toxic or hazardous to the environment or
human health or safety, or which is now or hereafter defined or regulated as
such under any regulation under any Environmental Law; or (iii) any substance,
material, product, derivative, compound or mixture, mineral, chemical, waste,
gas, medical waste or pollutant that would support the assertion of any claim
under any Environmental Law, whether or not defined as hazardous as such under
any Environmental Law.

         "Impositions" means any and all liabilities, losses, expenses and costs
of any kind whatsoever for Taxes (including, (i) real and personal property
taxes, including personal property taxes on any portion of the Property that is
classified by Governmental Authorities as personal

                                     APP-13

                                                                      Appendix A

property; (ii) sales taxes, use taxes and other similar taxes (including rent
taxes and intangibles taxes); (iii) any excise taxes; (iv) conveyance taxes,
intangible taxes, stamp taxes and documentary recording taxes and fees; (v)
taxes that are or are in the nature of franchise, income, value added, gross
receipts, privilege and doing business taxes, license and registration fees; and
(vi) assessments on the 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.

         Notwithstanding anything in the first paragraph of this definition
(except as provided in the final paragraph of this definition) the term
"Impositions" shall not mean or include:

                           (i)      Taxes that are based upon or measured by or
         with respect to the gross or net income, receipts, profits, gains,
         capital or net worth (including, any minimum or alternative minimum
         Taxes, income or capital gains Taxes, excess profits Taxes, items of
         Tax preference, or capital stock, franchise, business privilege or
         doing business Taxes), or accumulated earnings Taxes or personal
         holding company Taxes, including Taxes collected by withholding, if
         and to the extent that such Taxes collected by withholding are not
         attributable to a change in Applicable Law after the effective date
         hereof (but Taxes described in this clause (i) shall not include Taxes
         that are, or are in the nature of, sales, use, rental, transfer or
         property Taxes), in each case imposed by any Governmental Authority in
         the jurisdiction of incorporation of such Tax Indemnitee, or the
         jurisdiction in which such Tax Indemnitee either maintains its
         applicable lending office or is otherwise subject to tax other than as
         a result of transactions contemplated by the Operative Documents, and
         any interest, additions to tax, penalties or other charges in respect
         of such Taxes and impositions; 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 with respect to the Property to the
         extent, but only to the extent, such Tax or imposition is attributable
         to any act, event or omission that occurs after, or is attributable to
         a period beginning after, the return of the Property to the Lessor in
         accordance with the terms of the Master Lease, provided, that there
         shall not be excluded from the definition of the term "Impositions"
         any Taxes or impositions to the extent such Taxes or impositions are
         attributable to events or circumstances occurring after the occurrence
         and during the continuance of a Lease Event of Default;

                          (iii)    any Tax for so long as, but only for so long
         as, it is being contested in accordance with the provisions of Section
         13.4 of the Participation Agreement provided that the foregoing shall
         not limit any obligation under such Section to advance to the relevant
         Tax Indemnitee amounts with respect to Taxes that are being contested
         in accordance with such Section or any expenses reasonably incurred by
         such Tax Indemnitee in connection with such contest;

                          (iv)     any interest, additions to tax or penalties
         imposed as a result of a breach by the Tax Indemnitee of its
         obligations under the Operative Documents or as a result of the 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

                                     APP-14

                                                                      Appendix A

         interest, additions to tax or penalties arise as a result of a position
         taken (or requested to be taken) by the Guarantor or the Lessee in a
         contest controlled by the Guarantor or the Lessee under Section 13.4 of
         the Participation Agreement or (y) if such failure is attributable to a
         failure by the Guarantor or the Lessee; provided that, the treatment by
         a Governmental Authority of the arrangement created by the Operative
         Documents as other than a loan secured by the Property shall not cause
         any return or other document to be considered not having been filed as
         prescribed by applicable law.

                          (v)      any Taxes imposed with respect to any
         voluntary (or, with respect to the Lessor, involuntary) transfer,
         sale, financing or other voluntary (or, with respect to the Lessor,
         involuntary) disposition by the Tax Indemnitee of any interest in the
         Property or any part thereof, or any interest therein or any interest
         or obligation under the Operative Documents (other than any transfer
         in connection with (1) the exercise by the Lessee of its Purchase
         Option or Remarketing Option under the Master Lease or any termination
         option or other purchase of the Property by the Lessee, (2) the
         occurrence of a Lease Event of Default, (3) a Casualty or Condemnation
         affecting the Property, or (4) any sublease, modification or addition
         to the Property by the Lessee);

                          (vi)     other than with respect to the Agent and any
         Liquidity Bank or the Note Purchaser, or, in each case, each of their
         Affiliates and their respective successors and assigns, Taxes imposed
         on or with respect to, based on, or measured by any fees received by
         any Tax Indemnitee;

                          (vii)    Taxes resulting from, or that would not have
         been imposed but for, the gross negligence or willful misconduct of
         such Tax Indemnitee or Affiliate thereof,

                          (viii)   Taxes resulting from, or that 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
         or Guarantor's breach of any of its representations, warranties or
         covenants set forth in the Operative Documents);

                          (ix)     Taxes arising out of or resulting from the
         Tax Indemnitee's failure to comply with the provisions of Section 13.4
         of the Participation Agreement, which failure precludes or materially
         adversely affects the ability to conduct a contest pursuant to Section
         13.4 of the Participation Agreement (unless such failure is caused by
         the Lessee's or Guarantor's breach of any of its obligations under
         such Section);

                          (x)      Taxes that would have been imposed in the
         absence of the transactions contemplated by the Operative Documents,
         and Taxes arising out of, or imposed as a result of, activities of a
         Tax Indemnitee or Affiliate thereof unrelated to the transactions
         contemplated by the Operative Documents;

                          (xi)     Taxes Imposed on a Tax Indemnitee arising
         out of or resulting from, or that would not have been imposed but for
         the existence of, any Lessor Lien attributable to such Tax Indemnitee;

                                     APP-15

                                                                      Appendix A

                          (xii)    any Tax imposed against or payable by the
         Tax Indemnitee that is a direct or indirect successor, transferee, or
         assignee of an original Tax Indemnitee to the extent that, based on
         the Applicable Law in effect on the date of transfer or assignment,
         the amount of such Tax exceeds the amount of such Tax that would have
         been imposed against or payable by (or, if less, that would have been
         subject to indemnification under Section 13.3 of the Participation
         Agreement) such original Tax Indemnitee; provided, however, that this
         exclusion shall not apply if such direct or indirect successor,
         transferee or assignee acquired its interest as a result of a transfer
         while a Lease Event of Default shall have occurred and is continuing;

                          (xiii)   Taxes that would not have been imposed but
         for an amendment, supplement, modification, consent or waiver to any
         Operative Document (i) not initiated, requested or consented to by the
         Lessee and (ii) initiated, requested or consented to by the Tax
         Indemnitee unless such amendment, supplement, modification, consent or
         waiver (A) arises from, or in connection with the occurrence of, a
         Lease 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;

                          (xiv)    Taxes in the nature of intangibles, stamp,
         documentary or similar Taxes, other than stamp, transfer and other
         similar taxes, fees and excises, including interest and penalties,
         which are arising out of or payable in connection with the
         transactions contemplated by the Participation Agreement or the other
         Operative Documents;

                          (xv)     any Tax imposed under Section 4975 of the
         Revenue Code or Section 406 of ERISA other than, and subject to the
         accuracy of the representations set forth in Section 7.3(a) of the
         Participation Agreement, a Tax or imposition resulting from the
         transactions contemplated by the Master Lease or by any other
         Operative Document, in respect of the application of Section 406(a) of
         ERISA and any prohibited transaction described in Section
         4975(c)(1)(A)-(D) of the Revenue Code; and

                          (xvi)    any Tax, assessment or other governmental
         charge that would not have been imposed but for the failure of a
         Lessor Party, upon reasonable request, to comply with any
         certification, information, documentation or other reporting
         requirement with which such Lessor Party is eligible to comply and
         compliance with which such Lessor Party has determined is not adverse
         to it in any material respect.

         Notwithstanding the foregoing, the exclusions from the definition of
Impositions set forth above shall not apply (but the exclusions set forth in
clauses (iii), (iv), (vii), (viii), (x) and (xv) shall apply) to (i) any
aggregate 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
would not have occurred if on the Funding Date the Tax Indemnitee had advanced
funds to the Lessee under an arrangement properly characterized for federal
income tax purposes as a loan secured by the Property acquired on such Funding
Date in an amount equal to the Outstanding Lease Balance funded on such Funding
Date, with interest for such loans equal to the Basic Rent payable on each Basic
Rent Payment Date and a principal balance at the maturity of such loans in an
amount equal to the Outstanding Lease Balance of the Master Lease outstanding at
the end

                                     APP-16

                                                                      Appendix A

of the Lease Term or (ii) any aggregate net increase in Taxes attributable to
the treatment of all or a portion of the arrangement created by the Operative
Documents as a separate taxable entity (or otherwise not as a non-taxable
entity) for tax purposes.

         "Improvements" means all buildings, structures, and other improvements
to be constructed on, at or under the Land in accordance with the Plans.

         "Improvements Construction Costs" is defined in Section 1.1 of the
Construction Agency Agreement.

         "Imputed Return" means the cost to the Lessor Parties of maintaining
their unrecovered investment after the Lease Termination Date or the expected
return to such persons, determined as (i) the average daily Outstanding Lease
Balance after the Lease Termination Date multiplied by (ii) the number of days
from and excluding the Lease Termination Date to and including the date of the
sale of the Property multiplied by (iii) the rate equal to applicable interest
rate, with respect to each of the Note Purchaser multiplied by (iv) 1/365.

         "Income Tax Savings" is defined in Section 13.4(g) of the Participation
Agreement.

         "Indebtedness" means, without duplication, (i) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services, and including, without limitation, the face amount available to be
drawn under all letters of credit, reimbursement and similar obligations with
respect to surety bonds, letters of credit and banks' acceptances, whether or
not matured, and letters of credit and other credit facilities which secure or
finance such purchase price obligations under "synthetic" leases, (ii) all
obligations evidenced by notes, bonds, debentures or similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (iv)
all Capital Lease Obligations, (v) all Contingent Obligations, (vi) all
Indebtedness referred to in clause (i), (ii), (iii), (iv) or (v) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including, without limitation, accounts and contracts rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness, and (vi) the amount at which any redeemable preferred
stock of such Person is required to be redeemed; provided that Indebtedness
shall not include current accounts payable arising in the ordinary course of
business.

         "Indemnitees" means, collectively, the Lessor Parties and the Program
Administrator, together with their respective Affiliates, successors, assigns,
directors, shareholders, partners, members (and direct and indirect owners of
its members), officers, managers, employees and agents.

         "Initial Appraisal" means that the Appraisal delivered to the Lessor
Parties prior to the initial Funding pursuant to Section 6.1(g) of the
Participation Agreement.

         "Initial Funding Date" has the meaning specified in Section 2.2 of the
Participation Agreement.

                                     APP-17

                                                                      Appendix A

         "Insurance Requirements" means all terms and conditions of any
insurance policy required by the Construction Agency Agreement and the Master
Lease to be maintained by the Lessee thereunder.

         "Interest Amount" is defined in Section 4.2(a) of to the Participation
Agreement.

         "Interim Construction Period Funding Date" has the meaning specified in
Section 2.2(c) of the Participation Agreement.

         "Investments" means (i) any loan or advance of funds by any Person to
any other Person (other than advances to employees of such Person for moving and
travel expenses, drawing accounts and similar expenditures in the ordinary
course of business); (ii) any purchase or other acquisition of any Stock or
Indebtedness of any other Person; and (iii) any capital contribution by such
Person to or any other investment by such Person in any other Person (including
any Contingent Obligation of such Person and any indebtedness of such Person of
the type described in clause (v) of the definition of "Indebtedness" on behalf
of any other Person); provided, however, that Investments shall not include (A)
accounts receivable or other indebtedness owed by customers of such Person which
are current assets and arose from sales of inventory in the ordinary course of
such Person's business or (B) prepaid expenses of such Person incurred and
prepaid in the ordinary course of business.

         "Issuance Fee" is defined in Section 4.8(c) of the Participation
Agreement.

         "KeyBank" means KeyBank National Association.

         "Land" means that certain tract of land (including Appurtenant Rights
attached thereto) described in Exhibit A to the Participation Agreement.

         "Land Acquisition Costs" is defined in Section 1.1 of the Construction
Agency Agreement.

         "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" is defined in Section 17.1 of the Master
Lease.

         "Lease Term" is defined in Section 2.3 of the Master Lease.

         "Lease Termination Date" means the Maturity Date; provided, that if the
Master Lease is earlier terminated, the "Lease Termination Date" shall be such
earlier date.

         "Lessee" means Electronic Arts Redwood, Inc., a Delaware corporation,
in such capacity under the Operative Documents, together with its permitted
successors and assigns.

         "Lessee Parties" means collectively (i) the Lessee, (ii) the
Construction Agent, (iii) the Guarantor, (iv) any third party for which any
Person identified in clauses (i), (ii) and (iii) above has control or
supervisory authority or delegated responsibility by contract or otherwise and
(v) their respective employees, officers and agents.

                                     APP-18

                                                                      Appendix A

         "Lessor" means SELCO Service Corporation, an Ohio corporation doing
business in California as Ohio SELCO Service Corporation, in such capacity under
the Operative Documents, together with its permitted successors and assigns.

         "Lessor Lien" means any Lien on or against the Property, lease or
sublease or disposition of title, easement, covenant, restriction or other
matter affecting title to the Property arising as a result of (i) any claim
against the Lessor not resulting from the transactions contemplated by the
Operative Documents, (ii) any act or omission of the Lessor which is not
required or expressly permitted by the Operative Documents, requested by the
Lessee or is in violation of any of the terms of the Operative Documents, (iii)
any claim against the Lessor with respect to Taxes or Transaction Expenses
against which neither the Guarantor nor the Lessee is required to indemnify the
Lessor pursuant to the Participation Agreement or the other Operative Documents
or (iv) any claim against the Lessor arising out of any transfer by the Lessor
of all or any portion of its interest in the Property or the Operative Documents
other than the transfer of title to or possession of the Property by the Lessor
pursuant to and in accordance with the Operative Documents.

         "Lessor Parties" means collectively, the Transaction Parties, except
for the Lessee Parties.

         "Letter of Credit" means that certain irrevocable standby letter of
credit issued by the Letter of Credit Issuer for the benefit of the Agent on
behalf of the Liquidity Banks, substantially in the form attached to the form of
Reimbursement Agreement, which shall (i) expire on or after the stated maturity
date of the Notes; (ii) be in a face amount equal to or greater than the Maximum
Lessor Risk Payment less the Aggregate Equity Investment Commitment; and (iii)
only be drawn upon if a Letter of Credit Event has occurred.

         "Letter of Credit Event" means an event whereby (i) no Lease Default or
Lease Event of Default shall have occurred an be continuing, (ii) the Lessee
shall have exercised the Remarketing Option, and (iii) the Property has been
sold and the Gross Remarketing Proceeds from such sale are less than the Maximum
Lessor Risk Payment.

         "Letter of Credit Issuer" means KeyBank, in such capacity under the
Operative Documents, together with its permitted successors and assigns.

         "LIBOR" means, with respect to a Rent Period, the rate for deposits in
Dollars for a period comparable to such Rent Period appearing on the Telerate
Page 3750 (or any successor publication) as of 11:00 A.M. (London time) two (2)
Business Days preceding the applicable Basic Rent Payment Date; provided,
however, that if such rate is not reasonably available, then "LIBOR" shall mean
the arithmetic means of the rates, expressed in decimal, quoted to the Agent at
such time on such day by two or more major banks in the London interbank market
selected in good faith by the Agent as a rate per annum for such deposit, for
such period commencing on such first day and in such amount that the Agent
reasonably determines is representative for a single transaction on such market
on such day, is offered.

         "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest or preference, priority or

                                     APP-19

                                                                      Appendix A

other security agreement or preferential arrangement of any kind or nature
whatsoever, including, any conditional sale or other title retention agreement,
the interest of a lessor under a Capital Lease Obligation, any financing lease
having substantially the same economic effect as any of the foregoing and the
filing of any financing statement naming the owner of the asset to which such
Lien relates as debtor.

         "Liquidity Agreement" means the Liquidity Agreement, dated as of
December 6, 2000, among the Note Purchaser, Bankers Trust Company, The Bank of
Tokyo-Mitsubishi, Ltd. and the Banks (as defined therein), as the same may be
amended, modified and in effect from time to time.

         "Liquidity Banks" is defined in the introductory paragraph of the
Participation Agreement.

         "Liquidity Documentation" means (a) as of the Documentation Date, the
Asset Purchase Agreement and the Liquidity Agreement and (b) thereafter, shall
include any other contract, instrument or documentation pursuant to which one or
more Liquidity Banks agree, from time to time, to provide liquidity, credit,
asset purchase and/or cash collateral support to the Note Purchaser's Commercial
Paper notes issued to fund its acquisition of the Notes and the funds advanced
thereunder.

         "Loans" is defined in Section 1.1 of the Liquidity Agreement.

         "Marketing Period" means the period commencing on (but excluding) the
date that the Lessee delivers a Remarketing Notice pursuant to Section 18.3(a)
of the Master Lease and ending on (and including) the Lease Termination Date
with respect to the Master Lease.

         "Master Lease" means that certain Master Lease and Deed of Trust,
substantially in the form of Exhibit C to the Participation Agreement, as the
same may be amended, modified and in effect from time to time.

         "Material Adverse Effect" means (a) a material adverse effect on the
Property, including any Lessor Party's security interest, Liens or other rights
in the Property and the Collateral or the perfection or priority of such
security interests, Liens or rights; or (b) a change in the condition (financial
or otherwise) or business of the Guarantor which could reasonably be expected to
cause the Guarantor's Consolidated Tangible Net Worth to be reduced by 50% or
more from that reflected in the Guarantor's most recent audited financial
statements delivered to the Agent on behalf of the Lessor Parties pursuant to
Section 8.1(d) of the Participation Agreement, other than any such reduction
caused by a change in GAAP, and excluding any write-off of intangibles assets
provided that it can be reasonably expected that the impairment which relates to
the write-off of such intangible assets will be mitigated within two years.

         "Material Adverse Environmental Condition" shall mean an Adverse
Environmental Condition with respect to which the Remediation Costs will exceed
five percent (5%) of the Property Cost.

                                     APP-20

                                                                      Appendix A

         "Material Subsidiary" means (a) the Lessee and (b) at any time during
any Fiscal Year of the Guarantor, any Subsidiary of the Guarantor whose assets
equal or exceed ten percent (10%) of the total consolidated assets of the
Guarantor at such time.

         "Maturity Date" means June 6, 2006; provided, that if the Lease
Termination Date is extended pursuant to Section 18.2 of the Master Lease, the
"Maturity Date" shall be such later date.

         "Maximum Lessor Risk Payment" means $11,206,037.11 which constitutes
8.62% of the Aggregate Commitment Amount.

         "Maximum Recourse Amount" means $118,793,962.89 which constitutes
91.38% of the Aggregate Commitment Amount.

         "Maximum Unwind Amount" means, at any particular date, an amount equal
to (i) 100% of the Property Cost at such date for the acquisition of the Land
and related expenses, plus (ii) 89.9% of the Property Cost at date for the
construction of the Improvements and related expenses, capitalized in accordance
with GAAP, minus (iii) the accreted value of cash payments made by the Lessee
during the Construction Period.

         "Memorandum of Lease" means that certain Memorandum of Lease,
substantially in the form of Exhibit G to the Participation Agreement, as the
same may be amended, modified and in effect from time to time.

         "Modifications" is defined in Section 10.2(a) of the Master Lease.

         "Moody's" means Moody's Investors Service, Inc. or any successor agency
thereto.

         "Multi-Employer Plan" means any multi-employer plan within the meaning
of Section 3(37) of ERISA maintained or contributed to by the Guarantor or any
ERISA Affiliate.

         "Net Income (Loss)" means, in respect of any fiscal period, the net
income (or net loss, as the case may be) of the Guarantor and its Subsidiaries
for such period, after deduction of all expenses, taxes and other proper charges
determined on a consolidated basis in accordance with GAAP, after eliminating
therefrom all extraordinary nonrecurring items of income.

         "Note Purchase Agreement" means the Note Purchase Agreement, dated as
of December 6, 2000, among the Lessor, the Lessee, the Guarantor and the Note
Purchaser, as the same may be amended, modified and in effect from time to time.

         "Note Purchaser" means Victory Receivables Corporation, a Delaware
corporation, in such capacity under the Operative Documents, together with its
permitted successors and assigns.

         "Notes" means the notes to be issued by Lessor pursuant to the Note
Purchase Agreement and Section 3.1 of the Participation Agreement.

         "Notice of Default" is defined in the Note Purchase Agreement.

                                     APP-21

                                                                      Appendix A

         "Obligations" means all obligations (monetary or otherwise, whether
absolute or contingent, matured or unmatured, direct or indirect, choate or
inchoate, sole, joint, several or joint and several, due or to become due,
heretofore or hereafter contracted or acquired) of the Lessee arising under or
in connection with the Operative Documents including (i) all obligations for
Basic Rent, Outstanding Lease Balance, Maximum Recourse Amount and Purchase
Option Price, whether incurred on the Documentation Date or thereafter, (ii) all
obligations for Supplemental Rent and all other obligations and liabilities of
the Lessee, whether incurred on the Documentation Date or thereafter, whether
for fees, costs, indemnification or otherwise, arising under any Operative
Document, (iii) all out-of-pocket costs and expenses, including reasonable
attorneys' fees and legal expenses, incurred by any Lessor Party to the extent
set forth in the Operative Documents in connection with such indebtedness,
obligations and liabilities, including, without limitation, all Transaction
Expenses, and (iv) following the occurrence and during the continuance of a
Lease Event of Default, all advances made by any Lessor Party for the
maintenance, protection, preservation or enforcement of, or realization upon,
the collateral in which any Lessor Party, or all of them, have been granted a
security interest pursuant to an Operative Document (or any portion thereof)
including advances for storage, transportation charges, taxes, insurance,
repairs and the like.

         "Operative Documents" means the following:

                  (i)      the Participation Agreement;
                  (ii)     the Master Lease;
                  (iii)    the Guaranty;
                  (iv)     the Memorandum of Lease;
                  (v)      the Precautionary Deed of Trust;
                  (vi)     the Deed of Trust;
                  (vii)    the Deed;
                  (vii)    each Financing Statement;
                  (ix)     each Precautionary Financing Statement;
                  (x)      each Conveyance Instrument;
                  (xi)     each document or instrument constituting part of the
                           Liquidity Documentation;
                  (xii)    the Note Purchase Agreement;
                  (xiii)   the Environmental Indemnity Agreement;
                  (xiv)    the Construction Agency Agreement;
                  (xv)     the Administration Agreement;
                  (xvi)    the Proposal (but only as it relates to the payment
         of the Structuring Fee and the Upfront Fee payable to KeyBank);
                  (xvii)   the Notes;
                  (xviii)  the Reimbursement Agreement;
                  (xix)    the Letter of Credit; and
                  (xx)     any other document that the Lessee, the Lessor and
         the Note Purchaser agree in writing to designate as an "Operative
         Document".

         "Other Taxes" is defined in Section 4.6 of the Participation Agreement.

                                     APP-22

                                                                      Appendix A

         "Outside Completion Date" means the date which is no later than
eighteen (18) months after the Initial Funding Date.

         "Outstanding Lease Balance" means, as of any date of determination, (i)
the aggregate outstanding principal amount of the Notes plus the aggregate
amount of made but unredeemed Equity Investment.

         "Overall Transaction" means all the transactions and activities
referred to in or contemplated by the Operative Documents.

         "Overdue Rate" is defined in the Note Purchase Agreement and the
respective Notes.

         "Participation Agreement" means the Participation Agreement, dated as
of December 6, 2000, by and among the Lessee, the Guarantor, the Lessor, the
Note Purchaser, the Conduit Agent, the Liquidity Banks, the Letter of Credit
Issuer and the Agent, as the same may be amended, modified and in effect from
time to time.

         "PBGC" means the Pension Benefit Guaranty Corporation created by
Section 4002 of ERISA and any successor entity or entities having similar
responsibilities.

         "Percentage" is defined in Section 1(a) of the Asset Purchase
Agreement.

         "Percentage Interest" is defined in the fifth introductory paragraph of
the Asset Purchase Agreement.

         "Permit" means any permit, approval, consent, authorization, license,
variance or permission required from a Governmental Authority under an
applicable Requirement of Law.

         "Permitted Businesses" means businesses substantially the same as the
primary businesses conducted by the Guarantor and its Subsidiaries as of the
date hereof.

         "Permitted Exceptions" means (i) Liens of the types described in
clauses (i), (ii), (iii), (v), (vii), (viii) and (ix) of the definition of
Permitted Liens and (ii) Liens described on the title insurance policy delivered
pursuant to Section 6.1(p) of the Participation Agreement that have been
consented to by the Lessor Parties in their reasonable discretion.

         "Permitted Liens" means any of the following:

         (i)      the respective rights and interests of the parties under the
Operative Documents as provided in the Operative Documents (including, any Lien
created pursuant to or contemplated by the terms of the Operative Documents);

         (ii)     Liens for Taxes that either are not yet delinquent or are
being contested in accordance with the provisions of Section 13.4(b) of the
Participation Agreement;

         (iii)    the rights of any sublessee under a sublease permitted by the
terms of the Master Lease;

                                     APP-23

                                                                      Appendix A

         (iv)     Liens arising by operation of law, materialmen's, mechanics',
workers', repairmen's, employees', carriers', warehousemen's and other like
Liens relating to the construction of the Improvements or in connection with any
Modifications or arising in the ordinary course of business for amounts that are
not more than sixty (60) days past due or are being diligently contested in good
faith by appropriate proceedings, so long as such proceedings satisfy the
conditions for contest proceedings 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 title insurance reasonably satisfactory to the Lessor and the other Lessor
Parties has been provided or other security arrangements reasonably satisfactory
to the Lessor and the Note Purchaser 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 adequate reserves have been provided as required by
GAAP or other appropriate provisions have been made, so long as such Liens are
subordinate to the Liens of the Deed of Trust and 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)    zoning restrictions, easements, rights of way and other
encumbrances on title to real property permitted pursuant to Section 11.2 of the
Master Lease;

         (viii)   Lessor Liens;

         (ix)     Liens created by the Lessee with the consent of the Agent on
behalf of the Lessor and the Note Purchaser, or otherwise permitted in the
Operative Documents;

         (x)      Liens described on the title insurance policy delivered with
respect to the Property pursuant to Section 6.1(p) of the Participation
Agreement that have been consented to by the Lessor Parties in their reasonable
discretion.

         (xi)     Liens securing the Lessee's obligations under the Flatirons
Lease; and

         (xii)    Other Liens on the property of Guarantor and its Subsidiaries
securing Indebtedness otherwise permitted pursuant to Section 8.2(a) of the
Participation Agreement;

provided, however, that, with respect to the Property, the foregoing shall not
be construed to permit any Lien, except for Permitted Exceptions, on the
Property or any component thereof.

         "Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including, any
instrumentality, division, agency, body or department thereof).

         "Plans" is defined in Section 1.1 of the Construction Agency Agreement.

                                     APP-24

                                                                      Appendix A

         "Pledged Property" is defined in Section 14.8(a) of the Participation
Agreement.

         "Precautionary Deed of Trust" means that certain Precautionary Deed of
Trust, Assignment of Leases and Rents, Security Agreement, Financing Statement
and Fixture Filing, substantially in the form of Exhibit H to the Participation
Agreement, as the same may be amended, modified and in effect from time to time.

         "Precautionary Financing Statements" means UCC financing statements
appropriately completed and executed for filing in each applicable jurisdiction
naming the Lessor as the secured party and the Lessee as the debtor in order to
protect the interests of each of the Lessor Parties under the Operative
Documents to the extent that Article XV of the Master Lease constitutes a
security agreement.

         "Prepayment" has the meaning specified in Section 4.2(e) of the
Participation Agreement.

         "Prepayment Account" has the meaning specified in Section 4.2(e) of the
Participation Agreement.

         "Prime Rate" means the per annum rate publicly announced by KeyBank
from time to time at its office in Cleveland, Ohio. The Prime Rate is determined
by KeyBank from time to time as a means of pricing credit extensions to some
customers and is neither directly tied to any external rate of interest or index
nor necessarily the lowest rate of interest charged by KeyBank at any given time
for any particular class of customers or credit extensions. Any change in the
Prime Rate resulting from a change in the Prime Rate shall become effective on
the Business Day on which each change in the Prime Rate occurs.

         "Program Administrator" means, collectively, Banker's Trust Company,
and each of its agents, subagents and successors and assigns.

         "Property" means the property subject from time to time to the Master
Lease, and includes the interest in the Land held by the Lessor with respect to
such property and all buildings, structures, fixtures and other improvements of
every kind existing at any time and from time to time on or under the Land
(including the Improvements), together with any and all appurtenances to such
buildings, structures or improvements, including sidewalks, utility pipes,
conduits and lines, parking areas and roadways located on or under the Land, and
including all Modifications and other additions to or changes in the
Improvements at any time, and the equipment, parts and supplies related to the
Property (as described on the Memorandum of Lease, Precautionary Deed of Trust
or Deed of Trust, as the case may be).

         "Proposal" means that certain proposal dated as of September 21, 2000,
from the Structuring Agent to the Guarantor outlining the terms and conditions
of the Overall Transaction.

         "Purchase Notice" means a 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 Purchase Option pursuant to such Section,
which notice shall identify the proposed date of such purchase.

                                     APP-25

                                                                      Appendix A

         "Purchase Option" is defined in Section 18.1 of the Master Lease.

         "Purchase Option Price" is defined in Section 18.1 of the Master Lease.

         "Purchase Termination Date" is defined in the Note Purchase Agreement.

         "Rating Agencies" means S&P and Moody's.

         "Redwood Shores Documents" means, collectively, The Shores Business
Center Declaration of Covenants, Conditions, Restrictions & Charges for
Commercial Development by Redwood Shores, Inc., a California corporation dated
January 8, 1981 and recorded on February 6, 1981 as Instrument No. 12350-AS;
Development Agreement between City of Redwood City and Redwood Shores, Inc., a
California corporation dated June 16, 1982 and recorded on July 8, 1982 as
Instrument No. 82057195; Median Landscaping Agreement by and between City of
Redwood City, Redwood Shores, Inc., a California corporation and Shores Business
Center Association, a California corporation dated August 23, 1982 and recorded
on September 20, 1982 as Instrument No. 82080558; Covenants Agreement by and
between Redwood Shores Properties, a California joint venture partnership and
Flatirons Funding, Limited Partnership, a Delaware limited partnership dated
February 14, 1995 and recorded on February 15, 1995 as Instrument No. 95015506;
License and Improvement Agreement Containing Terms Covenants and Conditions
between Flatirons Funding, Limited Partnership, a Delaware limited partnership
and Redwood Shores, Inc., a California corporation dated February 14, 1995 and
recorded on February 15, 1995 as Instrument No. 95015507; Memorandum of Option
Agreement between Redwood Shores Properties, a California joint venture general
partnership and Flatirons Funding, Limited Partnership, a Delaware limited
partnership dated February 14, 1995 and recorded on February 15, 1995 as
Instrument No. 95015508; Development Agreement between Flatirons Funding,
Limited Partnership, a Delaware limited partnership and The City of Redwood City
dated November 7, 1996 and recorded on November 8, 1996 as Instrument No.
96138988; Restrictive Covenant Agreement between Shores Business Center
Association, a California non-profit mutual benefit corporation and Flatirons
Funding, Limited Partnership, a Delaware limited partnership dated March 27,
1997 and recorded on March 27, 1997 as Instrument No. 97034609; Covenants,
Condition and Restrictions for Electronic Arts Business Park by Flatirons
Funding, Limited Partnership, a Delaware limited partnership dated September 3,
1998 and recorded on September 18, 1998; Assumption and Covenants Agreement by
and between Flatirons Funding, Limited Partnership and SELCO Service Corporation
dated December 6, 2000; Assignment of Sewage Treatment Capacity by and between
Flatirons Funding, Limited Partnership and SELCO Service Corporation, an Ohio
corporation dated December 6, 2000; Assignment and Assumption of Development
Agreement and Permits by and between Flatirons Funding, Limited Partnership and
SELCO Service Corporation, an Ohio corporation dated December 6, 2000; and the
Grant Deed by Flatirons Funding, Limited Partnership, a Delaware limited
partnership dated December 6, 2000, as such documents may be amended, modified
and in effect from time to time.

         "Reimbursement Agreement" means that certain Reimbursement Agreement
for Irrevocable Standby Letter of Credit, substantially in the form of Exhibit O
to the Participation Agreement, to be entered into between the Lessor and the
Letter of Credit Issuer, as the same may be amended, modified and in effect from
time to time.

                                     APP-26

                                                                      Appendix A

         "Related Security" means all collateral rights granted to the Note
Purchaser to secure repayment of the Notes.

         "Release" means, the presence (whether currently known or unknown) of
Hazardous Substances or any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment or into or out of any property, including the
movement of Hazardous Substances through or in the air, soil, surface water,
ground water or property and/or the threat thereof.

         "Remarketing Notice" is defined in Section 18.3(a) of the Master Lease.

         "Remarketing Option" is defined in Section 18.3 of the Master Lease.

         "Remedial Action" means all actions, including corrective actions,
equipment upgrades or relocation, or building demolition, repair or
reconstruction necessary or appropriate to (i) investigate, clean up, remove,
treat or in any other way address any Hazardous Substances or other substance in
the indoor or outdoor environment, (ii) prevent the Release or threat of Release
or minimize the further Release of any Hazardous Substances or other substance
so it does not migrate or endanger or threaten to endanger public health or
welfare or the indoor or outdoor environment, or (iii) perform pre-remedial
studies and investigations, remedial designs and actions and post-remedial
monitoring and care including, without limitation, any such actions performed
pursuant to any voluntary cleanup program or similar program administered by any
Governmental Authority for the purposes of addressing any Hazardous Conditions.

         "Remediation Costs" means all costs and expenses associated with
Remedial Action.

         "Renewal Notice" is defined in Section 18.2(b) of the Master Lease.

         "Renewal Option" is defined in Section 18.2(a) of the Master Lease.

         "Renewal Period" is defined in Section 18.2(a) of the Master Lease.

         "Rent" means, collectively, the Basic Rent and the Supplemental Rent,
in each case payable under the Master Lease.

         "Rent Period" means, initially, the period commencing on the Initial
Funding Date and ending as of (but excluding) the first Basic Rent Payment Date,
and thereafter, the period beginning on each Basic Rent Payment Date and ending
as of (but excluding) the following Basic Rent Payment Date.

         "Replacement Notice" is defined in Section 4.7 of the Participation
Agreement.

         "Requesting Party" is defined in Section 21.3 of the Master Lease.

         "Required Builder's Risk Insurance" means the builder's risk policy
coverage to be provided by the Contractor pursuant to the Construction Contract,
as approved by the Agent in its reasonable discretion.

                                     APP-27

                                                                      Appendix A

         "Required Modification" is defined in Section 10.2(a)(i) of the Master
Lease.

         "Requirement of Law" means, as to any Person, the Organic Documents or
other organizational or governing documents of such Person, and all federal,
state and local laws, rules, regulations, orders, decrees or other
determinations of an arbitrator, court or other Governmental Authority
including, all disclosure requirements of ERISA and the requirements of
Environmental Laws, 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, with respect to any Person, any of the
executive officers of such Person.

         "Responsible Officer's Certificate" means a certificate to be delivered
by a Responsible Officer pursuant to the Participation Agreement.

         "Return Conditions" is defined in Section 18.3 of the Master Lease.

         "Revenue Code" means the Internal Revenue Code of 1986, as the same may
be amended from time to time, and any successor statute or statutes, and any
regulations promulgated thereunder.

         "S&P" means Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies Inc., or any successor agency thereto.

         "Secured Obligations" means all amounts due and payable from time to
time pursuant to the Notes.

         "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.

         "Security Deposit" is defined in Section 3.4 of the Master Lease.

         "Shortfall Amount" with respect to the Master Lease as of the Lease
Termination Date, the amount of the Outstanding Lease Balance remaining after
the completion of a sale (if any) of the Property subject thereto pursuant to
Article XVIII of the Master Lease and the payment by the Lessee of the Maximum
Recourse Amount under Section 18.3(k) of the Master Lease.

         "Solvent" shall mean, with respect to any Person on any date, that on
such date (i) the fair value of the property of such Person is greater than the
fair value of the liabilities (including, without limitation, contingent
liabilities) of such Person, (ii) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (iii) such Person 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 (iv) 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 an unreasonably small capital.

                                     APP-28

                                                                      Appendix A

         "Stock" means all shares, options, interests, participations or other
equivalents (regardless of how designated) of or in a corporation or equivalent
entity (including, a partnership, business trust or limited liability company),
whether voting or nonvoting, and including, without limitation, common stock,
preferred stock, beneficial interests in trusts, securities convertible into or
exchangeable for stock, or warrants or options for any of the foregoing.

         "Structuring Agent" means Key Global Finance, together with its
permitted successors and assigns.

         "Structuring Fee" is defined in Section 4.8(d) of the Participation
Agreement.

         "Subsidiary" means, with respect to any Person, any corporation,
partnership or other business entity (including business trusts) of which an
aggregate of more than 50% of the outstanding Stock, having ordinary voting
power to elect or appoint a majority of the members of the board of directors,
trustees or members of a similar governing body of such corporation, partnership
or other entity (irrespective of whether, at the time, Stock of any other class
or classes of such corporation, partnership or other entity shall have or might
have voting power by reason of the happening of any contingency), is, or of
which an aggregate of more than 50% of the interests in which are, at the time,
directly or indirectly, owned by such Person and/or one or more Subsidiaries of
such Person.

         "Substantial Completion" is defined in Section 1.1 of the Construction
Agency Agreement.

         "Subtenant" means any sublessee of the Property, or any part thereof,
under a sublease described in Article VI of the Master Lease.

         "Supplemental Rent" means the amount determined in accordance with
Article III of the Master Lease and payable as such under the Participation
Agreement and the Master Lease.

         "Support Amount" has the meaning specified in Section 4.2(c) of the
Participation Agreement.

         "Tax Indemnitees" means, collectively, the Lessor Parties, in each
case, each of their officers, employees, directors, agents and Affiliates and
respective successors and assigns.

         "Taxes" is defined in Section 4.6 of the Participation Agreement.

         "Title Company" means First American Title Insurance Company.

         "Total Consolidated Capital" means, with respect to Guarantor and its
Subsidiaries, the sum of (i) Consolidated Net Worth plus (ii) Total Consolidated
Debt.

         "Total Consolidated Debt" means, with respect to Guarantor, all of
Guarantor's and its Subsidiaries' (i) borrowed funds, (ii) conditional sale
agreements, (iii) synthetic leases and other off-balance sheet financing, (iv)
bonds, debentures, notes or similar instruments, (v) capital lease obligations,
(vi) outstanding letters of credit, (vii) indebtedness or guarantees of the
indebtedness

                                     APP-29

                                                                      Appendix A

of others, (viii) acceptance facilities and (ix) any other obligations in which
interest charges are customarily paid by Guarantor and its Subsidiaries.

         "Transaction Expenses" means all costs and expenses incurred in
connection with the preparation, execution and delivery of the Operative
Documents and the transactions contemplated by the Operative Documents
including:

                           (i)      the reasonable fees, out-of-pocket expenses
         and disbursements of counsel for each of the Lessor Parties 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;

                          (ii)     the reasonable fees, out-of-pocket expenses
         and disbursements of counsel for each of the Lessor Parties in
         connection with (1) any amendment, supplement, waiver or consent with
         respect to any Operative Documents, (2) any enforcement of any rights
         or remedies against the Guarantor or the Lessee in respect of the
         Operative Documents and (3) the purchase of the Property by the Lessee
         or any other Person pursuant to Articles XVI, XVII, XVIII or XIX of
         the Master Lease;

                          (iii)    the reasonable fees, out-of-pocket expenses
         and disbursements of counsel for each of the Lessor Parties in
         connection with (1) the transactions contemplated to occur on the
         Funding Dates, (2) any amendment, supplement, waiver or consent with
         respect to any Operative Documents, (3) any enforcement of any rights
         or remedies against the Guarantor or the Lessee in respect of the
         Operative Documents and (4) any purchase of the Property by the Lessee
         or any other Person pursuant to Articles XVI, XVII, XVIII or XIX of
         the Master Lease;

                          (iv)     any and all Taxes and fees incurred in
         recording, registering or filing any Operative Document, any other
         transaction document, any deed, assignment of ground lease,
         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;

                          (v)      all title fees, premiums, escrow costs and
         other expenses relating to title insurance and the closings
         contemplated by the Operative Documents;

                          (vi)     all fees, expenses and disbursements of each
         local counsel retained in connection with the transactions
         contemplated by the Operative Documents;

                          (vii)    all costs and expenses relating to surveys
         and Environmental Audits for the Property;

                          (viii)   fees and other expenses relating to
         Appraisals; and

                          (ix)     all incentive fees, purchase prices or other
         costs paid by the Lessor in connection with the transactions
         contemplated by the Operative Documents.

                                     APP-30

                                                                      Appendix A

         "Transaction Parties" means, collectively, the parties to the
Participation Agreement.

         "UCC Financing Statements" shall mean Form UCC-1, each in the form
required in each jurisdiction in which such UCC Financing Statements are
required to be filed.

         "Unmatured Acceleration Event" is defined in the Note Purchase
Agreement.

         "Uniform Commercial Code" or "UCC" means the Uniform Commercial Code as
in effect in any applicable jurisdiction.

         "United States" means the United States of America.

         "Unwind Event" is defined in Section 6.3 of the Construction Agency
Agreement.

         "Unwind Marketing Period" is defined in Section 17.8(c)(2) of the
Master Lease

         "Unwind Option" is defined in Section 17.8(a) of the Master Lease.

         "Unwind Proceeds" is defined in Section 17.8(c)(9) of the Master Lease.

         "Upfront Fees" is defined in Section 4.8(a) of the Participation
Agreement.

         "Yield Amount" is defined in Section 4.2(b) of the Participation
Agreement.

                                     APP-31

EX-3.05

                                                                    EXHIBIT 3.05


                           AMENDED AND RESTATED BYLAWS

                                       OF

                              ELECTRONIC ARTS INC.

                            ( A DELAWARE CORPORATION)


                                     BYLAWS
                                       OF
                              ELECTRONIC ARTS INC.

                            (a Delaware Corporation)

                                TABLE OF CONTENTS



                                                                                                                     PAGE
                                                                                                                     ----
                                                                                                                  
Article I -  STOCKHOLDERS..............................................................................................1

           Section 1.1:  Annual Meetings...............................................................................1

           Section 1.2:  Special Meetings .............................................................................1

           Section 1.3:  Notice of Meetings............................................................................1

           Section 1.4:  Adjournments .................................................................................1

           Section 1.5   Quorum........................................................................................1

           Section 1.6:  Organization..................................................................................2

           Section 1.7:  Voting; Proxies...............................................................................2

           Section 1.8:  Fixing Date for Termination of Stockholders of Record.........................................2

           Section 1.9:  List of Stockholders Entitled to Vote.........................................................3

           Section 1.10: Action by Written Consent of Stockholders.....................................................3

           Section 1.11: Inspectors of Elections.......................................................................4

Article II - BOARD OF DIRECTORS........................................................................................4

           Section 2.1:  Number; Qualifications........................................................................4

           Section 2.2:  Election; Resignation; Removal; Vacancies.....................................................4

           Section 2.3:  Regular Meetings..............................................................................4

           Section 2.4:  Special Meetings..............................................................................4

           Section 2.5:  Telephonic Meetings Permitted.................................................................5

           Section 2.6:  Quorum; Vote Required for Action..............................................................5

           Section 2.7:  Organization..................................................................................5

           Section 2.8:  Written Action By Directors...................................................................5

           Section 2.9:  Powers........................................................................................5




                            TABLE OF CONTENTS (CONT.)



                                                                                                                     PAGE
                                                                                                                     ----
                                                                                                                  
           Section 2.10: Compensation of Directors.....................................................................5

Article III - COMMITTEES...............................................................................................5

           Section 3.1:  Committees....................................................................................5

           Section 3.2:  Committee Rules...............................................................................6

Article IV - OFFICERS..................................................................................................6

           Section 4.1:  Generally.....................................................................................6

           Section 4.2:  Chairman of the Board.........................................................................6

           Section 4.3:  President.....................................................................................6

           Section 4.4:  Vice President................................................................................6

           Section 4.5:  Chief Financial Officer.......................................................................6

           Section 4.6:  Treasurer.....................................................................................6

           Section 4.7:  Secretary.....................................................................................6

           Section 4.8:  Delegation of Authority.......................................................................7

           Section 4.9:  Removal.......................................................................................7

Article V - STOCK......................................................................................................7

           Section 5.1:  Certificates..................................................................................7

           Section 5.2:  Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificate.................... 7

           Section 5.3:  Other regulations.............................................................................7

Article VI - INDEMNIFICATION...........................................................................................7

           Section 6.1:  Indemnification of Officers and Directors.....................................................7

           Section 6.2:  Advance of Expenses...........................................................................8

           Section 6.3:  Non-Exclusively of Rights.....................................................................8

           Section 6.4:  Indemnification Contracts.....................................................................8

           Section 6.5:  Effect of Amendment...........................................................................8




                            TABLE OF CONTENTS (CONT.)



                                                                                                                     PAGE
                                                                                                                     ----
                                                                                                                  
Article VII - NOTICES..................................................................................................8

           Section 7.1:  Notice........................................................................................8

           Section 7.2:  Waiver of Notice..............................................................................8

Article VIII - INTERESTED DIRECTORS....................................................................................9

           Section 8.1:  Interested Directors..........................................................................9

Article IX - MISCELLANEOUS.............................................................................................9

           Section 9.1:  Fiscal Year...................................................................................9

           Section 9.2:  Seal..........................................................................................9

           Section 9.3:  Form of Records...............................................................................9

           Section 9.4:  Reliance Upon Books and Records...............................................................9

           Section 9.5:  Certificate of Incorporation Governs..........................................................9

           Section 9.6:  Severability..................................................................................9

Article X - AMENDMENT.................................................................................................10

           Section 10.1: Amendments...................................................................................10




                                     BYLAWS
                                       OF
                              ELECTRONIC ARTS INC.

                            (a Delaware Corporation)



                         AMENDED AND RESTATED BYLAWS OF
                              ELECTRONIC ARTS INC.
                            (a Delaware Corporation)

                          AMENDED THROUGH JULY 27, 1994

                                    ARTICLE I

                                  STOCKHOLDERS

      Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.

      Section 1.2: Special Meetings. Special meetings of stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer, the President, or by a majority of the members of the
Board of Directors or stockholders holding shares representing not less than ten
percent of the outstanding votes entitled to be cast by all stockholders at such
meeting. Special meetings may not be called by any other person or persons.

      Section 1.3: Notice of Meetings. Written notice of all meetings of
stockholders shall be given stating the place, date and time, and in the case of
a special meeting, the purpose or purposes for which the meeting is called.
Unless otherwise required by applicable law or the Certificate of Incorporation
of the Corporation, such notice shall be given not less than ten (10) nor more
than sixty (60) days before the date of the meeting to each stockholder entitled
to vote at such meeting.

      Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
time to time to reconvene at the same or other place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
that if the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, than a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At the adjourned meeting the Corporation may transact
any business that might have been transacted at the original meeting.

      Section 1.5: Quorum. At each meeting of stockholders the holders of a
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall fail
to attend any meeting, the chairman of the meeting or the holders of the
majority of the shares entitled to vote who are present, in person or by proxy,
at the meeting may adjourn the meeting. Shares of the Corporation's stock
belonging to the Corporation (or to another corporation, if a majority of the
shares


                                     Page 1

entitled to vote in the election of directors of such other corporation are
held, directly or indirectly, by the Corporation), shall neither be entitled to
vote nor be counted for quorum purposes; provided, however that the foregoing
shall not limit the right of the Corporation or any other corporation to vote
any shares of the Corporation's stock held by it in a fiduciary capacity.

      Section 1.6: Organization. Meetings of stockholders shall be presided over
by such person as the Board of Directors may designate, or, in the absence of
such person, the Chairman of the Board, or in the absence of such person, the
President of the Corporation, or in the absence of such person, such person as
may be chosen by the holders of a majority of the shares entitled to vote who
are present, in person or by proxy, at the meeting. Such person shall be
chairman of the meeting and, subject to Section 1.11 hereof, shall determine the
order of business and the procedure at the meeting, including such regulation of
the manner of voting and the conduct of discussion as seems to him or her to be
in order. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.

      Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such stockholder by proxy. Such proxy may be prepared, transmitted and delivered
in any manner permitted by applicable law. Voting at meeting of stockholders
need not be by written ballot unless such is demanded at the meeting before
voting begins by a stockholder or stockholders holding shares representing at
least one percent (1%) of the votes entitled to vote at such meeting, or by such
stockholders' proxy; provided, however, that an election of directors shall be
by written ballot if demand is so made by any stockholder at the meeting before
voting begins. If a vote is to be taken by written ballot, then each such ballot
shall state the name of the stockholder or proxy voting and such other
information as the chairman of the meeting deems appropriate, and the ballots
shall be counted by one or more inspectors appointed pursuant to Section 1.11 of
these Bylaws. At all meetings of stockholders, directors shall be elected by a
plurality of the votes of shares present in person or represented by proxy at
the meeting and entitled to vote on the election of directors. Unless otherwise
provided by applicable law, the Certificate of Incorporation or these Bylaws,
every other matter shall be decided by the affirmative vote of the holders of
outstanding stock having not less than a majority of the votes entitled to be
cast thereon by stockholders that are present in person or represented by proxy
at the meeting and are voted for or against the matter.

      Section 1.8:  Fixing Date for Determination of Stockholders of Record.

            (a) Generally. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, than the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.

            (b) Stockholder Request for Action by Written Consent. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent without a meeting shall, by written notice
to the Secretary of the Corporation, request the Board of Directors to fix a
record date for such consent. Such request shall include a brief description of
the action proposed to be taken. The Board of Directors shall, within ten (10)
days after the date on which such a request is received, adopt a


                                     Page 2

resolution fixing the record date. Such record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and shall not be more than ten (10) days after the date upon which
the resolution fixing the record date is adopted by the Board of Directors. If
no record date has been fixed by the Board of Directors within ten (10) days of
the date on which such a request is received, then the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action of the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the state of Delaware, to
its principal place of business, or to any officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directions and prior action by the Board of
Directors is required by applicable law, then the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.

      Section 1.9: List of Stockholders Entitled to Vote. A complete list of
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.

      Section 1.10:  Action by Written Consent of Stockholders.

      (a) Procedure. Unless otherwise provided by the Certificate of
Corporation, and except as set forth in Section 1.8 above, any action required
or permitted to be taken at any annual or special meeting of the stockholders
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon where present and voted. Written
stockholder consents shall bear the date of signature of each stockholder who
signs the consent and shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, to its principal place of business
or to any officer or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. No written consent shall be effective to take
the action set forth therein unless, within sixty (60) days of the earliest
dated consent delivered to the Corporation in the manner provided above, written
consents signed by a sufficient number of stockholders to take the action set
forth therein are delivered to the Corporation in the manner provided above.

      (b) Notice of Consent. Prompt notice of the taking of corporate action by
stockholders without a meeting by less than unanimous written consent of the
stockholders shall be given to those stockholders who have not consented thereto
in writing and, in the case of a Certificate Action (as defined below), if the
Delaware General Corporation Law so requires, such notice shall be given prior
to filling out the certificate in question. If the action which is consented to
requires filing a certificate under the Delaware General Corporation Law (a
"Certificate Action"), then if the Delaware General Corporation Law so requires,
the certificate so filed shall state that written stockholder consent has been
given in accordance with Section 228 of the Delaware General Corporation Law and
that written notice of the taking of corporate action by stockholders without a
meeting as described herein has been given as provided in such section.


                                     Page 3

      Section 1.11: Inspector(s) of Elections. In advance of any meeting of
stockholders, the Board of Directors shall appoint one or more Inspector(s) to
act at such meeting or any adjournment thereof and make a written report
thereof. If Inspector(s) are not so appointed or if the person(s) so appointed
fail to appear or act, the person presiding at such meeting shall appoint one or
more Inspector(s). Each Inspector, before entering upon the discharge of his or
her duties, shall take and sign an oath faithful to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his or her ability. The Inspector shall (i) determine the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at the meeting, the existence of a quorum and the validity and effect of
proxies, (iii) receive votes, ballots and consents, (iv) hear and determine all
challenges and questions arising in connection with the right to vote, (v) count
and tabulate all votes, ballots or consents, (vi) determine the results of
elections and votes, (vii) retain for a reasonable period a record of the
disposition of any challenges made to any determination by the Inspector(s), and
(viii) do such acts as are proper to conduct the election or vote with fairness
to all stockholders. On request of the person presiding at the meeting or any
stockholder entitled to vote thereon, the Inspector(s) shall make a report in
writing of any challenge, question or matter determined by them and execute a
certificate of any fact found by them. Any report or certificate made by them
shall be prima facie evidence of the facts stated and of the votes as certified
by them.

                                   ARTICLE II

                               BOARD OF DIRECTORS

      Section 2.1: Number; Qualifications. The Board of Directors shall consist
of one or more members. The initial number of directors shall be six (6), and
thereafter shall be fixed from time to time by resolution of the Board of
Directors. Directors need not be stockholders of the Corporation.

      Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each Director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
preferred stock then outstanding: (i) any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors and (ii) any
vacancy occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
to be elected by all stockholders having the right to vote as a single class,
may be filled by the stockholders, by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.

      Section 2.3: Regular Meetings. Regular meetings of the Board of Directors
may be held at such places, within or without the State of Delaware, and at such
times as the Board of Directors may from time to time determine. Notice of
regular meetings need not be given if the date, time and places thereof are
fixed by resolution of the Board of Directors.

      Section 2.4: Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President or a majority of the
members of the Board of Directors then in office and may be held at any time,
date or place, within or without the State of Delaware, as the person(s) calling
the meeting shall fix. Notice of the time, date and place of such meeting shall
be given, orally or in writing, by the person(s) calling the meeting to all
directors at least four (4) days before the meeting if the notice is mailed, or
at least two (2) days before the meeting if such notice is given by telephone,
hand delivery, telegram, telex, mailgram, facsimile or similar communication
method. Unless otherwise indicated in the notice, any and all business may be
transacted at a special meeting.


                                     Page 4

      Section 2.5: Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.

      Section 2.6: Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.

      Section 2.7: Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence, by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.

      Section 2.8: Written Action By Directors. Any action required or permitted
to be taken at any meeting at the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee,
respectively.

      Section 2.9: Powers. The Board of Directors may, except as otherwise
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.

      Section 2.10: Compensation of Directors. Directors, as such, may receive,
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including without limitation their services as
members of committees of the Board of Directors.

                                   ARTICLE III

                                   COMMITTEES

      Section 3.1: Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation, or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to


                                     Page 5

the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the Bylaws of the Corporation; and unless the
resolution of the Board of Directors expressly so provides, no such committee
shall have the power or authority to declare a dividend, authorize the issuance
of stock or adopt a certificate of ownership and merger pursuant to Section 253
of the Delaware General Corporation Law.

      Section 3.2: Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.


                                   ARTICLE IV

                                    OFFICERS

      Section 4.1: Generally. The officers of the Corporation shall consist of a
Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers, including a Chairman of the
Board of Directors and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. Each officer shall hold office until his or
her successor is elected and qualified or until his or her earlier resignation
or removal. Any number of offices may be held by the same person. Any officer
may resign at any time upon written notice to the Corporation. Any vacancy
occurring in any office of the Corporation by death, resignation, removal
(pursuant to Section 4.9 below or otherwise may be filled by the Board of
Directors.

      Section 4.2: Chairman of the Board. The Chairman of the Board shall have
the power to preside at all meetings of the Board of Directors and shall have
such other powers and duties as provided in these Bylaws and as the Board of
Directors may from time to time prescribe.

      Section 4.3: President. Unless otherwise designated by the Board of
Directors, the President shall be the Chief Executive Officer of the
Corporation. Subject to the provisions of these Bylaws and to the direction of
the Board of Directors, the President shall have the responsibility for the
general management and control of the business and the affairs of the
Corporation and shall perform all duties and have all powers that are commonly
incident to the office of chief executive or that are delegated to the president
by the Board of Directors. The President shall have general supervision and
direction of all of the officers, employees and agents of the Corporation.

      Section 4.4: Vice President. Each Vice President shall have all such
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by the Board of Directors or the President. A
Vice President may be designated by the Board to perform the duties and exercise
the powers of the President in the event of the President's absence or
disability.

      Section 4.5: Chief Financial Officer. Subject to the direction of the
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.

      Section 4.6: Treasurer. The Treasurer shall have the custody of all moneys
and securities of the Corporation. The treasurer shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such powers as are commonly incident to the office of
treasurer, or as the Board of Directors or the President may from time to time
prescribe.

      Section 4.7: Secretary. The Secretary shall issue or cause to be issued
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such


                                     Page 6

other duties and have such other powers as are commonly incident to the office
of secretary, or as the Board of Directors or the President may from time to
time prescribe.

      Section 4.8: Delegation of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.

      Section 4.9: Removal. Any officer of the Corporation shall serve at the
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.

                                    ARTICLE V

                                      STOCK

      Section 5.1 Certificates. Every holder of stock shall be entitled to have
a certificate signed by or in the name of the Corporation by the Chairman of the
Board of Directors, or the President or a Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the
Corporation, certifying the number of shares owned by such stockholder in the
Corporation. Any or all of the signatures on the certificate may be a facsimile.

      Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to agree to
indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it, against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.

      Section: 5.3 Other Regulations. The issue, transfer, conversion and
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.


                                   ARTICLE VI

                                 INDEMNIFICATION

      Section 6.1: Indemnification of Officers and Directors. Each person who
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
or she (or a person of whom he or she is the legal representative), is or was a
director or officer of the Corporation or a Reincorporated Predecessor (as
defined below) or is or was serving at the request of the Corporation or
Reincorporated Predecessor (including any constituent corporation) as a director
or officer of another corporation, or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
shall be indemnified and held harmless by the Corporation to the fullest extent
permitted by the Delaware General Corporation Law, against all expenses,
liability and loss (including attorney fees, judgments, fines, ERISA excise
taxes and penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director or
officer of the Corporation or a Reincorporated Predecessor and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that the Corporation shall indemnify any such person seeking indemnity
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors.
As used herein, the term "Reincorporated Predecessor" means a corporation that
is merged with and into the Corporation in a statutory merger where (a) the
Corporation is the surviving corporation of such merger; and (b) the primary
purpose of such merger is to change the corporate domicile of the Reincorporated
Predecessor.


                                     Page 7

      Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
(including attorneys' fees) incurred by such a director or officer in defending
any such proceeding as they are incurred in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law then so
requires, the payment of such expenses incurred by such director or officer in
advance of the final disposition of such proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined that
such director or officer is not entitled to be indemnified under this Article VI
or otherwise; and provided, further, that the Corporation shall not be required
to advance any expenses to a person against whom the Corporation directly brings
a claim, in a proceeding, alleging that such person has breached his or her duty
of loyalty to the Corporation, committed an act or omission not in good faith or
that involves intentional misconduct or a knowing violation of law, or derived
an improper personal benefit from a transaction.

      Section 6.3: Non-Exclusivity of Rights. The rights conferred on any person
in this Article VI shall not be exclusive of any other right that such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote or consent of stockholders or
disinterested directors, or otherwise. Additionally, nothing in this Article VI
shall limit the ability of the Corporation, in its discretion, to indemnify or
advance expenses to persons whom the corporation is not obligated to indemnify
or advance expenses pursuant to this Article VI.

      Section 6.4: Indemnification Contracts. The Board of Directors is
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.

      Section 6.5: Effect of Amendment. Any amendment, repeal or modification of
any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.

                                   ARTICLE VII

                                     NOTICES

      Section 7.1: Notices. Except otherwise specifically provided herein or
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery
(including use of a delivery service), by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be addressed to
the person whom notice is to be given at such persons address as it appears on
the records of the Corporation. The notice shall be deemed given (i) in the case
of hand delivery, when received by the person whom notice is to be given or by
any person accepting such notice on behalf of such person, (ii) in the case of
delivery by mail, upon deposit in the mail, (iii) in the case of delivery
overnight express courier, on the first business day after such notice is
dispatched, and (iv) in the case of delivery via telegram, telex, mailgram, or
facsimile, when dispatched.

      Section 7.2: Waiver of Notice. Whenever notice is required to be given
under any provision by these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.


                                     Page 8

                                  ARTICLE VIII

                              INTERESTED DIRECTORS

      Section 8.1: Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; (ii) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders,
or; (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract transaction.


                                   ARTICLE IX

                                  MISCELLANEOUS

      Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.

      Section 9.2: Seal. The Board of Directors may provide for a corporate
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.

      Section 9.3: Form of Records. Any records maintained by the Corporation in
the regular course of business, including its stock ledger, books of account and
minute books, may be kept on, or be in the form of, magnetic tape, diskettes,
photographs, microphotographs, or any other information storage device, provided
that the records so kept can be converted into clearly legible form within
reasonable time. The Corporation shall so convert any records so kept upon
request of any person entitled to inspect the same.

      Section 9.4: Reliance Upon Books and Records. A member of the Board of
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.

      Section 9.5: Certificate of Incorporation Governs. In the event of any
conflict between the provisions of the Corporation's Certificate of
Incorporation and these Bylaws, the provisions of the Certificate of
Incorporation shall govern.

      Section 9.6: Severability. If any provision of these Bylaws shall be held
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and


                                     Page 9

the remaining provisions of the Bylaws (including without limitation all
portions of any section of these Bylaws containing any such provisions held to
be invalid, illegal, unenforceable, or in conflict with the Certificate of
Incorporation, that are not themselves invalid, illegal, unenforceable or in
conflict with the Certificate of Incorporation) shall remain in full force and
effect.

                                    ARTICLE X

                                   AMENDMENTS

      Section 10.1: Amendments. Stockholders of the Corporation holding a
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws of the Corporation. To the extent provided in the
Corporation's Certificate of Incorporation, the Board of Directors of the
Corporation shall also have the power to adopt, amend or repeal Bylaws of the
Corporation, except insofar as Bylaws adopted by the stockholders shall
otherwise provide.



                                    Page 10